September 30, 2013

Transcription

1 September 30, 2013

2 Compass Efficient Model Portfolios Compass EMP was founded in Compass EMP has served as consultants to large institutions such as governments, endowments, foundations, pensions and high net worth individuals. Compass EMP began weighting asset classes and securities based on the founder s risk (volatility) parity methodology in Compass EMP is the creator of the patent pending CEMP Volatility Weighted Indexes published by Dow Jones and Standard & Poor s. Compass EMP launched 9 indexes in 2012 based on their methodology going back to Investment Industry Past Present Future Active Managers Opinion Driven Passive Cap Weighted Indexing Enhanced Indexing: Combination of the two Indexing with logic 2

3 Capitalization Weighted S&P 500 Index Criteria 500 stocks Weighted by market Capitalization 1. Many companies are not profitable after inclusion 2. Continued participation is subjective and done by a selection committee Most of the return from a few stocks 1. The top 10 stocks equals 19% of assets 2. The majority of the stocks have little contribution Drives weighting toward Market fads (Late 90 s Technology 2007 Financials) Source: Bloomberg Standard & Poor s 3

4 CEMP U.S. Large Cap 500 Volatility Weighted Index Construction Methodology Universe: Begins with all publicly traded stocks domiciled within the U.S. Fundamental: CEMP screens for companies with positive earnings during the last four consecutive quarters. (You must make money to get in.and to stay in the index) Size: CEMP identifies the 500 largest stocks by market capitalization Volatility Weighting: CEMP weights these 500 stocks by their daily standard deviation (volatility) over the last 180 days compared to the average. Reconstitution: The Index reconstitutes every March and September Source: 4

5 Cap Weighting versus Volatility Weighting: A Tale of Two Stocks Daily Performance Impact of Apple (AAPL) & Clorox (CLX) S&P 500 Index & CEMP US Large Cap 500 Volatility Weighted Index September 2012 March 2013 Daily Impact of Apple & Clorox on the S&P 500 Daily Impact of Apple & Clorox on the CEMP US % 0.100% 0.050% 0.050% 0.000% 0.000% 0.050% 0.050% 0.100% 09/24/12 11/02/12 12/12/12 01/23/13 03/04/13 AAPL CLX 0.100% 09/24/12 11/02/12 12/12/12 01/23/13 03/04/13 AAPL CLX Source: Bloomberg 5

6 Capitalization Weighting vs. Fundamental Volatility Weighting Performance Attribution by Market Capitalization Quartiles Last Ten Years Ending December 2012 Cap Weighted Approach (S&P 500 Index) S&P 500 Index Share of Performance by Quartile Volatility Weighted Approach (CEMP US Lg Cap 500) CEMP US Lg Cap 500 Index Share of Performance by Quartile Total Return of CEMP US 500: % 22.9% Largest 25% of Stocks Total Return of S&P 500: +98.6% 24.0% 2nd Quartile 72.5% Largest 25% of Stocks 32.8% 3rd Quartile 5.2% 20.5% 2nd Quartile 20.3% Last Quartile 1.8% Source: Bloomberg 6

7 Source: Bloomberg *CTR = Contribution to the Total Return Bear Market of October 2000 December 2002 Percentile S&P 500 CEMP US Large Cap 500 Market Cap Avg. Weight Total Return CTR* Avg. Weight Total Return CTR* Largest 25% 84.61% 41.14% 35.99% 28.35% 21.99% 6.37% 25 50% 11.84% 0.51% 0.58% 28.50% 2.84% 1.67% 50 75% 2.62% 15.76% 0.11% 28.50% 15.72% 4.70% Smallest 25% 0.68% 19.40% 0.04% 14.25% 12.76% 0.63% Index 36.42% 36.42% 0.63% 0.63% Bull Market of January 2003 December 2007 Percentile S&P 500 CEMP US Large Cap 500 Market Cap Avg. Weight Total Return CTR* Avg. Weight Total Return CTR* Largest 25% 81.89% 71.31% 61.55% 38.01% 82.02% 32.53% 25 50% 13.52% % 16.09% 30.44% % 31.66% 50 75% 2.83% % 3.07% 21.80% % 28.33% Smallest 25% 0.89% % 1.28% 8.17% % 13.57% Index 81.99% 81.99% % % 7

8 CEMP U.S. Large Cap 500 Volatility Weighted Index vs. S&P Fundamental: The Index universe begins with all publicly traded stocks domiciled in the United States then screens for all companies with consistent net positive earnings for four consecutive quarters. 2. Size: The Index identifies up to the 500 largest U.S. stocks by market capitalization. 3. Volatility Weighting: The remaining 500 stocks are weighted based on their daily standard deviation (volatility) over the last 180 trading days compared to the aggregate mean. The Index is reconstituted every March and September. CEMP U.S. Large Cap 500 Volatility Weighted Index vs. S&P 500 YTD CEMPUSL 22.66% 15.31% 3.94% 21.78% 29.71% 34.25% 5.56% 15.11% 9.44% 18.14% 32.29% 7.42% 0.53% S&P % 16.00% 2.11% 15.06% 26.46% 37.00% 5.49% 15.79% 4.91% 10.88% 28.68% 22.10% 11.88% Cumulative Return (9/30/2000 to 9/30/2013) CEMP U.S. Large Cap 500 Volatility Weighted Index % S&P 500 Index (Cap Weighted Index Comparison Only) 50.51% Risk Adjusted Return (Compared to the S&P 500 Index) Beta: 10 Yr Since 9/30/ Alpha: 10 Yr. 3.00% Since 9/30/ % 8

9 Since Cumulative October 2000 September 2013 Symbol 3 Yr. 5 Yr. 7 Yr. 10 Yr. 9/30/2000 Return CEMP US Large Cap 500 Volatility Weighted Index CEMPUSLT 17.64% 12.78% 8.05% 10.43% 9.23% % CEMP US Large Cap 500 Long/Cash Volatility Weighted Index CEMPUSHG 16.76% 15.46% 10.83% 12.42% 9.74% % S&P 500 Index SPXT 16.27% 10.02% 5.60% 7.57% 3.20% 50.51% CEMP US Small Cap 500 Volatility Weighted Index CEMPUSST 20.71% 13.42% 9.12% 11.58% 11.41% % Russell 2000 Index RUTTR 18.29% 11.15% 7.23% 9.64% 7.13% % CEMP Int'l 500 Volatility Weighted Index CEMPDEVT 9.35% 9.67% 5.03% 11.62% 9.23% % CEMP Int'l 500 Long/Cash Volatility Weighted Index CEMPDVHG 10.78% 12.01% 8.12% 13.91% 10.96% % MSCI EAFE Index NDDUEAFE 8.97% 6.85% 2.89% 8.50% 4.34% 73.81% CEMP Emerging Market 500 Volatility Weighted Index CEMPEMT 2.47% 13.24% 14.70% 16.52% 16.06% % Dow Jones Emerging Markets W5DOW 0.37% 6.76% 5.13% 12.60% 9.87% % CEMP US REIT 100 Volatility Weighted Index CEMPRET 11.99% 5.63% 3.04% 8.37% 11.07% % CEMP US REIT Long/Cash Volatility Weighted Index CEMPREH 11.04% 8.94% 6.75% 10.31% 12.38% % Dow Jones U.S. Select REIT DWRTFT 12.09% 5.30% 2.35% 9.29% 10.57% % CEMP Commodity Volatility Weighted Index CEMPCOM 2.14% 2.85% 5.55% 8.64% 8.22% % Dow UBS Commodity Index DJUBSTR 3.16% 5.29% 2.15% 2.14% 3.20% 50.56% Source: Bloomberg 9

10 The Airbag Index CEMP U.S. Large Cap 500 Long/Cash Volatility Weighted Index A. Based on month end price of the CEMP U.S. large Cap 500 Volatility Weighted Index, the index will liquidate 75% of the securities if the index has declined 10% from its daily highest value (DHV). B. Based on the month end price, if the index increases back to or above 10% of its (DHV), all securities will be reinvested. The Index would then be fully reinvested. If the index declines 20% from its DHV, 25% will be reinvested back into the index. If the index declines 30% from its DHV, 25% will be reinvested back into the index. If the index declines 40% from its DHV, 25% will be reinvested back into the index. 10

11 CEMP U.S. Large Cap 500 Long/Cash Volatility Weighted Index 1. Fundamental: The Index universe begins with all publicly traded stocks domiciled in the United States then screens for all companies with consistent net positive earnings for four consecutive quarters. 2. Size: The Index identifies up to the 500 largest U.S. stocks by market capitalization. 3. Volatility Weighting: The remaining 500 stocks are weighted based on their daily standard deviation (volatility) over the last 180 trading days compared to the aggregate mean. The Index is reconstituted every March and September. CEMP U.S. Large Cap 500 Long/Cash Volatility Weighted Index vs. S&P 500 YTD CEMPUSHG 22.66% 15.33% 1.66% 21.76% 31.96% 21.05% 5.53% 15.17% 9.50% 18.09% 22.68% 6.31% 4.72% S&P % 16.00% 2.11% 15.06% 26.46% 37.00% 5.49% 15.79% 4.91% 10.88% 28.68% 22.10% 11.88% Cumulative Return (9/30/2000 to 9/30/2013) CEMP U.S. Large Cap 500 Long/Cash Volatility Weighted Index % S&P 500 Index (Cap Weighted Index Comparison Only) 50.51% Risk Adjusted Return (Compared to the S&P 500 Index) Beta: 10 Yr Since 9/30/ Alpha: 10 Yr. 6.23% Since 9/30/ % 11

12 CEMP US Large Cap 500 Volatility Weighted Index & CEMP U.S. Large Cap 500 Long/Cash Vol Weighted Index vs. S&P 500 Index October 2000 June % 100% % 25% 25% 50% 75% 100% % 100% 25% 100% Oct 00 Oct 01 Nov 02 Dec 03 Dec 04 Jan 06 Feb 07 Feb 08 Mar 09 Apr 10 Apr 11 May 12 Jun 13 CEMP US 500 Vlt. Wtd Index CEMP US 500 Long Cash Vlt. Wtd Index S&P 500 Source: Bloomberg 12

13 CEMP International Large Cap 500 Volatility Weighted Index & CEMP Int'l Large Cap 500 Long/Cash Vol Weighted Index vs. EAFE Index October 2000 June % % 25% 50% 75% 100% 100% 25% 50% % 25% 25% 100% 50% 25% Oct00 Mar03 EAFE: 40.5% CEMPInt500: 24.5% CEMPInt500LC: 19.2% 100% 75% Mar03 Oct07 EAFE: % CEMPInt500: % CEMPInt500LC: % Oct07 Feb09 EAFE: 56.4% CEMPInt500: 56.3% CEMPInt500LC: 48.6% Feb09 Jun13 EAFE: +92.6% CEMPInt500: % CEMPInt500LC: % 0 Oct 00 Nov 01 Jan 03 Mar 04 May 05 Jul 06 Sep 07 Oct 08 Dec 09 Feb 11 Apr 12 Jun 13 MSCI EAFE CEMP Int CEMP Int Long/Cash Source: Bloomberg 13

14 CEMP Commodity Volatility Weighted Index Characteristics 1. The CEMP Commodity Volatility Weighted Index begins with the twenty most liquid commodities by trading volume. 2. The twenty most liquid commodities are then weighted based on their daily standard deviation over the last 180 days compared to the aggregate mean. 3. The Index is reconstituted every March and September. CEMP Commodity Volatility Weighted Index vs. Dow Jones UBS Commodity Index YTD CEMPCOM 6.69% 3.43% 8.21% 27.16% 27.30% 21.47% 18.54% 14.42% 20.22% 13.43% 26.27% 18.96% 12.94% DJUBSTR 8.56% 1.06% 13.32% 16.83% 18.91% 35.65% 16.23% 2.07% 21.36% 9.15% 23.93% 25.91% 19.51% Cumulative Return (9/30/2000 to 9/30/2013) CEMP Commodity Volatility Weighted Index % Dow Jones UBS Commodity Index (Production/Liquidity Weighted Index Comparison Only) 50.56% Risk Adjusted (Compared to Dow Jones UBS Commodity Index) Beta: 10 Yr Since 9/30/ Alpha: 10 Yr. 6.68% Since 9/30/ % 14

15 Notice and Disclaimer Investing involves risk including the potential loss of principal. There is no guarantee that a diversified portfolio will outperform a non diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. Index performance information other then the CEMP Enhanced Indexes herein is believed to be reliable, but Compass Efficient Model Portfolios, LLC does not guarantee its accuracy. Compass Efficient Model Portfolios, LLC has weighted securities and asset classes based on their volatility since June The index performance represents the application of Compass EMP s methodology dating back to the index inception of June 30, Prior to June 30, 2003 the Index performance was calculated and back tested by Bloomberg analytics based on the criteria listed above. The CEMP Indexes are published by Dow Jones Indexes and are patent pending (Serial No. 61/645,370) Past performance does not guarantee future results. Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. CEMP Commodity Volatility Weighted Index (the Index ) is the exclusive property of Compass Efficient Model Portfolios, LLC, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) ( S&P Dow Jones Indices ) to calculate and maintain the Index. S&P and S&P Custom Indices are registered trademarks of Standard & Poor s Financial Services LLC ( SPFS ); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ); and these trademarks have been licensed to S&P Dow Jones Indices. Calculated by S&P Custom Indices and its related stylized mark(s) are service marks of SPFS and have been licensed for use by S&P Dow Jones Indices and sublicensed for certain purposes by Compass Efficient Model Portfolios, LLC. Neither S&P Dow Jones Indices, SPFS, Dow Jones, nor any of their affiliates shall be liable for any errors or omissions in calculating the Index. This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the Information ) is the property of Compass Efficient Model Portfolios, LLC. The information herein is provided for informational purposes only. The Information may not be reproduced or disseminated in whole or in part without prior written permission from Compass Efficient Model Portfolios, LLC. The Information herein may not be used to create indices, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other CEMP data, information, products or services. The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. Compass Efficient Model Portfolios, LLC is a Registered Investment Adviser under the Investment Advisers Act of Any use of or access to products, services or information of the CEMP Enhanced Indexes requires a license from CEMP and Compass Efficient Model Portfolios, LLC. For additional information, product development or licensing please contact

16 The CEMP U.S. Large Cap 500 Volatility Weighted Index consists of 500 of the largest U.S. stocks with consistent positive earnings and with an equal weighting of risk among all 500 stocks. The CEMP U.S. Large Cap 500 Long/Cash Volatility Weighted Index is based on the daily price of CEMP U.S. Large Cap 500 Volatility Weighted Index. If the underlying index declines from its daily highest value, the CEMP U.S. Equity Hedge Volatility Weighted Index will follow a predefined hedging and dollar cost averaging schedule based on the size of the decline of the underlying index. The CEMP U.S. Small Cap 500 Volatility Weighted Index consists of 500 of the largest U.S. small cap stocks $3 Billion or less with consistent positive earnings and with an equal weighting of risk among all 500 stocks. The CEMP International 500 Volatility Weighted Index consists of 500 of the largest developed country stocks with consistent positive earnings and with an equal weighting of risk among all 500 stocks. The CEMP International 500 Long/Cash Volatility Weighted Index is based on the daily price of CEMP International 500 Volatility Weighted Index. If the underlying index declines from its daily highest value, the CEMP International Equity Hedge Volatility Weighted Index will follow a predefined hedging and dollar cost averaging schedule based on the size of the decline of the underlying index. The CEMP Emerging Market 500 Volatility Weighted Index consists of 500 of the largest emerging market country stocks with consistent positive earnings and with an equal weighting of risk among all 500 stocks. The CEMP U.S. REIT 100 Volatility Weighted Index consists of 100 of the largest U.S. REIT stocks with consistent positive earnings and with an equal weighting of risk among all 500 stocks. The CEMP U.S. REIT Long/Cash Volatility Weighted Index is based on the daily price of CEMP U.S. REIT 100 Volatility Weighted Index. If the underlying index declines from its daily highest value, the CEMP U.S. REIT Hedge Volatility Weighted Index will follow a predefined hedging and dollar cost averaging schedule based on the size of the decline of the underlying index. The CEMP Commodity Volatility Weighted Index consists of the 20 most liquid commodities with an equal weighting of risk among all the 20 commodities. The S&P 500 Index is 500 of the largest market capitalization companies receive the vast majority of the weightings in the index. The Russell 2000 Index is a market cap weighted index composed of 2000 U.S. small cap common stocks. The MSCI EAFE Index is a free float adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets excluding the United Sates. Dow Emerging Markets Index covers approximately 95% of the market capitalization of the represented countries. The industry indexes are created according to definitions used by Dow Jones Indexes proprietary classification system and are maintained at both the country and regional level. More granular sector indexes are also available. The size segment indexes (large cap, mid cap and small cap) are defined by cumulative market capitalizations. They are maintained at both the country and regional level. Dow Jones U.S. Select REIT index is designed to serve as proxies for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate. It represents equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded in the U.S. The index is a subset of the Dow Jones Americas Select RESISM and includes only REITs and REIT like securities. The Dow Jones UBS Commodity Index is a production/liquidity weighted index consisting of the most widely traded commodities around the world CEMP124 16