Active Index Advisors (AIA)

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1 Active Index Advisors (AIA) Unlocking tax alpha to grow and differentiate your business For Investment Professional Use Only 1

2 Table of contents Introduction What is tax alpha and why does it matter? How do you create tax alpha? Performance examples Next steps 2

3 Tax alpha defined Alpha is the difference in performance relative to a benchmark Tax alpha is the incremental benefit attributed to tax management Incorporating tax considerations changes the equation Maximizing after-tax wealth is the goal On a 3 year annualized basis, the SPY ETF loses 50bps of return to taxes * Capital gains are positive tax costs they lower after-tax returns Capital losses help reduce the tax bill and allow for possible excess returns over the benchmark * December 1, 2002 December 31, 2016 Fund performance is provided without applicable sales charges. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Performance would have been lower if such fees, were included. Please see the disclosure pages for additional information. 3

4 Tax alpha Helps differentiate and grow your practice Industry trends are putting new pressures on your business Fee compression Rise of passive investing Robos and other online solutions Growing regulatory burden Investors are hyper focused on fees, but don t fully understand tax implications that can also eat away at return The bottom line is total return after taxes If you are going to index in a taxable account, you can still demonstrate value as an FA and generate excess return above the benchmark The after-tax returns shown are subject to the limitations of the specific calculation methodology applied. Since the client s actual circumstances and tax rates determined after the fact may differ from the anticipated tax rates used in this process, the reported returns may not equal the actual after-tax returns for specific clients. After-tax returns are calculated using the maximum federal and state tax rates for dividends, short-term capital gains and long-term capital gains. The current rates applied are 43.4% for income and short-term gains and 23.8% for long-term capital gains. 4

5 The impact of taxes Annualized quarter-end tax impact (December 1, 2002 March 31, 2017) AIA S&P 500 Strategy Tax Impact Pre-Tax 0.30% SPDR S&P 500 ETF Tax Impact Year 3 Year 5 Year 10 Year AIA S&P 500 After-Tax Composite performance is shown with a 0.30% minimum management fee. Fund performance is shown without applicable sales charges. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Performance would have been lower if such fees, were included. Please see the disclosure pages for additional information. 5

6 The impact of taxes Annualized quarter-end performance (Periods ending March 31, 2017) QTD YTD 1 Year 3 Year 5 Year 10 Year AIA S&P 500 Strategy Pre-Tax 0.30% Fee AIA S&P 500 Strategy After-Tax 0.30% Fee SPDR S&P 500 ETF Pre-Tax SPDR S&P 500 ETF After-Tax S&P 500 TR Since inception Inception date /29/ /29/ /22/ /29/2002 AIA S&P 500 After-Tax Composite performance is shown with a 0.30% minimum management fee. Fund performance is shown without applicable sales charges. Performance data quoted represents past performance and is no guarantee of future results. Performance would have been lower if such fees and sales charges were included. Total return and value will vary and you may have a gain or loss when shares are sold. Current performance may be lower or higher than quoted. For most recent month end performance, visit ngam.natixis.com. For other fund families or managed accounts, please visit the respective company s website for most recent month-end performance. Performance for other share classes or fee-paying managed accounts will be greater or less than shown based on differences in fees and/or sales charges. Performance for periods less than one year is cumulative, not annualized. Returns reflect changes in share price and reinvestment of dividends, if any. 6

7 As an alternative to an ETF or index fund Index-based SMA has greater potential for tax efficiency Distributions and taxes S&P 500 mutual fund S&P 500 ETF Index-based SMA Dividends distributed Yes Yes Received as paid Long-term capital gains distributed Yes Yes Only realized when stocks sold Short-term capital gains distributed Yes, as ordinary income, so they cannot be offset with capital losses Yes, as ordinary income, so they cannot be offset with capital losses Only realized when stocks sold May have capital gains distributions, even if you don t sell Yes, but not very common Yes, but not very common No Direct benefit from loss harvesting No, net losses stay in fund No, net losses stay in fund Yes Fees eligible as an itemized deduction No No Yes For illustrative purposes only. Source: Active Index Advisors 7

8 Morningstar strategy summaries AIA S&P 500 AIA s managers seek to provide a pre-tax return similar to the S&P 500 Index. Each separately managed account is unique and can incorporate existing holdings and stock restrictions. For taxable investors, the strategy additionally seeks to provide aftertax returns greater than the index. Key features include: providing consistent and diversified exposure to the S&P 500 Index; deploying a proprietary stratified sampling methodology to represent the index with a subset of stocks and delivering customization and tax management at the individual account level. SPDR S&P 500 ETF The investment seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. The Trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index (the Portfolio ), with the weight of each stock in the Portfolio substantially corresponding to the weight of such stock in the index. AIA S&P 500 SPDR S&P 500 ETF Ticker SPY Morningstar Category Large Blend Large Blend Primary Index S&P 500 TR USD S&P 500 TR USD Fund Size Date 1/27/2017 1/27/2017 Fund Size (Millions) $288.9 $228, Fund Incept. Date 11/29/ /22/1993 Manager Names Kevin Maeda, Serena Stone, Daniel Price, Peter Klos Management Team Manager Tenure (Longest) Management Fee (%) Net Expense Ratio (%) NA 0.09 Gross Expense Ratio (%) NA 0.11 Stocks # of Stock Holdings (Long) Portfolio Date 12/31/ /27/2017 % US Stocks % Non-US Stocks % US Bonds % Other % Cash Funds and strategies were selected by the NGAM Distribution, L.P. PRCG Team. The comparison does not include all investment vehicles in the elected categories, investments not included may have outperformed those included. Data included herein is based upon the most recently reported data by each fund/entity. 8

9 Benefits of tax loss harvesting in an SMA index Active Index Advisors goal is to replicate an index like the S&P 500 on a pre-tax basis and outperform on an after tax basis via TAX ALPHA Quarterly, systematic tax loss harvesting AIA has a track record dating back to 2002 ON A PRE-TAX BASIS: The AIA S&P 500 has an annualized return of 9.04% net of fees since inception, just 22bps less than SPY. Standard deviation differs by 0.05% ON AN AFTER-TAX BASIS: The AIA S&P 500 has an annualized return of 11.11% net of fees, while SPY s after tax return is 8.81% AIA S&P 500 After-Tax Composite performance is provided with a 0.30% minimum management fee. Fund performance is shown without applicable sales charges. Performance data quoted represents past performance and is no guarantee of future results. Performance would have been lower if such fees and sales charges were included. Total return and value will vary and you may have a gain or loss when shares are sold. Current performance may be lower or higher than quoted. For most recent month end performance, visit ngam.natixis.com. For other fund families or managed accounts, please visit the respective company s website for most recent month-end performance. Performance for other share classes or fee-paying managed accounts will be greater or less than shown based on differences in fees and/or sales charges. Performance for periods less than one year is cumulative, not annualized. Returns reflect changes in share price and reinvestment of dividends, if any. 9

10 Taxed managed index vs. SPY ETF Hypothetical growth of $10,000 (October 31, 2002 March 31, 2017) $50,000 $45,000 $40,000 $35,000 $30,000 AIA S&P 500 Strategy Pre-Tax 0.30% Fee AIA S&P 500 Strategy After-Tax 0.30% Fee SPDR S&P 500 ETF Pre-Tax SPDR S&P 500 ETF After-Tax S&P 500 TR $25,000 $20,000 $15,000 $10,000 $5, AIA S&P 500 After-Tax Composite performance is shown with a 0.30% minimum management fee. Fund performance is shown without applicable sales charges. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Performance would have been lower if such fees, were included. Please see the disclosure pages for additional information. 10

11 Top reasons to use a tax managed strategy 1 Offers the potential for better equity returns after taxes tax alpha Proactive tax loss harvesting can reduce capital gains taxes Combines the benefits of index investing with tax management and customization tailored to specific client needs Potentially more tax efficient than index funds and ETFs, as taxes on their distributions can cost 0.50% a year or more 11

12 Other ways to use AIA in your business Build a customized core index to exclude specific stocks, whole sectors, or implement ESG/SRI screens For long-term estate planning, may offer a source for low basis stock gifting, and inheritors may be able to benefit from a step-up in cost basis Transition portfolios of concentrated stock positions, using customized tax constraints for specific situations 12

13 ACTIVE INDEX ADVISORS A smarter way to index Contact your Natixis representative for more information and a free proposal. Visit 13

14 Appendix annualized return Annualized quarter-end performance (Periods ending March 31, 2017) QTD YTD 1 Year 3 Year 5 Year 10 Year AIA S&P 500 Strategy Pre-Tax 2.0% Max Fee AIA S&P 500 Strategy After-Tax 2.0% Max Fee AIA S&P 500 Strategy Pre-Tax 0.30% Fee AIA S&P 500 Strategy After-Tax 0.30% Fee AIA S&P 500 Strategy Pre-Tax No Fee AIA S&P 500 Strategy After-Tax No Fee SPDR S&P 500 ETF Pre-Tax SPDR S&P 500 ETF After-Tax S&P 500 TR Since inception Inception date /29/ /29/ /29/ /29/ /29/ /29/ /22/ /29/2002 AIA S&P 500 After-Tax Composite performance is shown with and without a 0.30% management fee and 2.0% maximum fee. Fund performance is shown without applicable sales charges. Performance data quoted represents past performance and is no guarantee of future results. Performance would have been lower if such fees and sales charges were included. Total return and value will vary and you may have a gain or loss when shares are sold. Current performance may be lower or higher than quoted. For most recent month end performance, visit ngam.natixis.com. For other fund families or managed accounts, please visit the respective company s website for most recent month-end performance. Performance for other share classes or fee-paying managed accounts will be greater or less than shown based on differences in fees and/or sales charges. Performance for periods less than one year is cumulative, not annualized. Returns reflect changes in share price and reinvestment of dividends, if any. 14

15 Disclosures Who we are: Natixis Global Asset Management consists of Natixis Global Asset Management, S.A., NGAM Distribution, L.P., NGAM Advisors, L.P., NGAM, S.A., and NGAM, S.A. s business development units across the globe, each of which is an affiliate of Natixis Global Asset Management, S.A. The affiliated investment managers and distribution companies are each an affiliate of Natixis Global Asset Management, S.A. NGAM Distribution, L.P. is a limited purpose broker-dealer and distributor of Natixis and Loomis Sayles fund families, which provide advisory services as affiliates of Natixis Global Asset Management, S.A. NGAM Distribution, L.P. also serves as a marketing agent for the Oakmark Funds. Not all funds shown are distributed by NGAM Distribution, L.P. NGAM Advisors, L.P. provides advisory services through its divisions Active Index Advisors and Managed Portfolio Advisors. Advisory services are generally provided with the assistance of model portfolio providers, some of which are affiliates of Natixis Global Asset Management, L.P. NGAM Advisors, L.P. does not provide tax or legal advice. Investors should consult with an investment professional prior to making any investment decision. Investment Disclosure: This report is provided to the Investment Professional for his/her sole use and is not intended for use with clients of the Investment Professional. The report is for informational purposes only and should not be construed as a recommendation or investment advice, as the analysis provided in this report does not take into account the investment objectives, risk tolerance, restrictions, liquidity needs or other characteristics of any one particular investor. No investment advisory or other fiduciary relationship, including any under the Employee Retirement Security Act of 1974 (ERISA) or other law or regulation, should be considered to exist or develop between NGAM and the Investment Professional and/or any client of the Investment Professional. Information about the underlying portfolio and/or representative account has been supplied to NGAM by the Investment Professional that has requested that this analysis be conducted. NGAM has no role in selecting or recommending the portfolio that is referred to in this report. However, certain portfolio holdings identified in this report may be sponsored or managed by NGAM or its affiliates. Views & Opinions: This presentation is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Global Asset Management, or any of its affiliates. There can be no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. We believe the information, including that obtained from outside sources, to be correct, but we cannot guarantee its accuracy. The information is subject to change at any time without notice. Performance Disclosure: Gross performance presented includes reinvestment of all dividends and capital gains and does not reflect the deduction of investment advisory fees or other expenses. The client's return will be reduced by the advisory fees and other expenses it may incur in the management of its account. The advisory fee, compounded over a period of years, will have an adverse effect on the value of the client's portfolio. If such fees and expenses were reflected, performance would be reduced accordingly. Such fees will normally be deducted from client accounts on a quarterly basis, with a compounding effect that is directly related to gross account performance. For example, on an account with a 1% annual fee deducted quarterly, a hypothetical gross annual performance of 12% would be reduced to a net annualized performance of 10.92% for 1, 3, 5 and 10 year periods. A complete schedule of fees charged by NGAM Advisors, L.P. and other advisors can be found in Part 2A of each firm's respective Form ADV. Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results. Intellectual Property Disclosure: This report may contain references to third party copyrights, indexes, and trademarks, each of which is the property of its respective owner. Such owner is not affiliated with NGAM or any of its related or affiliated companies and does not sponsor, endorse or participate in the provision of any NGAM services, funds or other financial products. Index information contained herein is derived from third parties and is provided on an as is basis. The user of this information assumes the entire risk of use of this information. Each of the third party entities involved in compiling, computing or creating index information, disclaims all warranties (including, without limitation any warranties of originality, accuracy, completeness, timeliness, noninfringement, merchantability and fitness for a particular purpose) with respect to such information. Calculations are created using MPI Stylus Pro with data derived from Morningstar and NGAM Advisors, L.P. Investment Risks: All securities are subject to risk, including possible loss of principal. Please read the risks associated with each investment prior to investing. Detailed discussions of each investment s risks are included in Part 2A of each firms respective Form ADV or the prospectus offering or offering document, which can be obtained from the fund family s website. The investments highlights in this presentation may be subject to certain additional risks. 15

16 Disclosures Active Index Advisors ( AIA ) is a division of NGAM Advisors, L.P (NGAM Advisors). NGAM Advisors is an SEC registered investment adviser. A complete list of composite descriptions, as well as additional information regarding the firm s policies and procedures for valuing portfolios, calculating performance, and preparing compliant presentations, is available upon request. The AIA S&P 500 Cash Funded After-Tax Composite includes all fully discretionary, taxable, fee paying portfolios that invest in the AIA S&P 500 which have initially been funded with cash. This strategy seeks to track the S&P 500 Index on a pretax basis by investing in a subset of securities from within the index, while utilizing loss harvesting and tax management techniques to outperform on an after-tax basis. The AIA S&P 500 Cash Funded After-Tax Composite is a sub-composite of the AIA S&P 500 Pre-Tax Composite. The composite was created in November The benchmark used is the S&P 500, an index representing large cap U.S. stocks. Performance is expressed in US Dollars. All results are time-weighted total returns that include the reinvestment of income and dividends. Returns are presented net of non-reclaimable withholding taxes. Management fees vary on asset size and are negotiated by the sponsor. The standard fee schedule is as follows: 0.30% on the first $5 million; 0.20% on the next $5 million; 0.15% on the next $10 million; 0.12% thereafter. Net-of-fees returns assume total custody, advisor, transaction, and investment management fees of 2.0%, deducted 1/12 th per month from the gross composite return. Pure gross-of-fees returns do not reflect the deduction of transaction costs or fees. Effective January 2006, accounts with significant cash withdrawals are temporarily removed from the composite during the month that the withdrawal was taken. Currently, significant cash withdrawals are defined as cash withdrawals that are greater than 10% of an account s market value. Details related to the policy and the threshold for defining significant cash withdrawals historically are available upon request. The after-tax returns shown are subject to the limitations of the specific calculation methodology applied. Since the client's actual circumstances and tax rates determined after the fact may differ from the anticipated tax rates used in this process, the reported returns may not equal the actual after-tax returns for specific clients. After-tax returns are calculated using the maximum federal and state tax rates for dividends, short-term capital gains and long-term capital gains. Tax alpha is the benefit of loss harvesting, which is assumed to be used to offset gains inside or outside the portfolio in the period they are incurred, and thus credited to the portfolio returns. The after-tax benchmark is an estimate based upon the average capital gain realization rate and dividend yield of the index. The maximum federal and state tax rates for dividends and capital gains are utilized in the after-tax calculations. NGAM Distribution, L.P. is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Global Asset Management, S.A. NGAM Distribution, L.P. is located at 399 Boylston Street, Boston, MA ngam.natixis.com Copyright 2017 NGAM Distribution, L.P. All rights reserved Expiration 8/15/