B uilding Portfolios Us ing Exchang e Traded Funds

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1 Portfolio Management Group B uilding Portfolios Us ing Exchang e Traded Funds N a n c y H a rts o c k F in a n c ia l A d v is o r F in a n c ia l P la n n in g S p e c ia lis t S m ith B a rn e y J o h n C a rly le S t, S u ite A le x a n d ria, V irg in ia (7 0 3 ) INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE 1

2 E T F s A llo w fo r F le x ib le S tra te g ie s Core 100% ETF portfolio strategies based on asset allocation models, model portfolios or other portfolio analysis and strategy. Core / Satellite Addresses asset allocation strategies by managing active risks and costs through a blend of index (passive) and active managers. Combines ETFs as the Core with complimentary securities, mutual funds or active managers as the Satellites. Completion Fills asset allocation gaps or makes style or sector tilts using one or more ETFs. 2

3 E T F s C o v e r M a n y M a rk e t S e g m e n ts Exchang e Traded Funds Univers e B ro a d B a s e d L a rg e -C a p M id -C a p S m a ll-c a p M ic ro -C a p S e c to rs G lo b a l T o ta l M a rk e t C o re G ro w th V a lu e C o re G ro w th V a lu e C o re G ro w th V a lu e In te rn a tio n a l S p e c ia lty F ix e d In c o m e In te rn a tio n a l E m e rg in g M a rk e ts A fric a / M id d le E a s t A s ia E u ro p e N o rth A m e ric a L a tin A m e ric a D iv id e n d IP O s S p in o ffs R E IT s S o c ia lly R e s p G o v e rn m e n ts S h o rt-te rm In te rm e d ia te L o n g -te rm C o re O th e r G o ld S ilv e r C u rre n c y C o m m o d itie s C o n s D is c S ta p le s E n e rg y F in a n c ia ls H e a lth c a re In d u s tria ls In fo T e c h M a te ria ls T e le c o m U tilitie s 3

4 ETF Usage T ra d itio n a l in d e x fu n d s E q u itiz e c a s h G a in s e c to r/s ty le e x p o s u re M a rk e t d iv e rs ific a tio n P o rtfo lio c o m p le tio n T a x -lo s s h a rv e s tin g N u m e ro u s fix e d in c o m e a p p lic a tio n s 4

5 Our Inves tment Proces s S tep 1 S et Financial Objectives S tep 3 On-G oing Portfolio Monitoring & R eview S tep 2 Create a Tailored S trategy 5

6 S tep 1 S e t F in a n c ia l O b je c tiv e s Es tablis h a realis tic s et of objectives. Financial Goals Inves tment Time Horizon Ris k tolerance Pas t inves tment experience Knowledge of the capital markets 6

7 S tep 2 C re a te a T a ilo re d S tra te g y B uild a portfolio to meet your return objectives while reducing your ris k 7

8 A Case for Asset Allocation Asset Allocation can be one of the most important decisions of Investment Policy. Over 90% of the variability in long-term returns can be attributed to Asset Allocation. Undetermined 2.2% Market Timing 1.7% Asset Allocation 93.6 % Security Selection 2.5% Source: Financial Analysts Journal, January-February 2000, analyzing the period 12/93 to 12/97. Diversification does not ensure against loss. 8

9 S tep 3 O n g o in g P o rtfo lio M o n ito rin g Track your portfolio s prog res s toward your s tated goal Active discus s ions of goals Adjus tments to changing financial circums tances R eview of market performance Evaluation of portfolio performance 9

10 Reas ons to Hire a Portfolio Manager L a c k o f tim e L a c k o f e x p e rtis e R e m o v e e m o tio n s F id u c ia ry c o n c e rn s L iq u id ity D iv e rs ific a tio n T im e ly re p o rtin g P ro fe s s io n a l A s s e t M a n a g e m e n t C o n tin u ity o f m a n a g e m e n t 10

11 Why S mith B arney s ETF Program May B e Right For You? D ire c t c o n ta c t w ith fin a n c ia l a d v is o r In d iv id u a lly m a n a g e d p o rtfo lio A b ility to d iv e rs ify e n tire c lie n t p o rtfo lio A s s e t b a s e d fe e b a s e d o n to ta l a s s e ts u n d e r m a n a g e m e n t G lo b a l re s o u rc e s o f S m ith B a rn e y 11

12 Im p o rta n t S m ith B a rn e y D is c lo s u re s 2007 Citigroup Global Markets Inc. Member SIPC. Smith Barney, Portfolio Management Group and Investment Advisory Services are divisions of Citigroup Global Markets Inc. Securities are offered through Smith Barney. Citigroup Global Markets Inc. and Citibank are affiliated companies under the common control of Citigroup Inc. Smith Barney is a service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc. and its affiliates, and are used and registered throughout the world. volatility than larger, more established companies. Investment Return and Principal value of an investment will fluctuate, thus an investor s shares, when redeemed, may be worth more or less than their original cost. Past performance is not a guarantee of future results. There may be additional risks associated with international investing involving foreign economic, political, monetary and/or legal factors. International investing may not be for everyone. Diversification does not ensure against loss. If investing in Small Capitalization companies, you should be aware that these companies may be subject to higher volatility than larger, more established companies. Information is provided for general informational purposes only. It is not intended to provide specific advice or recommendations to any individual or entity. Individuals or entities should consult with their accountant, tax or legal advisor with respect to their specific situation. Citigroup, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matters(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. 12