Analytic Investors, LLC Mandate : Buy Write Strategy Hired : 2011 - - PowerPoint PPT Presentation

Analytic Investors, LLC

Mandate: Buy Write Strategy

Hired: 2011

Firm Information Investment Approach Total ARMB Mandate

Wells Fargo Asset Management acquired Analytic Investors on October 1, 2016. As of 12/31/2016, Analytic’s total assets under management were $17.6 billion. Key Executives: Harin de Silva, Ph.D., CFA President / Portfolio Manager Greg McMurran Chief Investment Officer / Portfolio Manager Dennis Bein, CFA Chief Investment Officer / Portfolio Manager Michael Brogan Managing Director Amy Stueve Chief Compliance Officer Megan Miller, CFA Portfolio Manager Analytic’s investment objective is to outperform the CBOE S&P 500 BuyWrite (BXM) Index while managing tracking error to be less than 2% relative to the BXM Index. Given this low tracking error limit, the strategy is structured to behave very similarly to the BXM Index. The BXM Index is comprised of the S&P 500 Index with a one month at the money S&P 500 Index call option sold monthly at regular expiration (3rd Friday of each month). The equity component of this strategy is managed by SSGA and is passively managed relative to the S&P 500 index. Analytic attempts to add value by option security selection. While Analytic limits the

• ptions they sell to S&P 500 Index options, they actively select call options that they

believe are overvalued to add value versus the BXM Index. Benchmark: CBOE S&P 500 BuyWrite Index Assets Under Management: 12/31/2016: $317 Million

Concerns: None

12/31/2016 Performance Last Quarter 1-Year 3-Years Annualized 5-Years Annualized Analytic Investors 2.61% 8.52% 6.56% 8.03% CBOE S&P 500 BuyWrite Index 2.64% 7.07% 5.98% 7.24%

ALASKA RETIREMENT MANAGEMENT BOARD REVIEW

March 2, 2017

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED

2

Contents

Analytic Buy-Write Strategy

1 2 3 4 Firm Update Investment Objective and Results Volatility Risk Premium and BXM Index Appendix

Analytic Attendees: Greg McMurran, Chief Investment Officer, Portfolio Manager Megan Miller, CFA, Portfolio Manager Kevin Clark, CFA, Director, Relationship Management

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED

1.7 10.9 5.0

As of 12/31/2016 *Includes four clients and $1.52B of non-discretionary assets as of 11/30/2016, where Analytic does not have trading authority over the client portfolio.

3

Profile

Quantitative Investment Manager

Organization

• Headquarters: Los Angeles
• Investment professionals: 19
• Client Service/Marketing: 11

Capabilities

• Benchmark Oriented (Beta 1)

─ Core Equity ─ Short Extension

• Low Volatility Equity
• Alternatives

─ Long/Short Equity ─ Covered Call ─ Market Neutral Equity

20 50 10 11 3 1 4

Asset Composition

Total Assets:$17.6B USD*

50% Financial Services 20% Public 11% Corporations 10% Multiemployer 4% Insurance 4% Superannuation/Sovereign Wealth Fund 1% Endowments/Foundations/ Charitable $ 1.7 Benchmark Oriented $ 10.9 Low Volatility Equity $ 5.0 Alternatives

Clients

Total Client Relationships: 81*

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED

PORTFOLIO MANAGERS

Harindra de Silva, Ph.D., CFA – President / Portfolio Manager Dennis Bein, CFA – Chief Investment Officer / Portfolio Manager

• Joined firm in 1995; 31 years of investment experience
• Ph.D. in Finance, University of California, Irvine
• MBA in Finance, University of Rochester
• MS in Econometrics, University of Rochester
• BS in Mechanical Engineering, University of Manchester
• Joined firm in 1995
• 26 years of investment experience
• MBA in Finance, University of California, Riverside
• BS in Business Administration, University of California, Riverside

David Krider, CFA – Portfolio Manager Ryan Brown , CFA – Portfolio Manager

• Joined firm in 2005
• 14 years of investment experience
• BA in Economics, California Institute of Technology
• BS in Computer Science, California Institute of Technology
• Joined firm in 2007
• 11 years of investment experience
• MS in Finance, University of Utah
• BS in Economics, Brigham Young University

Greg McMurran – Chief Investment Officer / Portfolio Manager Megan Miller, CFA – Portfolio Manager

• Joined firm in 1976
• 40 years of investment experience
• MA in Economics, California State University, Fullerton
• BS in Economics, University of California, Irvine
• Joined firm in 2008
• 11 years of investment experience
• BS in Mathematics, University of California, Los Angeles

4

Investment Team

As of 9/30/2016

Andrew Claeys, CFA – Director of Trading

• Joined firm in 2007
• 12 years of investment experience
• BS in Business Administration, University of Denver

CHAIRMAN TRADING

Roger Clarke, Ph.D. – Chairman

• Joined firm in 1985
• 39 years of investment experience
• Ph.D. in Finance, Stanford University
• MBA, Brigham Young University
• MS in Economics, Stanford University
• BA in Physics, Brigham Young University

Doug Savarese, CFA – Research Advisor

• Joined firm in 1998
• 29 years of investment experience
• BA in Mathematics, The Richard Stockton College of New Jersey
• BS in Business Administration, The Richard Stockton College of New

Jersey Stephen Thorley, Ph.D., CFA – Research Advisor

• Joined firm in 2000
• 27 years of investment experience
• Ph.D. in Financial Economics, University of Washington
• MBA in Business, Brigham Young University
• B.S. in Mathematics, Brigham Young University

RESEARCH ADVISORS

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED

5

Account Summary

Alaska Retirement Management Board

RESULTS

• Inception Date: March 9, 2011
• December 31, 2016 Account Value: $316.6 Million
• Annualized Since Inception Excess Return: 1.05%
• Since Inception Tracking Error: 1.50%

OBJECTIVES

• Outperform BXM Index, over time, net of fees
• Manage Tracking Error to be less than 2% versus the BXM Index
• Long U.S. equity positions managed by SSgA (passive S&P 500 Index)
• Call options managed by Analytic

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED Periods greater than one year are annualized. Performance is presented gross of fees and does not reflect the deduction of investment advisory fees. Client’s return will be reduced by the advisory fees (as described in Part II

• f the adviser’s Form ADV)

and any other expenses it may incur in the management of its investment advisory

• accounts. Past performance

does not guarantee future results.

6

Performance

March 9, 2011 (Inception) – December 31, 2016

Alaska Retirement Management Board Performance

Return (%) Standard Deviation (%) Volatility Reduction vs. S&P 500 ARMB (Gross) 7.88 7.78 32.3% CBOE BuyWrite (BXM) Index 6.83 8.09 29.7% S&P 500 Index 11.89 11.51 ARMB BXM S&P 500 Index

5 10 15 5 10 15 20

ANNUALIZED RETURN (%) STANDARD DEVIATION (%)

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Jan-96 Jun-96 Nov-96 Apr-97 Sep-97 Feb-98 Jul-98 Dec-98 May-99 Oct-99 Mar-00 Aug-00 Jan-01 Jun-01 Nov-01 Apr-02 Sep-02 Feb-03 Jul-03 Dec-03 May-04 Oct-04 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16

Implied Volatility (VIX) Realized Volatility (25 Day)

Source: Bloomberg

7

Volatility

January 1996 – December 2016

The Market Tends to Consistently Overprice Volatility

Overpriced Underpriced

VOLATILITY LEVEL (SPX) IMPLIED VOLATILITY SPREAD

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40%

Jan-96 Jun-96 Nov-96 Apr-97 Sep-97 Feb-98 Jul-98 Dec-98 May-99 Oct-99 Mar-00 Aug-00 Jan-01 Jun-01 Nov-01 Apr-02 Sep-02 Feb-03 Jul-03 Dec-03 May-04 Oct-04 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Nov-16

Implied minus Realized Volatility Spread

Average Spread: 4.32

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED

8

Analytic

Our Edge

IMPLEMENTATION RISK MANAGEMENT

• Implementing a BXM replicating option portfolio has proved difficult for other

managers

• Our investment and trading experience has resulted in a low tracking error

high value added BXM replicating covered call portfolio

• We have consistently maintained a low tracking error option portfolio and a

hedging option portfolio relative to BXM RESEARCH

• Research focused on obtaining better exposure to the Volatility Risk Premium

than present in BXM by adjusting option strikes and expirations

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED

9

Benchmark Construction

What is the BXM Index?

The CBOE S&P 500 BuyWrite Index (BXM) is a benchmark index designed to track the performance

• f a hypothetical buy-write

strategy on the S&P 500 Index The BXM is a passive total return index based on:

• (1) buying an S&P 500 stock index portfolio, and
• (2) "writing" (or selling) a near-term "covered" call option,

generally on the third Friday of each month. – The SPX call written will have about one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). – The SPX call is held until expiration and cash settled, at which time a new one-month, near-the-money call is written.

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED Source: Analytic Investors, Bloomberg

10

2016 Market Environment

S&P 500 Index Level

Market

1825 1875 1925 1975 2025 2075 2125 2175 2225 2275 2325

BXM outperforms S&P BXM matches S&P S&P 500 Level Monthly BXM Strike Monthly BXM Breakeven Level

The following details the monthly roll levels for the BXM Index for the year. The solid dark blue line charts the return for the S&P 500 Index. The solid green indicate the BXM option strike price for each option cycle, and the dotted red line is the break-even price for the option cycle. Once the S&P breaks through the dotted red line, the upside is capped and the option return becomes negative. The premium provides some protection against this loss which is why the breakeven strike price is higher than the actual strike price.

BXM underperforms S&P

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED Source: Bloomberg and Zephyr StyleAdvisor July 1988 is the inception date of the CBOE BuyWrite (BXM) Index.

11

Benchmark Performance

July 1, 1988 – December 31, 2016

BXM versus S&P 500 Index

Return (%) Standard Deviation (%) Volatility Reduction Sharpe Ratio

CBOE BuyWrite (BXM) Index 9.02 10.04 29.9% 0.58 S&P 500 Index 10.06 14.32 0.48

BXM S&P 500 Index

5 10 15 5 10 15 20

ANNUALIZED RETURN (%) STANDARD DEVIATION (%)

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED Source: Zephyr StyleAdvisor July 1988 is the inception date of the CBOE BuyWrite (BXM) Index.

12

Historical Market Returns

July 1, 1988 – December 31, 2016

Downside Protection, Up-Market Participation

• 7.59

16.32 8.03 9.58

• 16.00

22.89 7.19 11.29

• 25.0
• 15.0
• 5.0

5.0 15.0 25.0 Down Market <0% Sharply Rising Market >12% Moderately Rising Market 0% to 12% Average AVERAGE 12-MONTH RETURN (%) CBOE BuyWrite Index S&P 500 Index

555 West Fifth Street 50th Floor Los Angeles, CA 90013 Tel: 800-618-1872 Fax: 213-688-8856 www.aninvestor.com 555 West Fifth Street 50th Floor Los Angeles, CA 90013 Tel: 800-618-1872 Fax: 213-688-8856 www.aninvestor.com

Contents

A N A L Y T I C I N V E S T O R S D I S C I P L I N E D | R E S P O N S I V E | R I S K C O N T R O L L E D

14 As Chief Investment Officer, Greg McMurran oversees the implementation of the firm’s investment strategies. He is a major contributor to the firm’s ongoing research efforts as well as new product development and strategy applications. As a portfolio manager, Greg focuses on day-to-day portfolio management and research related to derivatives-based investment strategies. With 30 years of quantitative research, portfolio management and trading experience, Greg has an extensive background in managing quantitative investment portfolios. Greg is also recognized as an authority on options valuation and strategies and has authored several articles. Greg is a frequent participant of the CBOE Roundtable Committee, which meets and discusses industry trends, new product ideas and indexes. The introduction of the BXM Index and weekly options were inspired by this Committee.  Joined firm in 1976  40 years of investment experience  M.A. in Economics, California State University, Fullerton  B.A. in Economics, University of California, Irvine

Senior Team Members

Contents

A N A L Y T I C I N V E S T O R S D I S C I P L I N E D | R E S P O N S I V E | R I S K C O N T R O L L E D

15

Senior Team Members

Megan Miller is responsible for portfolio management and trading support for derivatives- based investment strategies. Megan is involved in both research and the portfolio construction of client portfolios. Specifically, she researches new models and ways to enhance existing models used in the investment process, develops and maintains optimization inputs and volatility forecasts, and develops and maintains optimization frameworks used to create client portfolios.  Joined firm in 2008  11 years investment experience  B.S. in Applied Mathematics, University of California, Los Angeles

ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED Periods greater than one year are annualized. Performance is presented gross and net of fees. Past performance does not guarantee future results.

16

Performance

Performance

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 DEC 4Q16 1 Year 3 Year 5 Year Since Inception RETURN (%)

ARMB (Gross) ARMB (Net) BXM Index Standard Deviation Volatility Reduction

• vs. S&P 500

ARMB (Gross) 7.78 32.3% BXM Index 8.09 29.7% S&P 500 Index 11.51

Inception Date 3/9/2011 Reporting End Date 12/31/2016 Currency USD

DEC 4Q16 1 Year 3 Year 5 Year Since Inception ARMB (Gross) 0.42 2.61 8.52 6.56 8.03 7.88 ARMB (Net) 0.41 2.58 8.39 6.42 7.88 7.72 BXM Index 0.11 2.64 7.07 5.98 7.24 6.83