AlphaSector Value Proposition
AlphaSector Value Proposition Rick Tomney, F-Squared Investments Managing Director, Head of Advisor Solutions
Featured Presenter Richard F. Tomney Managing Director, Head of Advisor Solutions F-Squared Investments
Mr. Tomney is a Managing Director of the firm and is a member of the F-Squared Management Team and Investment Committee. Mr. Tomney has more than 29 years of experience in the investment industry with extensive investment and product development expertise.
2
Agenda • F-Squared investment philosophy and value proposition – Seeking to improve the investor experience through the full market cycle
• U.S. equity markets – where we are now • What investors are doing • What F-Squared is doing
3
Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
F-Squared Investment Philosophy •
New thinking for today’s markets – Seek to align investment results with the real needs of investors – Takes the emotion out of the investment equation – Designed to consistently deliver on well-defined investment expectations Legacy Model
•
F-Squared Investments
Bull Market
vs.
Full Market
Benchmark Centric
vs.
Client Centric
Offensive Bias
vs.
Defensive Bias
Buy & Hold
vs.
De-Risk / Re-Risk
The result: AlphaSector Model Index 4
Copyright 2015. Please see "Important Information" on final pages for disclosures that are an integral part of this presentation.
AlphaSector Construction Methodology •
Components include: – –
Nine exchange-traded funds (ETFs) reflecting the primary sectors of the U.S. economy Short-term Treasuries ETF Consumer Discr
Consumer Staples
Energy
Financials
Healthcare
Industrials
Materials
Tech
Utilities
•
Index is re-evaluated monthly
•
Sector ETFs are evaluated using a binary model – either IN or OUT of the Index –
•
Sector ETFs forecasted for a positive return are left in; sector ETFs forecasted for a decline are removed entirely
All sectors remaining IN the index are equal weighted at the time of rebalancing –
•
S-T Treasury
There is a maximum cap of 25% for any sector ETF at time of rebalance
When six or more sectors are OUT, the Index reduces exposure to equity ETFs – –
Increasing allocation in the S-T Treasury ETF: three sectors on = 25% in S-T Treasuries; two sectors on = 50% in S-T Treasuries; one sector on = 75% in S-T Treasuries Can go to 100% in S-T Treasuries if all nine sectors are eliminated 5
Copyright 2015. Please see "Important Information" on final pages for disclosures that are an integral part of this presentation.
AlphaSector Rotation (Monthly) Index •
Process objective –
•
Makes a probabilistic determination of the risk of decline for each component ETF
Investment decisions driven by two complementary engines –
Volatility (Dominant) •
–
•
Incorporates both direction and rate of change of volatility
Price momentum (Secondary)
Key aspects – – –
Price momentum modified by volatility through use of a “Dynamic Volatility Window” Utilizes intra-day volatility Proprietary volatility measure: “True Volatility ®” • •
True Volatility ® converts volatility data to a “step function” measure vs. traditional rolling (and thus lagging) measures such as standard deviation Basis of multiple patent applications 6
Copyright 2015. Please see "Important Information" on final pages for disclosures that are an integral part of this presentation.
AlphaSector Indexes Periodically Decide to Either Eliminate or Include a Sector from the Index (binary option)1 Historical End-of-Month Index Allocations since inception (10/2008) with Cumulative Return of AlphaSector Rotation Index and S&P 5001,2
S&P 500
THESE ARE INDEX RETURNS AND ARE NOT BASED ON ACTUAL ADVISORY CLIENT RETURNS. F-SQUARED DID NOT MANAGE ADVISORY CLIENT ASSETS UNTIL FEBRUARY 2009. Source: Morningstar, F-Squared Investments. 1Oct 2008 – Dec 2014. 2AlphaSector Index gross of fees, USD. Copyright 2015. Please see "Important Information" on final pages for disclosures that are an integral part of this presentation.
7
U.S. Market Update
8
Current Bull Market Already Amongst the Longest and Strongest Since 1929 U.S. equity bull markets 1929 – January 2015
Past performance is not indicative of future results. F-Squared analysis using Bloomberg and Morningstar data. Bull market defined as 20% or more rise in the S&P 500 closing price. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
9
Valuations are Nearing Historical Levels •
Forward P/E metrics at highest levels since 1997-2000 Tech Bubble S&P 500 Next 12 months (NTM) price-to-earnings ratio (P/E)
Month/Year
S&P 500 Last 12 months (LTM) price-to-book ratio (P/B)
Month/Year
Past performance is not indicative of future results. It is not possible to invest directly in an index. Source: FactSet, I/B/E/S, FirstCall, and Goldman Sachs Global Investment Research. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
10
Institutional Investors are Seemingly Becoming More Cautious and Reallocating
“U.S. equity strategies were another drag to the industry’s flow activity in the quarter, with $21.4 billion exiting those investments.” Evestment Institutional Investor Global Report, Q4 2014
11
Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
Are Investors Repeating Past Mistakes by “Piling in” at the Top of the Market? Investment Industry Flow Data vs. S&P 500 Index Return
Past performance is not indicative of future results. F-Squared analysis using Bloomberg and Morningstar data. Bull market defined as 20% or more rise in the S&P 500 closing price. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
12
Fund Investor’s Timing Decisions have Focused on Short-term Performance •
Resulting returns have lagged the market over the long term Average Annual Return: 20 years from 1994 ending 12/31/20131
S&P 500 Index
9.22%
Average Equity Fund Investor
5.02% 0%
2%
4%
6%
8%
Past performance is not indicative of future results. 1Source: “Quantitative Analysis of Investor Behavior, 2014,” DALBAR, Inc. Average equity investor performance results are calculated using data supplied to DALBAR, Inc. by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions and exchanges for each period. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
10%
13
A Common Mistake – Risking Accumulated Gains to Chase Risky, Late-stage Returns
Over 6 years of gains
Are investors risking gains to chase late-bull returns?
Late-Stage Bull Market Characteristics: •
Optimism, investor confidence and complacency about risk
•
Too many investors chase late-stage gains
•
Sophisticated investors seek to protect long-term gains by reallocating increasingly risky exposures
Past Performance is not indicative of future results. F-Squared analysis using Morningstar data. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
14
Downside Protection is Valuable but There is a Trade-off Impact of risk management on bull & bear performance Scenario 1
Scenario 2
Scenario 3
Market
Risk-
Market
Risk-
Market
Risk-
(or Passive
managed
(or Passive
managed
(or Passive
managed
Investment)
investment
Investment)
investment
Investment)
investment
Starting Value
$100
$100
$100
$100
$100
$100
% Decline during bear phase*
-50%
-10%
-35%
-10%
-25%
-10%
$50
$90
$65
$90
$75
$90
Value @ end of bear Market rise during bull phase
200%
200%
200%
Bull market participation rate
100%
75%
100%
75%
100%
75%
Value @ end of bull
$150
$225
$195
$225
$225
$225
•
Severity of the bear market and relative impact on the risk-managed investment (shown in blue) are the variables that drive the difference between the scenarios
The hypothetical scenarios displayed above are for illustrative purposes only. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
15
Conviction to Remain Defensive in Volatile Markets True volatility® metric by sector*, September-February 2015 September
October
True Volatility analysis by week November December
January
February
Sector 1 Sector 2 Sector 3 Sector 4 Sector 5 Sector 6 Sector 7 Sector 8 Sector 9
LEGEND: Direction and strength of the True Volatility metric Strong negative Negative Positive Strong positive *Represents the nine U.S. Equity sectors that are included in the AlphaSector Premium (U.S. Equity) strategy. Source: F-Squared Investments analysis using the proprietary True Volatility ® metric. Based on the sector signals on the following U.S. equity sectors: consumer discretionary, consumer staples, energy, financials, healthcare, industrials, materials, technology, and utilities, for the AlphaSector Model as determined by the FSquared quantitative engine’s daily observations. The data presented above is based on the versions of the AlphaSector Premium Model which was in use during this time period. Past performance is not indicative of future results.
16
Key Takeaways •
Lessons from history tell us that now is the time to consider risk protection
•
F-Squared has participated in six years of bull market gains*
•
Our AlphaSector Model detected heightened volatility in mid-October 2014 and moved defensively to a cash alternative position
•
Our TrueVolatility® measure has shown sustained elevated market volatility – As of Feb. 2015, our U.S. Equity Model continued to seek protection against elevated risk through significant allocation to a cash alternative position – Our model will follow our AlphaSector process and remain defensive if our TrueVolatility® measure continues to show elevated market volatility
*For the period October 2008 to December 2014, the AlphaSector Premium Index average annual return was 16.4% compared with the S&P 500 average annual return of 12.0%. Past performance is not indicative of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses and is not based on actual advisory client assets. Index performance does include the reinvestment of dividends and other distributions. F-Squared began managing advisory client assets in February 2009. Source: F-Squared Investments, Morningstar. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
17
AGF U.S. AlphaSector Class
18
AGF U.S. AlphaSector Class – Fund Facts •
Fund Start Date: August 8, 2013
•
Fund Type & Category: U.S. Equity
•
AUM: $674 million
•
Portfolio Sub-advisor: F-Squared Investments, Investment Committee
•
Number of Sectors Held: Two (Consumer Staples and Utilities) –
Seven OFF (Cash & Cash Equivalents held in lieu)
•
Intended Weight per Sector Held: 25%*
•
Investable Cash: 0.9%
•
Geographical Breakdown: 99.1% U.S. Equity
Source: AGF Investment Operations, as of March 31, 2015. *Maximum allowable weight per remaining sectors. Reported sector weight percentages may vary due to market price fluctuations. Fund rebalances, when necessary, upon the last Friday of the month, given AlphaSector Rotation Index Monthly Model indications.
19
AGF U.S. AlphaSector Class – Most Recent Month-end Sector Weights Two Sectors “ON” as of March 31, 2015*
Weighting*
Consumer Staples Select Sector SPDR
26.0%
Utilities Select Sector SPDR
23.5%
Consumer Discretionary
OFF
Technology**
OFF
Industrials
OFF
Health Care
OFF
Financials
OFF
Materials
OFF
Energy
OFF
SPDR Barclays one-three month T-Bills
49.6% Total
99.1%
Source: AGF Investment Operations, as of March 31, 2015. *Weight shown is market value as of February 28, 2015 (including cash) as per Fund Profile whose reporting lags by one month. **For investment purposes, the Fund combines Telecommunication Services and Information Technology into one holding – Technology Select Sector SPDR. Portfolio includes cash by intent when down to 3 sectors (25%). At two sectors ON then is at 50% as maximum weight per ON sector is 25%.
20
AGF U.S. AlphaSector Class – On and Off Sector Weights Since Launch
Source: AGF Investment Operations, as of March 31, 2015. For illustrative purposes only. Actual sector weights may differ slightly from the equally weighted numbers shown above. Allocations represent the monthly signals provided by F-Squared Investments, not the actual date upon which AGF executed trades. For investment purposes, the Fund combines Telecommunication Services and Information Technology into one holding – Technology Select Sector SPDR. Reporting lags one month.
21
Performance Returns As of March 31, 2015
1 month
3 month
6 month
1 year
PSD*
AGF U.S. AlphaSector Class (Net)
-0.4%
3.7%
9.8%
16.3%
20.9%
S&P 500 Index
-0.3%
10.1%
19.6%
28.6%
32.6%
Source : AGF Investment Operations, as of March 31, 2014. Results as shown are MF Series, net of fees and Canadian dollar. *Performance Start Date: August 8, 2013.
22
Explanation and Promotional Tools Executive Summary for Advisors
Top 10 FAQ client piece
AlphaSector Model explanation tool
S&P 500 Market Volatility tool (Advisor)
AGF U.S. AlphaSector Class overview for clients
AlphaSector Monthly Model client brochure
Visit www.agf.com/alphasector for more information and support tools
23
Why AGF U.S. AlphaSector Class and Why Now • Unique and innovative solution to participate in U.S. market with expected less downside risk • Aims to deliver protection in down markets and participation in up markets • Client centric vs. benchmark centric • Brings to Canada for the first time the expertise of F-Squared – leaders in Rethinking Risk
24
Important Information “AlphaSector®” is a pending trademark of F-Squared Investments, Inc. and is used with permission. This material is proprietary and may not be reproduced, transferred or distributed in any form without prior written permission from F-Squared Investment Management, LLC or one of its subsidiaries (collectively, “F-Squared Investments” or “FSquared”). F-Squared reserves the right at any time and without notice to change, amend, or cease publication of the information contained herein. This material has been prepared solely for informative purposes. The information contained herein includes information that has been obtained from third party sources and has not been independently verified. It is made available on an "as is" basis without warranty. Investment products that may be based on AlphaSector index may not be sponsored by F-Squared, and in such cases, F-Squared does not make any representation regarding the advisability of investing in them. F-Squared serves as the model provider to various investment advisers. There is no guarantee that an investor’s account will achieve its objectives or avoid losses. Inclusion of a mutual fund or an exchange traded fund in an AlphaSector index does not in any way reflect an opinion of F-Squared regarding the investment merits of such a fund, nor should it be interpreted as an offer to buy or sell such fund’s securities. None of the mutual funds or exchange traded funds included in an index has given any real or implied endorsement or support to F-Squared or to this index. An investor cannot invest directly in an index. F-Squared receives compensation in connection with licensing rights to the AlphaSector indexes to third parties, typically through a Model Manager Agreement. All information relating to an index is impersonal and not tailored to the specific financial circumstances of any person, entity or group of persons. Given the results shown are that of an index, they do not reflect the deduction of any advisory fees or expenses, nor trading costs, both of which will decrease the return experienced by a client. Note that F-Squared’s Model Management clients are responsible for trading and will therefore encounter third party fees for which F-Squared is not responsible. FSquared’s fees and anticipated expenses will be specified in each client agreement. F-Squared’s fees will be made available upon request and are disclosed in its publicly-available Form ADV Part 2A. Performance data presented herein assumes investment and reinvestment of dividends.
…continues on next page
25
Important Information Returns shown for AlphaSector are Index returns and are not based on actual advisory client returns. F-Squared did not manage advisory client assets until February 2009. Because no investor may invest directly in an index, data for all AlphaSector indexes represented in this material does not reflect the actual trading of any client account. No representation is being made that any client will or is likely to achieve results similar to those presented herein. Most AlphaSector Indexes are evaluated for rebalancing on both a monthly basis (“Rotation”) or evaluated for rebalancing on a weekly basis (“Premium”). The following is a summary of the core AlphaSector strategy used for AGF U.S. AlphaSector Class which relies and acts on monthly signals. The AlphaSector U.S. Equity Index (“U.S. Equity”) is designed to provide exposure to the U.S. Equity market, and is constructed as an “asset allocation” overlay onto Exchange Traded Funds (“ETFs”) representing major sectors of the U.S. economy. F-Squared defines the inception date for U.S. Equity, the AlphaSector Premium Index and the AlphaSector Rotation Index as October 1, 2008. Asymmetry Ratio definition: this metric was developed by F-Squared Investments as an improvement on standard Up Capture/Down Capture measures. The Asymmetry Ratio compares Up Capture during bull markets with Down Capture during bear markets. A high Up Capture in bull markets indicates that the investment is delivering a high proportion of the market rise. A low Down Capture during bear markets indicates that the investment is performing well comparatively during a market decline. Asymmetry Ratio is defined as Up Capture in bull markets minus Down Capture in bear markets. The greater the gap between these two figures, the larger the Asymmetry Ratio, and the better the outcome. When generating an Asymmetry Ratio calculation for AlphaSector Indexes, the inception date of the index will be factored into the calculation. Thus the F-Squared analysis for the AlphaSector Premium Index, with an inception date of October 2008, will define the bear market as October 2008 – February 2009 and the bull market as March 2009 – March 2014. Where the Asymmetry Ratio for any strategy is presented, the period covered in the analysis is specified in the exhibit or text.
…continues on next page
26
Important Information The S&P 500 Index is a broad-based unmanaged index of 500 stocks, which is widely recognized as a representative of the equity market in general. None of the indexes referred to herein reflect the deduction of the fees and expenses to be borne by a client, whose managed account may trade and invest in different financial instruments than those in a particular index. Concentration, volatility and other risk characteristics of a client’s account also may differ from the indexes shown herein. Each of the above indexes is included merely to show general trends in the market during the periods indicated. Inclusion of these indexes is provided only for reference purposes and is not intended to imply that any AlphaSector index was comparable to any index in either composition or element of risk. There is no guarantee that any client will achieve performance similar to, or better than, an index mentioned herein. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Any projections, market outlooks or estimates in this presentation are forward-looking statements and are based upon certain assumptions and should not be construed as indicative of actual events that will occur. F-Squared may change the exposures and index compositions reflected herein at any time and in any manner in response to market conditions or other factors without prior notice to investors. .
…continues on next page
27
Important Information Past performance is not indicative of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses, and is not based on actual advisory client assets. Index performance does include the reinvestment of dividends and other distributions. F-Squared Investments began managing advisory client assets in February 2009. The views expressed in the referenced materials are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. The information provided herein does not constitute investment advice and is not a solicitation to buy or sell securities. “AlphaSector®” is a registered trademark of F-Squared Investments, Inc. and is used with permission. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from F-Squared Investment Management, LLC or one of its subsidiaries (collectively, “F-Squared Investments” or “F- Squared”). F-Squared reserves the right at any time and without notice to change, amend, or cease publication of the information contained herein. This material has been prepared solely for informative purposes. The information contained herein includes information that has been obtained from third-party sources and has not been independently verified. It is made available on an "as is" basis without warranty. Investment products that may be based on AlphaSector Indexes may not be sponsored by F-Squared, and in such cases, F-Squared does not make any representation regarding the advisability of investing in them. F-Squared serves as the model provider to various investment advisers. There is no guarantee that an investor’s account will achieve its objectives or avoid losses. Inclusion of a mutual fund or an exchange-traded fund in an AlphaSector Index does not in any way reflect an opinion of F-Squared regarding the investment merits of such a fund, nor should it be interpreted as an offer to buy or sell such fund’s securities. None of the mutual funds or exchange-traded funds included in an index has given any real or implied endorsement or support to F-Squared or to this index.
…continues on next page
28
Important Information F-Squared receives compensation in connection with licensing rights to the AlphaSector Indexes to third parties, typically through a Model Manager Agreement. All information relating to an index is impersonal and not tailored to the specific financial circumstances of any person, entity, or group of persons. Note that F-Squared’s Model Management clients are responsible for trading and will therefore encounter third-party fees for which F-Squared is not responsible. F-Squared’s fees and anticipated expenses will be specified in each client agreement. F-Squared’s fees will be made available upon request and are disclosed in its publicly available Form ADV Part 2A. Notes on True Volatility® True Volatility®, a proprietary technology for measuring volatility, is a sophisticated quantitative algorithm that converts intraday market price range data into a step-function volatility measure. It employs a procedure borrowed from the image processing community that allows us to efficiently remove the noise from the relevant data. The procedure scans a variety of time scales and identifies statistically significant trends. True Volatility is specifically designed to capture shifts in volatility regimes, specifically sudden increases in volatility. True Volatility is a piecewise constant (step) function, which makes it more suitable for the purposes of regime forecasting than other volatility models such as rolling standard deviation, EWMA and GARCH. F-Squared Investment Management, LLC or one of its subsidiaries is the source and the owner of all AlphaSector indexes and their performance information. The peer groups are comprised of all open end mutual funds tracked by Morningstar that, according to Morningstar, meet the listed investment category and was selected as a relevant comparison due to the similarity in investment objective of the profiled F-Squared index. Sources: Morningstar, F-Squared Investments. All rights reserved. A definition of all standard terms used in this presentation can be found at www.morningstar.com. For more information, visit our website at www.f-squaredinvestments.com. …continues on next page
29
AGF U.S. AlphaSector Class – Disclaimers AGF U.S. AlphaSector Class is a monthly model and relies on signals like those of the AlphaSector Rotation Model Index. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The commentaries contained herein are provided as a general source of information based on information available as of February 28, 2015 and March 31, 2015 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein. The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base falls below zero, you will have to pay capital gains tax on the amount below zero. The information contained herein is intended to provide you with general information related to investment alternatives and strategies and is not intended to be comprehensive investment advice applicable to the circumstances of a specific investor. Publication Date: April 20, 2015 30
Featured Presenter Richard F. Tomney Managing Director, Head of Advisor Solutions F-Squared Investments
Mr. Tomney is a Managing Director of the firm and is a member of the F-Squared Management Team and Investment Committee. Mr. Tomney has more than 29 years of experience in the investment industry with extensive investment and product development expertise.
2
Agenda • F-Squared investment philosophy and value proposition – Seeking to improve the investor experience through the full market cycle
• U.S. equity markets – where we are now • What investors are doing • What F-Squared is doing
3
Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
F-Squared Investment Philosophy •
New thinking for today’s markets – Seek to align investment results with the real needs of investors – Takes the emotion out of the investment equation – Designed to consistently deliver on well-defined investment expectations Legacy Model
•
F-Squared Investments
Bull Market
vs.
Full Market
Benchmark Centric
vs.
Client Centric
Offensive Bias
vs.
Defensive Bias
Buy & Hold
vs.
De-Risk / Re-Risk
The result: AlphaSector Model Index 4
Copyright 2015. Please see "Important Information" on final pages for disclosures that are an integral part of this presentation.
AlphaSector Construction Methodology •
Components include: – –
Nine exchange-traded funds (ETFs) reflecting the primary sectors of the U.S. economy Short-term Treasuries ETF Consumer Discr
Consumer Staples
Energy
Financials
Healthcare
Industrials
Materials
Tech
Utilities
•
Index is re-evaluated monthly
•
Sector ETFs are evaluated using a binary model – either IN or OUT of the Index –
•
Sector ETFs forecasted for a positive return are left in; sector ETFs forecasted for a decline are removed entirely
All sectors remaining IN the index are equal weighted at the time of rebalancing –
•
S-T Treasury
There is a maximum cap of 25% for any sector ETF at time of rebalance
When six or more sectors are OUT, the Index reduces exposure to equity ETFs – –
Increasing allocation in the S-T Treasury ETF: three sectors on = 25% in S-T Treasuries; two sectors on = 50% in S-T Treasuries; one sector on = 75% in S-T Treasuries Can go to 100% in S-T Treasuries if all nine sectors are eliminated 5
Copyright 2015. Please see "Important Information" on final pages for disclosures that are an integral part of this presentation.
AlphaSector Rotation (Monthly) Index •
Process objective –
•
Makes a probabilistic determination of the risk of decline for each component ETF
Investment decisions driven by two complementary engines –
Volatility (Dominant) •
–
•
Incorporates both direction and rate of change of volatility
Price momentum (Secondary)
Key aspects – – –
Price momentum modified by volatility through use of a “Dynamic Volatility Window” Utilizes intra-day volatility Proprietary volatility measure: “True Volatility ®” • •
True Volatility ® converts volatility data to a “step function” measure vs. traditional rolling (and thus lagging) measures such as standard deviation Basis of multiple patent applications 6
Copyright 2015. Please see "Important Information" on final pages for disclosures that are an integral part of this presentation.
AlphaSector Indexes Periodically Decide to Either Eliminate or Include a Sector from the Index (binary option)1 Historical End-of-Month Index Allocations since inception (10/2008) with Cumulative Return of AlphaSector Rotation Index and S&P 5001,2
S&P 500
THESE ARE INDEX RETURNS AND ARE NOT BASED ON ACTUAL ADVISORY CLIENT RETURNS. F-SQUARED DID NOT MANAGE ADVISORY CLIENT ASSETS UNTIL FEBRUARY 2009. Source: Morningstar, F-Squared Investments. 1Oct 2008 – Dec 2014. 2AlphaSector Index gross of fees, USD. Copyright 2015. Please see "Important Information" on final pages for disclosures that are an integral part of this presentation.
7
U.S. Market Update
8
Current Bull Market Already Amongst the Longest and Strongest Since 1929 U.S. equity bull markets 1929 – January 2015
Past performance is not indicative of future results. F-Squared analysis using Bloomberg and Morningstar data. Bull market defined as 20% or more rise in the S&P 500 closing price. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
9
Valuations are Nearing Historical Levels •
Forward P/E metrics at highest levels since 1997-2000 Tech Bubble S&P 500 Next 12 months (NTM) price-to-earnings ratio (P/E)
Month/Year
S&P 500 Last 12 months (LTM) price-to-book ratio (P/B)
Month/Year
Past performance is not indicative of future results. It is not possible to invest directly in an index. Source: FactSet, I/B/E/S, FirstCall, and Goldman Sachs Global Investment Research. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
10
Institutional Investors are Seemingly Becoming More Cautious and Reallocating
“U.S. equity strategies were another drag to the industry’s flow activity in the quarter, with $21.4 billion exiting those investments.” Evestment Institutional Investor Global Report, Q4 2014
11
Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
Are Investors Repeating Past Mistakes by “Piling in” at the Top of the Market? Investment Industry Flow Data vs. S&P 500 Index Return
Past performance is not indicative of future results. F-Squared analysis using Bloomberg and Morningstar data. Bull market defined as 20% or more rise in the S&P 500 closing price. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
12
Fund Investor’s Timing Decisions have Focused on Short-term Performance •
Resulting returns have lagged the market over the long term Average Annual Return: 20 years from 1994 ending 12/31/20131
S&P 500 Index
9.22%
Average Equity Fund Investor
5.02% 0%
2%
4%
6%
8%
Past performance is not indicative of future results. 1Source: “Quantitative Analysis of Investor Behavior, 2014,” DALBAR, Inc. Average equity investor performance results are calculated using data supplied to DALBAR, Inc. by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions and exchanges for each period. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
10%
13
A Common Mistake – Risking Accumulated Gains to Chase Risky, Late-stage Returns
Over 6 years of gains
Are investors risking gains to chase late-bull returns?
Late-Stage Bull Market Characteristics: •
Optimism, investor confidence and complacency about risk
•
Too many investors chase late-stage gains
•
Sophisticated investors seek to protect long-term gains by reallocating increasingly risky exposures
Past Performance is not indicative of future results. F-Squared analysis using Morningstar data. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
14
Downside Protection is Valuable but There is a Trade-off Impact of risk management on bull & bear performance Scenario 1
Scenario 2
Scenario 3
Market
Risk-
Market
Risk-
Market
Risk-
(or Passive
managed
(or Passive
managed
(or Passive
managed
Investment)
investment
Investment)
investment
Investment)
investment
Starting Value
$100
$100
$100
$100
$100
$100
% Decline during bear phase*
-50%
-10%
-35%
-10%
-25%
-10%
$50
$90
$65
$90
$75
$90
Value @ end of bear Market rise during bull phase
200%
200%
200%
Bull market participation rate
100%
75%
100%
75%
100%
75%
Value @ end of bull
$150
$225
$195
$225
$225
$225
•
Severity of the bear market and relative impact on the risk-managed investment (shown in blue) are the variables that drive the difference between the scenarios
The hypothetical scenarios displayed above are for illustrative purposes only. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
15
Conviction to Remain Defensive in Volatile Markets True volatility® metric by sector*, September-February 2015 September
October
True Volatility analysis by week November December
January
February
Sector 1 Sector 2 Sector 3 Sector 4 Sector 5 Sector 6 Sector 7 Sector 8 Sector 9
LEGEND: Direction and strength of the True Volatility metric Strong negative Negative Positive Strong positive *Represents the nine U.S. Equity sectors that are included in the AlphaSector Premium (U.S. Equity) strategy. Source: F-Squared Investments analysis using the proprietary True Volatility ® metric. Based on the sector signals on the following U.S. equity sectors: consumer discretionary, consumer staples, energy, financials, healthcare, industrials, materials, technology, and utilities, for the AlphaSector Model as determined by the FSquared quantitative engine’s daily observations. The data presented above is based on the versions of the AlphaSector Premium Model which was in use during this time period. Past performance is not indicative of future results.
16
Key Takeaways •
Lessons from history tell us that now is the time to consider risk protection
•
F-Squared has participated in six years of bull market gains*
•
Our AlphaSector Model detected heightened volatility in mid-October 2014 and moved defensively to a cash alternative position
•
Our TrueVolatility® measure has shown sustained elevated market volatility – As of Feb. 2015, our U.S. Equity Model continued to seek protection against elevated risk through significant allocation to a cash alternative position – Our model will follow our AlphaSector process and remain defensive if our TrueVolatility® measure continues to show elevated market volatility
*For the period October 2008 to December 2014, the AlphaSector Premium Index average annual return was 16.4% compared with the S&P 500 average annual return of 12.0%. Past performance is not indicative of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses and is not based on actual advisory client assets. Index performance does include the reinvestment of dividends and other distributions. F-Squared began managing advisory client assets in February 2009. Source: F-Squared Investments, Morningstar. Copyright 2015. Please see “Important Information” at end for disclosures that are integral part of this presentation.
17
AGF U.S. AlphaSector Class
18
AGF U.S. AlphaSector Class – Fund Facts •
Fund Start Date: August 8, 2013
•
Fund Type & Category: U.S. Equity
•
AUM: $674 million
•
Portfolio Sub-advisor: F-Squared Investments, Investment Committee
•
Number of Sectors Held: Two (Consumer Staples and Utilities) –
Seven OFF (Cash & Cash Equivalents held in lieu)
•
Intended Weight per Sector Held: 25%*
•
Investable Cash: 0.9%
•
Geographical Breakdown: 99.1% U.S. Equity
Source: AGF Investment Operations, as of March 31, 2015. *Maximum allowable weight per remaining sectors. Reported sector weight percentages may vary due to market price fluctuations. Fund rebalances, when necessary, upon the last Friday of the month, given AlphaSector Rotation Index Monthly Model indications.
19
AGF U.S. AlphaSector Class – Most Recent Month-end Sector Weights Two Sectors “ON” as of March 31, 2015*
Weighting*
Consumer Staples Select Sector SPDR
26.0%
Utilities Select Sector SPDR
23.5%
Consumer Discretionary
OFF
Technology**
OFF
Industrials
OFF
Health Care
OFF
Financials
OFF
Materials
OFF
Energy
OFF
SPDR Barclays one-three month T-Bills
49.6% Total
99.1%
Source: AGF Investment Operations, as of March 31, 2015. *Weight shown is market value as of February 28, 2015 (including cash) as per Fund Profile whose reporting lags by one month. **For investment purposes, the Fund combines Telecommunication Services and Information Technology into one holding – Technology Select Sector SPDR. Portfolio includes cash by intent when down to 3 sectors (25%). At two sectors ON then is at 50% as maximum weight per ON sector is 25%.
20
AGF U.S. AlphaSector Class – On and Off Sector Weights Since Launch
Source: AGF Investment Operations, as of March 31, 2015. For illustrative purposes only. Actual sector weights may differ slightly from the equally weighted numbers shown above. Allocations represent the monthly signals provided by F-Squared Investments, not the actual date upon which AGF executed trades. For investment purposes, the Fund combines Telecommunication Services and Information Technology into one holding – Technology Select Sector SPDR. Reporting lags one month.
21
Performance Returns As of March 31, 2015
1 month
3 month
6 month
1 year
PSD*
AGF U.S. AlphaSector Class (Net)
-0.4%
3.7%
9.8%
16.3%
20.9%
S&P 500 Index
-0.3%
10.1%
19.6%
28.6%
32.6%
Source : AGF Investment Operations, as of March 31, 2014. Results as shown are MF Series, net of fees and Canadian dollar. *Performance Start Date: August 8, 2013.
22
Explanation and Promotional Tools Executive Summary for Advisors
Top 10 FAQ client piece
AlphaSector Model explanation tool
S&P 500 Market Volatility tool (Advisor)
AGF U.S. AlphaSector Class overview for clients
AlphaSector Monthly Model client brochure
Visit www.agf.com/alphasector for more information and support tools
23
Why AGF U.S. AlphaSector Class and Why Now • Unique and innovative solution to participate in U.S. market with expected less downside risk • Aims to deliver protection in down markets and participation in up markets • Client centric vs. benchmark centric • Brings to Canada for the first time the expertise of F-Squared – leaders in Rethinking Risk
24
Important Information “AlphaSector®” is a pending trademark of F-Squared Investments, Inc. and is used with permission. This material is proprietary and may not be reproduced, transferred or distributed in any form without prior written permission from F-Squared Investment Management, LLC or one of its subsidiaries (collectively, “F-Squared Investments” or “FSquared”). F-Squared reserves the right at any time and without notice to change, amend, or cease publication of the information contained herein. This material has been prepared solely for informative purposes. The information contained herein includes information that has been obtained from third party sources and has not been independently verified. It is made available on an "as is" basis without warranty. Investment products that may be based on AlphaSector index may not be sponsored by F-Squared, and in such cases, F-Squared does not make any representation regarding the advisability of investing in them. F-Squared serves as the model provider to various investment advisers. There is no guarantee that an investor’s account will achieve its objectives or avoid losses. Inclusion of a mutual fund or an exchange traded fund in an AlphaSector index does not in any way reflect an opinion of F-Squared regarding the investment merits of such a fund, nor should it be interpreted as an offer to buy or sell such fund’s securities. None of the mutual funds or exchange traded funds included in an index has given any real or implied endorsement or support to F-Squared or to this index. An investor cannot invest directly in an index. F-Squared receives compensation in connection with licensing rights to the AlphaSector indexes to third parties, typically through a Model Manager Agreement. All information relating to an index is impersonal and not tailored to the specific financial circumstances of any person, entity or group of persons. Given the results shown are that of an index, they do not reflect the deduction of any advisory fees or expenses, nor trading costs, both of which will decrease the return experienced by a client. Note that F-Squared’s Model Management clients are responsible for trading and will therefore encounter third party fees for which F-Squared is not responsible. FSquared’s fees and anticipated expenses will be specified in each client agreement. F-Squared’s fees will be made available upon request and are disclosed in its publicly-available Form ADV Part 2A. Performance data presented herein assumes investment and reinvestment of dividends.
…continues on next page
25
Important Information Returns shown for AlphaSector are Index returns and are not based on actual advisory client returns. F-Squared did not manage advisory client assets until February 2009. Because no investor may invest directly in an index, data for all AlphaSector indexes represented in this material does not reflect the actual trading of any client account. No representation is being made that any client will or is likely to achieve results similar to those presented herein. Most AlphaSector Indexes are evaluated for rebalancing on both a monthly basis (“Rotation”) or evaluated for rebalancing on a weekly basis (“Premium”). The following is a summary of the core AlphaSector strategy used for AGF U.S. AlphaSector Class which relies and acts on monthly signals. The AlphaSector U.S. Equity Index (“U.S. Equity”) is designed to provide exposure to the U.S. Equity market, and is constructed as an “asset allocation” overlay onto Exchange Traded Funds (“ETFs”) representing major sectors of the U.S. economy. F-Squared defines the inception date for U.S. Equity, the AlphaSector Premium Index and the AlphaSector Rotation Index as October 1, 2008. Asymmetry Ratio definition: this metric was developed by F-Squared Investments as an improvement on standard Up Capture/Down Capture measures. The Asymmetry Ratio compares Up Capture during bull markets with Down Capture during bear markets. A high Up Capture in bull markets indicates that the investment is delivering a high proportion of the market rise. A low Down Capture during bear markets indicates that the investment is performing well comparatively during a market decline. Asymmetry Ratio is defined as Up Capture in bull markets minus Down Capture in bear markets. The greater the gap between these two figures, the larger the Asymmetry Ratio, and the better the outcome. When generating an Asymmetry Ratio calculation for AlphaSector Indexes, the inception date of the index will be factored into the calculation. Thus the F-Squared analysis for the AlphaSector Premium Index, with an inception date of October 2008, will define the bear market as October 2008 – February 2009 and the bull market as March 2009 – March 2014. Where the Asymmetry Ratio for any strategy is presented, the period covered in the analysis is specified in the exhibit or text.
…continues on next page
26
Important Information The S&P 500 Index is a broad-based unmanaged index of 500 stocks, which is widely recognized as a representative of the equity market in general. None of the indexes referred to herein reflect the deduction of the fees and expenses to be borne by a client, whose managed account may trade and invest in different financial instruments than those in a particular index. Concentration, volatility and other risk characteristics of a client’s account also may differ from the indexes shown herein. Each of the above indexes is included merely to show general trends in the market during the periods indicated. Inclusion of these indexes is provided only for reference purposes and is not intended to imply that any AlphaSector index was comparable to any index in either composition or element of risk. There is no guarantee that any client will achieve performance similar to, or better than, an index mentioned herein. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Any projections, market outlooks or estimates in this presentation are forward-looking statements and are based upon certain assumptions and should not be construed as indicative of actual events that will occur. F-Squared may change the exposures and index compositions reflected herein at any time and in any manner in response to market conditions or other factors without prior notice to investors. .
…continues on next page
27
Important Information Past performance is not indicative of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses, and is not based on actual advisory client assets. Index performance does include the reinvestment of dividends and other distributions. F-Squared Investments began managing advisory client assets in February 2009. The views expressed in the referenced materials are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. The information provided herein does not constitute investment advice and is not a solicitation to buy or sell securities. “AlphaSector®” is a registered trademark of F-Squared Investments, Inc. and is used with permission. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from F-Squared Investment Management, LLC or one of its subsidiaries (collectively, “F-Squared Investments” or “F- Squared”). F-Squared reserves the right at any time and without notice to change, amend, or cease publication of the information contained herein. This material has been prepared solely for informative purposes. The information contained herein includes information that has been obtained from third-party sources and has not been independently verified. It is made available on an "as is" basis without warranty. Investment products that may be based on AlphaSector Indexes may not be sponsored by F-Squared, and in such cases, F-Squared does not make any representation regarding the advisability of investing in them. F-Squared serves as the model provider to various investment advisers. There is no guarantee that an investor’s account will achieve its objectives or avoid losses. Inclusion of a mutual fund or an exchange-traded fund in an AlphaSector Index does not in any way reflect an opinion of F-Squared regarding the investment merits of such a fund, nor should it be interpreted as an offer to buy or sell such fund’s securities. None of the mutual funds or exchange-traded funds included in an index has given any real or implied endorsement or support to F-Squared or to this index.
…continues on next page
28
Important Information F-Squared receives compensation in connection with licensing rights to the AlphaSector Indexes to third parties, typically through a Model Manager Agreement. All information relating to an index is impersonal and not tailored to the specific financial circumstances of any person, entity, or group of persons. Note that F-Squared’s Model Management clients are responsible for trading and will therefore encounter third-party fees for which F-Squared is not responsible. F-Squared’s fees and anticipated expenses will be specified in each client agreement. F-Squared’s fees will be made available upon request and are disclosed in its publicly available Form ADV Part 2A. Notes on True Volatility® True Volatility®, a proprietary technology for measuring volatility, is a sophisticated quantitative algorithm that converts intraday market price range data into a step-function volatility measure. It employs a procedure borrowed from the image processing community that allows us to efficiently remove the noise from the relevant data. The procedure scans a variety of time scales and identifies statistically significant trends. True Volatility is specifically designed to capture shifts in volatility regimes, specifically sudden increases in volatility. True Volatility is a piecewise constant (step) function, which makes it more suitable for the purposes of regime forecasting than other volatility models such as rolling standard deviation, EWMA and GARCH. F-Squared Investment Management, LLC or one of its subsidiaries is the source and the owner of all AlphaSector indexes and their performance information. The peer groups are comprised of all open end mutual funds tracked by Morningstar that, according to Morningstar, meet the listed investment category and was selected as a relevant comparison due to the similarity in investment objective of the profiled F-Squared index. Sources: Morningstar, F-Squared Investments. All rights reserved. A definition of all standard terms used in this presentation can be found at www.morningstar.com. For more information, visit our website at www.f-squaredinvestments.com. …continues on next page
29
AGF U.S. AlphaSector Class – Disclaimers AGF U.S. AlphaSector Class is a monthly model and relies on signals like those of the AlphaSector Rotation Model Index. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The commentaries contained herein are provided as a general source of information based on information available as of February 28, 2015 and March 31, 2015 and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein. The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base falls below zero, you will have to pay capital gains tax on the amount below zero. The information contained herein is intended to provide you with general information related to investment alternatives and strategies and is not intended to be comprehensive investment advice applicable to the circumstances of a specific investor. Publication Date: April 20, 2015 30
