Making Sense of Markets Q2 2017 Quarterly Performance 2017 LWI Financial Inc. All rights reserved. Unauthorized copying, reproducing, duplicating, or transmitting of this material is prohibited. This webinar is provided by LWI Financial, Inc. ( Loring Ward ). Investment advisory services provided by LWI Financial Inc. ( Loring Ward ). Securities transactions offered through its affiliate, Loring Ward Securities Inc., member FINRA/SIPC. B 17-025 (7/19)
Featured Speaker Matthew Carvalho, CFA, CFP Director Investment Research, Loring Ward 2
Performance World Region Performance, Q2 2017 +2.8% +7.4% +6.9% USD Change -3.7% -1.7% Source: Morningstar Direct 2017. North America represented by MSCI North America NR USD, South America represented by MSCI EM Latin America NR USD, Europe/Middle East/Africa represented by MSCI Europe & Middle East NR USD, Asia represented by MSCI AC Asia NR USD. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. US Dollar Represented by Nominal Major Currencies US Dollar index. 3
Trade-Weighted U.S. Dollar Index: Major Currencies Source: Board of Governors of the Federal Reserve System (US), Trade Weighted U.S. Dollar Index: Major Currencies [DTWEXM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/dtwexm, July 6, 2017. A weighted average of the foreign exchange value of the U.S. dollar against a subset of the broad index currencies that circulate widely outside the country of issue. Major currencies index includes the Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden. For more information about trade-weighted indexes see http://www.federalreserve.gov/pubs/bulletin/2005/winter05_index.pdf. 4
Q2 Currency Impact on Index Performance 5.6% 2.3% 3.3% MSCI World ex USA NR LCL Currency Impact MSCI World ex USA NR USD 5
Performance by Size and Style U.S. Stocks Quarter Value Core Growth Int l Stocks Quarter Value Core Growth U.S. Stocks Last 15 Years Value Core Growth Int l Stocks Last 15 Years Value Core Growth Large 1.3% 3.1% 4.7% Large 4.0% 5.3% 6.9% Large 8.1% 8.6% 9.0% Large 5.6% 6.0% 6.3% Mid 1.4% 2.7% 4.2% Mid 6.3% 6.7% 7.1% Mid 10.4% 10.5% 10.3% Mid 8.9% 8.2% 7.5% Small 0.7% 2.5% 4.4% Small 6.5% 7.3% 8.2% Small 8.7% 9.2% 9.5% Small 10.4% 9.6% 9.3% Source: Morningstar Direct 2017. US markets represented by respective Russell indexes for each category (Large: Russell 1000, Value, and Growth, Mid: Russell Mid Cap, Value and Growth, Small: Russell 2000, Value and Growth. International markets represented by respective MSCI World EX USA index series (Large: MSCI World EX USA Large, Value and Growth, Mid: MSCI World Ex USA Mid, Value and Growth, Small: MSCI World Ex USA Small, Value and Growth). All indexes detailed at end of presentation. Past performance is not a guarantee of future results. 6
The Effects of Diversification Source: Morningstar Direct 2017. Index representation as follows: Cash (BofAML 3M US Treasury Note TR USD), U.S. Large (S&P 500 Index), U.S. Large Value (Russell 1000 Value Index), U.S. Small (Russell 2000 Index), U.S. REIT (Dow Jones U.S. Select REIT Index), International Large Value (MSCI World Ex USA Value Index (net div.)), International Small Cap (MSCI World Ex USA Small (net div.)), EM Value (MSCI Emerging Markets Value Index (net div)), Global Short Term Bond (Citi WGBI 1-5Yr Hdg USD), U.S Short Term Bond (BofA ML Corp & Govt 1-3 Yr TR). 65/35 Index Mix: 2% Cash, 16% US ST Bonds, 17% Global ST Bonds, 15% US Large, 12% US Value, 8% US Small Cap, 14% Intl Large Value, 7% Intl Small Cap, 5% Emerging Markets Value, 4% US REITs; rebalanced annually. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal. 7
Contribution to Return 65-35 Index Mix, Q2 2017 Source: Morningstar Direct 2017. Index representation as follows: Cash (BofAML 3M US Treasury Note TR USD), U.S. Large (S&P 500 Index), U.S. Large Value (Russell 1000 Value Index), U.S. Small (Russell 2000 Index), U.S. REIT (Dow Jones U.S. Select REIT Index), International Large Value (MSCI World Ex USA Value Index (net div.)), International Small Cap (MSCI World Ex USA Small (net div.)), EM Value (MSCI Emerging Markets Value Index (net div)), Global Short Term Bond (Citi WGBI 1-5Yr Hdg USD), U.S Short Term Bond (BofA ML Corp & Govt 1-3 Yr TR). 65/35 Index Mix: 2% Cash, 16% US ST Bonds, 17% Global ST Bonds, 15% US Large, 12% US Value, 8% US Small Cap, 14% Intl Large Value, 7% Intl Small Cap, 5% Emerging Markets Value, 4% US REITs; rebalanced annually. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. All investments involve risk, including loss of principal. 8
Additional Commentary Available at: https://www.youtube.com/user/loringwardvideos 9
Standardized Performance Data and Disclosures Average Annual Total Returns (%) 3 Mo 1 Yr 5 Yr 10 Yr Since Inception BofAML 3M US Treasury Note TR USD 0.19 0.43 0.18 0.59 1.63 6/30/2000 BofAML US Corp&Govt 1-3 Yr TR USD 0.30 0.34 0.98 2.30 4.88 6/30/1986 Citi WGBI 1-5 Yr Hdg USD 0.36 0.28 1.37 2.52 5.44 12/31/1984 DJ US Select REIT TR USD 1.64-2.43 9.00 5.42 9.23 12/31/1986 MSCI EM Value NR USD 3.17 21.57 1.67 1.53 10.21 12/29/2000 MSCI World Ex USA Small Cap NR USD 7.28 21.26 11.43 2.92 8.59 12/29/2000 MSCI World Ex USA Value NR USD 4.36 24.24 7.69 0.09 11.04 12/31/1974 MSOM 65-35 Index Mix 2.33 12.27 7.92 4.44 6.26 12/31/2000 Russell 1000 Value TR USD 1.34 15.53 13.94 5.57 12.15 12/31/1978 Russell 2000 TR USD 2.46 24.60 13.70 6.92 11.63 12/31/1978 S&P 500 TR USD(1936) 3.09 17.90 14.63 7.18 10.48 3/31/1936 MSCI World Ex USA NR LCL 2.30 21.15 12.09 2.06 7.65 12/31/1969 Data as of 6/30/17 Source: Morningstar Direct 2017. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Treasury notes are guaranteed as to repayment of principal and interest by the U.S. government. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Fixed income investments are subject to interest rate and credit risk. Emerging markets involve additional risks, including, but not limited to, currency fluctuation, political instability, foreign taxes, and different methods of accounting and financial reporting. Real estate securities funds are subject to changes in economic conditions, credit risk and interest rate fluctuations. All investments involve risk, including the loss of principal and cannot be guaranteed against loss by a bank, custodian, or any other financial institution. 10
Standardized Performance Data and Disclosures Average Annual Total Returns (%) 3 Mo 1 Yr 5 Yr 10 Yr Since Inception MSCI World Ex USA Large Growth NR USD 6.95 14.38 8.24 1.97 4.30 5/31/1994 MSCI World Ex USA Large NR USD 5.34 19.38 7.67 0.80 4.84 5/31/1994 MSCI World Ex USA Large Value NR USD 3.96 23.93 7.07-0.35 5.30 5/31/1994 MSCI World Ex USA Mid Growth NR USD 7.06 16.34 9.39 1.37 1.26 6/5/2007 MSCI World Ex USA Mid NR USD 6.74 19.89 10.10 1.86 5.65 5/31/1994 MSCI World Ex USA Mid Value NR USD 6.33 25.71 11.05 2.33 6.28 5/31/1994 MSCI World Ex USA Small Growth NR USD 8.16 19.10 11.34 3.12 4.41 5/31/1994 MSCI World Ex USA Small Value NR USD 6.44 23.52 11.48 3.01 6.96 5/31/1994 Russell 1000 Growth TR USD 4.67 20.42 15.30 8.91 11.17 12/31/1978 Russell 1000 TR USD 3.06 18.03 14.67 7.29 11.84 12/31/1978 Russell 2000 Growth TR USD 4.39 24.40 13.98 7.82 9.78 12/31/1978 Russell 2000 Value TR USD 0.67 24.86 13.39 5.92 13.13 12/31/1978 Russell Mid Cap Growth TR USD 4.21 17.05 14.19 7.87 10.79 12/31/1985 Russell Mid Cap TR USD 2.70 16.48 14.72 7.67 13.35 12/31/1978 Russell Mid Cap Value TR USD 1.37 15.93 15.14 7.23 12.03 12/31/1985 Data as of 6/30/17 Source: Morningstar Direct 2017. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. 11
Standardized Performance Data and Disclosures Average Annual Total Returns (%) 3 Mo 1 Yr 5 Yr 10 Yr Since Inception MSCI AC Asia NR USD 6.92 23.29 8.75 2.53 5.18 12/31/1998 MSCI EM Latin America NR USD -1.74 15.01-3.76-1.15 9.59 1/1/2001 MSCI Europe&Middle East NR USD 7.36 20.82 8.77 8.37 5/26/2010 MSCI North America NR USD 2.82 16.99 13.13 6.17 9.27 12/31/1969 Nominal Major Currencies US Dollar -3.70-0.13 3.98 1.40-0.40 1/2/1973 Data as of 6/30/17 Source: Morningstar Direct 2017. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. 12
Index Descriptions S&P 500 Index: The S&P 500 Index is comprised of a broad and diverse group of stocks. Generally, these are the US stocks with the largest market capitalizations and, as a group, they represent approximately 75% of the total market capitalization of all publicly traded US stocks. Russell 1000 Value Index: The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. Russell 2000 Index: The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. Dow Jones U.S. Select REIT Index: The Dow Jones U.S. Select REIT Index is a float-adjusted market capitalization index designed to measure the performance of publicly traded real estate companies that have a minimum market capitalization of at least $200 million, at least 75% of total revenues derived from ownership and operation of real estate assets, and liquidity of company stock commensurate with that of other institutionally held real estate securities. MSCI World Ex USA Value Index (net div.): The MSCI World Ex. U.S. Value Index is composed of companies within the MSCI World Ex. U.S. Index having characteristics such as low market-to-book ratios. The MSCI World Ex. U.S. Index is an index of securities listed on the stock exchanges of 23 developed market countries other than the United States. MSCI World Ex USA Small (net div.): The MSCI World ex USA Small Cap Index captures small cap representation across 22 of 23 Developed Markets (DM) countries* (excluding the United States). With 2,442 constituents, the index covers approximately 14% of the free float-adjusted market capitalization in each country. MSCI Emerging Markets Value Index (net div): The Morgan Stanley Capital International (MSCI) Emerging Markets Value Index is a market capitalization weighted equity index comprised of companies within the MSCI Emerging Markets Index having value characteristics, such as low market-to-book ratios. Citi WGBI 1-5Yr Hdg USD: The Citigroup World Government Bond Index 1-5 Year Currency Hedged U.S. Dollar is a comprehensive measure of the total return performance of the government bond markets of approximately 22 countries with maturities ranging from one to five years. It is hedged to the U.S. Dollar. BofA ML Corp & Govt 1-3 Yr TR: The Bank of America Merrill Lynch 1-3 Year U.S. Government/Corporate Index is a subset of the Bank of America Merrill Lynch U.S. Government/Corporate Index and tracks the performance of investment-grade U.S. government and corporate fixed income securities with a remaining term to final maturity of less than 3 years. Indexes are unmanaged and reflect reinvested dividends and/or distributions, but does not reflect sales charges, commissions, expenses or taxes. 13
Index Descriptions MSCI North America NR USD: The MSCI North America Index is designed to measure the performance of the large and mid cap segments of the US and Canada markets. With 721 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the US and Canada. MSCI EM Latin America NR USD: The MSCI Emerging Markets (EM) Latin America Index captures large and mid cap representation across 5 Emerging Markets (EM) countries in Latin America. With 115 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. MSCI Europe&Middle East NR USD: The MSCI Emerging Markets Europe and Middle East Index captures large and mid cap representation across 8 Emerging Markets (EM) countries in Europe and Middle East*. With 104 constituents, the index covers approximately 85% of the free float-adjusted market capitalization across the Emerging Markets equity universe in Europe and the Middle East The MSCI AC Asia Index captures large and mid cap representation across Developed Markets countries and Emerging Markets countries in Asia*. With 946 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. Russell 1000 TR USD: The Russell 1000 Index measures the performance of the large-cap value segment of the U.S. equity universe. Russell 1000 Growth TR USD: The Russell 1000 Growth Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher expected growth values. Russell Mid Cap Value TR USD: The Russell Mid Cap Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. It includes those companies with lower price-to-book ratios and lower expected growth values. Russell Mid Cap TR USD: The Russell Mid Cap Value Index measures the performance of the mid-cap segment of the U.S. equity universe. Russell Mid Cap Growth TR USD: The Russell Mid Cap Value Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those companies with higher price-tobook ratios and higher expected growth values. Russell 2000 Value TR USD: The Russell 2000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower priceto-book ratios and lower expected growth values. Russell 2000 Growth TR USD: The Russell 2000 Growth Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher expected growth values. Nominal Major Currencies US Dollar Index: The major currencies index is a weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that circulate widely outside the country of issue. The weights are derived from those in the broad index. Indexes are unmanaged and reflect reinvested dividends and/or distributions, but does not reflect sales charges, commissions, expenses or taxes. 14
Index Descriptions MSCI World Ex USA Large Value NR USD: The MSCI World ex USA Value Index captures large and mid cap securities exhibiting overall value style characteristics across 22 of 23 Developed Markets countries. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. MSCI World Ex USA Large NR USD: The MSCI World ex USA Large Cap Index captures large cap representation across 22 of 23 Developed Markets (DM) countries excluding the US. With 440 constituents, the index covers approximately 70% of the free float-adjusted market capitalization in each country. MSCI World Ex USA Large Growth NR USD: The MSCI ACWI ex USA Large Cap Growth Index captures large-cap securities exhibiting overall growth style characteristics across 22 Developed Markets (DM) countries and 23 Emerging Markets (EM) countries. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend. MSCI World Ex USA Mid Value NR USD: The MSCI World ex USA Mid Value Index captures mid cap value representation across 22 of 23 Developed Markets (DM) countries (excluding the United States). MSCI World Ex USA Mid NR USD: The MSCI World ex USA Mid Value Index captures mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States). MSCI World Ex USA Mid Growth NR USD: The MSCI World ex USA Mid Value Index captures mid cap growth representation across 22 of 23 Developed Markets (DM) countries (excluding the United States). MSCI World Ex USA Small Value NR USD: The MSCI World ex USA Small Cap Value Index captures small cap value representation across 22 of 23 Developed Markets (DM) countries (excluding the United States). MSCI World Ex USA Small Growth NR USD: The MSCI World ex USA Small Cap Growth Index captures small cap growth representation across 22 of 23 Developed Markets (DM) countries (excluding the United States). The 3-month US Treasury Note Index is comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month, that issue is sold and rolled into a newly selected issue. Indexes are unmanaged and reflect reinvested dividends and/or distributions, but does not reflect sales charges, commissions, expenses or taxes. 15