Quarterly Market Review. For Advisor Use Only

Transcription

1 Q3 Quarterly Market Review Third Quarter

2 Agenda Asset Class Overview for 3rd Quarter DFA Relative Returns vs. Benchmarks Performance Review: LCA Traditional Models, Strategic Alternative/Blend, Defensive, Strategic Fixed Income and Tactical Economic Federal Reserve Update Election 2016 Commentary 2

3 Market Summary Index Returns US Stock Market International Developed Stocks Emerging Markets Stocks Global Real Estate US Bond Market Global Bond Market ex US 3Q 2016 STOCKS BONDS 4.40% 6.29% 9.03% -0.23% 0.46% 0.10% Since Jan Avg. Quarterly Return 1.8% 1.4% 3.0% 2.8% 1.3% 1.2% Best 16.8% 25.9% 34.7% 32.3% 4.6% 5.5% Quarter Q Q Q Q Q Q Worst -22.8% -21.2% -27.6% -36.1% -2.4% -3.2% Quarter Q Q Q Q Q Q Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citigroup WGBI ex USA 1 30 Years [Hedged to USD]). The S&P data are provided by Standard & Poor's Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data MSCI 2016, all rights reserved. Bloomberg Barclays data provided by Bloomberg. Citigroup bond indices 2016 by Citigroup. 3

4 World Stock Market Performance MSCI All Country World Index with selected headlines from Q US 10-Year Treasury Yield Closes at Record Low China s Export Decline Accelerates Dow, S&P 500, Nasdaq Close IMF Calls for Urgent' at Records on Same Day for G-20 Action to Shore First Time since 1999 Up Vulnerable Global Economy Eurozone Economy Slowed in Second Quarter US Second-Quarter GDP Revised Up to 1.4% Gain US Household Wealth Rises to Record 190 Treasury Yield Curve Near Flattest Since 2007 Bank of England Expands Stimulus, Cuts Rates Japan Economy Nearly Stalls in Second Quarter US New Home Sales Rise to Highest Level since 2007 US Household Incomes Surged 5.2% in 2015, First Gain since 2007 Fed Stands Pat, but Says Case for Rate Increase Has Strengthened US Job Growth Rebound Calms Fears of Economic Swoon World Trade Set For Slowest Yearly Growth since Global Financial Crisis 180 Jul Aug Sep Source: DFA Q Quarterly Market Review. These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Graph Source: MSCI ACWI Index. MSCI data MSCI 2016, all rights reserved. It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results. 4

5 World Stock Market Performance MSCI All Country World Index with selected headlines from past 12 months Short Term (Q Q3 2016) IMF Downgrades Global Economic Outlook Again Paris Attacks Leave More than 100 Dead European Markets to Finish 2015 among World s Top Performers Dow, S&P Off to the Worst Starts Ever for Any Year British Pound Sinks to Seven-Year Low on Brexit Fears S&P 500 Turns Positive for the Year Rising US Rents Squeeze the Middle Class US Jobless Claims Fall to Four-Decade Low Weak Hiring Pushes Back Fed s Plans China s Export Decline Accelerates US New Home Sales Rise to Highest Level since Long Term (2000 Q3 2016) Last months Net Worth of US Households Rose to Record $86.8 Trillion in Fourth Quarter Eurozone Slides Back into Deflation Oil Prices Rebound Leaves Investors Guessing What s Next World Trade Set for Slowest Yearly Growth Since Global Financial Crisis 140 Sep-2015 Dec-2015 Mar-2016 Jun-2016 Sep-2016 Source: DFA Q Quarterly Market Review. These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a longterm perspective and avoid making investment decisions based solely on the news. Graph Source: MSCI ACWI Index. MSCI data MSCI 2016, all rights reserved. It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results. 5

6 World Asset Classes Third Quarter 2016 Index Returns (%) Looking at broad market indices, emerging markets outperformed all other equity markets during the quarter. The US equity market lagged developed markets outside the US. US real estate investment trusts (REITs) recorded negative absolute returns and lagged the US equity market. The value effect was negative in the US and emerging markets but positive in developed markets outside the US. Small caps outperformed large caps in the US and in developed markets outside the US but underperformed in emerging markets Russell 2000 Index MSCI Emerging Markets Index (net div.) Russell 2000 Value Index MSCI Emerging Markets Value Index (net div.) MSCI World ex USA Small Cap Index (net div.) MSCI World ex USA Value Index (net div.) MSCI Emerging Markets Small Cap Index (net div.) MSCI World ex USA Index (net div.) S&P 500 Index Russell 1000 Value Index S&P Global ex US REIT Index (net div.) Bloomberg Barclays US Aggregate Bond Index One-Month US Treasury Bills Dow Jones US Select REIT Index Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor's Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data MSCI 2016, all rights reserved. Dow Jones data (formerly Dow Jones Wilshire) provided by Dow Jones Indices. Bloomberg Barclays data provided by Bloomberg. 6

7 US Stocks Third Quarter 2016 Index Returns The broad US equity market recorded positive absolute performance for the quarter. Ranked Returns for the Quarter (%) Value indices underperformed growth indices across all size ranges. Small caps outperformed large caps. Small Cap Growth Small Cap Small Cap Value Large Cap Growth Marketwide Large Cap Large Cap Value World Market Capitalization US Period Returns (%) * Annualized Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** 52% US Market $22.6 trillion Marketwide Large Cap Large Cap Value Large Cap Growth Small Cap Small Cap Value Small Cap Growth Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Marketwide (Russell 3000 Index), Large Cap (S&P 500 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. Russell 3000 Index is used as the proxy for the US market. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. The S&P data are provided by Standard & Poor's Index Services Group. 7

8 International Developed Stocks Third Quarter 2016 Index Returns In US dollar terms, developed markets outside the US outperformed the US equity market but underperformed emerging markets indices during the quarter. Small caps outperformed large caps in non-us developed markets. Looking at broad market indices across all size ranges, the value effect was positive in non-us developed markets. Ranked Returns (%) Local currency US currency Small Cap Value Large Cap Growth World Market Capitalization International Developed Period Returns (%) * Annualized 37% International Developed Market $15.8 trillion Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** Large Cap Small Cap Value Growth Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Large Cap (MSCI World ex USA Index), Small Cap (MSCI World ex USA Small Cap Index), Value (MSCI World ex USA Value Index), and Growth (MSCI World ex USA Growth). All index returns are net of withholding tax on dividends. World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCI World ex USA IMI Index is used as the proxy for the International Developed market. MSCI data MSCI 2016, all rights reserved. 8

9 Emerging Markets Stocks Third Quarter 2016 Index Returns In US dollar terms, emerging markets indices outperformed both the US market and developed markets outside the US. Using broad market indices as proxies, the value effect was negative in emerging markets. Large cap value indices underperformed large cap growth indices. The opposite was true among small caps; small cap value indices outperformed small cap growth indices. Large cap indices outperformed small cap indices. Ranked Returns (%) Local currency US currency 8.46 Growth Large Cap Value Small 7.60 World Market Capitalization Emerging Markets Period Returns (%) * Annualized 11% Emerging Markets $4.7 trillion Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** Large Cap Small Cap Value Growth Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Large Cap (MSCI Emerging Markets Index), Small Cap (MSCI Emerging Markets Small Cap Index), Value (MSCI Emerging Markets Value Index), and Growth (MSCI Emerging Markets Growth Index). All index returns are net of withholding tax on dividends. World Market Cap represented by Russell 3000 Index, MSCI World ex USA IMI Index, and MSCI Emerging Markets IMI Index. MSCI Emerging Markets IMI Index used as the proxy for the emerging market portion of the market. MSCI data MSCI 2016, all rights reserved. 9

10 Select Country Performance Third Quarter 2016 Index Returns Austria and Hong Kong recorded the highest country performance in developed markets, while Singapore and Denmark posted the lowest performance for the quarter. In emerging markets, Egypt and China were the top performers, while Turkey and the Philippines recorded the lowest performance. Ranked Developed Markets Returns (%) Ranked Emerging Markets Returns (%) Austria Hong Kong Germany Spain Finland Netherlands New Zealand Japan Sweden Australia Ireland Norway France Belgium Portugal UK Canada US Switzerland Italy Israel Singapore Denmark Egypt China Taiwan Brazil Hungary South Korea Russia Indonesia South Africa India Qatar Thailand Poland UAE Colombia Greece Peru Czech Republic Chile Malaysia Mexico Turkey Philippines Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Country performance based on respective indices in the MSCI World ex US IMI Index (for developed markets), Russell 3000 Index (for US), and MSCI Emerging Markets IMI Index. All returns in USD and net of withholding tax on dividends. MSCI data MSCI 2016, all rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. UAE and Qatar have been reclassified as emerging markets by MSCI, effective May

11 Real Estate Investment Trusts (REITs) Third Quarter 2016 Index Returns US REITs posted negative absolute performance for the quarter, lagging the broad equity market. REITs in developed markets recorded positive absolute returns but underperformed broad developed markets equity indices. Ranked Returns (%) Global REITs (ex US) 2.27 US REITs Total Value of REIT Stocks Period Returns (%) * Annualized 41% World ex US $455 billion 252 REITs (22 other countries) 59% US $656 billion 100 REITs Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** US REITs Global REITs (ex US) Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Number of REIT stocks and total value based on the two indices. All index returns are net of withholding tax on dividends. Total value of REIT stocks represented by Dow Jones US Select REIT Index and the S&P Global ex US REIT Index. Dow Jones US Select REIT Index used as proxy for the US market, and S&P Global ex US REIT Index used as proxy for the World ex US market. Dow Jones US Select REIT Index data provided by Dow Jones. S&P Global ex US REIT Index data provided by Standard and Poor's Index Services Group

12 Commodities Third Quarter 2016 Index Returns Commodities were mixed for the third quarter but remained positive for the year-to-date period ending September 30, The Bloomberg Commodity Index Total Return posted a -3.86% return during the quarter. The softs complex led the index: Sugar gained 9.76%, cotton climbed 6.09%, and coffee was up 1.42%. Industrial metals also recorded gains, with zinc returning 12.55% and nickel 11.46%. Energy fell, with natural gas declining 8.02%, brent crude oil down 2.22%, and WTI crude oil falling 4.96%. Lean hogs underperformed the most, returning %. Gold declined 0.82%. Period Returns (%) * Annualized Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** Commodities Ranked Returns for Individual Commodities (%) Zinc Nickel Sugar Cotton Soybean Oil Unleaded Gas Silver Coffee Aluminum Copper Gold Heating Oil Brent Oil WTI Crude Oil Natural Gas Corn Live Cattle Wheat Soybeans Lean Hogs Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Index is not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. All index returns are net of withholding tax on dividends. Securities and commodities data provided by Bloomberg. 12

13 Fixed Income Third Quarter 2016 Index Returns Interest rates across the US fixed income markets generally increased in the third quarter. The yield on the 5-year Treasury note rose 13 basis points (bps) to 1.14%. The yield on the 10-year Treasury note rose 11 bps to 1.60%. The 30-year Treasury bond increased 2 bps to finish with a yield of 2.32%. US Treasury Yield Curve (%) /30/2015 9/30/2016 6/30/2016 Bond Yields across Issuers (%) The 1-year Treasury bill yield rose 14 bps to 0.59%, and the 2-year Treasury note yield increased 19 bps to 0.77%. The yield on the 3-month Treasury bill rose 3 bps to 0.29%, while the 6-month Treasury bill was up 9 bps to 0.45% Yr 5 Yr 10 Yr Period Returns (%) 30 Yr 10-Year US Treasury State and Local Municipals AAA-AA Corporates A-BBB Corporates * Annualized Short-term corporate bonds gained 0.32%. Intermediate-term corporates rose 0.89%, while long-term corporate bonds gained 2.56%. 1 Short-term municipal bonds returned -0.21%, while intermediate-term municipal bonds were unchanged. Revenue bonds slightly outperformed general obligation bonds. 2 Asset Class YTD 1 Year 3 Years** 5 Years** 10 Years** BofA Merrill Lynch 1-Year US Treasury Note Index BofA Merrill Lynch Three-Month US Treasury Bill Index Citigroup WGBI 1 5 Years (hedged to USD) Bloomberg Barclays Long US Government Bond Index Bloomberg Barclays Municipal Bond Index Bloomberg Barclays US Aggregate Bond Index Bloomberg Barclays US Corporate High Yield Index Bloomberg Barclays US TIPS Index Source: DFA Q Quarterly Market Review. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. 1. Bloomberg Barclays US Corporate Bond Index. 2. Bloomberg Barclays Municipal Bond Index. Yield curve data from Federal Reserve. State and local bonds are from the Bond Buyer Index, general obligation, 20 years to maturity, mixed quality. AAA-AA Corporates represent the Bank of America Merrill Lynch US Corporates, AA-AAA rated. A-BBB Corporates represent the Bank of America Merrill Lynch US Corporates, BBB-A rated. Bloomberg Barclays data provided by Bloomberg. US long-term bonds, bills, inflation, and fixed income factor data Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Citigroup bond indices 2016 by Citigroup. The BofA Merrill Lynch Indices are used with permission; 2016 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Merrill Lynch, Pierce, Fenner & Smith Incorporated is a wholly owned subsidiary of Bank of America Corporation. 13

14 QTD DFA Equity Funds Returns 10.00% 8.87% DFA QTD Return Benchmark QTD Return 8.83% 8.50% 9.03% 8.00% 7.51% 7.69% 8.00% 7.97% 6.00% 6.29% 6.29% 4.93% 4.40% 5.14% 4.00% 3.48% 2.00% 2.00% 2.27% 0.00% -2.00% US Core Equity 1 US Target Value (small/mid) US Large Cap Value -1.17% -1.24% Real Estate Securities Intl. Core Intl. Small Co. Equity Intl. Value Intl. Real Estate Securities Emerging Markets Core Russell 3000 Russell 2000 Value Russell 1000 Value DOW Jones US Select REIT MSCI World exus MSCI EAFE Small Cap MSCI World exus S&P Global ex US REIT MSCI EM Source: Dimensional Fund Advisors 14

15 YTD DFA Equity Funds Returns 20.00% 18.00% DFA YTD Return Benchmark YTD Return 18.39% 16.00% 15.49% 16.02% 14.00% 12.00% 11.80% 11.99% 12.90% 12.52% 10.00% 8.00% 8.60% 8.18% 9.45% 10.00% 9.45% 8.01% 7.26% 6.00% 5.74% 4.00% 3.12% 3.16% 3.12% 2.00% 0.00% US Core Equity 1 US Target Value (small/mid) US Large Cap Value Real Estate Securities Intl. Core Intl. Small Co. Equity Intl. Value Intl. Real Estate Securities Emerging Markets Core Russell 3000 Russell 2000 Value Russell 1000 Value DOW Jones US Select REIT MSCI World exus MSCI EAFE Small Cap MSCI World exus S&P Global ex US REIT MSCI EM Source: Dimensional Fund Advisors 15

16 QTD DFA Fixed Income Funds Returns DFA QTD Return Benchmark QTD Return 1.40% 1.20% 1.23% 1.00% 0.98% 0.98% 0.96% 0.80% 0.60% 0.40% 0.20% 0.00% 0.00% 0.11% 0.15% 0.05% -0.20% -0.18% -0.18% -0.40% Five Year Global Short Term Extended Quality Intermed Extended Quality Short Term Muni Inflation Protected Citi World 1-5 Year Bof A 1-5 Yr US Corp/Govt Barclays US Credit BofA 1-3 Yr Muni Barclays US TIPS Source: Dimensional Fund Advisors 16

17 YTD DFA Fixed Income Funds Returns DFA YTD Return Benchmark YTD Return 10.00% 9.00% 8.50% 8.86% 8.00% 7.00% 7.88% 7.27% 6.00% 5.00% 4.00% 3.00% 3.53% 3.17% 2.66% 2.00% 1.86% 1.00% 1.00% 0.80% 0.00% Five Year Global Short Term Extended Quality Intermed Extended Quality Short Term Muni Inflation Protected Citi World 1-5 Year Barclays US Tips 1-5 Year Barclays US Credit BofA 1-3 Yr Muni Barclays US TIPS Source: Dimensional Fund Advisors 17

18 LCA Traditional Benchmarks Benchmark Name S&P 500 MSCI AC World Index Ex USA Barclays Capital US Treasury: 1-3 Year LCA Retirement Very Conservative 14.0% 6.0% 80.0% LCA Retirement Conservative Growth 22.0% 13.0% 65.0% LCA Retirement Balanced 33.5% 16.5% 50.0% LCA Retirement Moderate Growth 42.0% 23.0% 35.0% LCA Retirement Growth 53.5% 26.5% 20.0% LCA Retirement 95.5 Aggressive Growth 62.0% 33.0% 5.0% Past performance is not an indication of future performance. Investors cannot invest directly in an index. For informative and illustrative purposes only. Please see important disclosures regarding LCA's Composite Performance at the end of this presentation. Performance is presented net of fees. Source: LCA Composites. 18

19 YTD LCA Traditional s Returns 9.00% LCA Traditional vs. Benchmark Returns YTD 8.00% 7.77% 7.00% 7.01% 6.85% 6.00% 5.65% 6.00% 5.00% 4.00% 3.00% 2.58% 2.51% 3.26% 3.34% 4.60% 4.25% 5.09% 2.00% 1.00% 0.00% LCA Retirement LCA Retirement LCA Retirement LCA Retirement LCA Retirement LCA Retirement 95.5 Very Conservative Conservative Growth Balanced Moderate Growth Growth Aggressive Growth LCA YTD Return Benchmark YTD Return Past performance is not an indication of future performance. Investors cannot invest directly in an index. For informative and illustrative purposes only. Please see important disclosures regarding LCA's Composite Performance at the end of this presentation. Performance is presented net of fees. Source: LCA Composites. 19

20 YTD LCA s Returns LCA s vs. Benchmark Returns YTD % YTD Benchmark YTD Return 7.00% 7.13% 6.00% 5.80% 5.00% 5.31% 5.13% 4.69% 5.23% 4.00% 4.00% 4.11% 3.00% 2.93% 2.00% 1.33% 1.00% 0.00% Defensive Defensive Benchmark Strategic Fixed Income Strategic Fixed Benchmark Strategic Alternative Strategic Alt Benchmark Strategic Alternative Blend Strategic Alt Blend Benchmark Tactical Economic Tactical Benchmark Past performance is not an indication of future performance. Investors cannot invest directly in an index. For informative and illustrative purposes only. Please see important disclosures regarding LCA's Composite Performance at the end of this presentation. Performance is presented net of fees. Source: LCA Composites. 20

21 Federal Reserve Information received since the Federal Open Market Committee met in July indicates that the labor market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year. Although the unemployment rate is little changed in recent months, job gains have been solid, on average. Household spending has been growing strongly but business fixed investment has remained soft. Inflation has continued to run below the Committee s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most surveybased measures of longer-term inflation expectations are little changed, on balance, in recent months. Source: Federal Reserve Press Release September 21,

22 Market Returns and Election Years It is difficult to identify systematic return patterns in elections years. On average, market returns have been positive both in election years and the subsequent year. Market expectations associated with election outcomes are embedded in security prices. Source: DFA Market Returns During Election Years. Past performance is not a guarantee of future results. Sources: The S&P data is provided by Standard & Poor's Index Services Group; MSCI data copyright MSCI 2016, all rights reserved; Bloomberg Barclays Capital data provided by Bloomberg. 22

23 Presidential Elections and S&P 500 Returns Histogram of Monthly Returns: January 1926 June 2016 Source: DFA Market Returns During Election Years. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor s Index Services Group. 23

24 Markets Have Rewarded Long-Term Investors under a Variety of Presidents Growth of a Dollar Invested in the S&P 500: January 1926 June 2016 Source: DFA Market Returns During Election Years. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor s Index Services Group. 24

25 LCA TriWeekly #1 25

26 LCA TriWeekly #2 26

27 LCA TriWeekly #3 27

28 LCA TriWeekly #4 28

29 Questions? Chris Briggs- Leo Rose- Phone:

30 LCA Composite Disclosure Composite returns including periods prior to June 2008 may include return information from client accounts that were not managed in the identified strategy for the entirety of the periods. LCA implemented the portfolio accounting system used to create the Composites in June LCA applied the system s methodologies to its existing historical data. Such data did not support adjusting the accounts that appeared in each Composite based on historical changes in such accounts management strategies. LCA believes the effect of the inclusion of such accounts in the Composites is immaterial, however, based on its policy of excluding outlier accounts as described above and its belief that the number of accounts that changed management strategies over the period was minimal. Please contact LCA if there are questions concerning Composite returns. The z-score is defined as how far a performance return deviates from the average performance return of all accounts in the composite list. A z-score of 3.0 indicates three standard deviations that an account s performance return is above or below the mean. Previously, LCA published hypothetical model returns for its strategies. LCA now presents the Composites, each of which is based on actual performance of client accounts. As a result, the returns presented are slightly different than those previously published. 30

31 LCA Composite Disclosure Returns are presented net of LCA fees and account transaction expenses and include the reinvestment of dividends and other earnings. LCA management fees have ranged from 0.40% % during the periods presented. Management fees incurred by clients may vary. LCA s current fee schedule is described in its Form ADV Part 2A, which is available upon request. Each strategy s underlying investments include commingled investment vehicles such as mutual funds that pay investment advisory and other fees and expenses. Mutual fund and exchange traded fund fees are disclosed in the funds prospectus. Inclusion of market index information is for informational purposes only and does not imply that a strategy will achieve similar returns. Index performance does not reflect the deduction of transaction costs, management fees, or other costs which would reduce returns. An investor cannot invest directly in an index. The composition of an index does not reflect the manner in which a strategy is constructed in relation to expected or achieved returns, investment guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which may change over time. The S&P 500 Index is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in leading industries within the U.S. economy and is widely used as indicative of the performance of the U.S. stock market. The Barclays Capital U.S. Aggregate Bond Index is an unmanaged index that covers the U.S. dollar denominated, investment-grade, fixed-rate, taxable bond market securities, The index includes bonds from the Treasury, government-related, corporate, mortgage backed securities (MBS), asset backed securities (ABS), and commercial mortgage backed securities (CMBS) sectors. The Blended Benchmark Indices were created by LCA to reflect the performance of a benchmark comprised of the stated percentages of the S&P 500 and Barclays Capital U.S. Aggregate Bond Index. 31

32 LCA Disclosure Actual client performance in the strategies and the periods depicted may be materially different and possibly lower than the performance data presented, due to various factors including: different rebalancing frequency and implementation, investment cash flows, cash balances, different management fees, varying custodian fees and transaction costs, different timing of fee deduction and other factors. Clients must refer to their individualized performance evaluation for information concerning their actual account s performance. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be profitable. Each asset class has inherent risks associated with that asset class. Understanding these risks is critical to making reasonable risk/return comparisons and sound investment decisions. Each of LCA s strategies may make small and micro-cap investments, which are subject to greater volatility than those in other asset categories. Each of LCA s strategies may invest in sector funds, which may involve a greater degree of risk than an investment in other funds with greater diversification. Each of LCA s strategies may invest in fixed-income investments, which are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, corporate events, tax ramifications, and other factors. Each of LCA s strategies may make international investments, which are subject to additional risks, such as currency fluctuation, confiscatory policy, political instability, or potential illiquidity. Investing in emerging markets may accentuate these risks. Since no one manager is suitable for all types of investors, it is important to review investment objectives, risk tolerance, liquidity needs, tax consequences and any other considerations with a financial professional before choosing an investment style or manager. 32