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Allocation Models
eta
Core-Satellite Approach
As the term suggests, core-satellite investing separates a portfolio of investments into two distinct segments: core and satellite. It means
having a core of long-term investments, with other, perhaps more specialist or shorter-term satellite investments. The Core Target Beta
Strategies are ETF managed portfolios that aim for a consistent Beta versus the S&P 500. Based on your Risk Tolerance and Investment
Horizon. We offer three Core Target Beta models designed to provide optimal performance for varying levels of risk. Each model portfolio is
diversified across an expanded range of investment categories.
Satellite
Satellite
Core
Beta exposure
to broad markets
Satellite
Beta is a measure of the tendency of securities to move with the market as a whole.
A beta less than 1 indicates the security tends to be less volatile than the market, while a beta greater than 1 indicates the security is
more volatile than the market.
The most important measure of the risk or volatility of a stock can be determined by the stock's beta.
Having a beta greater than 1 offers the potential of higher rates of return, but also poses a higher risk of losses, which require even greater returns to break even.
Market Return
20%
-20%
Beta
Portfolio Return
% to Break Even
0.5
10%
1.0
20%
2.0
40%
0.5
-10%
11%
1.0
-20%
25%
2.0
-40%
67%
The chart shows the percentage gain needed to break even, after a significant market decline.
233%
250%
200%
150%
150%
100%
100%
67%
50%
43%
25%
11%
0%
-50%
-10%
-20%
-30%
-40%
-50%
-100%
Loss
-60%
-70%
Diversification
A sound asset allocation strategy is all about finding the right mix of investments that may help you reach your goals. Asset allocation is
important because over time it can be the main driver of a portfolios performance. According to a study by Gary Brinson, asset
allocation determines 93.6% of the variation in a portfolios investment performance. While only 6.4% is from market timing
and stock selection.1
While no strategy can guarantee positive performance. ES Capitals Core Target Beta models broad portfolio diversification strives to
provide exposure to areas of the market that may perform well in any given period. True diversification means investing in a mix of assets
that perform differently in various economic environments. The table below demonstrates why it is important component of risk
management.
2005
2006
2007
2008
2009
2010
2011
2012
2013
MSCI EAFE
REIT
MSCI EM
Agg Bond
Mid Cap
Small Cap
14.82%
38.78%
18.59%
13.74%
39.03%
28.37%
MSCI EM
MSCI EAFE
TIPS
1-3 Yr Treas
Small Cap
Mid Cap
Agg Bond
2014
TIPS
REIT
Small Cap
REIT
13.56%
23.73%
37.91%
22.81%
Mid Cap
Mid Cap
S&P 500
13.75%
23.61%
11.64%
6.67%
37.75%
24.92%
9.81%
17.08%
36.29%
13.69%
Mid Cap
Small Cap
Agg Bond
TIPS
MSCI EM
REIT
Corp Bond
Small Cap
S&P 500
Mid Cap
12.70%
17.05%
9.01%
-2.35%
37.52%
23.44%
8.84%
16.49%
32.39%
12.31%
REIT
MSCI EM
1-3 Yr Treas
Corp Bond
MSCI EAFE
S&P 500
S&P 500
S&P 500
MSCI EAFE
Corp Bond
10.41%
16.91%
7.31%
-10.48%
34.53%
15.06%
2.11%
16.00%
19.77%
7.69%
Small Cap
S&P 500
S&P 500
MSCI EM
REIT
MSCI EM
REIT
MSCI EM
MSCI EM
Small Cap
5.76%
15.79%
5.49%
-33.37%
33.68%
13.99%
1.70%
13.97%
3.59%
6.92%
S&P 500
Mid Cap
Mid Cap
Small Cap
Corp Bond
MSCI EAFE
1-3 Yr Treas
MSCI EAFE
REIT
Agg Bond
4.91%
14.32%
5.23%
-36.07%
30.50%
11.64%
1.55%
13.15%
2.81%
5.05%
TIPS
Corp Bond
MSCI EAFE
S&P 500
S&P 500
Corp Bond
Mid Cap
Corp Bond
1-3 Yr Treas
TIPS
2.84%
5.94%
4.04%
-37.00%
26.46%
11.05%
-0.81%
11.93%
0.36%
3.64%
Agg Bond
1-3 Yr Treas
Corp Bond
Mid Cap
TIPS
TIPS
Small Cap
TIPS
Corp Bond
1-3 Yr Treas
2.79%
3.93%
3.97%
-40.45%
11.41%
6.31%
-2.57%
6.98%
-0.68%
0.63%
Corp Bond
Agg Bond
Small Cap
MSCI EAFE
1-3 Yr Treas
Agg Bond
MSCI EM
Agg Bond
Agg Bond
MSCI EM
1.84%
3.08%
-0.66%
-44.42%
0.80%
5.87%
-12.64%
1.99%
-2.75%
0.44%
1-3 Yr Treas
TIPS
REIT
REIT
Agg Bond
1-3 Yr Treas
MSCI EAFE
1-3 Yr Treas
TIPS
MSCI EAFE
1.62%
0.41%
-11.13%
-45.04%
-3.57%
2.40%
-17.13%
0.43%
-8.61%
-5.14%
1 Source:
Study by Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, Determinants of Portfolio Performance, Financial Analysts Journal, January/February 1995.
Investment Process
Select ETFs
The models are comprised exclusively of exchange-traded funds (ETFs) and each ETF tracks a benchmark that is broadly
representative of a major asset class. The eligible asset classes and instruments used are:
Asset Class
ETF
Large Cap
Mid Cap
Vanguard Mid-Cap
Small Cap
Vanugard Small-Cap
MSCI EAFE
Emerging Markets
Aggregate Bond
Short Treasury
Corporate Bond
TIPS
iShares TIPS
REIT
Vanguard REIT
There is no assurance that the strategies will achieve their investment objectives.
For Discussion Purposes Only
Core Target Beta Models are Monitored Daily and Rebalanced when Beta falls out of Target Range
We constantly monitor the relationships of the ETFs to ensure that the expected beta of the portfolio is close to its target. By
being proactive in the measurement of the targeted beta, we are able to incorporate any changes in the asset class relationships
which may be caused by various events around the world. Over time we expect that the universe of ETFs available to us will
change and that we will be able to incorporate other diversifying assets while continuing to target a specific beta in each
portfolio.
There is no assurance that the strategies will achieve their investment objectives.
For Discussion Purposes Only
Core Moderate
Allocation Model
Core Growth
Allocation Model
Conservative
Moderate
Growth
Equities
36.26%
57.35%
75.60%
Fixed Income
63.27%
40.16%
20.39%
Other
0.00%
1.56%
3.24%
Cash
0.47%
0.93%
0.77%
Holdings Disclosures: The holdings and sector allocation are presented to illustrate examples of securities that the models has
bought and the diversity of areas in which the models may invest, and may not be representative of the models current or future
investments. Model holdings are subject to change and should not be considered investment advice.
Model Performance
YTD
1 Year
3 Years
5 Years
2.91
4.24
7.01
6.94
5.06
3.53
5.37
9.36
8.76
5.08
4.17
7.12
12.37
10.77
5.3
S&P 500 TR
3.23
11.81
19.67
16.54
7.09
Performance Disclosures: The Core Target Beta Models were launched on October 1, 2014. Performance of the models prior to
their launch date are based on back-testing. Back-tested performance information is purely hypothetical and is provided solely for
informational purposes. Back-tested performance does not represent actual performance, and should not be interpreted as an
indication of actual performance. Past performance is also not indicative of future results. Model performance does not reflect
management and other fees. Source: Morningstar Direct.
The Standard & Poors (S&P) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization
U.S. stocks. Indices are not managed and do not incur fees or expenses. It is not possible to invest directly in an index. The S&P 500
is a registered trademark of Standard & Poors, Inc. The index was started on 1/4/1988.
How to Invest
Strategies available through SMA, UMA & Model Portfolios
Rebalance to Beta
Rebalance Frequency:
No
Yes
Definitions
Model P erformance - Investment results of a "model" portfolio where the portfolio does not include any actual assets under management.
Back-tested P erformance - Performance results created by applying an investment strategy or methodology to historical data. Back-tested
performance attempts to indicate how a product constructed with the benefit of hindsight would have performed during a certain period in the past if
the product had been in existence during such time.
Ex change Traded Fund (ETF) A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on
an exchange. ETFs experience price changes throughout the day as they are bought and sold.
The Standard & P oors (S& P ) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization U.S.
stocks. Indices are not managed and do not incur fees or expenses. It is not possible to invest directly in an index. The S&P 500 is a registered
trademark of Standard & Poors, Inc. The index was started on 1/4/1988.
Dow Jones Relative Risk Indices are total-portfolio indices that allow investors to evaluate the returns on their portfolios considering the amount
of risk they have taken. The family includes global and U.S. indices for five risk profilesaggressive, moderately aggressive, moderate, moderately
conservative and conservative. These profiles are defined based on incremental levels of potential risk relative to the risk of an all-stock index. Each
Dow Jones Relative Risk Index is made up of composite indices representing the three major asset classes: stocks, bonds and cash and will vary
depending on the risk profile. The asset class indices are weighted differently within each relative risk index to achieve the targeted risk level. The
weightings are rebalanced monthly to maintain these levels.
Beta - Is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
Disclosures
ES Capital Advisors began to actively calculate the performance of the Core Target Beta Allocation Models on October, 1 2014. Performance results
prior to October 1, 2014 are all back-tested and hypothetical. ES Capital Advisors began to manage and trade a brokerage account on October 1,
2014, which sole purpose was to track the performance of the models. Before you invest in the Core Target Beta Allocation Models, you are strongly
encouraged to consult with your financial advisor. ES Capital Advisors shall have the right at any time, in its sole discretion, to substitute any or all of
the ETFs or other securities utilized within the investment strategy.
This presentation (including the hypothetical/back-tested performance results) is provided for informational purposes only and is subject to revision.
This presentation relates to a rule-based model and related investment strategy which are managed by ES Capital Advisors. This presentation is not
an offer to sell or a solicitation of an offer to purchase an interest or shares (Interests) in any pooled vehicle. ES Capital does not assume any
obligation or duty to update or otherwise revise information set forth herein. This document is not to be reproduced or transmitted, in whole or in part,
to other third parties, without the prior consent of ES Capital. 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 the Core Target Beta Allocation Models may differ
materially from those reflected in such forward-looking statements or in the hypothetical back-tested composite results or the models performance
results included in this presentation.
The information in this presentation is made available on an as is, without representation or warranty basis. There can be no assurance that the
Core Target Beta Allocation Models 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. The hypothetical/backtested performance results and model performance results should not be construed as advice meeting the particular needs of any investor. Past
performance (whether actual, hypothetical/back-tested or model performance) is not indicative of future performance and investments in equity
securities do present risk of loss. The ability to replicate the hypothetical or model performance results in actual trading could be affected by market
or economic conditions, among other things.
No representation is being made that any account will achieve performance results similar to those shown in this presentation. In fact, there may be
substantial differences between back-tested performance results and the actual results subsequently achieved by any particular investment program.
As a result, the models theoretically may be changed from time to time to obtain more favorable performance results. There are other factors related
to the markets in general or to the implementation of any specific investment program which have not been fully accounted for in the preparation of
the hypothetical/back-tested performance results, all of which may adversely affect actual portfolio management results. The information included in
this presentation reflects the different assumptions, views and analytical methods of ES Capital as of the date of this presentation.
The Models performance during the Back-tested Period is not based on live results produced by an investors actual investing and trading, but was
achieved by the retroactive application of a model designed with the benefit of hindsight, and, other than the composite results, the model
performance subsequent to October 1, 2014 is not based on live results produced by an investors investment and trading, and fees, expenses,
transaction costs, commissions, penalties or taxes have not been netted from the gross performance results. The performance results include
reinvestment of dividends, capital gains and other earnings. As the Hypothetical Information was back-tested, it does not reflect contemporaneous
advice or record keeping by an investment adviser. Actual, live client results may have materially differed from the presented performance results. All
information presented after the model inception date (October 1, 2014) is the models performance, which means it was calculated by ES Capital in
real-time (not on a back-tested basis), but does not reflect the payment of any fees, commissions or expenses (except as otherwise described in this
presentation).
Accounts and funds managed by an adviser using the Core Target Beta Allocation Models are subject to additions and redemptions of assets under
management, which may positively or negatively affect performance depending generally upon the timing of such events in relation to the markets
direction. While there have been periodic updates and improvements to the Core Target Beta Allocation Models, there have not been any material
changes in the objectives or strategies of the model that have occurred that may affect results.
While ES Capital believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or
calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Contacts
FFCM, LLC
60 State Street
Boston, MA
Wellesley, MA
www.quant-shares.com
www.escapitaladvisors.com
Kevin Collins
kcollins@ffcmllc.com
Patrick@escapitaladvisors.com
(781) 960-3011
(781) 263-1602