Real Assets Beyond Commodity Indices: Opportunities in Commodities Through Active Management

1
Real AssetsBeyond Commodity Indices
Opportunities in Commodities Through Active
Management

• Theresa Gusman
• Managing Director
• Head of Global Commodities
• September 21, 2009

2
Agenda
1
Commodities in a Portfolio
2
The Current Market Environment
3
Maximizing Commodities Returns
3
Role of commodities in a portfolio

• Diversification Historically low correlation
  with other asset classes
• Performance Can significantly improve portfolio
  performance
• Store of value Can perform well in periods of
  rising inflation and interest rates
• Cycle longevity Secular bull markets in
  commodities can last a long time

4
Diversification Historically low correlation
with other asset classes
Total Return Correlation, (8/31/99 - 8/31/09)
A figure of 1.0 equals perfect positive
correlation A figure of -1.0 equals a total
negative correlation
Past performance is no guarantee of future
results. Source Morningstar, Inc. as of
08/31/09 correlation is a measure of the degree
to which two variables are related. Commodities
are represented by the SP GSCI. US stocks, real
estate, international stocks, bonds and cash are
represented by the SP 500, MSCI US REIT Index,
MSCI EAFE Index, Lehman Brothers Aggregate Bond
Index and the 3-month Treasury bill,
respectively. This illustration is not
representative of any DB Advisors portfolios.
5
Performance Commodities have equity-like returns
Commodities and Other Asset Classes
As of August 31, 2009 Past performance is no
guarantee of future results. Source Bloomberg,
Bank of America Merrill Lynch Commodity Research
6
Commodities increase return potential with
similar risk
Historical Risk/Return Benefits,
(8/31/99 - 8/31/09)
Adding 10 commodities to a stock bond
portfolio increases returns with similar risk
10 Commodities 45 Bonds 45 Stocks
Annualized Return
50 Bonds 50 Stocks
Risk
Performance is from 08/31/09, is historical and
does not guarantee future results. The graph
above is for illustrative purposes only and does
not represent the performance or risk of any DB
Advisors portfolio. There is no guarantee that
commodities investments will correlate with
traditional financial assets under particular
market conditions. Source Morningstar, Inc., as
of 08/31/09. In these hypothetical portfolios,
stocks and bonds are represented by an equal mix
of the SP 500 Index and the BarCap US Aggregate
Bond Index, respectively. Commodities are
represented by the SP Goldman Sachs Commodities
Index. A hypothetical 50/50 stock and bond
portfolio returned -5.12, 3.02 and 3.07 for
the 1-, 5- and 10-year periods, respectively, as
of 08/31/09. The standard deviation for this same
hypothetical portfolio for the 1-, 5- and 10-year
periods was 17.03, 8.55, and 8.27
respectively, as of 08/31/09. A hypothetical
45/45/10 stock/bond/commodities portfolio
returned -10.74, 2.60 and 3.56 for the 1-, 5-
and 10-year periods, respectively, as of
08/31/09. The standard deviation for this same
hypothetical portfolio for the 1-, 5- and 10-year
periods was 18.52, 9.15 and 8.32,
respectively, as of 08/31/09. Index returns
assume reinvestment of all distributions and do
not reflect the expenses.
7
Commodities have performed well when inflation
increases
Average Annual Total
Return, (3/31/72 - 6/30/09)
Source Goldman Sachs, Bloomberg Past
performance is no guarantee of future
results. Commodities and stocks are represented
by the SP GSCI and the SP 500 Index,
respectively. Index returns assume reinvestment
of all distributions and do not reflect the
expenses. Performance during inflationary periods
is defined as follows above/below refers to G-7
CPI inflation growth relative to average
inflation growth rate for the period from March
31,1972 through June 30, 2009 rising/falling
refers to the G7-CPI inflation growth rate
relative to the year-ago inflation growth rate.
Index returns assume reinvestment of all
distributions and do not reflect the expense,
fees or taxes.
8
Commodities A store of value amid inflation
Gold vs Trade Wtd (DXY), 6/29/79 - 6/30/09
As of June 30, 2009 Source Bloomberg
9
Commodity cycles can last a long time
US Stock Market Relative to the Commodity Market,
1871-2008
As of December 31, 2008
Past performance is no guarantee of future
results. Sources Bureau of Labor Statistics and
Standard Poors Corporation. The yellow line
represents the ratio between stocks and
commodities. Stock prices prior to 1960 are from
the Cowles Commission study ordered by Standard
Poors. Commodities data from 1870-1890 is from
Warren Pearson US Commodity Average, 1891 to
1913 is from the Wholesale Price Index (WPI),
1914-present is from the Producer Price Index for
All Commodities Modern Series. For illustrative
purposes only.
10
Agenda
1
Commodities in a Portfolio
2
The Current Market Environment
3
Maximizing Commodities Returns
11
The current market environment

• Commodities have outperformed other asset classes
• Diversification benefits
• Role as an inflation hedge
• Store of value amid US dollar depreciation
• Most importantly, severely constrained supply
• Cyclical downdraft will yield to secular bull
  market
• Poor global economic conditions negatively
  impacted prices
• The drop in commodity prices and the financial
  crisis have exacerbated the supply shortage
  caused by years of underinvestment
• The long-term risk to commodity prices remains to
  the upside with spikes likely

12
Tight supply-driven pricing to slack
demand-driven pricing
Source Bloomberg
13
Metals exploration activity increased prior to
the downdraft
Source BHP Billiton, DeAM For illustrative
purposes only. NPV is net present value. WW
references the Western World.
14
Capital expenditures have plunged
Citi Global Mining Universe Capital Expenditure
Plans, US in millions
-18
-14.5
Source Citi Investment Research and Analysis, DB
15
Supply response from Non-OPEC is muted
Non-OPEC Production Since 1997 Excluding
Canada, Brazil, China, Russia, and Ex USSR
Since 2003, production has declined 22 while oil
prices have increased by over 122, suggesting an
acceleration in the decline rate
From 1997-2003, volumes from this segment of
non-OPEC were down 9
As of July 31, 2009 Source Petroleum
Intelligence Weekly
16
China drives global metals demand
Historical demand growth and percentage of world
demand
As of March 2009 Source BHP Billiton
17
China and other emerging markets drive global oil
demand
Global Oil Demand Growth, 2000 - 2009
Oil Demand Growth vs. GDP Growth
India
China
Source DB, IMF, IEA
18
Chinese commodities demand has recovered
China aluminum, copper net imports kilo
ton/month, (July 2009)
China PVC and pulp net imports kilo ton/month,
(July 2009)
Source Chinese Customs Statistics, UBS
19
The developed world is about to enter a
restocking cycle
Copper de-stocking and restocking cycles year on
year percent change
Source WBMS, CRU, Brook Hunt, CNI-A, ICSG, OECD,
UBS estimates
20
Supply and demand imbalances growing
Growth in China, India, Russia, the Middle East
?
Increased demand

Geopoliticalturmoil
Fears of constraints on supply
?
Upward pressure on commodities prices
Underinvestment, depletion, infrastructure and
power constraints, tight credit
?
Constrained supply
21
Agenda
1
Commodities in a Portfolio
2
The Current Market Environment
3
Maximizing Commodities Returns
22
Commodity index comparison
Index composition ( weight)
DJ-UBS Commodity Index Total ReturnSM
SP GSCI Total Return Index
Energy
Agriculture
Industrial Metals
Livestock
Precious Metals
Source DJ-UBSCI, SP GSCI, Goldman Sachs
weights in DJ-UBS as of 9/8/09, weights in SP
GSCI as of 9/8/09. Subject to change.
23
Commodity benchmarks are not created equal
Commodity stocks combined with direct exposure
can increase return and reduce risk
50 Direct Commodity Exposure (SP GSCI) 50
Commodity-Related Stocks (25 Materials/25
Energy)
100 Direct Commodity Exposure (DJUBS)
Average Annual Return
100 Direct Commodity Exposure (SP GSCI)
Risk
Source DB Advisors 8/31/998/31/09. Past
performance is no guarantee of future results.
This illustration does not represent the
performance of any DB Advisors portfolio and has
been provided for informational purposes only.
Direct commodities are represented by the SP
GSCI (and refer to exposure to the index, not the
actual commodities) materials stocks by the MSCI
World Materials Index and energy stocks by the
MSCI World Energy Index. A sample portfolio
consisting of 100 direct commodities exposure
(SP GSCI) returned -51.51, -4.50 and 5.02 for
the 1-, 5- and 10-year periods, respectively, as
of 8/31/09. The standard deviation for this same
portfolio for the 1-, 5- and 10-year periods was
41.24, 29.13 and 25.41, respectively, as of
8/31/09. A sample portfolio consisting of a 50/50
split of direct commodities exposure and
commodities-related stocks returned -38.86,
3.31 and 7.03 for the 1-, 5- and 10-year
periods, respectively, as of 8/31/09. The
standard deviation for this same portfolio for
the 1-, 5- and 10-year periods was 38.63, 24.46
and 19.87, respectively, as of 8/31/09. The
DJUBS index returned -33.55, 0.31, and 6.70
for the 1-, 5- and 10-year periods, respectively,
as of 8/31/09. The standard deviation for this
same index for the 1-, 5-, 10-year periods was
29.40, 20.65 and 17.51 respectively, as of
8/31/09. Index returns assume reinvestment of all
distributions and do not reflect the expenses.
24
Complete exposure to the commodity cycle

• Exchange-traded commodities
• Commodity-related equities
• Access to commodities not listed on an exchange
• Chemicals
• Iron ore
• Paper
• Steel
• Uranium
• Access to commodity-related opportunities
• Alternative energy
• Global agri-business
• Mining equipment
• Oil service

25
Maximizing commodity returns via active management

• Allocation Commodities versus commodity-related
  stocks
• Tactical positions in individual commodities
• Diversification across the curve
• Investment themes
• Security selection

26
Allocation Commodities versus commodity-related
stocks
10 Yr Returns
As of August 31, 2009 Source DB Advisors Past
performance is no guarantee of future
results. SP GSCI TR The SP Goldman Sachs
Commodities Index SP GSCI/EneMat 50 SP
Goldman Sachs Commodity Index, 25 MSCI World
Energy Index, 25 MSCI World Materials Index
Equity only Bmk 50 MSCI World Energy Index, 50
MSCI World Materials Index
27
Tactical positions in individual commodities
YTD Performance, August 31, 2009
As of August 31, 2009 Source Bloomberg
28
Diversification across the curve
As of August 31, 2009 Source Bloomberg
29
Adding value through stock selection
Dispersion of Returns
Dispersion of returns Highest and lowest return
Highest and lowest return
Dispersion of returns
Source DB Advisors, FactSet for year (08/31/08
to 08/31/09) Benchmark 50 MSCI World Energy
Index, 50 MSCI World Materials Index Past
performance is no guarantee of future results
30
Conclusion

• Commodities can play an important role in a
  diversified portfolio
• Commodity benchmarks are not created equal
• Active management best captures commodity returns
  across a broad spectrum of opportunities

31
Important information
This presentation is intended only for the
exclusive benefit and use of our clients and
prospects. This presentation was prepared, in
order to illustrate, on a preliminary basis, a
specific investment strategy and does not carry
any right of publication or disclosure. Neither
this presentation nor any of its contents may be
used for any other purpose without the prior
written consent of DB Advisors. The information
in this presentation reflects prevailing market
conditions and our judgement as of this date,
which are subject to change. In preparing this
presentation, we have relied upon and assumed
without independent verification, the accuracy
and completeness of all information available
from public sources. We consider the information
in this update to be accurate, but we do not
represent that it is complete or should be relied
upon as the sole source of composite performance
or suitability for investment. Past performance
is not indicative of future results. No
representation or warranty is made as to the
efficacy of any particular strategy or the actual
returns that may be achieved. An investment is
not a deposit and is not ensured by the Federal
Deposit Insurance Corporation or any other
government agency or by Deutsche Bank AG or any
of its affiliates. As noted in the performance
tables and charts included herein, investment
management fees have not been deducted. In the
event that such investment management fees and
other fees were deducted, the performance of an
account would be lower. For example, if an
account appreciated by 10 a year for five years,
the total annualized return for five years prior
to deducting fees at the end of the five-year
period would be 10. If total account fees were
0.10 for each of the five years, the total
annualized return of the account for five years
at the end of the five-year period would be
9.89. References to securities should not be
construed as a recommendation to purchase or sell
a particular security, and there is no assurance,
as of the date of publication, that the
securities purchased remain in a portfolio or
that securities sold have not been repurchased.
Additionally, it is noted that the securities
referenced do not represent all of the securities
purchased, sold, or recommended during the period
referenced, and there is no guarantee as to the
future profitability of any of the securities
identified and discussed herein. A list of all
the International Select Equity portfolio
transactions during that past 12 months is
available upon request. We or our affiliates or
persons associated with us, or such affiliates
(associated persons) may maintain a long or short
position in securities referred to herein, or in
related futures or options purchase or sell,
make a market in, or engage in any other
transaction involving such securities, and earn
brokerage or other compensation in respect of the
foregoing. There are risks involved in foreign
investing. Such risks may include fluctuations
in foreign exchange rates, political or economic
instability in those countries in which the
securities issuers are located may be more
volatile. The risk may be magnified for emerging
markets.
I-013698-1.0 (0909)