Wealth & Finance May 2017

15 May 2017 As investment managers, we are fully invested in the strategy hence we cannot afford for loses to escalate. In the volatility space, there are endless opportunities as there are movements each day. It is crucial to preserve capital when positions do not work out and focus on the next opportunity. Our confidence is so high in the strategy that we left lucra- tive careers to start the company and Fund with our own capital and this confidence is even higher today than it was when we started. Runestone Capital, is a pure play asset manager that just trades in US equity volatility. This enables us to be extremely focused on our end market and risk control. The Fund has traded up 19 out of the 24 months since inception and the best/worst month has been 1.73x. What differentiates us from some of our competitors is that the strategy does not have a pre-set bias to be short- or long- volatility. Our positions are based on statistical probabilities. This has caused us to perform well in different market conditions. Also, the Firm’s culture is deeply rooted in questioning ourselves and digging down until we get an answer. This does not mean we know each answer or that we try to put a reason behind every market move like many other industry professionals. We have grown in the last year as investors have started to open their eyes to our strategy. Because of this growth, it has allowed us to expand and we are launching a U.S. fund in the next few months. Volatility is still a small and under allocated portion of an investor’s portfolio and this will be a source of growth for the Fund going forward. Company: Runestone Capital Name: Rune Madsen Email: [email protected] Web Address: runestonecap.com Address: 239 Kensington High Street, London, W8 6SN, UK Telephone: +44 207 316 3084 Why Volatility as an Asset Class? Volatility is an interesting investment diversification tool as it has different risk/return characteristics than equities and bonds. It’s also an emerging asset class with more investment opportunities than mature markets. Why Runestone Capital? We are an experienced team that has traded volatility ETNs since their launch and financial instruments for over 28 years. Our key differentia- tors include: • Our model has been back tested for 10 years with superior results before it went live • In the live period the Runestone Capital Fund (B shares) has outperformed its peer group of volatility funds, CTA’s, global hedge funds, the equity market and the bond market. The lowest 12 month rolling performance since inception has been 10.1% versus -7.1% for the HFRX Hedge Fund Index • The Fund’s main objective is risk-adjusted returns with multiple risk controls in place • The managers just invest in U.S. Equity Index Volatility so they are more focused than multi strategy managers, which is shown in the risk-adjusted performance • The managers have their entire liquid worth invested in the Fund alongside external investors Why Now? Volatility funds are subject to increasing investor interest and Runestone Capital Fund is well positioned with industry leading performance. Volume in exchange traded volatility products has also expanded rapidly with daily volumes more than $8 billion which limits the market impact of the Fund even at $500 mm in AuM. We anticipate the volatility-based asset class is on the cusp of high growth going forward and the Runestone Capital Fund will be at the forefront of this with its unique strategy. The future of Runestone Looking ahead, we believe the Fund will achieve its performance goal as the strategy is well designed to work over a market cycle. Also, the Fund has shown similar results in the live period versus the back test. We are confident this will continue. Positive results have occurred in equity markets that traded down, up and in choppy markets without a clear trend. The performance range during negative equity markets is wider than flat to up markets, but so is the average return during these market conditions. Whilst we cannot guarantee that performance will return to the same level as the historical average, we believe our strategy going forward will perform in accordance with our performance goals as structurally noth- ing has materially changed and the models are adaptive to change. Overall, market conditions in the future may be very different from today, last week or 3 years ago. Therefore, we emphasize the overall investment process rather than focusing on short-term results. This process has delivered strong results in both the back tests as well as the live period and we feel confident will continue going forward. Our focus is on absolute and uncorrelated returns, which we have been able to deliver on. For reference, the equity market was under a lot of pressure in the first two months of 2016 and fell 5.1% compared to the strong start of 2017 with a 5.9% gain. For those same periods, we deliv- ered positive performance of 1.9% and 1.4% respectively. Two months is a short time period and you shouldn’t draw strong conclusions on that basis. However, it at least demonstrates the strategy’s robustness at be- ing able to produce positive results in very different market conditions. Last year, we generated most our returns in the first six months where most other asset managers struggled with difficult market conditions.