Asset Management

Fixed Income Outlook: The Search for Yield

November 20 WHITE PAPER

Executive Summary
The ongoing slowdown in developed marketscharacterized by muted growth in the US and the European debt crisishas led governments and central banks to develop a series of expansionary policies seeking to stimulate economic growth. For example, the US Federal Reserve has decided to hold short-term interest rates near zero until at least mid-2013, while the European Central Bank (ECB) recently cut interest rates by 25 bps to 1.25% on expectations of slow growth in the Eurozone.
John G. Popp Global Head and Chief Investment Officer, Credit Investments Group

In this low-yield environment, many institutional investors in developed nationsspecifically defined-benefit plan sponsorsare faced with an uncomfortable predicament: lower yields on their assets and rising liability values due to falling discount rates. As a result, investors are intensifying their efforts to bolster returns in order to fund increasing plan obligations. In this paper, we review various fixed-income investment optionswith a particular focus on the non-investment grade credit sectorthat, we believe, can help mitigate these current challenges by potentially offering more attractive risk-adjusted returns. Specifically, we believe that the current strength in credit fundamentalsincluding belowaverage default rates, current attractive valuations and inflated concerns over the near-term maturity wallmay warrant increased exposure to credit instruments, especially those on the higher-yielding end of the spectrum. Lastly, we discuss how to integrate non-investment grade credit into a broader fixed income portfolio. We provide a case study in which we: a) identify an optimal mix of high-yield and senior-loan exposures, and b) incorporate a non-investment grade credit basket to a traditional core fixed income portfolio and assess its impact on total risk-adjusted returns.

For more information on the views expressed here, please write to us at csam.insights@ credit-suisse.com

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The Search for Yield

The recent global economic slowdown has prompted US and European central banks to set low rates over the short to medium term, pressuring fixed-income yields across government securities and corporates bonds. Recent declines in US fixed income yields are, in fact, emblematic of a longer-term, secular downward trend in yields (Display 1, next page). As of November 14, 2011, the benchmark 7-10-year US Treasury yield-to-worst had fallen to record lows of 1.75%.1 After accounting for inflation (3.9% headline number year-over-year; 2.0% core),2 traditional fixed income investors are effectively experiencing negative real yields, while assuming significant duration risk. In this light, where can investors look for yield opportunities without taking on excessive risk? Display 2 (next page) shows the yield spectrum across a range of liquid fixed income and equity investments. On a relative and absolute basis, non-investment grade creditdefined as high yield bonds and senior loansoffers, as of this writing, significantly higher returns than both US large-cap equities (from a dividend-yield perspective) and investment-grade corporate bonds. Within fixed income, the current yield spread between US investment-grade and non-investment grade credit is in the range of 358466 bps, versus a lower historical average of 280412 bps.3 From a risk/return perspective, both high yield bonds and senior loans offer potentially attractive risk-adjusted performance. In the period from 2001 to 2010, high yield bonds delivered an average annual return of 9.0% with 8.9% volatility,4 while senior loans delivered an average annual return of 6.5% with 5.8% volatility. When comparing senior loans to high yield bonds, we note that, on an absolute basis, the current swap-adjusted senior loan yield of 7.26%5 is slightly lower than the yield-to-worst of high yield bonds at 8.34%. However, historically speaking, the current difference in yield between the two sectors is near its lowest levels. As such, while both investments offer compelling yields relative to other asset classes, investors may not be getting sufficient compensation to move down the capital structure to the subordinated and unsecured bond tranches.

What are Senior Loans?

Senior loans are floating-rate instruments that are originated by banks and/or other financial entities for large corporations that typically have below investment-grade credit ratings. The loans interest comprises of an adjustable base rate component, typically tied to the London Interbank Offered Rate (LIBOR), plus an additional credit spread. As LIBOR rises or falls, the base rate adjusts accordingly, usually on a quarterly basis. Senior loans are the senior-most debt obligations of a company, and are usually secured with collateral. In the event of bankruptcy or default, loan holders are better positioned to recoup their interest and principal relative to bondholders and other unsecured creditors, as evidenced by long-term historical ultimate recovery rates of 80% for loans versus 40% for unsecured bonds.6 For several years prior to the 2008 credit crisis, collateralized loan obligations (CLOs) were the primary driver of demand for senior loans. The primary funding for a CLO comes from the issuance of AAA notes collateralized by the underlying portfolio of purchased loans. Post-crisis, demand for AAA CLO liabilities collapsed with the demise of structured investment vehicles, monoline insurers and debt issues surrounding European banks. Annual CLO issuance has fallen from approximately $100 billion at its peak in 2006 to $11 billion year-to-date in 2011.7 As a consequence, demand for senior loans has begun to shift increasingly to traditional institutional and retail investors amidst a growing acceptance of the asset class.

(1) (2) (3) (4) (5) (6) (7)

Yield-to-worst is the lowest possible yield from owning a bond considering all potential call dates prior to maturity. As measured by the US Consumer Price Index (CPI) in October 2011. Headline inflation accounts for total price increases. Core excludes food and energy. As of Nov. 14, 2011. Historical average is from Jan. 1, 1992 to Nov. 14, 2011. As measured by the standard deviation of the following: Credit Suisse Leveraged Loan Index Three-Year Swap-Adjusted Yield and the Credit Suisse High Yield Index Yield-to-Worst. The 3-year swap-adjusted yield is used for the floating rate component (LIBOR) of senior loans to yield a comparable fixed rate. Moodys Investors Service Bank of America Merrill Lynch

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Display : Traditional fixed income yields have had a long-term decline

Historical yields of traditional fixed income assets
8

64

4.03

42

4.03
US CPI US CORE CPI 3.5% YoY 2.1% YoY
Sep-04 May-04 Jan-05 Sep-04

2.37 1.75

Sep-01

Sep-02

Sep-03

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

May-11 May-10 Sep-11 Sep-10

May-01

May-02

Sep-03 May-03

May-05

May-06

Jan-08 May-07

Jan-09 May-08 May-09

May-09

US CORE CPI
Sep-02 Jan-03 May-03

2.1% YoY
May-04

Sep-01

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

0
Jan-01

Jan-02

Jan-04

Jan-06

Jan-07

Jan-10

May-01

May-02

May-05

May-06

May-07

May-08

Barclays US Aggregate Yield-to-Worst Barclays US Aggregate Yield-to-Worst

Barclays Treasury 7-10 7-10 Year Yield-to-Worst Barclays Long Government/Credit Index Yield-to-Worst Yield-to-Worst Barclays Long Government/Credit Index Barclays US US Treasury Year Yield-to-Worst

Note:

All data was obtained from publicly available information, internally developed data and other third party sources believed to be reliable. Credit Suisse has not sought to independently information obtained from public and Barclays US Aggregate Yield-to-Worst verify Barclays US Treasury 7-10 Year Yield-to-Worst third party sources and makes no representations or warranties as to accuracy, Barclays Long Government/Credit Index Yield-to-Worst

completeness or reliability of such information. Please refer to Glossary and Definitions at the end of this paper for information on proxies used. Data as of November 14, 2011 Source: Bloomberg and Credit Suisse

Display 2: Non-investment grade credit offer high returns on an absolute and relative basis
10
10

Cross-asset-class yield spectrum

May-10

Jan-11

8
8

6.5
6.5 6.7

6.7
7.3

8.3 7.3

% %

4.3 2.4 3.0 3.0 3.7

3.7

4.8

4
4

3.7 4.3

4.8

2
2 0

EMUS High Dividend Sovereign Debt (local ccy)

EM Sovereign Debt (local ccy)

Leveraged Loans US Preferred Stock

US Treasury 7-10 Year US Treasury 7-10

US Large Cap Equity US Large Cap

US Fixed Income Core

3-M LIBOR

US REITS

US MBS

US ABS

US Long-Dated US High Dividend Government/Credit

US Investment US Long-Dated Grade

Leveraged Loans

US Preferred Stock

US Fixed Income Core

3-M LIBOR

US REITS

Government/Credit

US Investment Grade

Fixed Income Yields

Equity Dividend Yields

REITS Dividend Yield

Non-Investment Grade Credit Yields

Note:

All data was obtained from publicly available information, internally developed data and other third party sources believed to be reliable. Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. Please refer to Glossary and Definitions at the end of this paper for information on proxies used. Data as of November 14, 2011 Source: Bloomberg and Credit Suisse 16 16 Credit Suisse Asset Management 

12

12

High Yield

Year

High Yield

0.5

0.5

1.4

1.4 1.8

1.8

2.0
2.0

3.7

2.4

US MBS

US ABS

Equity

May-11

8.3

Sep-11

0
Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

US CPI

3.5% YoY

2.37 1.75

Positive Fundamentals Despite Recent Pullback

Ongoing global macroeconomic concerns and the European sovereign debt issues have driven down non-investment grade credit prices, as with most asset classes, over the past few months. This pullback reflects the concern among some investors about a prolonged global slowdown and its potential impact on the performance of non-investment grade credit. To better understand the current investing environment, however, we believe it is important to highlight how high yield bonds and senior loans have behaved across different market cycles since the recession of the early 2000s, as well as key structural differences that may affect the performance of these asset classes going forward. During the 200002 period, both high yield and loan prices fell, but loans dropped significantly less (-6.89% versus -15.67%). By contrast, in 2008, both markets declined to a similar degree, in line with the broader markets (-34.08% versus -34.49%). A significant difference between the two periods was the rapid increase in market value-based financing to purchase loans post the 2000 recession. In 2008, the decline in senior loans was primarily driven by dramatic deleveraging of the investor base, as a significant portion of the prevailing loan market demand was dependent on investors using total return swaps and other financing mechanisms subject to margin calls. Should we experience another market downturn, we would expect loan prices to behave more in line with the 200002 period, as there is less market-level leverage supporting investment in the asset class today. Notwithstanding their differences, we believe that both high yield bonds and senior loans are well-positioned to weather a muted economic growth environment over the next 12 to 24 months. Some reasons include: Aggressive corporate balance sheet restructuring since the 2008 credit crisis; Increasing corporate cash balances; Prolonged period of corporate earnings growth; and Improving rating trends, with credit upgrades considerably outpacing downgrades in 2011 (as of Q3 2011).9 It is worth noting that Standard & Poors is forecasting defaults in the range of 1.5% to 2% for loans over the next 12 to 24 months. In contrast, the markets spread-implied default ratewhich is derived using a mathematical formula based on current trading levels of a loan or bondcurrently exceeds the forecasted default rate, with the spread-implied default rates for senior loans and high yield at 15% and 7%, respectively (as of November 14, 2011). Given what we anticipate to be a low default environment in the intermediate term, we believe loans are currently trading at attractive levels. In this context, we believe certain sectors remain vulnerable to negative consumer sentiment in todays volatile markets (i.e., retail and restaurants). Accordingly, we believe it is incumbent upon managers to navigate these challenges through selective positioning within the non-investment grade space.

The Shrinking Maturity Wall

The maturity wall refers to the roughly $154 billion amount of debt maturing in the senior loan market from now until 2014, which has prompted concerns as to whether over-leveraged issuers will be able to refinance their debt. We believe the situation today is significantly less concerning than was originally anticipated in 2008. A combination of restructurings, refinancings and maturity extensions have allowed corporate management teams to aggressively restructure their balance sheets, pushing out the maturities on their debt, and reducing the pressure to refinance (Display 4, next page). While 2014 still has $115 billion in debt outstanding, this is just half of the $224 billion outstanding as of 2009. Moreover, out of roughly 300 companies that have loans maturing in 2014, 10 names account for more than 20% of the maturing debts, suggesting that managers should be able to identify and avoid these credits, if warranted.

Low Default Rates

Despite recent market uncertainty, trailing 12-month loan senior default rates are currently at their lowest in over four years.8 High yield default rates are also low, and we expect them to remain below their historical average in the short to medium term (Display 3, next page). In our view, continued low default rates are supported by a number of factors:

(8) (9)

Based on trailing 12-month default rates for the loan asset class. Source: S&P LCD Source: S&P LCD

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US Gove US Hi

US EM Sov (loc EM S ( US Pref

US Lo Govern

US Tr

US Fi

US P

US

US

Display 3: Default rates are expected to remain below average in the next 2-to-24 months
16

12-month rolling par-weighted default rates

16
12

12

8
4

4
0

Lever

Lev

US

1.83

1.83 0.32
Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 0.32

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

High Yield Defaults Note:

Leveraged Loan Defaults

Par-weighted default rates representative of LTM. All data was obtained from publicly available information, internally developed data and other third party sources believed to be reliable. Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. Data as of October 31, 2011 Source: S&P LCD and Credit Suisse

Display 4: Significant declines in senior loan maturity wall since 2008

Year-by-year changes in senior loan maturity profile

250
Par Amount of Loans Maturing ($ billions)

250

200

200

150

150

100

100

50

50

2011

2012

2013 2008 2008

2014 2009 2009

2015 2010 2010

2016 October 2011 October 2011

2017

2018

2019

0
Note:

2011 2012 2013 2014 2015 2016 2017 2018 2019 All data was obtained from publicly available information, internally developed data and other third party sources believed to be reliable.

Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations 2008 2009 2010 October 2011 or warranties as to accuracy, completeness or reliability of such information. Data as of October 2011 Source: S&P LCD

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Should the financial system experience another prolonged shock, similar to that of the 2008 crisis, we believe refinancings could prove to be more challenging. However, our view is that most companies that have been able to service their debt will be able to refinance.

Spreads Remain Elevated

High yield spreads over US Treasuries and senior loan discount margins remain above their historical averages (Display 5). In addition, the spread differential between loans

and high yield bonds has narrowed in the post-2008 period, which reflects elevated loan spreads compared to historical levels. As such, the senior secured market appears to be providing excess compensation to investors relative to historical levels. For investors looking for higher potential returns, we view the current environment as an attractive entry point for loans.

Display 5: Loan spreads remain elevated, offering potential opportunity

Historical spreads of leveraged loan and high yield indices

2,000

1,600
Average Spread (bps)

1,200 High Yield Average: 581

800

400 Loan Average: 443 0 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10

CS Leveraged Loan Index Three-Year Discount Margin

CS Leveraged Loan Index 3-Year Discount Margin

CS High Yield Index Spread-to-Worst

CS High Yield Index Spread-to-Worst

CS Leveraged Loan Index Three-Year Discount Margin CS High Yield Index Spread-to-Worst Note:

Average
443 581

High
1,799 (Dec 2008) 1,816 (Nov 2008)

Low
230 (Feb 2007) 271 (May 2007)

Jul. 20
562 580

Sep. 20
722 811

Nov. 4, 20

642 731

All data was obtained from publicly available information, internally developed data and other third party sources believed to be reliable. Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. Data as of November 14, 2011 Source: Credit Suisse

9.5
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9.0

2,000

1,600

1,200 800 Optimizing a Non-Investment Grade Credit Basket High Yield Average: 581

The next question investors 400 ask is: What does an optimal may Next, we add the optimized non-investment grade credit Loan Average: 443 non-investment grade credit basket look like, and what basket to a traditional core fixed-income portfolio. As shown in 0 proportion should be allocated toJan-92 yield versus loans? Jan-00 Jan-02 Jan-04 (next page), incorporating a 33% allocation of nonhigh Jan-94 Jan-96 Jan-98 Display 7 Jan-06 Jan-08 Jan-10 CS Leveraged Loan Index 3-Year Discount Margin CS High Yield Index Spread-to-Worst To answer this, we perform a historical risk/return analysis and investment grade credit increases returns, reduces volatility assess the trade-off between returns and volatility for different and significantly improves the Sharpe ratio of the fixed-income non-investment grade portfolios. Our analysis shows that an portion of the portfolio. allocation of 75% to senior loans and 25% to high yield bonds offers the highest risk-adjusted returns (Display 6).

Display 6: Optimizing a non-investment grade credit basket Sample portfolios

Historical Return (%)
50% Leveraged Loan + 50% High Yield 75% Leveraged Loan + 25% High Yield 100% Leveraged Loan 100% High Yield 7.7 7.06 6.45 8.95

Performance and risk

Standard Deviation
6.88 6.7 5.8 8.9

Return per Unit of Risk

1.12

9.5 9.0 8.5 100% HY

.4 1.11 1.01

Historical Return (%)

8.0 7.5 7.0 6.5 6.0

50% LL + 50% HY

75% LL + 25% HY 100% LL 5 6 7 8 9 10

Historical Risk (%)

Note:

Data based on historical returns from December 31, 2000 to December 31, 2010. Indices were used as proxies for asset classes above: Leveraged Loans (Credit Suisse Leveraged Loan Index); High Yield (Barclays Capital US Corporate High Yield Index). For illustrative purposes only. Past performance is not a guarantee or an indication of future results. All data was obtained from publicly available information, internally developed data and other third party sources believed to be reliable. Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information.

Source: Bloomberg and Credit Suisse

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Display 7: Non-investment grade can increase the efficiency of a fixed income portfolio
Representative fixed income portfolio

Credit Basket 33%

High Yield

Leveraged Loans

US Aggregate 100%

US Aggregate 67%

Portfolio Characteristics
Historical Return Standard Deviation Sharpe Ratio 4.74% 5.30% 0.89

Historical Return Standard Deviation Sharpe Ratio 5.62% 4.62% 1.22

Note:

Data based on historical returns from December 31, 2000 to December 31, 2010. Indices were used as proxies for asset classes above: Leveraged Loans (Credit Suisse Leveraged Loan Index); High Yield (Barclays Capital US Corporate High Yield Index) and US Aggregate (Barclays US Aggregate Index). For illustrative purposes only. Past performance is not a guarantee or an indication of future results. All data was obtained from publicly available information, internally developed data and other third party sources believed to be reliable. Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. Source: Bloomberg and Credit Suisse

Conclusion
In an overall low-yield environment, we believe non-investment grade credit offers a viable alternative for investors seeking attractive absolute and relative yields. Additionally, noninvestment grade credit, specifically senior secured loans, can offer compelling risk-adjusted returns and incremental diversification, in our view. Despite recent market dislocations, we have a relatively benign credit outlook due to improving corporate balance sheets and increasing cash balances. Moreover, our view is that current market conditions present an attractive entry point for investors in the space. We believe investors can take advantage of the distinctive characteristics that both high yield and loans offer within a well-designed portfolio allocation framework.

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Glossary
Spread-to-Worst: Spread between the yield to worst and the interpolated US Treasury yield curve at the bonds redemption date. Yield-to-Worst: The lowest possible yield from owning a bond considering all potential call dates prior to maturity. 3-Year Discount Margin: The yield-to-refunding of a loan facility less the current 3-month LIBOR rate, assuming a 3year average life for the loan. 3-Year Swap-adjusted Yield: Fixed equivalent yield. LIBOR Floor: A feature sometimes used in pricing debt instruments whose interest payments are linked to LIBOR, especially loans. Loans with a LIBOR floor pay an interest rate of LIBOR plus the applicable margin so long as LIBOR remains above the specified floor level. If, however, LIBOR falls below the floor, the interest rate is the floor level plus the applicable margin. LIBOR floors have been commonly used in the low LIBOR environment which started in early 2008. leveraged loan market. The index inception is January 1992. Credit Suisse High Yield Bond Index: Index is designed to mirror the investable universe of the $US-denominated high yield debt market. The index inception is January 1986. Barclays Capital Long Government/Credit Index: Index measures the investment return of all medium and larger public issues of U.S. Treasury, agency, investment-grade corporate, and investment-grade international dollardenominated bonds with maturities longer than 10 years. Barclays Capital US Aggregate Index: Broad-based bond index comprised of government, corporate, mortgage and asset-backed issues rated investment grade or higher. Barclays Capital US Treasury 7-10 Year Index: Index measures the performance of U.S. Treasury securities that have a remaining maturity of at least seven years and less than 10 years. S&P 500 Index: An index of 500 stocks of American Large-Cap corporations chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the US large cap universe. Barclays Capital US Floating-Rate ABS Index: The US Floating-Rate Asset-Backed Securities (ABS) Index covers floating-rate ABS with the following collateral types: home equity, credit card, auto (retail and wholesale loans), and student loans. To be included in the index, an issue must have a floating-rate coupon structure, have an average life greater than or equal to one year, and be ERISA-eligible. The index was introduced in May 2005 with history available from January 2005. Inflation: Percentage rise in the Consumer Price Index, which is reported monthly by the Bureau of Labor Statistics (BLS). Core Inflation: A measure of inflation which excludes certain items that face volatile price movements, notably food and energy Barclays Capital US MBS Index: The U.S. MortgageBacked Securities (MBS) Index covers agency mortgagebacked pass-through securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). Introduced in 1986, the GNMA, FHLMC, and FNMA fixed-rate indices for 30and 15-year securities were backdated to January 1976, May 1977, and November 1982, respectively. Balloon securities were added in 1992 and removed on January

Definitions and Proxies

US ABS: Barclays Capital US Floating-Rate ABS Index Yield-to-Worst US Large Cap Equity: S&P 500 Index Dividend Yield US Treasury 7-10 Year: Barclays Capital US Treasury 7-10 Year Index Yield-to-Worst US Fixed Income Core: Barclays Capital US Aggregate Index Yield-to-Worst US MBS: Barclays Capital US MBS Index Yield-to-Worst US REITS: MSCI US REITS Index Dividend Yield US Investment Grade: Barclays Capital US Corporate Investment Grade Index Yield-to-Worst US Long-Dated Government /Credit: Barclays Capital Long Government/Credit Index Yield-to-Worst US High Dividend: Dow Jones US Dividend 100 Index Dividend Yield EM Debt (local ccy): JPMorgan Government Bond IndexEmerging Markets Yield-to-Worst US Preferred Stock: S&P US Preferred Stock Index Dividend Yield Leveraged Loans: Credit Suisse Leveraged Loan Index 3-Year Swap-Adjusted Yield High Yield: Credit Suisse High Yield Index Yield-to-Worst Credit Suisse Leveraged Loan Index: Index designed to mirror the investable universe of the $US-denominated

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1, 2008. 20-year securities were added in July 2000. On April 1, 2007, agency hybrid adjustable-rate mortgage (ARM) pass-through securities were added to the index. Hybrid ARMs are eligible until 1 year prior to their floating coupon date. MSCI US REITS Index: The MSCI US REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity REITs that are included in the MSCI US Investable Market 2500 Index, with the exception of specialty equity REITs that do not generate a majority of their revenue and income from real estate rental and leasing operations. The index represents approximately 85% of the US REIT universe. Barclays Capital US Corporate Investment Grade Index: The US Corporate Investment Grade Index is a broadbased benchmark that measures the investment grade, fixed-rate, taxable, corporate bond market. It includes USD-denominated securities publicly issued by industrial, utility, and financial issuers that meet specified maturity, liquidity, and quality requirements.

Dow Jones US Dividend 100 Index: Index designed to measure the performance of high dividend yielding stocks issued by U.S. companies that have a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios. The 100-component index is a subset of the Dow Jones U.S. Broad Market Index, excluding REITs, master limited partnerships, preferred stocks and convertibles. It is modified market capitalization weighted. JPMorgan Government Bond Index-Emerging Markets: A comprehensive emerging market debt benchmark that tracks local currency bonds issued by Emerging Market governments. The index was launched in June 2005 and is the first comprehensive global local Emerging Markets index. S&P US Preferred Stock Index: The S&P U.S. Preferred Stock Index is designed to serve the investment communitys need for an investable benchmark representing the U.S. preferred stock market. Preferred stocks are a class of capital stock that pays dividends at a specified rate and has a preference over common stock in the payment of dividends and the liquidation of assets.

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Credit Suisse Asset Management Publications

Asset Managements Q4 Alternatives Quarterly October 2011In this edition of the Alternatives Quarterly, we discuss drivers of recent volatility, especially the ongoing European debt crisis. Additionally, our leading strategists and alternatives portfolio managers review select opportunities in their respective strategies, in light of the challenging environment. Hedge Fund Investing: How to Optimize Your Portfolio October 2011In a post financial-crisis environment, how can investors address potential risks associated with hedge fund investing? The paper discusses how hedge fund replication can help address these challenges while potentially providing alternative-like returns. Robert Parker, Credit Suisse Senior Advisor October 20 Market Update October 2011The improvement in production and exports should lead to an uplift in US growth over the next 6 months to 2-2.5% annualised. However, European growth will struggle to reach 1% annualised over the next 12 months, while the speed of Japans recovery from the earthquake/tsunami has also clearly slowed. The Way Forward: Measuring the Impact of Short- Term and Structural Growth Drivers on Emerging Market Investing September 2011In the aftermath of the 2008 global financial crisis, many emerging countries were able to recover more quickly than their developed counterparts. Can this scenario be repeated during the current slowdown? Real Assets: Inflation Hedge Solution Under a Modified Risk Framework September 2011In the new-normal environment, what is the right mix for a real assets portfolio? The ISS team presents a modified risk framework with which to optimize the benefits of the asset class. Commodities Outlook: Increased Volatility, Increased Opportunity? August 2011The paper examines the recent rise in the volatility of commodity prices within the context of a longer-term, secular trend of increasing volatility and how investors can best position their portfolios in this environment going forward. Commercial Real Estate: Has the Tide Turned? June 2011After suffering through the credit crisis, US commercial real estate macro indicators are starting to improve. But how sustainable is this turnaround? The paper addresses this question, and examines how institutional investors can manage their exposure to this asset class during still uncertain times. Managing Fixed Income Investments in a Rising Inflation and Interest-Rate Environment March 2011This paper addresses key challenges facing fixed income investors today: How to achieve higher returns in a still low-yield environment while mitigating the rising threats of inflation and interest-rate risks? The ISS teams analysis suggests that diversifying fixed income exposure into specific instruments as well as adding inflation hedges may present an efficient way to manage these challenges. A full case study helps to illustrate the teams findings. How Commodities Can Help Investors Face the Uncertainty of the Inflation/Deflation Debate December 2010In this paper, our Commodities Team argues that uncertainty about the consumer-price outlook in developed economies creates challenges for capital markets to properly price in inflation expectations. The Commodities Teams research suggests that exposure to real assets can help investors cushion the impact on the portfolio of unexpected changes in the inflationary environment in the long run. The Anatomy of a Modern Emerging Markets Portfolio November 2010This paper examines the quickly evolving emerging markets investment landscape and argues that the proliferation of sophisticated investment vehicles in these markets presents an opportunity for investors to augment the efficiency of their emerging markets portfolios. Liquid Alternative Beta: Enhancing Liquidity in Alternative Portfolios June 2010How to increase a portfolios liquidity without sacrificing returns, especially in a post-crisis, low-yield environment? The paper illustrates how institutional investors can use Liquid Alternative Beta to seek to enhance portfolio liquidity, increase portfolio transparency, short hedge fund sectors and gain hedge-fund-like exposure when investment policies restrict direct hedge fund investments.

The views and opinions expressed within these publications are those of the authors, are based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date hereof. For a copy of any of these papers, please contact your relationship manager or visit our website at www.credit-suisse.com.

Credit Suisse Asset Management 11

Important Legal Information

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