TAG Benefit Advisors, LLC Investment Recommendations for the 401(k) Advantage,LLC Retirement Solution
Investment Process <ul><li>TAG Benefit Advisors, LLC provides comprehensive investment advisory services to plan sponsors of retirement plans of all types, e.g. 401(k) plans, defined benefit, and non-qualified deferred compensation. We perform these services utilizing an unbiased approach to investment research free from any conflicts of interest. It is our belief that superior investment managers can be identified by employing a sophisticated selection process which incorporates both quantitative and qualitative attributes. </li></ul><ul><li>Manager Selection Process </li></ul><ul><li>Our investment framework begins by recognizing that asset allocation decisions are one of the most, if not the most, important decision an investor will make that will impact future returns. Additionally, the recognition of sub-asset investment styles is also critical to the asset allocation decision. Therefore, potential investment managers must demonstrate consistent investment style discipline when their particular style is “in favor” or “out of favor” and during both up and down markets. Our quantitative process evaluates potential investment managers across a number of statistical investment style attributes. Investment managers are further screened for other important statistical variables such as risk-adjusted performance, excess returns over a benchmark, and peer group performance. This process eliminates investment managers who engage in style drift, exhibit excessive risk characteristics, and have inconsistent investment performance metrics. By applying this rigorous approach we effectively remove over two-thirds of the investment universe. </li></ul><ul><li>Investment managers successfully passing the quantitative screens then progress into a qualitative review process. At this stage we identify the people, investment process, and investment philosophy that was employed to achieve the historical results. </li></ul>
Investment Process cont. <ul><li>In particular we want to understand the structure surrounding the investment personnel and specifically who is managing the fund, who provides the investment ideas to the portfolio manager(s), and whether the firm provides any risk management oversight. We also want to confirm the investment process used to generate the investment results. For example, does the manager select stocks utilizing a bottoms-up approach or does the manager select stocks from a top-down approach and does the manager employ a “buy-and-hold” approach or does the manager engage in momentum trading strategies? Lastly, understanding the investment philosophy is critical in analyzing the historical results. It is important to understand and identify whether the overall investment philosophy is driven from a quantitative or fundamental approach and/or whether the manager believes in a contrarian, value or growth style and the type of strategies employed. </li></ul><ul><li>The result of this intensive process is the recommendation of a truly diversified menu of investment managers. Those investment managers selected under these parameters are then continuously monitored to ensure that the qualifying attributes analyzed to select the manager are still intact. </li></ul><ul><li>Asset Allocation </li></ul><ul><li>A menu composed of “best in class” investment managers across different asset classes, market capitalizations, and investment styles (e.g. growth, value, and international) is then assembled. These individual investment options can then be configured by participants into various portfolios ranging from low risk to high risk depending on the participant’s individual risk tolerance. Given the breadth of investment styles available, a participant can customize a portfolio to most any level of risk; however, many participants would prefer to delegate their asset allocation decisions to a professional. It is for this purpose that we also offer five risk based model portfolios as additional investment selections. Risk based asset allocation model portfolios assist in significantly reducing a plan sponsor’s fiduciary liability under section 404(c) of ERISA. </li></ul>
Investment Menu <ul><li>Investment Style </li></ul><ul><li>Fixed Income </li></ul><ul><li>Money Market </li></ul><ul><li>Intermediate Term Bond </li></ul><ul><li>Real Return Bond </li></ul><ul><li>Large Cap Stocks </li></ul><ul><li>Large Value </li></ul><ul><li>Large Blend </li></ul><ul><li>Large Growth </li></ul><ul><li>Small/Mid Cap Stocks </li></ul><ul><li>Mid Value </li></ul><ul><li>Mid Growth </li></ul><ul><li>Small Value </li></ul><ul><li>Small Growth </li></ul><ul><li>International </li></ul><ul><li>International Value </li></ul><ul><li>International Growth </li></ul><ul><li>Recommended Fund </li></ul><ul><li>Schwab Stable Value </li></ul><ul><li>Pimco Total Return </li></ul><ul><li>Pimco Real Return </li></ul><ul><li>Schwab Large Cap Value (Dodge & Cox) </li></ul><ul><li>Vanguard 500 Index </li></ul><ul><li>American Funds Growth Fund of America </li></ul><ul><li>Janus Mid Cap Value </li></ul><ul><li>Artisan Mid Cap Growth </li></ul><ul><li>Royce Low-Priced Stock </li></ul><ul><li>Vanguard Explorer </li></ul><ul><li>Causeway International Value </li></ul><ul><li>American Funds EuroPacific Growth </li></ul>
Investment Style Exposure Domestic Equity The recommended managers comprehensively cover all of the important domestic equity sub-asset styles. A truly diversified investment menu provides important diversification benefits. Small Cap Growth Vanguard Explorer Small Cap Value Royce Low-Priced Stock Mid Cap Growth Artisan Mid Cap Growth Mid Cap Value Janus Mid Cap Value Large Growth American Funds Growth Fund of America Large Blend Vanguard 500 Index Large Value Schwab Large Cap Value (managed by Dodge & Cox)
Investment Risk and Return Risk Return General investment principles hold that an investor should be rewarded with a higher return for every incremental amount of risk undertaken. As can be seen from this chart, over long time periods, fixed income investments generally offer low risk and return, while equity investments generally offer higher levels of risk and return. Schwab Stable Value Pimco Real Return Pimco Total Return Schwab Large Cap Value (Dodge & Cox) Vanguard 500 Index Growth Fund of America Causeway International Value Janus Mid Cap Value EuroPacific Growth Artisan Mid Cap Low High Low High Royce Low-Priced Stock Vanguard Explorer
Investment Menu Commentary <ul><li>Investment Manager Analysis </li></ul><ul><li>The significant factors influencing our recommendations include the following: </li></ul><ul><ul><li>Schwab Stable Value fund provides stability of principal while offering higher return potential than traditional money market funds without additional volatility. The fund is designed to adjust the interest rate paid gradually over time. </li></ul></ul><ul><ul><li>We believe that the optimal approach in gaining exposure to the intermediate-term bond sector is to employ a manager utilizing a total return strategy. Total return is defined as allowing the manager full flexibility to construct a portfolio in those bond sectors which appear to offer a high degree of relative attractiveness. Pimco Total Return, managed by Bill Gross, has provided superior risk-adjusted returns while also providing returns above the peer group based on tactical sector rotation decisions. </li></ul></ul><ul><ul><li>An appropriate fixed income investment which provides diversification benefits is Treasury Inflation Protected Securities (TIPS). We recommend the Pimco Real Return fund which consists primarily of U.S. issued TIPS. TIPS have a built in mechanism which adjusts in relation to movements in the Consumer Price Index (CPI). This adjustment protects TIP bond investors to the damaging effects of inflation. </li></ul></ul><ul><ul><li>For exposure to the large-cap value category, we recommend Schwab Large Cap Value managed by Dodge & Cox. Dodge & Cox is one of the oldest investment organizations in the country and has one of the most experienced portfolio management teams in the industry. Management’s superior returns can be attributed to performing their own original investment research and their buy and hold philosophy. </li></ul></ul>
Investment Menu Commentary cont. <ul><li>Investment Manager Analysis cont. </li></ul><ul><ul><li>We recommend American Funds Growth Fund of America for exposure to the large-cap growth style. American Funds has a long term history of successfully managing money utilizing a multi-portfolio manager concept. Each of the portfolio managers has the investment responsibility for “their” particular piece of the fund. The fund has performed particularly well in down markets. </li></ul></ul><ul><ul><li>Janus Mid Cap Value fund, managed by Perkins, Wolf, McDonnell & Company, offers an investment option dedicated to the mid-cap value category. The portfolio managers at Perkins, Wolf have over 25 years experience managing money in the small/mid cap value style. They have particular expertise selecting stocks and allocating within sectors based on strict valuation criteria. </li></ul></ul><ul><ul><li>The Artisan Mid Cap fund provides a diversified investment approach to the mid-cap growth style. Lead manager Andrew Stephens seeks to buy companies which possess franchise characteristics selling at attractive valuation levels. By allocating fund assets across a wide variety of companies with different investment characteristics, Stephens has built an outstanding track record by taking significantly less risk than his peer group. </li></ul></ul><ul><ul><li>For exposure to the small-cap value style we recommend the Royce Low-Priced Stock fund. Royce funds concentrates on the small cap value style and has excelled in this niche. Their intensive focus on stock selection has resulted in an excellent record over diverse market cycles. </li></ul></ul>
Investment Menu Commentary cont. <ul><li>Investment Manager Analysis cont. </li></ul><ul><ul><li>Vanguard Explorer provides exceptional exposure to the small-cap growth style. This style is the most volatile and susceptible to manias, bubbles, and over valuation. It also by definition contains the more riskier sectors such as technology, biotechnology, and services which are subject to extreme periods of over and undervaluation. Vanguard Explorer has produced an exceptional track record by obtaining positive returns in 9 of the last 10 years. This fund has five sub-advisors each applying a different investment aspect in the small cap growth style. In addition to superior stock selection, the primary attribute to investors has been the significant outperformance of the fund in down markets resulting in higher risk-adjusted returns than the peer group. </li></ul></ul><ul><ul><li>Finally, for dedicated international exposure we recommend American Funds EuroPacific Growth and Causeway International Value. American Funds has a long term history of successfully managing money utilizing a multi-portfolio manager concept. Each of the portfolio managers has the investment responsibility for “their” particular piece of the fund. EuroPacific Growth purses a large-cap blend of both growth and value stocks. Causeway focuses on mid and large-cap value stocks. The portfolio management team of this investment boutique firm follows a bottom-up process focusing on fundamental research. This experienced team has over 18 years of experience and previously managed international assets at Hotchkis & Wiley. </li></ul></ul>
Historical Investment Returns Recommended funds are listed in blue while the corresponding index is listed in black. The indices are unmanaged and it is not possible to invest directly in an index. Past performance does not guarantee similar future results. All assets are exposed to ordinary market risks specific to their respective asset class. Underlying data has been obtained from, or is based on, sources believed to be reliable, but no representation is made by Tisue Advisory Group as to their completeness or accuracy.
Historical Investment Returns Recommended funds are listed in blue while the corresponding index is listed in black. The indices are unmanaged and it is not possible to invest directly in an index. Past performance does not guarantee similar future results. All assets are exposed to ordinary market risks specific to their respective asset class.
Asset Allocation Model Portfolios <ul><li>Risk Based Model Portfolios </li></ul><ul><li>History has shown that not all asset styles perform in a similar manner at the same time. In addition, certain asset styles are inherently more risky than others, e.g. small cap stocks versus large cap stocks. In order to control investment risk an investor must diversify across multiple investment styles while at the same time determining the overall appropriate risk level to undertake. Industry studies have shown that 401(k) participants are typically overwhelmed in performing the research to ultimately make appropriate decisions. Further, many participants do not have the time, interest, or knowledge to make informed decisions. In reality most participants would prefer to delegate this task to a professional. </li></ul><ul><li>Given these facts this plan makes available five, custom designed, risk-based model asset allocation portfolios that participants can select. These portfolios are in addition to the individual fund choices, thus providing participants with a wide range of investment choices and also providing participants with assistance in the important aspect of asset allocation. In fact, these model portfolios are composed of the same funds on the recommended investment menu thus allowing participants to understand the dynamics behind a prudent investment diversification strategy. </li></ul><ul><li>These five portfolios are arrayed across the risk spectrum from conservative to aggressive. This allows a participant of any age to select an appropriate risk point closely matching their risk tolerance. The five model portfolios that follow are designed with a long time horizon in mind and do not employ any type of market timing strategies. By holding the risk point of each model constant the participant benefits by being able to plan appropriately for retirement. </li></ul>