Horizons HAHN Investment Stewards. Exchange Traded Forum 2011

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1 Horizons HAHN Investment Stewards Exchange Traded Forum

2 Investors and Advisors are Still Troubled by a Decade of Volatility and Poor Returns Source: HAHN Research (Data: Federal Reserve, Standard & Poors) 2

3 Poor Client Returns Due to Bad Advice & Emotional Investing Source: RBC Asset Management Professional investors, who are guided by future return potential, tend to buy when assets are attractively priced not sell. 3

4 ETFs. Just a Fad? We Think Not. Source: BlackRock, Data end of Q

5 ETF Media Frenzy not Helpful to Investors 5

6 Investor Hyperactivity = Wrong Approach 6

7 Stewardship stew ard ship: [ ] the careful and responsible management of something entrusted to one s care. 1 Dictionary 1 Meriam Webster 7

8 Important Principle Minimization of Downside Sample Portfolio vs. Benchmark - Performance to Dec. 31, HAHN Global Balanced Mandate Benchmark Bull Market Tracking Participate in upside markets (with less risk) outperformance Bear Market Safety Protection against losses in down markets 2Q-93 2Q-94 2Q-95 2Q-96 2Q-97 2Q-98 1Q-00 1Q-01 1Q-02 1Q-03 1Q-04 1Q-05 1Q-06 1Q-07 1Q-08 1Q-09 1Q-10 Note: Performance numbers are net of an assumed investment management fee of 80 bps, weighted MERs of 20 bps and custody fees, but before transaction costs. 8

9 ETFs Have Revolutionized the Industry of Customized Portfolio Management 1. Global asset class diversification previously available only to institutional investors. 2. Asset class liquidity where little existed before. 3. Enhanced active investment strategies such as tactical asset allocation. We can today build personalized $100,000 global portfolios that are better quality and less expensive than we could for a large pension fund in the multimillions twenty years ago. Wilfred Hahn, Founder and & CIO, Horizons HAHN Investment Stewards 9

10 Why Active Global Strategy? Markets Remain Cyclical and Subject to Crisis Morgan Stanley World Index Do you really want the same amount of equity here......and here? Source: MSCI 10

11 CFA Institute Research Validates Global Dynamic Asset Allocation Approach The events of highlighted the need for a top-down approach. Given high levels of volatility...which are expected to continue, asset allocation is also becoming more dynamic. Investors are turning to greater diversification in asset classes. The affluent are moving toward simpler, more transparent products, such as exchange-traded funds. Demand is up for managers with asset allocation and multi-asset experience... but such expertise and experience are difficult to find. Source: Fabozzi, Focardi, Jonas, Investment Management after the Global Financial Crisis (Research Foundation of CFA Institute, 2010), 11

12 Investment Process Three Critical Components Tactical Asset Allocation Risk Minimization Best of Breed ETF Selection Top Down Global information Political/ Social Forecast Financial Economic ETF SELECTION Selection Process GLOBAL ASSET MIX Client Profile Mandate Current Asset Mix Strategy Fidelity Bottom Up Investable ETF Universe 12

13 ETFs Facilitate Dynamic Asset Allocation and Greater Diversification Sample Asset Mix Ranges, Benchmarks and Strategy Strategy Range Benchmark Current Strategy 0 Opportunity Investments Traditional Investments Cash Equivalents Total Equity Canadian Equity US Equity International Equity Total Bonds Canadian Bonds US Bonds International Bonds 1.Current strategies represent actual investment policies including opportunity assets, implemented in the portfolio. 2.Strategies are subject to change. The Composite Benchmark is composed of the following indices: CAD 90-day Treasury Bill index, Morgan Stanley Capital International equity indices, Canada Dex Universe bonds, US Barclays Aggregate bonds, and Citi WBIG-Non USD bonds. HAHN may tactically select opportunity investments that complement traditional asset classes of stocks, bonds and cash, seeking to improve returns whilst reducing overall portfolio volatility. 13

14 Portfolio Implementation Using ETFs Nimble, Transparent, Liquid, Cost Effective Sample ETF Portfolio 7.9% 21.3% 20.0% 7.5% 10.4% 8.8% 8.9% 15.2% Opportunity Investments Cash Equivalents Bonds: Canada Bonds: US Bonds: International Equities: Canada Equities: US Equities: International Asset Mix Summary: 7.9% Cash 37.6% Bonds 34.5% Equities 20.0% Opportunity Investments Top 5 Holdings: ishares S&P/TSX 60 Index Fund ishares DEX Universe Bond Index Fund Wisdom Tree LargeCap Dividend Fund ishares MSCI EAFE Index Fund (Hedged) ishares S&P/TSX Global Gold Index Fund 14

15 ETFs Access Any Desired Portfolio Exposure WisdomTree Large Cap Dividend Fund: Large-cap, Multi-National Corporations in US and Europe 15

16 ETFs Provide Non-correlated Global Diversification Examples: Non-traditional assets Commodities: HBP COMEX Gold ETF Market Vectors Agribusiness ETF International Bonds: ABF Pan Asia Bond Index Fund Emerging Markets: ishares MSCI Brazil Index Fund (EWZ) Emerging Market/Sector: EG Sector-Specific India ETFs Currency: HBP US Dollar Currency ETF Currency hedging: ishares MSCI EAFE Index Fund (Hedged) 16

17 Research and Due Diligence is Required Best of Breed Approach ETF SELECTION Client Profile Mandate Selection Process Current Asset Mix Strategy Fidelity Index Construction Tracking Error Diversification Fidelity to Investment Strategy Expenses Tax Efficiency Liquidity Unique Factors Bottom Up Investable ETF Universe 17

18 HAHN Managed ETF Portfolios 11 Distinct Mandates With Different Risk Profiles 18

19 ETF Strategies for Advisors Completion strategy for advisors acting as investment manager 19

20 ETF Strategies for Advisors Outsource all or a portion of the investment management to external managers with ETF and asset allocation expertise, via: 1. Referral agreements 2. SMA programs 3. Mutual funds 20

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