October 2014 TM Cerno Select Share Class: B Acc Base Currency: GBP Share Class: C Acc Base Currency: GBP UCITS Multi Asset Class Portfolio ISIN: GB00BCZXTM29 ISIN: GB00BCZXTP59 Also available: USD, EUR Objective TM Cerno Select is a multi-asset class fund under the UCITS regime. The portfolio will invest globally, based on the manager's assessment of the best risk-adjusted returns. The manager is able to make flexible allocations to different asset classes which is done on a strategic allocation basis with a standard time horizon of three years. In terms of investment instruments, the manager will make allocations to other managers that he believes will outperform. He will also invest in individual securities and tracker instruments such as ETFs. The investment objective is total return with a distinct aversion to capital loss. Performance (Class C) Fund IMA Flexible Investment 1M 3M YTD 31/10/201331/10/2014 Since launch -0.4% -1.1% 1.6% 0.9% 1.1% 2.2% 2.3% 5.7% 6.6% 7.0% Source: Cerno Capital (30/9/14) Market Review 110 Nerves were tested in October: intra-month ranges in both equity and bond markets were unusually large. The combination of weak data emanating from both Europe and Japan conspired to generate a swoon in sentiment. During this phase the US Treasury market became unbalanced, with insufficient liquidity to satisfy the spike in demand caused by risk aversion. The gap up in prices further alarmed investors of every stripe. As is often the case when market reaction runs well ahead of fundamentals, a bounce back took place, with many asset prices describing a “V” through the month. 108 106 104 102 100 98 96 94 Fund Review Direct equity exposure provided the best return on the month, lead by the Cerno Global Leaders Portfolio. Under this programme we identify, research and invest in companies with observable growth profiles and sustainable market positions. We are currently invested in 13 such names, on an equal weighted basis, with an outer limit of 20 names in mind. Merger Arbitrage strategies were loss making, whipsawed by volatility and deal breaks. The Japanese stock market rose very strongly on the last day of the month. Due to the pricing convention of active managers, approximately 30 basis points of positive performance was booked on 1st November that actually relates to 31st October. Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 TM Cerno Select IMA Flexible Invesment Top 5 Holdings Allocation % Activity We were buyers of individual equity securities during the market correction phase introducing Sonova and SAB Miller and topping up other positions. We also added to the US Banks basket and Japan where we are restructuring holdings to favour trackers on the new JPX Nikkei 400 index, the index that is being targeted by the Japanese government and Bank of Japan in its reflation efforts. 1. Basket of US Banks 8.3% 2. CF Odey Absolute Return 8.1% 3. GAM Star Global Rates 6.5% 4. ETFS Short Industiral Metals 5.8% 5. Castlerigg Merger Arbitrage 5.3% Total 34.1% Source: Cerno Capital/Managers Outlook Although the year-to-date investment outturn has been negligible, our levels of engagement remain high. This is a little frustrating for investors and ourselves. Rest assured, we continue to pursue our best ideas with diligence. Top 3 and Bottom 3 Contributors (bps month) 51 Cerno Global Leaders Portfolio Lyxor JPX Nikkei 400 44 iShares MSCI Japan 21 James Spence Lead Manager [email protected] Castlerigg Equity Event and Aribitrage -32 GLG Japan Core Alpha -36 Polar Capital Japan -39 -60 -40 -20 0 20 40 60 1 Source: Cerno Capital Source for all charts and tables: Cerno Capital unless otherwise stated Performance Attribution (bps month) Underlying Currency Positioning Commodities -11 Global/Other 2% JPY 2% Basket of US Banks 7 -0 -12 -53 Equity Long Only Asia Equity Income EUR Event Driven USD 51 Cerno Global Leaders Portfolio Equity Long/Short 9 25 -60 -40 -20 0 20 Currency 40 Global 0% EMEA 1% ETF 5% 32% 20% 40% 30% 40% 50% 60% 70% 80% 41.3% 13.0% 11.4% Event Driven 8.8% Basket of US Banks 8.3% Commodities 60% 80% Key Information Fund Size Fund Launch Date Legal structure Suitable for SIPPs/ISAs/JISAs IMA Sector 1 20% Cash & Near Cash US Ongoing Charges1: Breakdown: 10% Global Macro Global Leaders 12% 0% 0% Basket 2% Europe ex UK -3% Cerno Global Leaders Portfolio 36% UK ZAR Equity Managers & Trackers Active Fund Japan Asia ex Japan -3% Asset Allocation 23% LATAM 69% AUD -10% 60 Net Equity Geographic Allocation 28% GBP Global Macro -8 5% 0% Cerno Capital Allocated Managers' Fees2 Other Fees 4.2% -5.8% -15% -5% 5% 15% 25% 35% 45% Risk Data £36.6mn 4th September 2013 UK OEIC (UCITS) Yes Flexible Investment Class C 1.85% 0.75% 0.70% 0.40% Net Equity Exposure Gross Equity Exposure Short Equity Exposure Long Equity Exposure Maximum Drawdown Best Month Worst Month Annualised Volatility Beta (vs World Equity Index) Please note that these numbers are live OCR figures reflecting recent portfolio changes. Fund 57.8% 100.7% 21.4% 79.2% -2.7% 2.4% -1.8% 5.1% 0.5 IMA Flexible MSCI World TR Investment* GBP* n/a 100.0% n/a 100.0% n/a 0.0% n/a 100.0% -2.4% -3.1% 3.4% 4.8% -2.4% -3.1% 7.3% 5.5% 1.0 0.7 Source: Cerno Capital/Bloomberg/Morningstar * since inception of fund This number differs to the published OCR number in the Key Investor Information Document which was taken from the last set of published accounts. 2 including passive trackers Disclaimer: This has been prepared by CERNO CAPITAL PARTNERS LLP (“CERNO CAPITAL”). CERNO CAPITAL is authorised and regulated by the Financial Conduct Authority in the United Kingdom. This document is strictly confidential and does not constitute an offer to sell or the solicitation of any offer to buy any securities and or derivatives and may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of CERNO CAPITAL. The value of investments and any income generated may go down a s well as up and is not guaranteed. You may not get back the amount originally invested. Past perform mance is not a guide to future performance. Changes in exchange rates may have an adverse ef fect on the value, price or income of investments. There are also additional risks associated with investments in emerging or developing markets. The information and opinions contained in this document are for background purposes only , and do not purport to be full or complete. Nor does this document constitute investment advice. No representation, warranty , or undertaking, express or limited, is given as to the accura cyor completeness of the information or opinions contained in thi s document by any CERNO CAPITAL, its partners or employees and no liability is accepted by s uch persons for the accuracy or completeness of any such information or opinions. As such, no reliance may be placed for any purpose on the information and opinions contained in this document. Cerno Capital Partners LLP 34 Sackville Street, London, W1S 3ED Telephone +44 (0) 20 7036 4110 Facsimile +44 (0) 20 7036 4122 Website www.cernocapital.com Cerno Capital Partners LLP is established as a limited liability partnership in England and Wales under the number OC326579 and is authorised and regulated by the Financial Conduct Authority (Ref No. 465408) 2