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INVESTMENT APPROACH

Investment objective: The objective of the strategy is to generate income from exposures to U.S. fixed income markets, and total return from participation in various fixed income markets while heavily emphasizing managing downside risk, through the combination of multiple U.S. asset classes including Treasuries, corporate bonds, cash equivalents, and high-yield bonds (up to 40% of the portfolio). A set of proprietary models is utilized by the Manager to evaluate attractiveness of risk-return for each asset class. Each model uses several indicators that historically proved to identify or lead changes in asset class risk-return trends.

Risks: The strategy’s risk profile is expected to be generally consistent with its benchmark, the Barclays U.S. Aggregate bond index. U.S. fixed-income markets are subject to market risks, including price movement due to changes in interest rates and credit conditions. The strategy may be invested up to 40% in high-yield bonds or loans, which is debt issued by companies rated below investment-grade, and thus involves higher credit risk of issuer non-payment or default.

Other terms: Manager’s benchmark: Barclays U.S. Aggregate Bond index Security implementation: exchange-traded funds (ETFs) Trading frequency: average 3-5 re-allocations per year Minimum allocation depends on custodian; Trust Company of America: $10,000, others $20,000

INVESTMENT TERMS AND CONSTRUCTION SUMMARY


Strategy name Tactical Income
Investment style Tactical
Main geography US
Main asset class Bonds - Investment Grade
Inception 12/31/2003
Years in track record 15.3
Benchmark Barclays US Aggregate Bond Ind
PORTFOLIO ALLOCATION
Top Holdings
Geographies
Asset Classes
RETURN AND RISK ANALYSIS FROM 12/31/2003 THROUGH 2019-04-18
Net Annualized Return

About Net Returns

Performance statistics are shown net of all fees and estimated trading costs.

Since inception 6.9%
Year to date 4.7%
Last 12 months 3.9%
Past 3 years 3.8%
Past 5 years 3.5%
Past 10 years 6.6%
Rolling 12-Month Returns

About Rolling 12-Month Returns

Twelve-month rolling portfolio statistics are computed using sequential 12-month rolling time windows. This is important because a strategy with a track record of 15.3 years such as Tactical Income will only have 15 data points for calendar returns, but either 3856 or 183 samples of returns over 252 business days depending on whether data is available on a daily or monthly basis respectively, each of which corresponds to one annual period. Therefore the analysis of rolling 12-month windows gives a sensible aggregate view of the strategy's historical behavior over an average annual period.

The Tactical Income strategy has been profitable in 95 percent of annual periods, and negative over the remaining 100 percent. Its long-term average annual return of 6.9 percent has been achieved with performance swings ranging from +25.4 percent in the best year to -1.9 percent in the worst period. Further discussion of these results is provided with the bar chart showing the strategy's net annual returns.

Number of positive periods 95%
Average when positive 7.5%
Average when negative -0.8%
Best 12 months 25.4%
Worst 12 months -1.9%
Rolling Monthly Returns

About Rolling Monthly Returns

Monthly rolling portfolio statistics are computed using sequential monthly rolling time windows, each of which corresponds to the 21 open business days for which data is available each calendar month.

The Tactical Income strategy has been profitable in 69 percent of monthly periods since inception on 12/31/2003, and negative over the remaining 100 percent. When a monthly period is profitable, it returns and average of +1.15 percent. When it loses money, the average loss is -0.72 percent. In its 15.3 years since inception, the strategy's long-term average monthly return of 0.57 percent has been achieved with performance swings ranging from +7.3 percent in the best monthly period to -3.1 percent in the worst period.

Number of positive months 69%
Average when positive 1.15%
Average when negative -0.72%
Best month 7.3%
Worst month -3.1%
Average monthly return 0.57%
Risk Analysis
Volatility 4.7%
Sharpe ratio 1.2
Sortino ratio 3.9
Omega ratio 3.6
Information ratio 0
Duration (years) 0
Current drawdown -0.8%
Average drawdown -0.5%
Risk score (0 to 100): 19.3
Maximum Drawdown
Maximum drawdown -3.2%
MAR ratio 2.2
Length 13 months
Start 01/31/2015
Trough 09/30/2015
Trough to recovery 5 months
Correlations

About Correlations

Since inception on 12/31/2003, your strategy Tactical Income has been 87 percent correlated to the broad stock represented by the market index with ticker symbol VTSMX. Its correlation to the bond market, represented by ticker symbol FBIDX, is 99 percent.

This table also lists the strategy's capture ratios that describe how much of its benchmark's upside Tactical Income captures when the benchmark is profitable (126 percent since inception), and how much of the benchmark's loss it experiences when that benchmark is down (35 percent). Click the words highlighted in blue to check their definition.

With stocks 87%
With bonds 99%
With benchmark 99%
Benchmark up-capture 126%
Benchmark down-capture 35%
Capture ratio 3.6
Beta to benchmark 0.6
Alpha versus benchmark 3.9%
EXPECTED GROWTH OF $1,000 OVER THE NEXT 7 YEARS

About Expected Returns

This chart gives an indication of the potential growth of this strategy based on the statistical analysis of its performance from inception on 12/31/2003 through 2019-04-18. The analysis calculates the historical distribution of the strategy's returns over time windows of varying lengths ranging from a few months to several years. Each of these distributions is further analyzed to compute average returns and their standard deviation over each time window. These results are then projected forward to create a range for the expected growth of a new investment on 2019-04-18.

Our financial engines have analyzed your portfolio's data over all 6-month time windows, annual periods, three-year periods and so on, that are available since 12/31/2003. The 3.5 percent average expected growth of your portfolio over the next 6 months that is shown in the chart is equal to the average return of the portfolio over a typical 6-month period between 12/31/2003 and 2019-04-18. Over that same time interval, the top 5 percent of all 6-month periods delivered returns in excess of 11.7 percent. This corresponds to the maximum growth with 95 percent confidence shown on the chart. Similarly the worst 5 percent of all 6-month periods delivered returns below -4.8 percent which corresponds to the value for minimum growth with 95 percent confidence.

The historical results of your portfolio were analyzed in this manner to construct the forward-looking growth curves on this chart. While historical results are no guarantee of future performance, this analysis does offer insights in the behavior you might expect from this investment strategy not because it will necessarily happen in the way the graph shows, but because the graph condenses a very large amount of historical data so as to show what has actually happened before.

Consider what the chart suggests you can expect after investing in this portfolio. Starting with 1000 dollars on 2019-04-18, the portfolio could be worth anywhere between 952 dollars and 1117 dollars after six months. After a year, the portfolio could be worth between 943 dollars and 1199 dollars. These figures are wholly consistent with a long-term net return of 6.9 percent for this investment strategy. But long-term returns only materialize for investors who appreciate that the natural volatility of an investment strategy means that it is not reasonable to expect to make money over the short term, including when money is first invested. In effect the minimum growth curve in this chart gives an indication of how long it could take for a new investment to start making money since what it shows has happened before, albeit in a small number of cases.

You might wonder how you can maximize your chances of being on the maximum growth path instead of the minimum path as you invest in this or any other strategy. To some extent this is the luck of the draw, driven by market conditions at the time an investment is made. The impact of market conditions when you make an investment can be somewhat attenuated by investing money over time instead of in a lump-sum, an approach known as dollar-cost averaging.

RISK-RETURN COMPARED TO STOCK AND BOND MARKET INDICES (Percent)

About Risk Versus Return

This chart compares your portfolio net returns and volatility (the standard deviation) since inception to two broad U.S. bond and stock market indices with ticker symbols FBIDX and VTSMX respectively. Higher returns with smaller standard deviations are better, so that portfolios in the upper left quadrant of this chart are more desirable than those in the bottom right quadrant.

Note that the size of each bubble is proportional to the Sharpe ratio, a standard financial measure of the quality of your portfolio's returns. Larger bubbles are more desirable. They indicate that the portfolio has historically generated higher returns per 'unit' of investment risk.

NET ANNUAL RETURNS (Percent)

About Net Annual Returns

Annual returns are displayed below for each calendar year where data is available. All figures are net of all fees and trading costs, and the 4.7 percent year-to-date return of your portfolio was computed through 2019-04-18.

Keep in mind that calendar year returns are best viewed as only quick and dirty reference points because they are to a large extent accidents of the calendar. The best way to assess annual returns is through an analysis of returns across all available twelve-month time periods, of which calendar years are only a limited subset.

Our financial engines have calculated that your portfolio has historically generated positive returns in 95 percent of annual periods. When annual returns are positive, they average +7.5 percent. In the 5 percent of annual periods when returns were negative, the average loss has been -0.8 percent. It is important to keep in mind that investment strategies make money over time by sometimes losing money and other times making money. Your portfolio has generated annual returns of 6.9 percent since inception on 12/31/2003 with performance swings ranging from -1.9 percent for the worst twelve months to +25.4 percent during the best annual period.

This analysis of annual returns should give you a sense of the difference between winning and losing annual periods, and some comfort around the idea that there will be losing years. Losing years are part and parcel of making money over time, and assuming one has confidence in the investment approach, the long-term returns it can deliver will only materialize if one sticks with the strategy during its losing periods.

BEST AND WORST MONTHLY PERIODS COMPARED TO BENCHMARK (Percent)
5 BEST MONTHLY PERIODS

About The Comparison Of Best Periods

This chart displays the top 5 months when the strategy performed at its best since inception. The performance of the strategy in percentage points is shown compared to its benchmark over the same time period. This chart should be assessed together with the comparable chart that shows the periods when the strategy performed at its worst. In cases where a benchmark mostly beats an investment strategy during its best periods, one often finds that the strategy experiences smaller losses than the benchmark during its worst periods, and vice and versa. The cumulative effect of successive time periods when markets favor and then are adverse to a particular investment strategy is what creates long term returns. This chart helps understand how aggressive the strategy is relative to its benchmark when market conditions are highly favorable.

5 WORST MONTHLY PERIODS

About The Comparison Of Worst Periods

This chart displays the top 5 months when the strategy performed the worst since inception. The performance of the strategy in percentage points is shown compared to its benchmark over the same time period. This chart should be assessed together with the comparable chart that shows the periods when the strategy performed at its best. In cases where a benchmark mostly beats an investment strategy during its best periods, one often finds that the strategy experiences smaller losses than the benchmark during its worst periods, and vice and versa. The cumulative effect of successive time periods when markets favor and then are adverse to a particular investment strategy is what creates long term returns. This chart helps understand how well the strategy protects capital relative to its benchmark when market conditions are highly unfavorable.

DRAWDOWNS (Percent)

About Drawdowns

Drawdowns represent the difference on each date between the current account value and the most recent peak account value. When an investment strategy reaches a new high, the drawdown is zero by definition. As market prices move, a strategy may reach new highs a few days in a row, but eventually prices move down so that the account dips below its most recent peak value. For example if the most recent account peak value was $10,000 and the account is now worth $9,800, the drawdown of 200 dollars is represented on that day as -200 divided by 10,000 or -2 percent.

It is important to realize that investment strategies reach new highs only once in a while, so that investment accounts are in a state of drawdown most of the time as a consequence of natural market volatility.

Our financial engines have calculated a maximum drawdown of -3.2 percent for your portfolio by analyzing all available data from inception on 12/31/2003 through 2019-04-18, and a current drawdown of -0.8 percent as of 2019-04-18. The average drawdown since inception has been -0.5 percent. The chart below gives a detailed picture of your portfolio's historical drawdowns. It highlights when they happened, how deep they were and how long it took to recover to the previous peak value. Comparing the shape and timing of your portfolio's drawdowns to those of the benchmark helps build the proper expectations for the future likely behavior of the investment strategy.

MONTHLY RETURNS ANALYSIS
NUMBER OF POSITIVE AND NEGATIVE MONTHS EACH YEAR
NET MONTHLY RETURNS SINCE INCEPTION (Percent)
NET MONTHLY RETURNS

About Net Monthly Returns

This performance table displays the calendar monthly returns of your investment strategy from inception on 12/31/2003 through 2019-04-18. Results are shown net of all fees and trading costs.

An examination of monthly calendar returns is most useful to investors familiar with the historical behavior of capital markets who can develop insights into the strategy's risk exposures implied by the difference between the strategy's performance and markets returns in specific months.

An alternative way to assess monthly returns is through the analysis of the strategy's rolling monthly returns. That analysis shows that your portfolio has historically returned +0.57 percent over a typical month. Since 12/31/2003 it has generated positive returns in 69 percent of monthly periods. When a month was positive, it returned +1.15 percent on average while in the 31 percent of losing months the average loss was -0.72 percent.

Keep in mind that the strategy's long term returns will only materialize for investors who are confident enough to remain invested through periods of negative returns. Although historically monthly returns have averaged +0.57 percent, that average assumes investors remained invested through the worst monthly return of -3.1 percent, and through the best monthly period that returned +7.3 percent.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
20030%0%
20041.2%2.11%1.16%-3.14%0.86%0.08%0.62%2.26%0.16%1.07%0.01%1.3%7.9%
2005-0.13%-0.09%-0.47%0.7%0.64%0.59%-2.13%2.53%-0.15%-1.44%0.18%1.03%1.2%
2006-0.1%0%-2.14%-0.36%0.3%0.41%1.02%1.29%0.27%0.05%0.91%-1.3%0.3%
20070.14%1.42%0.14%0.46%-0.71%-0.76%0.47%1.54%1.36%0.67%2.19%0.13%7.2%
20083.34%0.38%0.25%-0.96%-0.35%0.25%0.31%0.47%0.78%0.88%5.26%7.29%19%
20090.76%-2.91%3.92%1.52%1.78%0.79%1.34%0.17%2.4%0.46%1.98%-1.96%10.5%
20102.14%0.33%-1.05%1.53%2.89%2.08%2.47%1.62%1.45%0.61%-1.05%-0.96%12.6%
20110.52%0.43%-0.07%1.72%2.51%-0.5%3.04%4.65%2.18%4.08%-1.18%3.13%22.3%
20120.79%0.47%0.28%0.17%-0.23%0.02%0.89%0.76%0.65%-0%-0.1%0.58%4.3%
20130.45%0.02%0.35%0.05%-0.05%-0.64%0.86%-1.45%0.97%1.5%-0.23%-0.75%1%
20141.69%1.26%-0.3%0.54%1.58%0.11%-1.22%2.08%-1.42%1.22%0.34%-0.24%5.7%
20152.71%-0.48%0.04%-0.24%-0.21%-1.77%0.49%-0.7%-0.31%0.94%0.01%-0.61%-0.2%
20162.36%1.99%1.6%0.08%-0.64%2.2%0.73%0.31%0.1%0%0.01%0.27%9.4%
20170.04%0%0.32%0.4%0.15%-0.71%0.36%0.7%-0.03%0.12%-0.04%1.28%2.6%
2018-0.17%-0.72%2.4%-0.4%-0.15%0.4%0.75%0.02%0.34%-0.42%-0.44%-1.24%0.3%
20193.74%-0.3%2.03%-0.78%4.7%
  Past performance shown is back-tested and does not indicate future performance. Please click the 'Disclosures' link below.