Risk-Adjusted Benchmarks Measuring Portfolio Risk Against Return

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1 Risk-Adjusted Benchmarks Measuring Portfolio Risk Against Return In-depth Look at the Science Behind Our Benchmarks If the industry professional presenting this material is associated with a broker dealer please know that Hanlon is unaffiliated with that broker dealer and it is that broker dealer s responsibility to make sure their associated person presents proper identification of that broker dealer.

2 Dynamic and Tactical Asset Allocation Our goal is to generate good risk-adjusted returns To do so we: Research the equity and fixed income markets to identify and invest when they signal up-trends. Take the emotion out of the equation, rely on the research to identify entry and exit points and select the best risk-adjusted, relative strength investments. Our research contains real-time data, news and analytics for price performance, volatility objectives and technical perspectives provided by; Morningstar Institutional, Investors Fast Track, Amibroker and Bloomberg Professional matched with Hanlon s robust proprietary research database and application. 2

3 Appropriate Benchmark Selection Returns Should Be Measured Against an Appropriate Benchmark Benchmarks should display correlation to the composition of the portfolio, that is the holdings and the asset classes, as well as the risk that the portfolio experiences. Comparing portfolio return to a benchmark unrelated to the portfolio composition or the portfolio risk provides little value to advisors and clients. Measure Value by these Risk Statistics Minimal volatility, minimizing standard deviation (SD). Avoid large downside volatility, minimizing maximum drawdowns (MDD). 3

4 Standard Deviation High returns with low risk are ideal A low standard deviation (SD) is indicative of more consistent, predictable investment returns. To achieve the lower risk returns that Hanlon has demonstrated if one had a typical buy-and-hold strategy, one would need to sacrifice return and invest in potentially very low returning investments. HMI HB * Hanlon s solutions provide a more consistent return, without sacrificing performance HGI HG MSCI ** ACWI Conversely, to match Hanlon s historical returns, one would need to expose their buy-and-hold portfolio to more risk than what we have achieved. * Inception date for Hanlon Growth and Hanlon Growth & Income Composites is 1/1/2001 Inception date for Hanlon Balanced Composite is 7/1/2001 Inception date for Hanlon Managed Income Composite is 10/1/2001 ** MSCI ACWI provided for example purposes only 4

5 Maximum Drawdown A single large drawdown can be devastating and wipe out many years worth of capital. Most investors underestimate their tolerance for large drawdowns. This drawdown may cause investors to panic and sell at the bottom and miss the rebound. Hanlon attempts to take the emotion out of the equation, relying on timetested research to identify entry and exit points with a goal of avoiding large drawdowns. Hanlon s drawdowns are much smaller MSCI ACWI has large drawdowns 5

6 Benchmark Asset Class Mix The benchmarks are a blend of two to three indices selected to reflect the composition of Hanlon s holdings EQUITY Morgan Stanley Capital International All Country World Index (MSCI ACWI) The MSCI ACWI is a true global index, consisting of stocks from approximately 46 different countries encompassing both developed and emerging markets. The MSCI ACWI consists of approximately 50% US Stocks / 50% International Stocks Hanlon invests in the global stock market. The MSCI ACWI is a good proxy for the typical Hanlon equity allocation. FIXED INCOME Markit iboxx US Liquid High Yield Index (iboxx HY) The high-yield bond market contains many illiquid securities, the iboxx HY seeks to capture the truly liquid portion of the market, holding approximately 927 positions from 320 issuers. The iboxx HY is also the benchmark for the most popular High Yield ETF, ishares Symbol HYG. TREASURY BILLS U.S. 3-Month Treasury Index (T-Bill) When our models call for us to be prudent and protect your capital, we will boost the allocation to cash. The 3-Month T-Bills are used as a benchmark as a proxy for the occasions when client portfolios are allocated to cash, either partially or entirely. 6

7 Determining the Benchmarks Using the selected indices, we set out to solve for an asset mix that would match the risk statistics (SD and MDD) measured from our actual historical portfolio composite holdings. We also considered the ratio of equity & fixed income stipulated in the Investment Guidelines of each portfolio composite as well as the actual historical weightings. Hanlon Name Investment Guidelines Actual Historical Portfolio Weightings Growth Growth & Income Balanced Managed Income Can be 100% Equity or T-Bill (in rare occasions can also hold Fixed Income) Maximum Equity is 75%, no maximum in Fixed Income or T-Bill Maximum Equity is 50%, no maximum in Fixed Income or T-Bill No Equity, can be 100% Fixed Income or T-Bill 49% Equity 17% Fixed Income 34% T-Bill 37% Equity 29% Fixed Income 34% T-Bill 25% Equity 41% Fixed Income 34% T-Bill 0% Equity 65% Fixed Income 35% T-Bill 7

8 Hanlon s Benchmarks The two risk statistics were calculated separately first we solved for Standard Deviation (SD), then we solved for Maximum Drawdown (MDD). Giving equal weight to each of the two risk statistics; we averaged the results to come up with the benchmarks for each of the four portfolios. Hanlon Benchmark Weightings Portfolio Component Index Growth Growth & Income Balanced Managed Income Equity MSCI ACWI 52% 33% 20% 0% Fixed Income Iboxx USD Liquid HY 0% 11% 20% 33% T-Bill 3-Month T-Bill 48% 56% 60% 67% Sum 100% 100% 100% 100% 8

9 Hanlon Demonstrates Added Value GIPS Brokerage Composites Annual Compound Rate of Return - Hanlon Composite Annual Compound Rate of Return - Benchmark Growth Composite 4.4% 3.5% Growth & Income Composite 4.4% 3.3% Balanced Composite 5.3% 3.3% Managed Income Composite 7.5% 2.9% Above data calculated based on Inception Date of 1/1/2001 for Growth and Growth & Income Composites and respective benchmarks. Inception date for Balanced Composite and benchmark is 7/1/2001. Inception Date for Managed Income Composite and benchmark is 10/1/2001. All data calculated through 12/31/

10 The Hanlon Advantage Against Benchmarks $951,697 Hanlon $1,055,882 Hanlon $842,650 Benchmark $799,114 Benchmark $948,427 Hanlon $1,398,780 Hanlon $813,736 Benchmark $755,150 Benchmark Hanlon Composites are represented by black lines. Benchmarks are represented by color lines. Data as of 12/31/

11 The Hanlon Drawdown Advantage $1,000,000 GROWTH GIPS BROKERAGE COMPOSITE $1,000,000 BALANCED GIPS BROKERAGE COMPOSITE $900,000 $900,000 $800,000 $800,000 $700,000 $700,000 $600,000 $600,000 $500,000 $500,000 $400, Growth Benchmark - 52% ACWI, 48% T-Bill Growth GIPS Brokerage Composite $400, Balanced Benchmark - 20% ACWI, 20% iboxx HY, 60% T-Bill Balanced GIPS Brokerage Composite $1,000,000 GROWTH & INCOME GIPS BROKERAGE COMPOSITE $1,200,000 MANAGED INCOME GIPS BROKERAGE COMPOSITE $900,000 $1,100,000 $1,000,000 $800,000 $900,000 $700,000 $800,000 $600,000 $700,000 $600,000 $500,000 $500,000 $400, Growth & Income Benchmark - 33% ACWI, 11% iboxx HY, 56% T-Bill Growth & Income GIPS Brokerage Composite $400, Managed Income Benchmark - 33% iboxx HY, 67% T-Bill Managed Income GIPS Brokerage Composite Hanlon Composites are represented by black lines. Benchmarks are represented by color lines. Data as of 12/31/2015 6

12 Important Disclosures Past performance is no guarantee of future results. The opinions expressed in this presentation are those of Hanlon Investment Management, Inc. (HIM) and are current through the date of the publication. Hanlon s views are subject to change at any time based on current market conditions, and no forecast can be guaranteed. Nothing in this presentation should be considered or interpreted as advice or a direct solicitation of an individual investor for the sale of investment advisory services. The material in this presentation does not take into account any investor s particular investment objectives, strategies, tax status, or investment time horizon. The use of a Financial Advisor does not eliminate risks associated with investing. Consider the investment objectives risks, charges, and expenses carefully before investing. Hanlon Investment Management, Inc. is an SEC registered investment adviser with offices at 3393 Bargaintown Road, Egg Harbor Township, NJ Additional information regarding the benchmarks is available upon request. Our portfolios may contain asset classes that are dissimilar to the constituency of the corresponding benchmark. Results are based on fully discretionary fee paying accounts under management, including those accounts no longer with the firm. Past performance is not indicative of future results. Returns are presented net of actual management fees and include the reinvestment of all income. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Hanlon Investment Management, Inc. claims compliance with the Global Investment Performance Standards (GIPS ). To receive a complete list and description of the firm s composites and/or presentation that adheres to the GIPS standards, please contact the firm at the address listed. HIM and its representatives are in compliance with the current registration requirements imposed upon registered investment advisers by those states in which HIM maintains clients. HIM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from notice filing requirements. This presentation is limited to the dissemination of general information pertaining to its investment advisory/management services. Any subsequent, direct communication by HIM with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of HIM, please contact HIM or refer to the Investment Adviser Public Disclosure website, There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. Investors whose portfolios are actively traded may incur additional tax liabilities and sales charges. 12