THIS REPORT IS FOR THE IMMEDIATE USE OF THE RECIPIENT, ONLY FOR DISCUSSION PURPOSES AND IS SUBJECT TO COMPLETION OR AMENDMENT. PLEASE REFER TO THE GLOSSARY OF TERMS AS YOU READ THIS DISCLOSURE.
Provider and its affiliates, subsidiaries, agents, sub-agents and vendors including those providing Information as defined below or providing technology platforms, workflow, Software or Services (“Provider ”) disclaim any and all liability for the data, information, projections, forecasts, returns, reporting, recommendations and analysis (“Information”) herein including without limitation, any express or implied representations or warranties for the Information or errors contained in, or omissions from, the Information. The Provider shall not be liable for any loss or liability suffered by you resulting from the provision to you of the Information or your use or reliance in any way on the Information.
Information cannot be guaranteed to be timely, secure or error free. Information provided is applicable only as of its date. Provider has not undertaken, nor will Provider undertake, any duty to update Information or otherwise advise you of changes. The validity of recommendations and analyses contained herein is dependent upon the accuracy and thoroughness of the data and information provided by you. The use of different data and information will result in different results.
Information is not intended to be a specific offer to sell or provide, or a specific invitation to apply for, any financial product, instrument or service that may be mentioned. It is important for you to understand that it is your responsibility to determine if, and how, the suggestions should be implemented. Analyses, suggested asset allocations and recommendations are based on Information you provided in the questionnaire, appropriate financial concepts, investment assumptions pertaining to your current and proposed portfolios and individual asset classes. You should carefully consider all relevant factors in making these decisions and are encouraged to consult with your professional advisors. For example, any Information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Advisors do not provide tax, accounting or legal advice. Please review any planned financial transactions or arrangements that may have tax, accounting or legal implications with your personal professional advisors. You are not required to transact business with your advisor or to implement any of the recommendations.
Explanation of Simulations, Expected Returns and Performance
Information related to projections, returns and performance are estimates only and are not a guarantee. Estimated returns are a combination of current returns, historical or simulated returns and projections on future return trends. Estimated returns are derived from simulated models or historical back tests and scenario analysis (“Model”) when sufficient historical data is unavailable. These hypothetical returns do not reflect actual trading and therefore do not account for market risks, economic conditions, taxes, fees or expenses. Results from a Model may vary with each use and over time. Model returns are estimated using the projected factor exposures of the investment, estimated factor shifts of the scenario or back test, and/or estimated and actual returns of a proxy index. Estimated returns should not be a primary basis for any analysis. These results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under-or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Securities may not exhibit the same exposure to Factors as they did in the past, the individual Factors may not correlate the same way they did historically, and the Factors may not exhibit the same returns or volatility as they did before.
Any Portfolio Expected Return or simulations are just components (such as your investment inputs and goals) of the Model we use in determining your custom recommendations. By the nature of a simulation, Portfolio Expected Returns and projections represent probabilities and possible outcomes, not promises of future performance. Securities prices fluctuate in value unpredictably, and returns cannot be predicted with certainty. The predictions generated regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not a guarantee of future results.
Essential Information About Charts
Future Forecast Chart
This chart is to show a probable range of potential future outcomes using Portfolio Expected Return and Portfolio Expected Volatility of the analyzed Portfolio. This analysis uses a 1,000 run Monte Carlo simulation without cash flow. The dark line in the chart shows the 50% run of Monte Carlo simulation. The shared areas of the graph do not use Monte Carlo. Instead, they take the estimated Portfolio Expected Return and Portfolio Expected Volatility and assume straight line annual returns one (1) Standard Deviation up and down from the Portfolio’s Expected Return. Performance shown above is not a guarantee of past or future results. The performance quoted is not intended to represent the performance of any particular security. The expected return and simulations are just components (such as your investment inputs and goals) of the Model we use in determining your custom asset allocation recommendation. By the nature of a Monte Carlo simulation, the projected or expected returns and the simulation represent probabilities and possible outcomes, not promises of future performance. Securities prices fluctuate in value unpredictably, and returns cannot be predicted with certainty.
Historical Testing (Hypothetical) Chart
This chart depicts the historical investment performance of a Portfolio or index including capital appreciation / depreciation, dividends and other investment income. If a security or index does not have a complete history for the selected time period, Factor Analysis is performed on the existing history and then used to provide return estimates for the missing data. Past performance is not indicative of future returns. Estimated returns are derived from simulated models or historical back tests and scenario analysis when sufficient historical data is unavailable. These hypothetical returns do not reflect actual trading and therefore do not account for market risks, economic conditions, taxes, fees or expenses. Results from a Model may vary with each use and over time. Model returns are estimated using the projected factor exposures of the investment, estimated factor shifts of the scenario or back test, and/or estimated and actual returns of a proxy index. Estimated returns should not be a primary basis for any analysis.
Holdings Analysis Chart
This chart shows how the user’s Portfolio is currently allocated by Asset Class and how that compares to the advisor’s recommended Asset Allocation.
Investment Statistics Table
This table shows the Portfolio Expected Return and Portfolio Expected Volatility of the client’s current Portfolio, the recommended Portfolio and a set of industry Benchmarks. Actual performance of any investment may have differed substantially from the back-tested performance presented, as the performance was calculated with the benefit of hindsight and cannot account for all financial risk that may affect the actual performance. Past performance is not indicative of future returns. Estimated returns are derived from simulated models or historical back tests and scenario analysis when sufficient historical data is unavailable. These hypothetical returns do not reflect actual trading and therefore do not account for market risks, economic conditions, taxes, fees or expenses.
Past performance is no guarantee or indication of future results. Performance is reported net of investment management fees, where such fee information is available. Performance is reported gross of all other expenses such as custodial, trading and other fees. Performance is calculated using the daily time-weighted method. Daily calculation methodology: (Ending market value – contributions + withdrawals – fees – previous ending market value)/previous ending market value). The calculation methodology for periods geometrically links daily returns for all days within a selected period by multiplying them together. Example for 3 days with 2% return per day: 1.02 x 1.02 x 1.02 = 1.0612, or 6.12%. Performance for some periods may include data from external sources supplied for inclusion in the performance history, whose accuracy has not been verified.
This chart is designed to reflect the estimated relative return (Portfolio Expected Return) and risk (Portfolio Expected Volatility) for a given Portfolio against one or more other portfolios. The Y axis of the chart represents a value for the expected return of a Portfolio and the X axis represents the expected volatility of a Portfolio. Your advisor has chosen the relevant benchmarks and other data inputs that are used to create this chart. Past performance is not indicative of future returns. Estimated returns are derived from simulated models or historical back tests and scenario analysis when sufficient historical data is unavailable.
Please also carefully review the Glossary of Terms. It provides definitions and limitations of terms used herein. The definitions for singular terms may also be applied to the plural.
Glossary of Terms
Asset Allocation is a way to describe how a Portfolio is divided or diversified amongst the universe of Asset Classes.
Asset Class is a term used to categorize assets. Your advisor has determined the definition for a set of Asset Classes into which each Security is classified. Asset Classes represent segments of the overall securities market, such as U.S. equities, emerging market bonds, or commodities. The Asset Class or Classes for a given Security is first determined using data from third party vendors such as Interactive Data Corporation (IDC) and Thomson Reuters. If the Security is comprised of other Securities, such as in a mutual fund or exchange traded fund (ETF), the Asset Class or Classes is a weighted average of the individual Securities contained within it. In complex scenarios where the Asset Class or Classes cannot be accurately determined through third party vendor data, other methods may be used, including a linear regression which relies on the Security’s price history and a set of indices per Asset Class, a Principal Component Review or manual review by your advisor. Your advisor has determined the asset class classifications.
A Benchmark is a feasible alternative to a Portfolio against which performance is measured.
A factor represents exposure to a specific macroeconomic or market force. Your advisor has selected the factors to include in the analyses including the following: 1-year Treasury, S&P 500®, 3-month T-bill, U.S. dollar, small cap, value, 5-year Treasury, 10-year Treasury, gold, 30-year Treasury, oil, Japan, emerging markets, China, STOXX 50® and high yield.
Factor Analysis is a methodology for estimating Portfolio Expected Return and Portfolio Volatility by examining a Portfolio’s exposure to various Factors and the various expected returns and volatilities of the individual Factors.
Your advisor has determined the correlations between Factors by using the 20-year history of correlations or historical back test data for each Factor pair.
Factor Expected Return
There are many different methodologies for developing expected return forecasts. Your advisor has determined the expected return for each Factor using a commercially accepted methodology that varies by projected economic Factors, valuation techniques and historical back tested data. For example, the expected return of the S&P 500® Factor is determined using CAPE (Cyclically Adjusted PE Ratio). For additional information on how a given Factor’s Expected Return was estimated, please consult your advisor.
Factor Expected Volatility
Your advisor has determined the Expected Volatility for a Factor by using the 20 year history for that Factor via a historical back test. For additional information on how a given Factor’s Expected Volatility was estimated, please consult your advisor.
The Gain/Loss Summary reflects positions that have cost basis and Market Value information provided by the custodian. The values may change due to subsequent cost basis adjustments. This is provided for informational purposes and should not be used for tax preparation.
ITD is the inception date that your advisor selected. Please consult with your advisor to learn more about the policy for determining this date, which is an important assumption, used for performance calculations.
Charts display the Market Values provided by the custodian, typically one day after each date reflected in the report. This may not reflect corrections to Market Value made after the date displayed and may exclude the effects of the transactions not posted by the custodian when the Market Values were generated. Market Value may not reflect the value that could be obtained in the market.
Monte Carlo simulations are used to model the probability of different outcomes in the investment process that cannot easily be predicted due to the intervention of random variables. Notably, simulations are based on the premise that financial markets are efficient. By using probability distributions, variables can have different probabilities of different outcomes occurring.
A portfolio is one or more Securities bundled together for analysis.
Portfolio Factor Exposure
The Factor Exposure of a Portfolio is the weighted average of the Security Factor Exposures that comprise the Portfolio.
Portfolio Expected Return
The Expected Return for a Portfolio is estimated using the Variance-Covariance Method which utilizes the Portfolio’s exposure to each Factor, the Expected Return of each Factor and the correlation between Factors as its inputs.
Portfolio Expected Volatility
The Expected Volatility of a Portfolio is estimated using the Variance-Covariance Method applying the Security Factor Exposures of the Portfolio and the Factor Correlations.
Principal Component Review
The Principal Component Review is a statistical procedure used to convert a set of observations of possibly correlated variables into a set of values of linearly uncorrelated variables. Generally, this review methodology may be used to forecast an appropriate Asset Class for difficult to categorize Securities.
A security is any purchasable investment instrument, such as a stock or bond.
Security Factor Exposure
Using the 20 year history of each Factor or a historical back test, a linear regression is run against a Security to determine how much that Security is exposed to each Factor. If a Security has less than 20 years of history, the available history or a proxy is used as long as the resulting confidence factor for the regression is high. Where the confidence factor is low, a manual review is done to confirm the exposure estimate. Typically, when a proxy or manual review is involved, there may be more variability in the estimated exposure.
A measure of the extent to which observations in a series vary from the arithmetic mean of the series. The Standard Deviation when applied to the rate of return of an investment is a measure of historical volatility of the investment.
S&P 500® is widely regarded as the best single index or gauge of large-cap U.S. equities.
The STOXX 50® is a widely regarded stock index of Eurozone stocks designed by STOXX, an index provider owned by Deutsche Börse Group. Its goal is “to provide a blue-chip representation of Super sector leaders in the Eurozone”. It is made up of fifty of the largest and most liquid stocks.
Treasury a short-dated government security, yielding no interest but issued at a discount on its redemption price.
Valuation only includes information provided by the custodian. For most liquid Securities, these values are typically as of one day after each date in the presented report period. Please discuss the valuation methodology for hard-to-value or illiquid holdings with your advisor. Market Value may not reflect the value that could be obtained in the market.
The Variance-Covariance Method, also known as the parametric method, is a risk management technique for calculating the value at risk of a portfolio of assets. The value at risk is a statistical risk management technique measuring the maximum loss that an investment portfolio is likely to face within a specified time frame with a certain degree of confidence. The Variance-Covariance Method to estimate the value at risk calculates the mean, or expected value, and standard deviation of an investment portfolio.