TARGET EXCESS YIELD SUITE

Transcription

1 A simple objective To create a global fixed income portfolio targeting specific yield levels (two offerings: +3% or +4%) above short-term U.S. with minimum volatility. A consistent process Applies a robust optimization process to identify the optimal mix of asset classes to achieve the target yield level. A thoughtful design Checks whether achieving the target yield level requires too much risk; if so, reduces target yield level by 25bps and re-optimizes. Note: There is no guarantee that the products will be able to achieve their targeted excess yield. 1

2 STEP 1: DIVERSIFIED INVESTMENT UNIVERSE Broad universe provides the raw material for the portfolio to adapt to ever changing market dynamics. 1-3 Month U.S. Treasury Bills 3-7 Year U.S. U.S. TREASURY 1-3 Year U.S Year U.S. Short-Term Corporates Investment Grade Corporates CREDIT Short-Term High Yield Bonds High Yield Bonds Year U.S. 20+ Year U.S. Floating Rate Notes INTERNATIONAL OTHER Short-Term Int. International Agency Bond Commercial Paper Local Currency E.M. Bonds USD E.M. Bonds MBS Repurchase Agreements The universe as well as the ETFs used to implement the positions in the universe can change at Newfound s discretion. 2

3 STEP 2: DYNAMICALLY EVALUATE YIELD TO RISK TRADEOFF Constant re-evaluation of the universe followed by dynamic portfolio management is crucial since the risk/reward trade-off can vary substantially across market environments. Excess Yield-to-Risk Example: The excess yield (over 1-3 Year U.S. ) per unit volatility offered by 7-10 Year U.S. has dramatically evolved over the last 11 years. When the excess yield-to-risk is high, increasing duration is compelling; when it is low, there is little benefit offered In 2003, 7-10 Year U.S. offered an excess of nearly 70 basis points of yield for each unit of volatility Source: Yahoo! Finance, Newfound Research. Data is through 3/31/15. Yield is calculated as smoothed 12-month trailing dividends divided by price. Volatility is the standard deviation of daily log returns over the period. Excess Yield-to-Risk is the ratio of the excess yield offered by 7-10 Year U.S. (ishares 7-10 Year Treasury Bond ETF, ticker: IEF) over the yield offered by 1-3 Year U.S. (ishares 1-3 Year Treasury Bond ETF, ticker: SHY) to the volatility of 7-10 Year U.S. (ishares 7-10 Year Treasury Bond ETF, ticker: IEF). 3 In 2008, the yield curve was so flat that there was little excess yield generated per unit volatility. While not at 2004 levels, more recent yield-curve dynamics have resulted in 7-10 Year U.S. offering the most attractive excess yield per unit risk since early 2005.

4 STEP 3: CONSTRUCT PORTFOLIO AND ENFORCE RISK LIMITS Thoughtfully reaching for yield requires knowing when to dial back risk by lowering yield targets. Construct all portfolios that offer the target yield (3%/4% above short-term ). Select the portfolio with the lowest volatility. No Lower yield target by 25 bps Is the portfolio within pre-set risk limits? Yes Is the new portfolio sufficiently different from the existing portfolio? Yes No Rebalance No Action There is no guarantee that the strategy will achieve its objectives. There are no guarantees that the strategy will be positioned correctly for any given market environment. The strategy utilizes various rebalance techniques designed to reducing transaction costs and turnover, which may result in the strategy s actual allocation straying from its target allocation. 4

5 IMPORTANT DISCLOSURES Before you invest in the Newfound Target Excess Yield Suite, you are strongly encouraged to consult with your financial advisor. Newfound shall have the right at any time, in its sole discretion, to substitute any or all of the ETFs or other securities utilized within the investment strategy. This presentation is provided for informational purposes only and is subject to revision. This presentation relates to a rule-based index and related investment strategy which are managed by Newfound. This presentation is not an offer to sell or a solicitation of an offer to purchase an interest or shares ( Interests ) in any pooled vehicle. Newfound does not assume any obligation or duty to update or otherwise revise information set forth herein. This document is not to be reproduced or transmitted, in whole or in part, to other third parties, without the prior consent of Newfound. Certain information contained in this presentation constitutes forward-looking statements, which can be identified by the use of forward-looking terminology such as may, will, should, expect, anticipate, project, estimate, intend, continue, or believe, or the negatives thereof or other variations or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of an investment managed using the Newfound index or investment strategy may differ materially from those reflected in such forward-looking statements. The information in this presentation is made available on an as is, without representation or warranty basis. There can be no assurance that the Newfound index or related investment strategy will achieve any level of performance, and investment results may vary substantially from year to year or even from month to month. An investor could lose all or substantially all of his or her investment. Both the use of a single adviser and the focus on a single investment strategy could result in the lack of diversification and consequently, higher risk. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. You should consult your investment adviser, tax, legal, accounting or other advisors about the matters discussed herein. These materials represent an assessment of the market environment at specific points in time and are intended neither to be a guarantee of future events nor as a primary basis for investment decisions. 5