Inside Hedge (0P0000L2C7)

Investment Strategy

Fhe fund is employs a unique trading model that invests following publicly available information about how insiders, i.e. senior executives and owners, invest in their own companies. The model is based on extensive research during years 2005-2008 and is based on the largest study that has been performed outside the United States in the field. The fund invests in highly liquid Swedish listed shares as well as commodity derivatives as a part of the investment policies. Historical simulations of the investment algorithm has obtained an average yearly return of 25 percent after expenses during the period 1994-2009.The fund has a 70 percent exposure to equities. The investment process consists of three separate phases: selection, weighting and execution. All phases of the investment process are automated. In the selection phase, stocks that are eligible for an investment are defined. The model excludes, inter alia, low liquidity stocks. In the weighting phase, the model selects among the stocks remaining from the selection phase the stocks that the fund should actually hold and the sizes of these holdings. A key starting point in this phase is to study insiders' investments. In the execution phase, investments are executed in prac­tice. In this phase, the model uses a set of rules to make the right investments in the right way. The fund may also take negative positions against the stock market in order to remove part of the market risk, thereby lowering the fund's risk.The fund has a 20% exposure to gold and 10% to crude oil. Both commodities have a negative correlation to equities. Rising oil prices generally contribute to a slow down in the economy and declining stock prices. When the stock market fares poorly, capital is moved into gold, which is considered a safe invest­ment.