Research Affiliates Fundamental Index

Transcription

1 Research Affiliates Fundamental Index RAFI Long/Short / Absolute Return Portfolio Stanislaus County Chris Brightman, CFA / brightman@rallc.com David Hennessy / hennessy@rallc.com

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3 Research Affiliates Fundamental Index RAFI Long/Short / Absolute Return Portfolio Stanislaus County Chris Brightman, CFA / brightman@rallc.com David Hennessy / hennessy@rallc.com Research Affiliates, LLC Mission Concentrate on Research and product development Partner with world-class Affiliates to bring product to market Global leader in Global tactical asset allocation (GTAA) Innovative indexation Profile Approximately $61 billion in assets managed using RA investment t strategies as of September 30, Founded in 2002 by Rob Arnott Majority employee-owned 1 As of 9/30/2010: Based on estimates. Includes assets managed or sub-advised by Research Affiliates or licensees using RAFI, erafi, or GTAA strategies. Note: please refer to the disclosure slide at the end for all relevant disclaimers, disclosures, and information on our intellectual property. 2 Research Affiliates, LLC

4 Managed Assets Growth Since Inception Billions (US$) $34.6 $27.0 $15.1 $16.7 $6.5 $2.22 $4.4 $0.9 $0.3 $0.9 $0.8 $0.1 $0.5 $20.1 $10.9 $13.0 $15.3 $17.0 $14.2 $4.8 Dec '04 Dec '05 Dec '06 Dec '07 Dec '08 Dec '09 Sep '10* RAFI Overlap AAF *September 2010 data based on estimates. Includes AAF, RAFI and erafi assets managed or sub-advised by Research Affiliates and RAFI licensees. 3 Research Affiliates, LLC RAFI Managed Assets by Distribution Market September 2010* (US$ millions) Middle East & Africa 573 1% Greater China 451 1% Canada 987 3% South Korea Sweden 102 3,216 0% 8% Japan 6,690 16% Europe 3,502 9% Australia 3,404 8% United States 22,112 54% *September 2010 data based on estimates. Includes RAFI and erafi assets managed or sub-advised by Research Affiliates and RAFI licensees. 4 Research Affiliates, LLC

5 Representative Clients and Affiliates As of June 30, 2010 US Institutional Plans CalPERS City of Phoenix Employees Retirement System Los Angeles Fire & Police Pension System New York City District Council of Carpenters Pension Fund New York City Employees' Retirement System New York City Fire & Police Pension Plan North Dakota State Investment Board Producer-Writers Guild of America San Joaquin County Employees Retirement Association Tacoma Employees' Retirement System Teamsters Health & Welfare & Pension Funds of Philadelphia UFCW Northern California University of Arizona Foundation Affiliates AssetMark Charles Schwab Colonial First State FTSE IPM Nomura Asset Management PIMCO PowerShares Capital Management Enhanced RAFI : US Institutional Investors $9 billion Global Tactical Asset Allocation $20 billion Other RAFI and Enhanced RAFI Licensed Affiliates $26 billion Overlap $6 billion 5 Disclaimer: Representative list, not all inclusive. Inclusion on this list does not constitute an endorsement. Research Affiliates, LLC The Underlying Methodology: The Fundamental Index Concept Research Affiliates has received Four US Patents on the RAFI Strategy

6 Motivation for the Fundamental Index Idea: Mispricing If mispricing occurs, cap-weighting has a structural flaw Portfolio weights are inextricably linked to any pricing errors Overvalued stocks are overweighted Undervalued stocks are underweighted Portfolios are particularly vulnerable to pricing bubbles and subsequent corrections o Mispricing is an empirical reality Mispricing is evident in most markets Massive bubbles: South Sea, Dutch Tulip, Nifty-Fifty Smaller bubbles: Krispy Kreme Donuts, Crocs, Ethanol Recent bubbles: Technology and.com 7 Research Affiliates, LLC When Weights are Linked to Price An Example From the Tech Bubble of 2000 As of March Cisco Percent in Russell % 4.09% 1.11% 1.25% Percent of Economy* 0.14% 0.20% 0.28% 0.44% P/E Nortel Percent in FTSE Canada 10.89% 29.40% 10.28% 3.78% Percent of Economy* 2.92% 3.90% 4.31% 6.27% P/E Nokia Percent in FTSE Finland 14.91% 82.56% 79.20% 41.61% Percent of Economy* 16.23% 17.52% 20.71% 22.36% P/E Ericsson Percent in FTSE Sweden 19.25% 45.83% 23.78% 10.04% Percent of Economy* 6.67% 8.44% 8.95% 9.69% P/E *Percent of Economy represents the rebalance weight of each company in its respective RAFI Country Index. Source: Research Affiliates, based on data from Wilshire Atlas and Bloomberg. 8 Research Affiliates, LLC

7 The RAFI Approach The RAFI approach Select and weight stocks by non-price measures of firm size Sales, cash flow, dividends, and book value Achieve excess returns over cap-weighting 1 2 4% in developed markets 4 10% in less efficient markets Preserve the advantages of passive investing Diversification Liquidity Transparency Broad economic representation Low cost access to equity markets 1 Based on Research Affiliates historical simulated data using CRSP, Compustat, Worldscope and Datastream, on universe of U.S. equities and International equities Research Affiliates, LLC Simulated RAFI Developed June 2010 Ending Value Annual Sharpe Tracking Index of $1 Return Volatility Ratio Error MSCI World $10 9.2% 15.5% Equal Weight Developed 1000 $ % 15.8% % Book $ % 15.7% % Cash Flow $ % 14.9% % Sales $ % 16.3% % Gross Dividend $ % 14.5% % RAFI Composite $ % 15.1% % Source: Research Affiliates, LLC. based on data from Bloomberg, Datastream and Worldscope. THE INDEX DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. 10 Research Affiliates, LLC

8 RAFI Performance Across Markets June 2010 Annualized Return Annualized Volatility Annualized Value Add % 3-Year Wins Start Date Simulated RAFI US Large 11.2% 15.4% 22% 2.2% 74.2% 1962 S&P % 15.2% Simulated RAFI - 23 Country Average 13.7% 15.6% 2.9% 94.7% 1984 MSCI - 23 Country Average 10.8% 15.9% Simulated RAFI U.S. Small 15.3% 19.9% 4.2% 99.7% 1979 Russell % 20.0% Simulated RAFI All World % 15.4% 4.7% 89.4% 1984 MSCI All Country World 8.3% 15.6% Simulated RAFI Int'l l. Small % 17.4% 55% 5.5% 96.1% 1999 MSCI EAFE Small Cap 7.0% 19.3% Simulated RAFI EM 15.3% 25.2% 9.6% 96.3% 1994 MSCI EM 58% 5.8% 24.6% Source: Research Affiliates, LLC. based on data from Worldscope, Datastream, CRSP, and Compustat. The 23-Country Average corresponds to the country study conducted by Research Affiliates. THE INDEX DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. 11 Research Affiliates, LLC RAFI Long/Short Strategy (RAFI L/S)

9 RAFI Long Short Buy securities that have a significant fundamental weight greater than their capitalization weight/size. Sell securities that have a significant capitalization weight greater than their fundamental size. Broadly diversify both portfolios of Buy (long) and Sell (short) Portfolio Composition Universe: Developed Markets : Approximately 3,000 securities/ 6 countries Approximately 125 securities in Long and also in Short portfolios Avoid excess country and sector weighting Avoid excessive leverage (1.5x to 3.0x) Dollar Neutral 13 Research Affiliates, LLC Product Overview Objective 10% - 15% annualized returns Product Limited Partnership $1 million minimum Monthly Liquidityidit Fee 1-25 million 100 bps + 20% incentive above T-bills million 75 bps million- 50 bps + 12 For clients employing other enhanced RAFI strategies, aggregated g for billing purposes for the discounts Transparency High level Volatility Historical standard deviation of 16% approximately same as S&P 500 Diversification Low correlation to stocks, bonds and other hedge fund strategies 14 Research Affiliates, LLC

10 Simulated RAFI L/S versus HFRX EH and S&P 500 Growth of $100, 1/1/98 to 6/30/10 $1,800 $1,600 $1,400 $1,200 th of $100 Growt $1,000 $800 $600 $400 $200 $0 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 RAFI L/S 1x RAFI L/S 2x S&P500 HFRX EH THE RAFI LONG SHORT DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. Based on month-end market close prices. RAFI and RAFI L/S performances are gross of all fees. Source: Research Affiliates, based on data from Bloomberg. HFRX EH: HFRX Equity Hedge Index, published by Hedge Fund Research Inc. 15 Research Affiliates, LLC Conclusion Based on a sustainable arbitrage of differences in efficiency, the RAFI L/S strategy represents: An absolute return strategy with strong performance Performs well in both value and growth markets Low correlation with major asset classes and other hedge funds Large investment capacity Transparency of holdings Monthly liquidity 1 Low turnover 1 Subject to terms and conditions of investment guidelines. 16 Research Affiliates, LLC

11 Appendix RAFI L/S: Not Merely A Value Strategy Simulated RAFI L/S vs. Value Growth Growth of $100, 12/31/84 to 6/30/10 $2,500 $2,000 Annual Collaterlized Returns (12/31/84-6/30/10) Entire Period Value Phase Growth Phase $2,160 RAFI L/S 1x 12.3% 15.8% 9.9% RV - RG 5.1% 15.3% -2.7% Correlations Grow wth of $10 00 $1,500 $1,000 $500 $370 $0 Dec-84 Oct-86 Aug-88 Jun-90 Apr-92 Feb-94 Nov-95 Sep-97 Jul-99 May-01 Mar-03 Jan-05 Nov-06 Sep-08 Jul-10 RAFI L/S 1x RV - RG THE RAFI LONG SHORT DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. Based on month-end market close prices. RAFI and RAFI L/S performances are gross of all fees. Hypothetical or simulated performance results have certain inherent limitations. Unlike actual performance records, simulated results do not represent actual trading. Source: Research Affiliates, based on data from Bloomberg. 18 Research Affiliates, LLC

12 Correlations with Major Asset Classes 6/30/87 to 6/30/10 (except where noted) Asset class Correlation Start Date Equities MSCI World Index /31/1984 S&P /31/1984 FTSE RAFI US /31/1984 Fixed Income BarCap 1-3 year US Treasuries /31/1992 BarCap US Treasury (Long term) /31/1984 BarCAP US TIPS /31/1997 BarCAP US Corporate High Yield /31/1984 BarCAP EM Index (USD unhedged) /31/1993 JP Morgan EMBIGLOBAL Total Return Index /31/1994 Commodities Dow Jones UBS Commodity TR /31/1991 REITs FTSE NAREIT /31/2000 Long-Short HFRX - EH /31/1998 Russell Value - Russell Growth (Collaterlized) /31/ Barclays Capital Aggregate Bond Indices: Published by Barclay s Capital, available at 2 HFRX EH: HFRX Equity Hedge Index, published by Hedge Fund Research Inc. 3 RV RG is a simulated strategy of holding Russell Value 1000 and selling Russell Grow th Dow Jones UBS Commodity TR: Published by Dow Jones UBS. JP Morgan EMBI Global TR: Published by JP Morgan, available at MSCI World Index: Published by MSCI Barra. FTSE NAREIT 50: Published by FTSE. THE RAFI LONG SHORT DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. Based on month-end market close prices. Hypothetical or simulated performance results have certain inherent limitations. Unlike actual performance records, simulated results do not represent actual trading. Source: Research Affiliates, based on data from Barclays Capital, MSCI Barra, JPMorgan, Dow Jones UBS, Bloomberg, and Hedge Fund Research. 19 Research Affiliates, LLC Performance During Major Market Events Select Periods Cumulative Returns RAFI L/S 1x RAFI L/S 2x MSCI World Index BarCap Aggregate S&P /40 1 Black Monday (9/87 11/87) -2.7% -7.1% -20.4% 2.2% -29.6% -17.4% Bond Market Rally (10/92 1/94) 18.5% 34.3% 31.1% -1.5% 19.6% 10.7% Surprise Fed Rate Hike (2/94 3/94) 0.0% -0.6% -5.5% 0.2% -7.0% -4.1% Russian Default, LTCM (5/98 8/98) 3.0% 4.1% -12.5% 0.0% -13.4% -8.0% Post LTCM (9/98 2/98) -4.4% -10.0% 23.4% 1.0% 29.1% 17.2% Tech Bubble (1/99 3/00) -6.0% 60% -19.3% 26.7% 10% 1.0% 23.8% 14.5% Tech Bubble Bursts (4/00 2/03) 123.0% 326.0% -44.9% 5.3% -41.5% -25.1% Credit Spread Collapse (8/02 3/04) 15.1% 28.5% 32.1% 2.5% 27.3% 17.4% Credit Crisis and Recession (11/07 3/09) 2 6.2% 9.4% -50.1% 0.7% -46.7% -30.5% Subsequent Recovery (4/09 3/10) 31.9% 67.5% 53.2% 2.9% 49.8% 29.3% 1 Based on 60% S&P 500, 40% Barclays Capital Aggregate Index 2 Performance simulation of an investment made in each strategy on 10/30/07 through 3/31/09. THE RAFI LONG SHORT DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. Based on month-end market close prices. Hypothetical or simulated performance results have certain inherent limitations. Unlike actual performance records, simulated results do not represent actual trading. Source: Research Affiliates, based on data from Bloomberg, MSCI Barra, and Barclays Capital. 20 Research Affiliates, LLC

13 Simulated RAFI L/S Beta is Dynamic 12/31/84 to 6/30/ Be eta Dec-84 Jun-86 Nov-87 May-89 Nov-90 May-92 Nov-93 May-95 Nov-96 May-98 Nov-99 May-01 Nov-02 May-04 Nov-05 May-07 Nov-08 May-10 Bear Market Phase Rolling Beta RAFI L/S 1x vs SP500 Beta falls as the bear market approaches Beta rises prior to recovery THE RAFI LONG SHORT DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. Based on month-end market close prices. RAFI and RAFI L/S performances are gross of all fees. Hypothetical ti or simulated performance results have certain inherent limitations. Unlike actual performance records, simulated results do not represent actual trading. Source: Research Affiliates, based on data from Bloomberg. 21 Research Affiliates, LLC Important Information By accepting this document you agree to keep its contents confidential and not to use the information contained in this document, and in the other materials you will be provided with, for any purpose other than for considering a participation in the proposed transactions. You also agree not to disclose information regarding the transactions to anyone within your organization other than those required to know such information for the purpose of analyzing or approving such participation. No disclosure may be made to third parties (including potential co-investors) regarding any information disclosed in this presentation without the prior permission of Research Affiliates, LLC. The material contained in this document is for information purposes only. This material is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument, nor is it advice or a recommendation to enter into any transaction. The information contained herein should not be construed as financial or investment advice on any subject matter. Research Affiliates and its related entities do not warrant the accuracy of the information provided herein, either expressed or implied, for any particular purpose. Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this material should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. THE INDEX DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. The simulated data contained herein is based on the patented non-capitalization weighted indexing system, method and computer program product (see Robert D. Arnott, Jason Hsu and Philip Moore Fundamental Indexation. Financial Analysts Journal [March/April]:83-99). Any information and data pertaining to indexes contained in this document relates only to the index itself and not to any asset management product based on the index. No allowance has been made for trading costs, management fees, or other costs associated with asset management as the information provided relates only to the index itself. With the exception of the data on Research Affiliates Fundamental Index, all other information and data are based on information and data available from public sources. Russell Investment Group is the source and owner of the Russell Index data contained or reflected in this material and all trademarks and copyrights related thereto. The presentation may contain confidential information and unauthorized use, disclosure, copying, dissemination, or redistribution is strictly prohibited. This is a presentation of Research Affiliates, LLC. Russell Investment Group is not responsible for the formatting or configuration of this material or for any inaccuracy in Research Affiliates presentation thereof. Any inquiries relating to the transactions should be directed to Research Affiliates, LLC. The trade names Fundamental Index, RAFI, the RAFI logo, and the Research Affiliates corporate name and logo are registered trademarks and are the exclusive intellectual property of Research Affiliates, LLC. Any use of these trade names and logos without the prior written permission of Research Affiliates, LLC is expressly prohibited. Research Affiliates, LLC reserves the right to take any and all necessary action to preserve all of its rights, title and interest in and to these marks. Fundamental Index, the non-capitalization method for creating and weighting of an index of securities, is patented and patent-pending proprietary intellectual property of Research Affiliates, LLC (US Patent No. 7,620,577; 7,747,502; 7,778,905; 7,792,719; Patent Pending Publ. Nos. US A1, US A1, US A1, US A1, WO 2005/076812, WO 2007/ A2, WO 2008/118372, EPN , and HK ). 2010, Research Affiliates, LLC. All rights reserved. Duplication or dissemination prohibited without prior written permission. 22 Research Affiliates, LLC

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17 enhanced global long short Strategy Objective The Enhanced RAFI Global Long Short Strategy (erafi Global Long Short) seeks to profit from the possible mispricing in global equity markets through long and short positions in individual equity securities. Positions are primarily derived from the difference between Research Affiliates Fundamental Index (RAFI ) weights and capitalization-based weights. RAFI weights are calculated using Research Affiliates proprietary methodology of index and portfolio construction which selects and weights stocks using fundamental measures of company size including sales, cash flow, dividends, and book value. The enhanced RAFI methodology incorporates additional factors, which may include quality of earnings and financial distress, among others. erafi Global Long Short is managed to mitigate country and sector exposures while seeking market and dollar neutrality. Holdings are reconstituted annually and leverage is adjusted dynamically over time to manage downside risk and take advantage of predictable patterns in RAFI outperformance. The strategy may provide investors an alpha source that diversifies and complements most existing portfolios. The erafi Global Long Short strategy offers daily fund pricing, full monthly liquidity with 30-day notice, and no lock-up period. Investment options include a commingled fund ( Fund ) or separate account arrangement with Research Affiliates, LLC. Information contained herein relates to the performance of the Fund. $2.00 Total Fund Performance November 2004-June 2010 $1.90 $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $1.00 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Fund (Gross) Fund (Net) 1-Month Treasury Standardized Performance 3-Mo 6-Mo 1-Yr 3-Yr 5-Yr ITD (Ann.) Fund - Gross Returns -4.72% -9.62% 4.25% 3.37% 8.54% 9.93% Fund - Net Returns -4.88% -9.93% 1.51% 1.74% 7.13% 8.65% Fund - Volatility 11.06% 19.33% 21.32% 17.39% 16.56% 1-Month Treasury Bill 0.04% 0.05% 0.09% 1.17% 2.49% 2.48% S&P 500 Index % -6.65% 14.43% -9.81% -0.80% -0.26% Barclays Capital Aggregate 3.49% 5.33% 9.50% 7.55% 5.54% 5.59% 60% S&P / 40% BarCap Aggregate -5.59% -1.79% 12.82% -2.73% 2.04% 2.36% HFRX Global Hedge Fund -2.85% -1.27% 6.05% -5.58% 0.46% 0.31% fact sheet: 30 june 2010 Fund Return Correlation S&P 500 Barclays Capital Aggregate HFRX Composite Correlation Portfolio Characteristics P/E (Trailing 12-Mo) P/S P/B Dividend Yield Beta Weighted Average Cap Fund (Long) % 1.05 $36B Fund (Short) % 0.97 $75B Notes: Performance results are expressed in U.S. dollars. Past performance is not indicative of future performance. This fact sheet provides historical performance numbers and descriptions on fund strategies and style. This is not a solicitation to sell. Broad-based securities indexes are unmanaged, cannot be invested in directly, and are not subject to fees and expenses typically associated with managed accounts or investment funds. Volatility is calculated using monthly return information. Volatility in Fact Sheets published prior to 31 March 2007 was calculated using daily return information. The change in methodology may result in a lower portfolio volatility for prior reported periods. Returns published prior to May 15, 2009, presented returns of a representative account. After that date, returns are for all accounts in the Fund for all reported periods. research affiliates, llc 620 newport center drive suite 900 newport beach, ca usa contact: dave hennessy: hennessy@rallc.com

18 fact sheet: 30 june 2010 Fund Returns by Sector Inception to Date Long Short Portfolio Holding Snapshot Average Sector Average Stock by Country Sectors Weights Return Weights Return Allocation Selection Long Short Consumer Discretionary 16.61% 10.46% 12.39% 5.00% 0.21% 0.91% France 16.51% 4.13% Consumer Staples 13.07% 16.01% 5.96% 12.73% 0.91% 0.43% UK 16.77% 12.25% Energy 6.93% 25.22% 9.59% 10.04% -0.27% 1.05% Canada 2.57% 5.34% Financials 19.57% 9.58% 17.78% -4.85% -0.09% 2.82% Germany 14.23% 3.81% Health Care 6.61% 23.21% 18.11% 8.01% -0.92% 1.00% Japan 13.85% 8.08% Industrials 8.85% 14.46% 7.23% 3.62% 0.06% 0.96% US 36.07% 66.39% Information Technology 6.47% 16.49% 22.10% 3.94% -0.62% 0.81% Materials 7.62% 16.36% 3.13% 11.55% 0.52% 0.37% Telecommunication Services 4.84% 24.81% 3.04% 7.04% 0.13% 0.86% Utilities 9.43% 11.79% 0.68% 47.92% 4.19% -3.41% Total 4.12% 5.80% Investment enhanced global long short Investment Returns Gross Net Gross Net Gross Net Gross Net 1Q 3.20% 3.20% 12.21% 12.10% Jan -0.79% -0.85% 2Q 6.11% 6.11% 7.11% 6.72% Feb -6.69% -6.74% 3Q -4.59% -4.63% -1.35% -1.45% Mar 2.47% 2.41% 4Q 2.84% 2.84% -2.96% -3.00% 7.13% 6.84% Apr 0.49% 0.43% YTD 2.84% 2.84% 1.38% 1.31% 27.02% 25.96% May -3.45% -3.51% Jun -1.79% -1.84% Jul Aug 1Q 8.60% 8.18% -0.98% -1.82% % % Sep 2Q 6.79% 6.32% % % 9.18% 8.99% Oct 3Q -7.98% -8.11% 32.24% 31.99% 16.48% 14.02% Nov 4Q 5.02% 4.87% 3.45% 3.26% -0.97% -1.16% Dec YTD 12.07% 10.83% 12.19% 10.57% 12.71% 9.72% YTD -9.62% -9.93% Fee Structure Base Fee (bps) + Performance Fee $1M-$25M % $25M-$100M 75 15% $100M % Top 10 Holdings Comparison Long Position* Short Position* Company Weights Company Weights 1 Hitachi 2.36% General Electric 2.44% 2 Royal Dutch Shell 2.31% Apple Computer 2.34% 3 Nippon Tel & Tel 2.27% Berkshire Hathaway 2.21% 4 Vodafone Group 1.98% HSBC Holdings 2.05% 5 AT&T 1.91% Procter & Gamble 1.88% 6 Royal Bank of Scotland 1.90% McDonalds 1.72% 7 Volkswagen 1.87% Bank of America 1.71% 8 ConocoPhillips 1.73% IBM 1.69% 9 GlaxoSmithKline 1.63% Exxon Mobil 1.69% 10 EDF 1.61% BG Group 1.66% *The Fund s holdings are indicative equity holdings as the Fund may gain exposure to these share prices through swaps or other derivative contracts. The collateral backing these contracts may be invested in money market or fixed income instruments. Fund Facts Commingled Fund Name Enhanced RAFI Global Long-Short, L.P. Minimum Investment $1.0 million AUM $90 million Auditor Ernst & Young LLP Legal K&L Gates Custodian JPMorgan/Macquarie Redemption 100% 30 days notice Purchase/Redemption Fees 25 bps Holdbacks 2.5% (released after pro rata application to fund s annual audit expenses) Base Fee 1% AUM Performance Fee 20% of return above 1-month T-bill High-Water Mark Rolling 36-month basis Fund Inception 30 November 2004 Disclosures 2010, Research Affiliates, LLC. The material contained in this document is for information purposes only. This material is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument, nor is it advice or a recommendation to enter into any transaction. Any offer to sell or a solicitation of an offer to buy or sell shall be made solely by a private placement memorandum to qualified investors. This information is intended to supplement information contained in the respective fund disclosure documents and must be read in conjunction with the offering memorandum. The information contained herein should not be construed as financial or investment advice on any subject matter. Research Affiliates, LLC, and it related entities do not warrant the accuracy of the information provided herein, either expressed or implied, for any particular purpose. The fund is speculative and involves a high degree of risk. The fund may be leveraged and its performance can be volatile. An investor could lose all or a substantial amount of his or her investment. The fund manager has total trading authority over the fund. The use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequentially, higher risk. There is no secondary market for the investor s interest in the fund and none is expected to develop. There may be restrictions on transferring interests in the fund. The fund s high fees and expenses may offset the fund s trading profits. A substantial portion of the trades executed for the fund takes place on foreign exchanges. The trade names Fundamental Index, RAFI, the RAFI logo, and the Research Affiliates corporate name and logo are registered trademarks and are the exclusive intellectual property of Research Affiliates, LLC. Any use of these trade names and logos without the prior written permission of Research Affiliates, LLC is expressly prohibited. Research Affiliates, LLC reserves the right to take any and all necessary action to preserve all of its rights, title and interest in and to these marks. Fundamental Index, the non-capitalization method for creating and weighting of an index of securities, is patented and patent-pending proprietary intellectual property of Research Affiliates, LLC (US Patent No. 7,620,577; Patent Pending Publ. Nos. US A1, US A1, US A1, US A1, US A1, WO 2005/076812, WO 2007/ A2, WO 2008/118372, EPN , and HK ). Research Affiliates, LLC, is an investment adviser registered under the Investment Advisors Act of 1940 with the U.S. Securities and Exchange Commission (SEC). We are temporarily suspending a claim of GIPS compliance pending an internal review and verification by a new independent verifier.

19 Since Inception Product Name RM Dec YTD as of 9/30/10 (12/04-9/10) annualized Enhanced RAFI Global Long Short Gross S&P 500 Index Barclays Capital Aggregate Index Value Added against S&P Value Added against Barclay Results Displayed In: US Dollar (USD) Data Frequency Used: Monthly Source: evestment Analytics. Disclosures 2010, Research Affiliates, LLC. The material contained in this document is for information purposes only. This material is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument, nor is it advice or a recommendation to enter into any transaction. Strategies described herein are offered through commingled funds or through separate arrangements with Research Affiliates, LLC. Any offer to sell or a solicitation of an offer to buy or sell an interest in a fund shall be made solely by a private placement memorandum to qualified investors. This information is intended to supplement information contained in the respective fund's disclosure documents and must be read in conjunction with the offering memorandum. The information contained herein should not be construed as financial or investment advice on any subject matter. Research Affiliates, LLC, and its related entities do not warrant the accuracy of the information provided herein, either expressed or implied, for any particular purpose. The funds are speculative and involve a high degree of risk. A fund may be leveraged and its performance can be volatile. An investor could lose all or a substantial portion of his or her investment. The fund manager has total trading authority over the fund. The use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequentially, higher risk. There is no secondary market for the investor's interest in a fund and none is expected to develop. There may be restrictions on transferring interests in the fund. The fund's fees and expenses may offset the fund's trading profits. The trade names Fundamental Index, RAFI, the RAFI logo, and the Research Affiliates corporate name and logo are registered trademarks and are the exclusive intellectual property of Research Affiliates, LLC. Any use of these trade names and logos without the prior written permission of Research Affiliates, LLC is expressly prohibited. Research Affiliates, LLC reserves the right to take any and all necessary action to preserve all of its rights, title and interest in and to these marks. Fundamental Index, the non-capitalization method for creating and weighting of an index of securities, is patented and patent-pending proprietary intellectual property of Research Affiliates, LLC (US Patent No. 7,620,577; 7,747,502; Patent Pending Publ. Nos. US A1, US A1, US A1, US A1, WO 2005/076812, WO 2007/ A2, WO 2008/118372, EPN , and HK ). Research Affiliates, LLC, is an investment adviser registered under the Investment Advisors Act of 1940 with the U.S. Securities and Exchange Commission (SEC). We are temporarily suspending a claim of GIPS compliance pending an internal review and verification by a new independent verifier.