Transparent Value Dow Jones RBP Directional Allocation Index Fund

Transcription

1 Trasparet Value Dow Joes RBP Directioal Allocatio Idex Fud

2 Stock ivestig should ot be a guessig game At Trasparet Value, we believe successful equity ivestig is ot about choosig a growth or value ivestmet style. It is ot about sector rotatio or market timig. Ad it certaily is ot about tryig to predict future This master idex applies a rules-based aalysis of quatitative idicators to determie the appropriate market exposure (ragig from beta of 0 to greater tha 1 2 ) for the curret ecoomic eviromet. Trasparet Value s uique ivestmet process was developed to address some fudametal problems associated with may equity portfolios. Ofte ivestmet maagers attempt to outperform a bechmark by makig educated guesses about a compay s future success. By defiitio, however, the future is completely ukowable, ad this approach risks itroducig behavioral biases that we believe ca make ivestmet predictios very ureliable. Coversely, traditioal idex-based ivestig avoids this subjectivity, but it fails to offer ay type of outperformace potetial ad does ot hedge agaist broader equity declies. stock wiers. Istead, we thik effective stock selectio revolves aroud aswerig a simple questio: Ca maagemet deliver the Required Busiess Performace (RBP ) ecessary to support the stock price? To represet the potetial of the RBP Methodology, Dow Joes lauched the Dow Joes RBP Directioal Idexes SM (Aggressive, Market, ad Defesive) 1 i partership with Trasparet Value i These idexes ca be used idividually to express market views. They also form the basis of the Dow Joes RBP Directioal Allocatio Idex SM, which systematically rebalaces uderlyig exposure to each of these aforemetioed idexes based o chagig market eviromets. The ew Trasparet Value Dow Joes RBP Directioal Allocatio Idex Fud is desiged to track the Dow Joes RBP Directioal Allocatio Idex SM, offerig ivestors a way to gai direct exposure to Trasparet Value s proprietary RBP Methodology combied with a disciplied market outlook overlay. The idex s objective is to provide cosistet log-term, risk-adjusted outperformace with the goal of capturig more upside i risig equity markets ad limitig the dowside icludig up to 100% cash allocatio durig market dowturs. The Trasparet Value Dow Joes RBP Directioal Allocatio Idex Fud seeks to overcome these challeges. A disciplied approach to maagig equity risk The Trasparet Value ivestmet process establishes a clear lik betwee a compay s stock price ad what its maagemet must do o a daily basis to justify that valuatio. This helps idetify which compaies we believe are fairly valued ad ca support their stock prices, ad which firms caot ad represet the greatest risk of beig overvalued. Ability to adjust the Fud i respose to broader market shifts Our research-itesive RBP Methodology is the corerstoe of the Fud s three uderlyig Dow Joes RBP Directioal Idexes SM (50 Aggressive Idex, 50 Market Idex ad 50 Defesive Idex). The Fud s portfolio reflects various combiatios of these three idexes ad cash, i respose to chagig ecoomic, setimet ad market mometum idicators. This offers the potetial to participate more fully i strog upward markets, while seekig to limit exposure i market declies. Combiig active research with idex trasparecy We believe the Fud offers the most attractive aspects of both active ad passive ivestmet maagemet by providig the deeper research isights of fudametal aalysis applied through the strict rules-based methodology of a idex-based portfolio. This avoids the icosistecy ad emotio that ca occur i purely qualitative strategies, as well as the black box metality usually associated with a purely quatitative approach. 1

3 Backed by a proprietary ivestmet methodology Basig decisios o fact, ot assumptios Determiig if price ad performace are aliged A strategy for bull 5 ad bear 6 markets Navigatig cyclical market chages Expressig directioal market views Trasparet Value s RBP ivestmet process does ot rely o the traditioal otio of value or what we thik a compay is worth. Covetioal deductive reasoig about potetial growth drivers to forecast a stock s itrisic value might be exposed to tremedous subjectivity. Because this type of predictive forecastig ca be drive by iheret behavioral biases, it risks subjectig stock selectio to radom outcomes. We thik it makes more sese to remove judgmet calls ad emotio from the research process i a effort to deliver more pragmatic, effective ivestmet portfolios. RBP Methodology* Our research focuses oly o what is kowable: a compay s stock price ad its fiacial statemets. Usig these iputs, our RBP Methodology measures the reveue required to support a curret stock valuatio. It the calculates, based o past reveue growth, the RBP Probability that the firm will achieve these results. Our process uses a reverse discouted cash flow 3 valuatio model to determie what the stock price implies i terms of curret reveue eeds ad bechmarks this agaist maagemet s past ability to perform. If maagemet is likely to achieve these goals, we feel the compay is worth the ivestmet. The complemet to the RBP Probability is the Behavioral Risk Idicator (BRI), which provides a idicatio as to whether a stock price has dislocated i relatio to a compay s uderlyig fudametals. A low RBP /high BRI suggests that the stock price has rise to a level that makes it difficult for maagemet to deliver the reveue growth to support it. We feel that high behavioral risk stocks should be actively avoided. The fact is that losers are ofte the greatest determiat to overall performace, ad if a compay caot deliver the required reveue growth to support its stock value, it itroduces cosiderable risk that might erode portfolio returs. The Trasparet Value Dow Joes RBP Directioal Allocatio Idex Fud uses our proprietary RBP process with the added ability to modulate equity market risk. The Fud employs a idex-of-idexes structure, seekig to replicate the performace of the Dow Joes RBP Directioal Allocatio Idex SM. This master idex cosists of various combiatios of the three Dow Joes RBP Directioal Idexes (50 Aggressive Idex, 50 Market Idex ad 50 Defesive Idex) to positio the portfolio for chagig market cycles. It ca also allocate up to 100% i cash if warrated, to maximize asset protectio potetial whe stock prices are fallig precipitously. Rigorous quatitative aalysis establishes the Fud s risk/reward profile by evaluatig three primary sets of market sigals. Ecoomic coditios are moitored by the 6-moth simple movig average (SMA) of the Coferece Board Leadig Ecoomic Idex (LEI). 7 The 12-moth SMA of the Coferece Board Cosumer Cofidece Idex 8 is used to measure setimet, ad the 250-day SMA of the Dow Joes U.S. Large-Cap Total Stock Market Idex SM 9 tracks market mometum. Our research has suggested, each sigal has demostrated cosistetly positive results i highlightig market turs. I cojuctio with secodary idicators from uderlyig RBP idex mometum, they are collectively used to aticipate broader market moves. Keep i mid that past performace is o guaratee of future results. Based o this outlook, the master idex sets a aticipated strategy beta, usig seve possible portfolio models. Allocatios represet various exposures to the three feeder idexes, each cosistig solely of high RBP Probability stocks sorted by beta profile. These weightigs are automatically rebalaced quarterly as market coditios evolve, although more frequet rebalacig may occur due to extreme moves i ecoomic sigals. Trasparet Value s team of more tha 180 research aalysts cotiuously evaluates more tha 2,200 stocks usig the disciplied RBP ratig system. Fud Ivestmet Process Iput: Curret stock price Through a idex-of-idexes approach, the Trasparet Value Dow Joes RBP Directioal Allocatio Idex Fud ivests i a carefully costructed portfolio of high RBP Probability stocks, with the added potetial beefit of active beta maagemet to help better weather chagig market coditios. 1: Calculate compay s RBP 2: Calculate RBP Probability 3: Rak stocks by RBP 4: Dow Joes creates RBP Directioal Idexes SM 1: Isolate performace Costruct uderlyig RBP idexes to isolate directioal market performace 2: Costruct allocatio Costruct allocatio idex based o market climate to determie exposure to uderlyig RBP idexes 3: Set beta exposure Set beta exposure through seve possible allocatio models, rebalaced quarterly Stock uiverse $ High RBP /Low BRI Ivest Apply rules-based portfolio costructio Large-Cap stock uiverse Sort usig beta ad mometum filters Weight stocks by RBP Probability withi each segmet... Primary sigals Secodary sigals High beta Sigals + Calculate required free cash flow 4 ad Required Busiess Performace (RBP ) over the ext 12 moths to support curret stock price RBP Probability Behavioral Risk Idicator (BRI) Cout frequecy of achievig this RBP i the past 12 quarters Calculate probability that compay ca deliver the RBP over ext 12 moths Avoid Sort stock uiverse by RBP Probability ad BRI Filter large cap uiverse by beta ad mometum Weight stocks by RBP Probability Rebalace quarterly High beta Neutral beta Low beta Aggressive Market Defesive + Market mometum + Ecoomic coditios + Mometum of uderlyig idexes + Cosumer setimet... Low beta SM 10 Aggressive Idex SM 11 Market Idex SM 12 Defesive Idex Cash Low RBP /High BRI * The RBP Methodology is ot ecessarily the right or oly way oe should ivest, but a optio. RBP ad BRI are based o a proprietary ivestmet strategy (or model) ad there is o assurace that either the probability score or risk idicator will successfully idetify compaies based o these measures. The diagram is for illustrative purposes oly. Trasparet Value ivestable portfolios Dow Joes RBP Directioal Idexes SM Dow Joes RBP Directioal Allocatio Idex SM Fud portfolio allocatio 2 This diagram is for illustrative purposes oly. 3

4 Who should cosider ivestig i the Trasparet Value Dow Joes RBP Directioal Allocatio Idex Fud? Equity ivestors worried about dowside exposure The severe market volatility of the past several years has left may ivestors risk averse. The Fud may offer a way to seek positive performace while maagig drawdow risk. Ivestors iterested i mitigatig portfolio risk but cocered about fixed icome markets Ivestors ofte tur to fixed icome securities to help maage portfolio volatility, but may are lookig for other alteratives give curret paltry yields ad potetial capital risks oce iterest rates begi to rise agai. The Fud may offer a way to gai effective equity exposure but ca ivest up to 100% i cash i difficult markets. Ivestors iterested i makig their ivestmets work harder The past lost decade i equity performace has left may ivestors uderfuded for their portfolio goals. The Fud s strategy seeks to capture stroger risk-adjusted returs across all market climates, which may help ivestors maximize their ivestmet earigs potetial. Ivestors focused o retiremet The Fud s proactive approach to miimizig equity risk through chagig market cycles may be particularly appealig to retiremet ivestors, whether they are buildig their portfolio est eggs or maagig logevity risk post-retiremet. See the market clearly Trasparet Value offers equity ivestors a uique way to capture greater risk-adjusted retur potetial. Our highly itesive Required Busiess Performace (RBP ) research process quatifies the probability of whether a stock ca perform accordig to market expectatios. How may iphoes must Apple sell to support its curret share price? How may packages must FedEx ship? The aswers to these types of basic questios ca provide a clearer view of which stocks offer the most compellig risk/reward potetial. Our stock aalysis forms the basis for the family of Dow Joes RBP Idexes SM. Each Trasparet Value portfolio is desiged to track a specific RBP Idex, providig ivestors with deeper research isights of active maagemet combied with the trasparecy, cosistecy ad disciplied rules-based methodology of a idex-based portfolio. Fud Overview OBJECTIVE: To provide ivestmet results that, before fees ad expeses, correspod geerally to the total retur performace of the Dow Joes RBP Directioal Allocatio Idex SM. Lear more about Trasparet Value by cosultig with your Fiacial Advisor or visitig Class A Class C Class F-1 Class I CUSIP: 89386C C C C639 Ticker: TVRAX TVRCX TVFRX TVRIX Die cuts for busiess card This white pael is a pocket that folds i from the right side ad pastes top ad bottom 4

5 The Fud is brad ew ad has limited operatig history. The Fud seeks to track a quatitative strategy idex, ad as a result the Fud may have a lower retur. A ivestmet i the Trasparet Value Fuds ivolves risk, icludig loss of pricipal. Sice the Fud ivests i securities comprisig a idex created by a proprietary model, the Fud may have a lower retur tha if the Fud were maaged usig a fudametal or idex-based strategy that did ot icorporate quatitative aalysis. Moreover, the Fud is o-diversified ad as a result may have greater exposure to volatility tha other fuds. The Fud s retur may ot match or achieve a high degree of correlatio with the retur of the Idex. The large capitalizatio compaies i which the Fud ivests may uderperform other segmets of the equity market or the equity market as a whole. The Fud is o-diversified ad, as a result, may have greater exposure to volatility tha other fuds. The Fud s assets will oly be cocetrated i a idustry or group of idustries to the extet that the Idex cocetrates i a particular idustry or group of idustries. By cocetratig its assets i a sigle idustry or group of idustries, the Fud is subject to the risk that ecoomic, political or other coditios that have a egative effect o that idustry or group of idustries will egatively impact the Fud to a greater extet tha if the Fud s assets were ivested i a wider variety of idustries. The Fud is subject to risks related to ivestmet i REITs, icludig fluctuatios i the value of uderlyig properties, defaults by borrowers or teats, lack of diversificatio, heavy cash flow depedecy, self-liquidatio, ad potetial failure to qualify for tax-free pass through of icome ad exemptio from registratio as a ivestmet compay. The Fud may also ivests i derivative istrumets, ivestmets whose values deped o the performace of a uderlyig security, asset, iterest rate, idex or currecy ad etail potetially higher volatility ad risk of loss compared to traditioal stock or bod ivestmets. The RBP Methodology is t ecessarily the right or oly way oe should ivest, but a optio. RPB ad BRI are based o a propriety ivestmet strategy (or model) ad there is o assurace that either the probability score or risk idicator will successfully idetify compaies based o these measures. The diagram is for illustrative purposes oly. Compariso to the Bechmark is ot meat to imply that ivestors should cosider a ivestmet i ay of the Trasparet Value Advisors, LLC ( TVA ) strategies to be comparable to a ivestmet i ay of these idexes, as the holdigs i each of the TVA strategies will differ from the compositio of the Bechmark. Each of the TVA strategies is comprised of a smaller, less diversified pool of assets tha the Bechmark. The Bechmark used is for purpose of compariso ad should ot be uderstood to mea that there will ecessarily be a correlatio betwee the portrayed returs herei ad this bechmark. 1. The Dow Joes RBP Directioal Idexes SM are ot available for direct ivestmet. 2. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio i compariso to the market as a whole. A beta of 1 idicates that the security s price will move with the market. A beta of less tha 1 meas that the security has historically bee less volatile tha the market as a whole. A beta of greater tha 1 meas that the security is more volatile tha the market. 3. Discouted cash flow is a valuatio method used to estimate the attractiveess of a ivestmet opportuity. 4. Free cash flow is a measure of fiacial performace calculated as operatig cash flow mius capital expeditures. Free cash flow (FCF) represets the cash that a compay is able to geerate after layig out the moey required to maitai or expad its asset base. 5. Bull market is a market coditio i which prices of securities are risig or are expected to rise. 6. Bear market is a market coditio i which the prices of securities are fallig, ad widespread pessimism causes the egative setimet to be self-sustaiig. 10. The Aggressive Idex SM measures the 50 top U.S. large-cap stocks raked by RBP Probability. Compoets also have high mometum ad above-average beta factors as measured i accordace with the methodology set forth i the Guide to the Dow Joes RBP Directioal Series Idexes SM. 11. The Market Idex SM measures the 50 top U.S. large-cap stocks raked by RBP Probability. Compoets also have high mometum ad beta factors close to oe as measured i accordace with the methodology set forth i the Guide to the Dow Joes RBP Directioal Series Idexes SM. 12. The Defesive Idex SM measures the 50 top U.S. large-cap stocks raked by RBP Probability. Compoets also have high mometum ad below-average beta factors as measured i accordace with the methodology set forth i the Guide to the Dow Joes RBP Directioal Series Idexes SM. This material is iteded to iform you of products ad services offered by Guggeheim Ivestmet Maagemet, LLC ( GIM ) ad Trasparet Value Advisors, LLC ( Trasparet Value ). GIM ad Trasparet Value are subsidiaries of Guggeheim Parters, LLC ( Guggeheim Parters ). The views expressed i this material are the views of GIM ad are subject to chage without otice based o market ad other coditios. The opiios expressed may differ from those of other etities affiliated with GIM that use differet ivestmet philosophies. No claim is made that RBP ca, i ad of itself, be used to determie which securities to buy or sell, or whe to buy or sell them. No represetatio or warraty is made by GIM, Trasparet Value, Guggeheim Parters, or ay of their related etities or affiliates as to the sufficiecy, relevace, importace, appropriateess, completeess, or comprehesiveess of the market data, iformatio or summaries cotaied herei for ay specific purpose. The opiios, estimates ad ivestmet strategies ad views expressed i this documet costitute the judgmet of our ivestmet strategists, based o past, hypothetical or curret market coditios ad are subject to chage without otice. The views ad strategies described herei may ot be suitable for all ivestors. No assurace ca be give that GIM ivestmet objectives described herei will be achieved. This material is distributed with the uderstadig that it is ot accoutig, legal or tax advice. Please cosult your legal or tax advisor cocerig such matters. The iformatio cotaied i this presetatio has bee gathered from sources we believe to be reliable, but we do ot guaratee the accuracy or completeess of such iformatio, ad we assume o liability for damages resultig from or arisig out of the use of such iformatio. Idices do ot represet actual tradig. Accordigly, these models should ot be relied upo to make predictios of actual future accout performace. GIM has o obligatio to provide recipiets hereof with updates or chages to such data. Past performaces of idices of asset classes does ot represet actual returs or volatility of actual accouts or ivestmet maagers, ad should ot be viewed as idicative of future results. Returs are uaudited. Results do ot reflect the ivestmet of divideds or other earigs. The figures for the idex do ot reflect the reivestmet of divideds ad do ot reflect the deductio of fees or expeses which would reduce returs. Ivestors caot ivest direct i the idex. Dow Joes Idexes is a licesed service mark of CME Group Idex Services LLC ( CME Idexes ). Dow Joes Idexes, Dow Joes U.S. RBP Idexes are service marks of Dow Joes Trademark Holdigs LLC ( Dow Joes ), ad have bee licesed for use by CME Idexes. CME is a trademark of Chicago Mercatile Exchage Ic. Iclusio of a compay i ay of the idexes i this piece does ot i ay way reflect a opiio of Dow Joes, CME Idexes, Trasparet Value or ay of their respective affiliates is providig ivestmet advice i coectio with these idexes. Trasparet Value Fuds are distributed by ALPS Distributors, Ic. Guggeheim Fuds Distributors, Ic. is the marketig aget for Trasparet Value Mutual Fuds. Trasparet Value, LLC ad Guggeheim Fuds Distributors, Ic. are subsidiaries of Guggeheim Parters, LLC. Ivestors should cosider the ivestmet objectives, risks, charges ad expeses of the Trasparet Value Fuds carefully before ivestig. To obtai a prospectus cotaiig this ad other iformatio o Trasparet Value Fuds, please cotact or visit Read the prospectus carefully before ivestig. 7. Coferece Board Leadig Ecoomic Idex is a idex published mothly by the Coferece Board used to predict the directio of the ecoomy s movemets i the moths to come. 8. Coferece Board Cosumer Cofidece Idex is a survey by the Coferece Board that measures how optimistic or pessimistic cosumers are with respect to the ecoomy i the ear future. 9. The Dow Joes U.S. Large-Cap Total Stock Market Idex SM is a subset of the Dow Joes U.S. Total Stock Market Idex SM, which measures all U.S. equity securities with readily available prices. It icludes the largest 750 by full market capitalizatio Trasparet Value, LLC. All rights reserved. No part of this documet may be circulated, quoted or reproduced for distributio without prior writte approval from Trasparet Value, LLC. Trasparet Value, LLC 135 East 57th Street, 15th Floor, New York, NY TVA /31/2013