BOREALIS GLOBAL ADVISORY People Purpose Process - What we do and How we accomplish it Performance Pricing and Implementation
KEY PEOPLE Sailesh S Radha, MALD, MBA, Chief Investment Officer Sailesh is co-founder of Borealis Global Advisory. He received his master s degree with a focus in global macroeconomics & international development from the Fletcher School of Law & Diplomacy, Tufts University and his MBA in Finance from the Darla Moore School of Business, University of South Carolina. His undergraduate degree is in Electrical & Electronics Engineering from National Institute of Technology (NIT), Warangal, India. Todd Henning, ChFC, MBA, Chief Executive Officer Todd is co-founder and Chief Compliance Officer. He received his MBA from The University of Houston and his undergraduate degree from the University of Iowa. Todd has over 20 years of experience in budgeting, financial analysis, investing and management. Todd Henning is registered as an investment advisor holding a series 65 Uniform Investment Advisor license with the State of South Carolina. He became a Chartered Financial Consultant in 1990. Greg Putnam, CFA, Paid Portfolio Consultant Greg Putnam, CFA, is currently serving as a Lecturer in the Finance Department at the University of South Carolina. Greg has nearly twenty years of experience in the fields of investments and economics. He has an extensive background in portfolio management, including experience as the Chief Investment Officer of the $2.3 billion Pension Portfolio and $1.5 billion 401(k) Plan at the Savannah River Site in Aiken, SC, in addition to a number of other positions in the financial services industry.
PURPOSE Our mission is to provide global equity allocation recommendations and investment advice to independent financial advisors, financial institutions, money managers and pension funds. We use evidenced based approach along value, growth and risk dimensions to formulate country-level equity allocations. Our Approach: Outperform the appropriate MSCI benchmark We utilize single country ETFs for liquidity and market exposure. At times we use hedged ETFs when/where available. Typically allocate to 15-20 countries out of a universe of 45.
THE U.S. ACCOUNTS FOR 38% OF GLOBAL MARKET CAPITAL (1) Other Asia 8% BGA IS FOCUSED ON THE OTHER 62% Japan 12% Emerging 15% Europe 27% US 38%
BGA International Growth Portfolio This long-only portfolio is designed to outperform the MSCI AC World ex US (ACWX) benchmark by investing in the top 15-20 countries in our Global Country Allocation Model (G-CAM). Typically composed of single-country ETFs, the portfolio while generating alpha, maximizes the reward per unit of risk. BOREALIS REPRESENTS 10%-20% OF THE INVESTOR PORTFOLIO (2)
COUNTRY ETF VS. INTERNATIONAL STOCK SELECTION Country/Currency Selection Sector/Industry Selection Stock Selection Major Sources of Risks for Single Country ETF Portfolios Additional Sources of Risks for Stock Portfolios
INVESTMENT DECISION PROCESS Model Output Monthly Committee Review Investment Policy Application Implementation (Quarterly Re-Balancing)
G-CAM RULES BASED MODEL Country Tranche 1 Developed >5% Country Tranche 2 Developed/Emerging <5% Country Tranche 3 Emerging <1% Rank using proprietary measures Rank using unique Tranche measures Rank using unique Tranche measures Develop Tranche 1 weightings Develop Tranche 2 weightings Develop Tranche 3 weightings Tranche weighted countries are combined using proprietary ZZ scoring Macroeconomic evaluation CAPE evaluation
G-CAM MODEL BACK TESTED PERFORMANCE (3) 50 40 30 20 10 0-10 -20-30 -40-50 -60 BGA International Growth 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 BGA International Growth MSCI -Ex US Index* 100 90 80 70 60 50 40 30 20 10 0 BGA International Growth 16.1 17.3 4.6 5.4 87.8 3 YEAR 5 YEAR 10 YEAR 33.4 *Index data from Morningstar. Exhibit includes 1.37% of fund and management fees for BGA International Growth. See Endnotes for additional details.
G-CAM PORTFOLIO STATISTICS (4) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 3 Year 5 Year 10 Year BGA International Growth** 36.4 28.2-45.67 43.63 17.23-13.17 16.43 18.43 1.53-3.47 16.1 17.3 87.8 Foreign Blend Category* 24.8 12.7-44.0 31.2 10.2-14.0 18.3 19.4-5.0-1.6 11.7 13.7 29.6 MSCI -Ex US Index* 26.6 16.7-45 42.1 11.2-13.7 16.8 15.3-3.9-5.7 4.6 5.4 33.4 *Returns are percentages and as of 12/31/2015 from Morningstar. **BGA figures include assumed Advisor fees, platform and trading costs totaling 1.37% each year, and are not adjusted for dividends. See endnotes for additional details regarding investment risks and assumptions. 5 Year MPT/Volatility* Portfolio R-Square Alpha Std. Dev *Portfolio statistics from Morningstar as of March 31, 2016 Sharpe Ratio BGA International Growth 97.0 3.6 15.1 0.38 Foreign Blend Category* 93.2 1.6 15.4 0.14 MSCI -Ex US Index* 100.0-15.7.09
IMPLEMENTING G-CAM INTO YOUR PORTFOLIO Separately Managed Account Subscription Model Maintenance thru Envestnet or Platform Client model maintenance Trade Implementation via Broker/Custodian* Client Trades *TD Ameritrade, Schwab, Fidelity, and Pershing Individual Investor accounts will use Pershing as Broker/Custodian
COUNTRY INVESTING RISKS Data Risk this risk is the uncertainty of the quality, accuracy or timeliness of economic data produced by a country or that data measurement standards may vary from country to country or between companies within a country. Exchange rate risk this risk is the uncertainty of returns on foreign investments due to changes in the value of a foreign currency relative to the valuation of the investor s domestic currency. If a foreign currency weakens or goes down relative to the home country currency, the value of the investment will tend to decline. Individual companies can also have exchange rate risk to the extent that the company operates or sells products in a foreign country. To the extent that Borealis may employ hedging strategies to minimize exchange rate risk, a hedging strategy may not be successfully implemented, may be costly to use and may not achieve the desired results. Foreign exposure risk In addition to the risks outlined above investments in foreign countries can be impacted by currency fluctuations as well as political or economic conditions in the particular country of investment. Exchange-Traded Fund Portfolio Risk - Investing in equity securities involves a risk of loss that the investor should be prepared to bear. Relative to mutual funds, ETFs are more transparent, trade efficiently throughout the day on stock exchanges, have better tax scenarios, give pure market access to global markets and asset classes, and are significantly less expensive on the whole. ETFs have the following risks: Transaction costs may erase or erode gains. Lack of liquidity: New or non-supported funds can raise bid/ask spread costs and impede quick exits. Fund closure: ETF sponsor may close a fund. Trading intricacy: Due to market exchange mechanism, trading can be more complex. Rebalancing: Due to the tactical rebalancing discipline inherent in the strategy, turnover in the account could range from exceptionally low to extremely high and will vary based on the market environment and the need to re-position capital. Security positions may be sold or closed in the very short term (within 30 days). Rebalancing in the strategy does not take into consideration any tax implications that may result. Both short-term and long-term capital gains could be generated through this strategy.
ENDNOTES (1) Market cap data from Goldman Sachs (2) In this sample portfolio we are assuming a 15% allocation to international equities. Borealis Global Advisory, LLC (BGA) does not render or offer to render personalized investment advice. The information contained herein is based on data gathered from sources we believe to be reliable. It is not guaranteed against errors and or omissions, and is not intended as the primary basis for investment decisions. Additionally, it should not be construed as advice meeting the particular individual investment needs or any investor. All references made to investment or portfolio performance are based on historical data. One should not assume that this performance will continue in the future. BGA is registered in the state of South Carolina. This publication is not intended to be a solicitation for clients in any other state. BGA welcomes residents (institutions and individuals) of other states to contact BGA directly concerning their individual state s compliance requirements. BGA services will only be rendered after compliance regulations are satisfied and prospective clients have received Borealis Global Advisory brochure (ADV Form Part 2). (3) Backtested performance in NOT an indicator of future actual results. The results reflect performance of a strategy not historically offered to investors and do NOT represent returns that any investor actually attained. Backtested results are calculated by the retroactive application of the Borealis model constructed on the basis of historical data, starting from 12/31/2003, and based on assumptions integral to the model which may or may not be testable and are subject to losses. General assumptions include: Borealis Global Advisory LLC., would have been able to purchase the securities recommended by the G-CAM Model and the markets were sufficiently liquid to permit all trading. Changes in these assumptions may have a material impact on the Backtested returns presented. Certain assumptions, including quarterly rebalancing, have been made for modeling purposes and are unlikely to be realized. No representations and warranties are made as to the reasonableness of the assumptions. This information is provided for illustrative purposes only. Backtested performance is developed with the benefit of hindsight and has inherent limitations. Specifically, in the backtested results, BGA figures include assumed Advisor fees, platform and trading costs totaling 1.37% each year, they do not include the impact of dividends that may be payable for securities held. Results do not reflect other effects which may impact the decision making process such as material economic and market factors. Since trades have not actually been executed, results may have under or over compensated for the impact, if any, of certain market factors, such as lack of liquidity, and may not reflect the impact that certain economic or market factors may have had on the decision-making process. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. Actual performance may differ significantly from backtested performance. Comparison of returns are based on the MSCI ACWX (ex-us) index and the Morningstar mutual fund category of Foreign Blend. Statistics are based on calendar year end measurement. Returns are calculated gross of management, custodian, trading or other fees and are solely for comparative purposes. (4) Portfolio statistics calculated as of December 31, 2015 or the time period as presented in the table. Unless otherwise noted, the portfolio statistics of are cumulative of the most recent 5 years. (5) Average International mutual fund cost of 1.6% of AUM based on Morningstar data 1/15/2016. The RIA advisor fee in this example is based on 1% of AUM (assets under management). Platform costs were assumed at.15% of AUM. An independent RIA may use international mutual funds or ETF s for investing which may or may not involve higher fund expenses than our 1.2% of AUM assumption. Trading expenses for RIA may or may not be included in the RIA fee, we have shown it as a separate cost. For Borealis Global Advisory(BGA), sub-advised clients and Individual investors are charged platform fees, however this fee is included in the overall quoted sub-advisor fee of.4% of AUM in the example. Trading costs for BGA are paid by the client and were assumed at.12% of AUM. The average single country ETF fee charged by the ETF used by BGA is.62% of AUM.