Help make diversified investing simpler

Transcription

1 Help make diversified investing simpler Nationwide Guided Portfolio Strategies (GPS) Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution Not insured by any federal government agency May lose value

2 Because the Nationwide Guided Portfolio Strategies (GPS) models are only available within a variable annuity, it s important that you understand some basic information about them. When determining whether a variable annuity is suitable for you, please note that variable annuities are long-term, tax-deferred investments designed for retirement and may fluctuate in value. They re a contract between you and an insurance company that allows you to create a fixed or variable stream of income through a process called annuitization. They also provide a variable rate of return based on the performance of the underlying investments. Please remember that annuities have limitations and investing in them involves market risk, including the possible loss of principal. What features do variable annuities offer? Lifetime income a stream of income you can t outlive; accessed either through annuitization or systematic withdrawals Death benefits the payment that the annuitant s beneficiaries or estate receives when the annuitant dies Tax deferral the potential for your investment to accumulate faster than taxable investments because you don t pay taxes on gains until you take a withdrawal Investment choices access to a wide range of professionally managed investment options only available with annuities What limitations do annuities have? If you decide to take your money out early, you may face fees called surrender charges. If you re not yet 59 1 /2, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. If a death benefit is available and you take an early withdrawal, the amount of your death benefit and the contract value will be reduced. You should also know that annuities contain guarantees and protections that are subject to the issuing insurance company s ability to pay for them. But these guarantees don t apply to the performance of the underlying investment options, which are subject to investment risk, including possible loss of your principal. How much do annuities cost? Because of the unique features your annuity can contain, the fees and charges will vary. They may include mortality expense, administrative fees, contract fees and the expense of your investment options. You can get more specific information about fees from your advisor. 2

3 Diversification made simple As market swings have led to unpredictable gains and losses, many investors are looking more closely at the outcomes they want to achieve from their portfolios and using diversified asset classes as part of a strategy to help manage risk. Choosing among the wide range of investments available in the market can be confusing, and so can putting them to work effectively in your portfolio. With Nationwide Guided Portfolio Strategies (GPS), we ve created simplified portfolios by blending together different fund managers and investment strategies. One choice allows you to bring a well-diversified mix of asset classes and strategies to your variable annuity portfolio. Four different ways to help manage risk Nationwide GPS offers four models, which blend different asset classes together with a portfolio of traditional funds to help you reach your investment goals. GPS Model Capital Preservation Model Growth & Income Model Capital Appreciation Model Enhanced Growth & Income Investment Goals Offers potential downside protection from market shifts Generate income Investment growth Generate income Investment growth Investment growth Generate income Offers higher exposure to alternatives There is no guarantee that the GPS model will achieve the desired outcome, and the use of divesification and asset allocation as part of an overall investment strategy does not assure a profit or protect against loss in a declining market. Plus, there s no additional cost for the Nationwide GPS models. That makes it even easier to bring a sophisticated approach to increasing diversification and help to manage risk. While including alternative asset classes in your investment mix can help you diversify your portfolio, investing in them also involves special risks that you should know about. Alternative investments may be highly speculative and leveraged or may use various hedging techniques, like options and derivatives. This could increase losses, and there is no guarantee that the hedging strategy or derivative exposure will perform as intended. 3

4 Managing risk with a diversified mix Investing in alternative asset classes and strategies can help enhance portfolio diversification because they tend to perform differently than traditional investments under similar market conditions. That can help capture gains or reduce the impact a downturn can have on a traditional stock or bond portfolio. Of course, it's important to remember that diversification doesn't ensure a profit or protect against losses. The degree to which two different types of investments perform relative to each other is called correlation. For example, if stock markets decline, certain investments may move in the opposite direction (negative correlation) or may not decline as much (lower correlation). Historically, alternative investments have had low correlations to traditional investments. When you re diversifying a portfolio, understanding the impacts of correlation is key to helping you manage the overall volatility of your portfolio. By taking on more kinds of specific risks, you may increase the chances of noncorrelated returns and therefore lower the overall volatility of a portfolio. Investments that are noncorrelated, or have an inverse relationship, can help capture gains or reduce the impact a downturn can have on a traditional stock or bond portfolio. 1.0 ASSET CORRELATION If one goes up, so does the other. 0.0 ASSET CORRELATION No relationship -1.0 ASSET CORRELATION If one goes up, the other goes down. Alternative asset classes and strategies can be thought of as portfolio diversifiers They are investments with sources of potential returns that have different risk exposures If stock markets decline, certain alternative asset classes may move in the opposite direction (negative correlation) or at least not decline as much (lower correlation) as traditional asset classes 4

5 Moving in a positive direction Using index performance data from a recent 20-year period of market history, the chart below illustrates how adding exposure to nontraditional investments in portfolios of traditional investments helped lower risk and/or improve returns during this period. HOW TO READ THIS CHART: Risk is measured from left to right (lower to higher risk), while return is measured top to bottom (higher to lower return). An effective strategy will seek higher returns with lower exposure to risk in other words, up and to the left. Adding exposure to diversified asset classes may help you capture higher or comparable returns while lowering risk. Annualized return and standard deviation for hypothetical strategies using a blend of traditional and nontraditional asset classes, Annualized return 8% 7% 6% 30/60/ / /40/ / /20/10 60/40 40/40/20 70/30 4% 6% 7% 8% 9% 10% 11% Risk (annualized standard deviation) Conservative Aggressive Equities Fixed Income Alternatives PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE FUTURE RESULTS. This illustration is not indicative of actual performance of the Nationwide Guided Portfolio Strategies models and there is no guarantee investors will achieve similar results. Index performance during the period from 1996 through 2015 was used to represent performance of the different asset classes used by these strategies in this illustration. Indexes are unmanaged and have been provided for comparison purposes only. Index performance does not include fees or expenses, which if included would have resulted in lower returns. Individuals cannot invest directly in an index. See Page 6 for a description of how performance for this illustration was calculated and for definitions of the indexes used. 5

6 How model performance was calculated For the illustration of traditional and nontraditional model portfolio performance on page 5, annualized returns and standard deviation for the period 1996 through 2015 were calculated. Index performance was used to represent the different traditional and nontraditional asset classes included in the models. The table below lists the indexes used for each asset class, along with their annualized return and standard deviation for the 20-year period: Asset class Index Annualized return ( ) Annualized standard deviation ( ) Equities S&P 500 Index 8.19% 15.29% Fixed Income Barclays U.S. Aggregate Bond Index 5.34% 3.46% Alternatives HFRI Fund Weighted Composite 7.66% 6.9 Performance for these indexes represents past performance for the period indicated and does not guarantee future results. Moreover, index performance is not indicative of actual performance clients achieve through investment in the GPS model holdings. No fees or expenses are reflected in the returns shown. Actual performance would be lower if the fees and expenses of the variable product or the actual funds were included. Indexes are not managed and clients cannot invest directly in an index. Index definitions S&P 500 Index: An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; gives a broad look at the U.S. equities market and those companies' stock price performance. Barclays U.S. Aggregate Bond Index: An unmanaged, market value-weighted index of investment-grade, fixed-rate debt issues (including government, corporate, asset-backed, and mortgage-backed securities with maturities of one year or more) that is generally representative of the bond market as a whole. Hedge Fund Research, Inc. (HFRI) Fund Weighted Composite: An equal-weighted index of over 2,200 domestic and international funds that invest in alternative asset classes and have at least $50 million in assets under management or have been actively trading for at least 12 months. The risks of investing in this type of index may include liquidity risk and potential tax consequences. 6

7 Go your own way The four Nationwide GPS models, shown on the following pages, offer a range of options from capital preservation to enhanced growth and income. These portfolio combinations are based on their potential to achieve specific investment outcomes. The models are static with fixed allocations to an index-based traditional asset allocation portfolio all GPS models use the NVIT Investor Destinations Funds as a foundation, except for our most aggressive model. The models also include a mix of actively managed strategies from the options below: Nationwide GPS fund guide NVIT Investor Destinations Moderately Conservative Fund Class II NVIT Investor Destinations Moderate Fund Class II NVIT Investor Destinations Moderately Aggressive Fund Class II Lazard Retirement Emerging Markets Equity Portfolio Service Shares Morgan Stanley UIF Global Real Estate Portfolio Class II Morgan Stanley UIF Emerging Markets Debt Portfolio Class II Eaton Vance VT Floating-Rate Income Fund Templeton Global Bond VIP Fund Class II Mainstay VP Convertible Portfolio Service 2 Class NVIT Multi Sector Bond Fund Class I Van Eck VIPT Global Hard Assets Fund Initial Class Guggenheim VF Global Managed Futures Strategy Morgan Stanley UIF Global Infrastructure Portfolio Class II Western Asset Variable Global High Yield Bond Portfolio Class II Merger Fund VL To help maintain strategic allocations of the Nationwide GPS models over time, you should select to rebalance your portfolio quarterly, semi-annually or annually. In your discussions with your financial professional, you may decide that one of the Nationwide GPS model allocations is appropriate for your investment objectives. Or, you can use a Nationwide GPS model as a starting point for building a different allocation mix that may be more suitable for your goals. Keep in mind that Nationwide GPS models are not considered investment advice, nor are they intended to be the only basis for your investment decisions. 7

8 GPS model portfolio allocations as of May 1, 2016 Traditional Asset Allocation NVIT Investor Destinations Moderately Conservative Fund Class II 5, 8 NVIT Investor Destinations Moderate Fund Class II 5, 8 NVIT Investor Destinations Moderately Aggressive Fund Class II 5, 8 Emerging Markets Equity Equity Lazard Retirement Emerging Markets Equity Portfolio Service Shares 1, 8 Global Infrastructure Morgan Stanley UIF Global Infrastructure Portfolio Class II 1, 3 Global Real Estate 1, 3, 7 Morgan Stanley UIF Global Real Estate Portfolio Class II Convertibles Mainstay VP Convertible Portfolio Service 2 Class 3,6 Emerging Market Bond Morgan Stanley UIF Emerging Markets Debt Portfolio Class II 1, 6 Floating Rate Bond Eaton Vance VT Floating-Rate Income Fund 3, 6 Global Bond Templeton Global Bond VIP Fund Class II 1, 6 High Yield Bond Fixed Income 1, 2, 3, 6 Western Asset Variable Global High Yield Bond Portfolio Class II Multi Sector Bond NVIT Multi Sector Bond Fund Class I 2, 6 Managed Futures Guggenheim VF Global Managed Futures Strategy 3, 9 Market Neutral Merger Fund VL 3, 9 Natural Resources Alternatives 1, 3, 8 Van Eck VIPT Global Hard Assets Fund Initial Class TOTAL Blended Model Expense Ratio

9 Capital Preservation Model % 13% 4% 2% 60% Growth & Income Model Capital Appreciation Model % 6% 7% 10% 4% 3% 60% 4% 8% 7% 10% 3% 3% 60% Enhanced Growth & Income Model % 14% 10% 1 8% 10% 11% 8% 60% 60% 60% 4% 4% 11% 3% 10% 6% 10% 10% 14% 3% 6% 8% 1 13% 7% 10% 2% 3% 3% 8% 4% 7% 8% 100% 100% 100% 100% 0.97% 1.00% 0.99% 1.20%

10 Fund-specific disclosures The Nationwide GPS models include underlying funds that are selected to meet each model's mandate (conservative, moderate, aggressive, etc.). We've included descriptions of each type of fund used below and we've also numbered them in the models themselves on the previous pages so you can better understand the risks associated with them, as well as any trade restrictions, if applicable. 1 International/emerging markets funds: Funds that invest internationally involve risks not associated with investing solely in the United States, such as currency fluctuation, political risk, differences in accounting and the limited availability of information. 2 High-yield funds: Funds that invest in high-yield securities are subject to greater credit risk, liquidity risk and price fluctuations than funds that invest in higher-quality securities. The prices of high-yield bonds tend to be more sensitive to adverse economic and business conditions than are higher-rated corporate bonds. Increased volatility may reduce the market value of high-yield bonds. They are also subject to the claims-paying ability of the issuing company. 3 Nondiversified funds: Funds that invest in a concentrated sector or focus on a relatively small number of securities may be subject to greater volatility than a more diversified investment. 4 Government funds: While the funds invest primarily in the securities of the U.S. government and its agencies, the values are not guaranteed by these entities. 5 Fund-of-funds: Designed to provide diversification and asset allocation across several types of investments and asset classes, primarily by investing in underlying funds. Therefore, in addition to the expenses of the portfolio, you are indirectly paying a proportionate share of the applicable fees and expenses of the underlying funds. 6 Bond funds: These funds have the same interest rate, inflation and credit risks associated with the underlying bonds owned by the fund. Interest rate risk is the possibility of a change in the value of a bond due to changing interest rates. Inflation risk arises from the decline in value of cash flows due to loss of purchasing power. Credit risk is the potential loss on an investment based on the bond issuer's failure to repay on the amount borrowed. 7 Real estate funds: Funds that focus on real estate investing are sensitive to economic and business cycles, changing demographic patterns and government actions. 8 Commodities/natural resource funds: Specific uncertainties associated with commodities investing include changes in supply-and-demand relationships due to environmental, economic and political factors, which may cause increased volatility and decreased liquidity. 9 May provide less-common return patterns than traditional equity or fixed income. These funds incorporate investment strategies that may increase or decrease volatility due to the fund's use of options or futures. Leveraged exposure can result in accelerated losses as well as accelerated gains, depending on how the market moves. 10

11 Talk with your investment professional today to learn how Nationwide Guided Portfolio Strategies may help you make diversified investing simpler. 11

12 Variable products are sold by prospectus. Both the product prospectus and underlying fund prospectuses can be obtained by writing to Nationwide Life Insurance Company, P.O. Box , Columbus, OH Before investing, make sure you carefully consider the fund s investment objectives, risks, charges and expenses. The product prospectus and underlying fund prospectuses contain this and other important information. You should read the prospectuses carefully before investing. The Nationwide Guided Portfolio Strategies (GPS) models are only available through select Nationwide variable annuities. The underlying investment options are not publicly traded mutual funds and cannot be purchased directly by the public. The general distributor is Nationwide Investment Services Corporation, member FINRA. Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company Nationwide VAM-2262AO.6 (04/16)