FAC FAC Equity Yield Plus (EYP)
CONCENTRATED OPTIONS STRATEGY
FAC First Advisors Capital®, Inc. A Registered Investment Advisor
PORTFOLIO FACTS 09-29-2017
• Manager: S. Corcoran • Inception Date: 08-21-2015 • Minimum: $250,000 • Offering Type: Cash/Short Term Bonds with Concentrated Options Based Put/Write Strategy, Absolute Return
• In Kind Assets Accepted: No • Application • • • •
Alternative within Income Investing Core Holding Within an Income Producing Portfolio As a Ballast to Equities At Risk Level 2 an Alternative to High Direct Market Exposure Stock Investing
PORTFOLIO MAKE UP
• Primary: 0-100% Short-term bonds/cash/Short Term HQ, U.S. Gov't Treasuries, Money Funds*
• Secondary: 0-20% Vertical Spreads on SPX/Secured Puts on (HQ Div Stocks, LCV/MCV )
• Margin Use: None
* Management may supplement individual debt securities with various prime money market funds. Expected Annual Embedded Fund Costs Approximately: 0.15%^ ^(All returns will be net of all actual fees)
R I S K M E T R I C S 6 (AT RISK LEVEL 1)
• Market Correlation: Agnostic • Beta:–0.077 SPX : 1
• Average Market Exposure: 3.96% SPX : 100%
• Sharpe Ratio: 0.99 SPX : 1.47
• Standard Deviation 4 : 3.58
SPX : 7.27 • Avg Compound Frequency: 23 Days
PLATFORM
• Custodian: • Daily Performance/Risk Analytics (PA) available at www.myfac.com
• Type: Non-transactional/Asset Based • Annual Platform Cost: 20bps For institutional marketing, contact Jon Lindberg (205) 223–2200 · [email protected] ®
w w w. m y f a c .c o m For additional disclosures on advisor fees please review FAC’s or your advisor’s most recent Investment Advisory Fee Schedule. Please review with your advisor your particular risk profile. Fees are deducted annually on a quarterly basis in advance. First Advisors Capital, Inc. is a registered trademark, all rights reserved. It is strictly prohibited to use any information contained in this fact sheet without express written consent.
NOT FDIC INSURED/NO BANK GUARANTEES/MAY LOSE VALUE
3RD QUARTER 2017
FAC Equity Yield Plus (EYP) A Lower Risk/Market Exposure, High Compounding Yield Alternative to Traditional Income Investing Overview First Advisors Capital, Inc. (FAC) Equity Yield Plus (EYP) is a much needed solution for those seeking retirement income/yield or those who have a lower tolerance for risk, but wish to protect their future purchasing power. This unique proprietary methodology offers much lower volatility and less direct market exposure to large drawdowns, which can be detrimental to clients seeking income or who have limited time horizons. It also offers a higher compounding yield than traditional disciplines.
Investment Philosophy We believe market volatility can be efficiently addressed through the selling of options by professionals. Though gains are not guaranteed, this strategy provides more risk control, far less direct market exposure, and higher compounding yield on any realized gains. EYP attempts to expose the client to much shorter market periods (average contract length is less than 30 days) and more favorable pricing conditions than traditional yield- producing investing.
The Power of Negative Returns Today’s market has forced retirees and those seeking yield to take greater risk than ever before. Many of them fail to realize the impact that withdrawals and negative performance may have on risk-laden stock portfolios. If a portfolio grows less than the original projection for just one market cycle (typically four or five years), the likelihood of its ever catching up with original projections is severely diminished. Investors often don’t realize that the percentage gain required to break even after a loss and/or withdrawal is significantly higher than the loss or withdrawal itself.
Why Sequence Matters The industry has always taken a linear, largely simplistic, approach when advising income seekers to systematically draw down assets to finance retirement. In real life, stocks go up and down, provide poor yield, and are inefficient in compounding within a buy and hold methodology. It is important to understand that if the actual yield of a portfolio cannot meet net distribution requirements, shares must be liquidated, regardless of market direction, to make up for the shortfall.
Examples Even if there are no distributions and a portfolio loses 10%, the investor must gain 11.1% to break even. However, if the investor is also taking 6% annual distributions while the 10% loss occurs, he or she will have to gain 30% over the next 3 years just to break even, due to the Time Value of Fluctuations3 Routine losses of just 10% are very real, and periodically spread out over one’s retirement, can be detrimental. The greater the market draw down, the greater the required return to break even. Therefore, in taking 6% annual distributions, a market loss of 20% requires a subsequent 51% gain over the next 3 years, while a loss of 30% requires a subsequent 74% gain over the same time period to break even.
Short Term Bonds/Cash is King As they say, “Cash is King,” and EYP proves this. It gives investors a store of short-term bonds/ cash that can be used to help balance market losses. EYP’s managers hold the majority of the portfolio in short-term bonds/cash pursuant to taking smaller and shorter-term leveraged positions using options. EYP attempts to maintain the shortest and lowest market exposure possible, in pursuit of respective targeted yields. It shows that WHEN you invest your short-term bonds/cash, can be even more important from an overall return prospective, than WHAT you are investing in.
An Alternative to Bonds and a Compliment to Stocks FAC’s Equity Yield Plus (EYP) offers a meaningful professionally managed solution for retirees in today’s current market environment of high stock valuations, low interest rates, frequent volatility, uncertain global risks, and negative directional pricing. It also gives yield-seekers a proven alternative to open-ended market exposure of stocks and bonds, that still protect their future purchasing power, while holding the majority of the portfolio in short-term bond/cash. With shorter and lower market exposures, high compounding yields, and full liquidity, EYP provides a meaningful solution for those seeking low-volatility income and/or those with shorter time horizons. 10192017
FIRST ADVISORS CAPITAL®, INC. EQUITY YIELD PLUS (EYP)
9-29-2017
Two Levels of Distinct Market Exposures and Target Returns 5,6,7 EYP is offered in 2 Distinct Risk/Return Levels*, as it pertains to portfolios/market exposures, thus allowing clients to tailor their risk exposure within their specific income needs, all the while enjoying liquidity and low direct interest rate risk. This allows clients to be far more specific in their funding and distribution goals without the open-ended market risk exposures, liquidity, and interest rate issues of traditional Equity Income investing.
Traditional 70%-30% Stock/Bond Portfolio*^
Stock 60%–70%
Bonds 20%–30%
Equity Yield Plus (EYP)
AVG. RISK/YIE LD ME T RICS NET OF MAX FEES/EXP
7.57
Std. Dev.
3.58
1.00
Sharpe
0.99
0.86
Beta
-0.077
2.02%
Yield 12 mo.
6.92%
70%
Max. Stk. Mkt. Exp.
20%
29%
Max. Drawdown
RISK* LEVEL8, 9
CONTRACT MULTIPLE9
TARGET PORTFOLIO EXPOSURE RANGE6
NET TARGET ANNUAL ROR RANGE1,2,5,7
1
1
0–10%
6–9%
2
2
0–20%
9–15%
HISTORICAL REALIZED RETURNS & AVG. MARKET EXPOSURE PER CONTRACT RISK LEVEL1,2,5,7
All returns include maximum platform and advisor fees Options 0%–20%
Cash/Short Term High Grade Bonds U.S. Treasury Bills/Money Funds
10%
80%–100%
When compared to traditional equity Income investing, EYP offers far less direct stock market exposure, higher yield, and far greater portfolio liquidity. EYP takes a minority position within the portfolio (Risk Level 1: 0-10%, Risk Level 2: 0-20%) to write options that generate premium pursuant to yield. These net option premium debit/credits are realized on average every 23 days, which greatly increases compounding frequencies. These methodoligies pursues a higher yield compounding, and liquidity needs for those that require income and/or have short-term investment time horizons. EYP at Risk Level 1 may serve as a compliment or alternitive to: Cash, Money Market, CD's, Annuities both fixed and variable, as well as core holding within a Stock Dividend portfolio. At Risk Level 2, EYP may serve as an alternative to high direct market exposure stock investing, while the majority of the portfolio remains in Cash/High Quality Short Term bonds and or prime money market funds. It is very important to note that EYP (unlike more traditional options programs) follows very strict risk/market/ portfolio exposure mandates. Though not guaranteed, EYP's goal is to meet their target yields with as little direct market exposure as possible. This risk mandate applied to various market conditions may cause yields to fall below targeted ranges, for various periods, however, this provides clients with the peace of mind in knowing, that if the market warrants higher risk exposures to stay within targeted, returns that FAC management will not take those risks, even if it means realizing less yield within the respective portfolio/market exposure targets.
Risk Level S&P 500 Index3 2 Realized w/o fees Yields ROR/Yld%
Periods
Risk Level 1 Realized Yields
1 Mo.
0.41%
0.83%
2.01/0.16
3 Mo.
1.34%
2.68%
4.42/0.55
6 Mo.
3.15%
6.31%
7.62/1.10
9 Mo.
5.77%
11.55%
13.99/1.65
YTD
5.77%
11.55%
13.99/1.65
1 Yr. Rolling
6.92%
13.83%
18.50/2.20
2 Yr. (HPR)
13.07%
26.14%
36.63/4.39
Cumulative Yields Since Inception 8-21-2015
13.72%
27.44%
33.17/4.76
Avg. Ann. Yield Since Inception
6.21%
12.66%
2.20%
Avg. Market Exposure3
3.96%
7.92%
100%
1. EYP is managed by FAC and offered as a Separate Managed Account (SMA) through TD Ameritrade. Due to the fact that SMAs are separately managed, there may be some discrepancies in clients actual results from account to account due to the following individual account attributes, that are not limited to: Account size, 100 round lot options contract minimums, withdrawals, deposits, and trade block synchronization. EYP's goal is to meet our target yields with as little market exposure as possible. FAC rates of return for Equity Yield Plus (EYP) are derived directly from an actual client account statements provided by TD Ameritrade within the Trading Block of EYP. Historical returns utilize Holding Period Return calculations. All returns are realized, include the reinvestment of dividends and other realized gains or losses, including the collection of net debit or credit options premiums. Partial year returns are cumulative, not annualized. One year annual returns are based on 12 month rolling periods. Multiple year returns are based on holding period returns. These returns include the deduction and compounding of MAXIMUM platform, management, and ADVISOR fees. Lower fees may be available, depending on, but not limited to: account balance size, sub-advisory, and client advisory agreements. 2. Every attempt by management is made to remain consistent with EYP’s methodologies, especially when addressing risk mandates; however, future market conditions, objectives may change materially in the future compared to the past time periods. This may affect future results of your investment account versus those posted past results. Other conditions that may affect returns include, but are not limited to: start dates, account balance, sub-advisory/client advisory agreements, withdrawal/deposit frequencies, non-managed holdings, short-term bonds/cash maintenance requirements, block trade synchronization, options contract mitigation, and taxes. 3. Average Market Exposure is based most recent rolling 12-month period. FAC provides the results to the S&P 500 Index total Holding Period Returns over the same time periods without the deduction of Fees and the market exposure is 100%. The S&P 500 Index is the sole property of Dow Jones/McGraw Hill. Time Value of Fluctuations reference technical, Financial Planning magazine August 2005, www.retirementoptimizer.com/articles/TimeValueFPAUs.pdf .
*^ Yield and risk metrics provided by Morningstar with a 70% holding in AWSHX and 30% in DODIX, A-shares. This strategy, though very low in direct market exposure, that which
is exposed to options, is not guaranteed, and involves market risks, including the permanent loss of some or all of the principal, subject to risk mitigation which may be exposed within the options discipline. 4. Even though every attempt by management is made to keep EYP’s methodology consistent, past returns may contain securities or strategies that management may no longer utilize due to present market conditions that may affect your future returns and market risk/ volatility, verses these posted results. These attributers may include but are not limited to: contract mitigation, 100 round lot option exposure respective of individual account balance, client selected risk exposure, advisory fee agreements, account deposit synchronization within the managed block, deposits/withdrawal frequency, and taxes. Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. 5. OPTIONS STRATEGIES ARE NOT GUARANTEED, INVOLVE MARKET RISK, INCLUDING PERMANENT LOSS OF PRINCIPAL. There may be additional risks involved in the use of options for hedging and other strategies. It is vital that investors understand these methodologies fully before engaging in options trading. Prior to participating in this offering, investors must receive a copy of Characteristics and Risks of Standardized Options. Copies of this and other required disclosures are available through your investment professional. In implementing Short-term bonds/cash Secured Puts on high quality dividend stocks (HQDS), it is not management's intention to purchase the respective stock, but to only collect the option premium in order to attempt to reduce the chance of owning and thus being tied directly to the stock’s valuation movements. Traditionally, where Short-term bonds/cash Secured Puts are used to attempt to purchase a stock at a possible lower than current market valuation, the outright stock buyer may be better off than the put writer, if the put is not assigned and the stock keeps rallying, but this is not EYP management’s goal. In implementing Vertical Put and Call Spreads on the SPX, it is EYP’s management's intention to attempt to close-out the pairing while still out of the money prior to the strike date in order to collect the option premium while attempting to maintain the shortest and lowest market exposure possible, in pursuit of respective targeted yields. EYP’s Vertical Spread methodology is pursuant to managements attempt to buy and sell a Put or Call option simultaneously, where the spread between the two constitutes the maximum risk of which management attempts to keep each paring in the range of 1% to 2% of the clients portfolio at Risk Level 1. However, unlike Short-term bonds/cash Secured Puts on HQDS where the maximum downside risk is owning the HQDS, the vertical spread if expires in of the money, the entire exposure can be lost. To mitigate this risk, though not guaranteed, management will attempt to buy-back, roll forward and then re-open the pairing at a net debit or credit in order to sell time to attempt to eventually close the position out of the money– this can be done repeatedly over time. Though not guaranteed, with Vertical Puts, management wants the Index to move up and away from the pairing and with Calls, down and away. Even though this methodology limits profits, it is the risk control that is always a priority with EYP’s methodology, unlike the more traditional use of options of leveraging risk in an attempt to maximize profits. EYP attempts to non-traditionally maintain the shortest and lowest market exposure possible, in pursuit of respective targeted yields, as risk control takes priority over returns. 6. RISK METRICS: All statistical metrics for EYP are calculated by FAC, and are based on the immediate 12 month rolling period. Market Correlation: the degree to which two securities move in relation to each other. Beta: The tendency of a security’s returns to respond to swings in the market vs a comparable Index or other chosen benchmark. Market Exposure: The dollar amount or respective percentage of overall portfolio invested in a marketable security, option contract, market sector or industry. Sharpe Ratio: is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Standard Deviation is a measure of the dispersion of a set of data from its mean; more spread-apart data has a higher deviation, and is calculated as the square root of variance and is applied to the annual rate of return of an investment to measure the investment’s volatility. SPX Risk Metrics based on 3 Yr. Avg., provided by MorningStar®. 7. Risk mandates are paramount to this methodology but are NOT GUARANTEED. EYP will hold high average Short-term bonds/cash account balances, which is intended to provide targeted yields utilizing the lowest possible market exposure. Though results are not guaranteed, by mandate, returns will NOT be directly correlated to the overall market including EYP’s comparable index. 8. Vertical (Call and or Put) Spreads as well as Short-term bonds/cash Secured Puts on high quality dividend stocks, may be utilized together or separately, however individually, they are initially scaled in at 1-3 % +/– of any one portfolio with an overall portfolio exposure of 10%* +/-at Risk Level 1*. Higher exposures may occur in certain instances pursuant to any required contract mitigation(s)*which may increase the portfolios overall exposure depending on the effect of the material market or economic conditions which could result in management closing out contracts at a loss verses accepting continued risk exposure. 9. TWO Available Risk Levels: LEVEL 1*: APPROXIMATELY 4% +/– MAXIMUM EXPOSURE PER ACCOUNT PER OPTION CONTRACT FOR CASH SECURED PUTS, AND 1.2% TO 2% PER ACCOUNT PER OPTION PAIRING FOR VERTICAL SPREADS. LEVEL 2: is 2X level 1. Increasing contract risk multiples will increase market exposure, and thus beta, risk to principal, market risk/losses and possible returns. This information is believed to be accurate, but has not been independently verified. Past performance is no guarantee of future results. Investing involves risk including the permanent loss of principal. There is no guarantee that these methodologies and offerings that FAC manages will perform better than any other comparable methodology, offering or index. Please review your Investment Advisory Services Agreement, ADV 2a /2b, Fee Schedules and Custodial Disclosures including Characteristics and Risks of Standardized Options before investing.
F i r s t A dvi s or s C ap i t a l ®, Inc. • 495 6 Va l l eyda l e Ro a d S uite • 203 Birming h am, Alab ama 35242 • 1-866-353-8484• support@m y f a c.com
Firs t A d v i s o r s C api t al ®, I n c i s a Regi s ter e d Inve stme nt Ad vis o r (RIA). Fir s t Ad v isors C a pita l® , In c, is in d e pe n d e n t of P roE qu itie s, In c. Se cu ritie s of f e re d throu g h Pr o E q ui t i es , I nc . m em ber FIN RA & SIP C. N O T F D I C I N S U R E D / N O B A N K G U A R A N T E E S / M AY L O S E V A L U E . F i r s t A dv i s o rs C api t al ®, I n c. i s a r eg ister e d tr ad emar k, all r ig hts r e se r ve d . It is prohib ite d to u se a n y in f orma tion con ta in e d in this f a ct she e t w ithou t e x p r es s w r i t t en c o ns ent .
FAC First Advisors Capital®, Inc. A Registered Investment Advisor
PORTFOLIO FACTS 09-29-2017
• Manager: S. Corcoran • Inception Date: 08-21-2015 • Minimum: $250,000 • Offering Type: Cash/Short Term Bonds with Concentrated Options Based Put/Write Strategy, Absolute Return
• In Kind Assets Accepted: No • Application • • • •
Alternative within Income Investing Core Holding Within an Income Producing Portfolio As a Ballast to Equities At Risk Level 2 an Alternative to High Direct Market Exposure Stock Investing
PORTFOLIO MAKE UP
• Primary: 0-100% Short-term bonds/cash/Short Term HQ, U.S. Gov't Treasuries, Money Funds*
• Secondary: 0-20% Vertical Spreads on SPX/Secured Puts on (HQ Div Stocks, LCV/MCV )
• Margin Use: None
* Management may supplement individual debt securities with various prime money market funds. Expected Annual Embedded Fund Costs Approximately: 0.15%^ ^(All returns will be net of all actual fees)
R I S K M E T R I C S 6 (AT RISK LEVEL 1)
• Market Correlation: Agnostic • Beta:–0.077 SPX : 1
• Average Market Exposure: 3.96% SPX : 100%
• Sharpe Ratio: 0.99 SPX : 1.47
• Standard Deviation 4 : 3.58
SPX : 7.27 • Avg Compound Frequency: 23 Days
PLATFORM
• Custodian: • Daily Performance/Risk Analytics (PA) available at www.myfac.com
• Type: Non-transactional/Asset Based • Annual Platform Cost: 20bps For institutional marketing, contact Jon Lindberg (205) 223–2200 · [email protected] ®
w w w. m y f a c .c o m For additional disclosures on advisor fees please review FAC’s or your advisor’s most recent Investment Advisory Fee Schedule. Please review with your advisor your particular risk profile. Fees are deducted annually on a quarterly basis in advance. First Advisors Capital, Inc. is a registered trademark, all rights reserved. It is strictly prohibited to use any information contained in this fact sheet without express written consent.
NOT FDIC INSURED/NO BANK GUARANTEES/MAY LOSE VALUE
3RD QUARTER 2017
FAC Equity Yield Plus (EYP) A Lower Risk/Market Exposure, High Compounding Yield Alternative to Traditional Income Investing Overview First Advisors Capital, Inc. (FAC) Equity Yield Plus (EYP) is a much needed solution for those seeking retirement income/yield or those who have a lower tolerance for risk, but wish to protect their future purchasing power. This unique proprietary methodology offers much lower volatility and less direct market exposure to large drawdowns, which can be detrimental to clients seeking income or who have limited time horizons. It also offers a higher compounding yield than traditional disciplines.
Investment Philosophy We believe market volatility can be efficiently addressed through the selling of options by professionals. Though gains are not guaranteed, this strategy provides more risk control, far less direct market exposure, and higher compounding yield on any realized gains. EYP attempts to expose the client to much shorter market periods (average contract length is less than 30 days) and more favorable pricing conditions than traditional yield- producing investing.
The Power of Negative Returns Today’s market has forced retirees and those seeking yield to take greater risk than ever before. Many of them fail to realize the impact that withdrawals and negative performance may have on risk-laden stock portfolios. If a portfolio grows less than the original projection for just one market cycle (typically four or five years), the likelihood of its ever catching up with original projections is severely diminished. Investors often don’t realize that the percentage gain required to break even after a loss and/or withdrawal is significantly higher than the loss or withdrawal itself.
Why Sequence Matters The industry has always taken a linear, largely simplistic, approach when advising income seekers to systematically draw down assets to finance retirement. In real life, stocks go up and down, provide poor yield, and are inefficient in compounding within a buy and hold methodology. It is important to understand that if the actual yield of a portfolio cannot meet net distribution requirements, shares must be liquidated, regardless of market direction, to make up for the shortfall.
Examples Even if there are no distributions and a portfolio loses 10%, the investor must gain 11.1% to break even. However, if the investor is also taking 6% annual distributions while the 10% loss occurs, he or she will have to gain 30% over the next 3 years just to break even, due to the Time Value of Fluctuations3 Routine losses of just 10% are very real, and periodically spread out over one’s retirement, can be detrimental. The greater the market draw down, the greater the required return to break even. Therefore, in taking 6% annual distributions, a market loss of 20% requires a subsequent 51% gain over the next 3 years, while a loss of 30% requires a subsequent 74% gain over the same time period to break even.
Short Term Bonds/Cash is King As they say, “Cash is King,” and EYP proves this. It gives investors a store of short-term bonds/ cash that can be used to help balance market losses. EYP’s managers hold the majority of the portfolio in short-term bonds/cash pursuant to taking smaller and shorter-term leveraged positions using options. EYP attempts to maintain the shortest and lowest market exposure possible, in pursuit of respective targeted yields. It shows that WHEN you invest your short-term bonds/cash, can be even more important from an overall return prospective, than WHAT you are investing in.
An Alternative to Bonds and a Compliment to Stocks FAC’s Equity Yield Plus (EYP) offers a meaningful professionally managed solution for retirees in today’s current market environment of high stock valuations, low interest rates, frequent volatility, uncertain global risks, and negative directional pricing. It also gives yield-seekers a proven alternative to open-ended market exposure of stocks and bonds, that still protect their future purchasing power, while holding the majority of the portfolio in short-term bond/cash. With shorter and lower market exposures, high compounding yields, and full liquidity, EYP provides a meaningful solution for those seeking low-volatility income and/or those with shorter time horizons. 10192017
FIRST ADVISORS CAPITAL®, INC. EQUITY YIELD PLUS (EYP)
9-29-2017
Two Levels of Distinct Market Exposures and Target Returns 5,6,7 EYP is offered in 2 Distinct Risk/Return Levels*, as it pertains to portfolios/market exposures, thus allowing clients to tailor their risk exposure within their specific income needs, all the while enjoying liquidity and low direct interest rate risk. This allows clients to be far more specific in their funding and distribution goals without the open-ended market risk exposures, liquidity, and interest rate issues of traditional Equity Income investing.
Traditional 70%-30% Stock/Bond Portfolio*^
Stock 60%–70%
Bonds 20%–30%
Equity Yield Plus (EYP)
AVG. RISK/YIE LD ME T RICS NET OF MAX FEES/EXP
7.57
Std. Dev.
3.58
1.00
Sharpe
0.99
0.86
Beta
-0.077
2.02%
Yield 12 mo.
6.92%
70%
Max. Stk. Mkt. Exp.
20%
29%
Max. Drawdown
RISK* LEVEL8, 9
CONTRACT MULTIPLE9
TARGET PORTFOLIO EXPOSURE RANGE6
NET TARGET ANNUAL ROR RANGE1,2,5,7
1
1
0–10%
6–9%
2
2
0–20%
9–15%
HISTORICAL REALIZED RETURNS & AVG. MARKET EXPOSURE PER CONTRACT RISK LEVEL1,2,5,7
All returns include maximum platform and advisor fees Options 0%–20%
Cash/Short Term High Grade Bonds U.S. Treasury Bills/Money Funds
10%
80%–100%
When compared to traditional equity Income investing, EYP offers far less direct stock market exposure, higher yield, and far greater portfolio liquidity. EYP takes a minority position within the portfolio (Risk Level 1: 0-10%, Risk Level 2: 0-20%) to write options that generate premium pursuant to yield. These net option premium debit/credits are realized on average every 23 days, which greatly increases compounding frequencies. These methodoligies pursues a higher yield compounding, and liquidity needs for those that require income and/or have short-term investment time horizons. EYP at Risk Level 1 may serve as a compliment or alternitive to: Cash, Money Market, CD's, Annuities both fixed and variable, as well as core holding within a Stock Dividend portfolio. At Risk Level 2, EYP may serve as an alternative to high direct market exposure stock investing, while the majority of the portfolio remains in Cash/High Quality Short Term bonds and or prime money market funds. It is very important to note that EYP (unlike more traditional options programs) follows very strict risk/market/ portfolio exposure mandates. Though not guaranteed, EYP's goal is to meet their target yields with as little direct market exposure as possible. This risk mandate applied to various market conditions may cause yields to fall below targeted ranges, for various periods, however, this provides clients with the peace of mind in knowing, that if the market warrants higher risk exposures to stay within targeted, returns that FAC management will not take those risks, even if it means realizing less yield within the respective portfolio/market exposure targets.
Risk Level S&P 500 Index3 2 Realized w/o fees Yields ROR/Yld%
Periods
Risk Level 1 Realized Yields
1 Mo.
0.41%
0.83%
2.01/0.16
3 Mo.
1.34%
2.68%
4.42/0.55
6 Mo.
3.15%
6.31%
7.62/1.10
9 Mo.
5.77%
11.55%
13.99/1.65
YTD
5.77%
11.55%
13.99/1.65
1 Yr. Rolling
6.92%
13.83%
18.50/2.20
2 Yr. (HPR)
13.07%
26.14%
36.63/4.39
Cumulative Yields Since Inception 8-21-2015
13.72%
27.44%
33.17/4.76
Avg. Ann. Yield Since Inception
6.21%
12.66%
2.20%
Avg. Market Exposure3
3.96%
7.92%
100%
1. EYP is managed by FAC and offered as a Separate Managed Account (SMA) through TD Ameritrade. Due to the fact that SMAs are separately managed, there may be some discrepancies in clients actual results from account to account due to the following individual account attributes, that are not limited to: Account size, 100 round lot options contract minimums, withdrawals, deposits, and trade block synchronization. EYP's goal is to meet our target yields with as little market exposure as possible. FAC rates of return for Equity Yield Plus (EYP) are derived directly from an actual client account statements provided by TD Ameritrade within the Trading Block of EYP. Historical returns utilize Holding Period Return calculations. All returns are realized, include the reinvestment of dividends and other realized gains or losses, including the collection of net debit or credit options premiums. Partial year returns are cumulative, not annualized. One year annual returns are based on 12 month rolling periods. Multiple year returns are based on holding period returns. These returns include the deduction and compounding of MAXIMUM platform, management, and ADVISOR fees. Lower fees may be available, depending on, but not limited to: account balance size, sub-advisory, and client advisory agreements. 2. Every attempt by management is made to remain consistent with EYP’s methodologies, especially when addressing risk mandates; however, future market conditions, objectives may change materially in the future compared to the past time periods. This may affect future results of your investment account versus those posted past results. Other conditions that may affect returns include, but are not limited to: start dates, account balance, sub-advisory/client advisory agreements, withdrawal/deposit frequencies, non-managed holdings, short-term bonds/cash maintenance requirements, block trade synchronization, options contract mitigation, and taxes. 3. Average Market Exposure is based most recent rolling 12-month period. FAC provides the results to the S&P 500 Index total Holding Period Returns over the same time periods without the deduction of Fees and the market exposure is 100%. The S&P 500 Index is the sole property of Dow Jones/McGraw Hill. Time Value of Fluctuations reference technical, Financial Planning magazine August 2005, www.retirementoptimizer.com/articles/TimeValueFPAUs.pdf .
*^ Yield and risk metrics provided by Morningstar with a 70% holding in AWSHX and 30% in DODIX, A-shares. This strategy, though very low in direct market exposure, that which
is exposed to options, is not guaranteed, and involves market risks, including the permanent loss of some or all of the principal, subject to risk mitigation which may be exposed within the options discipline. 4. Even though every attempt by management is made to keep EYP’s methodology consistent, past returns may contain securities or strategies that management may no longer utilize due to present market conditions that may affect your future returns and market risk/ volatility, verses these posted results. These attributers may include but are not limited to: contract mitigation, 100 round lot option exposure respective of individual account balance, client selected risk exposure, advisory fee agreements, account deposit synchronization within the managed block, deposits/withdrawal frequency, and taxes. Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. 5. OPTIONS STRATEGIES ARE NOT GUARANTEED, INVOLVE MARKET RISK, INCLUDING PERMANENT LOSS OF PRINCIPAL. There may be additional risks involved in the use of options for hedging and other strategies. It is vital that investors understand these methodologies fully before engaging in options trading. Prior to participating in this offering, investors must receive a copy of Characteristics and Risks of Standardized Options. Copies of this and other required disclosures are available through your investment professional. In implementing Short-term bonds/cash Secured Puts on high quality dividend stocks (HQDS), it is not management's intention to purchase the respective stock, but to only collect the option premium in order to attempt to reduce the chance of owning and thus being tied directly to the stock’s valuation movements. Traditionally, where Short-term bonds/cash Secured Puts are used to attempt to purchase a stock at a possible lower than current market valuation, the outright stock buyer may be better off than the put writer, if the put is not assigned and the stock keeps rallying, but this is not EYP management’s goal. In implementing Vertical Put and Call Spreads on the SPX, it is EYP’s management's intention to attempt to close-out the pairing while still out of the money prior to the strike date in order to collect the option premium while attempting to maintain the shortest and lowest market exposure possible, in pursuit of respective targeted yields. EYP’s Vertical Spread methodology is pursuant to managements attempt to buy and sell a Put or Call option simultaneously, where the spread between the two constitutes the maximum risk of which management attempts to keep each paring in the range of 1% to 2% of the clients portfolio at Risk Level 1. However, unlike Short-term bonds/cash Secured Puts on HQDS where the maximum downside risk is owning the HQDS, the vertical spread if expires in of the money, the entire exposure can be lost. To mitigate this risk, though not guaranteed, management will attempt to buy-back, roll forward and then re-open the pairing at a net debit or credit in order to sell time to attempt to eventually close the position out of the money– this can be done repeatedly over time. Though not guaranteed, with Vertical Puts, management wants the Index to move up and away from the pairing and with Calls, down and away. Even though this methodology limits profits, it is the risk control that is always a priority with EYP’s methodology, unlike the more traditional use of options of leveraging risk in an attempt to maximize profits. EYP attempts to non-traditionally maintain the shortest and lowest market exposure possible, in pursuit of respective targeted yields, as risk control takes priority over returns. 6. RISK METRICS: All statistical metrics for EYP are calculated by FAC, and are based on the immediate 12 month rolling period. Market Correlation: the degree to which two securities move in relation to each other. Beta: The tendency of a security’s returns to respond to swings in the market vs a comparable Index or other chosen benchmark. Market Exposure: The dollar amount or respective percentage of overall portfolio invested in a marketable security, option contract, market sector or industry. Sharpe Ratio: is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Standard Deviation is a measure of the dispersion of a set of data from its mean; more spread-apart data has a higher deviation, and is calculated as the square root of variance and is applied to the annual rate of return of an investment to measure the investment’s volatility. SPX Risk Metrics based on 3 Yr. Avg., provided by MorningStar®. 7. Risk mandates are paramount to this methodology but are NOT GUARANTEED. EYP will hold high average Short-term bonds/cash account balances, which is intended to provide targeted yields utilizing the lowest possible market exposure. Though results are not guaranteed, by mandate, returns will NOT be directly correlated to the overall market including EYP’s comparable index. 8. Vertical (Call and or Put) Spreads as well as Short-term bonds/cash Secured Puts on high quality dividend stocks, may be utilized together or separately, however individually, they are initially scaled in at 1-3 % +/– of any one portfolio with an overall portfolio exposure of 10%* +/-at Risk Level 1*. Higher exposures may occur in certain instances pursuant to any required contract mitigation(s)*which may increase the portfolios overall exposure depending on the effect of the material market or economic conditions which could result in management closing out contracts at a loss verses accepting continued risk exposure. 9. TWO Available Risk Levels: LEVEL 1*: APPROXIMATELY 4% +/– MAXIMUM EXPOSURE PER ACCOUNT PER OPTION CONTRACT FOR CASH SECURED PUTS, AND 1.2% TO 2% PER ACCOUNT PER OPTION PAIRING FOR VERTICAL SPREADS. LEVEL 2: is 2X level 1. Increasing contract risk multiples will increase market exposure, and thus beta, risk to principal, market risk/losses and possible returns. This information is believed to be accurate, but has not been independently verified. Past performance is no guarantee of future results. Investing involves risk including the permanent loss of principal. There is no guarantee that these methodologies and offerings that FAC manages will perform better than any other comparable methodology, offering or index. Please review your Investment Advisory Services Agreement, ADV 2a /2b, Fee Schedules and Custodial Disclosures including Characteristics and Risks of Standardized Options before investing.
F i r s t A dvi s or s C ap i t a l ®, Inc. • 495 6 Va l l eyda l e Ro a d S uite • 203 Birming h am, Alab ama 35242 • 1-866-353-8484• support@m y f a c.com
Firs t A d v i s o r s C api t al ®, I n c i s a Regi s ter e d Inve stme nt Ad vis o r (RIA). Fir s t Ad v isors C a pita l® , In c, is in d e pe n d e n t of P roE qu itie s, In c. Se cu ritie s of f e re d throu g h Pr o E q ui t i es , I nc . m em ber FIN RA & SIP C. N O T F D I C I N S U R E D / N O B A N K G U A R A N T E E S / M AY L O S E V A L U E . F i r s t A dv i s o rs C api t al ®, I n c. i s a r eg ister e d tr ad emar k, all r ig hts r e se r ve d . It is prohib ite d to u se a n y in f orma tion con ta in e d in this f a ct she e t w ithou t e x p r es s w r i t t en c o ns ent .
