The Defined Risk Strategy

Transcription

1 The Defined Risk Strategy Marc Odo, CFA, CAIA, CIPM, CFP

2 Swan at a Glance FOR ADVISOR USE ONLY Swan is an independent advisory firm based in Durango, CO Founded in 1997 by Randy Swan An SEC-registered investment adviser Manages over $3.66 billion in assets as of 12/31/16 Swan developed the Defined Risk Strategy (DRS), inception 7/1/97 An actively managed, hedgedequity, rules-based process Designed to hedge against large stock market declines Defined Risk Strategy (DRS) is available in the following structures: Mutual Funds Separately Managed Accounts Overlay: Customize existing equity portfolio with DRS Swan Re: A Bermuda based low-risk, low-cost reinsurance company CITs: Investments for qualified retirement plan market space Current Products $ AUM in Millions (as of 12/31/16) Mutual Funds 2,227 SMA 1,155 Overlay 41 Swan Re 24 CIT 208 Total AUM $3,655 2 Structures mentioned may not be available within your Broker/Dealer.

3 A Proven Long-Term Track Record: Defined Risk Strategy Actual Results Since Inception FOR ADVISOR USE ONLY Swan Defined Risk Strategy Select Net-of-Fees Growth of $100,000 - July 1, 1997 to December 31, 2016 $493,459 $364,270 $343,987 Net Annualized Performance (December 31, 2016) Swan DRS S&P 500 Index 60% S&P 500 Index / 40% Barclays US Agg YTD (not annualized) 9.59% 11.96% 8.31% 3 Year 4.26% 8.87% 6.66% 5 Year 7.15% 14.66% 9.69% 10 Year 6.50% 6.95% 6.21% Inception (7/97) 8.53% 6.85% 6.54% 3 Source: Swan Global Investments and Morningstar; the Barclays U.S. Aggregate Bond Index and the S&P 500 Index are unmanaged indices, and cannot be invested into directly. Past performance is no guarantee of future results. DRS results are from the Select Composite, net of fees, as of 12/31/2016. Structures mentioned may not be available within your Broker/Dealer.

4 Process Step 1: Establish Equities Always Invested 1 FOR ADVISOR USE ONLY Consumer Discretionary (XLY) Consumer Staples (XLP) Energy (XLE) Financials (XLF) Health Care (XLV) Industrials (XLI) Materials (XLB) Technology (XLK) Utilities (XLU) Equities are always invested in S&P 500 via equalweighted sector ETFs Sector ETFs are very costefficient: 0.14% gross expense ratio SMA qualified accounts use SPY instead of sector ETFs Always Invested - No predictive or market timing methods 4 Disclosure: The ETFs above are represented by State Street Corporation s Select Sectors ETFs.

5 The Swan Defined Risk Investment Process Swan s Investment Process Adheres to our Core Beliefs 1 Establish Equities 2 Create Hedge 3 Seek to Generate Income 4 Monitor and Adjust Nine S&P 500 Sector ETFs Equally weighted Invested at all times Buy puts on the S&P 500 Index (SPY) At, or near-themoney Long-term generally one to two years, initially Seek to sell shorter-term options Market-neutral, non-directional trading strategies Daily monitoring Re-balance as required Re-hedge annually Transparent Disciplined Repeatable 5 Disclosure: See ending disclosures about options and equity hedging

6 Process Step 2: Create the Hedge - Change the Risk-Return Profile 2 Always Hedged to Protect Capital Longer-term puts are used for their lower average daily cost and stability Equities stay hedged at all times Risk Profile of Equity + Hedge S&P 500 Index Risk Profile S&P 500 Annual Total Return Hedged Equity Return Profile 6 Source: Swan Global Investments and Morningstar; the S&P 500 Index is an unmanaged index, and cannot be invested into directly. Past performance is no guarantee of future results. DRS returns are from the Select Composite, net of all fees.

7 Process Step 2: Always Hedged with 2-Year Put Option (LEAP) 2 Advantages of Rolling the Hedge By rolling the hedge annually: The portfolio is always hedged; The DRS is not under duress to seek protection; The DRS is not exposed to the steeper drop off in value of put option. 7 Note: This graphic is for illustrative purposes only to demonstrate the concept of resetting the hedge and does not represent a specific trade.

8 Reducing Volatility Can Lead to Consistent Outcomes S&P 500: Various Ten-Year Returns Swan DRS: Various Ten-Year Returns The graphs above show ten, 10-year investment periods. The first period is 1/1998 to 12/2007; the last period is 1/2007 to 12/2016. Investors Need the Returns Equities Can Provide Just Not the Volatility 8 Source: Zephyr StyleADVISOR and Swan Global Investments

9 Protecting Wealth & Irreplaceable Capital DRS - Designed to Minimize or Avoid Bear Market Losses DRS vs. S&P 500 Index and 60/40 Annual Returns - July 1, 1997 to December 31, Source: Swan Global Investments and Morningstar; the Barclays U.S. Aggregate Bond Index and the S&P 500 Index are unmanaged indices, and cannot be invested into directly. Past performance is no guarantee of future results. DRS results are from the Select Composite, net of fees, as of 12/31/2016. Structures mentioned may not be available within your Broker/Dealer.

10 The DRS can perform the role of 1. Total portfolio solution FOR ADVISOR USE ONLY 2. Core equity 3. Alternative investment 4. Distribution vehicle/bond surrogate 5. Multi-asset class solution 10

11 Important Disclosures > Swan Global Investments, LLC is a SEC registered Investment Advisor that specializes in managing money using the proprietary Defined Risk Strategy ( DRS ). SEC registration does not denote any special training or qualification conferred by the SEC. Swan offers and manages the DRS for investors including individuals, institutions and other investment advisor firms. Any historical numbers, awards and recognitions presented are based on the performance of a (GIPS ) composite, Swan s DRS Select Composite, which includes nonqualified discretionary accounts invested in since inception, July 1997, and are net of fees and expenses. Swan claims compliance with the Global Investment Performance Standards (GIPS ). All data used herein; including the statistical information, verification and performance reports are available upon request. The S&P 500 Index is a market cap weighted index of 500 widely held stocks often used as a proxy for the overall U.S. equity market. Indexes are unmanaged and have no fees or expenses. An investment cannot be made directly in an index. All Swan products utilize the Defined Risk Strategy ("DRS"), but may vary by asset class, regulatory offering type, etc. Accordingly, all Swan DRS product offerings will have different performance results and comparing results among the Swan products and composites may be of limited use. Swan s investments may consist of securities which vary significantly from those in the benchmark indexes listed above and performance calculation methods may not be entirely comparable. Accordingly, comparing results shown to those of such indexes may be of limited use. The adviser s dependence on its DRS process and judgments about the attractiveness, value and potential appreciation of particular ETFs and options in which the adviser invests or writes may prove to be incorrect and may not produce the desired results. There is no guarantee any investment or the DRS will meet its objectives. All investments involve the risk of potential investment losses as well as the potential for investment gains. This analysis is not a guarantee or indication of future performance. Prior performance is not a guarantee of future results and there can be no assurance, and investors should not assume, that future performance will be comparable to past performance. All investment strategies have the potential for profit or loss. Further information is available upon request by contacting the company directly at or visit swanglobalinvestments.com. 040-SGI