For Financial Professional Use Only. Not For Distribution to the - - PowerPoint PPT Presentation

For Financial Professional Use Only. Not For Distribution to the Public.

For Financial Professional Use Only. Not For Distribution to the Public.

• Identify Suitable Diversified Investment Solutions
• Market Movement (Beta)
• Tactical Market Movement
• Market Movement Diversifiers
• Decomposition of Total Return Variations in Terms of R2
• Confirm Market Movement Exposure for Tactical Solutions
• Confirm Limited Market Movement for Diversifiers
• Comprehensive Understanding of Fund Investment Objectives
• Benefit of quantitative screening in Alternatives is limited due to short track records
• Identify candidate funds through qualitative research and industry insight
• Understand risk and objective of each fund (bond vs. stock risk)
• Address fundamental questions regarding process/implementation as needed
• Construction of Sleeve Allocations Incorporated the following:
• Decomposition of Return Variations
• Target Absolute Volatility Exposure
• Target Maximum Short Volatility Threshold
• Minimal Tracking Error where Applicable (Beta sleeves)

Process Overview and Notes

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Platform Overview

Volatility Market Movement Tactical Market Movement Market Movement Diversifier

High (Above 18%)

Vanguard MSCI 100% Equity AAMA Growth SCA Equity

High Moderate (13-18%)

Vanguard MSCI 20% FI/80% EQ VolPro Growth

Moderate (8-13%)

Vanguard MSCI 40% FI/60% EQ QS Investors Balanced FPA Crescent (FPACX) Blackrock Global Allocation (MALOX) VolPro Balanced Litman Gregory Balanced Permanent Portfolio (PRPFX) Managers AMG FQ Global Alt (MGAIX) AQR Managed Futures (AQMIX) MutualHedge Frontier Legends (MHFIX) QSI Moderate Alternatives

Low Moderate (4-8%)

QS Investors Conservative Balanced PIMCO 60% FI/Vanguard MSCI 40% EQ Tactical Market Movement Portfolio SCA Directional (SCADX) PSI Tactical Equity Blend PIMCO All Asset (PAUIX) VolPro Conservative Balanced Litman Gregory Conservative Balanced Eaton Vance Multi-Strategy All Mkt (EIAMX) Driehaus Select Credit (DRSLX) Causeway Absolute Return (CGAIX) Calamos Market Neutral Income (CMNIX) PSI Absolute Return SCA Absolute Return (SCARX) IQ Hedge Multi-Strategy Beta (QAI) Merger Fund (MERFX) DWS Disciplined Market Neutral (DDMIX)

Low (0-4%)

QS Investors Conservative SCA Custom Bond VolPro Preservation SCA Preservation Market Movement Diversifier Low Vol Portfolio YieldPro Eaton Vance Global Macro Abs Ret (EGRIX) Eaton Vance Multi-Strategy Abs Return (EIDDX)

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MARKET MOVEMENT

For Financial Professional Use Only. Not For Distribution to the Public.

Global Equity Market Movement Proxy Index vs. MSCI World (12/31/2007 – 12/30/11)

*Market Movement (Historical Simulation) – the Global Equity Market Proxy Index represents a historical back-tested composite of fixed weighted allocations to the Vanguard Growth ETF (18%), Vanguard Value ETF (18%), Vanguard Small Cap Growth ETF (5%), Vanguard Small Cap Value ETF (5%), Vanguard MSCI EAFE ETF (45%), and Vanguard MSCI Emerging Markets ETF (10%). The composite is shown to demonstrate the behavior of global stock market movement. The performance

• f the composite is shown relative to the MSCI World Index, which is a capitalization weighted index that monitors the performance of global stocks. This figure is

for illustrative purposes only, and does not necessarily represent an investment portfolio or an index for an investment portfolio. It is not possible to invest directly in an index. Results may vary based on time periods and allocations. Past performance is not indicative of future results.

For Financial Professional Use Only. Not For Distribution to the Public.

Market Movement

30.90% 31.50% 3.80% 3.80% 19.70% 6.70% 3.50%

Vanguard Equity

VANGUARD GROWTH ETF VANGUARD VALUE ETF VANGUARD SMALL-CAP GRWTH ETF VANGUARD SMALL-CAP VALUE ETF VANGUARD MSCI EAFE ETF VANGUARD MSCI EMERGING MARKET VANGUARD FTSE ALL_WORLD ex-US SMALL 19% 19% 2% 2% 12% 4% 2% 15% 8% 6% 12%

Vanguard 60/40

VANGUARD GROWTH ETF VANGUARD VALUE ETF VANGUARD SMALL-CAP GRWTH ETF VANGUARD SMALL-CAP VALUE ETF VANGUARD MSCI EAFE ETF VANGUARD MSCI EMERGING MARKET VANGUARD FTSE ALL_WORLD ex-US SMALL VANGUARD SHORT-TERM BOND VANGUARD INTERMEDIATE BOND VANGUARD LONG-TERM BOND VANGUARD MORTGAGE BACKED SECURITIES

For Financial Professional Use Only. Not For Distribution to the Public.

TACTICAL MARKET MOVEMENT

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Tactical Proxy Index vs. MSCI World (12/31/2007 – 12/30/11)

*Tactical Market Movement (Historical Simulation) – the Tactical Proxy Index represents a historical back-tested composite of every mutual fund in the Bloomberg Flexible Portfolio Category (A Shares Only) with inception dates of 12/31/2006 or earlier. The composite includes 58 equally weighted funds and assumes a fixed equally weighted allocation to each fund. The composite is shown to demonstrate the general behavior of a universe of flexible or tactical asset allocation

• managers. The performance of the composite is shown relative to the MSCI World Index, which is a capitalization weighted index that monitors the performance of

global stocks. This figure is for illustrative purposes only, and does not necessarily represent an investment portfolio or an index for an investment portfolio. It is not possible to invest directly in an index. Results may vary based on time periods and allocations. Past performance is not indicative of future results.

For Financial Professional Use Only. Not For Distribution to the Public.

Flexible/Tactical Allocation Strategies Fund

PIMCO All Asset All Authority FPA Crescent BlackRock Global Allocation SCA Directional Eaton Vance All Market VolPro Balanced PSI Tactical

Ticker

PAUIX FPACX MALOX SCADX EIAMX NA NA

Market Moveme nt Exposur e

Tactical Market Movement

For Financial Professional Use Only. Not For Distribution to the Public.

• R2 to the S&P 500 Index of 0.73
• Beta to the S&P 500 Index of 0.25
• Standard Deviation of 6.68

Diversified Tactical Management

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MARKET MOVEMENT DIVERSIFIERS

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Market Movement Diversifier Index vs. MSCI World (12/31/2007 – 12/30/2011)

Market Movement Diversifiers (Historical Simulation) – the Market Movement Diversifier Proxy Index represents a historical back-tested composite of fixed weighted allocations to the IQ Hedge Market Neutral Beta Index (45%), IQ Hedge Multi-Strategy Index (20%), IQ Hedge Fixed Income Arbitrage Beta Index (10%), IQ Hedge Event Driven Beta Index (10%), and Credit Suisse Managed Futures Liquid Index (15%). The composite is shown to demonstrate the behavior of a diversified mix of alternative investment strategies. The performance of the composite is shown relative to the MSCI World Index, which is a capitalization weighted index that monitors the performance of global stocks. This figure is for illustrative purposes only, and does not necessarily represent an investment portfolio or an index for an investment portfolio. It is not possible to invest directly in an index. Results may vary based on time periods and allocations. Past performance is not indicative of future results.

For Financial Professional Use Only. Not For Distribution to the Public.

Absolute Return Alternative Allocation Arbitrage/Event Driven Fund

Causeway Absolute Return Eaton Vance Gl Macro Abs Return SCA Absolute Return PSI Absolute Return Permanent Portfolio Calamos Market Neutral Income Merger Fund

Ticker

CGAIX EAGMX SCARX NA PRPFX CVSIX MERFX

Strategy

Absolute Return Absolute Return Absolute Return Absolute Return Alternative Allocation Convertible Arbitrage Merger Arbitrage

Market Movement Exposure

Market Movement Diversifiers

For Financial Professional Use Only. Not For Distribution to the Public.

Managed Futures Market Neutral Multi-Strategy GTAA Preservation Fund

AQR Managed Futures Mutual Hedge Frontier Legends YieldPro DWS Disc Market Neutral IQ Hedge Multi Strategy Eaton Vance Multi-Strategy Managers AMG FQ Glob Alt SCA Capital Preservation

Ticker

AQMNX MHFAX NA DDMIX QAI EIDDX MGAAX NA

Strategy

Managed Futures Managed Futures Market Neutral Income Market Neutral Multi-Strategy Beta Multi-Strategy Global Tactical Asset Allocation Fixed Income Alternative

Market Movement Exposure

Market Movement Diversifiers (Continued)

For Financial Professional Use Only. Not For Distribution to the Public.

• R2 to the S&P 500 Index of 0.16
• Beta to the S&P 500 Index of .04
• Standard Deviation of 1.74

An Effective Substitute for Bond Exposure

For Financial Professional Use Only. Not For Distribution to the Public.

• R2 to the S&P 500 Index of 0.11
• Beta to the S&P 500 Index of -.05
• Standard Deviation of 3.13

Low Volatility Access to Income

For Financial Professional Use Only. Not For Distribution to the Public.

For Financial Professional Use Only. Not For Distribution to the Public.

Disclaimer: This material contains confidential and proprietary information of The Elements Financial Group, LLC and is intended for the exclusive use of the person to whom it is provided. It may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without prior written permission from The Elements Financial Group, LLC. The information contained herein has been obtained from sources believed to be reliable. The Elements Financial Group, LLC gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error,

• mission or inaccuracy in such information and for results obtained from its
• use. Information and opinions are as of the date indicated, and are subject to
• change. Past performance does not guarantee future returns, and processes

used may not achieve the desired results. Sample client portfolios are only provided to illustrate certain characteristics of various model portfolios. Actual portfolios and results may vary.