4Q
ING Emerging Markets Debt Strategy Quarter Qua te e ending d g December ece be 31, 3 , 2012 0 STRATEGY BRIEF
FIRM OVERVIEW
STRATEGY
ING U.S. Investment Management at a Glance ING U.S. Investment Management (“ING U.S. IM”)) is a leading asset management firm with IM $179 billion (as of 9/30/12) of assets under management for both affiliated and external institutions as well as individual investors. ING U.S. IM provides clients with access to domestic, regional and global investment solutions across asset classes and investment styles.
Summary ING is a pioneer in emerging market debt (EMD) investing, which is a relatively new and evolving asset class, often characterized by bouts of extreme volatility. Partly as a result, investors have yet to fully appreciate the improving economic fundamentals of certain key low and middle-income developing countries. Supported by our global presence, major commitment of resources, proven multi-site organization, solid investment process and stable investment team, ING offers five distinct EMD strategies. Using our structured, globally comparable investment approach, we believe we can identify market inefficiencies and improving economic fundamentals and provide investors with superior nominal and risk-adjusted returns.
Mission ING U.S. Investment Management’s mission is to find unrecognized value ahead of consensus by seeking original insights on markets and companies. Toward that end, we apply our proprietary research and analytics, benchmark awareness and risk management to serve client needs within the guidelines and objectives of each assignment.
Portfolio Managers Sylvain de Ruijter Acting Head on Emerging Markets Debt Years of experience: 23 Years with ING: 12 Jaco Rouw Senior Portfolio Manager, Emerging Markets Debt Years of experience: 19 Years with ING: 15 Supported pp byy more than 25 dedicated EMD professionals with over 13 years of experience For more information please contact your relationship manager or go to www.inginvestment.com
Objective The overall objective for each of the EMD sub-asset class strategies is to obtain an information ratio of at least 0.50, 0 50 typically on a rolling three year basis relative to the appropriate JPMorgan Emerging Markets benchmark. The HC Sovereign strategy is benchmarked to the Emerging Market Bond Index Global Diversified Index (EMBI GD) with an excess return target of 1.0% – 2.0% annually, and the HC Corporate strategy is benchmarked to the Corporate Emerging Market Bond Index (CEMBI) with an excess return target of 1.0% – 2.0%. The tracking error for the HC Sovereign strategy is 2.0% – 6.0% and 2.0% – 4.0% for the HC Corporate strategy. The LC Money Market strategy is benchmarked to the ELMI Plus Index (ELMI+), and the LC Bond strategy is benchmarked to the Global Bond Index Emerging Market Global Diversified (GBI-EM GD). For both strategies, the current excess return target for is 1.0% – 2.0% annually and the tracking error is 2.0% 2 0% – 5.0%. 5 0% The EMD Opportunities strategy integrates all four EMD sub-asset classes into one strategy and is benchmarked to a weighted average of the component benchmarks. The current excess return target is 1.5% – 3.5% annually with tracking error of 3.0% – 7.0%. Asset Class EMD Hard Currency
EMD Local Currency
Credit risk dominant
FX and interest
Benefit from carry
Benefit
Benefit from improving
Benefit from appreciating
credit risk trends of both government and corporate issuers (decline in spreads) HC Sovereign
HC Corporate
rate risk dominant
from yield
Benefit from declining
LC Money Market
Competitive Advantages Historically strong EMD commitment Proven multi-site approach Regional sites deliver local market expertise Dedicated corporate/credit bond investment team Risk management integrated within every stage of the investment process
currencies
local interest rates LC Bonds
ING Emerging Markets Debt Strategy
Quarter ending December 31, 2012
INVESTMENT PROCESS Local Currency (Money Market and Bond)
Hard Currency (Sovereign)
Focus on diversification as the major source of added value
Base valuation on top-down review of emerging market debt market environment
Systematically combine currency risk scores with real yields offered in different countries
Measure relative value among countries by comparing market expectations with our own “country scores”
Score local currencies to capture short-term movements and assess vulnerability risk of around 40 currencies
Exploit market pricing inefficiencies through country yield curve analysis
Score fundamentals, technicals and valuation factors for about 25 countries to determine our duration posture in each country
Assess relative value and liquidity with regard to each credit instrument
Overlay top-down top down review — A full review of the emerging markets sector sector, focusing on the global market environment
Manage three sources of risk: top-down asset class risk, individual country risk and individual instrument risk
Combine currency selection and local rates/duration (bond) exposures for alpha generation
Risk management is integral to every stage of the process. Allocate portfolio risk in a manner that is transparent, intentional and consistent with our investment policy
Hard Currency (Corporate)
Form our top-down corporate evaluation based on sovereign performance
Develop model investment framework by combining country views with industry sector views
Complete bottom-up evaluation of corporate creditworthiness and relative value within each sector
Choose individual credit instruments considering relative value and liquidity within each country
Manage three sources of risk: top-down asset class risk, individual country risk i k andd sector risk i k andd individual i di id l company risk
Key Investment Decisions Macro View Sovereign/Country Credit Analysis FX Analysis
Local Rates Analysis y
Instrument-Level Analysis Portfolio Construction and Risk Management
EMD Opportunities
Assess secular sub-asset class growth and market capitalization trends
Evaluate sub-asset class correlation and volatility
Analyze historical and forward-looking risk premiums
Establish strategic asset allocations among the four EMD sub-asset classes assuming a 3-5 year time horizon
Seek additional opportunistic pp alpha p through g tactical asset allocation adjustments when market events and conditions allow
Description How conducive are global market conditions to taking risk in EM?
Focus: Appropriate Portfolio-Level Beta Structured, globally-comparable assessment of Sovereign creditworthiness across 60+ countries
Focus: Country Credit Spreads versus U.S. Treasuries
Hard Currency Sovereign
Hard Currency Corporate
Local Currency Money Market
Local Currency Bond
In-depth assessment of EM currency drivers
Focus: Currency Movements Country-by-country analysis of local interest rate conditions.
F Focus: Country-Specific C t S ifi Interest I t tR Rate t Movements M t Focus: Instrument-Level Relative Value
Sophisticated proprietary analytics combine alpha sources efficiently and ensure compliance with risk budget
In-depth assessment of specific credits
ING Emerging Markets Debt Strategy Hard Currency Sovereign
Quarter ending December 31, 2012
PERFORMANCE (%) Annualized Hard Currency Sovereign Composite Gross: Net: EMBI Global Diversified Index Gross Excess Return
Quarter 3.79 3.48 2.80 0.99
1 Year 22.55 20.93 17.44 5.11
3 Years 15.42 13.98 12.27 3.15
5 Years 12.58 11.09 10.07 2.51
10 Years 14.22 12.68 10.98 3.24
Since Inception (10/1/96) 13.34 11.85 10.21 3.13
PORTFOLIO HIGHLIGHTS
S&P Ratings (%) AAA AA A BBB BB B ≤CCC Not Rated Cash and FX
Regional Allocations (%) ING IM 0.00 4.58 7.43 44.96 17 79 17.79 13.38 1.12 4.17 6.56
EMBI-GD Index 0.00 2.33 8.67 49.39 19 69 19.69 16.64 1.85 1.44 0.00
Portfolio Statistics ING IM 4.57 6.00 10.36 237
Yield Average Coupon (%) Average Life Number of Bonds
Maturity Allocation (%) Years 0 to 1 1 to 3 3 to 5 5 to 7 7 to 10 10 to 20 >20
ING IM 6.56 4.20 9 66 9.66 20.59 23.40 19.94 15.64
EMBI-GD Index 0.27 9.73 12 28 12.28 13.61 29.84 15.32 18.95
Latin America Eastern Europe Asia Middle East and Africa Liquidities Supra National
ING IM 26.12 35.01 13.90 16.74 7.03 1.22
EMBI-GD Index 37.33 29.39 18.87 14.43 0.00 0.00
ING IM 11.82 1.22 60.45 1.07 18 88 18.88 0.00 0.00 0.00 0.00 (0.07) (0.01) 0.00 0.00 0 23 0.23 6.23 0.18 100.00
EMBI-GD Index 0.53 0.00 77.98 0.00 21 37 21.37 0.12 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0 00 0.00 0.00 0.00 100.00
Debtor Types (%) Corporate Supra- national Sovereign Sub Sovereign Q i SSovereign Quasi i Other Futures IR Swap Cur Swap Developed Currencies Emerging Currencies TD Cash TBills Futures Margin Cash Other Total
Bond Type (%) Brady Bonds Eurobonds Loans Local Bond Other Cash
See back page for more important disclosures. Benchmark source: JPMorgan. Based on the account: ING International (II) EMD HC U.S. Dollar.
ING IM 0.0 92.9 0.6 0.0 0.2 6.2
ING Emerging Markets Debt Strategy Local Currency Money Market
Quarter ending December 31, 2012
PERFORMANCE (%) Annualized Local Currency Money Market Composite Gross: Net: ELMI+ Index Gross Excess Return
Quarter 2.10 1.87 1.13 0.97
1 Year 9.93 8.90 7.45 2.48
3 Years 4.29 3.26 2.49 1.80
5 Years 3.58 2.51 2.95 0.63
10 Years 8.26 7.03 7.53 0.73
Since Inception (1/1/01) 8.97 7.68 7.48 1.49
PORTFOLIO HIGHLIGHTS
Portfolio Statistics Interest Duration (years) Yield (%) Number of Bonds Assets Under Management ($ millions)
Regional Allocations (%) ING IM 0.67 4.97 30 995.6
Latin America Eastern Europe Asia Middle East and Africa Cash and Cash Alternatives
Maturity Allocation Years 0 to 1 1 to 3 3 to 5 5 to 7 7 to 10 >10
% of Total 74.70 8.17 4.57 1.09 5.17 6.30
See back page for more important disclosures. Benchmark source: JPMorgan. Based on the account: ING (L) Renta Fund Emerging Markets Debt Local Currency.
ING IM 26.15 31.37 50.48 5.51 (13.51)
ELMI+ Index 17.18 24.15 54.98 3.71 0.00
ING Emerging Markets Debt Strategy Local Currency Bond
Quarter Quarter ending ending December March 31,31, 2012 2012
PERFORMANCE (%)
Local Currency Bond Composite Gross: Net: GBI-EM Global Diversified Index Gross Excess Return
Quarter 5.03 4.71 4.13 0.89
1 Year 18.38 17.09 16.76 1.63
Annualized Since IInception Si ti (3/1/10) 11.08 10.01 9.95 1.13
PORTFOLIO HIGHLIGHTS Portfolio Statistics Interest Duration (years) Yield (%) Number of Bonds Assets Under Management ($ millions)
Regional Allocations (%) ING IM 5.39 5.78 82 1,050
Maturity Allocation Years 0 to 1 1 to 3 3 to 5 5 to 7 7 to 10 10 to 20 >20
Latin America Eastern Europe Asia Middl EEastt andd Af Middle Africa i Cash and Cash Alternatives
ING IM 33.03 42.31 31.40 12 12 12.12 (18.87)
GBI-EM Global Diversified Index 26.10 35.61 26.97 11 31 11.31 0.00
% of Total 10.49 9.85 15.03 6.75 27.52 25.94 4 42 4.42
Benchmark source: JPMorgan. Based on the account: ING (L) Renta Fund Emerging Markets Debt Local Bond. Past performance does not guarantee future results. There is no guarantee that any forecasts or opinions in this material will be realized. Information should not be construed as investment advice. The Composite performance information represents the investment results of a group of fully discretionary accounts managed with the investment objective of outperforming the benchmark. Information is subject to change at any time. Gross returns are presented after all transaction costs, but before management fees. Returns include the reinvestment of income. Net performance is shown after the deduction of a model management fee equal to the highest fee charged. General Risk(s): All investments in bonds are subject to market risks. Bonds have fixed principal and return if held to maturity, but may fluctuate in the interim. Generally, when interest rates rise, bond prices fall. Bonds with longer maturities tend to be more sensitive to changes in interest rates. The portfolio information is based on a sample account in the Composite that we believe best represents the investment results of a group of fully discretionary accounts managed in accordance with the Emerging Markets Debt Strategy managed by ING Investment Benelux (IIMB). IIMB includes various legal entities, which are affiliates of ING Investment Management Advisors B.V. (IIMA), but IIMA is not one of them. IIMA is a company organized to manage investments and provide investment advice to U.S. clients. As such, IIMA is an indirect, wholly owned subsidiary of ING Groep N.V. and is an affiliate of ING Investment Management Co. The Investment Team is the same Investment Team responsible for the management of the accounts in the IIMB Emerging g g Markets Debt composite. p The Composite p performance p information represents p the investment results of a group g p of fullyy discretionaryy accounts managed g with the investment objective of outperforming the benchmark. Information is subject to change at any time. Gross returns are presented after all transaction costs, but before management fees. Returns include the reinvestment of income. Net performance is shown after the deduction of a model management fee equal to the highest fee charged. The investment strategy and performance contained herein is provided as supplemental information only. The strategy is currently managed by an affiliate of ING U.S. Investment Management (“ING U.S. IM”), to request the full GIPS compliant performance and disclosures, please contact your ING U.S. IM representative.