Investment Choices for the Conservative Investor

Transcription

1 Investment Choices for the Conservative Investor Updated for FTJ FundChoice through December 31, 2015

2 Table of Contents» Our Perspectives» Our Organization» Our Process» Our Product Ocean Park Balanced Risk Model» Summary» Appendix 2

3 Our Perspectives 3

4 Does This Strike a Nerve? To make money they didn t have and didn t need, they risked what they did have and did need. Warren Buffett, 1998 Describing the 1998 collapse of Long Term Capital Management 4

5 Advisor Anxieties In a September 2015 survey of more than 600 advisors, Practical Perspectives asked which topics will be very important in the next 12 to 24 months. Investment and Product Topics Managing Portfolio Risk or Volatility 48% Allocating Assets 39% Managing Portfolios Given Market Changes 34% Preparing Portfolios for Rising Interest Rates 32% Updating Clients on Performance or Changes 31% Client Development and Engagement Topics Retirement Topics Such as Social Security 47% Generating Sustainable Retirement Income 45% Managing Client Fears or Anxieties 43% Assessing Risk or Tolerance 39% Building Assets for Retirement 37% Source: Practical Perspectives. Asset Rollovers 37% 5

6 The Cycle of Market Emotions For illustrative purposes only. 6

7 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 The Roller Coaster Ride in U.S. Equities S&P 500: % *Blended: % S&P 500: % *Blended: % S&P 500 Blended Index* Source: Morningstar June 1995 through September Including dividends. The S&P 500 is an unmanaged composite of 500 large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks. You can not invest directly in an index and unmanaged index returns do not reflect any fees, expenses, or sales charges. * Blended Index is 50% S&P 500 Index and 50% Barclays Capital U.S. Aggregate Bond Index. 7

8 It s Math Decline: Gains needed to break even: -5% +5.3% -10% +11.1% -20% +25.0% -30% +42.9% -40% +66.7% -50% % 8

9 Our Organization 9

10 About Ocean Park Asset Management, Inc.» Founded in Santa Monica, California in 1988» Ocean Park and its affiliates presently manage over $1.5 billion in assets for conservative clients Assets Under Management ($mil)* Separate Accounts $777» Programs are managed with two overarching absolute return goals: To limit downside risk (or drawdowns) of the overall portfolio. To provide satisfying returns over a market cycle (by reflecting Ocean Park s current market and manager views).» Experienced Money Managers Over 99 years of combined experience preserving and growing wealth using a time-tested conservative approach Mutual Funds $748 * As of December 31, Does not include assets under advisement. 10

11 Our Portfolio Managers Kenneth L. Sleeper, MBA, PhD Managing Director Ken Sleeper is a Managing Director of Ocean Park and has more than 27 years of investment industry experience. He jointly oversees all aspects of the organizations activities, including asset management, research, and client relationships with David Wright. David C. Wright, JD Managing Director David Wright is a Managing Director of Ocean Park and has more than 30 years of investment industry experience. He jointly oversees all aspects of the organizations activities, including asset management, research, and client relationships with Ken Sleeper. We manage to goals. We are always working to keep the downside manageable and recoverable, that is a key point for us. Kenneth L. Sleeper, Managing Director 11

12 Our Process 12

13 Fundamentals of Portfolio Management» What to buy?» When to buy it?» When to sell it? Ocean Park has a long-proven approach to each of these questions. Past performance does not guarantee future results and there is no assurance that any strategy will achieve its investment objective. 13

14 When to Sell: Let s Start Easy» We use trailing stops under each holding to act as our sell signals.» When the price declines below the trailing stop, we sell.» The stops are systematic and are proportionate to the historic volatility of each distinct asset class.» Trailing stops limit the impact of any sustained decline on the overall portfolio. 14

15 When to Buy:» Buy signals are also systematic and the discipline is the contrary of our trailing stops for Sell Signals.» We buy only when we are confident a sufficient uptrend has begun or is in progress. Once a given asset class begins an uptrend adequate enough to generate a buy signal under our proprietary discipline, we analyze all mutual funds and ETFs in that asset class to determine which to buy. 15

16 What to Buy: This Is the Real Challenge» Often there are multiple asset classes in uptrends.» As part of our risk-mitigation discipline, we always give preference to asset classes with low volatility our trailing stop bands will be tighter, thus when the trend reverses from up to down, we may give back less. 16

17 Broad Diversification and Strategic Allocation The Balanced Risk Model moves tactically among a wide variety of asset classes:» U.S. & Global Equities» Commodity Funds» REITs» REIT Preferreds» Preferred Equities» Master Limited Partnerships» Emerging Market Debt» Global Bonds; Hedged Currency» Global Bonds; Unhedged Dollar» Convertible Bonds» Risk Arbitrage Funds» Treasury and Agency Bonds» High Yield Corporate Bonds» High Grade Corporate Bonds» Municipal Bonds» Floating Rate Funds» TIPs Inflation Protected Securities» Low Duration Bonds» Inverse Rising Rate Funds» Internally-Diversified Funds» Tactically-Managed Funds» Misc. Low-Volatility Funds Diversification does not ensure profit or prevent losses. Each of these asset classes has its own set of investment characteristics and risks and investors should consider these risks and investors should consider these risks carefully prior to making any investments. 17

18 Our Process: A Simplified Example Sell when the price declines below the moving average, buy when we are confident a sufficient uptrend has begun or is in progress. $6.50- $6.00- $5.50- $5.00- $4.50- $4.00- $3.50- $3.00- Northeast Investors Trust Moving Average Sell Buy For illustrative purposes only. There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 18

19 Risk Mitigation Unusually Broad Diversification Strategic Allocation Tactical Sell Discipline We broadly diversify across a wide-ranging selection of asset classes, seeking to create accounts with lower overall risk and the potential for better returns. We leverage decades of research, analytics, and insight to select funds with the goals of improving performance and mitigating risk. Contrary to buy-and-hold strategies, we monitor each holding daily and sell when any holding declines below a specific trailing stop, in order to eliminate any possibility that further decline in that holding will impact the overall account. 19

20 Sell Discipline Example: First Eagle High Yield I Latest Two Years through January 14, 2016 Sell Signal 7/9/

21 Sell Discipline Example: First Eagle High Yield I Latest Two Years through January 14, 2016 Sell Signal 7/9/

22 Sell Discipline Example: Western Asset Short Duration High Income Latest Two Years through January 14, Sell Signal 7/9/

23 Sell Discipline Example: Western Asset Short Duration High Income Latest Two Years through January 14, Sell Signal 7/9/

24 Our Product 24

25 Balanced Risk Model 25

26 Balanced Risk Model: Overview Ocean Park s Balanced Risk Model offers conservative investors the benefits of global diversification and tactical asset management. From time-to-time the portfolio will include mutual funds diversified among U.S. and international stock, bond, commodity and other funds. TOP TEN HOLDINGS as of 12/31/2015 Percent Sierra Strategic Income Fund 20.3% Sierra Core Retirement Fund 20.2% Nuveen High Yield Municipal Bond Fund 10.6% Cohen & Steers Pref d Sec. and Income Fund 9.4% BlackRock High Yield Municipal Fund 5.8% DoubleLine Total Return Bond Fund 5.3% Western Asset Managed Municipals Fund 4.0% Semper MBS Total Return Fund 3.6% TCW Total Return Bond Fund 3.1% Oppenheimer Rochester AMT-Free Muni Fund 2.7% Subtotal 85.0% The goals of Ocean Park s Balanced Risk Model are: To mitigate overall volatility while producing total investment returns consistent with a conservative allocation. This may be achieved by employing an unusually broad diversification across investment categories and also by limiting downside risk, thanks to a strict sell discipline and extensive diversification. The portfolio is spread across a wide variety of asset classes including corporate credit, alternative strategies, sovereign debt, commodities, currencies and global stocks. Holdings subject to change. 26

27 Balanced Risk Model: Asset Allocation BALANCED RISK MODEL as of 12/31/2015 Tax-Free Municipal Bonds 36.1% Alternative Strategies 0.2% Other Int'l/Global Bonds 2.9% Multisector Bond Funds 4.9% Cash and Equivalents 23.9% Low Duration Bond Funds 3.6% Inverse High Yield Corporate Bonds 1.6% Holdings subject to change. Intermediate Term Bonds 9.5% High Yield Corporate Bonds 2.9% Equities, Preferred Stock 12.8% Currency Funds 0.2% Equities, Int'l 1.7% 27

28 Setting the Lineup What Role Did They Play? Represents the percentage of career hits that resulted in singles or doubles. 28

29 Occurrences Balanced Risk Model: Monthly Performance Distribution Before Fees Monthly Returns (1/31/ /31/2015) Plus or minus 3% - Monthly MODEL = 90% S&P500 = 51% MODEL S&P Return Ranges All performance is reported before fees. Performance prior to December 24, 2007 excluded allocations to the Sierra Mutual Funds. Typically, allocations to the two Sierra Mutual Funds ranges from 30-40%. 29

30 Balanced Risk Model: Quarterly Performance Distribution Before Fees Average Annualized Return = 9.47% 18 Negative Return Quarters 2.96% 2.97% 2.71% 2.80% 2.91% 2.35% 2.43% 2.69% 66 Positive Return Quarters 1.96% 1.97% 2.35% 1.49% 1.50% 1.51% 1.39% 1.40% 1.48% 1.31% 1.35% 1.37% 5.73% 5.75% 5.21% 5.37% 5.72% 4.82% 4.95% 5.01% -2.88% -1.99% 0.98% 1.14% 1.22% 4.31% 4.60% 4.66% -1.96% -1.91% -1.81% 0.83% 0.85% 0.88% 3.66% 3.92% 4.02% -1.36% -1.36% -1.07% 0.65% 0.74% 0.82% 3.33% 3.41% 3.54% 10.59% 21.10% -4.62% -0.72% -0.65% -0.58% 0.40% 0.61% 0.61% 3.20% 3.25% 3.29% 8.72% 9.05% 10.47% -3.79% -3.59% -3.38% -0.47% -0.41% -0.38% 0.14% 0.26% 0.40% 3.05% 3.18% 3.19% 6.31% 7.23% 8.46% < -6% -6% to -3% -3% to 0% 0% to 3% 3% to 6% > 6% All performance is reported before fees. Performance prior to December 24, 2007 excluded allocations to the Sierra Mutual Funds. Typically, allocations to the two Sierra Mutual Funds ranges from 30-40%. 30

31 Balanced Risk Model: Annual Performance Distribution Before Fees Average Annualized Return = 9.47% 2 Negative Return Years 19 Positive Return Years 17.30% 30.10% 33.12% 3.35% 5.94% 8.87% 9.31% 12.12% 13.95% 16.82% -3.41% -0.28% 0.45% 0.75% 2.87% 6.09% 6.67% 8.62% 10.03% 11.38% 12.09% < -10% -10% to -5% -5% to 0% 0% to 5% 5% to 10% > 10% All performance is reported before fees. Performance prior to December 24, 2007 excluded allocations to the Sierra Mutual Funds. Typically, allocations to the two Sierra Mutual Funds ranges from 30-40%. 31

32 Balanced Risk Model: Performance Grid FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER FULL YEAR CUMULATIVE RETURN % 5.75% 3.20% 3.33% 17.30% 17.30% % 2.97% 1.50% 5.73% 16.82% 37.04% % 5.21% 6.31% -3.59% 11.38% 52.63% % 0.40% 0.85% 3.54% 10.03% 67.94% % 2.69% -1.81% 9.05% 12.12% 88.30% % 1.51% 1.39% 3.25% 13.95% % % 3.05% -3.79% 2.71% 0.45% % % 0.82% -1.91% 4.31% 6.67% % % 10.47% 2.80% 8.72% 30.10% % % -4.62% 3.18% 8.46% 12.09% % % 0.98% 4.82% -1.07% 6.09% % % -0.72% 0.88% 4.60% 8.87% % % 1.40% 0.61% -0.65% 2.87% % % 0.74% -3.38% 1.22% -3.41% % % 21.10% 10.59% 2.35% 33.12% % % 0.61% 4.66% 0.14% 9.31% % % 0.83% -0.58% 0.65% 3.35% % % 1.35% 3.19% 1.48% 8.62% % % -1.36% -0.38% 1.37% 0.75% % % 2.91% -0.41% 0.40% 5.94% % % -1.99% -0.47% 0.26% -0.28% % Average annualized compounded return: 9.47% before fees All performance is reported before fees. Performance prior to December 24, 2007 excluded allocations to the Sierra Mutual Funds. Typically, allocations to the two Sierra Mutual Funds ranges from 30-40%. 32

33 Summary 33

34 Our Story Three things to share with your clients about the Ocean Park:» Ocean Park offers highly-diversified, risk-managed strategies for conservative investors looking to leave the equity roller-coaster behind.» Our strategies are focused on developing positive outcomes across each market cycle in an attempt to meet clearly-defined absolute return goals.» Our strategies implement a trailing stop discipline for each holding, which may reduce downside risk exposure for the overall portfolio. 34

35 Takeaways» You may be impressed with the absolute returns, risk-adjusted returns and other metrics discussed. Ask your Ocean Park wholesaler how we can fit in your clients portfolios. 35

36 Appendix 36