Tactical Income ETF Strategy Investor Presentation N ORTHC OAST A DVISORY T EAM I NVESTMENT 203.532.7003 INFO@ NORTHCOASTAM. COM
N ORTHC OAST A SSET M ANAGEMENT EXPERIENCE Based in Greenwich, CT $1.7 billion in firm AUM (as of 9/30/2017) 30 Professionals STABILITY 100% proprietary research, trading, and management Systematic and rules -based investment execution Daily risk controls that proved their mettle in drawdowns of 2000-2002 and 2008 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) 2
N ORTHC OAST A SSET M ANAGEMENT S YSTEMATIC I NVESTMENT P ROCESS Daily quantitative research Active portfolio construction & security selection Disciplined, rules-based risk controls Significant investment made in risk management systems I NSTITUTIONAL S TRUCTURE 30 Professionals (including Portfolio Management, Research, Trading, Investor Relations, Operations, & Compliance) Managing 20 separate account strategies & 1 mutual fund across multiple asset classes Diligent compliance program led by experienced compliance officer and counsel 7 member Investment Committee - Expertise in quantitative research Exclusive agreement with Investor s Business Daily utilizing the CAN SLIM investment program T ALENTED R ESEARCH T EAM Career experience with Research Affiliates, Pyramis, and Numeric 2 CFAs, 2 MBAs, and 7 Masters with concentrations in computer science, engineering, statistics, and computational finance E XTENSIVE P ARTNERSHIPS ETF partnership with ishares by BlackRock Separate account platform partners include Fidelity, Morgan Stanley, Wells Fargo, UBS, RBC, Raymond James, and others 3
I NVESTMENT P HILOSOPHY We believe a thoroughly researched and repeatable investment process rooted in common sense will outperform over time. Our research shows that markets and securities reward certain factors and punish others. To capitalize on these factors, we employ a market exposure model and a security selection model based on fundamental rationales. These rationales are confirmed by thorough quantitative analysis, are systematically implemented and complemented with extensive risk controls. This proven and repeatable investment process relies on portfolio managers to validate the model outputs daily and traders to implement the strategy efficiently. To maintain, refine and enhance our competitive edge, we remain committed to a continuous and comprehensive research effort. 4
I NVESTMENT T EAM Patrick Jamin CFA, FRM Chief Investment Officer Julia Zhu CFA, FRM SVP Market & Security Research Yaqiu Li SVP Portfolio Construction Slava Malkin Senior Vice President Jason Krugly Vice President Sumanth Amarchinta Vice President Partner, Numeric Investors (European / World Fundamental Statistical Arbitrage) Partner, Portfolio Manager, Standard Pacific Capital; Global Long/Short Equity Fund Senior Quantitative Analyst, Invesco; Global Quantitative Fund M.B.A., Harvard Business School, Baker Scholar, Arthur Sachs Scholar M.S. Telecommunications, Ecole Nationale Superieuredes Telecommunications de Paris Ingenieur de I Ecole Polytechnique, Ecole Polytechnique Vice President, Research Affiliates - Quantitative research; equities and asset allocation Associate, First Quadrant Conducted research on GTAA and tactical currency allocation Master of Economics, Yale University, PhD Candidate M.B.A. with concentration in Finance, University of Southern California Climate Modeling National Key Lab of Atmospheric Science, Chinese Academy of Sciences M.S. Quantitative and Computational Finance & M.S. in Statistics, Georgia Tech PhD Candidate CFA Level III Candidate Quantitative currency trading strategies BNP Paribas Portfolio Manager of global macro strategies Research in Global Tactical Asset Allocation strategies Deutsche Asset Management M.S. in Statistics, Harvard University Research experience with Bank of America, Merrill Lynch, Credit Suisse, Deutsche Bank M.S. in Financial Engineering, Baruch College B.S. & M.S. in Computer Science, Polytechnic Institute of New York University Senior Investment Analyst, Pyramis Global Advisors - Quantitative research M.S. in Computer Engineering, Rochester Institute of Technology B.S. in Electrical Engineering, Roorkee Indian Institute of Technology 5
S EPARATELY M ANAGED A CCOUNT P LATFORM 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. 6
T ACTICAL I NCOME I NVESTMENT P ROCESS 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 ETF 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 7
I NVESTMENT P ROCESS Proprietary market outlook determined by 40+ signals across four dimensions identifies opportunities & risks to determine optimal exposure and leverage TECHNICAL Momentum Reversal Fear SENTIMENT Consumers Producers Credit Surprise MACRO- ECONOMIC Leading Indicators Federal Reserve Jobs Geopolitical VALUATION Historical Forward Rate Adjusted Inflation Adjusted Equity Target Lelvel 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% NorthCoast Equity Exposure Model 1/1/1996-12/31/2016 Technicals Sentiment Macroeconomic Valuation 0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 The chart above shows a hypothetical simulation of NorthCoast s proprietary market outlook analysis tool. This simulation is generated by using multiple data points across four broad dimensions including Technical, Sentiment, Macroeconomic, and Valuation indicators. The daily result determines equity exposure. It does not represent actual equity exposure. 8
D AILY S CORING OF ETFS NorthCoast scores a variety of ETFs across multiple asset classes utilizing a combination of factors (signals) that drive performance Individual securities are for comparative purposes only and NorthCoast may not recommend these positions at the time of publication. Score-based model is a proprietary security selection system of NorthCoast Asset Management. 9
D AILY S CORING OF ETFS ETF Harmony Describes NorthCoast s approach to evaluating and selecting Exchange Traded Funds (ETFs). Highlights the use of four categories of factors/signals, with of what works, and what doesn t: Technical Macroeconomic Sentiment Valuation 10
T ACTICAL I NCOME 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 Equity 0%-25% Alternative 0%-25% Fixed Income 50%-100% Emerging Markets 15%-25% Developed International United States 50%-70% 15%-25% Sample Allocation by Asset Class Sample Allocation by Country 11
T ACTICAL I NCOME S UMMARY Past Performance is not indicative of future results. All investments involve risk, including loss of principal. Results are presented net of management fees. Please reference the Appendix for additional disclosure information. 12
T ACTICAL I NCOME P ERFORMANCE $120,000 $115,000 Tactical Income vs. Competitive Benchmarks Hypothetical Growth of $100,000: 11/1/2012-9/30/2017 Tactical Income Global Bond Agg. U.S. Bond Agg. Growth of $100,000 $110,000 $105,000 $100,000 $95,000 $90,000 Nov 2012 Apr 2013 Sep 2013 Feb 2014 Jul 2014 Dec 2014 May 2015 Oct 2015 Mar 2016 Aug 2016 Jan 2017 Jun 2017 Annualized Returns 2012* 2013 2014 2015 2016 2017 YTD 1-Year 3-Year Inception 11/1/2012 Tactical Income ETF 0.9% 1.7% 6.3% -3.8% 5.9% 7.1% 3.7% 3.6% 3.6% Global Bonds -0.3% -2.6% 1.7% -2.7% 2.2% 5.8% -1.2% 1.5% 0.8% U.S. Bonds 0.0% -2.0% 6.0% 0.6% 2.7% 3.1% 0.1% 2.7% 2.1% *2012 performance results from 11/1/2012-12/31/2012. Data as of 9/30/2017. 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. 12
T ACTICAL I NCOME P ERFORMANCE 8% 6% 4% Strategy Performance Yield + Appreciation Asset Appreciation Yield Generation Performance 2% 0% -2% -4% -6% -8% 2012 * Q1 Q2 Q3 Q4 2013 Q1 Q2 Q3 Q4 2014 Q1 Q2 Q3 Q4 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4 2017 Yield Generation 1% 1% 1% 1% 1% 5% 1% 1% 1% 1% 4% 1% 1% 1% 1% 4% 1% 1% 1% 1% 4% 1% 1% 1% 2% Asset Appreciation 0% 1% -6% 1% 0% -3% 2% 2% -2% 1% 2% 0% -4% -3% -1% -8% 2% 3% 1% -2% 2% 2% 2% 1% 4% Performance 1% 3% -5% 3% 1% 2% 3% 3% -1% 2% 6% 1% -3% -2% 0% -4% 3% 4% 2% -1% 6% 3% 3% 2% 6% *11/1/2012-12/31/2012. Yield Generation and Asset Appreciation are estimated figures based on the annualized yield of the portfolio. Past Performance is not indicative of future results. All investments involve risk, including loss of principal. Results are presented net of management fees. Please reference the Appendix for additional disclosure information. 14
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B ENEFITS OF U NCONSTRAINED I NCOME Few traditional income options meet the inflation hurdle 8% Asset Classes and Efficient Frontiers Turning to additional income vehicles can enhance yield Careful portfolio construction and risk management can lead to a better efficient frontier Combining traditional and non-traditional income options can improve a portfolio s yield with an acceptable level of volatility Yield 7% 6% 5% 4% 3% 2% Inflation = 3% Preferred Shares MLP High Yield EM High Yield Bonds High Yield Short Term High Yield Muni High Yield ex-us Build America 10+ Y Credit Bank Loan EM Bonds Muni Bonds Intermediate Credit 7-10 Y T-Bills 10-20 Y T-Bills US Equities 20+ Y T-Bills Infrastructure MBS 1% 1-3 Y Credit 3-7 Y T-Bills Tips 1-3 Y T-Bills 0% 0% 2% 4% 6% 8% 10% 12% 14% Volatility Traditional Core Income Enhanced Income Unconstrained Income Intal Equities Intal REIT US REIT Traditional Efficient Frontier Enhanced Efficient Frontier Unconstrained Efficient Frontier Source: Bloomberg, ishares, as of 11/06/2014 16
D ISCLOSURE I NFORMATION Past Performance is not indicative of future results. All investments involve risk, including loss of principal. The firm is defined as NorthCoast Asset Management LLC. NCAM was established in 1988 and is an independent Registered Investment Advisor (RIA) registered with the Securities and Exchange Commission (SEC). The firm is a full service investment management company. The firm specializes in quantitative investment programs. NCAM is located in Greenwich, CT, and is not affiliated with any parent organization and has no other offices operating under the same brand name. Returns are presented net-of-fees. Net-of-fee returns are reduced by trading costs and the portfolio s actual management fee. Valuations are computed and performance is reported in U.S. dollars. A complete list of composite descriptions is available upon request. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. To obtain a compliant presentation for the associated strategy, please contact one of our advisors at 800.274.5448. Tactical Income is a fully tactical investment strategy designed to produce income while managing principal risk. The strategy invests in a diversified basket of global ETFs across the income spectrum using U.S. bonds, international bonds, corporate bonds, mortgages, and U.S. and international dividend equities. The strategy seeks a target yield of inflation +2-3%, protection against rising interest rates & inflation with real assets, potential for appreciation through growth assets, and downside protection through a tactical allocation to yield sources with diversification benefits. Benchmarks - The Barclays Aggregate Bond Index and JP Morgan Global Aggregate Bond Index are used for comparison purposes. The Barclays Aggregate Bond Index is a broad based index designed to represent global investment grade bonds traded in the United States. The JP Morgan Global Aggregate Bond Index is a broad-based index designed to represent multi-currency, global investment grade bonds. 17
D ISCLOSURE I NFORMATION 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 used as a basis for investment decisions. PAST PERFORMANCE 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 ALL OF 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. 18