The Eclectica Fund

PERFORMANCE ATTRIBUTION REPORT

31 December 2010

Performance Summary 'A' € Shares 31 December 2010 Performance Attribution

HFR Macro Since Inception (%) 2010 (%)
TEF Relative
Index* Equity (Net) 80.8 0.4
1 Month -2.1 +1.3 -3.4
Bonds 82.0 8.9
3 Months -8.1 +1.2 -9.3 CDS -10.5 -5.5
1 Year +2.7 -1.7 +4.4 Commodity 37.2 1.5
Year to date +2.7 -1.7 +4.4 Currency -20.6 -1.0
Since launch +114.8 +29.6 +85.2 Carry -52.6 -1.6
CAGR since launch +9.7 +3.2 +6.5 Past performance is not a guide to future returns.

Calendar Years Net Interest Rate Positions - Premium (% NAV)

2002 (from 30 September) -4.2 +3.1 -7.3 31/12/10 30/11/10
2003 +49.9 +14.6 +35.3 AUD 0.2 0.3
2004 +8.0 -0.3 +8.3 EUR 1.0 2.1
2005 +14.2 +6.7 +7.5 GBP 3.2 4.0
JPY 0.1 0.1
2006 -3.7 +5.6 -9.3
USD 0.4 1.0
2007 +1.6 +3.2 -1.6
Total 4.9 7.5
2008 +31.2 +5.6 +25.6
2009 -8.0 -8.8 +0.8 DV01 Summary (Change in Fund performance for a 0.01% rise in rates)
*HFR Macro Index in USD – Assumes constituent funds performance is fully hedged. 1-2y 5y 10y+ Total
Bloomberg Ticker: HFRXM Index
Past performance is not a guide to future returns.
AUD -0.01 0.00 0.00 -0.01
EUR 0.00 -0.03 0.00 -0.03
Performance Chart GBP -0.03 -0.02 0.00 -0.05
HUF 0.00 0.00 0.00 0.00
250
JPY 0.00 0.00 0.00 0.00
USD 0.00 0.00 0.00 0.00
225
*Numbers assume a 1 bp parallel shift on all interest rate curves
200
CDS Position Breakdown Summary (% NAV)
175 Notional Annual Profit at Previous Max Best
Exposure Carry 2yr High Loss Case*
Total CDS 371.3 -2.0 36.5 -7.5 283.0
150
*Based on Corporate CDS Recovery Rate of 25%.
125 Asset Allocation Summary (% NAV)
31/12/10 30/11/10
100
Gov Bonds ≥ 10yr 0.0 -2.7
Corp Bonds 6.8 7.4
75
2003 2004 2005 2006 2007 2008 2009 2010 2011 Interest Rates – Net (Premium) 4.8 7.5
CDS (Gross Notional Exposure) 371.3 360.6
Fund (EUR) HFR Macro Index (USD) MSCI World (EUR) Currency 11.8 11.0
Long Equity 8.2 8.4
Source: Daiwa/ HFRXM. Calculation on NAV basis.
Past performance is not a guide to future returns. Short Equity -2.4 -3.5
Net Equity 5.8 4.9
Monthly and Yearly Performance % (€ A Shares net of fees) Commodity 7.2 6.4
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD • Commodity & FX include listed & OTC derivatives, cash or futures on a net delta basis.
2002 +0.0 -4.8 -0.1 +0.8 -4.2 • Equity include listed & OTC derivatives, cash or futures on a net delta basis, options on a premium
2003 +5.2 -8.1 -4.6 +8.8 +16.2 +1.9 +1.8 +4.2 +7.8 +1.9 -3.7 +12.4 +49.9 basis.

2004 +4.0 -1.0 +4.6 -4.9 -0.9 -1.7 -0.2 +0.5 +3.4 +5.7 +1.7 -3.0 +8.0 Fund Data
2005 +2.4 +9.7 -2.5 -0.1 -4.8 +3.5 +0.0 +4.2 +8.5 -7.0 -4.8 +5.9 +14.2
NAV £ € $
2006 +12.7 -8.2 -0.8 +3.6 -5.4 +3.6 -5.9 -2.1 +2.2 -2.1 +0.9 -0.6 -3.7
'A' Shares 238.81 214.82 219.12
2007 +0.7 +1.7 -2.9 +0.7 +1.8 +3.7 -1.0 -6.4 +1.8 -1.8 -3.4 +7.5 +1.6
'B' Shares 125.05 121.71 117.74
2008 +5.5 +18.0 -15.6 -2.7 -3.9 +2.4 -9.1 -1.7 -5.7 +49.8 +2.9 +0.4 +31.2
2009 +1.9 +3.7 -2.1 -5.4 -0.9 -1.4 -1.7 +0.9 -0.1 -1.9 +3.0 -4.0 -8.0
‘C’ Shares n/a 91.06 97.29
2010 +3.7 +5.2 -0.2 -0.5 +1.7 +2.5 +0.6 +1.6 -3.1 -1.9 -4.3 -2.1 +2.7 AUM $240.0m
 The Eclectica Fund
PERFORMANCE ATTRIBUTION REPORT
31 December 2010
An Accidental Consequence of an Evolutionary Adaption?
I read recently about how the offspring of starving pregnant
mothers are born hard-wired to anticipate tough times during their
own life and adjust their metabolisms accordingly to hoard
calories. However in the absence of such adversity they have a
tendency to gain weight and can suffer from all its attendant
unpleasantness.
In a similar vein, you must remember that our present generation
of bond vigilantes was born under different circumstances. They
were nurtured to anticipate vigorous economic recoveries that
persisted for several years as the private sector re-leveraged its
balance sheet and created the potential for demand pull inflation.
The wiser central bankers pre-emptively raised interest rates.
Bond markets have a thing for conditional responses and true to
their Pavlovian nature they have been hoarding interest rate
payers ever since the emergence of a cyclical recovery in the West
last year was augmented by the promise of QE2 in the autumn. As
a result, speculators have squeezed Sterling and euro rates higher
and the Fund has suffered a reversal. We lost another 2% in
December, all from the diminishing pool of interest rate swaptions.
A modest 34bps loss on CDS was offset by small gains in
commodities, FX and equities.
However, having structured our trades through the use of
swaptions, the Fund’s draw down has effectively de-risked the
portfolio. Presently we only have 2.4% of NAV at risk to further
negative marks from higher rates, and only 18bps expire over the
next 6 months. Indeed with our present low risk exposure we
would almost welcome further hawkish commentary and an
additional slide in short sterling. For it is our contention that the
shadow of policy error lurks once more; our rate vigilantes may
have grown fat on an erroneous proposition and we are willing to
re-establish risk positions should we see a further aggressive sell-
off.
Inflation has become a sure thing and British rates are definitely
going up. Our one reservation is that whilst money is plentiful in
the capital markets it is hardly gushing through the British
economy, and annual wage demands at 2% yoy remain modest.
Could it not be that the price hikes in non-discretionary items such
as utility bills, food and petrol produce a corresponding reduction
in household demand for discretionary consumer items?
But if life has taught me anything it is that it is safer not to be
adamant on any issue; we don’t live in a rational world and I don’t
zzz
fight the trend. So let Trichet boast at his Bank’s decision to raise
rates back in the cauldron month of July 2008. I salute him for his
willingness to subject the Bank’s decisions to open scrutiny. It
doesn’t matter that tightening monetary policy amidst the deepest
economic crisis of the last fifty years was perhaps not his
institution’s finest hour. What is more pertinent is that with
headline inflation rates being boosted by relative price hikes in the
commodity sector, as Chinese policy makers continue to plug 10%
into their GDP calculators, another poorly timed hike in European
rates can not be so easily dismissed.
So here we are at the start of a new annual campaign for the Fund.
The markets are pricing in the near certainty of a quarter point rise
from the Bank of England by May with another rate increase
expected before October. And the zealous guardians of Europe’s
fiat monetary system are clearly itching to enter the fray. Forget
the Continent’s tight fiscal policy and that numerous banking
systems remain in a fragile equilibrium supported only by the ECB’s
lending window; the markets are persuaded that European rates
are likely to rise before the end of the summer. After all, as they
say in the land of macro investing, the cycle isn’t over until the
Europeans hike rates.
But with regard to our trading strategy, Australia is perhaps most
indicative of the path we might take. The Royal Bank of Australia
started tightening back in October 2009 and yet despite rates rising
subsequently from 3% to 4.75%, forward expectations peaked
three weeks following the first 25bps increase. Market
participants, with their predilection for vigorous and inflationary
cyclical recoveries had over-egged the desire and ability of the
authorities to raise rates in the manner priced in.
So we reason that the best time for owning Sterling receiver
packages is just as the Bank commits to a rate hike. Of course that
necessitates that we hold our fire until such time as the authorities
are pressed into action. This is harder than it sounds. We are
currently passing on swaptions packages that could pay out 10x
over the next six months should the rate mania dissipate. Rate
hikes are of course not guaranteed (and philosophically we would
argue are unnecessary) and a combination of many factors from a
swoon in the stock market to weak employment data could
encourage a reappraisal of the forward curve. Nevertheless, should
this scenario prevail, and the Sterling one and five year swap yields
fall back to the levels prevailing in October, the Fund could
potentially make a high single digit return from this component of
the book. But by choosing to be more selective with our timing we
would hope to capture much more.
 The Eclectica Fund
PERFORMANCE ATTRIBUTION REPORT

31 December 2010

Investment Objective
The investment objective of the Fund is to achieve capital appreciation, whilst
limiting risk of loss, by investing globally long and short mainly in quoted securities,
government bonds and currencies, but also in commodities and other derivative
instruments.

Fund Information
Manager Details
Investment Manager Eclectica Asset Management LLP
Administrator Daiwa Europe Fund Managers Ireland Ltd
Fund Details
Fund Managers Hugh Hendry & Espen Baardsen
Inception Date 30 September 2002
Share Classes €/£/$
Structure OEIC Incorporated in the Cayman Islands within a
Master Feeder structure
Price Reporting Bi-monthly
Fund Identifiers: Sedol ISIN
‘A’ Shr € 3186598 KYG292401190
‘A’ Shr £ 3186617 KYG292401273
‘A’ Shr $ 3207745 KYG292401018
‘B’ Shr € B27WCV7 KYG292401356
‘B’ Shr £ B27WCX9 KYG292401430
‘B’ Shr $ B27WCW8 KYG292401505
‘C’ Shr € n/a KYG292401760
‘C’ Shr $ n/a KYG292401687
Minimum Investment €100,000 or equivalent in £/ $100,000
Dividends Accumulated
Stock Exchange Listing Irish
Fees, Costs & Redemption Structure
Dealing ‘A’ Shares 1st & 15th of each month
Dealing ‘B’ & ‘C’ Shares 1st of each month
Dealing Notice 7 days before dealing day
Dealing Line (+353) 1 603 9921
Dealing Fax (+353) 1 647 5830
Dealing Email daiwaSHSdealing@daiwagas.com
AMC ‘A’ Shares 1%
AMC ‘B’ & ‘C’ Shares 2%
Performance Fee 20%
Exit Fee 1% exit fee on redemptions within first 12 months
Service Providers
Custodian/ Prime Broker Morgan Stanley and Co Int Plc
Credit Suisse Securities (Europe) Ltd
Custodian Daiwa Securities Trust & Banking (Europe Plc)
Auditors Deloitte & Touche
Financial Year End 31 December
Listing Sponsor McCann FitzGerald

Eclectica Asset Management: Investor Relations

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