 Beacon Wave Capital Management Team C Member Diagne, Papamagatte Chen, Yujie Hu, Jing Gan, Yuzhou Brown, Lucas Wu, Yanchao

Contents  Macro factors  Recommendations  Portfolio investment groups  Analysis on portfolio  Portfolio performance

Macroeconomic Factors Macroeconomics relatively stable in US, but uncertain in global FED has dual mandate when determining monetary policy: ● GDP growth & U.S. Unemployment ● Inflation (Seeking price stability) ● FED ending Quantitative Easing

Recommended Characteristics  Interest Rate Declining so far but will drift upwards in 2015 negatively impact treasury bonds  Macro-economic Conditions Oil prices will remain low in short term U.S Government support credit risk and limit increase in credit spreads, lower default risk Moderate Growth in the U.S. economy European recession and uncertainty in emerging markets

Recommended Characteristics  Features of Bond Short-term Short duration Corporate High Yield High Credit Spread European Bonds high risk  Reasons Less affected by rising rates Default risk hold out Since we recommend short duration bonds with high credit spreads, we position the interest rate on the left end of the yield curve.

International Bond Market Conditions Emerging Country 10yr Bond Yields: B - Brazil: 12.3% R - Russia: 14.0% (Inverted Yield Curve) I - India: 7.8% C - China: 3.6% Germany Bund: 0.5% Japan JGB: 0.28% Consider: Buy Brazil Corporate Bonds - Short duration (Hedge all currency exposure) Also consider short duration frontier market corporate bonds

Portfolio Investment Groups  5-Year US Treasury - IEI  Investment Grade Corporate ETF - LQD  Corporate Investment Grade HSBC, P&G  High Yield Corporate ETF - HYG  Emerging Market Corporate ETF - CEMB  Developed Market Corporate ETF- PICB  MBS ETF - VMBS  Cash

Portfolio Investment Groups  Bond features ranked by risk  Initial allocation compared to:  AGG Benchmark  PSDTX – Putnam Short Duration Income Fund  OGLVX – JP Morgan Short Duration Bond A  ETF advantages over Mutual Funds  Lower operating expenses  Higher liquidity – Active Management  More precise allocation  Optimized allocation with Excel Solver  Portfolio yield close to AGG yield

Weight Breakdown TREASURY: 10% < 31% (AGG) – Seeking far less exposure to interest rate risk than the benchmark CORPORATE: 40% > 19.4% (AGG) - Seeking double the exposure than the benchmark because less tied to interest rates and more on company fundamentals INTERNATIONAL: 10% > 7.1% (AGG) - Seeking more emerging market exposure due to high growth rates matched with high yield/coupons and currently trades at a discount MBS: 25% = 25% (AGG) - Seeking similar exposure to the MBS market due to high yield, more safety because collateralized, no price premium, and continuing recovery of the housing market CASH: 15% < 17% (AGG) - We want to put slightly less cash on the sidelines and more in assets with a yield

Portfolio - ETFs US Treasury - IEI (iShares 3-7 Year Treasury Bond) Duration yrs Credit - AA Yield % Performance:

Portfolio - ETFs  Performance

Portfolio - ETFs Investment grade corporates - LQD (iShares iBoxx $ Invst Grade Crp Bond) Duration yrs Credit - BBB Yield % Performance:

Portfolio - ETFs  Performance

Portfolio - ETFs High Yield Corporate - HYG （ iShares iBoxx $ High Yield Corporate Bd ） Duration yrs Credit - B Yield % Performance ：

Portfolio - ETFs  Performance

Portfolio - ETFs Emerging MKT Coporates –CEMB (iShares Emerging Mrkts Corporate Bond) Duration yrs Credit - BB Yield % Performance:

Portfolio - ETFs Developed MKT Coporates - PICB （ PowerShares International Corp Bd ETF ） Duration- 6.91yrs Credit- A Yield- 2.69% Performance:

Portfolio - ETFs  Performance

Portfolio - ETFs MBS - VMBS （ Vanguard Mortgage-Backed Securities ETF ） Duration- 4.72yrs Credit- AAA Yield- 1.58% Performance

Portfolio - ETFs  Performance

Individual Securities INVESTMENT GRADE CORPORATE BONDS COMPANY: HSBC Bank (U.K.) DESCRIPTION: Worlds 2nd Largest Bank SECTOR: Financials COUPON: 5.1% (Fixed Coupon) YTM: 2.53% MATURE DATE: 04/05/2021 DURATION: 5.3 YRS PRICE: $114.6 (14% Premium) CALLABLE: No

HSBC Credit Rating CREDIT RATING: A+ (Morningstar), AA- (Fitch)

Individual Securities INVESTMENT GRADE CORPORATE BONDS COMPANY: Procter & Gamble (U.S.) DESCRIPTION: Large multinational consumer goods manufacturer SECTOR: Consumer Discretionary COUPON: 5.1% (Fixed Coupon) YTM: 5.1% MATURE DATE: 10/24/2017 DURATION: 2.4 YRS PRICE: $ (No Premium) CALLABLE: No

P&G Credit Rating CREDIT RATING: AA (Morningstar), AA- (Fitch)

Portfolio Performance

Thank you  Q&A