2012 3-8 master presentation

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Efficient Market Advisors, LLC firm overview.

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  • ETFs have experienced tremendous growth, more than doubling in AUM since 2005 and approaching nearly 1000 products. As the chart shows, ETF assets increased to over $ 1 trillion at the end of 2010, representing a compounded 5-year annual growth rate of about 20 percent per year. ETFs have become the growth engine of the fund industry.           ETFs represent roughly 11.3% of the U.S. fund industry in terms of AUM. (source: Strategic Insight, and BlackRock; as of 12/31/10) •           For the 12-month period ending 2010, ETFs captured 30% of all fund (ETF & MF) flows. (Source: Strategic Insight and BlackRock) •           ETF flows increased by 6% in 2010 vs 2009, while Mutual Fund Flows decreased by 6%. (Source: Strategic Insight and BlackRock) •           Over 28% of all equity trades on U.S. exchanges are comprised of exchange-traded funds (Source: NYSE Arca, FactSet, and BlackRock). The resilience, growth, and volume of interest in ETFs - despite market volatility - speaks to the breadth and depth of exposure available through ETFs and their applications. Today, ETFs offer access to nearly any asset class or targeted segment of the market – in a cost-effective, tax-efficient way.
  • 2012 3-8 master presentation

    1. 1. Efficient Market Advisors, LLC1125 Camino Del Mar, Suite HDel Mar CA 92014888-327-4600www.efficient-portfolios.com Managed ETF Por fol t ios
    2. 2. Firm overviewEfficient Market Advisors, LLC is a SEC-registered, separate account management firm that constructsinvestment portfolios using Exchange Traded Funds (ETFs). We are 100% employee owned and servehigh net worth investors, trusts, foundations, retirement plans and institutions.Founded in 2004 for the sole purpose of managing ETF based separate accounts, we boast one of thelongest pure ETF track records in the investment management industry. We utilize both in-house andthird-party research to construct ETF portfolios and believe that ETFs offer investors highly diversifiedasset class exposure that is transparent, liquid, low cost and tax efficient.Our mission is to deliver superior investment returns over full market cycles through the implementationof our proprietary asset allocation process. 2
    3. 3. The ETF revolution ETF assets expected to approach $2 trillion by 2014 $2,500 1,200 AUM ($B) 1099 # of ETFs $2,093 1,000 $2,000 800 $1,500AUM ($B) # of ETFs 600 $1,009 $1,000 400 219 $500 200 $311 89 $70 $0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: FactSet, Bloomberg, Strategic Insight, BlackRock®, as of 12/31/10. Note: Projected AUM based on trailing 3YR CAGR of 20%. 3
    4. 4. EMA is frequently quoted in the media"Efficient Market Advisors dominated the managed ETF us balanced universe" - informa investmentsolutions April 20, 2011. 4
    5. 5. Principal Biographies Herb W. Morgan, President and Chief Investment Officer Mr. Morgan founded and has served as the President and Chief Investment Officer since the firm’s inception in 2004. Prior to founding EMA, Mr. Morgan was Sr. Vice President of Advisory at Linsco/Private Ledger Financial Services (LPL). His role involved leading the nationwide business efforts, and managing LPL’s advisory account offerings. Previous positions include, Sr. Vice President with Dreyfus as well as Sr. Vice President with ING Funds (then known as Pilgrim Funds). Appointed by the Mayor, Mr. Morgan also serves as President of the Board of Administration of the San Diego City Employees Retirement System. Mr. Morgan graduated from The University of California, Santa Cruz (1988) with a Bachelor of Arts (BA) in Economics (Honors) and holds a Professional Certificate from The Fiduciary College at the Rock Center for Corporate Governance, Stanford University. Jeffrey C. Anderson, Jr., Sr. Vice President and National Sales Manager Mr. Anderson serves as Sr. Vice President, National Sales Manager and member of the Investment Policy Committee. Prior to joining EMA in 2008, Mr. Anderson was Founder and President of StandSure Wealth Management, an independent investment advisory firm. Mr. Anderson has also previously worked for Smith Barney as a Financial Consultant (1996-2003) and Tullett and Tokyo Forex (1989-1996) as an inter-bank broker. Mr. Anderson holds a Master’s in Business Administration (MBA) from Pepperdine University (1993) and a Bachelor of Arts (BA) in Political Science-International Relations from the University of California, Los Angeles (1989). In addition, Mr. Anderson was awarded a Professional Certificate in International Business from the Thunderbird School of Global Management and successfully completed the Graduate Seminar in International Finance at the City University, London. 5
    6. 6. Our investment philosophyOur investment philosophy, rooted in academia and nurtured by real world experience, is designed toprovide "optimal" before and after tax returns to investors. We use the term "optimal" because ourinvestment philosophy has at its origin the widely accepted Modern Portfolio Theory, whose theorysays that for every level of risk an investor is willing to assume there is an optimal asset allocation thatis expected to produce the highest result.We also subscribe to The Efficient Market Hypothesis which proposes that security markets areefficient at distributing and incorporating information into security prices. Therefore the theory assertsthat no one can predict accurately over a statistically significant period of time, changes in stockprices.We also believe that taxes matter and utilize ETFs in our accounts due to their tax efficiency. We alsouse ETFs because not only because they carry low expense ratios but because they trade theirsecurities infrequently and incur very little in the way of internal commission costs. 6
    7. 7. Asset classes and categoriesAsset allocation is the primary determinant of a portfolios return and EMA’s investment philosophyemphasizes top down, macroeconomic research in creating an active asset allocation strategy. Thisstrategy is implemented through fifteen unique time and risk based portfolios. Passive security selection isthe use of an index based vehicle to gain diversified exposure to a desired asset class or category.We use the following asset classes and categories may include: Equities (stocks): U.S. or foreign: large cap, mid Alternative Investments (absolute return): cap, small cap, real estate investment trusts, Commodities, precious metals, currencies, sector or industry as well as emerging markets timber, agriculture, managed futures, hedge fund replication, arbitrage and others Fixed Income (bonds): Investment grade, high yield, preferred stocks foreign or domestic Cash: Money market and bank deposit government and agency bonds emerging market accounts bonds 7
    8. 8. Our investment processOur investment process contains strategic, tactical and opportunistic elements. We emphasize top down,macroeconomic research in creating an active asset allocation strategy. This strategy is implementedthrough fifteen unique time and risk based portfolios. Opportunistic Tactical Strategic Tactical 8
    9. 9. Our investment process 9
    10. 10. Our strategic asset allocation approachStrategic asset allocation considers an investor’s time horizon and the historical interrelation of assetclass prices irrespective of the current macro economic environment or the state of the business cycle. Weuse this historical perspective to create the base upon which our investment thesis and opinions areimplemented.Optimize Core Asset Class Weightings • Time horizon • Historical asset class performance & correlations • Stocks • Bonds • Alternatives • Cash • No consideration given to economic or market view • Pure “mathematical optimization” • Problems with a purely strategic approach • Statistically significant data set not available • Rules and definitions change over time, data not “ceteris paribus” 10
    11. 11. Our tactical asset allocation approachTactical asset allocation is the process whereby a money manager implements their macroeconomic view byadjusting upward or downward the various asset class weightings in a portfolio. We use a top down approach whichconsiders multiple variables including relative valuation, economic cycle positioning, interest rate spreads, monetaryand fiscal policy, political factors, yield curve analyses, industry and sector valuations.Enact marginal changes around long term strategic weights for each “Time Horizon Portfolio” Equity Allocation Alternative Investments Fixed Income Allocation 2. Cycle state analyses 2. Commodity valuation 2. Yield curve analyses 3. Relative valuation 3. Return expectation in 3. Credit quality analyses traditional asset classes 4. Domestic vs. 4. Inflation expectations international 4. Currency expectations 5. Spread analyses 5. REIT valuations 5. Merger arbitrage 11
    12. 12. Opportunistic investingOpportunistic investing recognizes that unexpected events occur periodically in capital markets.These events generally manifest themselves in the form of an extreme over or under valuation of anasset class, sector of industry. EMA believes there is an opportunity to add “alpha” or “value” to aninvestor’s portfolio by maintaining sufficient flexibility and the willingness to act when such scenariospresent themselves.Small “bets” around market dislocation or severe over/under valuation of an asset class • Took REIT weight to zero • Extreme valuation resulting from leveraged buyout frenzy • Took commodity weight to zero • Extreme valuation resulting form emerging market demand and oil hype • Sector Bet • Homebuilders extremely oversold • Preferred stocks in credit crisis • High yield when spreads widened to record levels • Rebalanced off cycle and added to equity weight during extreme market selloff 12
    13. 13. Our portfoliosEMA has 15 Efficient Market Portfolios models, all of which have been constructed using ModernPortfolio theory and sophisticated financial modeling software. Target weightings of each asset classhave been determined using a complex mathematical technique known as optimization. Modelportfolios may change periodically as additional asset class performance data is included in ouroptimization process.Five time horizon portfolios with three “tilts” • Taking Income Conservative, Moderate or Aggressive • 2-5 Years Conservative, Moderate or Aggressive • 6-10 Years Conservative, Moderate or Aggressive • 11-19 Years Conservative, Moderate or Aggressive • 20 Plus Years Conservative, Moderate or Aggressive 13
    14. 14. RebalancingOne critical component to success in investing many believe is to follow the age-old maxim "buy lowand sell high". Rebalancing is the process of selling portions of ones investment in a particular assetclass or security that has grown as a percentage of the portfolio to a level beyond its intended ortarget allocation. Proceeds from the sale are used to buy additional portions in another asset class orsecurity that has fallen below its intended target allocation. For many investors, this means asmoother ride towards their financial goals making the process of investing less emotional. Not onlycan rebalancing between asset classes and investment styles reduce your portfolios volatility it mayalso enhance its returns over time. 14
    15. 15. Performance RecognitionInforma Investment Solutions IM Top-GunsTM • US Balanced Universe, December 31, 2011 • Six Star Award (Highest) 1 of the top 10 portfolios  2-5 Years Moderate • ETF US Balanced Universe, December 31, 2011 • Six Star Award (Highest) 4 of the top 5 portfolios  2-5 Years Moderate  2-5 Years Aggressive  6-10 Years Moderate  11-19 Years ConservativeTop GunsSix St Definit ar ion: R Squar .80 or beterr at t t benchmar for t l five y ear Ret ns gr ert t benchmar for t l t ee year St ed t el ive o he k he ast s. ur eat han he k he ast hr s. andar deviat l t or equalt t median of t peer gr for t l five d ion ess han o he he oup he astyear Top t infor ion r ios for t l five year Onl t st at s. en mat at he ast s. y en r egies can receive t highestsix st r he ar anking.For additionalcr er pl it ia ease visitwww.informais.com. 15
    16. 16. Composite performance (period ended January 31, 2012) 16
    17. 17. DisclosureThe composite figures illustrated represent the returns only for the time periods indicated. These returns reflect the actualinvestment results of a composite of clients participating in the asset allocation program. Returns shown reflect reinvestment ofall dividends and interest. Accounts less than $25,000, or with custom non model holdings or significant cash flow events arenot included in the composite. All accounts not included in this composite are in the composite Managed Account. ManagedAccount results are available on request. Accounts are first added to the composite the month after the first complete month ofmanagement by EMA. All investments, including investments in the mutual funds in the managed accounts, involve the risk ofpotential investment losses as well as the potential for investment gains. Past performance is no guarantee of future results andthere can be no assurance, and clients should not assume, that future performance of any of the managed accounts will becomparable to past performance. The performance of the managed accounts should be viewed in the context of the broadmarket and general economic conditions prevailing during the periods covered by the performance information. StandardDeviation- A measurement of dispersion about an average, depicting how widely a stock or portfolio’s returns varied over acertain period of time. Used by investors to try to predict the range of returns that is most likely for a given investment. When aninvestment or portfolio has a high standard deviation, the predicted range of performance is wide, and implies greater volatility.Beta-The measure of an asset or portfolio’s sensitivity to the market as a whole. A beta of 1.10 shows that the asset or portfoliohas performed 10% better than its benchmark in up markets and 10% worse in down markets, assuming all other factors remainconstant. Conversely, a beta of 0.85 indicates that the asset or portfolio’s excess return is expected to perform 15% worse thanthe benchmark’s excess return during up markets and 15% better during down markets. Beta performance is since inception ofthe managed account. The performance numbers reported is not a solicitation to buy or sell securities, nor does it make anyclaim to the suitability of the investment strategy for the individual. Securities prices may vary dramatically over time and resultswill vary due to changing economic or market conditions. There is no guarantee that results will prove profitable. Actual clientresults are impacted by start and end dates, withdrawals, additional deposits, and any charges imposed by the investmentcustodian, which may materially affect client performance returns. Investing may involve risk including loss of principal.Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets.Investment management services are generally suitable for long-term investment objectives or strategies, rather than for short-term trading purposes. Investors should consider the investment objectives, risks, charges and expenses of the underlying fundsthat make up the managed accounts carefully before investing. Prospectuses or offering documents contain this and otherimportant information about the fund. Please call your financial advisor to obtain the prospectuses of the current underlyingfunds. Prospectuses should be read carefully before investing. For current month end performance numbers please contact ouroffice at 888-327-4600. The S&P 500 is an unmanaged group of securities considered to be representative of the market ingeneral. 17
    18. 18. Contact us Jeff Anderson Senior Vice President, National Sales Efficient Market Advisors, LLC 1125 Camino Del Mar, Suite H Del Mar CA 92014 888-327-4600 x.102 jeff@efficient-portfolios.com 18
    19. 19. DisclosureKnow the differencesETFs and mutual funds each hold baskets of securities. ETFs trade on exchanges intraday at market price, which may be greater or less than net assetvalue. Shares of ETFs are not individually redeemed from the fund. Transactions in shares of ETFs result in brokerage commissions and generate taxconsequences. Index ETFs are passively managed; they seek to track a market index, before fees and expenses, and do not attempt to outperform duringrising or declining markets. ETF performance may diverge from the ETFs underlying index. Mutual funds are accessed directly from the fund company orthrough a select broker, pricing generally occurs once a day, and investors buy or redeem shares at the end-of-day net asset value, less any applicablefees. Some mutual funds may charge sales loads or redemption fees. Active mutual funds seek to outperform their benchmark while the goal of indexmutual funds is to track their index. Consequently, active funds typically charge more than index-linked products for the increased trading and researchexpenses that may be incurred. Mutual funds and ETFs are obliged to distribute portfolio gains to shareholders.Investing involves risk, including possible loss of principal. Diversification and asset allocation may not protectagainst market risk.Investment comparisons are for illustrative purposes only and are not meant to be all-inclusive. To better understand the similarities and differencesbetween investments, including investment objectives, risks, fees, and expenses, it is important to read the products’ prospectuses. 19

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