Managed Portfolios Morningstar Investment Services Peter Dugery, SVP, National Sales and Distribution John Green, Regional Sales Director February, 2014 For Financial Advisor Use Only-Not for Use With the Public. This presentation is not complete without accompanying disclosures. 2013 Morningstar Investment Services, Inc. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. All other marks are the property of the respective owners. Morningstar Investment Services, Inc. is a registered investment advisor and wholly owned subsidiary of Morningstar, Inc. The information contained in this presentation is the proprietary material of Morningstar Investment Services. Reproduction, transcription or other use, by any means, in whole or in part, without the prior written consent of Morningstar Investment Services is prohibited.
Agenda Who is Morningstar Investment Services and what do we offer You? How are other Independent Advisor s using us within their practice? How can You benefit from Morningstar Managed Portfolios? Where do You go from here?
Morningstar Investment Management (MIM) We combine the strengths of Morningstar, Inc with over 35 years of investment experience* Investors first Independent investment research since 1984 Global resources in 27 countries Trusted brand Expertise in asset allocation, manager selection, and portfolio construction $166.1B Total Assets* 35+ years Serving Clients** to create innovative solutions for institutions, advisors, and individual investors. Offer leading retirement, investment management, and consulting services The Morningstar Investment Management division is a division of Morningstar and includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment Services, which are registered investment advisors and wholly owned subsidiaries of Morningstar, Inc. All investment advisory services described herein are provided by one or more of the registered investment advisor subsidiaries. *Data as of June 30, 2013 and includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment Services, OBSR, and Ibbotson Australia. **Ibbotson Associates Inc. was established in 1977, and acquired by Morningstar in 2006. Morningstar Associates was established in 1999 and Morningstar Investment Services, Inc. was established in 2001.
Morningstar Investment Services Since 2001, we have created high-conviction investment portfolios Morningstar Investment Services was formed in response to feedback from advisors seeking an objective, independent investment approach. designed exclusively for fee-based, independent financial advisors We work with more than 3,000 financial advisors across the country. to deliver investment choices to the clients that they serve. Our team of investment professionals create, build, and monitor a diverse lineup of managed portfolios.
The Insight of an Advisor, The Strength of Morningstar Holistic financial planning meets professional portfolio management We team up to deliver a tailored investment plan designed to help investors reach their long term goals
Our Philosophy We invest for the long term We are independent thinkers We employ a disciplined, consistent investment process We actively manage portfolios We are sensitive to costs and taxes We invest clients money as if it were our own We communicate in a timely and candid fashion
Our Commitment to Investment Excellence
Our Mutual Fund Portfolios
Our Mutual Fund Portfolios at a Glance Wide Range of Solutions for Your Client Situations: For illustrative purposes only. Not to be used to asses the exact risk/return relationship between portfolios. No guarantee can be given about future performance.
Our Mutual Fund Portfolios Full discretion active management- at two levels Strategic asset allocation with a tactical overlay Differentiating traits Independent, unbiased, objective investment selection Use of flexible managers and boutique managers Use of alternative funds High conviction, disciplined long-term investing
Our Asset Allocation Portfolios Broad diversification, open architecture, sophisticated risk management Good complement to niche/specialized strategies Taxable and tax-deferred versions of mutual fund portfolios available Conservative Income & Growth Moderate Growth Growth Aggressive Growth Figures are based on a recent allocation, and are subject to change. Asset classes shown are Morningstar category groups. Allocation of portfolios at the individual account level may vary.
Our Retirement Income Portfolios Four distinct managed portfolios diversified across asset classes Targeted payouts ranging from 4 7% Time horizons from 1 to 20+ years Endowment-like approach Payouts derived from total return, not reliant solely on yield Ultra Short Short-Range Mid-Range Long-Range Targeted Payout 7% 6% 5% 4% Time Horizon 1 5 years 2 10 years 10 20 years 20+years Probability of Principal Preservation 2.1% 9.9% 17.3% 36% Probability of Principal Depletion 0.1% 0.1% 0.4% 0.8% Monte Carlo Analysis, 95% confidence. Monte Carlo adjusts for inflation. Figures are based on a recent allocation, and are subject to change. Asset classes shown are Morningstar category groups. Allocation of portfolios at the individual account level may vary.
Our Focused Portfolios Allow for tactical approach; further diversification Global Allocation: seeks long-term capital appreciation and income; invests in go-anywhere equity and bond funds Absolute Return: seeks to provide modest, equity-like returns, minimize volatility and downside protection in poor market environments Enhanced Cash Tax-Advantaged Income Absolute Return Real Return Global Allocation Figures are based on a recent allocation, and are subject to change. Asset classes shown are Morningstar category groups. Allocation of portfolios at the individual account level may vary.
Asset Allocation: Ibbotson Active/Passive Portfolios Leverages the strength of both approaches Enhances portfolio risk-adjusted returns by finding most efficient way to invest in asset classes and markets Tends to reduce overall portfolio expenses 20/80 40/60 60/40 80/20 95/5 % A P % A P % A P % A P % A P US Stocks 14 7 7 27 15 12 37 22 15 44 29 15 52 37 15 Non-US 5 5 0 10 8 2 16 13 3 24 20 4 29 24 5 Real Estate 0 0 0 2 2 0 3 3 0 5 5 0 6 6 0 Bonds 71 27 44 56 24 32 36 18 18 17 10 7 2 2 0 Alternatives 2 0 2 2 0 2 6 4 2 8 5 3 9 6 3 Cash 8 0 8 3 0 3 2 0 2 2 0 2 2 0 2 Figures are based on a recent allocation, and are subject to change. Allocation of portfolios at the individual account level may vary.
Our ETF Portfolios
Our ETF Portfolios at a Glance For illustrative purposes only. Not to be used to asses the exact risk/return relationship between portfolios. No guarantee can be given about future performance.
Core and Explore Approach Core Broadly diversified ETFs Passive and low cost Track asset classes in strategic asset allocation Explore ETFs that track narrower segments (style, sector, region, etc.) Selection based on proprietary rating methodology Aim to add value over index
Core and Explore Approach Tactical View Potential ETF Core Total Stock Corp. Bonds Companies are flush; Treasuries are rich Investment-Grade Corp. Bond ETF High-Yield Bond ETF Foreign Stock Fixed Income Cash Japan Health Care Stocks look cheap, especially after quake Fears over patent cliff overdone Japan Small-Cap ETF Health Care Stock ETF Explore Global High- Quality Div-Pay Stocks Dividends prized in a lower-growth climate High-quality, global firms to pace recovery Dividend Appreciation ETF Technology Stock ETF For illustrative purposes only.
Our ETF Asset Allocation Portfolios Core-and-Explore format leverages Morningstar s strengths Asset allocation research Strategic asset allocations set by Ibbotson Associates Security research, portfolio construction Morningstar, Inc. s deep ETF analytics, data MIS extensive experience managing client capital, making tactical decisions Low-cost portfolios offer specific risk /return profiles for investors at all stages Conservative Income & Growth Moderate Growth Growth Aggressive Growth Figures are based on a recent allocation, and are subject to change. Asset classes shown are Morningstar category groups. Allocation of portfolios at the individual account level may vary.
Our Contrarian ETF Portfolios Invest in market s unloved areas Based on mutual fund outflows Transparent, cheap to implement Use ETFs that mirror unloved areas Potential core holding, or supporting player Focus on the areas where selling has been most pronounced. Contrarian & Income Contrarian Contrarian & Growth Figures are based on a recent allocation, and are subject to change. Asset classes shown are Morningstar category groups. Allocation of portfolios at the individual account level may vary.
Ibbotson Momentum Portfolios Managed by Ibbotson Associates Low-cost, active portfolios designed to capitalize on the tendency of investments to gather momentum over a period of time Supported by nearly two decades of academic research Ibbotson: strategies buying recent winners, selling recent underperformers can generate significant positive returns over 6- to 12-month holding periods 1. Momentum 20/80 Momentum 40/60 Momentum 60/40 Momentum 80/20 Momentum 95/5 1Source: Jegadeesh and Titman. Returns to Buying Winners and Selling Losers: Implications for Market Efficiency. Journal of Finance 48, (1993).
Our Select Stock Basket Portfolios
Our Select Stock Baskets Custom Series at a Glance Customized portfolio of individual equities 25 to 35 of our highest conviction stock ideas Tailored to a client s needs Restrict sector, industry, or individual stock exposures Combine with a portfolio of fixed-income mutual funds or ETFs (80/20, 65/35, 50/50) Accommodate current client holdings* Transfer existing holdings Portfolio can be built around client s other holdings Actively managed to help achieve added value Buy and sell discipline Optimal balance of risk and reward Mindful of tax and cost implications *Initial and subsequent funding in the client s account may be in cash, and/or transfer of positions currently held including common stocks, ETFs and mutual funds; due to liquidity restrictions and trading constraints, any position that is transferred in may be rejected and required to be remove from the account. For Illustrative Purposes only. Data and information is subject to change at anytime without notice.
Select Stock Baskets Custom Series Broad Market Global Equity Composite Style Equity Income Capital Appreciation Foreign Market Capitalization Foreign Equity Small+Mid-Cap Equity You can elect further customization $250,000 account minimum
Select Stock Baskets Strategist Series Select Stock Basket strategies to choose from The Tortoise Portfolio The Hare Portfolio The Dividend Portfolio Wide Moat Focus Portfolio These three are patterned after Morningstar, Inc. s popular monthly newsletters Morningstar StockInvestor Morningstar DividendInvestor Account minimums All Equity - $100,000 With Fixed Income (80/20, 65/35, 50/50) - $250,000 For illustrative purposes only. There is no guarantee that the Select Stock Basket Strategist Series will perform as the portfolios after which they were patterned. *Please note that portfolio availability may vary based on business relationships
Solutions for the 401K Market- Managed Plan Solutions (MPS) Bundled (3)38 Solution MIS as a Co-Fiduciary Investment Policy Statement 5 Age/Risk based models Fund/ETF Lineup Choice of three record-keepers
Dedicated Web Platform For illustrative purposes only.
Online Risk Tolerance Questionnaire For illustrative purposes only.
Co-Branded Investment Proposals For illustrative purposes only.
Tools to Help You Analyze Portfolios
Robust Reports for Current Clients For illustrative purposes only.
Client Review Packet For illustrative purposes only.
Supplementary Marketing Material For illustrative purposes only.
Investment Commentary For illustrative purposes only.
Communication Materials For illustrative purposes only.
Morningstar Managed Portfolios Case Studies 36 36
Morningstar Managed Portfolios Case #1: Conservative client, worried about being invested heavily in bonds with the rising interest rate environment, but does not want the volatility of equities. Solution: Morningstar Absolute Return portfolio 37 37
Absolute Return Portfolio Results Less than half the volatility of the S&P 500 Index since its inception Provides good downside protection relative to the broad equity market Beta of 0.36. Returns have not been very dependent on the domestic equity market April 2005 through December 2013 Absolute Return S&P 500 Annualized Return 4.30% 7.50% Standard Deviation 5.91% 15.39% Sharpe Ratio 0.47 0.44 Up Capture 39.37 100.0% Down Capture 32.37 100.0% Alpha vs. Market 0.33 0.0% Beta vs. Market 0.36 1.00 Source: Morningstar, Inc. Portfolio returns noted are gross of annual program fees. Addition of these fees would reduce the performance shown. The maximum program fee for this portfolio is 1.50%. See appendix for performance disclosures and definition of statistics. Past performance does not guarantee future results. An index is unmanaged and an investor cannot invest directly in an index.
Advisor Suggestion for Linda s $500,000 Portfolio Current Suggested 100% Moderate Growth 30% Absolute Return 70% Moderate Growth Retain the bulk of assets in the traditional portfolio for growth purposes Allocate a slice of assets to Absolute Return to hedge market risk For illustrative purposes only. Neither diversification or asset allocation ensure a profit or guarantee against a loss.
Morningstar Managed Portfolios Case #2: Client needs income and growth. They are concerned about rising interest rates. They need income, but also need to grow their principle. They have a long time horizon. Solution: Morningstar Dividend Stock Basket Morningstar Equity Income Stock Basket 40 40
What Sets Us Apart From Our Competitors? Portfolio construction Ibbotson Associates Incorporating alternatives Tactical overlay Research GPA Boutique managers Risk-management Stressing risk-adjusted returns Using flexible managers Absolute return Experience Decade-plus track record
Portfolio Construction: Ibbotson Associates Founded in 1977; acquired by Morningstar, Inc. in 2006 Leading source of independent academic research Capital markets, asset allocation expertise Ibbotson Associates sets the strategic asset allocation for our diversified portfolios Goal: maximize return for a given level of risk Recommendations form the basis for each portfolio Use alternatives across portfolios Ibbotson Associates is a registered investment advisor and wholly-owned subsidiary of Morningstar, Inc. Each portfolio has a set of target allocations which serve as guidelines in managing the portfolio. The asset class forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that these ideas will be successful. Diversification nor asset allocation ensure a profit or protect against a loss.
Research: Rigorous, Independent Leverage proprietary data, analytics, grading system Look beyond stars, style-box Draw on decades of experience research managers Before investing in a fund, we meet faceto-face with each manager The world is our oyster We don t play favorites
Research: Proprietary Fund Selection For illustrative purposes only; information subject to change.
Research: GPA Report Examines five critical factors: Process Performance People Price Parent Performance and price grades updated monthly Qualitative factors monitored, adjusted on an ongoing basis React to events, not calendar GPA Report Excerpt Source: Morningstar Investment Services, Inc.; as of May 4, 2012. For illustrative purposes only; past performance is not a guarantee of future results. Should not be viewed as a recommendation buy or sell the mentioned securities.
Research: Using Boutique Managers For illustrative purposes only.
Risk Management: Built Into Our Process Established, repeatable, continual four-step process Designed to help portfolios stay well-positioned through the market s up and downs There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies. Investing involves risks including possible loss of principal.
Risk-Management: Stressing Risk-Adjusted Returns Performance Scorecard considers Trailing returns Risk-adjusted metrics Consistency Downside statistics Measure over multiple time periods, including custom periods Update monthly on entire fund universe Ensures consistency, uniformity Fund Performance Scorecard Source: Morningstar Investment Services, Inc.; as of January 25, 2012. For illustrative purposes only; past performance is not a guarantee of future results. Should not be viewed as a recommendation buy or sell the mentioned securities.
Risk-Management: Using Flexible Managers IVA Worldwide: Flexible world-allocation fund that seeks capital appreciation by investing across various asset classes around the globe Recent Asset Allocation US Equity 27.6% International Equity 29.7% Fixed Income 12.3% Gold 4.9% Cash 24.8% Other 0.77% Source: Morningstar Direct. As of 03/31/2013. References to securities should not be viewed as a recommendation to buy or sell those securities. Weightings subject to change without notice. For illustrative purposes only.
Risk-Management: Absolute Return Approach We use an absolute return approach across our strategies to help deliver steadier, more consistent returns Add value by using funds that invest in alternatives, or non-traditional asset classes where appropriate Source: Absolute Investment Advisers. As of 12/31/2012. References to securities should not be viewed as a recommendation to buy or sell those securities. Weightings subject to change without notice For illustrative purposes only.
Example: Moderate Growth Portfolio As of 12/31/2012. References to securities should not be viewed as a recommendation to buy or sell those securities. Weightings subject to change without notice For illustrative purposes only.
What is Absolute Return Designed to Do? Provide moderate, consistent returns that aren t overly dependent on markets direction Help investors of all kinds manage risk. Adapt to any market environment; Follows approach first used by university endowments Invests a broad range of alternative securities Allows portfolio to pursue opportunities we think are most promising Provide downside protection in volatile markets Provides some protection in down markets; captures appreciation in up markets.
Sample Growth ETF Strategy Core Explore Ticker Weighting EXP Ratio Vanguard Total Stock Market VTI 31.6% 0.05 Vanguard Developed Markets VEA 10.96% 0.10 Vanguard Total Bond Market BND 7.86% 0.10 First Trust ISE-Rever Natural Gas IDX FCG 6.61% 0.60 Vanguard Small Cap VB 6.56% 0.10 Vanguard Emerging Markets VWO 6.43% 0.18 Money Market 5.41% Wisdom Tree Japan SmallCap Dividend DFJ 7.84% 0.58 SPDR S&P International Dividend DWX 6.08% 0.45 Health Care Select Sector SPDR XLV 4.42% 0.18 PowerShares Senior Loan Port BLKN 3.68% 0.65 PIMCO Total Return BOND 2.56% 0.55 Portfolio Blended Expense Ratio 0.22 For illustrative purposes only; not intended to be an offer or recommendation to buy/sell the above securities. Allocations subject to change without notice; Weighting and expense ratio as of 01/22/2013.
Leveraging Morningstar, Inc. s Equity Research Independent analysis from over 100 analysts, covering around 1,800 stocks Actionable investment ideas Economic Moat ratings Fair Value estimates Coverage Snapshot 129 217 244 39 83 149 194 145 104 151 82 802 577 158 As of June 2013
Morningstar, Inc. s Stock Research: Focus and Key Tenets Look for what we feel are superior businesses that trade at discounts to the Morningstar, Inc. Analyst estimate of their fair values Free cash flow is what matters, not reported earnings A firm that grows without earning its cost of capital destroys long-term business value Shareholder value is created by maximizing the return on invested capital Focus on firms whose businesses display moat-like characteristics.
Competitive Fee Structure Mutual Fund Portfolios Mutual Fund Portfolios Up to $500,000 Next $500,000 Next $1MM Over $2MM Morningstar Investment Services* 0.40% 0.35% 0.30% 0.20% Advisory Firm** 1.10% 1.05% 1.00% 0.90% Total Annual Fee 1.50% 1.40% 1.30% 1.10% Account Minimum: $50,000 (lower in family plan) Client fee does not include the mutual funds expenses Advisor fee can be discounted in 5 bps increments *MIS Minimum Annual Fee is $200 for those accounts not held at BNY. **Please note that fees may vary based on business relationships.
Competitive Fee Structure ETF Portfolios ETF Portfolios Up to $1MM Next $4MM Thereafter Morningstar Investment Services* 0.30% 0.25% 0.20% Advisory Firm** 1.10% 1.10% 1.10% Total Annual Fee 1.40% 1.35% 1.30% $50,000 account minimum Client fee does not include the underlying ETF s expenses Client fee does not include costs associated with custody/clearing/execution Advisor fee can be discounted in 5 bps increments *MIS Minimum Annual Fee is $150. **Please note that fees may vary based on business relationships.
Competitive Fee Structure Select Stock Baskets Select Stock Baskets Up to $1MM Next $4MM Thereafter Morningstar Investment Services* 0.55% 0.50% 0.45% Advisory Firm** 1.10% 1.10% 1.10% Total Annual Fee 1.65% 1.60% 1.55% Account minimums: Custom Series $250,000, Strategist Series all-equity $100,000, Strategist with fixed-income allocation (80/20, 65/35, 50/50) $250,000 Client fee does not include costs associated with custody/clearing/execution Advisor fee can be discounted in 5 bps increments *MIS Minimum Annual Fee is $550 for Strategist Series and $1375 for Custom Series. **Please note that fees may vary based on business relationships.
Disclosures The opinions expressed herein are those of Morningstar Investment Services, are as of the date written and are subject to change without notice, do not constitute investment advice and are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar Investment Services shall not be responsible for any trading decisions, damages, or other loses resulting from, or related to, the information data, analyses or opinions or their use. The Morningstar Investment Management division is a division of Morningstar and includes Morningstar Associates, Ibbotson Associates, and Morningstar Investment Services, all registered investment advisors and wholly owned subsidiaries of Morningstar, Inc. Ibbotson Associates is a registered investment advisor and wholly-owned subsidiary of Morningstar and serves as a sub-advisor to the Morningstar Managed Portfolios program. Past performance is no guarantee of future results. Neither diversification nor asset allocation ensure a profit or guarantee against a loss. Portfolio The portfolio returns presented are derived from seeded portfolios. For inception dates, please refer to our Website for a complete list. Each model portfolio is similar to the investment strategies managed for clients on a discretionary basis under the Morningstar Managed Portfolios program ( Program ). Each model portfolio is designed to achieve a certain strategy and consists primarily of mutual funds ( MF ), exchange-traded funds ( ETF ) and equity securities ( Equity ) (each a Strategy Portfolio, collectively Strategy Portfolios ) Each Strategy Portfolio will invest in one or a combination of the aforementioned securities. The Strategy Portfolios have similar investment objectives and strategies as the portfolios recommended to individual clients. The purpose in presenting Strategy Portfolio performance is to provide a historical indication of the performance of the Strategy Portfolio. The Strategy Portfolio may not have contained and/or currently contain the same holdings as the holdings currently underlying this Strategy Portfolio. The performance of each Strategy Portfolio presented is not a reflection of actual clients portfolios, but is that of seeded portfolios which are managed in the same manner as the portfolios managed for actual clients (e.g., the timing of rebalancing and/or reallocation transactions for each Strategy Portfolio is the same as when such transactions are implemented for actual clients). Returns Gross of Program Fees The gross performance presented for each Strategy Portfolio does not include any Program fees (Total maximum program fees are disclosed below), brokerage commissions or the effects of taxation. If such expenses/adjustments were taken into account, the performance noted would be less (and in some cases may be significantly less). MF and ETF Strategy Portfolio - The gross performance calculations do assume all dividends and capital gains distributions are reinvested and are net of fees and expenses. Performance is based on the MF or ETF net asset value as of close of trading on the New York Stock Exchange at the last business day of a month. Equity Strategy Portfolio - The gross performance calculations do assume all applicable dividends and MLP distributions are reinvested into the account but may not be into the specific Equities that paid the dividend. Performance is based on a common stock s market price as of close of trading on the last business day of a month. For Equity Portfolios, client returns and purchases and sales of individual equities for a given strategy may differ significantly from that of the model account. This is especially true for strategies in our custom series, as each client portfolio is unique and managed at the individual account level.
Disclosures All Strategy Portfolios returns were calculated using a time weighted, geometrically linked rate of return formula. Returns for periods over one year are annualized. Returns for periods under twelve months are not annualized. In no way should the performance of each Strategy Portfolio be: considered indicative or a guarantee of the future performance of an actual client s portfolio with the same strategy; considered indicative or the actual performance achieved by actual clients in the same strategy within the Program; or viewed as a substitute for the actual portfolios recommended to individual clients. Actual results of an individual client in the Program may differ substantially from the historical performance shown for a Strategy Portfolio and may include an individual client incurring a loss. Past performance is no guarantee of future results. MIS does not guarantee that the results of their advice, recommendations, or the objectives of a Strategy Portfolio will be achieved. The Strategy Portfolios may not have contained and/or currently may not contain the same underlying holdings that are currently underlying the Strategy Portfolios. Total Maximum Program Fees MF Portfolios 1.50% ETF Portfolios 1.40% Equity Portfolios 1.65% ETFs carry certain risks that may adversely affect their net asset value, market price, and/or performance. Because ETFs are not actively managed, their value may be affected by a general decline in the U.S. market segments relating to their underlying indexes. ETFs are traded on national exchanges and therefore are subject to similar investment risks as common stocks. The Select Stock Baskets portfolios ("Portfolios") invest primarily in common stocks of U.S. companies although certain Portfolios may also contain Master Limited Partnerships, American Depositary Receipts and/or Real Estate Investment Trusts. Common stocks are a type of equity security that represents an ownership interest in a corporation and are typically subject to greater fluctuations in market value than other asset classes as a result of such factors as a company's business performance, investor perceptions, stock market trends, and general economic conditions. Standard Deviation measures an investment s volatility or range of outcomes. The total returns of any given investment are expected to be within one standard deviation from its mean return about 68% of the time and within two standard deviations from the mean 95% of the time. Sharpe Ratio measures return per unit of risk. Equal to excess return (average monthly return less average monthly return of 90-day Treasury bill) divided by standard deviation. Upside Capture is the percentage of the return of the benchmark the investment captured when the selected benchmark had a positive return. Downside Capture is the percentage of the return of the benchmark the investment captured when the selected benchmark had a negative return. For example, if the selected benchmark had a -10% return and the investment had 25% downside capture, it would have returned -2.5% during that down period. Beta is a measure of an investment s sensitivity to market movements. A low beta implies that an investment s market related risk is low.
Disclosures Alpha measures a fund s actual returns and its expected performance, given its level of risk (as measured by beta). A positive alpha figure indicates the fund has performed better than its beta predicted. Drawdown measures the magnitude of decline in an investment during a specific period as measured from peak to trough. Performance: Imposition of advisory fees and other expenses incurred in the management of an account would cause actual performance to be lower than the performance shown. For example, if the one-year performance before such fees was 10% and the account assessed an annual fee of 1.50% deducted quarterly, the fee would reduce the performance approximately 8.36% annually. Long-Short Equity Combines a long position (number of contracts bought exceeds number sold) in one security with a short position (number of contracts sold exceeds number bought) in another. Convertible Arbitrage Includes the purchase of convertible securities and the sale of the underlying common stock. These securities tend to be convertible bonds or convertible preferred stocks that may be converted into the stock of the same company. This strategy strives to gain profits from potential pricing errors made in the conversion. Credit Arbitrage Seeks to exploit the mispricing of different classes of securities of the same company, and may invest in investment grade and/ or non investment grade corporate debt, credit derivatives, loans, equities, structured products, credit index securities and private debt. Merger Arbitrage Seeks to profit from the successful completion of corporate organizations. Hedging strategies are utilized to reduce market exposure and volatility. Multi-Strategy Offers investors exposure to a combination of strategies like long-short equity and debt, managed futures, global macro, and convertible arbitrage, among others. Global Macro Establishes long/short exposures around the globe to take advantage of what the manager believes to be attractive opportunities. May invest in fixed income and equities securities, a wide variety of derivative instruments, and commodities-related investments. underlying common stock. These securities tend to be attractive opportunities. May invest in fixed income and equities securities, a wide variety of derivative instruments, and commodities-related investments.