Good Harbor Financial, LLC-US Tactical Core

Transcription

1 Rating Availability Program Supported Open Diversified Managed Allocations & Masters Firm Information Location Chicago, IL Year Founded 23 Total Employees 12 Firm Assets ($mil) 6, Strategy Assets ($mil) 6,61.83 Strategy Inception Date Key Investment Personnel Neil Peplinski. Since 4-3. Firm Overview Good Harbor Financial, LLC (Good Harbor), a Chicago-based investment manager, operates as the registered investment adviser subsidiary of Cedar Capital, LLC. The firm s philosophy is that disciplined, model-driven investment approaches can deliver effective tactical elements to investment strategies, resulting in enhanced risk-adjusted returns. Investment Process Through the active management of exchange traded funds (ETFs), the strategy seeks to outperform the S&P 5 Index based on the premise that equity markets are largely driven by changes in equity risk premiums. Good Harbor believes that price variations during periods of market stress and exuberance are largely due to changing risk premiums versus changing expected cash flows. By monitoring proxies for risk, such as momentum, economic, and yield curve dynamics, Good Harbor seeks to identify times when equities are more or less favorable. There are three portfolio states, all equity, all fixed income, and an equal pairing of equities and fixed income. When all equity, there is equal exposure to two of the following, large-caps, mid-caps, or small-caps. In all cases/combinations there are leveraged and unleveraged components, typically approximating one-third 2x leveraged and two-thirds unleveraged (e.g., for large-caps the allocation will approximate one-third 2x S&P 5 and two-thirds unlevered S&P 5). When equities and fixed income, only one market-capitalization segment is used (large, mid, or small) and paired with fixed income at equal weights. Leverage still applies to both the equity and fixed income allocations. Fixed income typically holds three Treasury ETFs: short-term, intermediate-term, and leveraged long-term. Leveraged ETFs are suitable for use by professional money managers or sophisticated individuals or institutional clients who fully understand the complexities of these products and the significant risks that exist in purchasing or trading them. Leveraged ETFs are for individuals who have a high risk tolerance as well as the ability and willingness to absorb potentially significant losses. They are typically designed to achieve their desired exposure on a daily (in a few cases, monthly) basis. Holding leveraged ETFs for longer periods of time potentially increases their risk due to the effects of compounding and the inherent difficulty in market timing. Good Harbor seeks to limit the compounding effects through monthly re-positioning; however, the degree to which compounding issues may occur will be a product of the market environment. The strategy does not take short positions or utilize inverse ETFs. Summary Given the unique nature of the strategy, it should be positioned as a complementary piece of a broadly diversified portfolio. While highly flexible, it employs a buy-and-hold approach and typically trades monthly. As such, day-to-day volatility can be significant with no direct means to reduce risk levels until the following month. These risks are accentuated by the continuous leverage employed, which is directly linked to the asset classes held, such as small-cap or Treasuries. As such, it can be exposed to heightened equity volatility or interest rate risk at any point in time. There is timing risk given that monthly re-positioning can occur at inopportune times. While concentrated, typically 3-5 ETFs, the underlying securities are diversified and are generally considered highly liquid in most market environments. Given the potential to re-position every month, turnover can be considerable. Good Harbor will not allow tax loss selling in the strategy given the substantial impact doing so would have on the investment objective of the strategy. Exchange Traded Funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost. ETFs that invest in small and mid company stocks are generally more volatile than large company stocks. They often involve higher risks because these companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions. ETFs that Composition % Assets U.S. Stocks 76.3 Non-U.S. Stocks 16.8 Bonds. Cash 4.8 Other 2.1 Equity Sector Weightings % Energy 6.59 Materials 5.95 Industrials 14.1 Con. Discretionary 13.7 Consumer Staples 4.93 Healthcare Financials 2.88 Info. Technology Telecom Services 1.1 Utilities 3.93 Fixed Income Sectors % Corporate 2.31 Cash/Cash Alternatives Sector weightings and allocations may vary and are subject to change. Portfolio Characteristics Port Avg Rel Cat P/E Ratio P/B Ratio GeoAvgCap $mil 7, Category: Tactical Allocation Please see important disclosures and definitions beginning on page 4 of this report Page 1 of 6

2 invest in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond prices fluctuate inversely to yield. ETFs that invest in technology and internet-related stocks, especially of smaller, less-seasoned companies, tend to be more volatile than the overall market. Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Page 2 of 6

3 Index Relative Performance 4% Total Return % as of Net Return % Benchmark Average annual, if greater than 1 year. YTD 1 Year 3 Year 5 Year 1 Year Since Inception Net Return % Gross Return % Benchmark Ret % Performance Disclosure: The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate; thus an investor s shares, when redeemed, may be worth more or less than their original cost. Performance figures include the reinvestment of dividends and other earnings. Please refer to the performance section of the disclosure page for more information. Risk Metrics 3 Year Risk Metrics Return Standard Deviation Sharpe Ratio Beta Alpha Tracking Info Ratio Error (geo) US Tactical Core S&P 5 TR USD N/A N/A Category Average Year Risk Metrics US Tactical Core S&P 5 TR USD N/A N/A Category Average Year Risk Metrics US Tactical Core S&P 5 TR USD N/A N/A Category Average Benchmark: S&P 5 TR USD - The index measures the performance of 5 widely held stocks in US equity market. Standard and Poor's chooses member companies for the index based on market size, liquidity and industry group representation. Included are the stocks of industrial, financial, utility, and transportation companies. Since mid 1989, this composition has been more flexible and the number of issues in each sector has varied. The index is market capitalization-weighted. R2 Annual Returns Net Return % Gross Return % /- Benchmark Mgr Rank % Out of # of Mgrs Morningstar Category Tactical Allocation... Performance Quartile (within category) Notes & ) * ) & & & & ) & ) Morningstar assigns categories to separate accounts portfolios. Portfolios are placed in a given category based on their average holdings statistics over the past three years. Morningstar s editorial team also reviews and approves all category assignments. If the portfolio is new and has no history, Morningstar estimates where it will fall before giving it a more permanent category assignment. When necessary, Morningstar may change a category assignment based on recent changes to the portfolio. In the United States, Morningstar supports 11 categories. Tactical Allocation category is defined on page 6. Rolling Return Rolling Window: 3 Years, 3 Month shift Time Period: to Investment Benchmark Return % 6 9 Rolling periods analysis: A method of analysis where a quarterly return stream is grouped into rolling periods of a given length (three years, for example). Performance and/or risk statistics are calculated for the three-year period ending with a given quarter, then for the three-year period ending with the next quarter, and so on. This type of analysis helps minimize the arbitrary nature of focusing primarily on calendar years or trailing returns Page 3 of 6

4 Trailing Risk/Return 3-Yr Total Return 5% Yr Total Return 5% Up/Down Market Analysis Category +/- Category Investment Benchmark +/- Benchmark Average Average Up Period % Down Period % Best Quarter Worst Quarter Up Capture Ratio Down Capture Ratio Batting Average 3. N/A N/A 3.. Up/Down Market Analysis statistics are only calculated when 5 or more years of data is available. Time Period: to Benchmark: S&P 5 TR USD Standard Deviation Strategy Benchmark Category Average Standard Deviation Trailing Risk/Return Charts: A graphical representation of the amount of return the manager and index achieved relative to the amount of risk (standard deviation) they took on. Manager returns are net of fees. The index is unmanaged. Style Orientation Morningstar Ownership Zone Fixed Income Style Trail Up/Down Market Capture Ratios: A measure of managers' before-fee performance in up and down markets relative to the market itself. A down market is one in which the index's quarterly return is less than zero. To calculate down-market capture ratio, we link returns for the manager and the market for all down-market quarters over the selected time frame, then divide the manager's return during downmarket quarters by the index's return during the same quarters. To calculate up-market capture ratio, this same process is carried out using returns from periods when the index's return was greater than zero. The lower the manager's down-market capture ratio, the better the manager protected capital during a market decline. A value of 9 suggests that a manager's losses were only 9% of the market loss when the market was down. Caution: The up/down capture ratios can be deceiving if the nominal numbers involved are small. For example, if a manager's return during down-market periods was -3%, while the index's return during those same periods was -1%, the manager's down market capture ratio would be 3 Deep Val Core Val Core Core Grw High Grw Micro Small Med Lrg Giant HStrategy HBenchmark Short Interm Long High Med Low Strategy Batting Average: a measure of a manager's ability to consistently beat the market. It is calculated by dividing the number of months in which the manager beat or matched an index by the total number of months in the period. For example, a manager who meets or outperforms the market every month in a given period would have a batting average of 1. A manager who beats the market half of the time would have a batting average of 5. Morningstar Fixed Income Style Box High Med Low Avg Eff Duration 2.43 Avg Eff Maturity 2.7 Avg Wtd Coupon. Yld to Maturity.57 The Morningstar Ownership Zone SM provides a graphic and intuitive representation of the size and investment style of stocks in an equity portfolio. The Ownership Zone is derived by plotting each stock in the portfolio within the Morningstar Style Box. The Ownership Zone is the shaded area that represents 75% of the assets in the portfolio and indicates the level of concentration in the holdings. The centroid in the middle of the Ownership Zone represents the weighted average of all the holdings. The Ownership Zone helps investors differentiate between portfolios that may otherwise look similar. Investors can also use the Ownership Zone to construct diversified portfolios and model how multiple funds complement one other in a portfolio. Ltd Mod Ext Page 4 of 6

5 Ratings: Recommended - Assigned to a diversified set of strategies that by asset class have earned our highest conviction. The evaluation process for consideration of an investment strategy with a Recommended rating is focused on both quantitative and qualitative analysis. Supported - A Supported rating equates to a level of conviction in a strategy that is not high enough to warrant a Recommended rating. The Strategies have passed an evaluation process that is less comprehensive and more quantitatively focused. Watch In cases where ongoing assessments indicate areas of uncertainty or potential for growing concerns, a Strategy can be placed on Watch. A Watch rating has three levels: Watch Level I - An event has occurred that raises mild concern with respect to the future investment prospects of the Strategy. Watch Level II - An event has occurred that raises moderate concern with respect to the future investment prospects of the Strategy. Watch Level III - An event has occurred that raises significant concern with respect to the future investment prospects of the Strategy. Consideration should be given to the restriction of new money into the Strategy. Sell - The SMA is to be removed from the program in a relatively short time (e.g days, not spanning tax years). Sunset - The SMA is to be removed from the program. An extended period of time to exit the SMA is given, typically across tax years. Portfolio characteristics: Characteristics that help identify the types of stocks or bonds a manager buys. Sharpe Ratio: The Sharpe ratio seeks to adjust the return of a composite or fund based on the amount of risk taken to achieve it. It is calculated by dividing a composite s total risk premium by the standard deviation of its risk premium. The risk premium is defined as the return above the risk-free rate (usually T-bill rate). Standard Deviation: Measures the total volatility or range of a fund or composite s return. It is often used to measure how much a composite s actual return deviates from its expected return for the measured period. Standard deviation measures total risk, which can be broken down into market risk and specific risk. The 3-Year standard deviation measures this total risk over a rolling period of 3 years, while the 5-Year standard deviation measures the total risk over a rolling period of 5 years. Tracking Error: Measures how closely a fund s returns track those of a benchmark. Represents the standard deviation, or variability, of a fund s returns relative to the benchmark. Fixed Income Style Trail: Illustrates the historical evolution of an investment s equity style, fixedincome style and sector allocation over time. The vertical axis shows the credit quality of the long bonds owned and the horizontal axis shows interest rate sensitivity as measured by a bond's effective duration. Each dot represents the centroid for a given portfolio. The centroid is the weighted average of the size/value-growth (or credit/duration for fixed income) scores of the underlying holdings of the portfolio. (Please refer to Morningstar Style Box methodology paper for more detail.) The size of the dot represents the portfolio date; the smallest dot indicates the earliest portfolio within the time period. P/E (Price-to-earnings) ratio: A measure of stock valuation, calculated by dividing the market price of a stock by its earnings per share. For example, a stock selling for $2 per share that earned $2 per share in the last 12 months has a P/E ratio of 1. P/B (Price-to-book) ratio: A measure of stock valuation, calculated by dividing the market price of a stock by its book value per share. For example, a stock selling for $2 per share whose book value is $5 per share has a P/B ratio of 4. Geometric Average Capitalization: measures the average size of a fund s U.S. and non-u.s. stock holdings. It provides an estimate of the fund s average size using a different method than median market capitalization. Investors can use this value to position the fund in relation to its category peers. Geometric average capitalization can also help an investor select an appropriate fund for their investing needs or monitor their fund for size drift. Alpha: A statistic that seeks to measure that portion of a stock, mutual fund, or composite s annualized return attributable to specific or nonmarket risk. Because Alpha seeks to measure non-market return, it is often used as an indication of how much value has been added or lost by a manager, based on that manager s investment decisions. Beta: Beta is a quantitative measure of the volatility of a given stock, mutual fund, or composite, relative to its assigned benchmark. It measures the systematic risk associated with a composite. For example, a composite with a beta of 1.1 is expected (based on previous performance) to perform 1% better than its benchmark index in up markets and 1% worse in down markets. As with any statistic based on past performance, there is no guarantee of future performance. Information Ratio: Measures the consistency with which a fund beats a benchmark. Calculated as annualized excess return divided by standard deviation of excess return. R-Squared (R2): A measure of correlation, r-squared ranges from to 1 (or to 1%) and reflects the percentage of a composite s variability that is explained by the variability of the benchmark. An r-squared measure of.25 (or 25%) means that the regression model only explains 25% of the variability. The higher the r-squared, the more useful the beta and annualized alpha statistics. Gross performance numbers represent returns before the deduction of any investment management fees. The fees include Advisory services, performance measurement, transaction costs, custody services and trading. The fee schedule, which is negotiable, is based on account size and an assumed active equity portfolio. Advisory programs are not designed for excessively traded or inactive accounts and may not be suitable for all investors. Please carefully review the Wells Fargo Advisors advisory disclosure document for a full description of our services, including fees and expenses. There are minimum account sizes associated with these programs. Performance Disclosure: The performance information shown is based on performance data provided by the manager to Wells Fargo Advisors. The performance data provided by the manager is taken from its composite of similarly managed accounts. Performance figures include the reinvestment of dividends and other earnings. Past performance is not indicative of future performance. Morningstar Manager Rank: This is the portfolio's total-return percentile rank relative to all portfolios that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 1. The top-performing portfolio in a category will always receive a rank of 1. Morningstar Fixed Income Style Box TM : reveals a manager s investment style as of the date noted on this report. The vertical axis shows the credit quality of the long bonds owned and the horizontal axis shows interest rate sensitivity as measured by a bond's effective duration. Morningstar seeks credit rating information from account managers on a periodic basis (e.g., quarterly). In compiling credit rating information Morningstar accepts credit ratings reported by account managers that have been issued by all Nationally Recognized Statistical Rating Organizations (NRSROs). For a list of all NRSROs, please visit marketreg/ratingagency.htm. Additionally, Morningstar accepts foreign credit ratings from widely recognized or registered rating agencies. If two rating organizations/agencies have rated a security, account managers are to report the lower rating; if three or more organizations/agencies have rated a security, account managers are to report the median rating, and in cases where there are more than two organization/agency ratings and a median rating does not exist, account managers are to use the lower of the two middle ratings. PLEASE NOTE: Morningstar, Inc. is not CAR# Page 5 of 6

6 itself an NRSRO nor does it issue a credit rating on the manager. An NRSRO or rating agency ratings can change from time-to-time. For credit quality, Morningstar combines the credit rating information provided by the manager with an average default rate calculation to come up with a weighted-average credit quality. The weighted-average credit quality is currently a letter that roughly corresponds to the scale used by a leading NRSRO. Fixed Income strategies are assigned a style box placement of "low", "medium", or "high" based on their average credit quality. Strategies with a low credit quality are those whose weighted-average credit quality is determined to be less than "BBB-"; medium are those less than "AA-", but greater or equal to "BBB-"; and high are those with a weighted-average credit quality of "AA-" or higher. When classifying a fixed income strategy, Morningstar first maps the NRSRO credit ratings of the underlying holdings to their respective default rates (as determined by Morningstar's analysis of actual historical default rates). Morningstar then averages these default rates to determine the average default rate for the entire strategy. Finally, Morningstar maps this average default rate to its corresponding credit rating along a convex curve. For interest-rate sensitivity, Morningstar obtains from account managers the average effective duration. Generally, Morningstar classifies a fixed-income strategy s interest-rate sensitivity based on the effective duration of the Morningstar Core Bond Index (MCBI), which is currently three years. The classification of Limited will be assigned to those strategies whose average effective duration is between 25% to 75% of MCBI's average effective duration; strategies whose average effective duration is between 75% to 125% of the MCBI will be classified as Moderate; and those that are at 125% or greater of the average effective duration of the MCBI will be classified as Extensive. For municipal bond strategies, Morningstar also obtains from account managers the average effective duration. In these cases static breakpoints are utilized. These breakpoints are as follows: (i) Limited: 4.5 years or less; (ii) Moderate: more than 4.5 years but less than 7 years; and (iii) Extensive: more than 7 years. In addition, for non-us taxable and non-us domiciled fixed income strategies static duration breakpoints are used: (i) Limited: less than or equal to 3.5 years; (ii) Moderate: greater than 3.5 and less than equal to 6 years; (iii) Extensive: greater than 6 years. Trading Authority for DMA/Masters Programs: Investment managers available through this program are defined as either Discretionary Managers or Model Managers. The manager for this strategy is a Discretionary Manager. Discretionary Managers will implement the strategy and handle the day-to-day investment management of client assets. Other managers are Model Managers and provide their investment strategy to Wells Fargo Advisors, who will implement the strategy and handle the day-to-day investment management of client assets. Tactical Allocation portfolios seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. To qualify for the tactical allocation category, the fund must have minimum exposures of 1% in bonds and 2% in equity. Next, the fund must historically demonstrate material shifts in sector or regional allocations either through a gradual shift over three years or through a series of material shifts on a quarterly basis. Within a three-year period, typically the average quarterly changes between equity regions and bond sectors exceeds 15% or the difference between the maximum and minimum exposure to a single equity region or bond sector exceeds 5%. There are no guarantees objectives will be met. Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of your investment. Exchange Traded Funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost. The performance numbers in the Net of Fees section represent performance returns after the deduction of the maximum proposed management fee of 2.75% for the Equity/Balanced strategies. Asset allocation and diversification cannot eliminate the risk of fluctuating prices and uncertain returns nor can they guarantee profit or protect against loss in declining markets. Dividends are not guaranteed and are subject to change or elimination. Benchmarks: Benchmarks are provided for illustrative purposes only. Comparisons to benchmarks have limitations because benchmarks have volatility and other material characteristics that may differ from those of the Manager. Because of these differences, benchmarks should not be relied upon as an accurate measure of comparison. There is no guarantee that any of the securities invested in by any Manager are included in these benchmarks. The performance shown is compared to a broad-based securities market index. Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts. It is not possible to invest directly in an index. 214 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Wells Fargo Investment Institute, Inc., is a registered investment adviser and separate non-bank affiliate of Wells Fargo & Company and provides investment advice to Wells Fargo Advisors and other Wells Fargo affiliates. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company. CAR# Page 6 of 6