TRANSCRIPT OF THE TD AMERITRADE WEBINAR January 22, 2015 Hi, everyone. We appreciate you taking time out of your day to join us. My name is Andrew Harris, and I head the national sales team to the advisors. This presentation should take around 25 30 minutes. There will not be a Q&A due to time constraints, but feel free to email us at info@navellier.com if you have any questions and we will get back to you as soon as possible. You can also call us at 800/887 8671. Two co workers and I will also be attending the TD Ameritrade Conference in San Diego at the end of this month, so feel free to stop by our booth #719. We look forward to meeting you in person down there. I would like to get started by saying when hiring a manager we fully recognize the importance of having trust and confidence not only in the firm, but its methodology and its strategies. With that being said, in this presentation I will give you a short overview of Navellier if you are not familiar with us, introduce you to our methodology, and give you a few client ideas and some solutions to those ideas based on how we think the market will look in 2015. What we are looking for is a stronger dollar, a big increase in volatility, and a narrowing in the number of stockss that do well, which is why this should be a good year for active management. Our Firm Overview: We are an institutional money manager based in Reno, Nevada that has been managing stocks since 1987. We have always been independent and employee owned. This has been key to our ability to adapt to changing market environments and our clients needs. If you just looked at what has happened in the financial markets in the last 15 year let alone 28 years wee have had two of the worst bear markets, and how many broker dealers have either merged or gone out of business? For us as a firm to be doing this for 28 years and still be growingg with $2.2 billion in assets under management is a testament to Louie, our employees, and our clients. We have 10 committed portfolio managers. Most have been with us between 10 and 23 years. We have had no portfolio management or research turnover in the past five years.
Our Commitment: As a fundamental quant manager, we take the emotion out of buying and selling stocks. Louis Navellier The main part to this quote is that it is imperative to have a system and a process in place to make sure subjectivity never comes into play, which is exactly what we do at Navellier. So, what is the Navellier Difference? I will go over the process in detail when we go over one of our first client ideas but it basically consists of three steps: quantitative screen, fundamental screen, then optimizing the portfolio. The first step involves proprietary, quantitative research that identifies stocks with strong profitability and growth potential. Basically, we are bottom up stock pickers. Our dynamic versus static stock selection process keeps portfolios on track for superior, sustainable growth. The example you will see of this point is when we {test] our fundamentals to see what is driving the market returns. Portfolios managed to beat the index rather than imitate it. Our portfolios are always designed to beat the index, but again, with our theme for 2015 of an increase in volatility and fewer stocks being winners, this should be a great year for active managers. You can also look at what has happened over the past five or six years and where the assets have gone. In 2008, where the passive index investing started with about $680 billion, they re now up to $2.7 trillion. With the active managers, they started with about $5 or $5.2 trillion in 2008, and they re almost still there it s the exact same number five years later, six years later. Basically the way I look at it is everyone is all in on the passive investing theme. Our disciplined sell strategy triggers sale of stocks that fail any step of the process. We have a slide to show exactly what these steps of selling are. Adds value to multi manager portfolios; low correlation to other growth managers. Basically what we do here is we can run reports for you to see if any of our strategies can improve your client s mix either by adding higher returns, lower volatility, or lower beta. The Team: Our stable, veteran portfolio management team has been in place since the product s inception. Our institutional client service team provides exceptional, personal service. Before we get into the client ideas and the strategies, this slide shows basically the assets of the firm and where they are. We have $2.2 billion under management; $1.4 billion in institutional and $800 million retail, mostly with our advisors.
We have 23 strategies available at TD in the Separate Managed Accounts space and 13 available on the Placemark platform. Our ETF strategies have a low $25,000 minimum on the model trading platform. Here are some of our strategies you can access through TD: Domestic equity: Large Cap Growth, Small to Mid Cap Growth, Mid Cap Growth International equity: International Growth, International Select, Emerging Markets Specialty: Covered Call, High Dividend, Power Dividend ETFs: Libertas, U.S. Equity Sector Plus, Global Allocation Plus So let s go over Client Idea #1: Accumulation. Navellier s Large Cap Growth strategy suits that bill. Reasons why your clients will like this strategy: Team consistency same portfolio [managers] have been managing Large Cap Growth for its entire 17 year history. Performance consistency Proven investment strategy that has generated risk adjusted outperformance over the short, medium, and long term. What does this mean exactly? Here are a couple of points. We have a 104% upside capture and a 93% downside capture when compared to the Russell 1000 Growth. Our beta is.98 for this portfolio versus Russell 1000 Growth, so you re getting good returns without taking excessive risks. Highly disciplines process The investment process is based on a synergistic three step process: Quantitative, Fundamental, and of course the Portfolio Optimization. Risk control Lipper has given us a five star rating for preservation of capital for the past two years. Not many strategies can say that. [This rating is based on the mutual fund Navellier sub advises.] Tax efficiency Our process typically holds on to winning positions which result in long term gains, and spins off underperforming positions resulting in short term losses. Just as an added point for the Large Cap Growth. We have 41 holdings in there right now; 39 of our companies have buy backs of over $1 billion in this strategy. Our Experienced Large Cap Growth Team:
Shawn Price, the lead portfolio manager, has been with us for 23 years and has been in charge of the Large Cap Growth since its inception in September 1998. If you look at the other portfolio managers and key personnel, you have Louis Navellier, the Chief Investment Officer, with 27 years; Michael Garaventa, Research Analyst with 13 years; Tim Hope, Analyst, with 11 years; and Pete Koelewyn, lead Trader for Large Cap Growth, with 18 years. Our Weekly Stock Selection Process what is it? First of all we start with an Initial Universe of 2000 stocks that include stocks that are included in the Russell 1000 Growth and ADRs. This strategy is allowed to hold up to [15%] in international ADRs. It is also allowed to hold up to 10% in stocks with a market cap between one and five billion. This is an important point because as the mega cap multinationals all start getting their earnings squeezed by the strong dollar, this strategy should start migrating down the market cap ladder and also start adding companies that predominantly sell domestically. We are a bottoms up stock picker. The first step in the process once we start looking at those 2000 stocks is our Reward/Risk Analysis. What we look for are high alpha stocks with low standard deviation which produces superior reward/risk. Just because it s a good stock, if it is too volatile, it will not end up passing this screen. After this process, we end up with about 100 stocks. The second step is Quantitative Fundamental Factor Analysis. We test fundamental variables, identify what is driving stock prices, and create an optimal mix. This is the actual dynamic part of our testing where we run the fundamental variable analysis. We are looking at around 50 different fundamentals to see what is driving stock prices. We normally end up with between four and six and weight them according to how they contribute to the returns. The final step is Portfolio Construction where we end up with 40 50 stocks. Part of this process is we identify negative correlation for diversification, we optimize stock weightings, and of course we always implement our sell discipline which I will show you soon. Here is the Current Fundamental Mix and their weightings: We have free cash flow growth, price to sales, sales change, cash flow to receivables, and standardized EPS estimates. You can see how the weightings vary on how they impact returns, on what we think the market sells, what s driving the market returns. This is our ongoing Risk Management and what we do. We take several steps to lower the risk of our portfolios. We monitor volatility standard deviation of individual stocks. We examine stock specific and portfolio risk using Value at Risk analysis and risk based attribution.
Our optimization program punishes volatile stocks, and combines stocks to build a less volatile portfolio. We focus on fundamentally superior stocks relative to market benchmarks and follow a strict, stringent sell discipline. So what is the Sell Discipline? We sell a stock if it drops out of the top tier of our reward/risk ratio rankings. We sell if a stock deteriorates in Navellier s multi factor fundamental model. We sell or trim during the optimization process if a stock has excess risk. We sell good stocks to buy better stocks. Portfolio Highlights: None of these is one of the five fundamental factors that make our screen, but you can see as a result of these five in the decision making process we end up with an all around strong fundamental portfolio, with a lot of fundamentals that perform better than the Russell 1000 Growth. [CHART] Client Idea #2: Protection: Navellier Tactical ETF Portfolios, namely Libertas 30 and U.S. Sector Plus Libertas 30 is a strategy that has a universe of 24 ETFs including international, fixed income, and domestic sectors. It holds 8 10 positions. When the market overlay goes on, it [can go] to 100% cash and sells all positions. U.S. Sector Plus has a universe of 10 sector ETFs and three fixed income government ETFs. What happens when the market overlay goes off and says it s too risky, we go to fixed income first, then cash. It holds [up to] six positions. Reasons why your clients will like these strategies: Liquidity Navellier only employs an ETF universe that consists of highly liquid ETFs. This reduces trading costs for clients and helps performance by spreading the risk. There are over 1,300 ETFs, and outside of the top 100 150, the liquidity decreases significantly, even with the create/redeem process. Diversification Navellier s fixed ETF universe for each strategy provides balanced portfolio diversification and prevents the portfolio from being overly concentrated in a particular sector. A lot of tactical ETF strategies only hold between 8 and 12 ETFs and don t limit their universe so they end up with three biotech or three healthcare ETFs which means your portfolio is basically 40% in one sector. Low cost/fees The ETF universe offers efficiency and low expense ratios. Transparency Navellier s ETF managed accounts allow investors to see exactly what they own at all times.
Risk Management Overlay Navellier utilizes a sine wave overlay that adapts to the market conditions to [attempt to] prevent whip saws that can often happen in the market. It provides a robust system [designed to] allow our portfolio managers to raise cash or hide in fixed income during market downturns. Our portfolio managers use sine wave analysis, which is similar to a multi period cycle analysis. When these sine waves or cycles cross at points of confluence, this signals a buy or sell signal. If you are familiar with technical analysis, it is similar to adaptive moving averages which adjust to the market. When the market is less volatile and trending, we narrow the exit bands or the entry bands and when volatility picks up, we widen it so we don t get chopped out, but it still holds the whole process in place. Identifying trends and patterns in various market sectors: You can see ten years here and the difference between the top performing sector and the bottomperforming sector. It s kind of amazing that I took the average of all these years and the difference between the best and the worst is about 37%. And it doesn t even matter if it s a good year or a bad year. You look at 2009, which was a great year, and the difference is 57% from the best to the worst. [The objective] in our tactical ETF strategies that are sector run, we try to hold the six sectors that are doing the best. Sector leadership is fleeting! Navellier analysis seeks to optimize portfolios through innovative market rotation calculations. We aim to add alpha throughout the continuously evolving series of market cycles and by characterizing and identifying trends within full market cycles. Even on a bad year like 2008, the discrepancy was 39%. [CHART] Client Idea #3: Income and I like to add Safety to this idea as well. Navellier Covered Call strategy we have two different versions of our covered call, income and growth. Covered Call income and growth have the same stocks, the only difference is in the income strategy, the portfolio manager writes the calls on all the positions and growth he writes about 50%. We will focus on the Covered Call Income. Reasons why your clients will like this strategy: Income generation Navellier uses covered calls on blue chip companies. The goal is to generate 5 8% income from writing the calls and 2 3% in dividends which should generate a 7 11% income stream. Conservative growth The client is invested in blue chip companies which tend to be companies that have strong fundamentals. This is a more conservative approach to gain exposure to the stock market while meeting income needs. Risk management Navellier can choose to keep up to 50% of the portfolio in cash if the stock market becomes too volatile, in effect jumping out at times when the risk is not worth the reward.
Getting and keeping some clients invested at these levels can be challenging. By using the covered call strategy, you are [attempting to] protect your clients from a 10% drop if it occurs over a year s period from the income received from call writing and the dividends. It also goes along with our 2015 theme of increased volatility, which means we will earn a higher premium on the calls we write. Our experienced Covered Call team: Michael Borgen has been Portfolio Manager for covered call since its inception in July 2009, has been with the firm for 19 years, and is joined on the team Pete Koelewyn, Trader, and Louis Navellier. Covered Call Primary Drivers for Income strategy: Capital preservation: Wide moat Our universe is large cap core, and we are leaning to the value side right now with a beta of.82 so it s even more defensive than normal right now. Marquee companies with exposure around the world. Tactically strategic & tax efficient This is a very hands on strategy that enables the portfolio manager to make decisions that enable the strategy to be very tax efficient. For example, he can buy back the call option to make sure we end up with a long term capital gain. He did this in 2013, so we had an unrealized gain for the year but a realized loss of 1½%. Income generation: Longer date contracts (6 9 months) to generate 5 8% premiums. This also gives us time to average the tax consequence by going out 6 9 months as the tax event occurs on maturity of the option, not when you sell the option. Slightly out of the money Robust dividend yields Growth development: Stock selection Rolling of contracts (up and down) Broadly diversified across sectors For example, the market was up 2% in 2011, and we were up [7.1%]. This is from the premiums we write on the calls and the dividends. If this year is up 5 9%, we [hope to] capture 70 80% of the capital approach, 5 8% on the premiums, and 2.6% on dividends.
With a year like we expect for 2015, we have the potential to outperform the market with this strategy. Here is some information on Income Generation on the current portfolio: Dividend payers: Approximately 70% of the portfolio currently has a dividend yield greater than the 10 year Treasury. Approximately 70% of the portfolio currently has a dividend yield greater than 2%. Current dividend yield is 2.53%. Option selection: 6 9 months for the reasons stated previously. Slightly out of the money so we don t get called out on too many. We also offer three Mutual Funds we sub advise at TD with: American Independence, FolioMetrix, and Touchstone Investments [SLIDE describes all three] Just to recap, we went over three client ideas Accumulation (Large Cap Growth), Protection (Tactical ETFs), and Income/Safety (Covered Call). I also hope you have a better understanding of our firm, our methodology, and our strategies. Thanks again for taking time out of your day to participate. We have all of our contact information and our territories on the next slide. [SLIDE] [DISCLOSURES] Although information in this presentation has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the presentation was created and are subject to change without notice. This presentation is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. This presentation does not constitute an offer of securities. Any decision to purchase securities mentioned in this research must take into account existing public information on such security or any registered prospectus. NCD-15-140