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Tactical Income ETF StrategyInvestor Presentation
N O R T H C O A S T I N V E S T M E N TA D V I S O R Y T E A M
2 0 3 . 5 3 2 . 7 0 0 3I N F O @ N O R T H C O A S TA M . C O M
N O R T H C O A S T A S S E T M A N A G E M E N T
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OVERVIEW
INVESTMENT PROCESS
TACTICAL INCOME
SUMMARY
APPENDIX
Based in Greenwich, CT
$1.7 billion in firm AUM (as of 9/30/2017)
30 Professionals
100% proprietary research, trading, and management
Systematic and rules -based investment execution
Daily risk controls that proved their mettle in drawdowns of 2000-2002 and 2008
EXPERIENCE
STABILITY
PERFORMANCE
Exclusive Agreement with Investor’s Business Daily®
ETF Partnership with BlackRock® iShares®
Recognized as a Financial Times Top 300 Registered Investment Adviser (2014, 2015)
N O R T H C O A S T A S S E T M A N A G E M E N T
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OVERVIEW
INVESTMENT PROCESS
TACTICAL INCOME
SUMMARY
APPENDIX
Daily quantitative research
Active portfolio construction & security selection
Disciplined, rules-based risk controls
Significant investment made in risk management systems
30 Professionals (including Portfolio Management, Research, Trading, Investor Relations, Operations, & Compliance)
Managing 20 separate account strategies & 1 mutual fund across multiple asset classes
Diligent compliance program led by experienced compliance officer and counsel
7 member Investment Committee - Expertise in quantitative research
Career experience with Research Affiliates, Pyramis, and Numeric
2 CFAs, 2 MBAs, and 7 Masters with concentrations in computer science, engineering, statistics, and computational finance
E X T E N S I V EP A R T N E R S H I P S
T A L E N T E DR E S E A R C H
T E A M
S Y S T E M A T I CI N V E S T M E N T
P R O C E S S
I N S T I T U T I O N A LS T R U C T U R E
Exclusive agreement with Investor’s Business Daily utilizing the CAN SLIM® investment program
ETF partnership with iShares® by BlackRock®
Separate account platform partners include Fidelity, Morgan Stanley, Wells Fargo, UBS, RBC, Raymond James, and others
I N V E S T M E N T P H I L O S O P H Y
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INVESTMENT PROCESS
TACTICAL INCOME
SUMMARY
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We believe a thoroughly researched and repeatable investmentprocess rooted in common sense will outperform over time. Ourresearch shows that markets and securities reward certain factorsand punish others.
To capitalize on these factors, we employ a market exposure modeland a security selection model based on fundamental rationales.These rationales are confirmed by thorough quantitative analysis,are systematically implemented and complemented with extensiverisk controls.
This proven and repeatable investment process relies on portfoliomanagers to validate the model outputs daily and traders toimplement the strategy efficiently.
To maintain, refine and enhance our competitive edge, we remaincommitted to a continuous and comprehensive research effort.
I N V E S T M E N T T E A M
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INVESTMENT PROCESS
TACTICAL INCOME
SUMMARY
APPENDIX
Patrick Jamin CFA, FRM
Chief Investment Officer
Partner, Numeric Investors (European / World Fundamental Statistical Arbitrage) Partner, Portfolio Manager, Standard Pacific Capital; Global Long/Short Equity Fund Senior Quantitative Analyst, Invesco; Global Quantitative Fund M.B.A., Harvard Business School, Baker Scholar, Arthur Sachs Scholar M.S. Telecommunications, Ecole Nationale Superieure des Telecommunications de Paris Ingenieur de I’Ecole Polytechnique, Ecole Polytechnique
Julia ZhuCFA, FRM
SVP – Market & Security Research
Vice President, Research Affiliates - Quantitative research; equities and asset allocation Associate, First Quadrant – Conducted research on GTAA and tactical currency allocation Master of Economics, Yale University, PhD Candidate M.B.A. with concentration in Finance, University of Southern California
Yaqiu Li SVP – Portfolio Construction
Climate Modeling – National Key Lab of Atmospheric Science, Chinese Academy of Sciences M.S. Quantitative and Computational Finance & M.S. in Statistics, Georgia Tech PhD Candidate CFA Level III Candidate
Slava MalkinSenior VicePresident
Quantitative currency trading strategies – BNP Paribas Portfolio Manager of global macro strategies Research in Global Tactical Asset Allocation strategies – Deutsche Asset Management M.S. in Statistics, Harvard University
Jason Krugly Vice President
Research experience with Bank of America, Merrill Lynch, Credit Suisse, Deutsche Bank M.S. in Financial Engineering, Baruch College B.S. & M.S. in Computer Science, Polytechnic Institute of New York University
Sumanth Amarchinta Vice President
Senior Investment Analyst, Pyramis Global Advisors - Quantitative research M.S. in Computer Engineering, Rochester Institute of Technology B.S. in Electrical Engineering, Roorkee Indian Institute of Technology
INCOME GROWTH
S E PA R AT E LY M A N A G E D A C C O U N T P L AT F O R M
OVERVIEW
INVESTMENT PROCESS
TACTICAL INCOME
SUMMARY
APPENDIX
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Designed to meet the broad wealth management goals of clients from asset accumulation through retirement
Employing a tactical overlay focused on capital appreciation and downside risk management
Fixed Income U.S. Equity International Equity Alternative
The “Typical Asset Allocation” is for informational and illustrative purposes only based on an Opportunistic market outlook provided by NorthCoast Asset Management.
TACTICAL INCOME DIVERSIFIED CORE DIVERSIFIED GROWTH TACTICAL GROWTH
OverviewA conservative plan,emphasis on income
Balanced approach to growth & income
Growth by means of capitalappreciation and income
Capital appreciation withsecondary objective of capital
preservation
BenchmarkJPM Global Bond Aggregate
(Global Bonds) 50% ACWI / 50% Global Bonds 70% ACWI / 30% Global Bonds Morningstar World Allocation
Tactical Shifts 100% (Full) 20% (Modest) 30% (Modest) 100% (Full)
Typical AssetAllocation
Opportunistic Market
Environment
TA C T I C A L I N C O M E I N V E S T M E N T P R O C E S S
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APPENDIX Proprietary market outlook determined by 40+ signals across four dimensions identifies opportunities & risks
Daily market signal analysis
Ongoing research assessment of market signals ensures accuracy and relevance
Rigorous proprietary research shows ETFs exhibit common characteristics before gains
Daily scoring of 150+ ETFs with 20+ signals
Seeking ETFs with superior risk-adjusted potential
Dynamic optimizer properly maintains risk-adjusted portfolio daily
Assessment of total transaction costs and estimate of implementation shortfall
Each ETF’s idiosyncrasies evaluated by team prior to taking a position
Higher concentrated portfolio enhances long-term alpha
Proprietary risk model
Controls embedded through investment process
Combination of active and passive risk management methods
Daily monitoring of positions
Leading IndicatorsFederal ReserveJobsGeopolitical
ConsumersProducersCreditSurprise
MomentumReversalFear
HistoricalForwardRate AdjustedInflation Adjusted
Proprietary market outlook determined by 40+ signals across four dimensions identifies opportunities & risks to determine optimal exposure and leverage
MACRO-ECONOMIC
SENTIMENTTECHNICAL VALUATION
The chart above shows a hypothetical simulation of NorthCoast’s proprietary market outlook analysis tool. This simulation is generated by using multiple data points across four broad dimensions including Technical, Sentiment, Macroeconomic, and Valuation indicators. The daily result determines equity exposure. It does not represent actual equity exposure.
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I N V E S T M E N T P R O C E S S
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Equi
ty T
arge
t Lel
vel
NorthCoast Equity Exposure Model1/1/1996 - 12/31/2016
Technicals Sentiment Macroeconomic Valuation
D A I LY S C O R I N G O F E T F S
NorthCoast scores a variety of ETFs across multiple asset classes utilizing a combination of factors (signals) that drive performance
9Individual securities are for comparative purposes only and NorthCoast may not recommend these positions at the time of publication. Score-based model is a proprietary security selection system of NorthCoast Asset Management.
OVERVIEW
INVESTMENT PROCESS
TACTICAL INCOME
SUMMARY
APPENDIX
D A I LY S C O R I N G O F E T F S
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ETF Harmony®
Describes NorthCoast’s approach
to evaluating and selecting
Exchange Traded Funds (ETFs).
Highlights the use of four
categories of factors/signals, with
of what works, and what doesn’t:
Technical
Macroeconomic
Sentiment
Valuation
The NorthCoast Tactical Income ETF Program’s investment objective is to provide:
Target yield of Inflation + 2-3% through a diverse set of income sources
Protection against rising interest rates and inflation with real assets
Potential for appreciation through growth assets
Downside protection through a tactical allocation to income sources benefitting from diversification
Sample Allocation by Asset Class
Fixed IncomeEquity
Alternative
50%-100%
0%-25%
0%-25%
United States
DevelopedInternational
Emerging Markets
50%-70%
15%-25%
15%-25%
Sample Allocation by Country
Given today’s interest rate & yield environment, institutional investors are seeking an active and alternative solution for portfolio income needs
TA C T I C A L I N C O M E
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TA C T I C A L I N C O M E S U M M A R Y
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APPENDIX
Past Performance is not indicative of future results. All investments involve risk, including loss of principal. Results are presented net of management fees.Please reference the Appendix for additional disclosure information.
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TA C T I C A L I N C O M E P E R F O R M A N C E
Annualized Returns 2012* 2013 2014 2015 2016 2017YTD 1-Year 3-Year Inception
11/1/2012
Tactical Income ETF 0.9% 1.7% 6.3% -3.8% 5.9% 7.1% 3.7% 3.6% 3.6%
Global Bonds -0.3% -2.6% 1.7% -2.7% 2.2% 5.8% -1.2% 1.5% 0.8%
U.S. Bonds 0.0% -2.0% 6.0% 0.6% 2.7% 3.1% 0.1% 2.7% 2.1%
*2012 performance results from 11/1/2012 - 12/31/2012.
Data as of 9/30/2017. Past performance is not a guarantee of future profits and must be viewed in concert with Disclosure Information in the Appendix. Returns are presented net-of-fees, including the reinvestment of dividends. Net-of-fee returns are reduced by trading costs and the portfolio’s actual management fee.
$90,000
$95,000
$100,000
$105,000
$110,000
$115,000
$120,000
Nov 2012 Apr 2013 Sep 2013 Feb 2014 Jul 2014 Dec 2014 May 2015 Oct 2015 Mar 2016 Aug 2016 Jan 2017 Jun 2017
Gro
wth
of $
100,
000
Tactical Income vs. Competitive BenchmarksHypothetical Growth of $100,000: 11/1/2012 - 9/30/2017
Tactical Income Global Bond Agg. U.S. Bond Agg.
TA C T I C A L I N C O M E P E R F O R M A N C E
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*11/1/2012 - 12/31/2012.Yield Generation and Asset Appreciation are estimated figures based on the annualized yield of the portfolio.
Past Performance is not indicative of future results. All investments involve risk, including loss of principal. Results are presented net of management fees.Please reference the Appendix for additional disclosure information.
2012* Q1 Q2 Q3 Q4 2013 Q1 Q2 Q3 Q4 2014 Q1 Q2 Q3 Q4 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4 2017
Yield Generation 1% 1% 1% 1% 1% 5% 1% 1% 1% 1% 4% 1% 1% 1% 1% 4% 1% 1% 1% 1% 4% 1% 1% 1% 2%Asset Appreciation 0% 1% -6% 1% 0% -3% 2% 2% -2% 1% 2% 0% -4% -3% -1% -8% 2% 3% 1% -2% 2% 2% 2% 1% 4%Performance 1% 3% -5% 3% 1% 2% 3% 3% -1% 2% 6% 1% -3% -2% 0% -4% 3% 4% 2% -1% 6% 3% 3% 2% 6%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Strategy PerformanceYield + Appreciation
Asset Appreciation Yield Generation Performance
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Inflation = 3%
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1-3 Y T-BillsTips
1-3 Y Credit3-7 Y T-Bills
MBS
7-10 Y T-Bills10-20 Y T-BillsIntermediate Credit
Muni Bonds 20+ Y T-Bills
10+ Y Credit
Infrastructure
US EquitiesUS REIT
Intal REIT
Intal Equities
EM Bonds
High Yield Bonds
Preferred Shares
Bank Loan
High Yield ex-USHigh Yield Short Term High Yield Muni
Build America
High Yield EMMLP
0%
1%
2%
3%
4%
5%
6%
7%
8%
0% 2% 4% 6% 8% 10% 12% 14%
Yiel
d
Volatility
Asset Classes and Efficient Frontiers
Traditional Core Income Enhanced Income Unconstrained Income
Traditional Efficient Frontier Enhanced Efficient Frontier Unconstrained Efficient Frontier
Few traditional income options meet the inflation hurdle
Turning to additional income vehicles can enhance yield
Careful portfolio construction and risk management can lead to a better efficient frontier
Source: Bloomberg, iShares, as of 11/06/2014
Combining traditional and non-traditional income options can improve a portfolio’s yield with an acceptable level of volatility
B E N E F I T S O F U N C O N S T R A I N E D I N C O M E
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D I S C L O S U R E I N F O R M AT I O N
Past Performance is not indicative of future results. All investments involve risk, including loss of principal.
The firm is defined as NorthCoast Asset Management LLC. NCAM was established in 1988 and is an independent Registered Investment Advisor (RIA) registered with the Securities and Exchange Commission (SEC). The firm is a full service investment management company. The firm specializes in quantitative investment programs. NCAM is located in Greenwich, CT, and is not affiliated with any parent organization and has no other offices operating under the same brand name.
Returns are presented net-of-fees. Net-of-fee returns are reduced by trading costs and the portfolio’s actual management fee. Valuations are computed and performance is reported in U.S. dollars. A complete list of composite descriptions is available upon request. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. To obtain a compliant presentation for the associated strategy, please contact one of our advisors at 800.274.5448.
Tactical Income is a fully tactical investment strategy designed to produce income while managing principal risk. The strategy invests in a diversified basket of global ETFs across the income spectrum using U.S. bonds, international bonds, corporate bonds, mortgages, and U.S. and international dividend equities. The strategy seeks a target yield of inflation +2-3%, protection against rising interest rates & inflation with real assets, potential for appreciation through growth assets, and downside protection through a tactical allocation to yield sources with diversification benefits.
Benchmarks - The Barclays Aggregate Bond Index and JP Morgan Global Aggregate Bond Index are used for comparison purposes. The Barclays Aggregate Bond Index is a broad based index designed to represent global investment grade bonds traded in the United States. The JP Morgan Global Aggregate Bond Index is a broad-based index designed to represent multi-currency, global investment grade bonds.
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D I S C L O S U R E I N F O R M AT I O N
This information contained herein has been prepared by NorthCoast Asset Management, LLC ("NorthCoast") on the basis of publicly availableinformation, internally developed data and other third party sources believed to be reliable. NorthCoast has not sought to independently verifyinformation obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability ofsuch information. All opinions and views constitute judgments as of the date of writing without regard to the date on which the reader may receiveor access the information, and are subject to change at any time without notice and with no obligation to update. This material is for informationaland illustrative purposes only and is intended solely for the information of those to whom it is distributed by NorthCoast. No part of this materialmay be reproduced or retransmitted in any manner without the prior written permission of NorthCoast. NorthCoast does not represent, warrant orguarantee that this information is suitable for any investment purpose and it should not be used as a basis for investment decisions.
PAST PERFORMANCE DOES NOT GUARANTEE OR INDICATE FUTURE RESULTS.
This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investmentproducts or to adopt any investment strategy. The reader should not assume that any investments in companies, securities, sectors, strategiesand/or markets identified or described herein were or will be profitable and no representation is made that any investor will or is likely to achieveresults comparable to those shown or will make any profit or will be able to avoid incurring substantial losses. Performance differences for certaininvestors may occur due to various factors, including timing of investment. Investment return will fluctuate and may be volatile, especially overshort time horizons.
INVESTING ENTAILS RISKS, INCLUDING POSSIBLE LOSS OF SOME OR ALL OF THE INVESTOR'S PRINCIPAL.
The investment views and market opinions/analyses expressed herein may not reflect those of NorthCoast as a whole and different views may beexpressed based on different investment styles, objectives, views or philosophies. To the extent that these materials contain statements about thefuture, such statements are forward looking and subject to a number of risks and uncertainties.
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APPENDIX