SGMT Capital Research Inc. SYSTEMATIC GLOBAL MARKETS TREND

JUNE, 2016

Investor Letter

The SGMT trading system had a gross return of -1.54% for Level II in the month of June, 2016 Source of Returns by Currency (June, 2016):

2016 Gross Returns by Month:

June was a tumultuous month for the global markets amidst the Brexit. As running into the Brexit referendum on June 23rd, all markets bet 90% odds for the UK remaining in the EU and ineffectively 1

assessed the Brexit political event risk. The mispricing started in late May when polls showed “leave” 2

Level II Month Ccy Change SGMT Gross Return

Australian Dollar (AUD) 3.00% -1.07%

Canadian Dollar (CAD) 1.27% 1.82%

Swiss Franc (CHF) 1.68% -2.20%

Euro (EUR) -0.42% 1.52%

Great Britain Pound (GDB) -8.33% -0.03%

Japanese Yen (JPY) 7.14% -1.56%

Total Level II -1.54%

Jan Feb Mar Apr May Jun YTD

0.07% 12.80% 5.39% 5.38% -6.22% -1.54% 15.75%

How Did the Bookies Get It So Wrong: Ladbrokes Tries to Explain by Dara Doyle on Bloomberg The article says that “more cash was staked on a 1

“Remain” vote even though the majority of bets were backing a Brexit. Apparently large bets were coming from the city of London.

SGMT May Investor Letter2

leading “remain” and in early June the highest odds for “leave” was 40% by the bookies. After the tragic 3

death of UK law maker Jo Cox who was shot on June 16th by a gunman saying “UK first” that seemed to suggest some connection to “leave” EU, the polls reversed a little but the markets priced the odds of “leave” to only merely a 10% chance. At the same time, the markets had pushed the prices to their respective apexes that created a lopsided asymmetrical risk with such over confidence (e.g., GBP pushed to $1.5USD per pound just before the count for the first major area was released). In fact, although the markets are highly effective in pricing economic risks, in reality they lack the abilities to price risks of a political nature like Brexit with a zero-one digital outcome. On the day of reckoning, June 23rd even the UK independence party was surprised as the counts for “leave” were reported and the Brexit became reality. The markets reacted sharply pushing up volatilities. Following the Brexit vote results, markets began to stabilize on Tuesday (2 business days after) and came back at different speeds: equity markets recovered almost half of the Brexit impact losses; bond markets generally stayed at sharp down yields in US, UK and EU; and currencies generally stabilized within a reasonable range except GBP and JPY. The Brexit is just beginning its journey of separating from the EU. Its course and final destination are not yet clear and will be a long political process to be determined in the coming months and years. Brexit made the US FED June meeting a short focus by the markets after a dismal US job report which validated early May bond markets concerns and invalided those FED officials who repeatedly advertised a FED rate hike in June . 4

The deflationary bond yields seemed to suggest a further holding-back of the US FED raising rates. Given large potential deflationary impact to Japan and its currency, the risk of a BOJ intervention in its currency also dramatically increased.

In facing the Brexit political risk with its high impact on the currency markets, SGMT’s strategy ran until a day before the Brexit vote, then we exercised political event risk control according to SGMT risk management strategy like the reported Soros strategy to avoid the asymmetrical downside risk. SGMT is 5 6

a systematic macro-economic trend (fundamentals) strategy that extracts market information to identify the investment trend opportunities in a continual time space. SGMT’s risk management document as referenced in note 5 below outlined the processes of eliminating non-economic risks like political, liquidity from the start. For on-going non-economic event risks, SGMT’s strategy assesses the downside risk of an event’s impact if such determination can be assessed before it happens. Clearly Brexit was the type of political event that could generate a lopsided downside risk and, therefore, SGMT got out of the way a day before. This event risk control avoided an 8% drawdown which could have occurred from following a market information based macro-trend strategy (see the description and references about how markets priced Brexit risk above). After the Brexit reality, the risk-off forces drove JPY to such a strong level that it caused Japanese politicians to consider a JPY intervention - another possible event risk. SGMT managed JPY risk down by 2/3 a day after the Brexit. As of June month end, SGMT managed the risk event affected positions back to ½ of the systematic level.

In looking forward, the after-math effects of Brexit will take months or even years to play out. First the UK political landscape is unclear, not to mention any clarity or a plan to address UK’s exiting road map. The slow motions of UK and EU political games will generate patches of information voids that cause the market volatilities ahead and, at same time, will also give the markets time to re-assess the new status after Brexit. As the market’s reassessments are going on, SGMT will follow the markets to normalize its positions as soon as the non-economic event risks cool down.

SGMT is a systematic FX trading strategy, so it might be useful to compare our returns to our peers and similar competitors. The BTOP index is an index of other foreign exchange managers as provided by

Bloomberg June 14: Bookies And Polls Face Off on Brexit Vote ; Overseas Investors’ Brexit View: Down, but Not Out by Nigel Almond, Director, 3

Capital Markets Research at Cushman & Wakefield, UK

see SGMT May Investor Letter4

SGMT March 21, 2015 Document: Systematic Global Market Trend (SGMT) Introduction - Investment Strategy and Management Process5

Billionaire Soros Was ‘Long’ on Pound Before Vote on Brexit by Francine Lacqua and Sree Vidya Bhaktavatsalam6

BarclayHedge.com. The following table shows the SGMT Capital vertical comparison statistics to the BTOP index components sourced from barclayhedge.com

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Fund Name (SGMT As of May-16) 2016 2015 2014Annual

Ret Inception Sharpe MaxdownAlpha vs SP500

Beta vs SP500

SGMT (Net) 11.51% 13.05% 23.18% 23.24% May-14 1.33 20.18% 2.005 -0.02SGMT BackTest (Net) 11.28% 13.84% 32.27% 33.81% Feb-07 1.97 20.50% 2.523 -0.39SGMT (Gross) 17.57% 18.37% 31.53% 33.25% May-14 1.60 18.29% 2.678 -0.02SGMT BackTest 16.52% 19.37% 44.45% 47.16% Feb-07 2.09 15.88% 3.402 -0.33

Alder Capital (Alder Global 20) 7.85% -3.27% 1.15% 6.53% Feb-01 0.33 28.51% 0.63 -0.01FDO Partners, LLC (Emerging Markets Quant. Currency) -2.44% -2.37% 1.98% 0.77% Jul-01 -0.25 7.06% 0.05 0.03First Quadrant L.P. (Tactical Currency Allocation L/S USD) 3.23% -1.53% 1.08% 1.78% May-95 -0.16 6.72% 0.17 -0.01Harmonic Capital (Currency 10v) -7.00% 7.91% 10.45% 4.11% May-03 0.32 16.73% 0.29 0.10Harness Investment Group Limited (FX) -0.41% -3.64% 8.28% 5.76% Apr-09 0.55 13.52% -0.15 0.48P/E Investments (FX Strategy - Aggressive) -11.68% 13.82% 49.08% 11.80% Oct-03 0.53 33.33% 1.06 0.04Premium Capital Advisors AG (Premium Currencies) -5.32% 5.22% 5.16% 3.03% Jan-04 0.25 14.51% 0.36 -0.13Quaesta Capital AG (v-Pro Volatility) -1.34% 20.08% 1.00% 5.95% Jul-07 0.90 9.39% 0.55 -0.08Salix Capital UK Ltd. (FDFX) -15.92% 13.50% 10.82% 6.18% Jan-11 0.56 12.77% 0.76 -0.16Rhicon Currency Management (Pte) Ltd (Strategic) 3.69% -3.33% 8.25% 5.27% Jan-04 0.55 8.56% 0.47 -0.03

Investment Capital Advisors LLC (ICA Managed Accounts) 64.85% 266.22% 26.02% 86.13% Nov-10 0.88 29.65% 8.53 -0.97Alternative Asset Management Ltd (ACMP (Long Only)) -9.65% 48.45% 122.39% 57.06% Sep-12 1.38 4.35% 8.87 0.32Quaesta Capital AG (v-Pro Dynamic Volatility) -2.25% 43.36% 2.58% 11.16% Jul-07 0.93 17.98% 1.02 -0.15CenturionFx Ltd (CENTURIONFX - 6X) 8.59% 39.44% 36.21% 52.85% Jan-06 2.03 21.60% 4.00 -0.2024FX Global Advisors Ltd. 32.23% 27.81% 26.94% 27.84% Jan-01 1.57 19.28% 2.17 0.03Hong Investment Advisors Ltd (HCM Rapier FX Index) -8.73% 25.32% 8.64% 8.66% May-13 0.67 13.55% 0.99 -0.23AE Capital Systematic FX Fund 4.88% 19.35% 5.74% 15.79% Oct-12 1.92 6.51% 1.30 -0.04P/E Investments (FX Strategy - Aggressive) -11.68% 13.82% 49.08% 11.80% Oct-03 0.53 33.33% 1.06 0.04Salix Capital UK Ltd. (FDFX) -15.92% 13.50% 10.82% 6.18% Jan-11 0.56 12.77% 0.76 -0.16Sequoia Capital Fund Management LLP (Systematic FX) -8.74% 12.97% -9.14% 5.70% Jun-11 0.56 19.09% 0.50 0.01

Investment Capital Advisors LLC (ICA Managed Accounts) 64.85% 266.22% 26.02% 86.13% Nov-10 0.88 29.65% 8.53 -0.97First Quadrant L.P. (Tactical Currency Allocation L/S USD 20%) 15.14% -12.19% 4.18% 4.40% Feb-11 0.21 31.76% 1.28 -0.74Alder Capital (Alder Global 20) 7.85% -3.27% 1.15% 6.53% Feb-01 0.33 28.51% 0.63 -0.01TMS Capital Ltd (Arktos GCS II) 6.71% -5.78% 3.83% 4.09% Feb-10 0.50 10.15% 0.42 -0.05IPM Informed Portfolio Mgmt. (IPM Systematic Curr. A) 9.27% 2.56% 7.01% 4.61% Apr-05 0.37 14.97% 0.54 -0.19P/E Investments (FX Strategy - Aggressive) -11.68% 13.82% 49.08% 11.80% Oct-03 0.53 33.33% 1.06 0.0424FX Global Advisors Ltd. 32.23% 27.81% 26.94% 27.84% Jan-01 1.57 19.28% 2.17 0.03Currency Insight Ltd (Global Currency Program) 6.45% 4.56% 2.24% 7.36% Jan-02 0.59 11.57% 0.65 -0.03Ortus Capital Management Ltd (Currency - Aggressive) 10.32% 0.87% 18.71% 13.21% Mar-04 0.43 52.79% 1.26 0.18Traub Capital Management, LLC (FX Strategy Fund I) -7.60% 9.39% 30.98% 3.30% Mar-11 0.19 22.87% 0.79 -0.42

Source�BarclayHedge.com for other funds and SGMT Capital Inc. as of April 2016 (red colored marks discountinued funds)SGMT Performance Statistics As of June 30, 2016SGMT (Net) 9.67% 13.05% 23.64% 21.35% May-14 1.33 20.18% 2.021 -0.02SGMT BackTest (Net) 3.12% 13.84% 32.27% 32.41% Feb-07 1.97 20.50% 2.527 -0.39SGMT (Gross) 15.75% 18.37% 32.17% 30.89% May-14 1.61 18.29% 2.700 -0.02SGMT BackTest (Gross) 8.09% 19.37% 44.45% 45.51% Feb-07 2.09 15.88% 3.408 -0.33

BTOP FX Index Components as of May-16

Year 2015 Top Ranked CTA Currency Programs as of May-16

January 2016 Monthly Top Ranked CTA Currency as of May-16