It’s all about IMPACT

Reviewing Investment Performance

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Today’s Conversation Topics

Your role as an Asset OwnerInvestment Advisor - Trusted Team Member and Service ProviderOverview of Asset Allocation & Performance ExpectationsWhere are the easy opportunities for Mission Related / Impact Investing?Where does mission and performance meet for a win-win in the road ahead?

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It’s a lifelong long journeyLearn the language of investingDefine and align to your goals and valuesUnderstand your risk toleranceKnow your liquidity needsStay current on performance expectationsBuild a team (redundancy is ok)

Your role as Asset Owner

Self-actualization refers to fulfilling one’s individual potential: Maslow's hierarchy of needs.

What does this mean for your investment strategy?

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Investment Advisors –Trusted Team Member and Service Provider

It’s a relationship based on trust and transparencyThey are service providers – it’s their job to understand your goals They are paid on financial performance (which means this is really their job)Create the conversation - send them resources, request review meetingsExpect Evolution…(require it)A source for education – Ask for examples, references, comparisons and plain EnglishManager performance is different from investment performance!!! (more on this)

A roadmap allows you to chart your course

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Asset Allocation & Performance Expectations

Yale Model Asset Allocation

Research shows that it's the asset allocation of investments that accounts for nearly 92% of the variability of returns for the total portfolio holdings.

This is because each asset class has distinct characteristics and, historically, reacts differently under the same market conditions.

Asset allocation strategies are established to meet the individual needs of each investor based on their time horizon (the amount of time their dollars will be invested), risk tolerance and liquidity requirements.

As a result, there is no 'one size fits all' when it comes to asset allocation strategies and the investment options available to meet them.

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BenchmarksBenchmarks are passively managed portfolios of financial assetsBenchmark are often expressed as an index that serves as the measurement yardstick for a portfolio by comparing portfolio characteristics such as returns, risk, component weights and exposure to sectors, styles and other factors to the benchmark.

To be effective, a benchmark should meet most, if not all, of the following criteria:

Unambiguous and Transparent—The names and weights of securities comprising a benchmark should be clearly defined.Investable—The benchmark should contain securities that an investor can purchase in the market or easily replicate.Priced daily—The benchmark’s return should be calculated regularly.Availability of historical data—Past returns of the benchmark should be available in order to gauge historical returns.Low turnover—There should not be high turnover in the securities in the index because it can be difficult to base portfolio allocation on an index whose makeup is constantly changing.Specified in advance—The benchmark should be constructed prior to the start of evaluation.Published risk characteristics – The benchmark provider should regularly publish detailed risk metrics of the benchmark so that the investment manager can compare the actively managed portfolio risks to the passive benchmark risks.

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Performance Attribution – Active returns

The attribution analysis dissects the value added into three components:Asset allocation is the value added by under-weighting cash (0.28%), and over-weighting equities (0.12%). The total value added by asset allocation was 0.40%.Stock selection is the value added by decisions within each sector of the portfolio. In this case, the superior stock selection in the equity sector added 1.40% to the portfolio's return.Interaction captures the value added that is not attributable solely to the asset allocation and stock selection decisions

The difference between the portfolio return and the benchmark return is known as the active return. The active return is the component of a portfolio's performance that arises from the fact that the portfolio is actively managed.

Portfolio Weight

Benchmark Weight

Portfolio Return

Benchmark Return

Asset Allocation

Stock Selection

Interaction Total Active

Equities 90 70 5 3 0.12 1.4 0.4 1.92

Cash 10 30 1 1 0.28 0 0 0.28

Total 100 100 6 4 0.4 1.4 0.4 2.2

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Alpha – How investment managers rank their performanceAlpha is a risk-adjusted measure of the so-called active return on an investment. It is the return in excess of the compensation for the risk borne, and thus commonly used to assess active managers' performances.

Often, the return of a benchmark is subtracted in order to consider relative performance, which yields Jensen's alpha.

αi < 0: the investment has earned too little for its risk (or, was too risky for the return)

αi = 0: the investment has earned a return adequate for the risk takenαi > 0: the investment has a return in excess of the reward for the assumed risk

For instance, although a return of 20% may appear good, the investment can still have a negative alpha if it's involved in an excessively risky position.

certainty plan

Near-Term Results

Long-Term Context

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Opportunities for Mission Related / Impact Investing

Yale Model Asset Allocation

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MRI / Impact Investment Spectrum

Impact return

Financial return

Intent

Mission Impact First Finance First Profit Only

High Low

Low High

Philanthropic Impact with below market returns

Market rate returns with some impact

Maximize profit

Traditional Investment Models

Working Within Constraints

Every investment involves a trade-off

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Mission and Performance Meet for a Win-Win

The Path Forward

Look for Quick Wins

Explore and Learn

Incentivize Change

Ask for Help

Have Fun

Creating high-impact, lasting results for humanity and the earth

Questions?

Contact Info:

Allison Duncan, CEOAmplifier Strategiesallison@amplifierstrategies.comPhone: 510-350-3707