Tactical Income ETF Investor Presentation N ORTHC OAST I NVESTMENT A DVISORY T EAM 203.532.7000 INFO@ NORTHCOASTAM. COM
NORTHCOAST ASSET MANAGEMENT An established leader in the field of tactical investment management, specializing in quantitative research and constructing institutional-caliber portfolios designed for the individual investor. E XPERIENCE. Founded in 1988 $1.8 billion in AUM (as of 3/31/2018) S TABILITY. Proprietary, quantitative, and tactical investment strategies Legacy of preserving capital during the bear markets of 2000-2002 and 2008 P ERFORMANCE. Long-term portfolio performance Exclusive Agreement with Investor s Business Daily ETF Partnership with BlackRock ishares Recognized as a Financial Times Top 300 Registered Investment Adviser (2014, 2015) ishares and BlackRock are registered trademarks of BlackRock, Inc. and its affiliates ( BlackRock ) and are used under license. BlackRock makes no representations or warranties regarding the advisability of investing in any product or service offered by NorthCoast Asset Management LLC. BlackRock has no obligation or liability in connection with the operation, marketing, trading or sale of any product or service offered by NorthCoast. The 2015 Financial Times Top 300 Registered Investment Advisors is an independent listing produced by the Financial Times (June, 2015). The FT 300 is based on data gathered from RIA firms, regulatory disclosures, and the FT s research. As identified by the FT, the listing reflected each practice s performance in six primary areas, including assets under management, asset growth, compliance record, years in existence, credentials and accessibility. Neither the RIA firms nor their employees pay a fee to The Financial Times in exchange for inclusion in the FT 300.
RISK-ADJUSTED GROWTH UPSIDE CAPTURE GROWTH CORE INCOME ALTERNATIVE CAN SLIM CAN SLIM INTERNATIONAL GLOBAL TACTICAL GROWTH U.S. SECTOR SELECT HEDGED INTERNATIONAL SELECT HEDGED TACTICAL GROWTH LEGENDS VALUE VISTA U.S. SECTOR SELECT GLOBAL SELECT INTERNATIONAL SELECT DIVERSIFIED CORE DIVERSIFIED GROWTH CORE FIXED INCOME AGGRESSIVE INCOME ZERO BETA EMERGINGMARKET SELECT Constructing a Customized Portfolio Solution INCOME ALTERNATIVE CORE RISK-ADJUSTED GROWTH Enhance client outcomes to specific risk and return needs Risk-adjusted return potential is enhanced when combining strategies with low-cross correlation Approach diversification in addition to asset class diversification UPSIDE CAPTURE 3
Designed to meet the broad wealth management goals of clients from asset accumulation through retirement Employing a tactical overlay focused on capital appreciation and downside risk management INCOME GROWTH DIVERSIFIED CORE DIVERSIFIED GROWTH TACTICAL GROWTH Overview A conservative plan, emphasis on income Balanced approach to growth & income Growth by means of capital appreciation and income Capital appreciation with secondary objective of capital preservation Benchmark JPM Global Bond Aggregate (Global Bonds) 50% ACWI / 50% Global Bonds 70% ACWI / 30% Global Bonds Morningstar World Allocation Tactical Shifts 100% (Full) 20% (Modest) 30% (Modest) 100% (Full) Typical Asset Allocation Opportunistic Market Environment Fixed Income U.S. Equity International Equity Alternative The Typical Asset Allocation is for informational and illustrative purposes only based on an Opportunistic market outlook provided by NorthCoast Asset Management. 4
TODAY S Few traditional investment options meet the inflation hurdle Non-traditional yield categories include international bonds, high dividend equities, REITS, and alternative income 10 8 6 4 2 0 Inflation = 3% 1-3 Year Treasury 3-7 Year Treasury 7-10 Year Treasury 10-20 Year MBS 1-3 Year Credit INTERMEDIATE Current Yield Generation 12-month yield (%) 20+ Year Treasury 10+ Year Credit International 3 Year JPM Emerging Municipal Bonds Short-Term TIPS International TIPS EM Corporate High Yield Bonds High Yield Short High Yield ex-us High Yield EM US REIT Intal REIT Mortgage REIT Preferred Intal Preferred US div Intal div Infrastructure Convertibles Cat Bonds Floating Rates Variance Premia High Yield Muni Bank Loan Cat Bonds HY Cat Bonds Interval Combining traditional and nontraditional yieldgenerating investment can improve a portfolio s yield with an acceptable level of volatility 20 15 10 5 0 1-3 Year Treasury 3-7 Year Treasury 7-10 Year Treasury 10-20 Year Treasury MBS 1-3 Year Credit INTERMEDIATE Historical Volatility 3-Year Standard Deviation (%) 20+ Year Treasury 10+ Year Credit International Treasury 3 Year International JPM Emerging Bonds Municipal Bonds Short-Term Municipal TIPS International TIPS EM Corporate Bonds High Yield Bonds High Yield Short Term High Yield ex-us High Yield EM US REIT Intal REIT Mortgage REIT Preferred Intal Preferred US div Intal div Infrastructure Convertibles Cat Bonds Floating Rates Variance Premia High Yield Muni Bank Loan Cat Bonds HY Cat Bonds Interval Source: Bloomberg, as of 12/29/2016. 5
INVESTMENT PROCESS Proprietary market outlook determined by 40+ signals across four dimensions identifies opportunities & risks Daily market signal analysis Ongoing research assessment of market signals ensures accuracy and relevance Rigorous proprietary research shows ETFs exhibit common characteristics before gains Daily scoring of 150+ ETFs with 20+ signals Seeking ETFs with superior risk-adjusted potential Dynamic optimizer properly maintains riskadjusted portfolio daily Assessment of total transaction costs and estimate of implementation shortfall Each ETFs s idiosyncrasies evaluated by team prior to taking a position Proprietary risk model Controls embedded through investment process Combination of active and passive risk management methods Daily monitoring of positions Higher concentrated portfolio enhances longterm alpha 6
The NorthCoast Tactical Income ETF Program s investment objective is to provide: Target yield of Inflation + 2-3% through a diverse set of income sources Protection against rising interest rates and inflation with real assets Potential for appreciation through growth assets Downside protection through a tactical allocation to income sources benefitting from diversification Given today s interest rate & yield environment, institutional investors are seeking an active and alternativesolution for portfolio income needs Alternative 0%-25% Equity 0%-25% Fixed Income 50%-100% Emerging Markets 15%-25% Developed International 15%-25% United States 50%-70% Sample Allocation by Asset Class Sample Allocation by Country The allocation above is shown for informational purposes only. It is not a recommendation to buy or sell any of these asset classes. 7
DYNAMIC ASSET ALLOCATION 11/1/2012 3/31/2018. The allocation above is shown for informational purposes only. It is not a recommendation to buy or sell any of these asset classes. 8
NorthCoast Tactical Income vs. Competitive Benchmarks Hypothetical Growth of $100,000: 11/1/2012-3/31/2018 Tactical Income Global Bond Agg. U.S. Bond Agg. $125,000 $120,000 Growth of $100,000 $115,000 $110,000 $105,000 $100,000 $95,000 $90,000 Nov 2012 Jul 2013 Mar 2014 Nov 2014 Jul 2015 Mar 2016 Nov 2016 Jul 2017 Mar 2018 *Risk Metrics (since 11/1/2012) Beta Correlation Sharpe Ratio Standard Deviation Maximum Drawdown 1-Year 3-Year 5-Year Inception 11/1/2012 NorthCoast Tactical Income 0.90 0.75 0.50 5.2% -7.8% 3.8% 2.4% 2.8% 3.2% Global Bonds - - 0.10 4.3% -6.6% 6.5% 3.0% 1.6% 1.1% U.S. Bonds 0.49 0.74 0.36 2.8% -3.7% 1.2% 1.2% 1.8% 1.7% *2012 performance results from 11/1/2012-12/31/2012. Data as of 3/31/2018. Past performance is not a guarantee of future profits and must be viewed in concert with Disclosure Information in the Appendix. Returns are presented net-of-fees, including the reinvestment of dividends. Net-of-fee returns are reduced by trading costs and the portfolio s actual management fee. 9
Tactical Income is a methodical alternative to passive buy and hold strategies. Consider the following benefits for your investment: Accessible Complementary Defensive 0.65% management fee with a $100,000 account minimum Low correlation to typical benchmarks making it an appealing complement to a strategic or asset allocation portfolio Protection against rising interest rates and downside risk Disciplined Quantitatively researched and rules-based management Transparent 24/7 online access. Experienced advisory team readily available to provide portfolio insight and analysis 10
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DEFINITION OF STATISTICAL TERMS Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. You can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock s beta is 1.2, it's theoretically 20% more volatile than the market. Alpha: A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a security and compares its riskadjusted performance to a benchmark index. The excess return of the security relative to the return of the benchmark index is a security's alpha. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. R-squared: A statistical measure that represents the percentage of a security's movements that can be explained by movements in a benchmark index. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the portfolio s performance patterns have been in line with the index. A portfolio with a low R-squared (70 or less) doesn't act much like the index. Standard Deviation: A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility. Sharpe Ratio: A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is: The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed. 12
DEFINITION OF STATISTICAL TERMS Up-Market Capture Ratio (Up Capture): A statistical measure of an investment manager's overall performance in up-markets. The up-market capture ratio is used to evaluate how well an investment manager performed relative to an index during periods when that index has risen. The ratio is calculated by dividing the manager's returns by the returns of the index during the up-market, and multiplying that factor by 100. Down-Market Capture Ratio (Down Capture): A statistical measure of an investment manager's overall performance in downmarkets. The down-market capture ratio is used to evaluate how well or poorly an investment manager performed relative to an index during periods when that index has dropped. The ratio is calculated by dividing the manager's returns by the returns of the index during the down-market and multiplying that factor by 100. Correlation: Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random. Drawdown (Max Drawdown): The peak-to-trough decline during a specific record period of an investment. A drawdown is usually quoted as the percentage between the peak and the trough. For our purposes, the max drawdown refers to the maximum peak to trough decline between January 1, 2001 and the present time. * Source: Investopedia.com 13
DISCLOSURE INFORMATION This information contained herein has been prepared by NorthCoast Asset Management, LLC ("NorthCoast") on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. NorthCoast has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. All opinions and views constitute judgments as of the date of writing without regard to the date on which the reader may receive or access the information, and are subject to change at any time without notice and with no obligation to update. This material is for informational and illustrative purposes only and is intended solely for the information of those to whom it is distributed by NorthCoast. No part of this material may be reproduced or retransmitted in any manner without the prior written permission of NorthCoast. NorthCoast does not represent, warrant or guarantee that this information is suitable for any investment purpose and it should not be usedas a basis for investment decisions. PAST DOES NOT GUARANTEE OR INDICATE FUTURE RESULTS. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy. The reader should not assume that any investments in companies, securities, sectors, strategies and/or markets identified or described herein were or will be profitable and no representation is made that any investor will or is likely to achieve results comparable to those shown or will make any profit or will be able to avoid incurring substantial losses. Performance differences for certain investors may occur due to various factors, including timing of investment. Investment return will fluctuate and may be volatile, especially over short time horizons. INVESTING ENTAILS RISKS, INCLUDING POSSIBLE LOSS OF SOME OR ALLOF THE INVESTOR'S PRINCIPAL. The investment views and market opinions/analyses expressed herein may not reflect those of NorthCoast as a whole and different views may be expressed based on different investment styles, objectives, views or philosophies. To the extent that these materials contain statements about the future, such statements are forward looking and subject to a number of risks and uncertainties. 14