Any views and/or commentary contained in this communication are of the Barclays Trading and/or Distribution desks, have

not been produced by Barclays’ Research Department and are not

Investment Research or personal recommendations. Certain communications, where expressly indicated, may contain an Investment Recommendation. For important disclosures relating to this
communication, please see [Link]/salesandtradingdisclaimer.

9th September 2022

INVESTMENT STRATEGIES
QIS Insights Zhun XIANG
[Link]@[Link]
The Case to Replace: Volatility Risk Premium
vs. Equity Risk Premium Dhvani Gupta
[Link]@[Link]

 In this paper, we study the rationale and impact of replacing long equity exposure with Benedict Redmond
exposure to the Equity Volatility Risk Premium (VRP). [Link]@[Link]

 Firstly, we examine the empirical interaction between the VRP and Equity Risk
Premium (ERP). We find out that the perception of highly positive correlation
between the two premiums is only partially accurate. Their performance diverges
materially in certain scenarios like the Dot Com Bubble Burst, in which the returns of
the VRP were more appealing. The positive correlation is largely driven by crisis
scenarios, however during more benign or positive equity markets, the correlation is
much lower.

 Despite the attractiveness of the VRP, the application of derivatives makes an

appropriate implementation challenging. The outcomes from short volatility
strategies may differ significantly and thus it is crucial for investors to understand the
associated risks of each implementation to avoid unexpected outcomes.

 Lastly, we share some practical sizing approaches to integrate the VRP into a Multi-
Asset Portfolio, and show evidence of the diversification benefits by replacing a
fraction of the equity exposure in such a portfolio. Sizing based on risk metrics such
as historical annualised volatility or conditional value-at-risk (CVaR) can result in high
levels of leverage. However, sizing the exposure based on an equal return
contribution approach can help investors manage their return targets. Historical data
shows that this approach also delivered lower annualised volatility and CVaR of the
portfolio, resulting in higher Sharpe Ratios.

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

1
Introduction
Despite the recent retreat in global equity markets, stock market valuations are still relatively stretched. The Cyclically
Adjusted PE (CAPE) ratio, which identifies long-term valuations of equity markets, shows that the valuations of US
equity markets stand at high levels versus the last 40 years, while the valuations of European markets are roughly at
the historical median1.

Figure 1: CAPE Ratio in the US and Europe

(January 1981 to August 2022)
50
45
40
35
30 29.03 (August 22)
25 76th percentile
20 19.39 (August 22)
nd
15 52 percentile
10
United States Europe
5
0
82' 86' 90' 94' 98' 02' 06' 10' 14' 18' 22'
Source: Barclays, MSCI

Currently, central banks are deploying monetary tools to contain inflation, which has broken the negative correlation
between equities and bonds observed in the past 20 years as plotted in Figure 2. As a result, traditional 60/40 portfolios
face a fundamental challenge, which is pushing investors to re-evaluate their asset allocations and to seek alternative
return sources.

Figure 2: Rolling 1-year Correlation between S&P 500 and US 7-10 Treasury
(December 2000 to August 2022)
100%

75%

50%

25%

0%

-25%

-50%

-75%

-100% Long-term Avg 1-Year Correlation

Dec-01' Dec-06' Dec-11' Dec-16' Dec-21'

Source: Barclays, Bloomberg. Correlation based on monthly returns

In the meantime, market volatilities have risen across asset classes. These elevated levels are a result of several risks
being priced in such as, inflationary pressure, global rate hikes, escalating geopolitical tensions and pressure on the
post-pandemic global supply chain. Moreover, the interest on short volatility strategies has not recovered after the
large drawdowns suffered by these strategies in both 2018 and 2020, which reduces the downward pressure on
volatility levels. The current outstanding non-commercial open interest on Cboe Volatility Index (VIX) futures is net
short in the range of $100mn vega, which is approximately half of its pre-COVID peak level.

1 Universes are MSCI USA & MSCI Europe: [Link]

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

2
 Figure 3: Volatility Level % Change since the Figure 4: Open Interest on VIX Futures from Non-
beginning of 2022 Commercial Traders
(December 2021 to August 2022) (January 2010 to August 2022)

% change as of 31 Dec 2021 Open interest in $mn vega

150% 150
100
120%
50
90%
0
60% -50
-100
30%
-150
0%
-200
-30% -250
Jan-22' Mar-22' May-22' Jul-22' Jan-10' Jan-14' Jan-18' Jan-22'
VIX Index Source: Barclays, Bloomberg. As obtained from Bloomberg
EURUSD 1M ATM Vol Ticker: CVXCTNCN Index: CFTC VIX Futures Non-
USD Swaption 3M10Y ATM Vol
Commercial Net Total/Combined
Source: Barclays, Bloomberg

In this paper, we walk through the rationale, features and implementation choices of the VRP, which is frequently
referred to as an Alternative Risk Premium. We believe it acts not only as an efficient return engine to substitute the
equity exposure in a Multi-Asset Portfolio, but also provides useful diversification to the overall portfolio risk profile.

Volatility Risk Premium

The VRP refers to the phenomenon that implied volatility of an option usually trades at a premium relative to the future
realised volatility of the underlying. This premium tends to be positive across asset classes in global capital markets.
Figure 5 plots the VRP of the S&P 500 Index, measured by the Cboe 30-day Implied Volatility (VIX) Index minus the
subsequent 30-day realised volatility of the S&P 500 Index. Historically, the premium has been positive 86% of the
time with an average of 4.2 volatility points since 1990. An investor may be able to exploit this premium by
systematically taking a short volatility exposure.2

Figure 5: The VRP in S&P 500 Index Drivers behind the VRP2
(January 1990 to August 2022) The VRP is driven by demand for options
VRP in volatility points from investors who cannot afford large
50
portfolio drawdowns and are forced to
buy hedges. The VRP can, therefore, be
25 seen as a compensation to option sellers
for the risk of losses during periods when
realised volatility increases suddenly, or a
0 compensation for providing insurance
against market losses.

-25
Moreover, the imbalance between supply
and demand, shaped by external factors
-50 including regulatory requirements, leve-
90' 94' 98' 02' 06' 10' 14' 18' 22' rage appetites, investor utility etc. can
Source: Barclays, Bloomberg further enrich this premium.

2 Ang, I.C., Israelov, R., Sullivan, R., Tummala, H., (2018), “Understanding the Volatility Risk Premium”, AQR Capital

Management
This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

3
Is the VRP simply a market beta effect?
Figure 6 shows a scatter-plot of S&P 500 30-day returns versus the corresponding VRP in volatility points. We ran a
linear regression of the VRP of S&P 500 versus its returns over the same period. The slope is positive and significant
with 99% confidence interval at (88.0, 94.9), which indicates the existence of positive correlation between the VRP and
equity returns. Meanwhile, we also observe that the intercept is notably significant as well with 99% confidence
interval at (3.32, 3.63), establishing that the excess 3.48 volatility points of VRP are independent of the equity market
direction. Hence, VRP is not simply a market beta effect but does have additional alpha.

𝑉𝑅𝑃𝑖𝑛 𝑣𝑜𝑙 𝑝𝑜𝑖𝑛𝑡𝑠 = 91.4 × 𝑆𝑃𝑋1𝑚_𝑟𝑒𝑡𝑢𝑟𝑛 + 3.48 𝑅2 = 36.9%

Figure 6: The VRP versus ERP in S&P 500 Index

(January 1990 to August 2022)
VRP in volatility points
40

20

0
y = 91.4x + 3.48
-20 R² = 36.9%

-40

-60

-80
-40% -30% -20% -10% 0% 10% 20% 30%
S&P 500 30-day returns

Source: Barclays, Bloomberg

At first glance, the above result is somehow counterintuitive. As per the definition, VRP is a simple difference between
implied volatility and realised volatility. Implied volatility is a constant determined based on option prices quoted by
various market participants, while realised volatility is calculated by only taking the magnitude of underlying moves.
Thus mathematically, VRP is linked to the magnitude, not the direction, of equity market moves.

To understand the relationship between the VRP and equity market performance, we split the historical data based on
deciles of S&P 500 30-day returns and ran similar regressions on each decile, as shown in Figure 7. We see that the
strength of relationship between equity returns and the VRP weakens substantially in the top 9 deciles, where the R-
squared declines to less than 1%. In the bottom decile of S&P 500 returns, the slope and intercept are significantly
higher, and the R-squared increases to 47.1%. The bottom decile of equity market returns features general market
turmoil, elevated uncertainty, and investor stress. During such scenarios (e.g., 2008 and 2020), the equity market
generally featured a spike in realised volatility, which translated into a loss of VRP. Therefore, it is mainly the bottom
decile which drives the positive correlation between the VRP and equity market returns, while this correlation is quite
low during more stable periods.

This observation coincides better with the fundamental drivers of the VRP. The VRP works in a similar way to the
premium charged by an insurance company. An option seller, acting as the insurance provider, seeks to make a profit
by capturing this premium which is positive in most cases. In contrast, equity valuation is a reflection of growth
potential and future cash flows, as well as dividends of the corporation. When a market shock occurs, the insurance
risk materialises, which leads to similar performance of the VRP and equity returns during such scenarios.

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

4
 Figure 7: Decile Analysis on Historical Scenarios
(January 1990 to August 2022)

Decile of S&P 500

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Returns
Avg. S&P 500
-8.11% -3.28% -1.46% -0.19% 0.76% 1.59% 2.41% 3.31% 4.52% 7.94%
Return
Slope 216.9 86.92 82.44 105.4 21.75 130.0 2.35 81.68 92.37 16.48
Intercept 12.46 4.49 4.60 4.40 4.57 3.12 5.42 3.60 3.10 7.13
R-squared 0.471 0.010 0.007 0.009 0.000 0.008 0.000 0.004 0.011 0.007
Avg. VRP -4.96 1.70 3.44 4.23 4.74 5.20 5.48 6.30 7.25 8.43
Median VRP -1.30 2.28 3.59 4.19 4.64 5.11 5.43 6.03 7.00 8.29

Source: Barclays, Bloomberg

Does the absolute level of implied volatility indicate the richness of the VRP?
This is another question frequently raised by investors. Firstly, it is important to keep in mind that the VRP is solely the
difference between implied volatility and subsequent realised volatility, i.e. implied volatility does not have to decrease
after it is sold, rather we only need the subsequent realised volatility to be lower.

Figure 8 plots the VRP distribution based on the decile levels of VIX Index. We see that the VRP does increase with the
level of implied volatility, as does the standard deviation of VRP, which means that the VRP is on average higher but
less consistent in high volatility regimes and is on average lower but more stable in low volatility regimes. In other
words, during high volatility periods, the average higher VRP tends to increase to account for the higher volatility of
realised volatility or the wider range of possible outcomes. As shown in Figure 8, from a return (average magnitude of
VRP) versus risk (standard deviation of VRP) perspective, the VRP behaviours are similar among different volatility
regimes.

Figure 8: The VRP in Different Volatility Regimes

(January 1990 to August 2022)

VRP in volatility points Avg. VRP / Stdev. VRP

16 1.0

12
0.8

8
0.6
4
0.4
0

-4 0.2
Low Implied High Implied
Volatility Volatility
-8 0.0
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10 15 20 25 30
Avg. VRP Avg. VRP - 1 sigma Avg. VRP + 1 sigma VIX level

Source: Barclays, Bloomberg

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

5
How to monetise the Volatility Risk Premium?
There are various ways to monetise the VRP ranging from listed options to over-the-counter (OTC) derivatives. The
use of derivatives introduces second-order risks and increases the complexity in interpreting the results. The
outcomes from similar implementations where only a single parameter is changed may be quite different. Thus, it is
crucial for investors to fully understand the risk profile of each short volatility strategy.

Figure 9 lists some common instruments to harvest the VRP as well as their pros and cons from the perspective of
systematic investing.
Figure 9: Different Instruments to Monetise the VRP

Instruments Pros Cons

-Linear exposure to VRP -Complex pricing methodology

Volatility Swap
-No delta hedge required - OTC instrument, and very tough to trade

-Transparent pricing methodology with inputs

from listed option data -Convex exposure to VRP
Variance Swap
-Constant gamma exposure -OTC instrument
-No delta hedge required

-Convex exposure to the VRP

-Transparent listed option data
Delta Hedged Option -Path dependent Greeks – vega, gamma
-Traded through listed instruments
-Model dependent, delta hedge required

-Transparent listed option data -Directional market exposure

Unhedged Option
-No delta hedge required -Path dependent Greeks – vega, delta

Source: Barclays

The most straightforward implementation is the volatility swap, which provides consistent and linear exposure to VRP.
It is traded in the OTC market, but the requirement for a sophisticated pricing model results in lower liquidity and wider
bid-offer spread.

Another similar instrument is the variance swap. The payoff of a variance swap is instead linked to the square of implied
volatility minus the square of realised volatility. As is well known, the payoff of a variance swap can be fully replicated
using a strip of delta hedged options weighted by 1/strike-squared 3, hence the pricing of a variance swap is more
transparent, which makes it more popular in the market. However, its convex exposure to VRP is not an ideal feature
because a spike in realised volatility usually means a significant loss when accessing the VRP by using a short variance
swap strategy. This is also reflected in the pricing, as the strike of a variance swap is usually higher than that of a
volatility swap.

While variance swaps provide exposure to the full strip of options across different strike levels, a delta hedged option
implementation is more localised around the option strike selected, which is dependent on the path taken by the
underlying spot. Delta-hedged options also provide a convex exposure.

These three instruments are generally classified as sophisticated implementations to benefit purely from the VRP
despite the different characteristics of spot path dependency and convexity. Vanilla option selling strategy is
frequently mentioned under this topic as well thanks to its simplicity.

In the following section, we select two strategies representing each category to elaborate the performance
differences. The first strategy (“VarSwap Strategy”) sells up to 0.075% vega on 1-week variance swaps every week
on the S&P 500 Index, with realised volatility calculated based on hourly returns of the underlying. The second strategy
(“Put Strategy”) sells 100% notional on 1-month at-the-money put option on S&P 500 every month. Both strategies
are analysed using total returns to have a like-for-like comparison with an outright investment in S&P 500 Net Total

3 Hardle, W.K. and Silyakova, E (2011), “Variance Swaps”

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

6
Return, as shown in Figure 10. The performance history of the VarSwap Strategy since 1996 has been run based on
certain assumptions which are detailed in sub-section A3 of the Appendix. It should be noted that weekly options were
listed in 2010, and prior to this the implied volatilities used in this backtesting performance was based on extrapolation,
which can make the longer history of these results less reliable.

Figure 10: Performance Comparison of Different Short Volatility Strategies

(January 1996 to August 2022)
Index level Rolling 1-year correlation vs. S&P 500

2500 100%
90%
2000 80%
70%
1500 60%
50%
1000 40%
30%
500 20%
10%
0 0%
96' 01' 06' 11' 16' 21' 96' 01' 06' 11' 16' 21'
S&P 500 Net TR
Put Strategy
Put Strategy
VarSwap Strategy
VarSwap Strategy

Total Return Return Max

Start Date End Date Volatility 10% CVar
p.a. /Volatility Drawdown
S&P 500 19-Jan-1996 31-Aug-2022 8.67% 15.39% 0.56 -55.71% -8.15%
VarSwap Strategy 19-Jan-1996 31-Aug-2022 12.26% 3.11% 3.94 -10.23% -0.69%
Put Strategy 19-Jan-1996 31-Aug-2022 8.06% 10.84% 0.74 -37.09% -6.18%
Source: Barclays, Bloomberg

An important metric for strategy assessment is the performance of the strategy during various crises in the equity
market. A spike in volatility during risk-off environments can hurt short volatility strategies. The Put Strategy
drawdown within a single rebalance period is limited to the equity market downside as defined by the payoff of a put.
However, the returns of a variance swap within the VarSwap Strategy are path dependent and linked to squares of
implied and realised volatility, which leads to a convex payoff. If for a certain variance swap, implied volatility is 20%
and realised volatility is 21%, the performance of the VarSwap Strategy would be -0.077%, i.e., roughly in line with the
vega sold of 0.075%. However, if there is a realised volatility spike following a low implied volatility level, the resulting
drawdown for the VarSwap Strategy would be much larger. For example, if a variance swap is struck at an implied
volatility of 10%, a single large daily drop of 10% in equities could result in a loss of more than 20% on the variance
swap. In other words, a large unexpected market shock which was not priced in the implied volatility can lead to a
significant drawdown in the Varswap Strategy.

Figure 11 looks at the how these risks fared based on historical data. It shows how the performance of the two short
volatility strategies compared to the equity market during historical crisis periods and subsequent recovery. The crisis
periods are defined based on S&P 500 returns. In some scenarios, if the strategy doesn’t experience a negative return
during the crisis period, then recovery analysis is not applicable.

 Put Strategy: the strategy suffered equity-like drawdowns but of lower magnitudes in all the scenarios. The
speed of recovery was faster than equities in most cases because of the lower magnitude of drawdowns.

 VarSwap Strategy: the crisis performance was rather mixed. The worst one was of -8.9% during COVID-19
in 2020 when the 1-week realised volatility hit 120.8%. However, during other prolonged crisis periods, the
strategy delivered resilient positive performance.
This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

7
 Figure 11: Crisis Performance Analysis of Different Short Volatility Strategies
(January 1996 to August 2022)

Crisis Performance Recovery in Months

Max. S&P 500 1W Close-lose

S&P 500 Peak-to-trough

VarSwap Strategy

VarSwap Strategy
S&P 500 Net TR

S&P 500 Net TR

Put Strategy

Put Strategy
(in Months)
Start Date

End Date

RV
Asian Contagion 07-Oct-1997 27-Oct-1997 21.2% 0.7 -10.8% -1.3% -5.6% 1.29 0.29 0.19

Russian Financial Crisis 17-Jul-1998 31-Aug-1998 30.7% 1.5 -19.2% 0.8% -13.6% 2.76 - 2.76

Dot Com Bubble Burst 24-Mar-2000 09-Oct-2002 51.6% 31.0 -47.9% 52.4% -22.3% 50.14 - 10.19

Credit Crunch 09-Oct-2007 10-Mar-2008 29.2% 5.1 -18.1% 6.6% -4.5% 6.19 - 0.67

Global Financial Crisis 15-Sep-2008 09-Mar-2009 107.1% 5.8 -42.7% 1.9% -31.1% 12.24 - 8.52

Euro Sovereign Debt Crisis 23-Apr-2010 02-Jul-2010 37.2% 2.3 -15.7% 2.7% -14.4% 4.10 - 4.00

US Debt Ceiling Crisis 29-Apr-2011 03-Oct-2011 74.5% 5.2 -18.9% 4.0% -13.7% 4.14 - 2.24

China Growth Concerns 20-Jul-2015 11-Feb-2016 44.0% 6.9 -13.3% 0.9% -6.6% 3.57 - 2.14

Brexit 08-Jun-2016 27-Jun-2016 28.0% 0.6 -5.5% 0.4% -1.7% 0.33 - 0.05

Volmageddon 26-Jan-2018 08-Feb-2018 17.8% 0.4 -10.1% -1.8% -7.6% 5.86 2.10 3.29

Christmas Eve Panic 20-Sep-2018 24-Dec-2018 33.3% 3.2 -19.5% -0.4% -15.4% 3.52 0.00 11.57

Coronavirus Outbreak 19-Feb-2020 23-Mar-2020 120.8% 1.1 -33.8% -8.9% -28.9% 4.67 10.38 9.52

2022 Inflation Concern 31-Dec-2021 30-Jun-2022 38.1% 6.0 -20.1% 1.0% -7.3% - - -

Source: Barclays, Bloomberg

From Figure 11, we see that the VarSwap Strategy delivered Figure 12: Scenario Analysis: Dot Com Bubble Burst
positive returns during several of the crisis scenarios, while (March 2000 to October 2002)
1-week Returns
the Put Strategy always had negative returns because of the 10%
long delta exposure of short puts. For example, the Put
Strategy returned negatively -22.3% during the Dot Com 5%
Bubble Burst in 2002 while the VarSwap Strategy delivered y = 0.036x + 0.0033
R² = 8.7%
significant positive performance at +52.4%. 0%

Figure 12 plots the 1-week returns of the short volatility

-5%
strategies versus equities during one such crisis period. The
Put Strategy showed significant beta exposure because as y = 0.64x + 0.0009
-10% R² = 77.6%
markets fell, the put options became more in-the-money,
with delta close to one. In contrast, subsequent to the initial
-15%
shock, implied volatility levels were elevated because of the -15% -10% -5% 0% 5% 10%
bearish market sentiment and the VRP was still positive.
S&P 500 Friday to Friday 1-week Returns
Therefore, the VarSwap Strategy showed little market beta Put Strategy VarSwap Strategy
exposure under such historical scenarios.
Source: Barclays, Bloomberg

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

8
Macro Factor Analysis of the VRP
In this section, we investigate the VRP exposure to various macroeconomic factors. The detailed description of the
macroeconomic indicators is available in sub-section A2 of the Appendix.

As we discussed in the previous section, the VarSwap Strategy is a sophisticated implementation to benefit purely
from the VRP. In Figure 13, each chart plots the Sharpe Ratio of the VarSwap Strategy (Y-Axis) conditional on the
quintiles of each factor (X-axis). The red dotted lines indicate whether the sensitivity to the relevant macro factor is
significant at the 5% level.

 The VRP shows a risk-on profile, which is expected because the realised volatility generally tends to increase
during stressed markets or risk-off environments.
 The VarSwap Strategy is also positively exposed to economic growth and nominal rates (GDP growth and
Nominal Rates Factor) and negatively exposed to volatility and market liquidity (Market Volatility and
Illiquidity Factor)
 Even though the sensitivity to inflation factor is not statically significant, we observe that the VarSwap
Strategy return has been constantly positive in the different quintiles.

For comparison, Figure 14 and Figure 15 show the same charts for the Put Strategy and the S&P 500. Both the Put
Strategy and the S&P 500 show significant exposure to the same macroeconomic factors. However, as compared to
the Put Strategy and the S&P 500, the VarSwap Strategy delivered more consistent positive Sharpe Ratios historically
across the different quintiles for the various factors.

Figure 13: Macro Factor Analysis on the VarSwap Strategy

(January 1996 to July 2022)

Source: Barclays

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

9
 Figure 14: Macro Factor Analysis on the Put Strategy
(January 1996 to July 2022)

Source: Barclays

Figure 15: Macro Factor Analysis on the S&P 500

(January 1998 to July 2022)

Source: Barclays

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

10
The VRP in the Context of Asset Allocation
Diversification is a key aspect of portfolio construction, which can be primarily achieved from two perspectives,
namely the strategy selection to diversify return sources and the weighting methodology to diversify risk allocation.
There are numerous academic papers4 on the weighting methodology such as the mean-variance portfolio, risk parity
framework, etc. While an appropriate weighting model does enhance the portfolio risk-adjusted returns, the
incremental diversification benefit from increasing its complexity is limited.

Alternatively, adding identifiable and differentiated return sources makes the portfolio less exposed to model risks
and more likely to produce persistent returns in the future. To evaluate the risk profiles of the two sample VRP
strategies, Figure 16 shows various asset class risk profiles and correlations to equity and bonds.

Figure 16: VRP Strategies Risk Profile in the Context of Cross Assets.
(December 2000 to August 2022)

Annualised Return Correlation to MSCI World

12% 100% MSCI World

Put Strategy

10% VarSwap Strategy

75% Credit HY
HFRX Global Hedge Fund

8% 50%
Credit HY
BCOM
MSCI World VarSwap Strategy
6% Put Strategy 25%

4% Govt. Bond
0%

Govt. Bond
2% HFRX Global Hedge Fund -25%
BCOM

0% -50%
0% 5% 10% 15% 20% -50% -25% 0% 25% 50% 75% 100%
Annualised Volatility Correlation to Global Agg. Bond

Source: Barclays, Bloomberg. Correlations based on monthly returns.

The VarSwap Strategy showed superior historical risk-adjusted returns as compared to all other mainstream asset
classes / strategies, while the correlations to equities and bonds were also among the lowest. In addition to its solid
rationale, we believe it is well placed as an equity alternative to diversify the return sources in a portfolio without
increasing equity market risks. Naturally, the next question is what is the appropriate sizing methodology of such
strategies in the context of a Multi-Asset Portfolio? This topic was previously discussed in our QIS Insights paper5 (Pili,
Seppanen, Wei & Jivraj, March 2019).

Similarly, we constructed a hypothetical Multi-Asset Portfolio which consists of 50% equities, 40% fixed income and
10% alternatives. Further details on constituents and weights are listed in sub-section A1 of the Appendix. The
allocation of this portfolio can be divided into two parts: 1) equity allocation and 2) non-equity allocation.

As shown in the previous sections, the VRP has positive equity market beta, but also excess alpha above the beta
exposure. Given this behaviour, it would make sense to replace part of the equity exposure with exposure to the VRP.
Replacing another component with a short volatility strategy would result in increasing the portfolio concentration to
equity beta which is already quite high.

4 Black, F., and Litterman, R. (1992), "Global portfolio optimization", Financial Analysts

Maillard, S., Roncalli, T. and Teïletche, J. (2008), "On the properties of equally-weighted risk contributions
portfolios", Working Paper
5 “Alternative Risk Premia Portfolio Sizing: Theory versus Practice”

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

11
We ran a portfolio optimisation by dynamically allocating weights between the equity exposure and the VarSwap
Strategy while the weight of non-equity exposure is fixed at 50%. Figure 17 shows the optimal (maximum Sharpe
Ratio) portfolio composition which follows Markowitz’ mean-variance framework6.

Figure 17: Maximum Sharpe Ratio Allocation between Equity and VarSwap Strategy
(December 2000 to August 2022)

Source: Barclays, Bloomberg

It is not surprising that after applying the objective function of maximum Sharpe Ratio, the optimised weights should
be all concentrated on the VarSwap Strategy given the significantly higher historical Sharpe Ratio of the VarSwap
Strategy, versus that of equities. Nevertheless, it is not realistic either from a liquidity or risk management perspective
for an investor to replace such a large proportion of their equity exposure, hence making such a framework impractical.

Another angle from which to think about sizing is: what would be the appropriate allocation to such a strategy if we had
already decided to replace 10% of the portfolio equity allocation, i.e., equity exposure were 40% instead of 50% and
we replaced the remaining 10% with an equivalent exposure to the VarSwap Strategy? We used a risk budgeting
approach, where given the investor’s objective, we determined the exposure to the VarSwap Strategy to match the
characteristics of the Multi-Asset Portfolio.

In Figure 18, we show the different performance metrics (annualised return, annualised volatility, Sharpe Ratio and
10% CVaR) of the Multi-Asset Portfolio if we replace a fixed 10% equity exposure within the Multi-Asset Portfolio with
different levels of exposure to the VarSwap Strategy, ranging from 0% to 200%. The exposure to the VarSwap
Strategy is shown on the X-axis and the different performance metrics are on the Y-axis. We show three cases in the
charts:

• Case 1: the black cross marks in each chart show a one-for-one replacement, i.e. 10% VarSwap Strategy
exposure instead of 10% equity exposure.

• Case 2: the red dots in each chart indicate the equivalent VarSwap Strategy exposure which would result in
the same value of the performance metrics as the original Multi-Asset Portfolio.

• Case 3: the blue square marks in each chart show the exposure to the VarSwap Strategy required to improve
the corresponding performance metrics by 10%. For example, exposure required to improve annualised
return of the Multi-Asset Portfolio from 5.86% to 6.45%, or to improve annualised volatility from 9.09% to
8.18%.

6 Markowitz, H. (1952), "Portfolio Selection", Journal of Finance

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

12
 Figure 18: The Case to Replace 10% Equity Exposure
(December 2000 – August 2022)

Source: Barclays, Bloomberg

Figure 19 summarises the results for the three cases above:

Figure 19: The Case to Replace 10% Equity Exposure
(December 2000 – August 2022)
VarSwap
Performance Equity Annualised Annualised Sharpe
Description Strategy 10% CVaR
Metric Exposure Return Volatility Ratio
Exposure
Original Multi-Asset
- 50% 0.00% 5.86% 9.09% 0.48 -6.12%
Portfolio
Case 1: One-for-one
- 40% 10.00% 6.24% 7.57% 0.63 -5.12%
replacement
Annualised
40% 5.80% 5.86% 7.52% 0.58 -5.11%
Return
Case 2: Similar Annualised
40% 112.90% 15.70% 9.09% 1.56 -5.57%
performance metrics Volatility
as original Multi-Asset
Portfolio Sharpe Ratio 40% 0.00% 5.32% 7.46% 0.52 -5.09%

10% CVar 40% 196.00% 23.33% 10.76% 2.03 -6.12%

Annualised
40% 12.20% 6.45% 7.59% 0.65 -5.12%
Return
Case 3: 10%
Improvement in Annualised
40% 57.90% 10.64% 8.18% 1.12 -5.28%
performance metrics Volatility
as compared to the
original Multi-Asset Sharpe Ratio 40% 1.30% 5.44% 7.48% 0.53 -5.10%
Portfolio
10% CVar 40% 103.20% 14.81% 8.92% 1.5 -5.51%

Source: Barclays, Bloomberg

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

13
We point out a few key observations from the charts and table above:

• A one-for-one replacement, i.e. 10% of VarSwap Strategy instead of 10% of equities would result in
improvement in all of the performance metrics above.
• If targeting a certain performance metric, the results vary considerably based on the objective. If the
objective is to maintain the risk characteristics of the original Multi-Asset Portfolio (based on annualised
volatility or CVaR), the equivalent VarSwap Strategy exposure would be higher than 100%, i.e., more than 10
times the equity exposure. A 10% improvement on the same metrics can be obtained by an exposure to the
VarSwap Strategy of roughly 58% for annualised volatility (5.8 times the equity exposure) and 103% for CVaR
(10.3 times the equity exposure)
• The historical Sharpe Ratio of the portfolio always goes up with increasing allocation to the VarSwap
Strategy.

The above analysis implies a large allocation to the VarSwap Strategy if the investor is mainly focused on risk metrics,
such as, annualised volatility and CVaR. However, the practice of leverage should always be examined cautiously
because past performance metrics are not always reliable indicators of future performance, nor are the historical tail
risks.

Instead, it may be more appropriate to consider an equal return contribution approach, i.e., size the exposure to the
VarSwap Strategy in such a manner that the historical returns of the Multi-Asset Portfolio are maintained. In Figure
20, we run a similar analysis based on different return metrics. The annualised return metric over the full history for an
underlying may be affected by bias from large moves in idiosyncratic events. To address this issue, we also look at
historical median returns over various return windows. The length of return window not only checks the sensitivity to
this parameter, which avoids the bias from ‘cherry picking’, but could also be customised to fit the investor’s
investment horizon.

As in the previous charts, the red dots in each chart in Figure 20 indicate the equivalent VarSwap Strategy exposure
which would result in the same value of the return metrics as the original Multi-Asset Portfolio, while the blue square
marks in each chart show the exposure to the VarSwap Strategy required to improve the corresponding return metric
by 10%. The equal return contribution exposure based on median returns is in the range of 1.4 – 1.8 times the equity
exposure, and this exposure is fairly stable across different return windows ranging from 1-month to 12-months.

Figure 20: The Case to Replace 10% Equity Exposure

(December 2000 – August 2022)

Source: Barclays, Bloomberg

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

14
In Figure 21, we show the performance impact of replacing 10% equity exposure with 15% exposure to the VarSwap
Strategy in the Multi-Asset Portfolio. This exposure, sized on the basis of median historical returns, aims to deliver
similar returns as the original Multi-Asset Portfolio. Based on historical data as shown in Figure 21, the Multi-Asset
Portfolio with the VRP Strategy had lower historical volatility and CVaR, resulting in higher risk-adjusted returns.

Figure 21: Impact of Replacing 10% Equity Exposure with 15% Exposure to VarSwap Strategy on Performance
(December 2000 – August 2022)

Index Rolling Sharpe Ratio Difference:

500 Multi-Asset Portfolio w. VarSwap Strategy -
450 Multi-Asset Portfolio
1.0
400
350
0.8
300
250 0.6
200
150 0.4
100
0.2
50
0
0.0
Dec-00' Dec-05' Dec-10' Dec-15' Dec-20'
Multi-Asset Portfolio
-0.2
Multi-Asset Portfolio w. VarSwap Strategy Dec-00' Dec-05' Dec-10' Dec-15' Dec-20'

Sharpe Sortino Max

Start Date End Date Return Volatility 10% CVar
Ratio Ratio Drawdown

Multi-Asset Portfolio 29-Dec-2000 31-Aug-2022 5.86% 9.09% 0.48 0.88 -41.24% -6.12%

Multi-Asset Portfolio w.
29-Dec-2000 31-Aug-2022 6.70% 7.62% 0.69 1.17 -34.47% -5.13%
VarSwap Strategy

Source: Barclays, Bloomberg

Conclusion
In this paper, we briefly reviewed the rationale, implementation and application of the VRP. Instead of broadly stating
that VRP is positively correlated to equity markets, we discussed why it is preferable to understand the “true” risk of
the VRP, explaining that the positive beta exposure was mainly driven by several significant drawdown scenarios and
the VRP tended to perform in an uncorrelated manner in other market conditions. Particularly, during prolonged crisis
periods such as the Dot Com Bubble Burst, with volatility levels being elevated, the VRP may work better than equities
and act as an alternative return driver to navigate such market conditions.

We also emphasised the importance of understanding the different VRP implementations as these strategies are
equipped with complex instruments, sophisticated models and leverage. Investors should not only focus on the
promising returns but also assess the risks cautiously to make appropriate investment decisions.

Lastly, investors should note that in this paper, we merely looked at historical returns of the VRP strategies. In doing
so, we acknowledged that in certain scenarios, the outcome of the VRP strategies could be worse than other portfolio
exposures such as long equities, and that in assessing any allocation to VRP, investors need to take different potential
scenarios and risk profiles into account.

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

15
Appendix
A1: Example Multi-Asset Model Portfolio Design

We consider the asset allocation of the Multi-Asset Portfolio as a rather conventional one, which is often seen in
practice7. In more details, we model the Multi-Asset Portfolio by assuming monthly rebalancing, with the following
allocation between asset classes:
 50% Equity
 40% Fixed Income
 10% Alternatives

Sub-
Asset Class Weight Sub-Asset Class Ticker Description
Weight
Developed market
60% NDDUWI MSCI World Net Total Return Index
equities
Equities 50%
Emerging market
40% NDUEEGF MSCI Emerging Markets Net Total Return Index
equities
Bloomberg Global Aggregate Treasuries Total
Government bond 20% LGTRTRUH
Return Index Hedged USD
Fixed Investment Grade Bloomberg Global Aggregate Corporate Total
40% 40% LGCPTRUH
Income Credit Return Index Hedged USD
Bloomberg Global High Yield Total Return Index
High Yield Credit 40% LG30TRUH
Hedged USD
Hedge Fund Research HFRX Global Hedge Fund
Hedge Funds 75% HFRXGL
Index
Alternatives 10%
Commodities 25% SPGSCITR S&P GSCI Total Return Index

A2: Macro Factor Definition

The macroeconomic indicators are calculated as z-scores of underlying market variables

Macro factor cluster Macro factor Description

Risk-on/Risk-off Monthly net return of S&P 500 TR less US Treasuries 7-10yr TR

Risk-On / Risk-Off Change in the ratio of the daily average VIX for the month to the S&P
Illiquidity
factor Cluster 500 Turnover for the month

Market Volatility Monthly measures of daily S&P 500 return volatility

Real GDP Growth Quarterly publications of US Real GDP Growth Seasonally Adjusted
Economic growth
factor cluster Daily average level of the Citi US Economic Surprise index for the
Economic Surprises
month

Inflation Monthly returns on the US CPI Seasonally Adjusted index

Inflation factor cluster
Inflation Surprises Monthly level of the Citi US Inflation Surprise index

Other Nominal Rate Monthly change in the US 10yr treasury rate (USGG10YR)

7 EFAMA Asset Management Report, September 2018.

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

16
A3: Backtesting Assumption

The VarSwap Strategy backtesting timeseries has been extended to 1996 with the assumptions listed as below.

 Prior to September 16, 2011, implied volatility was calculated based on OptionMetrics data

 AM vs. PM settlement

• Prior to October 2011 when SPXPM options were first listed, assumes variance swaps expiring on the
third Friday of each month are AM-settled

• Prior to December 2010 when SPX Weekly options were AM-settled, assumes all variance swaps are
AM-settled

 On days where the implied volatility cannot be accurately calculated from the options strip (e.g., if there are
too few available options), implied volatility is approximated based on extrapolation from nearby tenors

 Implied volatility calculated from OptionMetrics is reduced by 0.1255 volatility points. This is to account for the
difference between variance swap strikes calculated from Bloomberg versus OptionMetrics data (from Sep 2011
onwards), where, on average, strikes from OptionMetrics are higher than Bloomberg by 0.1255 volatility points

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

17
Disclaimer
BARCLAYS This communication has been prepared by Barclays Group.
GROUP
“Barclays Group” means Barclays Bank PLC, Barclays PLC, Barclays Ireland PLC and any of their
subsidiaries, affiliates, ultimate holding company and any subsidiaries or affiliates of such holding
company.

CONFLICTS OF BARCLAYS GROUP IS A FULL SERVICE INVESTMENT BANK. In the normal course of offering investment
INTEREST banking products and services to clients. Barclays Group may act in several capacities (including issuer,
market maker, underwriter, distributor, index sponsor, swap counterparty and calculation agent)
simultaneously with respect to a product, giving rise to potential conflicts of interest which may impact
the performance of a product.

NOT RESEARCH This document is from a Barclays Group’s Trading and/or Distribution desk and is not a product of the
Barclays Group’s Research department. Any views expressed may differ from those of Barclays Group’s
Research.

Any views and/or commentary in this communication are of the Barclays Sales and/or Trading desk
from which it originates (the “Authors”). This communication has not been produced, reviewed or
approved by Barclays’s Research department, and is not subject to any prohibition on dealing ahead of
the dissemination of research. Any views expressed herein may not be objective or independent of the
interests of the Authors or other Barclays Sales and/or Trading desks, who are active participants in the
markets, investments or strategies referred to in this communication. This communication is not a
personal recommendation and do not take into account whether any product or transaction is suitable
for any particular investor.

BARCLAYS Barclays Group, its affiliates and associated personnel may at any time acquire, hold or dispose of long
GROUP or short positions (including hedging and trading positions) which may impact the performance of a
POSITIONS product.

PRIVATE BARCLAYS MAY HAVE PRIVATE INFORMATION ABOUT ANY PRODUCT AND/OR THE UNDERLYING
INFORMATION ASSETS REFERENCED BY THE PRODUCT. It is not obligated to disclose any such information to
investors or counterparties.

FOR THIS COMMUNICATION IS PROVIDED FOR INFORMATION PURPOSES ONLY AND IT IS SUBJECT TO
INFORMATION CHANGE. IT IS INDICATIVE ONLY AND IS NOT BINDING.
ONLY
NO OFFER Barclays Group is not offering to sell or seeking offers to buy any product or enter into any transaction.
Any transaction requires Barclays Group’s subsequent formal agreement which will be subject to
internal approvals and binding transaction documents. Without limitation to the foregoing, any
transaction may also be subject to review by Barclays Group against its published Tax Principles. Barclays
is not offering to sell or seeking offers to buy any product or enter into any transaction. Any offer or entry
into any transaction requires Barclays’ subsequent formal agreement which will be subject to internal
approvals and execution of binding transaction documents.

NO LIABILITY Barclays Group is not responsible for the use made of this document other than the purpose for which it
is intended, except to the extent this would be prohibited by law or regulation. Neither Barclays nor any
of its directors, officers, employees, representatives, or agents, accepts any liability whatsoever for any
direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this
communication or its contents or reliance on the information contained herein, except to the extent this
would be prohibited by law or regulation.

NO ADVICE Obtain independent professional advice before investing OR TRANSACTING. Barclays Group is not an
advisor and will not provide any advice relating to a product. Before making an investment decision,
investors should ensure they have sufficient information to ascertain the legal, financial, tax and
regulatory consequences of an investment to enable them to make an informed investment decision.
Barclays is acting solely as principal and not in the capacity as a Fiduciary or as a Municipal Advisor.

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

18
 Barclays is not acting in the capacity as a Fiduciary or as a Municipal Advisor. Barclays does not provide,
and has not provided, any investment advice or personal recommendation to you in relation to the
transaction and/or any related securities described herein and is not responsible for providing or
arranging for the provision of any general financial, strategic or specialist advice, including legal,
regulatory, accounting, model auditing or taxation advice or services or any other services in relation to
the transaction and/or any related securities described herein. Accordingly, Barclays is under no
obligation to, and shall not, determine the suitability for you of the transaction described herein. You
must determine, on your own behalf or through independent professional advice, the merits, terms,
conditions, and risks of the transaction described herein.
THIRD PARTY Barclays Group is not responsible for information stated to be obtained or derived from third party
INFORMATION sources or statistical services.
PAST & Any past or simulated past performance (including back-testing) contained herein is no indication as to
SIMULATED PAST future performance.
PERFORMANCE
OPINIONS All opinions and estimates are given as of the date hereof and are subject to change. Barclays Group is
SUBJECT TO not obliged to inform investors of any change to such opinions or estimates.
CHANGE
NOT FOR RETAIL For clients not in Australia:
This document is being directed at persons who are professionals and is not intended for retail customer
use.

For clients in Australia:

This document is being directed at persons who are professional investors and is not intended for retail
client use.
Not For Further Distribution or Distribution To Retail Clients.
For Discussion Purposes Only.
REGULATORY Information relating to an investment may be disclosed when required by regulators or other authorities,
DISCLOSURE including tax authorities.

TAX DISCLOSURE All discussions and any related materials relating to the tax treatment or tax structure of any
transactions described in this document (including any attachments) may be disclosed without
limitation. This authorization of tax disclosure supersedes anything to the contrary contained in this
document or otherwise communicated.

IMPORTANT For important regional disclosures you must read, click on the link relevant to your region. Please contact
DISCLOSURES your Barclays representative if you are unable to access.
EMEA EMEA Disclosures

APAC APAC Disclosures

U.S. US Disclosures

CONFIDENTIAL This document is confidential and no part of it may be reproduced, distributed, or transmitted
without the prior written permission of Barclays Group.

ABOUT Barclays Group offers premier investment banking products and services to its clients through Barclays
BARCLAYS Bank PLC. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the
Financial Conduct Authority and the Prudential Regulation Authority and is a member of the London
Stock Exchange. Barclays Bank PLC is registered in England No. 1026167 with its registered office at 1
Churchill Place, London E14 5HP.
For clients in the US:
Barclays Capital Inc. is a US registered broker/dealer affiliate of Barclays Bank PLC and a member of SIPC,
FINRA and NFA. Barclays Capital Inc. operates out of 745 Seventh Avenue, New York, NY 10019. Where
required pursuant to applicable US laws, rules and/or regulations, Barclays Capital Inc. accepts
responsibility for the distribution of this document in the United States to U.S. Persons. Where a
communication is being directed at persons who are professionals, it is directed at institutional investors
in the U.S. as defined by FINRA Rule 2210(a)(4).
For clients in Canada:

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

19
 In Canada, Barclays Bank PLC and Barclays Capital Inc. rely on the International Dealer Exemption in
various provinces to engage in securities trading with institutional clients who qualify as Permitted
Clients under National Instrument 31- 103.
For clients of Barclays Securities Japan Limited:
Barclays Securities Japan Limited is a joint-stock company incorporated in Japan with registered office
of 6-10-1, Roppongi, Minato-ku, Tokyo 106-6131, Japan. It is a subsidiary of Barclays Bank PLC and a
registered financial instruments firm regulated by the Financial Services Agency of Japan. Registered
Number: Kanto Zaimukyokucho (kinsho) No. 143.
This material is prepared and distributed to persons in Australia, it may be distributed by Barclays Bank
plc or by Barclays Capital Inc., Barclays Capital Securities Limited or Barclays Capital Asia Limited. None
of Barclays Bank plc, nor any of the other referenced Barclays group entities, hold an Australian financial
services licence and instead they each rely on an exemption from the requirement to hold such a licence.
This material is intended to only be distributed to “wholesale clients” as defined by the Australian
Corporations Act 2001.
For clients of Barclays Securities Dubai Limited:
Barclays Bank PLC (DIFC Branch) (Registered No. 0060) is regulated by the Dubai Financial Services
Authority (DFSA). Barclays Bank PLC (DIFC Branch) may only undertake the financial services activities
that fall within the scope of its existing DFSA licence. Related financial products or services are only
available to Market Counterparties, as defined by the Dubai Financial Services Authority. Principal place
of business in the DIFC: Dubai International Financial Centre, The Gate Village Building No. 4, Level 4, PO
Box 506504, Dubai, U.A.E.
COPYRIGHT © Copyright Barclays 2022 (all rights reserved).
© Copyright Barclays Securities Japan Limited, 2022 (all rights reserved).

Important Disclosures for Select Countries

AUSTRALIA “Wholesale client” as defined by the Australian Corporations Act 2001.

Please further note that the Australian Securities and Investments Commission (ASIC) has provided certain
exemptions to Barclays Capital Asia Limited 巴 克 萊 亞 洲 有 限 公 司 (BCAL), Barclays Capital Securities
Limited (BCSL) and Barclays Capital Inc. (BCI) under paragraph 911A(2)(l) of the Corporations Act 2001 from
the requirement to hold an Australian financial services licence (AFSL) in respect of financial services
provided to Australian wholesale clients, on the basis that:

• BCAL is regulated by the Hong Kong Securities and Futures Commission (HK SFC) under Hong Kong
laws.
• BCSL is authorised by the Prudential Regulation Authority of the United Kingdom (PRA) and regulated
by the Financial Conduct Authority (FCA) of the United Kingdom and the PRA under United Kingdom
laws.
• BCI is regulated by the United States Securities and Exchange Commission (US SEC) under United
States laws.

All of the abovementioned jurisdictions have laws which differ from Australian laws. When providing financial
services to Australian wholesale clients, BCAL, BCSL and BCI rely on the relevant exemption from the
requirement to hold an AFSL. Accordingly, BCAL, BCSL and BCI do not hold an AFSL.

Barclays Bank PLC has relinquished its AFSL and going forward will provide financial services to Australian
clients by relying on certain exemptions that are available to it in relation to the requirement to hold an AFSL.

SINGAPORE For Accredited, Institutional and Professional Investors Only. Not for Further Distribution or for Distribution
to Retail Customers

SOUTH KOREA For Locally Licensed Investment Dealer or Investment Broker Only. Not for Retail Distribution.

INDIA The information contained herein is subject to applicable laws and regulation. The client is responsible for
ensuring that its receipt of such information does not breach any law in the jurisdiction of its incorporation.
The client shall consult its adviser and obtain independent advice before entering into any transaction. The
contents of this document neither constitute an investment advice nor a research report.

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

20
NEW For Wholesale Clients Only. Not for Further Distribution or for Distribution to Retail Customers.
ZEALAND
Barclays Bank PLC is not a registered bank, a licensed non-bank deposit taker, or otherwise supervised by
the Reserve Bank of New Zealand, under the Reserve Bank of New Zealand Act 1989 or the Non-bank
Deposit Takers Act 2013

IMPORTANT DISCLOSURE FOR NEW ZEALAND

This document and the information contained in or accompanying this document are not, and are under
no circumstances to be construed as, an offer of financial products for issue requiring disclosure to an
investor under Part 3 of the Financial Markets Conduct Act 2013 (the “FMCA”). This document and the
information contained in or accompanying this document have not been registered, filed with or approved
by any New Zealand regulatory authority or under or in accordance with FMCA. This document and the
information contained in or accompanying this document is not a disclosure document under New Zealand
law and do not contain all the information that a disclosure document is required to contain under New
Zealand law. Any offer or sale of any product described in these materials in New Zealand will be made only
in accordance with FMCA:
(a) to a person who is an investment business as specified in FMCA; or
(b) to a person who meets the investment activity criteria specified in FMCA; or
(c) to a person who is large as defined in the FMCA; or
(d) to a person who is a government agency as defined in the FMCA; or
(e) in other circumstances where there is no contravention of the FMCA (or any statutory modification or
re-enactment of, or statutory substitution for, the FMCA).

JAPAN “Professional investor” as defined by the Financial Instruments and Exchange Laws (“FIEL”) for the Japan
region. It is not intended for persons (i) who do not fall within the definition of professional investor as
specified in Article 2, paragraph 31 of the FIEL and the relevant cabinet ordinances thereof or (ii) who are
professional investors but regarded as not being professional investors due to application of Article 34-2,
paragraph 5 of the FIEL.

Barclays Securities Japan Limited is a joint-stock company incorporated in Japan with registered office of 6-
10-1, Roppongi, Minato-ku, Tokyo 106-6131, Japan. It is a subsidiary of Barclays Bank PLC and a registered
financial instruments firm regulated by the Financial Services Agency of Japan. Registered Number: Kanto
Zaimukyokucho (kinsho) No. 143.

BRAZIL The quantitative investment strategy products may not be offered or sold to the public in Brazil. Accordingly,
the quantitative investment strategy products have not been and will not be registered with the Brazilian
Securities and Exchange Commission (Comissão de Valores Mobiliários, the “CVM”), nor have been
submitted to the foregoing agency for approval. Documents relating to the quantitative investment strategy
products, as well as the information contained therein, may not be supplied to the public in Brazil, as the
offering of quantitative investment strategy products is not a public offering of quantitative investment
strategy products in Brazil, nor used in connection with any offer for subscription or sale of quantitative
investment strategy products to the public in Brazil. A seller of the quantitative investment strategy products
may be asked by the purchaser to comply with procedural requirements to evidence previous title to the
quantitative investment strategy products and may be subject to Brazilian tax on capital gains which may
be withheld from the sale price. Persons wishing to offer or acquire the quantitative investment strategy
products within Brazil should consult with their own counsel as to the applicability of these registration
requirements or any exemption therefrom.

This is not a product of Barclays Research. This is a product of Barclays Sales and Trading.
For institutional and professional clients or investors only. Not for distribution to retail clients or investors. For information only.

21