Diversification; its Merits and Selected Investments for Investor Portfolios

Prepared by: Liam Mescall Daniel O Connell Conor Burke David O Callaghan

Table of Contents Section Page Number

Introduction and Investor Policy Statement discussion

The Benefits of Diversification

Overview of Asset Classes

Investments in Selected Asset Classes

Risk Return Measures

Recommendations

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Appendix

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Introduction
Having reviewed and updated the Investor Policy Statement (IPS) and discussed the new direction your funds may be invested, the following report offers further detail on the asset classes and investments chosen by us. From the updated IPS we have arrived at the following conclusions: 1) At the age of 55 you are seeking to have sufficient capital in 10 years to provide a revenue steam for your retirement. The capital required is $2m, which will generate a $60,000 annuity assuming a 3% risk free interest rate from 2020. 2) The return expected by you is 6.5% annually. 3) All monies generated in the course of these 10 years will be reinvested and your initial capital position is $1,065,000. 4) You have no immediate family. 5) Losses cannot exceed 13% of capital in one calendar year. 6) Portfolio returns are not to be benchmarked as you have sufficient knowledge of financial markets to gauge performance. 7) A portion of your investment must remain in the ISEQ. 8) You are domiciled and ordinarily resident in Ireland for tax purposes and will be subject to tax legislation accordingly. These factors have been taken into consideration when developing a portfolio tailored to your requirements and we expect the movement towards a strategy diversified by sectors, geography and asset type to allow you enjoy returns required in your financial planning.

The Benefits of Diversification

The concept of diversification involves creating a portfolio that includes multiple investments in order to reduce risk. The concentration of an individuals assets in one company, sector or asset class exposes the whole portfolio to sudden declines in value i.e. companies profit warning. Had this individual invested in two or more companies whose values are derived from dissimilar market forces then an increase in one companies share prices for a particular reason would have a negligible effect on the other company thereby preserving wealth, it follows on from this that the more securities you hold that differ from each other the greater chance you have of preserving wealth. The challenges facing wealth managers are to devise a balanced portfolio of these assets which will yield a maximum expected return given a specified level of risk. The problem with the current portfolio is the concentration of his investments in the ISEQ which has experienced increased volatility and is perceived to be overly influenced by financial stocks. Addressing these problems will require a departure from the geographical confines of Ireland towards a variety of asset classes and locations outside Ireland. On average, portfolio risk will fall the more diversified the strategy; however the power to reduce this risk is limited by the systemic or common sources of risk known as Beta. The Beta of any market has a value of one and depending on personal preferences we can perform tests to assign a Beta tailored to the specific investors needs. The concentration of all funds in one geographical region, which is dominated by a particular type of stock increases risk required to generate a specific return and could be diversified away from. As the current portfolio is concentrated in Ireland it is subject to macroeconomic factors and pessimistic market sentiment. Removing investment from here to an emerging / stable economic environment would offer significantly lower volatility and the potential for higher returns from both capital appreciation and dividends. Similarly a selection of asset classes such as commodities or bonds can offer a departure from the financial heavy ISEQ. These can also be combined and tailored to the specifications of the individual investors. Regardless of whether you are an aggressive or risk-averse client, the use of diversification to reduce risk is a smart move. Having established your time horizon, risk appetite, financial means and investment goals, we feel the following portfolio will offer you the required returns at an appropriate level of risk

Overview of Asset Classes

Sustained depletion of financial stocks, volatile asset prices (figure 1) and a bleak economic outlook requires our investments to be more diverse and far reaching than the tracking of one index of shares in one geographical region if we are to maintain returns required at levels of risk specified. What follows is an assessment of how financial markets will develop into the medium term and how we feel your returns can be maximised given the time horizon and risk appetite discussed. Overall, we see developed markets with too much leverage in their systems (this includes corporate, government and consumer debt). Continued de-leveraging/repayment of this debt will restrict developed nations growth into the medium term. This will also encourage deflation (as money is not spent and banks, when repaid, are currently reluctant to lend), which provides little incentive for investment, asset prices will fall which further reduces peoples appetite for investment. We see government bodies responding to this by introducing cheap money into the marketplace via sustained low interest rates and further quantitative easing such as QE2 in the US. The world is also on the verge of a currency war with stimulus packages globally being structured to weaken currencies in an attempt to make goods cheaper and stem an export led recovery. We believe the medium terms will see people removing investment from developed nations and into emerging markets and commodity producing countries (which offer a better store of value). These nations have far less leverage, high saving rates and sustained growth in their economies all of which encourages higher interest rates to curb inflation. Higher interest rates will attract investment from developed nations to emerging nations. The pricing of commodities in USD$ will also raise their value (as will cost more to buy the same commodity). The relationship between equities and commodities is

such that an increase in any commodity that is a factor of production such as steel or oil will see a corresponding decline in companies using large quantities of these commodities. They are also considered a store of value in time of equity distress. This offers further diversification. Returns in your portfolio will also be affected by inflation. The record low interest rates will increase as signalled by the ECB in recent weeks. Our investment in commodity exposed assets (as described above) is a natural hedge to this risk as commodity returns historically increase as bonds and stocks returns decrease offering further diversification to your portfolio. The choice to invest in companies and not commodities directly The past two years has seen yields on bonds increase substantially. To further diversify your investment and introduce another relatively stable asset class we consider an investment in a bond fund appropriate. The bonds are substantially all investment grade (as detailed later) and appear an appropriate investment choice for your risk considerations. A booming world economy over the past two decades has seen a huge increase in globalisation. In selecting investments suitable we are aware of the increased correlation between both world equities and equities and bonds. In identifying the assets appropriate to your portfolio we are satisfied that geographically diverse regions at differing stages of business cycles have been selected to mitigate the affects of globalisation. As outlined in our diversification benefits, broad spectrums of asset classes are to be included in your newly constructed portfolio. These have been selected at the expense of a variety of others. Real estate is not enjoying the yields it did at the beginning of the decade. The U.S market and more locally in Europe is now characterised by oversupply, depleted prices and falling rentals. We are not certain a bottom has been reached yet and do not see value in an investment. Major currencies have proven too volatile to form a direct part of your portfolio and the fragile health of the world economy has steered us clear of developing nations exchange rates (investments are denominated in Sterling, Euro and USD). We are comfortable that these currencies will prove sufficiently stable to sustain the expected returns and de-leveraging affects described above will not impact the overall currency into the middle of the next decade. Investments selected are denominated in USD, Euro or Sterling. Of late you will note large swings in the Euro and USD stemming from the unprecedented times we are in. Historically these currencies are far less susceptible to swings than other less established currencies and over the time of your investment horizon we feel these offer the stability your portfolio needs. There will be a proportional divide between the three currencies and overall we consider the currency impact to be minimal. It is our expectation that we will see moderate growth in the abovementioned asset classes into the medium term.

Investment in Selected Asset Classes

In light of the Asset Class Overview and in line with IPS requirements we have chosen the below asset classes and investments based on both historical and prospective insight: Emerging market equities: We believe these emerging markets will outperform others into the medium term largely because of the reasons described above and structural changes the economies will enjoy. This marks a complete departure from the ISEQ and Irish economy. The following indices are designed to track the returns of specific regions equity markets, which are considered a gauge of the overall health of the economic region. The following details why we think the economies/index will provide returns to you commensurate with IPS requirements: iShares MSCI All Country Asia ex-Japan Index Fund; This index measures the equity market performance of Asia excluding Japan and includes ten developing and developed nations. We consider the index a good gauge of the Asian economy, which has enjoyed huge growth over the past ten years, and we expect this to continue into the medium term.

Broadly speaking stimulus and loosened monetary policy across Asian countries have encouraged investment and economic growth. The medium term should see co-ordination of monetary, exchange rate and fiscal policies between Asian countries to facilitate the structural changes anticipated. These changes will see economies move from the first and second sectors of their economies (to there second and third) and continue to grow albeit at a slower pace. Refer Appendix 1 for five-year performance relative to S&P 500 and DJIA. The fund has enjoyed average returns over the past five years of 14% showing minor negative deviation from the index itself. The minimal variance offers us exactly what we are looking for as the premise behind this investment is to gain exposure to the wider Asian economies which we feel are well represented by the index. Commodities: As described previously, commodities provide a better store of value than deflationary assets. Investment in the following commodity classes will offer further diversification from the commodity light ISEQ and offer another departure from a specific economic region to a more global platform. The investments we have selected are equities whose value is derived from the price of the underlying commodities. We encourage the purchase of the following indices: ETFX Dow Jones STOXX 600 Oil & Gas Fund Designed to track the performance of the Dow Jones Oil and Gas fund. An investment in this index offers exposure to major industrial players including oil drilling equipment manufacturers and service providers, coal companies, oil companies, pipeline builders, and liquid, solid or gaseous fossil fuel makers. While oil prices broadly track the strength of the US economy (it being the largest consumer), increased demand from developing nations such as India and China have picked up where the USs ailing economy had left off. Prices have traded within a ten-dollar range for the past year showing reasonable stabilisation from the prior years volatility. This is a relatively defensive option as oil and gas is required by people and economies in everyday life and we expect a solid return based on this alone. Refer Appendix 2 for graph of Dow Jones Oil & Gas, S&P and DJIA for indication of movement with S&P and out performance of other equities in prior years. The fund has marginally underperformed against the index over the past five years but the margin of difference has been negligible. This includes a return of 19.08% in the 2009 calendar year approaching the watermark of large losses during 2008 when demand for fuel plummeted in line with expected global economic health. Average earnings over the last five years are 7.4% which is testament to the continued demand for fuel in a recovering world economy, and a signal to the investments endurance in tough economic conditions. Royal London FTSE 350 Tracker Trust This fund will track the FTSE 350 Mining index. The index offers seventeen different mining companies across a broad range of metals including copper, platinum, zinc and nickel. Broad ranges of geographical regions are also implicated as asset prices are determined by global demand. Mining is not well represented on the ISEQ. Demand for these metals has been consistent with that of gold in the past three months and we foresee a continued demand for emerging markets and developed market investors seeking escape from deflated asset prices. Refer Appendix 3 for graph of FTSE 350 mining index Vs Dow Jones over past year, The exposure to commodities is obtained through a broad range of companies. The nature of the investment would leave an individual company exposed to event risk (as you may have seen with BP recently). We feel is appropriately mitigated as the investment is spread over a large number of companies across a diverse range of commodities. As you will see from Appendix 3 the returns noted, while more volatile, offer far greater returns than a purely equity investment in benchmarks such as the S&P. This is a result of the negative relationship between returns as discussed further in the report. Fund performance is in line with that of the index and has enjoyed a 22% average return over the period, brought about largely by the economic crisis and flight to safety during these times. Global consumption of these metals has remained strong as China has only noted a temporary setback during 2007 and 2008 and demand remains strong as a result. We see no immediate change in this.

Bonds: John Hancock Bond Fund: To gain exposure to the bond market we are advising an investment in the John Hancock bond fund. The fund offers exposure to a variety of corporate bonds, debentures, US government and agency securities (i.e. Fannie Mae), at least 75% of which are investment grade. The fund invests primarily in USD$ and no more than 10% of its holdings are in securities denominated in foreign currency. We consider this fund suitable for investors requiring a core bond fund that seek to generate a moderate level of income with limited exposure to high-yield bonds and foreign securities. Refer Appendix 4 for five year performance. We encourage the selection of bonds as the cornerstone of your portfolio as our recommendations will outline. Clearly from Appendix 4, there has been a strong relationship between the capital losses in bonds and equity indices, with the bond index outperforming equities in the last five years. These capital losses have reduced average earnings to 1.25% over the same period which is reasonable in light of past market turmoil as the value of bonds plummeted. Waves of capital losses appear to have past for the fund with 28% total returns noted in 2009 calendar year. The continued credit shortage and proposed rate increases bode well for investments future.

ISEQ Investment: We decided to divide our investments in the ISEQ into 3 companies namely Kerry Group, Glanbia, and Paddy Power, all of which have equal weightings. These 3 companies which are in the food and bookmaking industries, and are relatively defensive and we are hopeful they will guarantee a return in the medium term. Glanbia: Glanbia is an international nutritional ingredients and cheese group. The Group has three business segments - US Cheese & Global Nutritionals, Dairy Ireland and Other Business. Glanbia also has three principal international joint ventures - Southwest Cheese in the USA, Glanbia Cheese in the UK and Nutricima in Nigeria. The diversification inherent to the company itself is attractive for the purposes of this portfolio as there is no focus on the domestic market. The cash flows generated from a variety of countries abroad offer the stability required. Refer Appendix 5 for recent performance. The diversified cash flows have left the company in a strong position which noted a 51% increase in EPS year on year and a near 40% increase in share price from 2006. This is in stark contrast to the performance of the ISEQ. While this recent growth may plateau we feel the return to health of the global economy and ever increasing world population are promising signs that a stable future is in store for the company. Kerry Group: Kerry Group plc is an international food corporation engaged in food ingredients and flavour technologies serving the food and beverage industries. The company is also a consumer foods processor and supplier in selected European Union (EU) markets. The Company operates in two business segments: Ingredients and flavours, and Consumer foods. The Ingredients and flavours segment manufactures and distributes application specific ingredients and flavours spanning a number of technology platforms. The Consumer foods segment supplies added value brands and customer branded foods to the Irish and United Kingdom markets. Much like Glanbia, the diversification in product range and revenue source from a defensive company such as Kerry group is appropriate for this portfolio. Refer Appendix 7 for recent performance. Kerry has also noted a near 40% increase in share price over the period brought on by revenue increases in 2006, 2007 and 2008. Consumer trends became more budget conscious in 2009 with a slowdown in growth which returned in 2010. Excluding 2009 there has been consistent EPS growth over the last four years and we expect sustained and stable growth to persist as the pace of the world economic recovery increases.

PaddyPower: Paddy Power plc provides sports betting services through a chain of licensed betting offices. The Company also provides online gaming services and financial spread betting. It provides these services principally in the United Kingdom and Ireland. It also provides business-to-business services globally. They recently entered the Australian Internet and telephone sports betting markets with the acquisition of interests in Sportsbet Pty Limited (51% interest) and International All Sports Limited. While revenues have slumped in most industries over the past two years, Paddypower has enjoyed stable earnings, increased profits with no deterioration in industry as seen by the recent jobs announcements for Ireland. We attribute the decline in share value in 2009 to general economic conditions and sentiment with no consideration for the defensive nature of the company. Expansion to Australia, UK and financial markets (spread betting) also offers diversity in revenues and exposure to the buoyant Australian economy. Refer Appendix 7 for recent performance. Again performance has been vastly superior to that of the S&P and DJIA. We consider this to also be a relatively defensive stock as evidenced by performance in the last five years. 2010 profit before tax figures note a 54% increase and 31% EPS growth. Strong initial performance from expansion has supported a strong performance in the domestic market. Revenue streams have been split; 43% UK, 39% Ireland and 16% Australia. As the Australian economy continues to thrive we expect stronger revenue streams, this is also the case for the UK who are enjoying a quicker financial recovery than the Irish economy.

Risk Return Measures

The selection of the highest yielding portfolio within your risk limits has been explored using standard deviation as a risk measure and annualized monthly returns as an overall return gauge. To illustrate the effects of diversification on a portfolio we have selected your investment in the ISEQ, its risk/return profile and compared it to the other selected investments: Investment ISEQ Overall DJIA Oil & Gas Index MSCI Fund John Hancock Bond Fund MiniISEQ FTSE 350 Tracker Trust Risk (std deviation) 26.00% 30.30% 27.04% 5.76% 22.02% 34.71% Return -15.49% 7.40% 14.28% 1.25% 17.03% 22.24%

The benefits are further highlighted with the introduction of the assets individually to the overall ISEQ investment. To do this we have recalculated the risk matrices for six separate portfolios (refer excel sheet attached with risk return tab for calculations). This has allowed us view the effects as follows: Investment (1) ISEQ Overall (2) ISEQ, MSCI (3) ISEQ, MSCI, Bond Fund (4) ISEQ, MSCI, Bond Fund, DJO&G (5) ISEQ, MSCI, Bond Fund, DJO&G, FTSE (6) MSCI, Bond Fund, DJO&G, FTSE, MiniISEQ Risk (std deviation) 26.00% 23.70% 17.15% 17.27% 19.75% 19.11% Return -15.49% -0.61% 0.01% 1.86% 5.93% 6.22%

Clearly, with the addition of each investment, the trade-off between risk and return improves. The fourth and fifth portfolio listed note an increase in risk with their addition to the portfolio, these risk increases bring a substantial increase in earnings also. Portfolio 3 notes returns as 0.06% of risk while portfolio 4 and 5 can boast figures of 10.77% and 30% respectively highlighting the strong improvement in the risk return ratio. The additional ISEQ further reduces risk and increases returns with returns at 32.55% of risk. This is represented graphically below with the movement in value from a one hundred euro investment in the ISEQ graphed against portfolio 2:

Figure 1

and portfolio X, which highlights the widening of the gap in portfolio values:

Figure 2

The addition of assets listed in portfolio 3 to portfolio 6 can be found at Appendix 8. These figures are illustrative and no investment will be placed in the ISEQ overall. Figures are guidelines on which to develop our investment strategy but past performance is not a guarantee of future earnings. Please refer attached excel workbook for details of calculations. Fundamental to the performance of this portfolio is the asset allocation between these individual investments. We have constructed an efficient frontier based on portfolio theory illustrating the best risk/return ratio and weightings needed to generate this risk/return ratio. The following graph tells us the most efficient portfolio weightings to achieve a specific risk/return objective:

Figure 3

We consider it appropriate to expect a return of up to 6.9% with potential losses not to exceed 12.83% per year. This appears in line with your IPS requirements and we would urge you to consider investing accordingly. Refer Appendix 9 for other possible combinations. The lower risk and volatility requested into the future appears attainablee as historically the ISEQ and PortX (your proposed portfolio) vary greatly:

Figure 4

Figure 4 illustrates the volatility of the ISEQ over the last 5 years, and the corresponding PortX volatility that would have been observed based on its constituent investments. All volatility calculations can be referred to in the accompanying Excel worksheet (CalcsforWealthPortFinal\All Returns and CalcsforWealthPortFinal\ISEQ). As can be seen the risk (illustrated by the volatility) of PortX is significantly smaller than that of the overall ISEQ alone, a quality in the portfolio which was considered important given the clients profile. A marked correlation can be observed from Figure between PortX and the ISEQ, and from the calculations, (Results observed in Appendix 9 &11 ) this correlation is 66.6%. This appears quite high despite the portfolios diversification, and is attributable to the heavy weighting conferred on the Bonds investment in the portfolio. The correlation of this Bond portfolio with the ISEQ is itself 58.25%, and accounts for much of the observed correlation between PortX and the ISEQ. It is important however to analysis this figure with respect to the risk of PortX. A lower correlation with the ISEQ could have been achieved by allocating the major weighting of the portfolio with its constituent DJOG investment, which itself has the lowest correlation with the ISEQ of all the constituents, 48.34%. This was undesirable however as the DJOG also represented the second riskiest asset in the portfolio with an observed average risk of 30.3%, compared to the Bonds portfolio average risk of only 5.76%. If PortX had of been calculated swapping the minimum weighting of the Bond and DJOG assets ( to 10% and 40% respectively, see Appendix 9 & 11 ) then the minimum average risk achievable for PortX would have rose to 21.36% from 12.86%. Although the corresponding returns of PortX would also have rose from 6.9% to 13.2% , it was

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considered more important to keep risk to a maximum of 13% based on the clients profile and investment history, hence this was done at the expense of increased returns.

Recommendations
Based on these calculations we consider it appropriate to allocate the following assets the following weightings: Asset DJIA Oil & Gas Index MSCI Fund John Hancock Bond Fund ISEQ Investment (3 Co.) FTSE 350 Tracker Trust This results in: Name PortX Risk 12.8% Return 6.9% Weighting 10.00% 10.00% 59.65% 10.35% 10.00%

Obviously the portfolio is heavily invested in bonds, this may appear a large concentration but given the nature of your IPS we feel it appropriate. The securities comprising this bond fund are predominately AAA rated and have performed to the highest standard throughout the recent years crisis. Asset backed securities form a minor part of the portfolio, all of which are performing and contain the highest ranking tranche in the securitys structure. The bonds carry with them the lowest individual risk weighting, which has a corresponding return and we feel this will consistently generate returns required. The diversity and range of investments to complement the bond investment offer the balance needed to ensure growth targets are reached at a reasonable risk i.e. a decline in equities gives rise to an increase in commodities and the relationship between bonds and equities, while correlated as described previously, is not to the same extent as other equity markets. Refer Appendix 11 for data highlighting relationship between investments. We trust the above analysis and recommendations are in line with your expectations and offer a suitable investment vehicle to see you to your retirement. Please advise if you wish to proceed with this investment.

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Appendices
Appendix 1 IShares MSCI All Country Asia ex-Japan Index Fund Vs S&P ad FTSE - One Year

Appendix 2 ETFX Dow Jones STOXX 600 Oil & Gas Fund Vs S&P and DJIA - One Year

Appendix 3 iShares Dow Jones U.S. Energy Sector Index Fund Vs Dow Jones

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Appendix 4

Appendix 5

Appendix 6

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Appendix 7

Appendix 8

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Appendix 9 The MatLab code used to generate the efficient frontier was: %These are the expected returns of the MSCI, JOHN HANDCOCK BOND, DJOG %FTSE350MI and 3 stocks in the ISEC (Glanbia, Kerry Group and Paddy Power) clc; Return = [0.1428 0.0125 0.0740 0.2224 .1703]; % These are the respective standard deviations % You can calculate these in excel if you like STDs = [0.2704 0.0576 0.3030 0.3472 .2202]; % The correlations between the timeseries correlations = [ 1 .6165 .7048 .7529 .9386 .6165 1 .4587 .4495 .6612 .7048 .4587 1 .7103 .8977 .7529 .4495 .7103 1 .7883 .9386 .6612 .8977 .7883 1]; %now calculate the covariances from the STDs and Correlations covariances = corr2cov(STDs , correlations); %Finally, make the graph for (in this case) 20 different portfolio weights portopt(Return , covariances , 20) [PortRisk, PortReturn, PortWts] = portopt(Return , covariances , 20)

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Once compiled it yielded the following twenty portfolios and efficient frontier: Port Risk Return Weights MSCI Bond DJOG FTSE350M A 5.76% 1.25% 0 1 0 0 B 6.46% 2.35% 0 0.9381 0 0.0244 C 7.35% 3.46% 0 0.8682 0 0.025 D 8.34% 4.56% 0 0.7984 0 0.0256 E 9.42% 5.67% 0 0.7286 0 0.0262 F 10.55% 6.77% 0 0.6588 0 0.0269 G 11.71% 7.88% 0 0.5890 0 0.0275 H 12.91% 8.98% 0 0.5192 0 0.0281 I 14.12% 10.09% 0 0.4494 0 0.0287 J 15.35% 11.19% 0 0.3796 0 0.0293 K 16.60% 12.30% 0 0.3098 0 0.0299 L 17.85% 13.40% 0 0.24 0 0.0305 M 19.11% 14.51% 0 0.1702 0 0.0311 N 20.38% 15.61% 0 0.1004 0 0.0317 O 21.65% 16.72% 0 0.0305 0 0.0323 P 23.06% 17.82% 0 0 0 0.1518 Q 25.20% 18.93% 0 0 0 0.3639 R 27.95% 20.03% 0 0 0 0.5759 S 31.17% 21.14% 0 0 0 0.7880 T 34.72% 22.24% 0 0 0 1

MiniISEQ 0 0.0375 0.1067 0.1759 0.2451 0.3143 0.3835 0.4527 0.5219 0.5911 0.6603 0.7295 0.7987 0.8679 0.9371 0.8482 0.6361 0.4241 0.2120 0

These portfolio weightings were unacceptable as they completely excluded some of the constituent investments and detracted from our diversification goal. As a result the MatLab code was compiled as above in addition to code which allowed us to put constraints on the portfolios weightings. It was decided that the portfolio should consist of a least the following composition: Portfolio Risk Return Weights MSCI Bond DJOG FTSE350M MiniISEQ 0.1 0.4 0.1 0.1 0.1 The additional code was as follows: Covariance = corr2cov(STDs , correlations); PortReturn = [0.069]; NumAssets = 5; AssetMin = [.1 .4 .1 .1 .1]; Group = [1 1 1 1 1]; GroupMax = 1; ConSet = portcons('Default', NumAssets, 'AssetLims', AssetMin,... NaN,'GroupLims', Group, NaN, GroupMax); [PortRisk, PortReturn, PortWts] = portopt(Return,... Covariance, [], PortReturn, ConSet)

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We decided a risk/return of no greater than 7% was appropriate and altered the code accordingly. This code was ran numerous times, each time changing the PortReturn value until different weightings resulted in an acceptable Risk/Return for the portfolio, resulting in: Port X Risk 12.8% Return 6.9% Weights MSCI 0.1

Bond 0.5965

DJOG 0.1

FTSE350M 0.1

MiniISEQ 0.1035

Appendix 10 ISEQ = Irish Stock Exchange MSC = Asia ex Japan Index Bond= John Hancock Global Bond Fund DJOG = Dow Jones Oil and Gas Index FTSE350M = FTSE350 Mining Index MiniISEQ = 3 companies in the ISEQ = Glanbia, Kerry Group and Paddy Power.

Port2 = ISEQ + MSCI Port3 = ISEQ + MSCI + Bond Port4 = ISEQ + MSCI + Bond + DJOG Port5 = ISEQ + MSCI + Bond +DJOG + FTSE350M PortX = MSCI + Bond +DJOG + FTSE350M + MiniISEQ

Appendix 11 The Variance-Covariance matrices and Correlation matrices were calculated in MatLab and can be viewed in the accompanying Excel sheet, they are summarised here: PortX constituent investments: Variance Covariance Matrix

MSCI
0.0061 0.0008 0.0037 0.0059 0.0035

BOND
0.0008 0.0003 0.0005 0.0007 0.0005 0.6165 1.0000 0.4587 0.4495 0.6612

DJOG
0.0037 0.0005 0.0045 0.0048 0.0029 0.7048 0.4587 1.0000 0.7103 0.8977

FTSE350M MiniISEQ
0.0059 0.0007 0.0048 0.0100 0.0038 0.7529 0.4495 0.7103 1.0000 0.7883 0.003528 0.00053 0.002891 0.003801 0.0023 0.9386 0.6612 0.8977 0.7883 1.0000

Correlation
1.0000 0.6165 0.7048 0.7529 0.9386

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PortX and ISEQ: Correlation ISEQ PortX

1 0.666622 0.666622 1

ISEQ and Bond: Correlation ISEQ Bond

1 0.582547 0.582547 1

Correlation ISEQ MSCI

1 0.597059 0.597059 1

Correlation ISEQ DJOG

1 0.4834303 0.48343 1

Correlation ISEQ FTSE350M

1 0.5747497 0.57475 1

Correlation ISEQ MiniISEQ

1 0.6146172 0.614617 1

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