P V G A S S E T M A N A G E M E N T L O S S A V E R S E I N V E S T I N G VALUE LEADERS LONG/SHORT

Transcription

1 P V G A S S E T M A N A G E M E N T L O S S A V E R S E I N V E S T I N G WWW. PVGASSETMANAGEMENT. COM VALUE LEADERS LONG/SHORT

2 MARKET CYCLE OVERVIEW PVG has coined the phrase, Loss Averse Investing to best describe the approach of preserving capital during negative markets. Our belief is that by capturing the least amount of downside helps apply an investment stance that operates with far less overall risk, yet captures greater returns over the long term market cycle. The major risk to portfolios is the systemic risk or market risk, and there are times that the systematic risk of owning either stocks or bonds or both must be taken out of the portfolio. There are managers who control portfolios that can replace traditional asset classes or sub-categories that do not have the same systemic or market risk as traditional managers. These management firms specialize in managing stocks, bonds, or a combination of both in a tactical manner, which reduce or eliminate the systemic risk, and can also be known as, absolute return managers. The hypothetical chart below shows how PVG establishes different hedging techniques depending on the current market cycle. During peaks of the market, PVG will become more cautious and take a market neutral approach to protect assets during sustained or unforeseen market pullbacks. At the bottom of the cycle PVG will become more of a long/short as we find a bottom in the market. As momentum in the market picks up, the strategy will become more like a long only strategy. Market Value vs. PVG Value Market Neutral Long/Short Market Neutral Time CURRENT PORTFOLIO RISK SPECTRUM Risk Averse Current Risk Risk Seeking As of 12/31/2016 2

3 WHERE DOES VALUE INVESTING FIT? Traditional asset class models are typically set up between stocks and bonds. A moderate investor may use a 60/40 blend - 60% stocks and 40% bonds. MODERN PORTFOLIO THEORY This theory suggests that it s possible to create an optimal portfolio along the efficient frontier which will offer the maximum expected return for a given level of risk. Traditional strategies have implemented a partial stock and bond strategy in applying this theory. MODERN PORTFOLIO THEORY 60% STOCKS/40% BONDS Bonds Stocks Alternate Sample PVG Allocation VALUE LEADERS LONG/SHORT This strategy could offer a substitute for the traditional Large Cap Value asset class. This strategy carries an emphasis on Capital Preservation and Growth. This strategy has the flexibility to allocate between stocks, cash and inverse ETF s. The Strategy will also buy covered calls to generate income. Why Allocate to PVG? Allassetclassesmayfallduring bearmarkets PVG ALTERNATIVE 33% STOCKS/33% BONDS/33% PVG PVG Stocks Bonds StocksandBondsareatalltimehighsandbothmayhavesystemicrisk Investors need to be able to manage risk against the asset class in whichtheyinvestinbyhedging,i.e.inverseetfsorcash Ultimately - Clients who seek to be invested in the financial markets and want to preserve their wealth without traditional market fluctuations 3

4 INVESTMENT OBJECTIVE ANNUAL RETURNS(NET OF FEES) JUNE 30, YEAR 3 YEAR 5 YEAR 10 YEAR INCEPTION U.S. VALUE 17.03% 7.84% 8.63% 8.28% 6.70% BARCLAY S EQUITY LONG/SHORT 6.43% 3.61% 4.94% 4.12% 4.92% RUSSELL1000 VALUE 6.32% 8.11% 10.25% 8.45% 7.28% DIVIDEND YIELD: 3.1% This strategy invests in equities with high dividends and with stock capitalizations over 7.5 billion. The strategy is concentrated in leading firms from the healthcare, financial, technology and energy sectors. The strategy typically invests in equities chosen primarily from the U.S % of the strategy can be invested in ADR securities from the major developed markets of Europe and Asia. The portfolio also generates additional income through selling covered calls. The strategy can also utilize sector ETFs and inverse ETFs for hedging. PERFORMANCE -31.4% STATISTICS VERSUS RUSSELL1000 VERSUS BARCLAY S EQUITY VALUE LONG/SHORT BETA R UPSIDE CAPTURE DOWNSIDE CAPTURE MAX DRAWDOWN (QUARTERLY) MAXRUNUP (QUARTERLY) -2.0% -3.8% % 18.25% 22.9% 24.3% 19.7% 14.4% 12.8% 15.5% 17.5% 13.9% 13.5% 17.3% 11.3% 13.7% 7.3% 13.0% 10.1% 8.4% 6.2% 6.4% 2.9% 2.5% 5.3% 0.4% -11.9% -36.8% -4.6% 32.5% 1.9% Value Barclay's Equity Long/Short Russell 1000 Value 40% 20% 0% -20% -40% 285K Value Leaders Long/Short - Growth of $100, K 235K 210K 185K 160K 135K 110K 85K Sep '05 Sep '06 Sep '07 Sep '08 Sep '09 Sep '10 Sep '11 Sep '12 Sep '13 Sep '14 Sep '15 Sep '16 Sep '17 60K U.S. Value Barclay's Equity Long/Short Russell 1000 Value 4

5 VALUE LEADERS LONG/SHORT COMPOSITE RETURNS QTR 1 QTR 2 QTR 3 QTR4 ANNUAL BARCLAY EQUITY GROSS NET GROSS NET GROSS NET GROSS NET GROSS NET LONG/ SHORT RUSSELL 1000 VALUE * Performance disclosures for the Value Leaders Long/Short can be found on page 8. 5

6 VALUE LEADERS LONG/SHORT HOLDINGS PORTFOLIO HOLDINGS AS OF QUARTER END JUNE 30, 2018* U.S. Common Stock Holdings International ADR Stock Holdings Position % Pfizer Inc. (pfe) 6.78% Target Corp. (tgt) 6.47% Duke Energy Corp. (duk) 6.27% Occidental Petroleum (oxy) 5.67% Ventas Inc.(vtr) 4.98% Cisco Sys.(csco) 4.80% Dominion Energy Inc.(d) 4.71% Public Storage(psa) 4.37% Kohls Corp.(kss) 4.25% Gilead Sciences Inc.(gild) 3.92% American Campus Cmty(acc) 3.43% Pepsico(pep) 3.23% Exxon Mobil Corp. (xom) 3.11% BB&T Corp. (bbt) 3.11% Merck & Co.(mrk) 2.87% Hess Corp.(hes) 2.37% Intel Corp. (intc) 2.10% DowDupont Inc (dwdp) 2.02% United Parcel Svc (ups) 1.78% Traveler s Companies(trv) 1.28% Sabra Health Care REIT (sbra) 0.46% Position % Total SA (tot) 5.40% GlaxoSmithKline ADR(gsk) 4.95% Total 10.35% Cash, ETF, & Hedge Cash 2.68% ishares US Telecom ETF (iyz) 8.99% Total 77.98% Portfolio Allocation Common Stocks Int'l Stocks Cash Utilities ETF Portfolio Allocation Weight ishares US Telecom ETF (iyz) LONG 8.99% Total Equity Holdings (Common & International Stock) LONG 88.33% Cash 2.68% Net Long 100% * Portfolio Holdings may not reflect the current holdings of the U.S. Value strategy. 6

7 PROACTIVE AND REACTIVE HEDGING TECHNIQUES PVG reduces undiversifiable market volatility and risk by hedging portfolios with inverse market index securities, stop losses and cash positions. Hedging tactics are utilized to reduce overall volatility of the portfolio, and may also result in minimizing losses that may occur in an unfavorable cyclical or secular market. Proactive Hedging Portfolios Inverse ETF s Sector or Broad Market ETF s Only Portfolios are never net short Generate Income Purchasing Covered Calls Covered Calls are utilized when a stock is overbought on a technical level or trades at an elevated P/E, P/S, P/B, P/FFO versus its own history. Goal Risk Reduction not Maximum Returns Designed to limit portfolio losses and generate a high level of income through dividends and the selling of covered calls. FACTORS THAT DRIVE PVG HEDGING PVG utilizes both fundamental analysis and technical indicators to drive the hedging of the strategy. The main focus is derived from the valuation analysis of our universe of stocks as well as the trend and chart analysis in the overall market. Our goal is to reduce the risk of the overall portfolio when the analysis and indicators give us a signal. Fundamental Analysis Multifactor Macro Indicators Market Cycle Analysis Valuation Analysis Technical Indicators Sentiment Indicators Trend Analysis Chart Analysis Goal Overall portfolio beta and risk reduction 7

8 Investing with an emphasis on Capital Preservation P V G A S S E T M A N A G E M E N T L O S S A V E R S E I N V E S T I N G S. University Blvd. Centennial, CO Performance results are presented in U.S. dollars and are net-of-actual-management fees and trading expenses of the composite and reflect the reinvestment of dividends and capital gains. Actual fees may vary based on, among other factors, account size and custodial relationship. *Annual returns are compounded over the specified period. The current dividend yield is calculated gross of fees as of quarter end date and is the expected forward yield. No current or prospective client should assume future performance of any specific investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may cause the performance results of your portfolio to differ materially from the reported composite performance. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client's investment portfolio. PVG s Portfolio Risk Spectrum is based off a number of factors including portfolio structure, holdings, weighting and risk measures. It is not meant to define the client s risk profile or appetite when investing with PVG. The Portfolio Risk Spectrum may change from the current position at any time depending on the factors stated for measurement. Historical performance results for market indices generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Portfolios in the composite may utilize levered index products. Leveraged ETFs are considered risky. The use of leverage strategies by a fund increases the risk to the fund and magnifies gains or losses on the investment. You could incur significant losses even if the long-term performance of the underlying index showed a gain. Most leveraged ETFs reset daily. Due to the effect of compounding, their performance over longer periods of time can differ significantly from the performance of their underlying index or benchmark during the same period of time. Exchange traded funds (ETFs) are offered by prospectus only. Investors should consider a fund s investment objective, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other important information, is available from your Financial Advisor and should be read carefully before investing. The investment return and principal value of an investment will fluctuate, so that an investor s shares, when redeemed, may be worth more or less than their original cost. ETFs trade like stocks and may trade for less than their net asset value. The S&P500 Total Return Index is the total return version of the S&P 500 Index which includes the effects of reinvested dividends. The S&P 500 Index is a capitalizationweighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Barclay s Equity Long/Short Index involves equity-oriented investing on both the long and short sides of the market. The objective is not to be market neutral. Managers have the ability to shift from value to growth, from small to medium to large capitalization stocks, and from a net long position to a net short position. Managers may use futures and options to hedge. The focus may be regional or sector specific. The investment strategy and types of securities held by the comparison indices may be substantially different from the investment strategy and the types of securities held by the PVG Value Leaders Long-Short strategy. PVG Asset Management ( PVG ) is a registered investment advisor with the United States Securities Exchange Commission (the SEC ). SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability. Inception for the U.S. Value strategy is 3/31/2005. Additional information is available upon request. Investment Products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value