James Hamer • Global View Capital Management, LTD - What does alpha have to do with the weather? Understanding the "seasonal performance" of actively managed strategies using market type by Dave Witkin - Conflicting data continues to present mixed economic picture - Active management: a good fit for cultural attitudes (Jong Oh, FSC Securities Corporation)

1. Mfg. data conflicts
and confuses • pg. 7
Managing risk
A cultural fit • pg. 3
Maximizing seasonal
performance • pg. 4
pg. 8
James Hamer
THE SACRED
TRUST
September 18, 2014 | Volume 3 | Issue12
First magazine focused on active investment management

3. comfort level with financial institu-
tions for most and many have basically
managed their own money for years,
in the safest of investments. They are
risk-averse and do not want to see their
assets decrease.
For this belief system, active money
management and its risk management
practices makes perfect sense. My cli-
ents are not looking to take big chanc-
es with their assets, their retirement,
or their legacies. The focus of active
money management on controlling
risk and volatility works well for this
market, which is why I am increasing-
ly introducing active management to
clients.”
y advisory practice has
a heavy concentration
of Korean-American clients. Many of
my clients came to the U.S., as I did,
in a wave in the 1970s and 1980s and
have worked hard to establish profes-
sional careers or start their own busi-
nesses. Many are either retired or fast
approaching retirement.
Their needs and attitudes are very
specific to this market. It starts with
language, which is usually not an issue
in most things of daily life, but can be
challenging for complicated matters
such as financial services. This was one
reason I was originally recruited many
years ago by one of the major life in-
surance companies, as they tried to
reach out to minority communities.
The cultural beliefs of Korean-
Americans can have a big impact on the
way they view their finances. They are
a community that tries to save as much
money as possible and want to pass it
on to their children and later genera-
tions. They do not believe in taking on
debt and want to pay off their homes
as soon as possible. There is not a high
Active management: a good
fit for cultural attitudes
Jong Oh
Blue Bell, PA
FSC Securities Corporation
President & CEO,
Professional Insurance & Financial Services
M“
Jong Oh is a Financial Advisor with Professional Insurance & Financial Services (PIFS) in Blue Bell, PA, affiliated with FSC Securities
Corporation in Atlanta, GA.
Securities and advisory services offered through FSC Securities Corporation, member FINRA/SIPC. Insurance services offered through PIFS,
which is not affiliated with FSC Securities Corporation. Investing involves risk including the potential loss of principal.
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TIPS & TOOLSPOLLS

4. magine you like to hike and you live in
a region where the weather can change
quickly. When you go out in early
summer, how do you know what to take with
you? Do you pack a parka, snow shoes, and
heavy gloves just because the weather might
shift?
The answer, of course, is no. Each season
has certain characteristics that tend to repeat.
So while you may not know exactly what to
wear, when you hike in early summer you know
you are better off using limited backpack space
for a light raincoat and mosquito repellent than
using the space for winter gear.
So what does that have to do with investing?
More than you might think. As consultants, my
partners and I are challenged with identifying
ways to improve our clients’ investment strat-
egies, some of which already have reasonably
good performance compared to relevant bench-
marks. One go-to method of strategy enhance-
ment is assessing “seasonal performance.”
In investment lingo, a “season” is often
referred to as either a market type, or, for the
more academically inclined, a market regime.
Adherents of using market type contend
something that seems obvious to most market
participants: no strategy works effectively all the
time.
While definitions vary from source to
source, in this article we’ll view a market
type as any systematic, macro-level means of
categorizing investment strategy performance
using information about market dynamics
with a tendency to persist. Sound complicated?
Believe me, it’s not—an example will simplify
things.
Let’s say you are an investment advisor and
one of the strategies you frequently recommend
to clients is a momentum-based system, which
we’ll call Strategy X. Each month, Strategy X
buys the three best performing instruments
from a list of Exchange Traded Funds (ETFs).
The strategy takes advantage of a well-researched
historical market edge (i.e., momentum) and
meets long-run expectations, but experiences
short periods of underperformance. Is there
a way we can we improve Strategy X without
Read text only
I
What does alpha
have to do with
the weather?
Understanding the “seasonal performance” of actively managed strategies using market type
By Dave Witkin
proactiveadvisormagazine.com | September 18, 20144

5. Market type is any
systematic, macro-level means
of categorizing investment strategy
performance using information
about market dynamics with
a tendency to persist.
significantly reducing the likelihood it will con-
tinue to perform well in the future? Exploring
alternatives based on market type is one answer.
To consider improvements to Strategy X
using market type, first we need a systematic
means of segmenting historical system perfor-
mance. To keep things straightforward, we will
use the 200-day Simple Moving Average (SMA)
to define market type since it is commonly used
by traders. More specifically, when the slope of
the S&P 500 200-day SMA is rising, we place
our historical strategy results into a bucket
called Market Type A, and when the slope is
falling, the historical results go into a bucket
called Market Type B.
The numbered circles in Figure 1 show
changes in market type based on this defi-
nition. Note that market type shifts happen
infrequently—there were only seven changes in
the roughly 15 years of S&P 500 data shown—
which is often the case with effective market
type definitions.
Aggregate “Strategy X” results across both
market types are shown in the table: 12.7%
compound annual return, drawdown roughly
equivalent to the S&P 500, and a Sharpe Ratio
of 0.39, metrics which collectively represent
noteworthy outperformance versus the bench-
mark. But the table also clearly shows all of
the alpha—a 75% improvement in compound
annual return and a 50% reduction in maxi-
mum drawdown—comes during what we’ve
defined as Market Type A. So while the hypo-
thetical “Strategy X” outperforms the S&P 500
continue on pg. 11
Strategy X Performance1
Metric
Active During
All Market
Types
Active Only During
Market Type A
(S&P 500 Slope Rising)
Areas 1, 3, 5, 7
Active Only During
Market Type B
(S&P 500 Slope Falling)
Areas 2, 4, 6
Benchmark
(S&P 500)
Total Time in Market Type
Compound Annual Return
Maximum Drawdown
Sharpe Ratio
100%
12.7%
-56.3%
0.39
75%
13.6%
-28.5%
0.55
25%
-0.4%
-69.2%
0.23
100%
7.1%
-56.7%
0.23
Figure 1: Knowing that all of the positive system performance occurs in Market Type A enables a new dimension of diversification,
capable of delivering higher returns and lower drawdowns.
= 200-Day Simple Moving Average (SMA)
= S&P 500 closing price
= Market type change
1
For illustrative purposes only. A 3% risk-free rate was used over the 22-year simulation period. For brevity, only 15 of the 22 years are dis-
played in the chart. Because “Strategy X” employs a rules-based system for entering and exiting trades, results “During Both Market Types”
are not perfectly weighted averages of Market Type A plus B.
September 18, 2014 | proactiveadvisormagazine.com 5

7. Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun
2011 2012 2013 2014
-1.0
-0.5
0.0
0.5
1.0
1.5
50.0
52.0
54.0
56.0
58.0
-0.4
59.0PMI Manufacturing “Survey”
Manufacturing Production
Conflicting data continues to present
mixed economic picture
onday’s (9/15) report by
the Federal Reserve on U.S.
Industrial Production for August came in
at a very disappointing -0.1%, which was
well below the consensus expectations
for +0.3%, and lower than last month’s
downwardly revised reading of +0.2%.
On the same day, the Empire State
Manufacturing Survey showed perceptions
of strength building in New York’s
manufacturing sector, as its general
conditions index was up nearly 12 points
to 27.5, versus expectations of 15.9.
But the internals of that report were less
encouraging, with employment growth
slowing sharply.
The Industrial Production report showed
the first monthly decline in seven months,
impacted by slowing auto manufacturing.
M
Source: Zero Hedge
The output of motor vehicles and parts
decreased 7.6 percent, the biggest drop
since May 2009. According to Bloomberg,
that was most likely payback from a 9.3
percent surge in July that was the largest
since September 2009. Industry data,
however, shows vehicle sales may keep
powering production in coming months.
Sales of cars and light trucks rose to a 17.5
million annualized rate in August, the
highest since January 2006.
The Industrial Production report runs
counter to some recent data indicating an
economic pickup is continuing in the U.S.
The Institute for Supply Management’s
manufacturing survey index climbed in
August to the highest level since March
2011 and Q2’s latest GDP numbers beat
expectations at a 4.2% annualized growth
rate. Retail sales climbed 0.6 percent in
August, the most in four months, with
broad-based strength reflected by gains in
11 of 13 categories.
However, as the chart indicates, differences
can often be pronounced between “survey
data” and “hard data” when looking
at economic progress. The OECD
(Organization for Economic Cooperation
and Development) this week cut its
economic outlook for many developed
countries, and now forecasts U.S. GDP
finishing 2014 at an overall 2.1% growth
rate.
Read text only
7September 18, 2014 | proactiveadvisormagazine.com
TOPPING THE CHARTS

8. Read text only
There are excellent third-party managers out
there with a wide variety of philosophies, and it
is a matter of conducting the due diligence and
selecting strategies that you think are going to
be appropriate for your client base. Since this
almost always involves a fee structure for clients,
it was a new way of doing business and places
a great responsibility on the advisor to make a
very careful selection of managers—including
making changes in the roster of managers, if
necessary.
At the top of my list is setting expectations
with clients about active management and
how it works. Once we have the appropriate
longer-term expectations in place, it has been
by and large a successful approach for our
practice.
I like to think we did that at a pretty high and
sophisticated level, but it was still very much
a passive approach to investing with periodic
rebalancing.
With the first crash of the early 2000s, I saw
both my personal portfolio and those of my
clients essentially cut in half. Yes, there was a
slow rebound, but I still had to field many calls
from clients and give reassurances that things
would work out over the long haul. It sounds
okay when you are talking about long-term
trends and market history that there would be a
recovery in client assets, but when you actually
look at account balances down 20-40% that is
another matter. For many people that represents
a very significant portion of their retirement
nest egg.
That was the trigger point for me, and we
started investigating money managers who
employed active management strategies.
How has that process evolved over time?
It really started around 2004 when we
introduced our first active manager to client
portfolios. That first strategy experience worked
well in certain markets and not so well in others.
This put our organization to the test and we in
turn put active managers to the test.
Proactive Advisor Magazine: James, can
you describe your client philosophy?
James Hamer: I have been in the financial
industry for 26 years and really have never
wavered from why I started in the advisory
business. I have a passion for helping people
learn about managing their money and not to
be intimidated by the world of finance.
Money management is far from easy, but it
should be something that a good advisor can
simplify to make understandable. My goal is
not only to educate, but to make sure people
can sleep at night, knowing they have a good
financial plan in place. I believe in some of
the concepts Steve Jobs used to make Apple
so successful. He understood he was not just
selling a product but also an experience. I want
my clients to have a financial life that is as free
of stress as possible.
How does this play out in your invest-
ment approach?
Back when I first started my career, I fol-
lowed a pretty traditional investing approach
for clients—primarily mutual funds, asset
allocation modeling, and diversification.
James Hamer
By David Wismer
Photography by: Sara Stathas
THE SACRED TRUST
It begins with frank discussions
about expectations and managing risk
James Hamer can certainly be called a well-rounded guy. Professional
development includes the sciences, teaching, and, of course, financial
services. Personal interests range from cycling to yoga to ballroom
dancing. But when it comes to client relationships, he’s got just one
thing on his mind: honoring their sacred trust.
proactiveadvisormagazine.com | September 18, 20148

9. Talk about how you manage client
expectations.
It really goes back to what I said about
how I approach working with clients. This
business should be about alleviating concerns
about money, not adding to them. Clients are
affected by everything they read and hear from
the media. Active management provides an
investment approach where they can be assured
that very professional money managers are
monitoring the market environment on their
behalf every day. That does not mean changes
are going to made every day—far from it—but
these managers have the ability and the strate-
gies to anticipate and react to changes in market
conditions.
As part of its underlying principle, active
management has a strong emphasis on risk
management, which usually has two major im-
plications for clients. First, that the risk of those
large portfolio drawdowns seen in the early
2000s and 2008 can be mitigated. Secondly, on
the flip side, when markets are running very hot
to the upside, actively managed strategies—not
all, but some—may not see all the gains of the
market.
I have very frank discussions with clients
about their individual risk profiles, the strate-
gies we are recommending to employ, and how
those strategies should fit in their overall finan-
cial plan. This is the challenge for us as advisors.
We need to communicate and explain very
sophisticated, quantitative strategies to average
investors. They do not need to know everything
that is under the hood, but they do need to fully
understand and agree to the overall objectives.
They especially need to understand that the
majority of actively managed strategies are not
designed to track overall market benchmarks.
That is the whole point—to have less-correlated
strategies with lower volatility and more risk
management. The money managers we are
using now are genuinely more tactical, with the
ability to go wholly or in part to cash or to use
inverse or leveraged strategies. This is diversi-
fication taken to another level, with diversifi-
cation among asset classes and then tactically
managing exposure within an asset class.
continue on pg. 10
September 18, 2014 | proactiveadvisormagazine.com 9

10. M U LT I - M A R K E T
+
MULTI-STRATEGY
+
MULTI-MANAGER
One p rtfolio
D Y N A M I C A L LY R I S K - M A N A G E D
L E A R N M O R E
Past performance does not guarantee future results.
The opportunity for profits
carries with it the possibility of losses.
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A complete list of all of our recommendations over the last 12 months and Brochure Form ADV Part 2A are available upon request.
be performing as well as we would like. The
critical factor is whether or not our managers are
executing their strategies well. If they are but the
performance is still consistently not living up to
our expectations, we will make strategy changes.
We need to set the expectation of that possibility
with clients, and hopefully it is the exception and
not the rule.
Bottom line, active management is a great fit
for my philosophy of working with clients—it
has become part of my belief system. I want to set
clear, realistic, and achievable expectations with
clients and provide a high level of risk manage-
ment. Clients place a sacred trust with us and at
the end of the day what matters most is acting in
the best interest of the client. That means earning
that trust every step of the way—from education
to planning to implementation to review.
Do you find issues in introducing active
management to clients?
As I mentioned, there is the education piece.
We have some very good materials on market
history and the historical performance of actively
managed portfolios versus the performance
of more passive portfolios. While this has to
be positioned with care and all appropriate
disclaimers, it is a pretty powerful story.
We need to be very upfront about the fees
involved with third-party active management. In
the big picture, these are not high by any means.
But for some clients it is a new factor to be
introduced and explained.
Third, we place great importance on client
reviews and ask for feedback on every aspect
of our performance. Returns are top of mind
for many clients, and there are times when
some actively managed strategies may not
continued from pg. 9
Advisory Services offered through Global View Capital
Management, LTD, an SEC-registered investment
advisory firm.
10 proactiveadvisormagazine.com | September 18, 2104

11. There can be no assurance that any investment product will achieve its investment objective(s). There are risks associated with investing, including the entire loss of principal invested. Investing involves market
risk. The investment return and principal value of any investment product will fluctuate with changes in market conditions. Guggenheim Investments represents the investment management businesses of Gug-
genheim Partners, LLC. Securities offered through Guggenheim Funds Distributors, LLC. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC. x0515 #12526
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overall through both up and down markets, is
there room for strategy refinement to further
boost alpha?
An often-overlooked feature of market type
is its ability to open up a new, potentially more
effective dimension of diversification. Market
type allows you to employ each strategy only
during “seasons” when they are likely to be prof-
itable. By doing so, it enables you to seamlessly
rotate capital between strategies specifically
designed to complement one another. In the
example above, choosing to only use Strategy X
when in Market Type A allows you to diversify
into strategies designed to work more effectively
in Market Type B. When constructed correctly,
this under-used diversification method allows
you to enhance returns and reduce drawdowns.
In the above table, we’ve chosen a market
type methodology with only two possible
values: Market Type A (rising 200-day SMA)
and Market Type B (falling 200-day SMA).
Note, however, there are a number of ways
to define market type, and the table shows a
small sample of options. Each technique could
be combined with one or more of the others
resulting in a matrix of types.
So how do you choose which market typing
method to use? As a general rule, a simple
solution like using the direction of a key, long-
term moving average of price or a relative level
of historical volatility is often a good starting
point. Even so, the most accurate answer is
market types should be designed to support
broad categories of client return objectives and
risk tolerance, and need to be carefully matched
to strategies. Just as investing a large portion
of capital in equities is inappropriate for some
categories of clients, so is choosing a universal
definition for market type.
Clearly, effective market type diversification
has the potential to provide your clients higher
returns with the same, or even lower, risk. It
allows active diversification not just across asset
classes, but also across market types within a
given asset class.
Diversification is often primarily viewed as a
means of reducing risk, but that doesn’t mean it
has to come at the cost of returns. For advisors
and the third-party asset managers they partner
with, market type-based strategy diversification
can be a sophisticated way to boost alpha with-
out increasing drawdowns.
continued from pg. 5
Example of Market Typing Methods
P/E Ratio
Real Inflation
NYSE Advance / Decline Ratio
Historical Volatility
Implied Volatility
Business Cycle Stage
Interest Rates
11September 18, 2014 | proactiveadvisormagazine.com

12. The opinions and forecasts expressed herein are those of the author and may not actually come to pass. Any opinions and viewpoints regarding the future of the markets should not be
construed as recommendations of any specific security nor specific investment advice. The analysis and information in this edition and on our website is for informational purposes only.
No part of the material presented in this edition or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed
nor any portfolio constitutes a solicitation to purchase or sell securities or any investment program.
Editor
David Wismer
Associate Editor
Elizabeth Whitley
Contributing Writers
Dave Witkin
David Wismer
Graphic Designer
Travis Bramble
Contributing Photographer
Sara Stathas
September 18, 2014
Volume 3 | Issue 12
Proactive Advisor Magazine is
dedicated to promoting and educating
on active investment management.
Distribution reaches a wide audience
of financial professionals who advise
clients on investments and portfolio
management. Each issue features
an experienced investment advisor
who offers insights on active money
management, client service, and
investment approaches. Additionally,
Proactive Advisor Magazine offers
an up-close look at a topic with
current relevance to the field of
active management.
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Risk revisited
It’s impossible to predict events but not impossible to construct a wide
range of possible outcomes and the likelihood of each one happening—not
knowing the future doesn’t mean we can’t deal with it.
Who needs a financial advisor
in a bull market?
It happens in every bull market. As the stock market stretches skyward,
the do-it-yourself industry gets aggressive, creating new products to
make investing seem quick, easy, and cheap.
Buying stocks based on how other people feel
Sentiment indicators have the most value at extremes, argues the author,
with much of the data in between representing “non-actionable noise.”
U.S. investors opt for human
over online financial advice
U.S. investors are more likely to have a dedicated financial advisor than
to use a financial website for obtaining advice on investing or planning
for retirement, 44% vs. 20%, says Gallup poll.
Advisor M&A, the alpha way
This newly released study distinguishes the factors associated
with successful advisory practice acquisitions from those
with unhappy outcomes.
Advice industry adapts to changing
concept of retirement
As people live longer, the distribution phase becomes more critical.
Stay connected
12
L NKS WEEK