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Building an Unconstrained Sleeve

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Combining unconstrained and tactical investment strategies to seek hedging, equity-like, and absolute-return style investment exposure.

Explores how to combine tactical equity, minimum volatility, managed futures, risk parity, and other approaches.

Published in: Economy & Finance
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Building an Unconstrained Sleeve

  1. 1. Building an Unconstrained Sleeve Traditional and Non-Traditional Assets & Strategies July 2017 Newfound Research LLC 425 Boylston Street, 3rd Floor Boston, MA 02116 p: +1.617.531.9773 | w: thinknewfound.com Newfound Case ID: 5975123
  2. 2. Newfound Research was founded in August 2008 to offer quantitative investment research. Over time, our capabilities evolved to include the design of custom mandate portfolios, the development of tactical overlay solutions, and sub-advisory services. In December 2013, we began offering discretionary asset management services with portfolios directly advised by Newfound. In all of our capabilities, we are dedicated to helping clients achieve their long-term goals with research-driven, quantitatively-managed portfolios, while simultaneously acknowledging that the quality of the journey is just as important as the destination. 2 About Newfound Newfound was awarded 2016 ETF Strategist of the Year by ETF.com.
  3. 3. 3 About Newfound Research Portfolio Management Services Investment Research Publications • Offer solutions for institutional and retail investors • Capabilities include the design of: • Custom mandate portfolios • Tactical overlay solutions • Sub-advisory services • Access to discretionary asset management services through portfolios directly advised by Newfound • SMA/UMA strategies available on a number of TAMPs • Family of open-end mutual funds • Model allocation portfolios (including Newfound mutual funds and 3rd party products) • Firm began by providing quantitative investment research in 2008 • Currently provide content on a variety of topics, including: • Asset allocation • Alternatives • Behavioral finance • Risk premium • Risk management • Research is delivered through a wide range of media as well as directly to individual readers
  4. 4. 4 Fundamental Elements of our Process While there are many elements necessary for successful investing, Quantitative and Behavioral are our foundational elements. QuQUANTITATIVE BeBEHAVIORAL We believe in a research-driven, systematic approach to investing. We believe the optimal investment plan is first and foremost the the one we can stick with.
  5. 5. 5 Investment Team Justin Sibears Managing Director • Frequent speaker on industry panels and contributor to ETF Trends. • Prior to joining Newfound, structured and traded derivatives at J.P. Morgan and Deutsche Bank • MS Computational Finance, Carnegie Mellon University • MBA, Carnegie Mellon University • BS Finance and Mathematics, Notre Dame University Nathan Faber Vice President • Prior to joining Newfound, worked as a chemical engineer at URS. • MS Computational Finance, Carnegie Mellon University • BS Chemical Engineering, Case Western Reserve University Corey Hoffstein Chief Investment Officer • Frequent speaker on industry panels and contributor to ETF.com, ETF Trends, and Forbes Great Speculations blog. • Named ETF All Star in 2014 by ETF Report. • MS Computational Finance, Carnegie Mellon University • BS Computer Science, Cornell University
  6. 6. 6 Global Research Readership Readership stats • ~50 publications per year • ~3200 subscribers • ~160k article views in 2016 • Channels represented: • Pensions • Insurance Companies • Superannuation Funds • Family Offices • Wealth Advisory Audiences across the globe regularly utilize our data-driven investment research to help make portfolio management decisions within institutional mandates
  7. 7. QUANTITATIVE ExEXPECTATIONS Understanding what we are seeking to achieve with an unconstrained or tactical sleeve.
  8. 8. It is important to define what we are looking for: what role does the sleeve serve in the portfolio? • A hedge to equity exposure: explicitly offsetting equity losses? • Equity-like, but with downside protection? • Absolute return? 8 Reasonable Expectations
  9. 9. Anecdotally, what we often hear: “60-80% of the upside, 25-50% of the downside.” Our take: • If the market is the benchmark, meaningful up- capture will require meaningful equity beta. • Greater upside participation requires stomaching more short-term volatility. • “Upside” and “downside” are horizon-dependent measures. 9 Reasonable Expectations
  10. 10. 𝑰𝑹 = 𝑰𝑪 𝑵 𝑰𝑹 is “Skill”: How effective are your tactical calls? 𝑰𝑪 is “Depth”: How accurate are your signals? 𝑵 is “Breadth”: How many signals do you have? Probably easier to increase breadth than depth; i.e. combine different approaches and benefit from process diversification. 10 Two Ways of Doing It
  11. 11. Do we have to do anything? A 60/40 portfolio is a pretty good starting point: • Positive returns from bonds means up-capture is likely >60% • “Flight-to-safety” quality of bonds means that down-capture is likely <60% in a crisis. • Rebalancing can allow an investor to benefit both from short-term momentum and long-term mean-reversion. 11 Reasonable Expectations
  12. 12. QUANTITATIVE StSTRATEGIES Different approaches that are commonly applied when building an unconstrained sleeve.
  13. 13. Equity - Trend strategies use time-series momentum approaches that seek to invest during positively trending market environments and retreat to safety (e.g. short-term U.S. Treasuries) otherwise. 13 Equity – Trend Source: MSCI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. The Equity – Trend strategy is rebalanced monthly. The strategy invests in the MSCI World index when it is above its 10-month moving average and in a 1-year constant maturity U.S. Treasury index when it is below. 0 1 2 3 4 5 6 7 8 9 10 12/1/92 6/1/93 12/1/93 6/1/94 12/1/94 6/1/95 12/1/95 6/1/96 12/1/96 6/1/97 12/1/97 6/1/98 12/1/98 6/1/99 12/1/99 6/1/00 12/1/00 6/1/01 12/1/01 6/1/02 12/1/02 6/1/03 12/1/03 6/1/04 12/1/04 6/1/05 12/1/05 6/1/06 12/1/06 6/1/07 12/1/07 6/1/08 12/1/08 6/1/09 12/1/09 6/1/10 12/1/10 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 6/1/14 12/1/14 6/1/15 12/1/15 6/1/16 12/1/16 6/1/17 Equity - Trend Equity - MSCI World
  14. 14. Equity - Minimum Volatility strategies seek to exploit the low-volatility phenomenon, whereby lower risk securities exhibit an excess risk-adjusted return. They typically invest in securities exhibiting lower volatility and beta. 14 Equity – Minimum Volatility Source: MSCI. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. The Equity – Minimum Volatility strategy is the MSCI World Minimum Volatility Index. 0 1 2 3 4 5 6 7 8 12/1/92 6/1/93 12/1/93 6/1/94 12/1/94 6/1/95 12/1/95 6/1/96 12/1/96 6/1/97 12/1/97 6/1/98 12/1/98 6/1/99 12/1/99 6/1/00 12/1/00 6/1/01 12/1/01 6/1/02 12/1/02 6/1/03 12/1/03 6/1/04 12/1/04 6/1/05 12/1/05 6/1/06 12/1/06 6/1/07 12/1/07 6/1/08 12/1/08 6/1/09 12/1/09 6/1/10 12/1/10 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 6/1/14 12/1/14 6/1/15 12/1/15 6/1/16 12/1/16 6/1/17 Equity - Minimum Volatility Equity - MSCI World
  15. 15. Macro – Trend strategies apply long/short trend-following techniques to equities, rates, currencies, and commodities. Historically, their dynamic nature has made them an excellent hedge during a variety of different crisis periods. 15 Macro – Trend Source: MSCI, Salient. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. The Macro – Trend strategy is the Salient Trend Index. 0 2 4 6 8 10 12 12/1/92 6/1/93 12/1/93 6/1/94 12/1/94 6/1/95 12/1/95 6/1/96 12/1/96 6/1/97 12/1/97 6/1/98 12/1/98 6/1/99 12/1/99 6/1/00 12/1/00 6/1/01 12/1/01 6/1/02 12/1/02 6/1/03 12/1/03 6/1/04 12/1/04 6/1/05 12/1/05 6/1/06 12/1/06 6/1/07 12/1/07 6/1/08 12/1/08 6/1/09 12/1/09 6/1/10 12/1/10 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 6/1/14 12/1/14 6/1/15 12/1/15 6/1/16 12/1/16 6/1/17 Macro - Trend Equity - MSCI World
  16. 16. Macro - Risk Parity strategies seek to exploit diversification opportunities by using leverage to allow all asset classes to contribute an equivalent amount of risk to the portfolio. Empirical evidence suggests that this approach exploits the multi-asset low volatility phenomenon, where low volatility assets exhibit an excess risk-adjusted return. 16 Macro – Risk Parity Source: MSCI, Salient. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. The Macro – Risk Parity strategy is the Salient Risk Parity Index. 0 1 2 3 4 5 6 7 12/1/92 6/1/93 12/1/93 6/1/94 12/1/94 6/1/95 12/1/95 6/1/96 12/1/96 6/1/97 12/1/97 6/1/98 12/1/98 6/1/99 12/1/99 6/1/00 12/1/00 6/1/01 12/1/01 6/1/02 12/1/02 6/1/03 12/1/03 6/1/04 12/1/04 6/1/05 12/1/05 6/1/06 12/1/06 6/1/07 12/1/07 6/1/08 12/1/08 6/1/09 12/1/09 6/1/10 12/1/10 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 6/1/14 12/1/14 6/1/15 12/1/15 6/1/16 12/1/16 6/1/17 Macro - Risk Parity Equity - MSCI World
  17. 17. Macro - Contrarian strategies seek to exploit the long-term mean-reversionary behavior exhibited by asset classes through either valuation or price-reversal measurements. By their nature, they tend to be fearful when others are greedy, and greedy when others are fearful. 17 Macro – Contrarian Source: MSCI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. The Macro – Contrarian strategy is rebalanced monthly and invests 30% in the MSCI World Index, 30% in the Vanguard Total Bond Market fund (VBMFX), and 40% in a contrarian sleeve. The contrarian sleeve ranks the MSCI World and the Vanguard Total Bond Fund based on trailing 12-60 month returns and invests in highest ranking asset class. The contrarian sleeve is rebalanced annually using 12 overlapping portfolios. 0 1 2 3 4 5 6 7 8 12/1/92 6/1/93 12/1/93 6/1/94 12/1/94 6/1/95 12/1/95 6/1/96 12/1/96 6/1/97 12/1/97 6/1/98 12/1/98 6/1/99 12/1/99 6/1/00 12/1/00 6/1/01 12/1/01 6/1/02 12/1/02 6/1/03 12/1/03 6/1/04 12/1/04 6/1/05 12/1/05 6/1/06 12/1/06 6/1/07 12/1/07 6/1/08 12/1/08 6/1/09 12/1/09 6/1/10 12/1/10 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 6/1/14 12/1/14 6/1/15 12/1/15 6/1/16 12/1/16 6/1/17 Macro - Contrarian Equity - MSCI World
  18. 18. Macro – Income strategies are non-traditional bond strategies, investing across the globe in both traditional (e.g. sovereign debt) and non-traditional (e.g. corporate bonds and asset- backed securities) fixed income. 18 Macro – Income Source: MSCI, HFRI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. The Macro – Income strategy is rebalanced monthly and invests 80% in the HFRI Relative Value Fixed-Income Corporate Index and 20% in a 7-Year Constant Maturity U.S. Treasury Index. 0 1 2 3 4 5 6 7 12/1/92 6/1/93 12/1/93 6/1/94 12/1/94 6/1/95 12/1/95 6/1/96 12/1/96 6/1/97 12/1/97 6/1/98 12/1/98 6/1/99 12/1/99 6/1/00 12/1/00 6/1/01 12/1/01 6/1/02 12/1/02 6/1/03 12/1/03 6/1/04 12/1/04 6/1/05 12/1/05 6/1/06 12/1/06 6/1/07 12/1/07 6/1/08 12/1/08 6/1/09 12/1/09 6/1/10 12/1/10 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 6/1/14 12/1/14 6/1/15 12/1/15 6/1/16 12/1/16 6/1/17 Macro - Income Equity - MSCI World
  19. 19. Due to their perceived safety and liquidity, Intermediate-Term U.S. Treasuries have historically exhibited a “flight-to-safety” premium during equity market collapses. The instantaneous nature of this premium has made U.S. Treasuries an excellent hedge, regardless of whether equity losses are sudden or prolonged. 19 Bond – Intermediate-Term U.S. Treasury Source: MSCI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. The Intermediate-Term U.S. Treasuries index is a 7-Year Constant Maturity U.S. Treasury Index. 0 1 2 3 4 5 6 7 12/1/92 6/1/93 12/1/93 6/1/94 12/1/94 6/1/95 12/1/95 6/1/96 12/1/96 6/1/97 12/1/97 6/1/98 12/1/98 6/1/99 12/1/99 6/1/00 12/1/00 6/1/01 12/1/01 6/1/02 12/1/02 6/1/03 12/1/03 6/1/04 12/1/04 6/1/05 12/1/05 6/1/06 12/1/06 6/1/07 12/1/07 6/1/08 12/1/08 6/1/09 12/1/09 6/1/10 12/1/10 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 6/1/14 12/1/14 6/1/15 12/1/15 6/1/16 12/1/16 6/1/17 Intermediate-Term U.S. Treasuries Equity - MSCI World
  20. 20. 20 Historical Capture Ratios Quintiles of Monthly U.S. Equity Market Returns Bottom Quintile 2nd Quintile 3rd Quintile 4th Quintile Top Quintile Equity – Trend 41% 75% 75% 91% 63% Equity – Min. Volatility 59% 32% 70% 77% 76% Macro – Trend -12% 38% 45% 67% 25% Macro – Risk Parity 22% 71% 55% 62% 50% Macro – Contrarian 33% 34% 65% 65% 55% Macro – Income 9% -23% 66% 39% 26% Bond – Int. U.S. Treasury -26% -19% 18% 20% 3% Source: MSCI, HFRI, Salient, and St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions.
  21. 21. QUANTITATIVE HgHEDGE Portfolios designed in effort to offset significant equity losses.
  22. 22. Run a simulation-based optimization that explicitly seeks to minimize downside capture to the MSCI World Index. 22 Equity Hedge Source: MSCI, HFRI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. Bond - Intermediate- Term U.S. Treasuries 65% Macro - Income 2% Macro - Trend 33% 0 1 2 3 4 5 6 3/1/93 2/1/94 1/1/95 12/1/95 11/1/96 10/1/97 9/1/98 8/1/99 7/1/00 6/1/01 5/1/02 4/1/03 3/1/04 2/1/05 1/1/06 12/1/06 11/1/07 10/1/08 9/1/09 8/1/10 7/1/11 6/1/12 5/1/13 4/1/14 3/1/15 2/1/16 1/1/17 Hedge MSCI World Equity Index
  23. 23. Run a simulation-based optimization that explicitly seeks to minimize downside capture to the MSCI World Index. 23 Equity Hedge (No Bonds) Source: MSCI, HFRI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. 0 2 4 6 8 10 12 3/1/93 3/1/94 3/1/95 3/1/96 3/1/97 3/1/98 3/1/99 3/1/00 3/1/01 3/1/02 3/1/03 3/1/04 3/1/05 3/1/06 3/1/07 3/1/08 3/1/09 3/1/10 3/1/11 3/1/12 3/1/13 3/1/14 3/1/15 3/1/16 3/1/17 Hedge (No Bonds) MSCI World Equity Index Macro - Trend 93% Macro - Risk Parity 7%
  24. 24. To offset equity losses, strategies with negative correlations are required. Historically, this has meant exposures like U.S. Treasuries and Macro – Trend. These positions diversify each other well, both having historically exhibited crisis alpha, but with U.S. Treasuries potentially reacting more quickly than Macro – Trend. In the backtest, both portfolios exhibit positive returns in 2000, 2001, 2002 and 2008. Uncorrelated behavior can lead to frustrating returns: in 2009, when the MSCI World Index returned 29.9%, the Hedge and Hedge (No Bond) strategies returned -3.3% and 2.5% respectively. 24 Takeaways
  25. 25. QUANTITATIVE EqEQUITY-LIKE Portfolios designed in effort to capture a significant equity upside with reduced downside.
  26. 26. Run a simulation-based optimization that explicitly seeks to maximize up-capture to the MSCI World Index, with the constraint that the relative “Ulcer Index” of the strategy is 25% or less than that of the MSCI World Index. 26 Equity-Like Source: MSCI, HFRI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. Bond - Intermediate- Term U.S. Treasuries 2% Equity - Minimum Volatility 22% Equity - Trend 31% Macro - Income 10% Macro - Risk Parity 8% Macro - Trend 4% Macro - Value 23% 0 1 2 3 4 5 6 7 8 3/1/93 2/1/94 1/1/95 12/1/95 11/1/96 10/1/97 9/1/98 8/1/99 7/1/00 6/1/01 5/1/02 4/1/03 3/1/04 2/1/05 1/1/06 12/1/06 11/1/07 10/1/08 9/1/09 8/1/10 7/1/11 6/1/12 5/1/13 4/1/14 3/1/15 2/1/16 1/1/17 Equity-Like MSCI World Equity Index
  27. 27. To gain equity-like exposure, significant equity beta must be present. Equity – Trend and Equity – Minimum Volatility both have the potential for an asymmetric risk profile. Nearly 50% of the portfolio contains other exposures, highlighting the benefits of process diversification. Maintaining equity beta may increase drawdowns. In the backtest, the strategy had a maximum drawdown of -19%. Diversification makes keeping up in a bubble, like the late 1990s, near impossible. 27 Takeaways
  28. 28. QUANTITATIVE ArABSOLUTE RETURN Portfolios designed in effort to create a stable an consistent return stream in all environments.
  29. 29. Run a simulation-based optimization that seeks an equal-risk contribution for each strategy employed. 29 Absolute Return Source: MSCI, HFRI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. Bond - Intermediate- Term U.S. Treasuries 25% Equity - Minimum Volatility 8% Equity - Trend 9% Macro - Income 25% Macro - Risk Parity 9% Macro - Trend 12% Macro - Value 12% 0 1 2 3 4 5 6 3/1/93 2/1/94 1/1/95 12/1/95 11/1/96 10/1/97 9/1/98 8/1/99 7/1/00 6/1/01 5/1/02 4/1/03 3/1/04 2/1/05 1/1/06 12/1/06 11/1/07 10/1/08 9/1/09 8/1/10 7/1/11 6/1/12 5/1/13 4/1/14 3/1/15 2/1/16 1/1/17 Approach #3 MSCI World
  30. 30. Run a simulation-based optimization that seeks an equal-risk contribution for each strategy employed. 30 Absolute Return (No Bonds) Source: MSCI, HFRI, St. Louis Federal Reserve. Calculations by Newfound Research. Performance is backtested and purely hypothetical. Past performance is not a guarantee of future results. Performance is gross of all fees. Returns include the reinvestment of dividends, capital gains, and other distributions. 0 1 2 3 4 5 6 7 8 3/1/93 2/1/94 1/1/95 12/1/95 11/1/96 10/1/97 9/1/98 8/1/99 7/1/00 6/1/01 5/1/02 4/1/03 3/1/04 2/1/05 1/1/06 12/1/06 11/1/07 10/1/08 9/1/09 8/1/10 7/1/11 6/1/12 5/1/13 4/1/14 3/1/15 2/1/16 1/1/17 Absolute Return (No Bond) MSCI World Equity Index Equity - Minimum Volatility 16% Equity - Trend 18% Macro - Risk Parity 19% Macro - Trend 23% Macro - Value 24%
  31. 31. Diversification is key. Balancing asset class and process risk is paramount. Balancing risks means that absolute return style strategies will likely badly underperform equities during strong bull markets. Even absolute return-style strategies are not immune to liquidity crises like 2008. 31 Takeaways
  32. 32. QUANTITATIVE CnCONCLUSION
  33. 33. Your mileage with unconstrained strategies will vary depending on where you’re trying to go. • Strategies that are historically effective at hedging in downturns are often painfully random during the rest of the cycle. • To capture significant equity upside, you have to bear equity risk. This means being subject to sudden, significant losses. • Diversification may help you achieve more consistent returns, but can lead to significant underperformance. 33 Takeaways
  34. 34. QUANTITATIVE ApAPPENDIX
  35. 35. The optimization applied is a simulation-based, block-bootstrap approach. For each simulation, returns for each strategy are aligned by month. To simulate 10 years of returns, 20 6-month chunks are randomly selected. The first 6-month chunk is randomly selected. Subsequent chunks are selected by adding a random normal variable with location zero and scale of 36 months to the starting point of the prior chunk. Optimal portfolios under each simulation are averaged together. Simulations are run until the solution converges (approximately 250). We believe this approach helps capture many of the salient features empirically evident in asset class returns, including autocorrelation, auto-regressive and heteroskedastic volatility, and time-varying cross asset class dynamics. 35 Optimization
  36. 36. QUANTITATIVE DsDISCLOSURES
  37. 37. Certain information contained in this presentation constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of an investment managed using any of the investment strategies or styles described in this document may differ materially from those reflected in such forward-looking statements. The information in this presentation is made available on an “as is,” without representation or warranty basis. There can be no assurance that any investment strategy or style will achieve any level of performance, and investment results may vary substantially from year to year or even from month to month. An investor could lose all or substantially all of his or her investment. Both the use of a single adviser and the focus on a single investment strategy could result in the lack of diversification and consequently, higher risk. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. You should consult your investment adviser, tax, legal, accounting or other advisors about the matters discussed herein. These materials represent an assessment of the market environment at specific points in time and are intended neither to be a guarantee of future events nor as a primary basis for investment decisions. Past performance is not indicative of future performance and investments in equity securities do present risk of loss. Investors should understand that while performance results may show a general rising trend at times, there is no assurance that any such trends will continue. If such trends are broken, then investors may experience real losses. The information included in this presentation reflects the different assumptions, views and analytical methods of Newfound as of the date of this presentation. This document contains the opinions of the managers and such opinions are subject to change without notice. This document has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. This document does not reflect the actual performance results of any Newfound investment strategy or index. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission from Newfound Research. © Newfound Research LLC, 2017. All rights reserved. 37 Disclosures

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