Welcome to the Annual Investment Update November 21, 2014 - - PowerPoint PPT Presentation

Welcome to the Annual Investment Update – November 21, 2014

Presenters

Welcome

Dianna L. Sutton CFFK President and CEO

CFFK Investment Committee

Tom Clements Investment Committee Chair

CFFK Investment Advisors

Barry Beach Senior Portfolio Manager Mason Investment Advisory Services

CFFK Events and Happenings

Unsung Heroes Luncheon January 30, 2015 – Luncheon at Marriott Beachside December 15th – Nomination Deadline Leadership Success Academy Starts February 26, 2015 FKCC – Tennessee Williams Theatre Lobby CFFK Annual Meeting February 19, 2015 at Marriott Beachside CFFK Website – www.cffk.org Fund Advisor Functionality

CFFK Investment Committee

Tom Clements CFFK Investment Committee Chair

MASON INVESTMENT ADVISORY SERVICES, INC. 5

Investment Stewardship: So You Can Focus on Your Mission

Presented to: Community Foundation of the Florida Keys Presented by: Barry Beach Senior Portfolio Manager

11130 Sunrise Valley Drive Suite 200 Reston, VA 20191 www.masoncompanies.com (703) 716 – 6000 bbeach@masoncompanies.com

MASON INVESTMENT ADVISORY SERVICES, INC. 6

1. Brief Overview of Mason Investment Advisory Services 2. Our Overall Role with the Foundation and Working with the Foundation to Establish an Investment Policy Statement that will Guide the Committee and Mason in their Oversight of the Foundation’s Investments 3. Selecting and Evaluating Managers 4. Discussion of Short Term Volatility 5. Taking Advantage of Volatility through Rebalancing

Overview of Topics we will Cover

MASON INVESTMENT ADVISORY SERVICES, INC. 7

Mason Investment Advisory Services, Inc.

• Founded 1982 – Financial Planning Roots

– 56 Employees – Independent, no proprietary products – Clients in 42 states|

• Investment Advisory Summary

Total Institutional – Assets under management $4.3B $1.6B – Investment management clients 660+ 55 – Recently listed in Forbes, Financial Times and Barron’s

• Focus on Community Foundations & Nonprofits

– 27 Community Foundation Clients in 16 states, totaling $840M in Assets Under Mgmt. – Working with Community Foundations since 1998 – 100% Community Foundation Client Retention

MASON INVESTMENT ADVISORY SERVICES, INC. 8

Role of Consultants (Mason’s Relationship with CFFK)

• Investment Consultant to the Foundation since 2008
• Report to the Investment Committee (Quarterly) and the Board (as

needed)

• Recommend:
• Changes to Investment Policy Statement
• Asset Allocation Targets
• Spending Policy
• Rebalancing Methodology
• Investment vehicles (funds & managers)
• Selection
• Evaluation
• Review / rebalance portfolio on regular basis
• Reporting (quarterly performance reports, donor reports, etc.)
• Education & donor development as requested

MASON INVESTMENT ADVISORY SERVICES, INC.

Mason’s Investment Philosophy

• Strategic Asset Allocation

– Broad mix of asset classes – Timing does not work – Predicting the future does not work

• Rebalancing is Important

– Use volatility as a tool – Technology enables more precise and frequent monitoring

• Manager Selection Process

– Independence – Fund Family track records – Asset class fit

• Composite Track Record

MASON INVESTMENT ADVISORY SERVICES, INC. 10

Manager Selection and Evaluation

Objectives

1. Identify superior fund families with the potential for higher returns relative to peers 2. Select individual funds to obtain optimal exposure to each category 3. Utilize funds with competitive fee structures

MASON INVESTMENT ADVISORY SERVICES, INC. 11

Comprehensive Study Conducted

1. Evaluated the 25 largest fund families over a 12 year period

– Fund families were analyzed over rolling 5 year periods and over the entire 12 year period

2. Evaluated both open and terminated funds across fund families 3. Evaluated only lowest cost share classes Results: Study identified preferred fund families that have shown superior relative performance rankings versus their peers over time and have consistently demonstrated a repeatable process across all of their

• fferings.
• 1. Dodge & Cox
• 4. Vanguard
• 2. American Funds 5. T. Rowe Price
• 3. PIMCO
• 6. DFA

Manager Selection and Evaluation

MASON INVESTMENT ADVISORY SERVICES, INC. 12

Manager Selection and Evaluation

1. Periodically we will update our study to continue to identify preferred fund families whose funds are most likely to succeed going forward 2. Replace managers when exposure can be better obtained elsewhere

Ongoing Evaluation of Managers

MASON INVESTMENT ADVISORY SERVICES, INC. 13

Volatility is to be Expected

Historically stocks have had superior returns but over the short term can be extremely unpredictable and volatile. With stocks we seldom experience the average return. From 1926 thru December 31, 2013 the S&P Composite had an average annual return of 10.08%. Over this period, the S&P Composite had a single year return of between 8% and 12% in only 5 years (out of 88 years).

MASON INVESTMENT ADVISORY SERVICES, INC. 14 72.7% of years equity returns were positive 27.3% of years were negative 37.5% of the time equities gained over 20% 6.8% of the time equities lost more than 20% The data clearly supports the benefit of equities

• ver time and it is important to keep these odds

in mind if taking money out of the market based

• n short term expectations or other market

timing strategies. However, recognize that 1 year out of 15 (6.8%) the S&P posted more than a 20% loss. These are times investors tend to react most strongly to negativity in the media and are the most tempted to get out of the market.

Volatility is to be Expected

6.8% 12.5% 27.3% 72.7% 58.0% 37.5% 0.0% 20.0% 40.0% 60.0% 80.0% Loss ¡of ¡ 20% ¡or ¡ More Loss ¡of ¡ 10% ¡or ¡ More Loss Gain Gain ¡of ¡ 10% ¡or ¡ More Gain ¡of ¡ 20% ¡or ¡ More

S&P ¡Composite ¡Frequency ¡of ¡ Calendar ¡Year ¡Returns ¡1926-­‑2013

Loss ¡of ¡20% ¡or ¡More Loss ¡of ¡10% ¡or ¡More Loss Gain Gain ¡of ¡10% ¡or ¡More Gain ¡of ¡20% ¡or ¡More

MASON INVESTMENT ADVISORY SERVICES, INC. 15

Volatility is to be Expected

S&P 500 (1980 – 2013)

• Average calendar year return: 13.22%
• 29 out of 34 years had positive returns
• Every year experienced an intra-year decline
• Average intra-year decline: -14.03% (Range -2.5% to -46.95%)

In 2014, the intra-year decline of the S&P 500 from 9-9-14 to 10-10-14 was -7.28%. Year-to-date as of 10-31-14 the S&P 500 is up 10.99% Short term volatility is normal, is to be expected, and long term investors should be indifferent to it.

MASON INVESTMENT ADVISORY SERVICES, INC. 16

Taking Advantage of Volatility through Rebalancing

• 1. Review Account every ten trading days
• 2. Rebalance when 30% band has been reached
• 3. Trade infrequently but opportunistically to take advantage of short

term volatility

MASON INVESTMENT ADVISORY SERVICES, INC.

“C” Allocation with - 30% Rebalancing Bands

Rebalancing Portfolio Rebalancing Trigger - Percentage Trigger - Asset Category Low End Allocation High End

• I. Safety Assets

1.4% 2.0% 2.6% Total Safety Assets 2.0%

• II. Income Assets

Domestic Bonds: Short Term Maturities (1-5 yrs) 5.1% 7.25% 9.4% Intermediate Term Maturities (5-10 yrs) 5.3% 7.5% 9.8% Long Term Maturities (10+ yrs) 5.3% 7.5% 9.8% Inflation Protected Bond 4.0% 5.75% 7.5% International Bonds 3.5% 5.0% 6.5% Total Income Assets 33.0%

• III. Growth Assets

Large Cap U.S. Stocks - Value 9.5% 13.5% 17.6% Large Cap U.S. Stocks - Growth 5.6% 8.0% 10.4% International Stocks - Value 5.6% 8.0% 10.4% International Stocks - Growth 3.9% 5.5% 7.2% Growth Real Estate 7.7% 11.0% 14.3% Total Growth Assets 46.0%

• IV. Aggressive Assets

Small Cap U.S. Stocks - Value 3.5% 5.0% 6.5% Small Cap U.S. Stocks - Growth 2.1% 3.0% 3.9% International Small Cap 1.8% 2.5% 3.3% Energy/Natural Resources 3.0% 4.25% 5.5% Commodities 3.0% 4.25% 5.5% Total Aggressive Assets 19.0% TOTAL PORTFOLIO 100.0% (30% bands) Asset Allocation Targets - "C" Portfolio (Growth & Income)

MASON INVESTMENT ADVISORY SERVICES, INC.

Summary

Mason assists client through….

• Fiduciary Oversight and Compliance with the Policy Statement
• Strategic Asset Allocation
• Broadly Diversified Portfolios
• Unique and Independent Approach to Fund Selection
• Rebalancing Approach
• Track Record of Performance
• Detailed Performance Reporting
• Development Program
• Committee/Board Education

CFFK INVESTMENT COMMITTEE

• Performance to Market
• Performance to Peers
• Summary of CFFK / Mason Collaboration
• Personal Observations on Mutual Fund

Investing

Performance Comparison to Market Indices

(as of 9/30/14)

Disclosures * 65/35 Domestic Stock Bond Mix derived from 65% of the Wilshire 5000 Total Market Index and 35% of the Barclays Capital Aggregate Index. * 65/35 Global Stock Bond Mix derived from 65% of the S&P Global BMI Index and 35% of the Barclays Global Aggregate Index. Performance of both of the stock/bond mixes is presented net of the average annual ETF and index fund expense ratio prorated

• monthly. This was the average expense ratio of all 1,523 ETFs and Index Funds included in the Morningstar database as of

9/30/13, which was 0.68%.

YTD 1-Year 3-Years Annualized 5-Years Annualized Since Inception (09/30/08) Community Foundation of the Florida Keys¹ 2.98 7.77 11.90 8.90 8.28 65/35 Domestic Stock Bond Mix² 5.57 12.19 14.66 10.97 8.96 65/35 Global Stock Bond Mix³ 2.50 6.97 10.80 7.40 7.13

Performance Comparison to Peers

(as of 6/30/14)

* COF survey results are provided as of the previous quarter-end date. 6.46 17.08 9.18 13.09 5.37 15.68 9.16 11.76 2 4 6 8 10 12 14 16 18 YTD 1-Year 3-Years Annualized 5-Years Annualized

Council on Foundations Survey Data

Summary of CFFK / Mason Collaboration

• Mason is providing significant support to CFFK

Quarterly reviews, advice on Investment Policy Statement (IPS), Asset Allocation, Spending policy, rebalancing methodology, reporting

• Within IPS guidelines, Mason is managing all

security selection, rebalancing and other

• perational duties
• Results have been excellent. We are in line with

market indices and out-performing our Community Foundation peers.