AMERICAN FUNDS Solutions For investors seeking Risk-Budgeted, global, and actively managed portfolios of American Funds to build capital, generate income, protect their assets, or mitigate tax consequences.
YOUR FLEXIBLE, PERSONALIZED, RISK-MANAGED PORTFOLIO CLS s Risk Budgeting Methodology is the foundation of our portfolio construction process. It starts with defining your personalized Risk Budget 1, based on your unique investing time horizon and specific investment goals. This budget, which is expressed as a percentage of the risk of a welldiversified, global equity portfolio, represents the amount of risk you re comfortable taking on in exchange for potential returns. Your individual Risk Budget is the risk level at which we manage your portfolio. To build a portfolio with a risk/return balance appropriate for you, CLS analyzes the characteristics of investments within more than 100 asset class segments and strategies across the globe. We are careful not to underexpose you to risk, as this may give your portfolio inadequate opportunity to grow. Yet, we do not overexpose you, as this could leave you unable to meet your financial obligations. Risk Budgeting provides you: a consistent risk management process. a methodology that allows your investments to be maintained at the level of risk you are comfortable with, regardless of what s happening in the market. a personalized portfolio that seeks opportunity in the global market. Much like a scale keeps weight balanced, Risk Budgeting ensures that the amount of risk in your portfolio is equal to the level of risk you are comfortable with. To explore our Risk Budgeting Scale, please visit CLSinvest.com/scale. Active Portfolio Management CLS actively manages your portfolio, meaning our team of portfolio managers analyzes potential investments and watches your portfolio for opportunities on a daily basis. We conduct significant research and rely on a proprietary risk calculation to measure the risk of each asset we track in order to make informed decisions about which assets to buy, hold, and sell. RISK ALIGNED TO YOUR LEVEL OF COMFORT Everyone has a certain level of comfort: some may like the thermostat set at 69 degrees, others may prefer 73. No matter what the weather is like outside, the thermostat adjusts to keep the temperature inside at a designated level. Risk Budgeting is essentially a thermostat for your portfolio. Once your Risk Budget is set, CLS consistently monitors and analyzes the assets in your portfolio to keep the risk level constant no matter how global market conditions change.
CLS & AMERICAN FUNDS: A LONG-STANDING RELATIONSHIP American Funds are renowned for their managers stock-picking expertise and long-term focus. This skill and philosophy makes these funds an ideal complement to CLS s Risk Budgeting and asset allocation specialization, which is why we have included American Funds in many of our Risk-Budgeted portfolios since 1998. If you already own or would like to own American Funds, CLS offers the option for professional management of a portfolio consisting entirely of these funds. CLS also provides solutions that combine traditional American Funds with the CLS-managed AdvisorOne Funds (which primarily invest in ETFs), income-producing American Funds, or tax exempt fixed income funds in order to seek a variety of investment objectives. American Funds, like a majority of actively managed mutual funds, tend to drift in their style, capitalization, asset allocation, and risk characteristics. CLS s management of your American Funds portfolio adds tremendous value through risk and allocation management. CLS utilizes an array of internal statistics and analysis, as well as attribution and portfolio commentary from American Funds managers. This insight allows us to build a portfolio that s actively adjusted to seek opportunity in line with your long-term objectives and Risk Budget, even as market conditions change. We carefully manage your portfolio s allocation to international, emerging markets, growth, and value equities, as well as the credit quality and duration of bonds within your portfolio. We provide daily account maintenance, meaning we facilitate all requests for withdrawals, required minimum distributions, deposits, and Risk Budget changes. CLS uses Risk Budgeting and American Funds to build portfolios optimized for your personal risk/return goals. To keep you on a clear investing path, we ve categorized our American Funds portfolio options according to these objectives: ACCUMULATION Portfolios are focused on total return, meaning growth of value through interest, capital gains, and dividends proportionate to your risk tolerance. INCOME Portfolios seek consistent, reliable distributions from a variety of traditional and non-traditional incomeproducing assets. PROTECTION Portfolios pursue capital growth during sustained market uptrends, yet seek protection of assets during catastrophic market downturns. TAX MANAGEMENT Portfolios seek capital appreciation while keeping annual net taxable gains low. An ETF is a type of investment company whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index. Investing in ETFs involves risks. ETFs can entail risks similar to direct stock ownership, including market, sector, or industry risks. Some ETFs may involve international risk, currency risk, commodity risk, and interest rate risk. Trading prices may not reflect the net asset value of the underlying securities.
ACCUMULATION Portfolios are focused on total return, meaning growth of value through interest, capital gains, and dividends proportionate to your risk tolerance. You have meaningful financial goals. CLS s Accumulation strategies seek to help you build resources to achieve these important objectives. COLLEGE EXPENSES HOME OWNERSHIP RECREATION TRAVEL For investors whose primary investing objective is to increase portfolio value over the long term, CLS builds balanced, global portfolios constrained by our Risk Budgeting Methodology. This means we access several areas of the domestic and international markets to find the best opportunities within your risk tolerance range. We employ a consistent portfolio management process that allows for flexibility and customization to your specific accumulation goals. Your CLS Accumulation portfolio is actively managed, meaning we make adjustments to it in an effort to maintain an appropriate risk level and take advantage of opportunities in the market. Your CLS Accumulation Portfolio: Seeks intermediate- and long-term capital appreciation appropriate for your Risk Budget. Includes American Funds, or a combination of American and the CLS-managed AdvisorOne Funds, which primarily invest in ETFs. Actively adjusts to keep your mix of investments in line with your Risk Budget and take advantage of opportunities in the market.
CLS American Funds Accumulation Portfolio Management Strategies American Funds Strategy A strategy that allows investors looking for active management to keep their existing American Funds investments, but add CLS professional management in order to take advantage of our disciplined and flexible Risk Budgeting investment management approach. Hypothetical Year-Over-Year Portfolio Comparison moderate portfolio (Risk Budget 60) Year 1 Year 2 Large-Cap Value Large-Cap Core Large-Cap Growth Global Developed International Emerging Markets High-Yield Bonds Intermediate/Long-Term Bonds Short-Term Bonds/Cash Other/Alternative Any sample allocations displayed in this work are meant to serve as examples. Actual holdings may differ. This information should not be considered investment advice. American Hybrid Strategy A strategy that uses American Funds F shares for approximately 70% of the allocation, and the CLS-managed AdvisorOne Funds for approximately 30% 2. Your portfolio may include two or more of these CLS-managed funds, which utilize ETFs to meet a broad spectrum of investment objectives: CLS Shelter Fund CLS Flexible Income CLS Growth & Income CLS International Equity CLS Global Diversified Equity CLS Global Aggressive Equity Hypothetical Year-Over-Year Portfolio Comparison moderate portfolio (Risk Budget 60) Year 1 Year 2 Large-Cap Value Large-Cap Core Large-Cap Growth Small/Mid-Cap Core Global Developed International Emerging Markets High-Yield Bonds Intermediate/Long-Term Bonds Short-Term Bonds/Cash Other/Alternative Any sample allocations displayed in this work are meant to serve as examples. Actual holdings may differ. This information should not be considered investment advice.
INCOME Portfolios seek consistent, reliable distributions from a variety of traditional and non-traditional income-producing assets. You ve worked hard to build your investment portfolio. CLS s American Income X Strategy can help you get the most from what you ve saved. Traditional safe sources of income are yielding a fraction of what they once did ANNUAL INCOME FROM A $100,000 INVESTMENT $6,000 $5,000 $4,740 $4,808 2006 2017 $4,702 Traditionally, investors have relied on investments like CDs and bonds to generate income. However, in $4,000 a low interest rate environment, these conventional sources may not yield enough to meet your income needs. They also typically provide less opportunity for $3,000 $2,000 $1,883 $2,405 portfolio growth than stocks. $1,000 $480 So as an investor seeking income, you may be searching for other types of assets to supplement these traditional assets. You may also benefit from a total return approach to the management of your portfolio, which seeks return from interest, capital gains, dividends, and distributions. $- 6-month CD 2-year Treasury Bond 10-year Treasury Bond Source: J.P. Morgan Asset Management. Shown for illustrative purposes only. Income figures for Treasuries reflect yield to maturity, which may include gains or losses for bonds not priced at face value. Data as of 12/31/17. Through CLS s American Income X Strategy, CLS combines American Funds with a variety of incomegenerating ETFs that offer a wide range of yield and risk/ return opportunities. CLS s risk-focused management of this combination of investments may provide the opportunity for improved income and capital gains. CLS is one of the largest active money managers of ETFs and has been including these versatile and costeffective investment options in investor portfolios since the late 1990s. A broader mix of asset classes can expand opportunities for yield and price gains Return Risk
American Income X Strategy CLS s American Income X Strategy is designed for investors seeking a specific steady income yield from a diversified portfolio of income-producing assets. The bulk of your portfolio (approximately two-thirds) will be allocated to primarily income-producing American Funds. The remainder of your portfolio will be allocated to a wide variety of income-producing ETFs in an attempt to: Reach an income yield target, net of fees, of 2%, 3%, or a maximum target percentage*, while seeking to limit the amount of risk required to attain the net yield (higher net yield is typically associated with higher risk). Maintain globally diversified exposure to incomeproducing assets. Provide dependable yields in all market conditions. Generate income using non-traditional asset classes, such as master limited partnerships, real estate, convertible bonds, senior bank loans, highyield bonds, and international debt, in addition to traditional dividend-oriented stocks and investment grade bonds. Hypothetical Portfolio Allocation target portfolio yield of 3% (net of fees) Small/Mid-Cap Value Developed International High-Yield Bonds Intermediate/Long-Term Bonds International Bond Cash Equivalent Preferred Security Real Estate Balanced Any sample allocations displayed in this work are meant to serve as examples. Actual holdings may differ. This information should not be considered investment advice. What you need to know about CLS s American Income X portfolios: Utilizes a multi-asset class approach that may be particularly beneficial in a low interest rate environment. May help you meet your distribution needs while keeping up with inflation. Provides security of yield distribution, as the availability of your monthly income is not dependent upon current market conditions. Potentially provides capital appreciation by participating in equity and bond markets. Actively adjusts between asset classes to maximize total return and income generation, and to maintain a consistent level of yield. Is not a substitute for a bond portfolio, as it will take on more risk than a conventional bond portfolio. Risks may include those related to credit, equity, concentration, liquidity, duration, leverage, tax cost, and principal. *CLS will seek the maximum yield, given current market conditions. Over the long term, CLS seeks a target yield of 4%.
PROTECTION Portfolios pursue capital growth during sustained market uptrends, yet seek protection of assets during catastrophic market downturns. Investing is an emotional experience. You have a lot at stake, and the markets can take you on a bumpy ride. If this affects your sleep, CLS s American Hybrid Protection Strategy may be right for you. Suppose you have $500,000 invested but then experience a severe market downturn. If you lost 30% of your savings, it could take you more than 7 years to recover, which could be a major setback to your retirement plans. CLS s American Hybrid Protection Strategy is designed to protect your portfolio value during this type of catastrophic market decline. What makes this strategy unique is that it s not simply about building you an extremely conservative portfolio. Rather, the strategy invests 70% 2 of your portfolio in American Funds in an effort to grow your portfolio in accordance with your Risk Budget. The remainder is invested in the CLS Shelter Fund, which invests in diversified ETFs when the market is performing well, yet seeks out increasingly conservative assets if the market begins a steep decline. The Fund utilizes a sensitivity level and multiple trigger points to determine when to trade into less volatile stock ETFs and/or U.S. Treasury bill ETFs in an effort to protect your original investment and keep you on track with your long-term financial goals. Approximate years to recover initial investment after a market downturn* First Year Loss Years to Recover -10% 2.2-15% 3.3-20% 4.6-25% 5.9-30% 7.3-35% 8.8-40% 10.5-45% 12.3-50% 14.2 *assumes a 5% real return (inflation-adjusted) after experiencing the indicated loss. What you need to know about CLS's American Hybrid Protection portfolios: Intended for investors who are particularly sensitive to market declines due to a shortened investing time horizon or an extreme fear of decreasing account value. Your portfolio seeks long-term growth by investing in American Funds and diversified stock ETFs appropriate for your personal Risk Budget. In the event of a severe market decline, portions of your portfolio move to low-volatility stock ETFs and/or U.S. Treasury bill ETFs in an attempt to protect your principal. Designed to potentially protect your portfolio from catastrophic losses those that may permanently derail your long-term financial objectives or significantly alter your lifestyle. This is not simply a conservative investing strategy or designed to protect against normal market volatility. There is a tradeoff for the protection this strategy may provide, as the strategy favors security over some market gains.
American Hybrid Protection Strategy The strategy combines American Funds with the CLS Shelter Fund in an effort to grow your portfolio in accordance with your Risk Budget, yet protect portions of it in the event of a severe market decline. Shelter Fund Illustration Diversified stock ETFs Low-volatility stock ETFs U.S. Treasury bill ETFs Trigger Points Movement out of market Movement into market Flat/Rising Market Hypothetical positioning: When the market is flat or performing well, the Shelter Fund invests in diversified stock ETFs. However, as market conditions change, portions of the Fund may begin moving toward more conservative assets. 70% American Funds 1 30% Shelter Fund 1 Declining Market Hypothetical positioning: If the market declines below a predetermined sensitivity level, the Fund begins moving out of growth-seeking assets and into low-volatility stock ETFs and U.S. Treasury bill ETFs, while the rest of the Fund remains invested in diversified stock ETFs. This example is an illustration of how the CLS Shelter Fund is designed to function and is not meant to show the expected behavior of your entire portfolio during the example periods shown. By reacting to changes in the market, the CLS Shelter Fund may be involved in frequent trading which subjects the fund to increased trading expenses and potential tax consequences. The CLS Shelter Fund invests in underlying mutual funds, and exchangetraded funds ( Underlying Funds ). As a result, the Fund indirectly bears investment management fees of the underlying funds in addition to the fees and expenses of the Fund. In some instances it may be less expensive for an investor to invest in the underlying funds directly. There is also a risk that investment advisors of those underlying funds may make investment decisions that are detrimental to the performance of the Fund. Investments in underlying funds that own small- and midcapitalization companies may be more vulnerable than larger, more established organizations. Investments in underlying funds that invest in foreign equity and debt securities could subject the Fund to greater risks including, currency fluctuation, economic conditions, and different governmental and accounting standards. The Fund also invests in U.S. Treasury Bills, which can cause the value of your investment in the Fund to fluctuate with changes in interest rates. Long-term bonds are generally more sensitive to interest rate changes than short-term bonds. Investors should carefully consider the investment objectives, risks, charges and expenses of the AdvisorOne Funds. This and other information about the AdvisorOne Funds is contained in the prospectus, which can be obtained by calling (866) 811-0225. The prospectus should be read carefully before investing. CLS Investments, LLC ( CLS ) is an affiliated company of Northern Lights Distributors, LLC. The AdvisorOne Funds are distributed by Northern Lights Distributors, LLC, member FINRA/SIPC. Severely Declining Market Hypothetical positioning: As the market decline becomes more severe, the Fund remains invested in low-volatility ETFs and also begins investing in U.S. Treasury bill ETFs in an effort to provide additional protection against major stock market declines. Reinvesting in the Market At some point, markets reach a bottom and rebound. When this happens, CLS waits at least one month to allow volatility to reduce before beginning to reinvest the CLS Shelter Fund back into growthseeking assets. As the Fund s value retraces the trigger points, we trade low-volatility stock ETFs and U.S. Treasury bill ETFs for diversified stock ETFs. Because the Fund is heavily invested in less risky assets, the value of the market will likely increase more rapidly than the Fund during this period.
TAX MANAGEMENT Portfolios seek capital appreciation while keeping annual net taxable gains low. You ve worked hard to build your wealth. CLS s American Tax Aware Strategy helps you keep your wealth by seeking to maximize the post-tax total return of your portfolio. Taxes are inevitable. Managing them is a lifelong process, as their impact on investment performance can be significant. In fact, a Morningstar, Inc. study showed that during the 87-year period ending in 2013, investors who ignored tax ramifications within their portfolio lost between 1%-2% of their annual returns to taxes. And, since 1940, there have been 80 major changes in U.S. tax legislation. Each time a change occurs, your portfolio can be significantly affected. Impact of Taxes on Investment Returns 1926-2014 Average Annual Return % STOCKS 10.1% 8.1% Before Tax After Tax BONDS 5.7% Before Tax 3.6% After Tax Therefore, it is important to make strategic, tax-conscious decisions about your portfolio s investments, particularly if the majority of your assets are in taxable accounts. Your strategy will seek to increase the tax efficiency of your portfolio so you can manage every possible dollar in taxes. Taxes can significantly impact your investment portfolio. A tax-conscious strategy can help lessen this impact, creating after-tax returns that are closer to the investment s full value before taxes. Tax Type Long-Term Capital Gains Qualified Dividends Up to 23.8%* Portfolio Impact Short-Term Capital Gains Interest and Non-Qualified Dividends Taxed at the same rate as ordinary income, which may be up to 43.4%* *Portfolio impact analyzed with January 2015 tax rates and includes a 3.8% Medicare surtax. State and local taxes may further impact a portfolio. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. CLS does not provide legal or tax advice. CLS cannot guarantee that such information is accurate, complete, or timely. CLS makes no warranties with regard to such information or results obtained by its use. CLS disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
American Tax Aware Strategy CLS s American Tax Aware Strategy primarily seeks capital appreciation in accordance with your Risk Budget, with a secondary emphasis on tax awareness designed to increase the potential for after-tax returns. The strategy invests in American Funds class F shares that are in line with your individual Risk Budget, in addition to tax exempt fixed income funds. Hypothetical Portfolio Allocation Large-Cap Value Municipal Bond Developed International Emerging Markets Large-Cap Core Global Money Market Any sample allocations displayed in this work are meant to serve as examples. Actual holdings may differ. This information should not be considered investment advice. Why Municipal Bonds? Municipal bonds are issued by a U.S. state, municipality, or county to finance its capital expenditures. Municipal bonds are appealing because they often represent investments in state and local government projects that have an impact on daily life, including construction or improvement of schools, highways, hospitals, housing, and other important public projects. Potential issuers include: cities, counties, redevelopment agencies, special-purpose districts, school districts, public utility districts, publicly-owned airports and seaports, and any other governmental entity below the state level. Municipal bonds may be general obligations of the issuer or secured by specified revenues. Municipal bonds help mitigate potentially negative tax consequences since the interest income that bondholders earn is often exempt from federal income tax. Interest income may also be exempt from state, local, and the alternative-minimum (AMT) tax. Also, unlike new issue securities that are brought to market with price restrictions until the deal is sold, municipal bonds are free to trade at any time once the investor purchases them. Municipal Bond Tax Efficiency 1.96% 2.50% Pre-Tax Yield 1.96% 1.58% After-Tax Yield S&P National AMT-free Municipal Bond BBG Barc U.S. Aggregate Bond Source: Morningstar. Assumes highest marginal tax rate (37%) and no state taxes.
ABOUT CLS CLS Investments, LLC (CLS) is a third party investment manager, ETF strategist, and long-time trusted partner in the financial industry. CLS s active asset allocation approach, customizable strategy offerings, and extensive risk management experience have led clients to entrust their portfolios to CLS since 1989. Through CLS s partnership structure, your financial advisor maintains a direct relationship with you, while CLS s portfolio management and analytics teams take on the day-to-day research, trading, and operations required to manage your account. Together, you and your advisor use the tools CLS provides to determine your investing strategy, investment types, and Risk Budget. Your advisor provides this information to CLS so we can accordingly make timely active asset allocation decisions within your portfolio. Through this mutually beneficial connection, CLS enhances your advisor s service to you. 1989 Founded $ 8.9b * Assets under management 39K+ CLS clients 12 Portfolio managers & analysts *as of 2/28/2018 1 A client s Risk Budget is derived from the client s specific answers to CLS s Confidential Client Profile questionnaire, which establishes the client s financial goals, ability to handle risk, and overall investment time horizon. The individual client Risk Budget is expressed as a percentage of the risk of a well-diversified equity portfolio. 2If available through your custodian, you may have the option to customize your strategy combination. Therefore, actual percentages in the CLS Shelter Fund or other CLS AdvisorOne Funds may vary. 2 If available through your custodian, you may have the option to customize your strategy combination. Therefore, actual percentages in the CLS Shelter Fund or other CLS AdvisorOne Funds may vary. If available through your custodian, you may have the option to customize your strategy combination. Therefore, actual percentages in the CLS Shelter Fund or other CLS AdvisorOne Funds may vary. Mutual Funds involve risk including the possible loss of principal. This material does not constitute any representation as to the suitability or appropriateness of any security, financial product or instrument. There is no guarantee that investment in any program or strategy discussed herein will be profitable or will not incur loss. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The graphs and charts contained in this work are for informational purposes only. No graph or chart should be regarded as a guide to investing. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies. The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. An ETF is a type of investment company whose investment objective is to achieve the same return as a particular index, sector, or basket. To achieve this, an ETF will primarily invest in all of the securities, or a representative sample of the securities, that are included in the selected index, sector, or basket. ETFs are subject to the same risks as an individual stock, as well as additional risks based on the sector the ETF invests in. Equity, in terms of investing, is a security which represents an ownership interest in an entity. Stocks, representing an ownership interest in a company, are the most common form of equity. The primary diversifiable risks are business risk and capital risk; additional diversifiable risks may be present depending on the specific security invested in. Bonds are a type of debt instrument issued by a government or corporate entity for a defined period of time at a fixed interest rate. Bonds may be subject to unsystematic risks including, but are not limited to, call risk and reinvestment risk. High-yield bonds, or junk bonds, will be subject to an even greater degree of these risks as well as subject to the credit risk. Developed market investing refers to the practice of investing in the developed market of a foreign nation. Developed markets are characterized by high economic growth, security, industrialization, and high standards of living. While investing in developed markets is often safer than other forms of international investing, risks are still present and include, but are not limited to, market volatility risks, inflation risks, and adverse political events. Emerging market investing refers to the practice of investing in a developing market of a foreign nation. The pre-requisites of this practice include a market within the foreign nation along with some form of regulatory body. Emerging markets involve greater risk and potential reward than investing in more established markets. Diversifiable risks for emerging markets include, but are not limited to, political risk, currency risk, and liquidity risk. Low Volatility investing is a strategy designed to lower risk by investing in traditionally safer securities. While the strategy is designed to lower risk, nondiversifiable risk is still inherent as with any investment strategy or product. Diversifiable risks will vary depending on the specific investment. Treasury Securities are securities issued by the U.S. Government. Generally issued to fund its operations and backed by the full faith and credit of the U.S. Government, treasury securities are considered extremely low risk investments and may include: Treasury Bills (T-Bills), Treasury Notes, Treasury Bonds (T-Bonds), or Treasury Inflation Protected Securities (TIPS). The return on treasury investments is measured by the Treasury Yield. The primary diversifiable risk is opportunity risk. 1370-CLS-3/29/2018 / 6259-NLD-3/29/2018 888.455.4244 CLSinvest.com Follow us: @clsinvestments A Company