VARIANTPERCEPTION

FRAMEWORK

Tools for Understanding and Profiting from the Business Cycle

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Our Company
Who We Are: Variant Perception is an independent global investment strategy
firm that was founded by former traders and economists to solve the main
problem with economic research most economic analysis focuses on
revised lagging or coincident data, leading to inaccurate forecasts and clouded
observations about the next 3-12 months.
What We Do: Our job is to help clients improve their returns. We provide
research that focuses on our proprietary leading economic and liquidity
indicators to help identify investment themes, anticipate turns in the business
cycle, contribute to asset allocation decisions, and recognize tactical and
strategic trading opportunities, supported by valuation, sentiment and
positioning.
Our Approach: Our work is candid and succinct, written with the money
manager and decision maker in mind. We try to illustrate much of our output in
easy to digest charts and graphs. We always want the data to tell the story.
Our Clients: Our clients are some of the worlds most forward-looking
institutions. They include asset managers, family offices, hedge funds,
foundations, and corporations.

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Problem #1 Turning Points Are
Hard To Predict
The most valuable trades for investors are almost always at economic turning
points. Most analysts and economists merely extrapolate recent trends by
using lagging and coincident indicators, causing the most forecast error at
inflection points.

This is why economic forecasts are generally useless precisely when you need
them most.

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Problem #2 Not All Data Is Created
Equal
Traditional approaches also tend to equally weight much of the data and to
analyse the changes in great detail. Those approaches unequivocally employ
revised data for their models, some of which might take multiple quarters to
accurately report.

Using these methods is little help for the investor trying to make forward
looking, real-time decisions.

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Problem #3 Pitfalls of the Guru
Approach
An unfortunate side effect of using these typical methods is that the model
builder or economist inevitably needs to add too much subjective opinion to the
forecast. Some are better than others at correctly adding this variable, but very
few are able to make this into a rigorously repeatable process.

This generally keeps the data from really telling the story and gives you a
variety of conflicting bias.

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The Solution
Our Leading Indicator Framework
Our solution to these methodical problems has been to create a robust set of
tools based on proprietary leading economic and liquidity indicators that
are focused on highlighting turning points. By focusing only on turning points
and not the magnitude of coincident and lagging data we avoid the consensus
mistake of extrapolating current trends to predict future ones.

We build all our own leading

indices based on unrevised data,
giving a solid advantage to real-
time decision makers. We also
look closely at sequential changes
in our leading data to help confirm
turns in the business cycle.

These approaches to provide a transparent and repeatable framework that

concretely aids in investment decision making, formulating trading strategies, and
managing assets.

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Developing a Variant Perception
Variant Perception is data-driven in its approach. Our main goal is to help
decision-makers identify good trades and investments. Variant Perception has
built a framework to identify extremes in the key drivers of asset prices.

Liquidity Leading Economic Leading

Indicator Indicator

Forecast of
Turning Point

Valuation Sentiment Momentum

Investment Idea

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It Begins With Economic Leading
Indicators
The best way to track the business cycle is to:
1) follow leading indicators, and
2) follow the sequential interaction between leading, coincident and lagging
indicators.
Variant Perception has developed a powerful set of proprietary economic
leading indices that give advance warning, helping investors to protect their
capital, hedge and/or get short the market, while also pointing out periods it is
beneficial to add to risk exposure.

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.and Liquidity Leading Indicators
Excess liquidity measures money growth in excess of what the real economy
needs. Equity market returns are best when industrial activity is low, money growth
is rising and inflation is falling, e.g. 1992, 2003, 2009.

The business cycle is primarily controlled

by central bank policies that:
a) tighten when inflation is too high and/or
rising uncomfortably because there is
little slack in the economy and credit
growth is strong; and
b) ease when the reverse conditions exist.

Our liquidity leading indicators help to

identify and forecast those periods before
the market reacts, giving our clients an
advantage in how to best position
exposures.

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Timing Valuation, Sentiment,
Positioning Signals
Short-term signals can help investors navigate volatility within cycles or
assist in the timing of expressing long term themes.

VP has developed a variety of proprietary signals ranging from buy / sell

technical indicators to correction signals that focus on the concerted
market stresses that historically precede downturns.

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Real-time Recession Signals Protect
Capital
It is possible to call the beginning and end of recessions in real time based on
the use of our leading indicators. For example, Variant Perception did just that in
the US in December 2007 and June 2009.
Variant Perceptions tools flag the variables most likely to lead into and out of
recessions, which provide good advanced signals to industrial companies and
asset managers.
More importantly, identifying the start and end of recessions in real time helps
investors avoid large losses as the biggest drawdown in equity markets happen
during recessions.

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Our Competitive Advantage
VPs process is based on repeatable, forward looking analysis, overcoming
many of the deep subjective flaws that plague many research shops.

The advantage of a dependable framework and repeatable process is we

transparently identify and write about outliers and out of consensus
ideas. We do publish tactical analysis using shorter time frames, but we do not
promote ideas without thoughtful and thorough research, and have no difficulty
emphasizing our conviction when there is strong correlating data.

VP's style is crisp and concise with powerful charts. We are not trying to distill
economic minutiae, and instead aim only to help investors generate returns. We
respect our clients' time and believe the data tells the most powerful story.

VP is independent, highly data-driven and agnostic. VP is nimble and will

advise our clients to reverse course if the data turns. We are not wedded to any
point of view and follow our proprietary indicators even if the consensus
disagrees.

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VP Publication Schedule
VP Macro (monthly) our comprehensive monthly report identifying major
investment and economic themes.
VP Leading Indicator Watch (monthly) a very precise overview of the G-20
leading economic indicators, including volatility, capital and credit cycles. A very
good 3 to 6 month lead on the global business cycle.
VP Tactical (weekly) identify current shorter-term return strategies in the
market, based on economic and valuation perspectives.
VP Thematics (breaking) published when we identify major opportunities that
we want to specifically highlight. This tends to include 2-4 major country or
sector-specific themes a year with very thorough reports in those specific areas
of the market.
VP Understanding (series) our white paper series on specific components of
our framework to give more transparency to clients. Examples include
Understanding Debt and Currency Crisis, Understanding Recessions,
Understanding Liquidity, etc.
Conference calls monthly or as needed.

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Thematic reports lead large market
moves
When our framework and data lead to a compelling story, Variant Perception
undertakes additional investigative work which produces Thematic reports.

This has led to early, counter-consensus calls, including the following

examples:

Australian housing delusion (Feb 2016)

Biotech bubble (May 2015)
Shale slowdown (October 2014)
Japan Nikkei move (November 2012)
Yen move (November 2012)
Spanish Housing Bubble (August 2009)

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Contact Us
If you would like a colleague to receive Variant Perception
research, please email us at sales@variantperception.com

Sean Link, Head of Sales Denise Hearn, Head of Sales EMEA

sean@variantperception.com denise@variantperception.com
+1 (704) 926 1116 +44 (0) 207 648 4606

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content of this report is intended for institutions and professional advisers only. This report is not intended for use by private clients. Recipients should consult their own financial
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based on proprietary analysis and public information that is believed to be accurate, but no representations are made concerning the accuracy of the data. The views herein are
solely those of Variant Perception and are subject to change without notice. Variant Perceptions principals may have a position in any security mentioned in this report. All data
is sourced from Bloomberg unless otherwise stated.

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