STRATEGIC CORE PORTFOLIOS Updated through December 31, 2008 www.etfpm.com This presentation does not constitute an offering of securities. The information contained herein is summary in nature and is not to be relied upon in making an investment.
Multi-Asset Class Diversification In our opinion, David Swensen of Yale University is a key resource for investors. Mr. Swensen’s long-term track record is leading Wall Street in many respects and his views on asset allocation have changed the industry’s perception regarding modern portfolio diversification. Like Swensen, our research concludes that investors should start their portfolios with multi-asset class exchange-traded funds (ETFs). At ETF PM, we monitor three strategic core portfolios for investors: Unconventional, Basic and Advanced. In addition, we compare them to a simple “70/30 Growth” portfolio (70% S&P 500 and 30% Long-Term Treasuries) and to the S&P 500. 2
Average Annual Returns as of 12/31/08 All Strategic Core information reflects hypothetical backtested calculations rather than actual client account results. All ETFs above are Barclays iShare ETFs (exchange-traded funds). Past performance is not an indication of future results and risk of loss always exists. Highlighted data indicates that index performance was used when Fund performance was unavailable. This material is for information purposes only and is not a 3 solicitation for investment. Visit www.ishares.com for Fund Fact Sheets and additional information. See Strategic Core Portfolio disclosures at the end of this report and/or visit www.etfpm.com .
Asset Allocation 70/30 Asset Class Growth Unconventional Basic Advanced S&P 500 (IVV) 70% US Equity (IWV) 30% 30% 20% Foreign Developed Equity (EFA) 15% 30% 25% Emerging Markets Equity (EEM) 5% 8% 10% Commodities (GSG) 7% 20% Real Estate (ICF) 20% 10% 10% 7-10 Yr. Treasuries (IEF) 15% 20+ Yr. Treasuries (TLT) 30% 15% 15% Inflation Protected Treasuries (TIP) 15% Totals 100% 100% 100% 100% These portfolios are designed to represent broad core growth portfolios and do not take into account an individual’s investment objectives and financial circumstances. Consult your investment adviser before investing. All Strategic Core information reflects hypothetical backtested calculations rather than actual client account results. All ETFs above are Barclays iShare ETFs (exchange-traded funds). This material is for information purposes only and is not a solicitation for investment. Visit www.ishares.com for Fund Fact Sheets and additional information. See 4 Strategic Core Portfolio disclosures at the end of this report and/or visit www.etfpm.com .
Hypothetical Average Annual Returns as of 12/31/08 Strategic Cores 1-Year 3-Year 5-Year 10-Year Unconventional -26.0% -3.8% 2.1% 4.5% Basic -30.5% -4.6% 2.7% 4.0% Advanced -31.8% -5.3% 2.7% 5.1% 70/30 Growth -15.7% -0.5% 2.9% 2.8% S&P 500 (IVV) -36.9% -8.4% -2.2% -1.4% These portfolios are designed to represent broad core growth portfolios and do not take into account an individual’s investment objectives and financial circumstances. Consult your investment adviser before investing. All Strategic Core information reflects hypothetical backtested calculations rather than actual client account results. All ETFs above are Barclays iShare ETFs (exchange-traded funds). Past performance is not an indication of future results and risk of loss always exists. Index performance was used when Fund performance was unavailable. This material is for information purposes only and is not a solicitation for investment. Visit www.ishares.com for Fund Fact Sheets and additional information. See Strategic Core Portfolio disclosures at the end of this report and/or visit www.etfpm.com . 5
Hypothetical 5-Yr. Total Returns as of 12/31/08 These portfolios are designed to represent broad core growth portfolios and do not take into account an individual’s investment objectives and financial circumstances. Consult your investment adviser before investing. All Strategic Core information reflects hypothetical backtested calculations rather than actual client account results. All ETFs employed are Barclays iShare ETFs (exchange-traded funds). Past performance is not an indication of future results and risk of loss always exists. Index performance was used when Fund performance was unavailable. This material is for information purposes only and is not a solicitation for investment. Visit 6 www.ishares.com for Fund Fact Sheets and additional information. See Strategic Core Portfolio disclosures at the end of this report and/or visit www.etfpm.com .
Annual Expense Ratio & Yield as of 6/30/2009 Expense Strategic Cores Ratio Yield Unconventional 0.27% 4.26% Basic 0.33% 3.29% Advanced 0.41% 2.92% 70/30 Growth 0.11% 3.04% S&P 500 (IVV) 0.09% 2.58% These portfolios are designed to represent broad core growth portfolios and do not take into account an individual’s investment objectives and financial circumstances. Consult your investment adviser before investing. All Strategic Core information reflects hypothetical backtested calculations rather than actual client account results. All ETFs above are Barclays iShare ETFs (exchange-traded funds). Past performance is not an indication of future results and risk of loss always exists. This material is for information purposes only and is not a solicitation for investment. Visit www.ishares.com for Fund Fact Sheets and additional information. See Strategic Core Portfolio disclosures at the end of this report and/or visit www.etfpm.com . 7
Why Use ETFs as Core Holdings? 1) Index funds and/or ETFs are strongly recommended by David Swensen and Warren Buffett. 2) Asset allocation typically drives performance far more than manager and/or security selection. 3) Exchange-traded funds are typically index funds that trade like stocks. 4) The largest ETF providers are also among the largest global asset managers. 5) According to David Swensen, ETFs avoid many of the conflicts of interest inherent in mutual funds and often deliver better performance, lower cost, and/or greater tax efficiency (read his book, “ Unconventional Success, A Fundamental Approach To Personal Investment ”). 6) Albert Einstein called “compounding” the “8 th Wonder of the World!” Every fraction of a percentage point in average annual performance compounds into a large portion of total return long term. 8
Performance Disclosure General Information All of the performance estimates (the “Performance Estimates”) for our Strategic Cores relate to hypothetical core models (the “Strategic Core Portfolios”), strategies that David Kreinces first backtested in 2008. These portfolios are designed to represent broad growth portfolios and do not take into account an individual’s investment objectives and financial circumstances. Consult your investment adviser before investing. All Strategic Core information reflects hypothetical backtested calculations rather than actual client account results. Mr. Kreinces tailored the Unconventional Core according to the core growth portfolio outlined by David Swensen in his book “ Unconventional Success: A Fundamental Approach to Personal Investment. ” Mr. Swensen is the chief investment officer of Yale University, and, in our opinion, he is leading our industry in modern portfolio diversification across multiple asset classes. Barclays iShare ETFs were used for the entire portfolio to simplify performance reporting. David Swensen is not affiliated with ETF PM and has not endorsed ETF PM. Mr. Kreinces was solely responsible for the development of the Basic and Advanced Core Portfolios, and he had full discretionary authority over the selection of investments. Mr. Kreinces left Merrill Lynch on November 27, 2007 and started ETF Portfolio Management, LLC (“ETF PM”) on December 1, 2007. It is expected that high net worth individuals and institutional clients will allocate to the Strategic Core Portfolios at ETF PM. 9
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