Classification: Confidential
* * Prepared exclusively for Jeffrey Epstein, Key Client Partners (KCP) * * *
Jeffrey -
Globally you are seeing the rotation from high-beta, small cap and growth stocks into large-cap value.
This is inline with your early call for us to pull out a concentrated five names. Entry point here.
Instead of those single stocks, consider a 510-15mm total return swap on Cash Return On Capital Invested
(CROCI) index. specifically, the CROCI sub-index focused on dividend paying/dividend-growing us
equities.
I've included my colleague, Joe Hall, who sits on the CROCI team and will gladly detail this stock-
selection strategy with you directly at any point.
Full presentation is attached, a few key points here:
Achieve benefits of active valuation for passive price
Bottoms-up valuation - DB CROCI Analyst team (60 people globally) assess each company in it's global
universe (800 stocks) from an Economic PE* perspective, adjusting balance sheets to reconcile operating
cash flow across sectors for comparable stock-valuation
Quantitative selection - stocks selected each month based on the lowest price-to-operating-earnings
ratio, based on their valuation metrics (above)
Stock universe is ex-financials
Re-sets monthly
Transparent - pull up the CROCI indices on Bloomberg for mark-to-market (ex: DBUSSDUT = CROCI US
Dividends)
Implementation can be customized via a separately managed account (SMA) of single stocks
Tax-efficient, liquid, levered exposure can be achieved via total -return swap (TRS)
10 principal indices in the CROCI family: US, UK, Japan, Germany, Euro, World, World Ex-Japan, Sectors
III, Global Dividends and US Dividends
CROCI Dividends targets companies with sustainable dividends AND attractive valuations (performance
below and p 7 of the attached)
Long only - TRS on CROCI US Dividends (DBUSSDUT):
underlying: CROCI Div (DBUSSDUT)
Client Pays: 3mLibor + 0.85% p.a.,x Notional
compounded quarterly
Client Rcvs: Notional x [Final/Initial - 1]
Initial Margin: 20%
Long/short us Only - Long CROCI us Dividends vs. Short s&P 500 (two swaps):
underlying: CROCI Div (DBussouT) and s&P 500 (sPTR)
client Pays: [SPTR Perf - (3mLibor + 0.20% p.a)] x Notional
Client Rcvs: (DBUSSDUT Perf - (3mLibor + 0.80% p.a.)] x Notional
Initial Margin: 20%
Index Perf = [(Final/Initial - 1)]
Indicative levels as of 4/8/14. source: DB GM Equity Derivatives.
* (Enterprise Value/Net Capital Invested)/(Cash Return on Capital Invested)
5-Year History of CROCI US DIVIDENDS vs. S&P 500 Inedex (source: Bloomberg, as of close 4/7/14)
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Used with permission of Bloomberg Finance LP
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(See attached file: FINAL I-34272-1 slimCROCI 12-31-13.pdf)
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Tazia Smith
CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0101864
CONFIDENTIAL SDNY_GM_00248048
EFTA01447276