The Sub-Fund is passive and has the objective to track the performance of the iTraxx-CDX IG Global Credit Steepener Index (the Index). The Sub-Fund aims to invest as far as possible in the fixed income exposures (such as through bonds and derivatives on CDS indices) that make up the Index. The Sub-Funds ultimate exposure will be to the 5 and 10 Year On-the-Run European and U.S. investment grade CDS credit curves. The Index is calculated using the value of a hypothetical portfolio composed of exactly 50% iTraxx Europe (ITRX EUR) and 50% CDX IG (CDX NA IG) through long CDS positions on the 5 Year On-the-Run Index and short CDS positions on the 10 Years On-the-Run CDS index with the remaining cash component receiving interest at the EONIA rate minus a spread (subject to change).
The Index is rebalanced monthly to maintain an approximate 3:1 market exposure to the short On-the-Run 10 Year Index CDS position where the weight of the long On-the-Run 5 Year Index CDS position is determined to offset the credit sensitivity of the 10 Year position. The Index rebalances the CDS based on a ratio of notional times CDS bond equivalent price to Index value, so the notional to Net Asset Value ratio may differ from 3:1. The CDS index positions held are rolled to the latest issued series when the new series becomes available semi-annually. Transaction costs are included in the Index. The Sub-Fund aims to replicate the Index via holding long and short CDS index positions. The Sub-Fund will also seek to replicate the cash component return of the Index by investing its cash holdings in cash deposits, cash held with a custodian, short term debt securities, bonds that may be fixed or floating rate, certificates of deposit, bankers acceptances and money market instruments (such as short-term government bonds).