GLOBAL MACRO STRATEGY: CAPITALIZING ON GLOBAL TRENDS John Lewis, CMT Dorsey Wright Money Management Dorsey, Wright & Associates, a Nasdaq Company Joseph Barrato CEO, Owner Arrow Investment Advisors, LLC
INTRODUCTION & STAGES OF RS AND THE SEARCH FOR ALPHA 2
HISTORICAL LOOK AT RS MODELS Relative Strength Alpha vs. Market 6/1927-12/2016 Short-Term RS Intermediate RS Long-Term RS 1 Year 3.84% 5.35% 6.64% 3 Years 3.42% 4.90% 6.11% 5 years 3.45% 4.89% 6.06% 10 Years 3.45% 5.01% 6.11% Average 3.54% 5.04% 6.23% Performance displayed represents past performance, which is no guarantee of future results. Index performance assumes reinvestment of dividends, but does not include fees. Indexes are not available for direct investment. Source: Standard & Poor s, calculated by Arrow. 3 3
RS MODEL VS. EQUITY MARKET Rolling 10-Year Performance Performance displayed represents past performance, which is no guarantee of future results. Index performance assumes reinvestment of dividends, but does not include fees. Indexes are not available for direct investment. Source: Standard & Poor s, calculated by Arrow. 4 4
ALPHA RELATIVE STRENGTH VS. MARKET 1946 1968 1980 2002 1953 1973 1941 1985 2011 Performance displayed represents past performance, which is no guarantee of future results. Source: Arrow Insights and Global Financial Data. 5 5
RS ALPHA TOPS Alpha: RS vs Market Date 1 Yr 3 Yrs 5 Yrs 10 Yrs Avg 1/31/1946 40.7% 26.2% 17.7% 5.8% 22.6% 6/30/1968 31.7% 27.9% 17.4% 12.9% 22.5% 10/31/1980 51.6% 26.2% 18.5% 14.3% 27.7% 6/30/2002 37.6% 26.4% 16.7% 9.3% 22.5% Average 40.4% 26.7% 17.6% 10.6% 23.8% Periods Prior to Establishing a RS Top Performance displayed represents past performance, which is no guarantee of future results. Source: Arrow Insights and Global Financial Data. 6 6
ALPHA RELATIVE STRENGTH VS. MARKET 1946 1980 2002 2024 Project Average 1953 1985 2011 Performance displayed represents past performance, which is no guarantee of future results. Source: Arrow Insights and Global Financial Data. 7 7
PHASES OF RS TURNS FROM PEAKS Performance displayed represents past performance, which is no guarantee of future results. Index performance assumes reinvestment of dividends, but does not include fees. Indexes are not available for direct investment. Source: Standard & Poor s, calculated by Arrow. 8 8
PHASES OF RELATIVE STRENGTH ALPHA Stages of RS Turning Phase Peak Start Yrs R/S Market Alpha Jan-46 7.0 11.0% 12.8% -1.8% 1 Oct-80 4.8 13.0% 14.6% -1.6% Jun-02 9.0 7.7% 4.4% 3.3% 2 3 4 Jan-46 8.7 24.5% 15.7% 8.8% Oct-80 8.2 19.9% 14.9% 5.0% Jun-02 4.2 14.3% 11.8% 2.5% Jan-46 2.5 9.2% 9.4% -0.2% Oct-80 5.1 18.2% 20.8% -2.7% Jan-46 4.5 28.8% 9.3% 19.5% Oct-80 3.7 24.7% 0.6% 24.2% Performance displayed represents past performance, which is no guarantee of future results. Index performance assumes reinvestment of dividends, but does not include fees. Indexes are not available for direct investment. Source: Standard & Poor s, calculated by Arrow. 9 9
HISTORICAL TRENDS IN LONG-TERM GOVERNMENT RATES (10 YR) Past performance does not guarantee future results. 10-year U.S. Treasury Note interest rates rising (green) and declining (red) from 12/31/1830 through 11/30/2016. Source: Federal Reserve Economic Database (FRED) and Arrow Insights, calculated by Arrow. 10 10
FED FUNDS RATES SINCE 1954 Past performance does not guarantee future results. Fed Funds interest rates from 12/31/1954 through 11/30/2016. The red highlights are periods of rising rates during inflawonary periods. Source: Federal Reserve Economic Database (FRED), calculated by Arrow. 11 11
ASSETS IN RISING RATE PERIODS Rising Rates supported by higher Inflation and Moderate Growth should sustain higher dispersion of Stock and Bond Returns The Dispersion of stock and bond usually trigger wider dispersion between most assets classes: commodities, foreign markets, futures and global macro. Past performance does not guarantee future results. Index returns assume reinvestment of dividends, but do not reflect any management fees, transacwon costs or expenses. Indexes are unmanaged and are not available for direct investment. Categories display the returns of current funds in the category during the Wme period shown. Source: Morningstar, calculated by Arrow. 12 12
NASDAQ DORSEY WRIGHT HOW TO USE RELATIVE STRENGTH 13
DORSEY WRIGHT RESEARCH PLATFORM www.dorseywright.com 14
LIFE COMES AT YOU FAST.. 15
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TACTICAL ASSET CLASSES US Stocks Int l Stocks Real Estate Foreign Currencies 17 Fixed Income Commodities
POINT AND FIGURE BASICS Double Top Double Bottom 45 O 45 X X O X O X O O X O X O O X O O O X X S 40 O X 40 X O O X X O O X X O O X X O O X X O 35 O B 35 X O O X X X O X O X X O X O X X O O X 30 30 18
RELATIVE STRENGTH All major sports have a ranking system. The Point & Figure Relaave Strength tool is the ranking system we use for Stocks and ETFs. Daily Calculaaon: Stock X 100 = Relaave Strength Index Reading This reading is plofed on a Point & Figure chart which then tells us whether we can expect that stock or ETF to outperform or underperform the base index. 19
RELATIVE STRENGTH MATRIX What asset class is strongest? 20
OBJECTIVE RANKS BUY THE LEADERS The Teams 21
TREND FOLLOWING Large Losers Most Trades Large Winners RS tools give us the potential to allow us to capture large winners and avoid large losers. 22
TACTICAL ALLOCATION LIMITS 23
FLEXIBLE ASSET ALLOCATION 24
GLOBAL MACRO PERFORMANCE evestment and its affiliated entities (collectively, "evestment") collect information directly from investment management firms and other sources believed to be reliable; however, evestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Performance results may be provided with additional disclosures available on evestment s systems and other important considerations such as fees that may be applicable. Not for general distribution. * All categories not necessarily included; Totals may not equal 100%. Copyright 2013-2015 evestment Alliance, LLC. All Rights Reserved. Each investor should carefully consider the investment objectives, risks and expenses of any Exchange-Traded Fund ("ETF") prior to investing. Before investing in an ETF investors should obtain and carefully read the relevant prospectus and documents the issuer has filed with the SEC. ETFs may result in the layering of fees as ETFs impose their own advisory and other fees. To obtain more complete information about the product the documents are publicly available for free via EDGAR on the SEC website (http://www.sec.gov) There are risks inherent in international investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities. Past performance does not guarantee future results. In all securities trading, there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives when working with Dorsey, Wright & Associates. 25
ABOUT ARROW: SMART BETA SOLUTIONS TM Arrow Funds ArrowShares (ETFs) Name Category ETF Name Category Arrow DWA Balanced Arrow DWA Tactical Arrow Alternative Solutions Arrow Managed Futures Strategy Arrow Commodity Strategy Tactical Asset Allocation Global Macro Non Traditional Bond Managed Futures Commodity Arrow Dow Jones Global Yield ETF Arrow DWA Tactical ETF Arrow QVM Equity Factor ETF Multi-Asset High Yield Global Macro Multi-Factor Equity Ticker GYLD DWAT QVM 26
ARROW DWA BALANCED FUND Based on relative strength and technical analysis, provides asset allocation across major asset classes using five distinct rotation strategies: The fund s holdings are subject to change at any Wme and are not recommendawons to buy or sell any security. 27
ARROW DWA TACTICAL FUND & ETF (DWAT) Closely follows the DWA RS Global Macro model. Strictly monitors the price movements in domestic equities, international equities, fixed income, real estate, currencies and commodities and allocates to ten positions. *The mutual fund primarily invests in ETFs, but may also use futures to provide exposure to global inverse and currency markets. Por]olio allocawon targets are based on iniwal investment amounts and vary with market fluctuawon. 28
TICKERS AND CUSIPS Quesaons? Call Arrow Toll-Free: (877) 277-6933 Share Class Ticker CUSIP Arrow DWA Balanced Fund Arrow DWA Tactical Fund Class A DWAFX 042765404 Class C DWATX 042765503 Class I DWANX 042765602 Class A DWTFX 042765701 Class C DWTTX 042765800 Class I DWTNX 042765883 The DWA R/S Global Macro Strategy is available as an ETF: Arrow DWA Tactical ETF Symbol: DWAT 29
ARROW DISCLOSURE Before inves:ng, please read the fund's prospectus and shareholder reports to learn about its investment strategy and poten:al risks. Mutual fund inves:ng involves risk including loss of principal. An investor should also consider the fund's investment objec:ve, charges, expenses, and risk carefully before inves:ng. This and other informa:on about the funds are contained in the prospectus, which can be obtained by calling 1-877-277-6933. Please read the prospectus carefully before inves:ng. Arrow Funds are distributed by an affiliate, Archer Distributors, LLC (member FINRA). ArrowShares are distributed by Northern Lights Distributors (member FINRA/SIPC). Arrow and Northern Lights are unaffiliated en::es. Arrow DWA Balanced Fund, Arrow DWA Tacacal Fund, and Arrow DWA Tacacal ETF may invest in commodity related securiaes which may be subject to greater volaality than investments in tradiaonal securiaes. The funds may invest in internaaonal and emerging market securiaes which may be subject to special to risks including fluctuaaons in currency, government regulaaon, differences in accounang standards and liquidity. The funds may invest in small cap securiaes which may have special risks associated including wider variaaons in earnings and business prospects than larger, more established companies. The funds may invest in real estate-related securiaes which may be subject to mortgage-related risks and real estate market fluctuaaons. The funds may invest in fixed income securiaes which are subject to risks including interest rate, credit and inflaaon risk. Arrow DWA Tacacal Fund and Arrow DWA Tacacal ETF s potenaal use of short selling involves increased risks and addiaonal costs. Arrow DWA Balanced Fund, Arrow DWA Tacacal Fund (mutual funds) available in mulaple share classes. Arrow DWA Tacacal ETF (DWAT) is bought and sold at market price which may be greater (premium) or less than (discount) the ETF s Net Asset Value (NAV). The shares are not purchased or redeemed directly from the fund company. Brokerage commissions will reduce returns. For quesaons or more informaaon, contact Arrow Funds directly at (877) 277-6933. Visit www.arrowfunds.com and www.arrowshares.com for addiaonal informaaon. 30
NASDAQ DORSEY WRIGHT DISCLOSURE DORSEY, WRIGHT & ASSOCIATES, LLC, A NASDAQ COMPANY, IS A REGISTERED INVESTMENT ADVISORY FIRM. NEITHER THE INFORMATION NOR ANY OPINION EXPRESSED SHALL CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OR AN OFFER TO BUY ANY SECURITIES, COMMODITIES OR EXCHANGE TRADED PRODUCTS. THIS DOCUMENT AND PRESENTATION DO NOT PURPORT TO BE COMPLETE DESCRIPTIONS OF THE SECURITIES OR COMMODITIES, MARKETS OR DEVELOPMENTS TO WHICH REFERENCE IS MADE. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. POTENTIAL FOR PROFITS IS ACCOMPANIED BY POSSIBILITY OF LOSS. SOME PERFORMANCE INFORMATION PRESENTED IS THE RESULT OF BACK-TESTED PERFORMANCE. BACK-TESTED PERFORMANCE IS HYPOTHETICAL (IT DOES NOT REFLECT TRADING IN ACTUAL ACCOUNTS) AND IS PROVIDED FOR INFORMATIONAL PURPOSES TO ILLUSTRATE THE EFFECTS OF THE DISCUSSED STRATEGY DURING A SPECIFIC PERIOD. BACK-TESTED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. SUCH RESULTS DO NOT REPRESENT THE IMPACT OF MATERIAL ECONOMIC AND MARKET FACTORS MIGHT HAVE ON AN INVESTMENT ADVISOR S DECISION MAKING PROCESS IF THE ADVISOR WERE ACTUALLY MANAGING CLIENT MONEY. BACK-TESTING PERFORMANCE ALSO DIFFERS FROM ACTUAL PERFORMANCE BECAUSE IT IS ACHIEVED THROUGH RETROACTIVE APPLICATION OF A MODEL INVESTMENT METHODOLOGY DESIGNED WITH THE BENEFIT OF HINDSIGHT. DORSEY, WRIGHT & ASSOCIATES BELIEVES THE DATA USED IN THE TESTING TO BE FROM CREDIBLE, RELIABLE SOURCES, HOWEVER; DORSEY, WRIGHT & ASSOCIATES, LLC (COLLECTIVELY WITH ITS AFFILIATES AND PARENT COMPANY, DWA ) MAKES NO REPRESENTATION OR WARRANTIES OF ANY KIND AS TO THE ACCURACY OF SUCH DATA. THE RELATIVE STRENGTH STRATEGY IS NOT A GUARANTEE. THERE MAY BE TIMES WHERE ALL INVESTMENTS AND STRATEGIES ARE UNFAVORABLE AND DEPRECIATE IN VALUE. RELATIVE STRENGTH IS A MEASURE OF PRICE MOMENTUM BASED ON HISTORICAL PRICE ACTIVITY. RELATIVE STRENGTH IS NOT PREDICTIVE AND THERE IS NO ASSURANCE THAT FORECASTS BASED ON RELATIVE STRENGTH CAN BE RELIED UPON. UNLESS OTHERWISE STATED, THE RETURNS OF THE STRATEGIES DO NOT INCLUDE DIVIDENDS FOR STOCKS OR ETFS BUT DO ACCOUNT FOR DISTRIBUTIONS IN MUTUAL FUNDS. RETURNS OF THE STRATEGIES DO NOT INCLUDE ANY TRANSACTION COSTS. INVESTORS SHOULD HAVE LONG-TERM FINANCIAL OBJECTIVES. THE INFORMATION CONTAINED HEREIN HAS BEEN PREPARED WITHOUT REGARD TO ANY PARTICULAR INVESTOR S INVESTMENT OBJECTIVES, FINANCIAL SITUATION, AND NEEDS. ACCORDINGLY, INVESTORS SHOULD NOT ACT ON ANY RECOMMENDATION (EXPRESS OR IMPLIED) OR INFORMATION IN THIS MATERIAL WITHOUT OBTAINING SPECIFIC ADVICE FROM THEIR FINANCIAL ADVISORS AND SHOULD NOT RELY ON INFORMATION HEREIN AS THE PRIMARY BASIS FOR THEIR INVESTMENT DECISIONS. INFORMATION CONTAINED HEREIN IS BASED ON DATA OBTAINED FROM RECOGNIZED STATISTICAL SERVICES, ISSUER REPORTS OR COMMUNICATIONS, OR OTHER SOURCES BELIEVED TO BE RELIABLE ( INFORMATION PROVIDERS ). HOWEVER, SUCH INFORMATION HAS NOT BEEN VERIFIED BY DWA OR THE INFORMATION PROVIDER AND DWA AND THE INFORMATION PROVIDERS MAKE NO REPRESENTATIONS OR WARRANTIES OR TAKE ANY RESPONSIBILITY AS TO THE ACCURACY OR COMPLETENESS OF ANY RECOMMENDATION OR INFORMATION CONTAINED HEREIN. DWA AND THE INFORMATION PROVIDER ACCEPT NO LIABILITY TO THE RECIPIENT WHATSOEVER WHETHER IN CONTRACT, IN TORT, FOR NEGLIGENCE, OR OTHERWISE FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, OR SPECIAL LOSS OF ANY KIND ARISING OUT OF THE USE OF THIS DOCUMENT OR ITS CONTENTS OR OF THE RECIPIENT RELYING ON ANY SUCH RECOMMENDATION OR INFORMATION (EXCEPT INSOFAR AS ANY STATUTORY LIABILITY CANNOT BE EXCLUDED). ANY STATEMENTS NONFACTUAL IN NATURE CONSTITUTE ONLY CURRENT OPINIONS, WHICH ARE SUBJECT TO CHANGE WITHOUT NOTICE. EACH INVESTOR SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS AND EXPENSES OF ANY EXCHANGE-TRADED FUND ("ETF") PRIOR TO INVESTING. THE RISK OF LOSS IN TRADING COMMODITIES AND FUTURES CAN BE SUBSTANTIAL. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IN ETFS IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. BEFORE INVESTING IN AN ETF INVESTORS SHOULD OBTAIN AND CAREFULLY READ THE RELEVANT PROSPECTUS AND DOCUMENTS THE ISSUER HAS FILED WITH THE SEC. ETF'S MAY RESULT IN THE LAYERING OF FEES AS ETF'S IMPOSE THEIR OWN ADVISORY AND OTHER FEES. TO OBTAIN MORE COMPLETE INFORMATION ABOUT THE PRODUCT THE DOCUMENTS ARE PUBLICLY AVAILABLE FOR FREE VIA EDGAR ON THE SEC WEBSITE (HTTP://WWW.SEC.GOV). 31