Indices Proposal

FUND FOR WORLD INDICES FUTURES/CFD
RISK ALLOCATION
1) Before any trading plan, risk allocation come first.
2) Define risks we able to take base on overall capital, such as 1%, 2% & etc. No doubt, low risk
generates lower return. Base on back test results of 11 world indices, the overall profit–risk ratio
are obtained as Table 5.
3) Risk diversification is another method to reduce portfolio drawdown. By diversify in different

world indices futures/CFD are able to reduce the risk of having the same drawdown all at the
same time. By referring Graph 33~43, we can see that individual indices is experiencing different
degree of drawdown at different period. However, when we diversify the portfolio to 11 indices,
we can see from Graph 44 where the equity curve becoming smoother with very small drawdown
occurred along the time. Again, for further emphasizing on diversification, Graph 45 had shown
that the degree of drawdown risks had been reduced significantly when products in portfolio
increased. From above analysis, I conclude that diversify our portfolio to more than 20 or 30
products will definitely reduce the portfolio risk drastically.
4) Risk on Fix-Income deposit. From my research, the overall drawdown seldom/never goes beyond
half of the capital while we taking 10% risk & below (refer table 6). In another word, we can
take half of the funds ($0.5 mil.) for other fix-income investment. Here, I would choose an
example of SINGAPORE GOV'T Bond with 3% coupon. Basically the risk control for Fix-
Income is much simpler. Government bonds are usually referred to as risk-free bonds, because
the government can raise taxes to redeem the bond at maturity. Some counter examples do exist
where a government has defaulted on its domestic currency debt, though this is very rare.
However, other risks still exist, such as currency risk for foreign investors (for example non-US
investors of US Treasury securities would have received lower returns in 2004 because the value
of the US dollar declined against most other currencies). One way to compensate on currency risk
is hedge it by currency futures products.
CAPITAL ALLOCATION
1) Assume we have $1 mil. Singapore dollar funds in our trading book.
2) The capital allocations are simple where 50% of the capital shall go to fix-income (BONDS) &
another 50% allocated on world indices futures/CFD.
TRADING STRATEGY
1) Trend following strategy.

RESULTS
1) Base on above mentioned strategy, there are 2 incomes generated. Indices futures/CFD
investment & fix-income.
2) From back test result, I will take example of 3% risk (approx. 5.2% overall drawdown) with
129% compounding return on indices within Nov 2007 to Nov 2010. Hence, the profits are $1.29
million Singapore dollar out of 1 million.
3) As for fix-income;
- Assume Singapore Government BOND with 3% coupon.
- 3.0% x $0.5 mil. = $15k. After fees deduction, we assume $14k as profits from it.
4) Hence, overall compounding profits for fund shall be $1.29 mil. + $42k ($14k x 3years) = $1.332
mil. with only 3% risk taken. The compound annual growth rate is approximately 32.5%.
CONSLUSION
Again, I am using a simple way to perform risks and returns in managing a fund instead of using
those complex formulas in text book just to prove that eventually a well and proper risk managed
fund is able to results a huge profitable of returns.
RISK VERSUS RETURN CHART FOR ASX 200 FROM NOVEMBER 2007 TO NOVEMBER 2010
$4,000,000
$3,500,000
$3,000,000
PROFIT/LOSS IN RETURN
$2,500,000 1% RISK
2% RISK
3% RISK
4 % RISK
$2,000,000 5 % RISK
6 % RISK
7 % RISK
8 % RISK
$1,500,000 9 % RISK
10 % RISK
$1,000,000
$500,000
$0
09-Nov-07 09-Jan-08 09-Mar-08 09-May-08 09-Jul-08 09-Sep-08 09-Nov-08 09-Jan-09 09-Mar-09 09-May-09 09-Jul-09 09-Sep-09 09-Nov-09 09-Jan-10 09-Mar-10 09-May-10 09-Jul-10 09-Sep-10 09-Nov-10
NOVEMBER 2007 TO NOVEMBER 2010
GRAPH : 33
RISK VERSUS RETURN CHART FOR HANG SENG FROM NOVEMBER 2007 TO NOVEMBER 2010
$200,000
$180,000
$160,000
N RETURN
$140,000
1% RISK
$120,000 2% RISK
PROFIT/LOSS IN
3% RISK
3% RISK
4 % RISK
$100,000 5 % RISK
6 % RISK
7 % RISK
$80,000 8 % RISK
9 % RISK
10 % RISK
$60,000
$40,000
$20,000
$0
09‐Nov‐07 09‐Jan‐08 09‐Mar‐08 09‐May‐08 09‐Jul‐08 09‐Sep‐08 09‐Nov‐08 09‐Jan‐09 09‐Mar‐09 09‐May‐09 09‐Jul‐09 09‐Sep‐09 09‐Nov‐09 09‐Jan‐10 09‐Mar‐10 09‐May‐10 09‐Jul‐10 09‐Sep‐10 09‐Nov‐10
GRAPH : 34
RISK VERSUS RETURN CHART FOR INDIA FROM NOVEMBER 2007 TO NOVEMBER 2010
$4,000,000
$3,500,000
$3,000,000
N RETURN
$2,500,000 1% RISK
2% RISK
PROFIT/LOSS IN
3% RISK
3% RISK
4 % RISK
$2,000,000 5 % RISK
6 % RISK
7 % RISK
8 % RISK
$1,500,000 9 % RISK
10 % RISK
$1,000,000
$500,000
$0
GRAPH : 35
RISK VERSUS RETURN CHART FOR S&P 500 FROM NOVEMBER 2007 TO NOVEMBER 2010
$200,000
$180,000
$160,000
N RETURN
$140,000
1% RISK
$120,000 2% RISK
PROFIT/LOSS IN
3% RISK
3% RISK
4 % RISK
$100,000 5 % RISK
6 % RISK
7 % RISK
$80,000 8 % RISK
9 % RISK
10 % RISK
$60,000
$40,000
$20,000
$0
GRAPH : 36
RISK VERSUS RETURN CHART FOR KLCI FROM NOVEMBER 2007 TO NOVEMBER 2010
$14,000,000
$12,000,000
N RETURN
$10,000,000
1% RISK
2% RISK
$8,000,000
PROFIT/LOSS IN
3% RISK
3% RISK
4 % RISK
5 % RISK
6 % RISK
7 % RISK
$6,000,000
8 % RISK
9 % RISK
10 % RISK
$4,000,000
$2,000,000
$0
GRAPH : 37
RISK VERSUS RETURN CHART FOR CAC FROM NOVEMBER 2007 TO NOVEMBER 2010
$400,000
$350,000
$300,000
N RETURN
$250,000 1% RISK
2% RISK
PROFIT/LOSS IN
3% RISK
3% RISK
4 % RISK
$200,000 5 % RISK
6 % RISK
7 % RISK
8 % RISK
$150,000 9 % RISK
10 % RISK
$100,000
$50,000
$0
GRAPH : 38
RISK VERSUS RETURN CHART FOR DAX FROM NOVEMBER 2007 TO NOVEMBER 2010
$140,000
$120,000
N RETURN
$100,000
1% RISK
2% RISK
$80,000
PROFIT/LOSS IN
3% RISK
3% RISK
4 % RISK
5 % RISK
6 % RISK
7 % RISK
$60,000
8 % RISK
9 % RISK
10 % RISK
$40,000
$20,000
$0
GRAPH : 39
RISK VERSUS RETURN CHART FOR NIKKEI 225 FROM NOVEMBER 2007 TO NOVEMBER 2010
$1,200,000
$1,000,000
N RETURN
$800,000
1% RISK
2% RISK
PROFIT/LOSS IN
3% RISK
3% RISK
4 % RISK
$600,000 5 % RISK
6 % RISK
7 % RISK
8 % RISK
9 % RISK
10 % RISK
$400,000
$200,000
$0
GRAPH : 40
RISK VERSUS RETURN CHART FOR UK 100 FROM NOVEMBER 2007 TO NOVEMBER 2010
$120,000
$100,000
$80,000
1% RISK
2% RISK
3% RISK
4 % RISK
$60,000 5 % RISK
6 % RISK
7 % RISK
8 % RISK
9 % RISK
10 % RISK
$40,000
$20,000
$0
GRAPH : 41
RISK VERSUS RETURN CHART FOR STI FROM NOVEMBER 2007 TO NOVEMBER 2010
$450,000
$400,000
$350,000
$300,000
1% RISK
2% RISK
$250,000 3% RISK
4 % RISK
5 % RISK
6 % RISK
$200,000 7 % RISK
8 % RISK
9 % RISK
10 % RISK
$150,000
$100,000
$50,000
$0
GRAPH : 42
RISK VERSUS RETURN CHART FOR AUSTRAIN FROM NOVEMBER 2007 TO NOVEMBER 2010
$1,400,000
$1,200,000
$1,000,000
1% RISK
2% RISK
$800,000
3% RISK
4 % RISK
5 % RISK
6 % RISK
7 % RISK
$600,000
8 % RISK
9 % RISK
10 % RISK
$400,000
$200,000
$0
GRAPH : 43
RISK VERSUS RETURN CHART FOR OVERALL PORTFOLIO FROM NOVEMBER 2007 TO NOVEMBER 2010
$25,000,000
$20,000,000
1% RISK
$15,000,000 2% RISK
3% RISK
4 % RISK
5 % RISK
6 % RISK
7 % RISK
$10,000,000 8 % RISK
9 % RISK
10 % RISK
$5,000,000
$0
GRAPH : 44
OVERALL PORTFOLIO WITH PROFIT TO RISK RATIO
BIGGEST DRAWDOWN (%) PROFITS RETURN (%) FOR PORTFOLIO WITH 11 INDICES
RISK TOLERANCE (%) PROFITS-RISK RATIO
FOR PORTFOLIO WITH 11 INDICES (FROM 09 NOV 2007 TO 09 NOV 2010)
1 -1.44 27 27
2 -3.20 68 34
3 -5.18 129 43
4 -7.39 213 53
5 -9.82 332 66
6 -12.54 493 82
7 -15.47 725 104
8 -18.40 1020 128
9 -21.57 1439 160
10 -24.72 1977 198
11 -27.79 2671 243
12 -31.00 3595 300
13 -34.06 4743 365
14 -37.03 6135 438
15 -39.97 7854 524
16 -42.80 9937 621
17 -45.55 12356 727
18 -48.23 15295 850
19 -50.81 18642 981
20 -53.26 22311 1116
RECORD OF PROFITS RETURN AGAINST RISK FOR PORTFOLIO WITH 11 INDICES (FROM 09 NOV 2007 TO 09 NOV 2010).
TABLE : 5
COMPARISON TABLE FOR BIGGEST DRAWDOWN
FROM NOVEMBER 2007 TO NOVEMBER 2010
DRAWDOWN (%)
RISK TAKEN 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
ASX 200 -4.79 -9.67 -14.28 -18.89 -23.34 -27.70 -31.91 -35.98 -39.91 -43.70
HANG SENG -9.65 -19.59 -28.62 -37.03 -44.23 -50.65 -56.58 -61.62 -66.46 -70.62
INDIA -7.65 -14.98 -21.75 -28.06 -33.89 -39.30 -44.30 -48.94 -53.22 -57.19
S & P 500 -7.66 -14.87 -21.57 -27.87 -33.66 -39.04 -44.39 -49.55 -54.48 -58.97
KLCI -4.38 -8.69 -13.01 -17.14 -21.06 -24.85 -28.46 -31.95 -35.29 -38.49
CAC -5.87 -11.76 -17.25 -22.52 -27.45 -32.08 -36.53 -40.65 -44.59 -48.29
DAX -9.14 -21.26 -30.54 -39.40 -47.31 -54.57 -60.66 -65.44 -70.55 -74.94
NIKKEI 225 -3.64 -8.74 -13.13 -17.58 -21.66 -25.36 -29.21 -32.79 -36.20 -39.53
UK 100 -10.13 -22.00 -32.25 -41.09 -48.42 -56.18 -61.54 -69.05 -74.54 -79.85
STI -3.80 -7.61 -12.25 -16.16 -19.95 -23.90 -27.52 -31.24 -34.71 -38.12
AUSTRIAN -4.46 -8.97 -13.31 -17.46 -21.50 -25.36 -29.04 -32.74 -36.31 -39.73
OVERALL PORTFOLIO -1.44 -3.20 -5.18 -7.39 -9.82 -12.54 -15.47 -18.40 -21.57 -24.72
TABLE : 6
COMPARISON TABLE FOR PROFIT/LOSS FROM NOVEMBER 2007 TO NOVEMBER 2010
PROFIT / LOSS (%)

RISK TAKEN 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
ASX 200 49 130 236 371 554 788 1073 1415 1828 2308
HANG SENG 13 28 38 49 59 66 72 76 76 75
INDIA 70 180 341 567 872 1273 1789 2411 3170 4039
S & P 500 7 13 18 21 23 24 24 21 18 14
KLCI 73 215 471 891 1531 2523 4081 6180 9425 13822
CAC 19 32 49 66 79 91 103 112 118 119
DAX -1 -6 -8 -13 -17 -27 -33 -39 -47 -53
NIKKEI 225 26 61 103 156 222 281 359 439 525 596
UK 100 -4 -11 -16 -25 -31 -40 -46 -54 -61 -69
STI 16 39 63 86 114 135 156 178 197 211
AUSTRIAN 29 68 118 176 240 312 395 483 578 682
OVERALL PORTFOLIO 27 68 129 213 332 493 725 1020 1439 1977
TABLE : 7
COMPARISON TABLE FOR ANNUAL PROFIT/LOSS
FROM NOVEMBER 2007 TO NOVEMBER 2010
PROFIT / LOSS (%)

RISK TAKEN 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
SEP 2007 TO SEP 2008 10.5 23.5 39.7 57.7 78.5 101.4 129.7 159.3 197.0 238.0
SEP 2008 TO SEP 2009 7.9 18.1 30.5 44.5 60.8 79.3 100.8 123.9 150.1 178.4
SEP 2009 TO SEP 2010 6.5 15.2 25.3 37.4 50.4 64.3 78.8 93.0 107.2 120.7
AVERAGE ANNUAL RETURN 8.3 18.9 31.9 46.5 63.2 81.7 103.1 125.4 151.4 179.0
ANNUAL RETURN (CAGR) 8.3 18.9 31.7 46.3 62.8 81.0 102.0 123.8 148.7 174.9
OVERALL RETURN ON
INVESTMENT (ROI) 27.0 68.0 128.5 213.2 331.6 493.2 724.8 1020.2 1438.8 1976.7
TABLE : 8
BIGGEST DRAWDOWN IN DIFFERENT DEGREE OF RISK TAKEN VS INDICES DIVERSIFICATION IN PORTFOLIO
10 INDICES
11 INDICES
1 INDICES
2 INDICES
3 INDICES
4 INDICES
5 INDICES
6 INDICES
7 INDICES
8 INDICES
9 INDICES
0.00
1% RISK 2% RISK
-10.00
3% RISK 4% RISK
5% RISK 6% RISK
-20.00
BIGGEST DRAWDOWN (%)
7% RISK 8% RISK
-30.00
9% RISK 10% RISK
-40.00
11 % RISK 12 % RISK
13 % RISK 14 % RISK
-50.00
15 % RISK 16 % RISK
-60.00
17 % RISK 18 % RISK
-70.00
19 % RISK 20 % RISK
-80.00
GRAPH : 45

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FUND FOR WORLD INDICES FUTURES/CFD

1) Before any trading plan, risk allocation come first.

3) Risk diversification is another method to reduce portfolio drawdown. By diversify in different

1) Assume we have $1 mil. Singapore dollar funds in our trading book.

1) Trend following strategy.

- Assume Singapore Government BOND with 3% coupon.

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

NOVEMBER 2007 TO NOVEMBER 2010

PROFIT / LOSS (%)

PROFIT / LOSS (%)

9% RISK 10% RISK

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