ETF Managed Portfolios Landscape Q1 2015

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1 ETF Managed s Landscape Q Contents Landscape Highlights 7 ETF Managed Attributes Universe Changes Exhibit 8 ETF Managed Strategies Exhibit 9 Attribute Groupings (Ranked by 5-Year Return) and Selected Risk Statistics Exhibit 10 Return Type Identifiers Exhibit 11 Selected Return Information Exhibits 12 and 13 Selected Asset Information Exhibits 14, 15, and 16 Summary Return Information Exhibits 17 and 18 Blended Benchmark Information Exhibit 19 Ling-Wei Hew, CFA Analyst ETF Managed Research ling-wei.hew@morningstar.com Executive Summary ETF managed portfolios are investment strategies that typically have more than 50% of portfolio assets invested in exchange-traded funds. Primarily available as separate accounts, these portfolios represent one of the fastest-growing segments of the managed-account universe. Professional money managers are packaging portfolios of ETFs into investment strategies to meet a wide array of investor and advisor demands. Morningstar s proprietary, portfolio attribute classification system for ETF managed portfolios consists of four main attributes: Universe, Asset Breadth, Implementation, and Exposure Type. This system relies on our analysis of the investment strategy and disclosed portfolios and aids key decision-makers in better understanding the philosophies underlying this growing crop of investment strategies. Growth in assets from advisor demand is being driven by multiple factors. The fiduciary standard continues to move forward as the baseline philosophy for managing client portfolios, and, as a result, growth in the fee-based model is tilting portfolios toward lower-cost, broad-based investments for a larger part of client portfolios, with a focus on asset allocation. Key Takeaways 3 Morningstar is tracking 700 strategies from 151 firms with total assets (AUM and AUA) of $86 billion through March Total assets in these strategies tracked by Morningstar fell 5% in the first quarter of Windhaven Investment Management has overtaken F-Squared Investments to become the industry s largest manager. 3 Global All-Asset strategies re-gained the top position and collectively held $25 billion, despite falling 3% from the previous quarter. 3 Challenges faced by several of the top firms in the industry continued take their toll as outflows continued during the first quarter of 2015.

2 Page 2 of 64 Landscape Highlights The challenges faced by several of the industry s top firms continued take their toll as outflows continued during the first quarter of While outflows slowed significantly at Good Harbor Financial and Windhaven Investment Management, F-Squared Investments saw over $5 billion in outflows this quarter. At the end of the quarter, Windhaven Investment Management emerged as the largest manager in our ETF managed portfolios database. Amidst the significant structural changes happening in this space, Morningstar continues to focus its efforts on equipping investors with the necessary tools to conduct thorough due diligence on ETF managed portfolio strategies. This quarter, we are introducing Return Type Identifiers to detail the source of each strategy s performance stream as reported to our database. While ETF managed portfolios first emerged within the domain of traditional separate accounts, the use of ETFs has fostered new forms of collaboration among asset management firms, UMA platforms, and mutual fund companies. Due to the relatively small number of holdings and quantitatively-driven investment processes utilized by many strategies, a significant portion of assets have grown via means of model delivery through multiple non-discretionary sources--namely platforms such as Envestnet and AssetMark, or even other third-party RIAs. Given the dispersion of returns between discretionary and non-discretionary accounts caused by differences in portfolio implementation and construction, knowing the source of reported returns will help investors to ask the right questions when parsing performance disclosures as they conduct due diligence. The Return Type Identifiers Given the importance of understanding the source of reported returns, Morningstar has introduced four identifiers outlined in the table below. All managers in our ETF Managed s database have been surveyed and each strategy in the database has been tagged with a single identifier labeling the current source of returns being reported. In addition, the sources of historical returns for each strategy have also been identified to provide full transparency around past returns and any changes in the source of reported returns through time. For the full article, including a detailed explanation of the identifiers and their due diligence applications, please refer to: Performance Reporting What s Behind the Numbers? available at MorningstarAdvisor.com.

3 Page 37 of 64 Implementation Exposure Type Confluence Income and Growth Tactical All-Inclusive BCM AlphaDEX Diversified Equity Tactical All-Inclusive Brinker Capital ACS Real (Q) Tactical All-Inclusive Navellier Dynamic Libertas 10 Tactical All-Inclusive Navellier Dynamic Libertas 20 Tactical All-Inclusive Navellier Dynamic Libertas 30 Tactical All-Inclusive Navellier Dynamic Sentrum 10 Tactical All-Inclusive Navellier Dynamic Sentrum 20 Tactical All-Inclusive Navellier Dynamic Sentrum 30 Tactical All-Inclusive Keystone Wealth Glb Income AlphaRotation Tactical All-Inclusive 6.11 United States All Asset Median United States All Asset Blended Benchmark United States Alternative Astor Long/Short Balanced Program Tactical All-Inclusive , Green Inv Mgt Guardian Alternatives Tactical All-Inclusive CLS Inflation Quad Tactical All-Inclusive TAMP US Tactical ETF L/S PULSE Tactical Broad Market Newfound Dynamic Alternatives Cmpst Hybrid Broad Market 0.37 United States Balanced Clark Navigator MultiStrategy 75-25(SAI) Hybrid All-Inclusive isectors Post-MPT Moderate Allocation Hybrid Sector Efficient Market Years Aggressive Hybrid All-Inclusive Clark Navigator MultiStrategy 50-50(SAI) Hybrid All-Inclusive SignalPoint Balanced Point Hybrid All-Inclusive Efficient Market Years Moderate Hybrid All-Inclusive Efficient Market Years Consvt Hybrid All-Inclusive Efficient Market 6-10 Years Aggressive Hybrid All-Inclusive Efficient Market 6-10 Years Moderate Hybrid All-Inclusive Efficient Market 2-5 Years Aggressive Hybrid All-Inclusive BCM Moderate Growth (Monthly) Hybrid All-Inclusive Efficient Market 2-5 Years Moderate Hybrid All-Inclusive BCM Moderate Growth Hybrid All-Inclusive Efficient Market 6-10 Years Conservative Hybrid All-Inclusive MIS Moderate Growth ETF* Hybrid All-Inclusive Efficient Market 2-5 Years Conservative Hybrid All-Inclusive MIS Income & Growth ETF* Hybrid All-Inclusive Appleton Group PLUS-Conservative Hybrid Broad Market Appleton Group-Conservative Hybrid Broad Market BCM AlphaDEX Moderate Growth Hybrid All-Inclusive Cumberland Total Return Balanced Port Strategic All-Inclusive Madison ETF Moderate Growth Strategic All-Inclusive Ibbotson Strategic ETF Moderate Gr & Inc* Strategic Broad Market Members Trust Balanced ETF Strategic Broad Market Transamerica I-Series III Strategic All-Inclusive DT Moderate Growth & Income Strategic All-Inclusive First Trust FTA Ibbotson Mul Disc 40/60* Strategic Broad Market Madison ETF Moderate Strategic All-Inclusive Clark Navigator Strategist Core Strategic Broad Market DT Conservative Growth & Income Strategic All-Inclusive Incl. = counted in related strategy

4 Page 38 of 64 Implementation Exposure Type Members Trust Conservative ETF Strategic Broad Market Lockwood Asset Allocation s II Strategic Broad Market Ibbotson Strategic ETF Cons Gr & Inc* Strategic Broad Market Transamerica I-Series II Strategic All-Inclusive EAM Asset Allocation Conservative Strategic All-Inclusive EAM Asset Allocation Moderate Conservati Strategic All-Inclusive Alpha Dynamics ODS Stable Growth Strategic All-Inclusive Foy SELECTOR Balanced Growth Strategic All-Inclusive Foy SELECTOR Conservative Growth Strategic All-Inclusive Foy SELECTOR Income & Growth Strategic All-Inclusive Clark Navigator Style Preferred Inc&Gro Tactical Broad Market Trademark Tactical Risk Strategy Tactical All-Inclusive Stadion Growth Strategy Tactical Broad Market , Stadion Moderate Strategy Tactical Broad Market , Stadion Balanced Strategy Tactical Broad Market Stadion Conservative Strategy Tactical Broad Market First Trust Global Tactical Asset Alloc. Tactical All-Inclusive TAMP US Tactical ETF Income BIG Tactical Broad Market TTM Tactical Core/Satellite Strategy Tactical All-Inclusive 0.25 United States Balanced Median Hybrid Median Strategic Median Tactical Median United States Balanced Blended Benchmark United States Equity Efficient Market 20 Plus Years Moderate Hybrid All-Inclusive Signal Point Signal 10 Hybrid Sector Efficient Market 20 Plus Yrs Aggressive Hybrid All-Inclusive Efficient Market 20 Plus Years Consvt Hybrid All-Inclusive Green Inv Mgt - Guardian Mosaic Hybrid All-Inclusive BCM Growth (Monthly) Hybrid All-Inclusive BCM Growth Hybrid All-Inclusive Forward Tactical Growth Hybrid Broad Market Appleton Group PLUS-Moderate Hybrid Broad Market Appleton Group-Moderate Hybrid Broad Market WestEnd Advisors US Sector Hybrid Sector Hillswick S&P 500 Sector Selection Strategic Sector Raylor Strategic US Equity Strategic All-Inclusive Madison ETF Aggressive Strategic All-Inclusive SSWM Strategic Allocation Model 75/25 Strategic Broad Market Madison ETF Growth Strategic All-Inclusive Swan Defined Risk Strategy Strategic Broad Market Swan Defined Risk Strategy Strategic Broad Market isectors Domestic Equity Allocation Strategic Broad Market Acertus Planned Return Strategy Strategic Broad Market IRON S&P 500 Equity Plus Strategic Broad Market Winterset Active/Edge ETF Growth Strategic All-Inclusive 2.11 Nav Tactical US Equity Sector Plus Strategic Sector Nav Tactical US Equity Sector Pl ft ADEX Strategic Sector Churchill ETF Sector Rotation Strategic Sector Incl. = counted in related strategy

5 Page 40 of 64 Implementation Exposure Type Evolution US Equity Absolute Return Tactical Sector FFCM Dynamic All Cap Sector Rotation Tactical Sector FFCM Dynamic Large Cap Sector Rotation Tactical Sector F-Squared AlphaSector All-Cap Index Tactical Sector ARS Sector Rotation Strategy Tactical Sector United States Equity Median Hybrid Median Strategic Median Tactical Median Morningstar US Market TR USD United States Fixed Income SignalPoint Stable Income Point Hybrid All-Inclusive Efficient Market Taking Income-Aggr Hybrid All-Inclusive SignalPoint CU Income Plus Hybrid All-Inclusive Efficient Market Taking Income-Moderate Hybrid All-Inclusive Wela Own Your Age (OYA)- 80 Hybrid All-Inclusive SignalPoint Moderate Income Point Hybrid All-Inclusive Efficient Market Taking Income-Consvt Hybrid All-Inclusive MIS Conservative ETF* Hybrid All-Inclusive Green Inv Mgt - Guardian Tax Free Hybrid Sector Wela Own Your Age (OYA)- 70 Hybrid All-Inclusive Ibbotson Momentum 20/80* Hybrid Broad Market Voya GPMM Income ETF Hybrid Broad Market 1.36 Madison ETF Conservative Strategic Broad Market First Trust FTA Ibbotson Mul Disc 20/80* Strategic Broad Market Members Trust Income ETF Strategic Broad Market DT Ultra-Conservative Growth & Income Strategic All-Inclusive Lockwood Asset Allocation s I Strategic Broad Market Madison ETF Capital Preservation Strategic Broad Market Ibbotson Strategic ETF Moderate Income* Strategic Broad Market Madison ETF Income Advantage Strategic Broad Market Transamerica I-Series I Strategic All-Inclusive DT Intermediate Fixed Income Strategic Broad Market isectors Capital Preservation Allocation Strategic All-Inclusive Astor Active Income Program Strategic All-Inclusive Caprin Tactical Muni ETF Strategic Sector Caprin Core Plus ETF Strategic All-Inclusive Caprin Tactical Opportunity ETF Strategic All-Inclusive Granite Tactical U.S. Interm FI Strategy Strategic All-Inclusive Granite Tactical Global Interm FI Strat Strategic All-Inclusive Foy SELECTOR Income Strategic All-Inclusive CFGAM S3 Municipal ETF Strategic Sector 4.1 SEI Tax-Managed ETF Conservative Strategic All-Inclusive 13.4 Clark Navigator Fixed Income TR Tactical All-Inclusive WST Asset Manager U.S. Bond Tactical Sector Braver Tactical High Income Tactical Sector Incl. = counted in related strategy

6 Page 41 of 64 Implementation Exposure Type Laffer Investments Fix-Inc ETF Strategy Tactical All-Inclusive Green Inv Mgt - Guardian Fix-Inc Tactical All-Inclusive QA Tactical Bond Tactical All-Inclusive D Fixed Income ETF - Tax Sen. Tactical All-Inclusive Stadion Capital Preservation Strategy Tactical Broad Market D Fixed Income ETF Tactical All-Inclusive Optimus High Yield Bull/Bear Tactical Sector Palladiem Sustainable Income Strategy Tactical All-Inclusive Longview Capital Fixed Income Tactical All-Inclusive United States Fixed Income Median Hybrid Median Strategic Median Tactical Median Morningstar Core Bond MCBI TR Incl. = counted in related strategy