Expanding Opportunities for Income Investors Mach 17 th 2015 Greg Vradenburg, CFP, Managing Director of Investment Services 1
What s your why? 2
Agenda The outsourcing advantage Why outsource with Brinker Capital Opportunities for income investors 3
Outsourcing Investment Management 4
Advisors biggest roadblocks 11% 40% 3.3% Average amount of time advisors spend seeking new clients 1 Survey respondents who cite difficulty in effectively managing volatility for retired clients 1 Average increased returns of investors who use professionally managed portfolios 2 1 Source: Natixis 2013 Global Survey of Financial Advisors. 2 Source: AON Hewitt study Help in Defined Contribution Plans, 2013 5
Can you effectively manage it all? Source: Russell, MSCI, Bloomberg, Standard & Poor s, Credit Suisse, Barclays Capital, NAREIT, FactSet, J.P. Morgan Asset Management. The Asset Allocation portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Barclays Capital Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 12/31/14, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 11/30/14. 10-yrs returns represent period of 12/31/04 12/31/14 showing both cumulative (Cum.) and annualized (Ann.) over the period. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures. Guide to the Markets U.S. Data are as of 12/31/14.
Can you effectively manage it all? Failure to Diversify Emotion Procrastination Not Enough Risk Too Much Risk Knowledge Lack of Focus on Savings Time
Lack of Time Weakens Advisor Effectiveness Advisors Must Possess Wide Array of Knowledge and Skills Source: Natixis Global Asset Management, Getting to the Goal: Markets, emotions and the risks advisors must manage. 2014
What do investors really want? Everything can be outsourced except for relationships. 1 Source: 2013 U.S. Full Service Investor Satisfaction study from J.D. Power and Associates, 1 Source: Relationships That Last, Ed Wallace, 2010
Benefits for your clients Improved synergy you are both on the same side of the table Institutional level investment results, monitoring and due diligence 92% Percent of survey respondents who reported positive client response to outsourcing * 47% Greater access to financial advisor Added investor value through a wider array of investment products * Outsourcing = more opportunities to achieve better client outcomes *Source: Northern Trust
Creating sustainable compensation 250000 200000 Commission-based financial consultant Fee-based financial consultant Income 150000 100000 50000 0 1 2 3 4 5 Years Source: Brinker Capital
Why Outsource with Brinker Capital 13
Brinker Capital: Defined Brinker Capital Provides: Goals-based investment strategies built from our multi-asset class investment philosophy Brinker Capital Believes: An emphasis on outcome-oriented investing will help change the conversation in the wealth management advice delivery system Assets Under Management: $17.7 Billion Goals-Based Solutions Absolute Return Customized Strategies By Product Type Platform Services Managed Accounts As of 12/31/14. Source: Brinker Capital. Amount in US dollars. Percentage may not equal 100 due to rounding. AUM by product breakdown: Managed Accounts = Destinations and Personal Portfolios, Customized Strategies = non discretionary Core Asset Manager, Absolute Return = Crystal Strategies SMA & Funds, Goals-Based Solutions = Personal Benchmark and Retirement Plan Strategies.
Brinker Capital: A Culture of Innovation Source: Brinker Capital, Inc.. 15
Multi-asset class investment philosophy Brinker Capital embraced alternatives more than a decade ago Every product and solution that we manage includes alternatives. Source: Brinker Capital. Allocations subject to change by portfolio. 16
Due diligence and research Research Source Highlights: International Strategy & Investment (ISI) Ned Davis Research Empirical Research RenMac Strategas Research Partners Sentiment Trader KBW Leuthold Group Barclays Capital Goldman Sachs JP Morgan Merrill Lynch 70+ Active Investment Managers on our platforms UBS Credit Suisse Source: Brinker Capital 17
Diversification across asset classes Source: Brinker Capital
Opportunities for Income Investors 19
Market Dates 21
Market dates 20
Market Dates 22
Why do clients own bonds? Source: Federal Reserve, BLS, J.P. Morgan Asset Management. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for December 2014, where real yields are calculated by subtracting out November 2014 year-over-year core inflation. All returns above reflect annualized total returns, which include reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance. Data are as of 12/31/14. 23
From the 90 s to today 2009 $1.3 trillion has poured into bond funds and bond ETFs since 2009. This is the equivalent of 8% of GDP for the same time period and the largest migration of money to a market since the equity boom of the late 90 s. This was a time of record low yields. Inflows in the prior 9 years were less than half a trillion. Today In the past year, $125 billion has flowed out led principally by RIA s and not by traditional BD affiliated advisors. ¼ of all financial assets by household are invested in bonds. Top 2% of population own ¾ of all individual bonds. Rising interest rates, credit risks and over allocation i.e. bubble in high yield, pose a significant risk to the wealth of older investors. These are the same investors that were over allocated to equity in the late 90 s. Source: Empirical Research Partners. As of December 2014. 24
Income challenges WMT: 2.5% The KO: 2.9% 3% club CVX: 3.6% PG: 2.9% Shown for illustrative purposes only. 25
Income challenges Source: Schwab Center for Financial Research with data from Ned Davis Research and Morningstar, Inc. Shown are the best and worst 12-month total returns of Barclay s Capital U.S. Aggregate Bond Index and three S&P 500 component indices categorized by dividend policy. First rolling period is from 1/81 to 12/81. Each dividend policy is determined on 12-month rolling basis. Ned Davis classifies the instrument as a dividend paying stock if it pays a cash dividend in the previous 12 months. Each dividend-paying stock is further classified into one of the three categories based on changes to their dividend policy over the previous 12 months. Dividend Growers and Initiators include stocks that increased their dividend anytime in the last 12 months. Once an increase occurs, it remains classified as a grower for 12 months or until another change in dividend policy. No-Change stocks are those that maintained their existing dividend rate for the last 12 months. Dividend Cutters and Eliminators are companies that have lowered or eliminated their dividend anytime in the last 12 months. Once a decrease occurs, it remains classified as a cutter for 12 months or until another change in dividend policy. Index values are equal-weighted geometric indices based on monthly total returns, with the constituents of each index reconstituted monthly. The average return is the compound annualized average return for 1981-2010 period. Standard deviation is the annualized standard deviation of monthly returns for the same period. Indices are unmanaged and cannot be invested directly. Past performance is no guarantee of future results. 26
Market reversal is not a sure thing Source: Board of Governors of the Federal Reserve System. Copyright, 2015, Moody s Investor Services. Reprinted with permission. Shaded areas indicate US recessions. Data from 1/1/19 to 1/31/15. Averages of daily data. Moody s tries to include bonds with remaining maturities as close as possible to 30 years. Moody s drops bonds if the remaining life falls below 20 years, if the bond is susceptible to redemption, or if the rating changes. 27
Fixed income sector returns Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond 10-Year Index; Emerging Debt: Emerging Markets USD Index; High Yield: Corporate High Yield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The Asset Allocation portfolio assumes the following weights: 10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS. Asset allocation portfolio assumes annual rebalancing. Guide to the Markets U.S. Data are as of 12/31/14. 28
Navigating the new terrain Income investors have options Alternatives can offer: Diversification Managed volatility Exploitation of market inefficiencies 29
Crystal Diversified Income QTD 1 Year 3 Year Incep. Crystal Diversified Income (Gross) 0.37% 3.40% 6.43% 6.33% Crystal Diversified Income (Net) 0.01% 1.91% 4.86% 4.84% CPI* -0.65% 0.64% 1.30% 1.30% HFRX Global Hedge Fund -1.74% -0.58% 3.17% 2.59% Morningstar Multialternative 0.72% 1.64% 2.84% 2.39% Positive Return Beating Inflation Beating Inflation + 2% Mandate CPI + 2-4% Time Horizon 3 years + Risk Tolerance Conservative/Tactical Current Yield 4.27% PDS Available Yes Objectives 1. Yield > 50/50 portfolio 2. Downside protection Source: Brinker Capital 3. Long-term growth of capital
Crystal Diversified Income positioning Portfolio Current Ticker Description Weight Yield Domestic Equity 5.00 COP ConocoPhillips 2.44 4.11% HBAN Huntington Bancshares 2.06 2.00% OUT Outfront Media Inc 0.50 4.14% International Equity 10.37 EFZ Proshares Short MSCI EAFE ETF 7.32 0.00% ZURVY Zurich Insurance Group 3.05 5.99% Fixed Income 49.52 DBLTX DoubleLine Total Return Bond Fund 26.82 4.78% RPHIX RiverPark Short Term High Yield Fund 10.10 3.89% RSIIX RiverPark Strategic Income Fund 8.65 5.35% EDV Vanguard Extended Duration ETF 3.95 3.13% Real Assets 18.80 KIFYX Forward Select Income Fund 4.94 5.32% NRF NorthStar Realty Finance Corp 4.34 10.81% STWD Starwood Property Trust 3.97 8.26% CLNY Colony Financial Inc 3.27 6.05% DXJR WisdomTree Japan Hedge Real Estate ETF 2.28 0.00% Absolute Return 0.89 LCMAX Driehaus Active Income Fund 0.89 2.49% Private Equity 9.08 PSP PowerShares Gbl Listed Private Equity ETF 4.85 4.90% LPEIX Red Rocks Listed Private Equity Fund 4.24 3.45% Cash 6.34 Cash 6.34 0.00% Current Yield 4.27% Source: Brinker Capital and FactSet *Denotes newly initiated holdings for the quarter **Full list of holdings is as of 12/31/14. Holdings are subject to change. Estimated Beta: 0.12
Crystal Diversified Income Growth of $100,000 since inception Source: Brinker Capital and FactSet. Past performance is no guarantee of future results or trends. The returns are calculated gross (before the deduction) of advisory fees payable to Brinker Capital or other expenses for services not covered by the advisory fee. These fees and expenses will reduce your return. Barclays Capital Aggregate Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar denominated. CPI (Consumer Price Index): The Absolute Return Benchmark is CPI-SA +2 percent (%). The benchmark return is slightly overstated because the CPI is an annual calculation but the benchmark return reflects monthly compounding. CPI is reported as of previous month end. Published by the Bureau of Labor Statistics in the Department of Labor, the CPI is a widely used cost-of-living benchmark that measures the price of a fixed basket of goods purchased by a typical consumer. HFRX Global Hedge Fund Index (USD): Brinker uses the HFRX Global Hedge Fund Index as a performance reference point, because it is designed to be representative of the overall composition of the hedge fund universe. Such index will have a different level of volatility than the actual investment portfolio. Investors can invest directly in an index. 32
Crystal Diversified Income For investors seeking to manage: Retirement income Lifetime income within a diversified plan Short-term cash flows (education, insurance premiums) Long-term cash flows (elder care or special needs)
Summary and next steps 1. How do you articulate your why to your clients? 2. Brinker Capital can be your how and help create better outcomes for income investors 3. Run a Crystal Diversified Income proposal for a client with a position of 30% or more in bonds 34
Important information Asset allocation does not assure a profit or protection against loss. Investing in any investment vehicle carries risk, including the possible loss of principal, and there can be no assurance that any investment strategy will provide positive performance over a period of time. The asset classes and/or investment strategies described in this publication may not be suitable for all investors. Investment decisions should be made based on the investor s specific financial needs and objectives, goals, time horizon, tax liability, and risk tolerance. When investing in managed accounts and wrap accounts, there may be additional fees and expenses added onto the fees of the underlying investment products. The net effect of the deduction of Brinker Capital s fees on annualized performance, including the compounded effect over time, is determined by the relative size of the fee and the account s investment performance. Returns are calculated gross (before the deduction) of advisory fees payable to Brinker Capital and any other expenses for services not covered by the advisory fee including administrative costs, which would reduce your return. The chart to the right depicts the effect of a 1% management fee on the growth of one dollar over a ten year period at 10% (9% after fees), 5% (4% after fees) and 3% (2% after fees) assumed rates of return. For more information about Brinker Capital and our investment philosophy, including information on fees, you may request a copy of our Form ADV Part 2A from a Brinker Capital Client Services representative at 800.333.4573 or at clientservice@brinkercapital.com. Opinions and research referring to future actions or events, such as the future financial performance of certain asset classes, indexes or market segments, are based on the current expectations and projections about future events provided by various sources, including Brinker Capital s Investment Management Group. Information contained within may be subject to change. Brinker Capital does not render tax, accounting, or legal advice. 35
Important Information As an independent investment management firm, we re in the business of providing you with access to all of the resources, services, and choices you need. With us, you ll gain the essential support to protect and grow your assets: a savvy partner, sound advice, and solid investment results. BrinkerCapital.com 1055 Westlakes Drive, Suite 250 Berwyn, PA 19312 800.333.4573 Connect With Us KE 35 BF 3/10/15 36