| GLOBAL TACTICAL MULTI ASSET CLASS STRATEGIES |
| The New Normal Investment Strategies for the New Normal Investment Environment October 2010 |
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STRATEGY OVERVIEW
Alpha Fiduciary is pioneering the way for a Separately Managed Multi Asset Class Account across 10 Asset Classes with its GTMACS. The GTMACS are designed to control risk and capture alpha as it diversifies across 7 – 10 non-correlated asset classes. Utilizing a forward looking, proactive trend following approach within the tactical investment management process, Alpha can be defensive and opportunistic in each asset class.
INVESTMENT OBJECTIVE
Alpha Fiduciary’s investment mandate is to manage the risk in our client portfolios, while positioning our model to grow and protect our client’s wealth no matter the market conditions, while exhibiting less downside volatility than the S&P 500 Index.
PORTFOLIO FACTS
Asset Classification – Multi Asset Class
Style Box – Tactical Asset Allocation Core
- Separately Managed Multi Asset Class Account invested across 10 Asset Classes
- Built as a model using unique selection criteria for each asset class
- Using best in class, net asset class solutions
- Transparent & Liquid
- Tactically managed
- Forward looking
- Proactive & Opportunistic
- Non-correlated
- Conflict free
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| THE NEW NORMAL INVESTMENT ENVIRONMENT |
| The new normal investment environment is a wakeup call to investors. The days of buy and hold or even investing according to the Modern Portfolio Theory are no longer acceptable solutions.
Investors should prepare for “major structural changes” as the economy shifts to consistently slower global growth, according to Mohamed A. El Erian, chief executive officer at Pacific Investment Management Co. He said, “Forget about being hostage to mindsets that are very cyclical and look broader, because there are some major structural changes — there’s some major realignment both at the national level and at the global level. When you are on a bumpy journey to a new normal, the unthinkable and the improbable become probable.” |
| STOCK MARKETS ARE MORE SECULAR THAN CYCLICAL |
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- The market collapse resulted in what he calls the “new normal” — a market atmosphere in which the economy will grow 1% to 2% over the next few years, unemployment will range from 8% to 10%.
- “Risk on/risk off” fluctuations – we have already seen this at work with the April highs in U.S. equities, followed by a sudden May drop that lasted through part of July as investors react more to daily headlines than overall trends;
- Tail hedging – diversification does not shield assets, so more investors will protect their positions by using tools that benefit from declines due to tail risks;
- Benchmarks and the role of asset class correlations must be redesigned – the experience of the last 50+ years may not be reflected at all in the “new normal”;
- Less access to credit means lower leverage in investing, thus high valuations will be difficult, if not impossible, to maintain.
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MODERN PORTFOLIO THEORY IS NOT SO MODERN ANYMORE
*The Achilles’ heel of Modern Portfolio Theory is that it simply cannot be reduced to a mathematical model or be relied upon as the sole basis for the management of investment decisions. Instead, it should be thought of as only one reference point for modeling the behavior of a potential portfolio; it is only one dimension of a more comprehensive investment management process.
*While strategic asset allocation is designed to meet the client’s long-term objectives, certain market environments can create significant opportunities to position tactically the portfolio. Over time certain asset classes can become under or overvalued because of economic, fundamental or technical factors. An investor can potentially benefit from these market conditions by choosing to underweight or overweight certain asset classes relative to the strategic benchmark. Using a Tactical Asset Allocation (TAA) strategy, an investor can allocate among the major asset classes in the portfolio to reflect these changes.
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| ALPHA FIDUCIARY INVESTMENT PHILOSOPHY GTMACS |
| Alpha Fiduciary provides portfolio management services in three risk distinguished portfolios of conservative, balanced, and growth. These strategies all incorporate a 7-10 asset class portfolio, consisting of liquid, transparent components which are tactically managed utilizing a trend following approach to the markets. As a separate account these strategies offer the platform, advisor, and the end client portfolio’s which are more fully diversified utilizing asset classes with low correlation to one another and by virtue of our trend following approach they are designed to break correlation to the financial markets when they are in decline. These portfolios are an ideal investment solution for advisors and their clients seeking sustainable investment strategies, reduced downside volatility and long term performance characteristics, consistent with what advisors and their clients are seeking in the new normal investment environment. |
| GTMACS PORTFOLIO CONSTRUCTION |
- The foundation of our comprehensive investment process is world class global economic research. From this research we focus globally on government, corporate and consumer sectors to identify the winners and losers of the macro environment.
- The Alpha Model Asset Class allocations are constructed to express our assessment of global asset class fundamentals. The allocations underweight and/or overweight asset classes and from a directional perspective can be long or short. No leverage is employed.
- Our selection criteria process screens all actively managed and appropriate indexes for the optimal investment solutions to implement in each of our 10 asset classes
- Our Tactical and Agile active management process is proactive and deliberate in its focus of seeking opportunity, protecting gains and limiting losses. This is what makes us unique even from other multi-asset class portfolio management strategies.
- Resulting in the Alpha Fiduciary Global Multi-Asset Class Portfolio of liquid and transparent investments across 7-10 asset classes
- Available in three risk differentiated portfolios: Conservative, Balanced, and Growth. All portfolios utilize 10 asset classes in varying asset allocations.
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THE IMPACT OF LOSSES
At Alpha Fiduciary we don’t believe in relative performance. The tyranny of mathematics tells us that when you lose 30% you must gain 43% to get back to even and if you lose 40% then you need 67% to get back to even and so on. As the chart to the right indicates, the more you lose the greater the gain needs to be to get back to even.
AT ALPHA FIDUCIARY WE INTERACT WITH OUR CLIENTS ACCORDING TO THE FIDUCIARY STANDARD
1) Alpha Fiduciary will always put the client’s best interest first — ahead of our own and that of our firm and its employees. As defined by federal law, we will act as a fiduciary.
2) When selecting investments, we will act as the client’s agent, seeking the best investments at the best prices at all times.
3) While neither we nor anyone can promise superior investment returns, we will provide impartial advice and act with skill, care, diligence and good judgment.
4) We will provide to each client full and fair disclosure of all important facts, including full transparency of how and when we are paid by that client.
5) We will fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.
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| AS LOSSES GROW THEY BECOME EXPONENTIALLY HARDER TO OVERCOME |
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| AF ASSET ALLOCATION MODEL 138.51% VS. S&P 500 (-3.74%) 1/1/99 – 10/31/10 |
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| The above chart represents the static model of Alpha’s GTMACS over a ten year period vs. THE S&P 500. Which do you think would better represent your retirement needs? |
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Portfolio Manager
Arthur T. Doglione, President
Arthur is an industry veteran with more than 20 years experience working with high net worth clients. He has an extensive background in wealth management with particular expertise in portfolio management. Prior to establishing Alpha Fiduciary, Art was a Senior Vice President with Merrill Lynch where prior to leaving in November, 2006 had built his practice to be the largest of Merrill Lynch’s Arizona territory.
Arthur founded Alpha Fiduciary which serves its clients as a fee only Registered Investment Advisor (RIA). In cooperation with some of the most successful institutional investors in the world, Arthur pioneered the development of Alpha Fiduciaries’ Global Tactical Multi Asset Class Strategies of investing.
CONTACT ALPHA FIDUCIARY
MICHAEL L SHEA,
BUSINESS DEVELOPMENT DIRECTOR
MICHAEL@ALPHAFIDUCIARY.COM
480.505.4033
WWW.ALPHAFIDUCIARY.COM
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| PERFORMANCE: ALPHA FIDUCIARY RATE OF RETURN & WORST DRAW DOWN VS. S&P 500 |
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| TECHNICAL’S AF STATIC MODEL VS. S&P FROM 1/99 – 10/10 |
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| HISTORICAL PERFORMANCE
Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holding do or will correspond directly to any comparative indices.
HYPOTHETICAL INFORMATION:
This material contains certain hypothetical performance and portfolio information. No representation is made about the overall hypothetical portfolios or their suitability or potential benefits for any client or investor and no advice or recommendation is given with respect to such hypothetical portfolios which are included for illustration purposes only. The hypothetical portfolios do not represent actual client or investment accounts. Hypothetical information, including hypothetical performance results, have many inherent limitations. They are generally prepared with the benefit of hindsight, mat not involve financial risk or reflect actual trading or asset allocations for any portfolio and therefore do not reflect the impact that economic and market factors may have had on the manager’s or advisor’s investment decisions for that portfolio. In fact, there are frequently sharp differences between hypothetical results and the actual record subsequently achieved. No representation is made that such portfolio’s performance that such portfolio’s performance would have been the same as such hypothetical results had the portfolio been in existence during such time.
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