Enjoy the Benefits of Professional Wealth Management Quantitative InnovationsSM Investment Advisory Program
As an individual investor, you have access to more investment options than ever. With these choices, however, you also have difficult decisions. What kinds of investments are appropriate for your financial goals? Which specific investments should you select for your portfolio? When should you make changes to your portfolio? If you think these decisions are difficult for an individual investor, you re not alone. One study found that over a recent 20-year period, the performance returns experienced by average mutual fund investors have lagged broad market returns. The average equity fund investor gained less than half of the S&P 500 s annual return during this period, while the average fixed income fund investor earned less than 1% annually as the overall bond market averaged 6.5% each year. Average Annual Returns (1/1/91 12/31/11) Source: 2012 Quantitative Analysis of Investor Behavior, DALBAR, Inc. Please see back cover for more information about the DALBAR study. Why do some investors fall short? Busy lifestyles can prevent investors from spending significant time researching every potential investment decision. The field of behavioral finance has also shown that emotions often drive investors to buy and sell in reaction to current market performance, short-term news and volatility rather than focusing on long-term needs and goals. Fortunately, you don t have to do it on your own. If you re looking for professional wealth management, the Quantitative Innovations SM investment advisory program from Park Avenue Securities may be just what you need. 1
Quantitative Innovations SM Investment Advisory Program Professional Wealth Management from Park Avenue Securities The Quantitative Innovations SM investment advisory program from Park Avenue Securities can help you achieve your true potential as an investor. Our sensible, easy-to-understand program is provided through a Park Avenue Securities Financial Adviser and delivers everything you need to pursue your investment goals: Personalized advice from your financial professional Disciplined, step-by-step planning process Detailed analysis of your financial needs Asset allocation strategies and model portfolios provided by Park Avenue Securities Mutual funds from some of America s most recognized fund managers and/or tax-efficient and cost-effective exchange traded funds (ETFs) Ongoing portfolio management provided by Park Avenue Securities Regular reviews of your investment strategy Quantitative Innovations can help you invest for virtually any financial goal building retirement savings, funding your children s education or saving for a new home or other major purchase. Whether you re investing for the first time or you re an experienced investor, we can help you on the path to your financial future. 2
The Quantitative Innovations 3-Step Planning Process 1 2 3 Identifying Your Financial Goals Portfolio Recommendation Ongoing Portfolio Management Your investment portfolio should always be based upon on your own unique financial needs. Park Avenue Securities gives you professional wealth management through a disciplined 3-step investment planning process that identifies your needs, recommends an investment solution and provides ongoing portfolio management of your portfolio. 1. Identifying Your Financial Goals Your Park Avenue Securities Financial Adviser will help you identify your individual financial goals, time horizon and tolerance for risk. Investors with assets in multiple accounts with different goals and time horizons often discover that this important step is the first time they have an accurate picture of their assets and needs. 2. Portfolio Recommendation Based on your unique situation, your Financial Adviser will recommend an asset allocation model suited to your investment objectives and risk tolerance, as well as a portfolio containing ETFs or a hybrid portfolio of both ETFs and mutual funds that fulfills your recommended strategy. Your account can be managed in a tax-aware manner; however, please note that Park Avenue Securities does not provide tax advice or tax management services. You are responsible for any taxable events in all instances and you should consult with your tax advisor for specific tax advice. 3. Ongoing Portfolio Management Because Quantitative Innovations is a discretionary advisory program, Park Avenue Securities will monitor your account and, if appropriate, rebalance your investments, adjust the asset classes within your asset allocation model or change your holdings to keep your portfolio on track with your goals. You ll receive periodic performance reports and you will have the opportunity to meet with your Financial Adviser at least once a year to review your portfolio and discuss any changes in your goals or lifestyle that might impact your investment objectives and the asset allocation model used to manage your portfolio. You can also view your account holdings, performance and activity at any time through secure online access and call your Financial Adviser throughout the year with any questions or concerns or to set reasonable restrictions on how we manage your account. 3
Asset Allocation Strategies Park Avenue Securities believes investors are best served by selecting diversified portfolios with asset allocation strategies consistent with their risk tolerance and return goals. The Quantitative Innovations advisory program includes a range of asset allocation models for nearly any investment objective. Asset allocation is an investment strategy that seeks to diversify a portfolio across various types of asset classes. Equity asset classes include different market capitalization sizes (e.g., large-cap, small-cap), growth or value orientation and geographic boundaries (e.g., US, international), while fixed income asset classes are grouped according to taxable or tax-exempt status, interest rate sensitivity, credit quality and geographic boundaries. Creating portfolios with different weights for each asset class results in an overall portfolio with expected risk and return characteristics that seeks to meet a specific investment objective, from conservative to aggressive. The Quantitative Innovations advisory program includes asset allocation model portfolios for a range of investment objectives. Based upon your investment objective, your Financial Adviser will recommend one of the following strategic model portfolios. Ultra-Aggressive Growth High Aggressive Growth Conservative Growth Moderate Growth Dynamic Growth Potential Return Balanced Income & Growth Conservative Income Capital Preservation Growth & Income Low Risk High Park Avenue Securities may periodically adjust these asset allocation strategies to increase the portfolio s exposure to asset classes that we believe offer the most attractive risk/return profiles or, conversely, to decrease the portfolio s exposure to asset classes that we believe have relatively unattractive risk/return prospects. An asset allocation strategy does not ensure a profit or protect against loss. Investing involves certain risks, including the possible loss of the principal amount invested. The investment return and principal value may fluctuate so that the investment, when redeemed, may be worth more or less than the original cost. 4
Portfolio Construction Park Avenue Securities constructs each model portfolio with ETFs or with ETFs and mutual funds to fulfill the portfolio s strategic asset allocation. We use ETFs to gain the benefits of cost-efficiency and tax-efficiency. For hybrid portfolios, we include mutual funds for additional professional management and to achieve a high degree of diversification. These model portfolios can serve as the foundation for your entire financial program, or they can be used to complement an existing investment program or retirement plan. Our Approach to Portfolio Construction A class of assets that has outperformed other asset classes over time tends to become expensive (the valuation is high) relative to other asset classes. Our research has shown that owning relatively large amounts of expensive assets could have a negative impact on returns over the long term. Therefore, we periodically adjust our portfolios in favor of those assets that are cheapest, while underweighting those that have grown expensive. We have found that, over the course of a full market cycle, actively managing asset allocation in this way could help to smooth volatility and help create competitive returns. However, there is no guarantee that any investment strategy will deliver favorable results. Adhering to a Long-term View We avoid market timing and we don t change our portfolio holdings based on recent volatility or the latest fad. Any changes we make are based on forwardlooking considerations and the market s history of generating attractive returns over complete market cycles. Our approach is to keep our stock and bond allocations fully invested at all times. 5
ETFs: Efficient access to the world s investment markets ETFs combine characteristics of index mutual funds and stocks. ETFs are similar to index funds in that they give an investor a cost-efficient, flexible way to own a basket of stocks that mirrors a particular index, asset class or market sector. Like stocks, investors buy and sell ETFs from one another on an exchange rather than through the fund. ETFs are typically more cost-efficient than traditional, actively managed mutual funds, which include the cost of research and analysis, management fees and trading activity in the form of higher expenses. With ETFs, the primary task of the management firm is to keep the portfolio of securities mirroring the target index or sector a far less costly endeavor. ETFs are also generally more tax-efficient than mutual funds. In a mutual fund, capital gains distributions occur when the manager sells underlying investments. Investors are responsible for taxes on those distributions regardless of how long they owned their mutual fund shares or whether their shares have increased in value. With ETFs, however, investors generally pay capital gains only when selling their shares, providing some flexibility for the timing of capital gains taxation. Low expenses and flexibility make ETFs useful tools for executing portfolio strategies, achieving diversification and managing capital gains taxes. Strategically deploying ETFs and active managers in portfolio implementation Many experts believe that certain portions of the market, such as large-cap stocks, are highly efficient. In such a market, it is thought that all the information known about the stocks is already reflected in their trading prices. Accordingly, we may utilize ETFs and mutual funds in our portfolios as follows: We often use ETFs to execute strategies in efficient-market securities or as a risk control to counterbalance a highly active manager. We may use actively managed mutual funds to implement strategies in lessefficient markets, such as small-cap stocks, emerging market securities and so on. When taxes are a consideration, we will also use ETFs to execute strategies in more inefficient markets where the tax-efficiency and low-cost nature of ETFs outweigh the potential value of active management. 6
Rigorous Investment Analysis For portfolios with mutual funds, we select funds based on rigorous quantitative research, including performance relative to peers and consistency in following their stated investment philosophy. Other factors are also considered, such as the mutual fund managers length of experience, compensation model, organizational structure and enthusiasm for their investment style. We use advanced analytics to evaluate the extra return each manager adds to or subtracts from the performance of their stated benchmark. This performance attribution helps us meaningfully evaluate the performance of each mutual fund manager. We also assess how much risk the manager adds to the overall portfolio and adjust allocations to manage that risk. We have access to decision-makers at each fund management firm, which allows us to get an understanding of the team s strategy and evaluate its acumen and process directly at the source. Furthermore, we often get access to institutional share classes which may have reduced expenses and fees. Ongoing Portfolio Monitoring Park Avenue Securities continually monitors mutual funds within the model portfolios and may remove funds based on several factors such as drift from the stated investment style, defection of key personnel, excessive fees, unethical behavior and poor performance relative to peers. We evaluate funds objectively and make unbiased investment decisions. Furthermore, we are not obligated to keep any particular fund in our lineup. The result: Portfolios constructed by Park Avenue Securities that are built upon strategic asset allocation models, implemented with objectively chosen ETFs or a hybrid portfolio of mutual funds and ETFs and managed with the goal of attempting to achieve optimal long-term results. 7
Start enjoying the benefits of professional wealth management today. There s never been a better time to take advantage of professional wealth management. With the Quantitative Innovations investment advisory program, you ll gain the benefits of an investment portfolio designed for your needs using ETFs or a hybrid portfolio of mutual funds and ETFs. You ll also receive important information and ongoing guidance from your trusted Park Avenue Securities Financial Adviser. For more information about the Quantitative Innovations investment advisory program from Park Avenue Securities, talk with your Park Avenue Securities Financial Adviser today. 8
A strong tradition of service Accounts are managed by Park Avenue Securities LLC, an indirect, wholly owned subsidiary of The Guardian Life Insurance Company of America. Guardian is one of the nation s most respected financial institutions, with a tradition of service dating back to 1860. About Guardian Our company serves individuals, businesses, and their employees through our products and services, expert advice and vision. When choosing a financial provider, it s important to look to the history and core values that form a company s foundation. Since 1860, Guardian has been committed to the values that govern all the decisions we make: we do the right thing, people count, and we hold ourselves to very high standards. At Guardian, we take great pride in providing solutions to help businesses and individuals build their financial security and protect what they value most. It is our privilege to serve you.
Additional information about the DALBAR study: Average equity fund investor and average fixed income fund investor performance results are based on a DALBAR study, Quantitative Analysis of Investor Behavior (QAIB), 2012. Equity benchmark performance is represented by the Standard & Poor s 500 Composite Index, an unmanaged index of 500 common stocks generally considered representative of the U.S. stock market. Bond benchmark performance is represented by the Barclays Aggregate Bond Index, an unmanaged index of bonds generally considered representative of the bond market. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest directly in any index. Past performance cannot guarantee future results. DALBAR is an independent, Boston-based financial research firm. Using monthly fund data supplied by the Investment Company Institute, QAIB calculates investor returns as the change in assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions, and exchanges for the period. Quantitative Innovations is a service mark of Park Avenue Securities LLC. Investments offered through Park Avenue Securities LLC are not deposits of, or obligations of, or guaranteed or endorsed by, any bank or depository institution, or insured by the Federal Deposit Insurance Corporation (FDIC), the National Credit Association, the Federal Reserve Board, or any other agency. They involve investment risk, including possible loss of principal amount invested. Investment return and principal value may fluctuate so that the investment, when redeemed, may be worth more or less than the original cost. The mutual funds and/or ETFs available through the Quantitative Innovations program are offered by prospectus. You should carefully consider the funds objectives, risks, charges, and expenses before making an investment decision. The prospectus contains this and other important information. Please read the prospectus carefully before investing or sending money. Please contact your Financial Adviser or Park Avenue Securities for prospectuses and additional information. Securities products/services and advisory services offered through Park Avenue Securities LLC, a registered broker-dealer and registered investment adviser. Park Avenue Securities is an indirect, wholly owned subsidiary of The Guardian Life Insurance Company of America and is located at 7 Hanover Square, New York, NY 10004. Member FINRA, SIPC. Park Avenue Securities 7 Hanover Square New York, NY 10004 PAS015448 (02/13) 2012 13633