Structured Portfolio Enhancements

Transcription

1 Structured Portfolio Enhancements For additional information regarding Symmetry Partners, LLC, Factor Investing, AQR Capital Management, Dimensional Fund Advisors, and the Vanguard Group, please see the disclosure at the end of this presentation labeled Important Information.

2 Agenda A Look at Factor Investing Structured Portfolios: The Three-Factor Model The Case for Enhancing Factor Diversification Structured Portfolio Enhancements Equity Allocation Fixed Income Allocation Implementation Timetable

3 What are Factors? Sources of return premiums available in the markets 1 FACTORS 1 Ang, Andrew. Asset Management: A Systematic Approach to Factor Investing. Financial Management Association Survey and Synthesis Series. Oxford University Press: 2014, Chapter 14. Bender, Jennifer; Briand, Remy; Melas, Dimitris and Raman Aylur Subramanian. Foundations of Factor Investing, MSCI Research Insight, December 2013.

4 What is Factor Investing? Academic, strategic approach Seeks to leverage the return opportunity of various factor premiums Sometimes referred to as Smart Beta

5 Structured Portfolios: The Three-Factor Model Three historic equity factor premiums: Market Factor 1 Stocks over bonds Value Factor 2 Value stocks over growth stocks Size Factor 3 Small cap stocks over large cap stocks Short-term, high quality bonds used to help mitigate equity risk 1 Sharpe, William F. Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, Vol. 19, No. 3 (Sept. 1964), Fama, Eugene and Ken French. Common Risk Factors in the Returns on Stocks and Bonds. Journal of Financial Economics, 33, (1993), Banz, Rolf W. The Relationship Between Return and Market Value of Common Stocks. Journal of Financial Economics, 9 (1981), 3-18.

6 The Case for Enhancing Factor Diversification May increase expected returns for a similar level of risk Reduces dependence on single factor performance Further diversifies a portfolio

7 Structured Portfolio Enhancements Primary Goals: Capture higher expected returns Increase diversification

8 Structured Portfolio Enhancements: Equity Allocation Increase equity factor diversification in an attempt to capture the return premiums that have historically been found in: Profitability Factor 1 Considers a firm s gross profitability, or return on assets Momentum Factor 2 Considers a stock s recent market performance relative to its peers 1 Novy-Marx, Robert. The Other Side of Value: The Gross Profitability Premium. Journal of Financial Economics, 108(1), (2013), Jegadeesh, Narasimhan and Sheridan Titman. Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency. The Journal of Finance, Vol. 48, No. 1, (March 1993),

9 Structured Portfolio Enhancements: Equity Allocation The Potential for More Consistent Returns with Less Volatility Returns data courtesy of the Ken French Data Library for value, size, momentum and total U.S. equity market. Profitability returns data courtesy of the Robert Novy-Marx Data Library. Please see the disclosure at the end of this presentation labeled Disclosure - Structured Portfolio Enhancements: The Equity Allocation

10 Structured Portfolio Enhancements: Fixed Income Allocation A more market-based approach that seeks to capture additional returns in the bond markets Provides greater diversification across the spectrum of investment grade bonds Increased global bond diversification to models with greater equity allocations

11 Structured Portfolio Enhancements: Fixed Income Allocation Seeks to enhance returns through increased exposure to certain fixed income factor premiums Maturity Factor 1 The greater return opportunity of longer-term bonds vs. shorter-term bonds Credit Factor 2 The greater return opportunity of lower rated bonds vs. bonds of the highest quality 1,2 Ilmanen, Antti. Expected Returns: An Investor s Guide to Harvesting Market Rewards. WileyFinance, 2011, p and

12 Implementing the Strategy On the Equity Side: Three funds from AQR Capital Management (AQR) added to each model AQR Multi-Style Equity funds: U.S., International, and Emerging Markets Designed to target value, profitability and momentum factors within the same fund Tax-managed versions to be used in tax-managed models

13 Implementing the Strategy On the Fixed Income Side: Three index funds from The Vanguard Group (Vanguard) added to each model Vanguard Short-Term Bond, Total U.S. Bond Market, and Total International Bond Market DFA Intermediate-Term Municipal Bond Fund added to tax-managed models Provide enhanced return potential through increased exposure to the maturity and credit factors

14 Timetable Changes are being coordinated among the three fund firms, its many platforms, custodians and relations Implementation to begin toward the end of Q Non-tax managed model changes to be implemented over a period of time as we continue to coordinate the transition with fund providers Tax-managed models: To transition over the course of a year in an effort to mitigate short-term capital gains

15 Questions?

16 Thank you

17 Important Information Symmetry charges an investment management fee for its services. All Symmetry Partners fees can be found in the ADV Part 2A located on the Symmetry Partners website, As with any investment philosophy, there is a possibility of profitability as well as loss. Diversification seeks to reduce volatility by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Rebalancing assets can have tax consequences. If you sell assets in a taxable account you may have to pay tax on any gain resulting from the sale. Please consult your tax advisor. Symmetry Partners investment approach seeks enhanced returns by overweighting assets that exhibit characteristics that tend to be in accordance with one or more factors identified in academic research as historically associated with higher returns. The factors Symmetry seeks to capture may change over time at its discretion. All data is from sources believed to be reliable but cannot be guaranteed or warranted. DIFFERENT TYPES OF INVESTMENTS AND/OR INVESTMENT STRATEGIES INVOLVE VARYING LEVELS OF RISK, AND THERE CAN BE NO ASSURANCE THAT ANY SPECIFIC INVESTMENT OR INVESTMENT STRATEGY WILL BE EITHER SUITABLE OR PROFITABLE FOR YOUR PORTFOLIO. Allocation models are not intended to represent investment advice that is appropriate for all investors. Each investor must take into account his/her financial resources, investment goals, risk tolerance, investing time horizon, tax situation and other relevant factors to determine if such portfolio is suitable. Model composition is subject to change. You and your advisor should carefully consider your suitability depending on your financial situation. Investors should consider the investment objectives, risks, and charges and expenses of the investment company carefully before investing. The prospectus contains this and other information about the investment company. Prospectuses may be obtained from your advisor or from Dimensional Fund Advisors: The Vanguard Group AQR For most recent month end performance information, please call Dimensional Fund Advisors at , The Vanguard Group at , AQR at Please read the prospectus carefully before investing or sending money.

18 Disclosure Structured Portfolio Enhancements: The Equity Allocation Symmetry Partners investment approach seeks enhanced returns by overweighting assets that exhibit characteristics that tend to be in accordance with one or more factors identified in academic research as historically associated with higher returns. The factors that Symmetry seeks to capture may change over time at its discretion. The Value Factor is represented by the Fama/French U.S. HmL Research Factor The Size Factor is represented by the Fama/French U.S. SmB Research Factor The Momentum Factor is represented by the Fama/French U.S. UmD Research Factor The Profitability Factor is represented by the Novy-Marx Basic Profitability Factor The Total U.S. Equity Market is represented by the Fama/French U.S. Market Research Factor The Risk Free Rate is represented by One-Month U.S Treasury Bills Symmetry Partners, LLC is an investment advisory firm registered with the Securities and Exchange Commission. Past performance may not be indicative of future results. All data is from sources believed to be reliable but cannot be guaranteed or warranted. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, product, or non-investment related content made reference to directly or indirectly in this piece will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. The charts are for informational purposes only and do not represent an all inclusive formula for security selection. Diversification seeks to reduce volatility by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market.