Analytic Investors, LLC Mandate: Buy Write Strategy Hired: 2011

Transcription

1 Analytic Investors, LLC Mandate: Buy Write Strategy Hired: 2011 Firm Information Investment Approach Total ARMB Mandate Wells Fargo Asset Management acquired Analytic Investors on October 1, As of 12/31/2016, Analytic s total assets under management were $17.6 billion. Key Executives: Harin de Silva, Ph.D., CFA President / Portfolio Manager Greg McMurran Chief Investment Officer / Portfolio Manager Dennis Bein, CFA Chief Investment Officer / Portfolio Manager Michael Brogan Managing Director Amy Stueve Chief Compliance Officer Megan Miller, CFA Portfolio Manager Analytic s investment objective is to outperform the CBOE S&P 500 BuyWrite (BXM) Index while managing tracking error to be less than 2% relative to the BXM Index. Given this low tracking error limit, the strategy is structured to behave very similarly to the BXM Index. The BXM Index is comprised of the S&P 500 Index with a one month at the money S&P 500 Index call option sold monthly at regular expiration (3rd Friday of each month). The equity component of this strategy is managed by SSGA and is passively managed relative to the S&P 500 index. Analytic attempts to add value by option security selection. While Analytic limits the options they sell to S&P 500 Index options, they actively select call options that they believe are overvalued to add value versus the BXM Index. Benchmark: CBOE S&P 500 BuyWrite Index Assets Under Management: 12/31/2016: $317 Million Concerns: None 12/31/2016 Performance Last Quarter 1-Year 3-Years Annualized 5-Years Annualized Analytic Investors 2.61% 8.52% 6.56% 8.03% CBOE S&P 500 BuyWrite Index 2.64% 7.07% 5.98% 7.24%

2 ALASKA RETIREMENT MANAGEMENT BOARD REVIEW March 2, 2017

3 Contents Analytic Buy-Write Strategy Firm Update Investment Objective and Results Volatility Risk Premium and BXM Index Appendix Analytic Attendees: Greg McMurran, Chief Investment Officer, Portfolio Manager Megan Miller, CFA, Portfolio Manager Kevin Clark, CFA, Director, Relationship Management ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 2

4 Profile Quantitative Investment Manager As of 12/31/2016 *Includes four clients and $1.52B of non-discretionary assets as of 11/30/2016, where Analytic does not have trading authority over the client portfolio. Organization Headquarters: Los Angeles Investment professionals: 19 Client Service/Marketing: 11 Capabilities Benchmark Oriented (Beta 1) Core Equity Short Extension Low Volatility Equity Alternatives Long/Short Equity Covered Call Market Neutral Equity Clients Total Client Relationships: 81* 50% Financial Services % Public % 10% Corporations Multiemployer 4% Insurance 50 4% Superannuation/Sovereign Wealth Fund 1% Endowments/Foundations/ Asset Composition Charitable Total Assets:$17.6B USD* $ 1.7 Benchmark Oriented $ 10.9 Low Volatility Equity 10.9 $ 5.0 Alternatives ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 3

5 Investment Team PORTFOLIO MANAGERS Harindra de Silva, Ph.D., CFA President / Portfolio Manager Joined firm in 1995; 31 years of investment experience Ph.D. in Finance, University of California, Irvine MBA in Finance, University of Rochester MS in Econometrics, University of Rochester BS in Mechanical Engineering, University of Manchester Dennis Bein, CFA Chief Investment Officer / Portfolio Manager Joined firm in years of investment experience MBA in Finance, University of California, Riverside BS in Business Administration, University of California, Riverside David Krider, CFA Portfolio Manager Joined firm in years of investment experience BA in Economics, California Institute of Technology BS in Computer Science, California Institute of Technology Ryan Brown, CFA Portfolio Manager Joined firm in years of investment experience MS in Finance, University of Utah BS in Economics, Brigham Young University Greg McMurran Chief Investment Officer / Portfolio Manager Joined firm in years of investment experience MA in Economics, California State University, Fullerton BS in Economics, University of California, Irvine Megan Miller, CFA Portfolio Manager Joined firm in years of investment experience BS in Mathematics, University of California, Los Angeles CHAIRMAN TRADING Roger Clarke, Ph.D. Chairman Joined firm in years of investment experience Ph.D. in Finance, Stanford University MBA, Brigham Young University MS in Economics, Stanford University BA in Physics, Brigham Young University RESEARCH ADVISORS Doug Savarese, CFA Research Advisor Joined firm in years of investment experience BA in Mathematics, The Richard Stockton College of New Jersey BS in Business Administration, The Richard Stockton College of New Jersey Andrew Claeys, CFA Director of Trading Joined firm in years of investment experience BS in Business Administration, University of Denver Stephen Thorley, Ph.D., CFA Research Advisor Joined firm in years of investment experience Ph.D. in Financial Economics, University of Washington MBA in Business, Brigham Young University B.S. in Mathematics, Brigham Young University As of 9/30/2016 ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 4

6 Account Summary Alaska Retirement Management Board Outperform BXM Index, over time, net of fees OBJECTIVES Manage Tracking Error to be less than 2% versus the BXM Index Long U.S. equity positions managed by SSgA (passive S&P 500 Index) Call options managed by Analytic Inception Date: March 9, 2011 RESULTS December 31, 2016 Account Value: $316.6 Million Annualized Since Inception Excess Return: 1.05% Since Inception Tracking Error: 1.50% ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 5

7 ANNUALIZED RETURN (%) Performance Alaska Retirement Management Board Performance March 9, 2011 (Inception) December 31, S&P 500 Index ARMB BXM 5 Periods greater than one year are annualized. Performance is presented gross of fees and does not reflect the deduction of investment advisory fees. Client s return will be reduced by the advisory fees (as described in Part II of the adviser s Form ADV) and any other expenses it may incur in the management of its investment advisory accounts. Past performance does not guarantee future results STANDARD DEVIATION (%) Return (%) Standard Deviation (%) Volatility Reduction vs. S&P 500 ARMB (Gross) % CBOE BuyWrite (BXM) Index % S&P 500 Index ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 6

8 Jan-96 Jun-96 Nov-96 Apr-97 Sep-97 Feb-98 Jul-98 Dec-98 May-99 Oct-99 Mar-00 Aug-00 Jan-01 Jun-01 Nov-01 Apr-02 Sep-02 Feb-03 Jul-03 Dec-03 May-04 Oct-04 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 IMPLIED VOLATILITY SPREAD Underpriced Overpriced Jan-96 Jun-96 Nov-96 Apr-97 Sep-97 Feb-98 Jul-98 Dec-98 May-99 Oct-99 Mar-00 Aug-00 Jan-01 Jun-01 Nov-01 Apr-02 Sep-02 Feb-03 Jul-03 Dec-03 May-04 Oct-04 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16 VOLATILITY LEVEL (SPX) Volatility The Market Tends to Consistently Overprice Volatility January 1996 December % 80% Implied Volatility (VIX) 70% Realized Volatility (25 Day) 60% 50% 40% 30% 20% 10% 0% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Implied minus Realized Volatility Spread Average Spread: 4.32 Source: Bloomberg ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 7

9 Analytic Our Edge RESEARCH Research focused on obtaining better exposure to the Volatility Risk Premium than present in BXM by adjusting option strikes and expirations IMPLEMENTATION Implementing a BXM replicating option portfolio has proved difficult for other managers Our investment and trading experience has resulted in a low tracking error high value added BXM replicating covered call portfolio RISK MANAGEMENT We have consistently maintained a low tracking error option portfolio and a hedging option portfolio relative to BXM ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 8

10 Benchmark Construction What is the BXM Index? The CBOE S&P 500 BuyWrite Index (BXM) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index The BXM is a passive total return index based on: (1) buying an S&P 500 stock index portfolio, and (2) "writing" (or selling) a near-term "covered" call option, generally on the third Friday of each month. The SPX call written will have about one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). The SPX call is held until expiration and cash settled, at which time a new one-month, near-the-money call is written. ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 9

11 S&P 500 Index Level Market 2016 Market Environment The following details the monthly roll levels for the BXM Index for the year. The solid dark blue line charts the return for the S&P 500 Index. The solid green indicate the BXM option strike price for each option cycle, and the dotted red line is the break-even price for the option cycle. Once the S&P breaks through the dotted red line, the upside is capped and the option return becomes negative. The premium provides some protection against this loss which is why the breakeven strike price is higher than the actual strike price BXM matches S&P 2225 BXM outperforms S&P BXM underperforms S&P S&P 500 Level Monthly BXM Strike Monthly BXM Breakeven Level 1825 Source: Analytic Investors, Bloomberg ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 10

12 ANNUALIZED RETURN (%) Benchmark Performance BXM versus S&P 500 Index July 1, 1988 December 31, BXM S&P 500 Index STANDARD DEVIATION (%) Return (%) Standard Deviation (%) Volatility Reduction Sharpe Ratio CBOE BuyWrite (BXM) Index % 0.58 Source: Bloomberg and Zephyr StyleAdvisor July 1988 is the inception date of the CBOE BuyWrite (BXM) Index. S&P 500 Index ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 11

13 AVERAGE 12-MONTH RETURN (%) Historical Market Returns Downside Protection, Up-Market Participation July 1, 1988 December 31, CBOE BuyWrite Index S&P 500 Index Down Market <0% Sharply Rising Market >12% Moderately Rising Market 0% to 12% Average Source: Zephyr StyleAdvisor July 1988 is the inception date of the CBOE BuyWrite (BXM) Index. ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 12

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15 Senior Team Contents Members As Chief Investment Officer, Greg McMurran oversees the implementation of the firm s investment strategies. He is a major contributor to the firm s ongoing research efforts as well as new product development and strategy applications. As a portfolio manager, Greg focuses on day-to-day portfolio management and research related to derivatives-based investment strategies. With 30 years of quantitative research, portfolio management and trading experience, Greg has an extensive background in managing quantitative investment portfolios. Greg is also recognized as an authority on options valuation and strategies and has authored several articles. Greg is a frequent participant of the CBOE Roundtable Committee, which meets and discusses industry trends, new product ideas and indexes. The introduction of the BXM Index and weekly options were inspired by this Committee. Joined firm in years of investment experience M.A. in Economics, California State University, Fullerton B.A. in Economics, University of California, Irvine A N A L Y T I C I N V E S T O R S D I S C I P L I N E D R E S P O N S I V E R I S K C O N T R O L L E D 14

16 Senior Team Contents Members Megan Miller is responsible for portfolio management and trading support for derivativesbased investment strategies. Megan is involved in both research and the portfolio construction of client portfolios. Specifically, she researches new models and ways to enhance existing models used in the investment process, develops and maintains optimization inputs and volatility forecasts, and develops and maintains optimization frameworks used to create client portfolios. Joined firm in years investment experience B.S. in Applied Mathematics, University of California, Los Angeles A N A L Y T I C I N V E S T O R S D I S C I P L I N E D R E S P O N S I V E R I S K C O N T R O L L E D 15

17 RETURN (%) Performance Performance Inception Date 3/9/2011 Reporting End Date 12/31/2016 Currency USD Standard Deviation Volatility Reduction vs. S&P 500 ARMB (Gross) % BXM Index % S&P 500 Index ARMB (Gross) ARMB (Net) BXM Index DEC 4Q16 1 Year 3 Year 5 Year Since Inception Periods greater than one year are annualized. Performance is presented gross and net of fees. Past performance does not guarantee future results. DEC 4Q16 1 Year 3 Year 5 Year Since Inception ARMB (Gross) ARMB (Net) BXM Index ANALYTIC INVESTORS DISCIPLINED RESPONSIVE RISK CONTROLLED 16