Morgan Asset Projection System (MAPS)

Transcription

1 Morgan Asset Projection System (MAPS) The Projected Performance chart is generated using JPMorgan s patented Morgan Asset Projection System (MAPS) The following document provides more information on how MAPS works. You Invest SM is a business of J.P. Morgan Securities LLC offering self-directed brokerage (You Invest Trade) and investment advisory services (You Invest Portfolios). JPMorgan Chase Bank, N.A. and its affiliates (collectively JPMCB ) offer investment products, which may include bank managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC (JPMS), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states. INVESTMENT AND INSURANCE PRODUCTS ARE: NOT FDIC INSURED NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED

2 Table of contents What is MAPS How does MAPS work Assumptions Appendix J.P. Morgan Long Term Capital Markets Assumptions Important Information

3 What is MAPS? This chart is generated by JPMorgan s patented Morgan Asset Projection System (MAPS), a proprietary tool we developed to help you compare potential allocation strategies. MAPS helps you compare potential outcomes of each strategy to see which could most likely meet your needs. 50K Projected Market Outcomes (10yr) Projected Very Strong Market Outcome $50,000 40K Projected Median Market Outcome $30,000 30K Projected Very Weak Market Outcome $12,000 20K 10K Today 1yr 2yr 3yr 4yr 5yr 6yr 7yr 8yr 9yr 10yr Projected Market Outcomes: Very Strong Median Very Weak IMPORTANT: The projections or other information generated by the Morgan Asset Projection System ( MAPS ) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual or estimated investment vehicle results and are not guarantees of future results. The outcomes displayed for Very Strong, Median and Very Weak Markets are represented by smoothed lines and there is no single path that would result in the displayed paths. The results may vary with each use and over time. The return assumptions utilized in MAPS are not reflective of any specific product and do not include any fees or expenses that may be incurred by investing in specific products. Very Strong Market: The Annual Return equal to the top 95%, or 95 th percentile, of all simulations. Median Market: The Annual Return equal to the middle 50%, or the 50 th percentile, of all simulations. Very Weak Market: The Annual Return equal to the bottom 5%, or the 5 th percentile, of all simulations.

4 How does MAPS work? Beginning Asset Allocation Simulate returns for each of the asset classes Evolving market value process Rebalance to target asset allocation The Project Performance chart is generated using JPMorgan s patented Morgan Asset Projection System (MAPS) MAPS is a patented 1, proprietary tool developed to help you compare potential allocation strategies. MAPS compares a range of potential outcomes for each strategy to see which could most likely meet your needs. MAPS applies a Monte Carlo simulation method to generate multi-period projections A Monte Carlo simulation is an analytical technique using a large number of simulations of uncertain or random variables (like asset class returns). J.P.Morgan was one of the first firms to apply Monte Carlo simulations to individual investor portfolios, over 20 years ago MAPS leverages J.P. Morgan s Long Term Capital Market Assumptions for forward-looking estimates of return, volatility and correlation (see Appendix for more information) This material is for information purposes only, and not an offer or solicitation to enter into a transaction. Please refer to the Important Information section. 1. U.S. Patent 7,031,935.

5 How does MAPS work? Beginning Asset Allocation Simulate returns for each of the asset classes Evolving market value process Rebalance to target asset allocation MAPS takes the Asset Allocation of the Portfolio at the Beginning of the Year Fees: 0.35% This material is for information purposes only, and not an offer or solicitation to enter into a transaction. Please refer to the Important Information section.

6 How does MAPS work? Beginning Asset Allocation Simulate returns for each of the asset classes Evolving market value process Rebalance to target asset allocation Asset Class 1 Year Return U.S. Large Cap 7.00% EAFE Equity 7.75% MAPS takes the Asset Allocation of the Portfolio at the Beginning of the Year For each Asset Class in the portfolio, MAPS simulates a random return for that year. The random return incorporates volatility and correlations to other asset classes. This simulation leverages the J.P. Morgan Long Term Capital Market Assumptions (see Appendix for more information) Emerging Markets Equity 10.00% U.S. Aggregate Bonds 3.75% U.S. Cash 2.25% J.P. Morgan Long Term Capital Market Assumptions This material is for information purposes only, and not an offer or solicitation to enter into a transaction. Please refer to the Important Information section.

7 How does MAPS work? Beginning Asset Allocation Simulate returns for each of the asset classes Evolving market value process Rebalance to target asset allocation +$5 +$4 $109 MAPS takes the Asset Allocation of the Portfolio at the Beginning of the Year For each Asset Class in the portfolio, MAPS simulates a random return for that year. The random return incorporates volatility and correlations to other asset classes. This simulation leverages the J.P. Morgan Long Term Capital Market Assumptions (see Appendix for more information) Evolving Market Value process: $100 Asset Class returns are calculated using the Beginning Asset Allocation and the simulated return for each Asset Class for that year Annual investment contributions are added as positive cash flows The result is the Ending Value Beginning Value Asset Class Returns Contributions Ending Value This material is for information purposes only, and not an offer or solicitation to enter into a transaction. Please refer to the Important Information section.

8 How does MAPS work? Beginning Asset Allocation Simulate returns for each of the asset classes Evolving market value process Rebalance to target asset allocation Fees: 0.35% Target Asset Allocation Rebalance MAPS takes the Asset Allocation of the Portfolio at the Beginning of the Year For each Asset Class in the portfolio, MAPS simulates a random return for that year. The random return incorporates volatility and correlations to other asset classes. This simulation leverages the J.P. Morgan Long Term Capital Market Assumptions (see Appendix for more information) Evolving Market Value process: Asset Class returns are calculated using the Beginning Asset Allocation and the simulated return for each Asset Class for that year Annual investment contributions are added as positive cash flows The result is the Ending Value New Asset Allocation Fees: 0.35% This material is for information purposes only, and not an offer or solicitation to enter into a transaction. Please refer to the Important Information section.

9 How does MAPS work? Beginning Asset Allocation Simulate returns for each of the asset classes Evolving market value process Rebalance to target asset allocation # of years MAPS takes the Asset Allocation of the Portfolio at the Beginning of the Year For each Asset Class in the portfolio, MAPS simulates a random return for that year. The random return incorporates volatility and correlations to other asset classes. This simulation leverages the J.P. Morgan Long Term Capital Market Assumptions (see Appendix for more information) Evolving Market Value process: Asset Class returns are calculated using the Beginning Asset Allocation and the simulated return for each Asset Class for that year Annual investment contributions are added as positive cash flows The result is the Ending Value This process is then repeated for every year in the time horizon to generate 1 set of annual wealth values Start Year 1 Year 2 Year 3 Year 4 Year 5 This material is for information purposes only, and not an offer or solicitation to enter into a transaction. Please refer to the Important Information section.

10 How does MAPS work? 10,000 Runs Beginning Asset Allocation Simulate returns for each of the asset classes Evolving market value process Rebalance to target asset allocation MAPS takes the Asset Allocation of the Portfolio at the Beginning of the Year For each Asset Class in the portfolio, MAPS simulates a random return for that year. The random return incorporates volatility and correlations to other asset classes. This simulation leverages the J.P. Morgan Long Term Capital Market Assumptions (see Appendix for more information) Evolving Market Value process: Asset Class returns are calculated using the Beginning Asset Allocation and the simulated return for each Asset Class for that year Annual investment contributions are added as positive cash flows The result is the Ending Value This process is then repeated for every year in the time horizon to generate 1 set of annual wealth values This entire process is simulated 10,000 times in order to generate a large sample of annual wealth values 50 Start Year 1 Year 2 Year 3 Year 4 Year 5 This material is for information purposes only, and not an offer or solicitation to enter into a transaction. Please refer to the Important Information section.

11 How does MAPS work? MAPS ranks all 10,000 annual wealth values from lowest to highest In order to draw the Projected Growth lines for Very Strong Market, Median Market, and Very Weak Market, MAPS selects three annual wealth values based on their position in the ranking: The annual wealth value equal to the top 95% (95th percentile) is used to represent the Very Strong Market The annual wealth value in the middle (50th percentile) is used to represent the Median Market The annual wealth value equal to the bottom 5% (5th percentile) is used to represent the Very Weak Market K 175 Very Strong Market 40K K 125 Median Market 20K 10K 100 Very Weak Market 75 Today 1yr 2yr 3yr 4yr 5yr 6yr 7yr 8yr 9yr 10yr Projected Market Outcomes: Very Strong Median Very Weak 50 Start Year 1 Year 2 Year 3 Year 4 Year 5 This material is for information purposes only, and not an offer or solicitation to enter into a transaction. Please refer to the Important Information section.

12 Summary Assumptions MAPS uses the following summary assumptions when generating Annual Returns 1 : Asset Class Returns and Volatility 2 : Leverages J.P. Morgan Long Term Capital Markets Assumptions (see Appendix for more info) Assumptions are updated annually Inflation: Asset class returns are in nominal terms and already incorporate inflation Tax Rates: All taxes are ignored for these simulations Product Fees: MAPS does not incorporate Product fees such as Investment Management fees or Trading Commissions Vehicle Fees: MAPS does not incorporate vehicle fees such as expense ratios of ETFs used to build portfolios 1. Please note that a personalize MAPS analysis can incorporate multiple financial goals, and anticipated changes in income and spending patterns. 2. Summary Assumptions are for informational purposes only and calculated based on J.P. Morgan s Capital Market Assumptions to reflect blended summary allocation statistics weighted by asset class as of the date of this report. The Summary Assumptions for return represent the pre-tax average of the Monte Carlo return simulations for the relevant asset classes. These Summary Assumptions are not a guarantee, prediction or projection of the future results; rather, they explain the assumptions used to create the Wealth Projection ranges in the pages that follow. See Long Term Capital Market Assumptions and Understanding Long Term Estimates for additional assumptions.

13 Appendix

14 J.P. Morgan Long Term Capital Markets Assumptions LTCMA serves as economic GPS The assumptions are informed by a process that carefully balances quantitative and qualitative inputs, both of which have been rigorously researched and continuously refined over the past two decades. The Assumptions Committee driving this process includes some of the most senior investors from our Global Investment Management and Global Wealth Management businesses and draws on the best thinking of our global network of asset class and market specialists. Investors and advisors around the world have come to rely on these assumptions to guide their strategic asset allocation and set realistic expectations for risks and returns over a 10- to 15-year time frame. The assumptions encompass more than 50 asset and strategy classes and are available in 10 base currencies. We believe they are one of the most established and comprehensive sets of capital market estimates in the industry. The assumptions are a core element of our framework for designing, building and analyzing solutions that are aligned with clients specific investment needs. This is why, in an ever-changing market environment, we devote extensive effort and resources each year to developing an updated set of longterm estimates. Long Term Capital Markets Assumptions Source: J.P. Morgan Long Term Capital Markets Assumptions for Please refer to the Important Information section.

15 Important Information: Understanding Long Term Estimates Our investment management research incorporates our proprietary projections of the returns and volatility of each asset class over the long term, as well as estimates of the correlations among asset classes. Clearly, financial firms cannot predict how markets will perform in the future. But we do believe that by analyzing current economic and market conditions and historical market trends, and then, most critically, making projections of future economic growth, inflation, and real yields for each country, we can estimate the long-term performance for an entire asset class, given current and our estimated equilibrium levels. The equilibrium level shows the average or central tendency around which a market or macroeconomic variable such as yield or credit spread will tend to fluctuate over the long-term, because the level represents the value inherent in a given market. The return assumptions are based on our proprietary process of using a building block approach for each of the asset classes. For instance, the building blocks for equity consist of our projections on revenue and margin growth, dividend yield and buybacks, and change in valuations. The building blocks for fixed income consist of our projections for future yields and the change in bond prices. The estimates for alternatives are driven by our historical analysis and judgment about the relationship to public markets. It is possible indeed, probable that actual returns will vary considerably from this, even for a number of years. But we believe that market returns will always at some point return to the equilibrium trend. We further believe that these kinds of forward-looking assessments are far more accurate than historical trends in deciding what asset class performance will be, and how best to determine an optimal asset mix. In reviewing this material, please understand that all references to return are not promises, or even estimates, of actual returns one may achieve. The assumptions are not based on specific products and do not reflect fees, such as investment management fees, oversight fees, transaction costs or other expenses that could reduce return. They simply show what the long-term return should be, according to our best estimates of current and equilibrium conditions. Also note that actual performance may be affected by the expertise of the person who actually manages these investments, both in picking individual securities and possibly adjusting the mix periodically to take advantage of asset class undervaluations and overvaluations caused by market trends. For the purpose of this analysis volatility is defined as a statistical measure of the dispersion of return for a given allocation and is measured as the standard deviation of the allocation s arithmetic return. The Sharpe ratio is a return/risk measure, where the return (the numerator) is defined as the incremental annual return of an investment over the risk free rate. Risk (the denominator) is defined as the standard deviation (volatility) of the allocation s return less the risk free rate. The risk free rate utilized is J.P. Morgan s long-term assumption for Cash. Correlation is a statistical measure of the degree to which the movements of two variables, in this case asset class returns, are related. Correlation can range from -1 to 1 with 1 indicating that the returns of two assets move directionally in concert with one another, i.e. they behave in the same way during the same time. A correlation of 0 indicates that the returns move independently of each other and -1 indicates that they move in the opposite direction.

16 Important Information About Your Investments and Potential Conflicts of Interest Conflicts of interest will arise whenever JPMorgan Chase Bank, N.A. or any of its affiliates (together, J.P. Morgan ) have an actual or perceived economic or other incentive in its management of our clients portfolios to act in a way that benefits J.P. Morgan. Conflicts will result, for example (to the extent the following activities are permitted in your account): (1) when J.P. Morgan invests in an investment product, such as a mutual fund, structured product, separately managed account or hedge fund issued or managed by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan Investment Management Inc.; (2) when a J.P. Morgan entity obtains services, including trade execution and trade clearing, from an affiliate; (3) when J.P. Morgan receives payment as a result of purchasing an investment product for a client s account; or (4) when J.P. Morgan receives payment for providing services (including shareholder servicing, recordkeeping or custody) with respect to investment products purchased for a client s portfolio. Other conflicts will result because of relationships that J.P. Morgan has with other clients or when J.P. Morgan acts for its own account. Investment strategies are selected from both J.P. Morgan and third-party asset managers and are subject to a review process by our manager research teams. From this pool of strategies, our portfolio construction teams select those strategies we believe fit our asset allocation goals and forward looking views in order to meet the portfolio's investment objective. As a general matter, we prefer J.P. Morgan managed strategies. We expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to I00 percent) in strategies such as, for example, cash and high-quality fixed income, subject to applicable law and any account-specific considerations. While our internally managed strategies generally align well with our forward looking views, and we are familiar with the investment processes as well as the risk and compliance philosophy of the firm, it is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included. We offer the option of choosing to exclude J.P. Morgan managed strategies (other than cash and liquidity products) in certain portfolios.

17 Important Information The information within this document is being provided for informational and educational purposes only. It is not intended to provide specific advice or recommendations for any individual. You should carefully consider your needs and objectives before making any decisions. For specific guidance on how this information should be applied to your situation, you should consult the appropriate financial professional. The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Reference to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Past performance is no guarantee of future results. The views and strategies described herein may not be suitable for all investors and it is not intended to provide specific advice or recommendations for any individual. You should carefully consider your needs and objectives before making any decisions. This document and its content should not be relied upon in isolation for the purpose of making any investment decision. JPMorgan Chase and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. JPMorgan Chase & Co. or its affiliates may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as an underwriter, placement agent, advisor or lender to such issuer.