Chart 7: A combination of upward trending global equity markets and Chart 8: Owing to low cross asset vol and strong diversification, the very low volatility have conspired to push trend following (CTA) equity volatility of risk-balanced multi-asset portfolios has fallen to historically positioning to near record levels. Consequently, the beta of CTA low levels. Consequently, leverage levels across multi-asset & other strategies to global equities is also at extreme levels portfolios that target fixed vol have likely hit their caps 1.00 20 24% | 7] f Wi 3.0x as ee Wann find bo Ws 20% lH -—- 1 HU 25x 0.50 +—f\aan A Vf 10 | | Wil 0.25 /A Ww oo “A 5 16% i¥ | 1 | j 1 nT | moe 2.0x a [4 fi Ys § Sf | 0.00 wm oy 0 12% 7) al i | 45x -0.25 “ 5 1 oa bt -0.50 -10 8% 7 § i LAM AL UMARALL HW A ; 1.0x “Ome “te 4% A Mae EE TTY ee BYARD 6 5, -1.00 -20 Lh ye 2eeepepeesseekesek 0% Ox Peg a a Ee OE UR SE OB Uh hUmEU CO NW Or tFROMNMeOnNMOrH AH SESSHSERSSFS RES SSS SSS SSS S255 mem MSCI World (Ratio of trend strength to volatility) (LHS) mmm Model Risk Parity Leverage (Vol Target: 10% & Max Leverage: 3x) (RHS) ——— BofAML Model CTA Global Equity Allocation (RHS) — Unlevered BofAML Model Risk Parity Volatility (LHS) Source: BofA Merrill Lynch Global Research. Based on daily data form 2-Jan-2015 to 16-Jun-2017. Source: BofA Merrill Lynch Global Research. Based on daily data from 3-Jan-72 through 16-Jun-17. CTA = Commodity Trading Advisor Equity, fixed income, and commodity components within the hypothetical risk parity investment are represented by the S&P500, 10-Year US Treasury Bonds, and the S&P GSCI Index, respectively. Risk parity allocations are determined and rebalanced monthly using prior 12-month realized volatility and correlations. It is important to note that not all CTA, risk parity, or vol control strategies operate similarly and there is model risk in estimating the exact size of these trading flows. Chart 9: The vega outstanding in inverse VIX ETNs has also reached a