investment policy statementteamttg.com/policy_5_311116956.docx · web viewit should be recognized...

TTG Financial Inc.

Investment Policy Statement12/31/2014

TABLE OF CONTENTS

Overview Commentary .............................................................................. 3

Introduction .............................................................................................. 3

Investment Objectives ............................................................................... 4

Time Horizon ............................................................................................ 4

Risk Tolerance ....................................................................................... 4-5

Risk Tolerance Classes ............................................................................. 5

Liquidity .................................................................................................... 5

Permitted Assets & Investments ............................................................ 5-6

Permitted Asset Classes ............................................................................ 6

Permitted Security Types .......................................................................... 6

Prohibited Asset Classes and/or Security Types ................................... 6-7

Other Investment Considerations ............................................................. 7

Asset Allocation ..................................................................................... 7-8

Updated Allocations .................................................................................. 8

Rebalancing Procedures ........................................................................... 8

Adjustment in the Target Allocation ........................................................ 9

Selection/Retention Criteria for Investments ........................................... 9

Performance Measurment of the Overall Investment Portfolio…………….10

Performance Benchmarks:

Cash Equivalent Vehicles ....................................................................... 10

Equities .................................................................................................... 10

Bonds and Other Fixed Income Vehicles .............................................. 11

Additional Investments, if any .......................................................... 11-12

Investment Monitoring and Control Procedures ................................... 12

Reports ..................................................................................................... 12

Meetings and Communication Between Investor and Advisor ............. 13

Duties and Responsibilities ..................................................................... 13

The Investor ............................................................................................ 13

Investment Policy Statement 2

The Advisor ........................................................................................ 13-14

COMMENTARY

TTG Financial utilizes asset allocation models and sophisticated technical tools to construct a target allocation for the Investor. This allocation will reflect both the Investor’s tolerance to market volatility, personal goals and expectations, as well as trends in the stock and economy in general. This methodology is referred to as Enhanced Portfolio Analysis.

Enhanced Portfolio Analysis is made up of four primary compo-nents:

It uses Modern Portfolio Analysis to determine your optimum asset allocation.

It utilizes Dow Cyclical Analysis to assist in identifying pri-mary market trends and adjusts your holdings, or takes defen-sive positions to reflect these trends.

It utilizes technical analysis to assist in identifying secondary market trends and then adjusts your portfolio or takes defensive positions to reflect these trends.

It uses fundamental analysis of each security in the Investor’s portfolio to assure “best of breed” representation in each identi-fied asset class.

TTG will deploy these strategies on a discretionary basis. The client does not have input on specific investment decisions.

INTRODUCTION

The purpose of this Investment Policy Statement (IPS) is to estab-lish a clear understanding between the Investor (You) and the advi-sor (TTG Financial) as to the investment goals, objectives and management policies applicable to the Investor’s investment port-folio (“Portfolio”). This Investment Policy Statement will:


Establish reasonable expectations, objectives and guidelines in the investment of the Portfolio’s assets

Create the framework for a well-diversified asset mix that can be expected to generate acceptable long-term returns at a level of risk suitable to the Investor, including: Determining an appropriate risk tolerance for allocation of the

Investor’s Portfolio. Specifying the target asset allocation policy. Establishing investment guidelines regarding the selection of in-

vestments, permissible securities and diversification of assets. Specifying the criteria for evaluating the performance of the

Portfolio’s assets. Define the responsibilities of the Investor and the Advisor Encourage effective communication between the investment

Advisor(s) and the Investor

INVESTMENT OBJECTIVES

The overall objective for your portfolio allocation shall be to maxi-mize the expected return, and minimize volatility, based on histori-cal comparisons and statistical analysis, that can be achieved for any standard deviation (risk) level that the Advisor and Investor agree is appropriate.

TIME HORIZON

The time horizon for these investments is through life expectancy; that is, the principle shall be to both protect the basis and maxi-mize portfolio returns, and if necessary, making some percentage of the income and some percentage of the principle available for withdrawal on a regular basis throughout the lifetime of the In-vestor as needed.

Capital values do fluctuate over shorter periods and the Investor should recognize that the possibility of capital loss does exist. His-torical asset class return data suggest that the risk of capital loss over a holding period of at least three to five years can be reduced with the long-term investment mix employed under this Investment Policy Statement and as executed under Enhanced Portfolio Analy-sis.

No investment strategy or allocation can eliminate risk or guaran-tee investment returns.

RISK TOLERANCE & RETURNSInvestment Policy Statement 4

Given the various objectives for the Investor’s portfolio, it is gen-erally acknowledged that expected portfolio returns and standard deviation, that is volatility and risk, are inversely related.

The Investor recognizes that all investments involve some volatility and risk.

The Investor knowingly will sacrifice higher returns to achieve lower volatility.

The Investor will accept higher volatility and greater standard deviation in any year in order to achieve higher long run re-turns.

These statements are to aid in understanding of the Investor’s risk tolerance and are not intended to be limitations on actual results or benchmarks triggering specific action.

RISK TOLERANCE CLASSES Income Growth

The standard deviation (risk and volatility) between the risk toler-ance classes increases as the percentage of Growth investments in-crease.


Income 90% 10%

Income with Growth 70% 30%

Balanced 50% 50%

Growth with Income 30% 70%

Growth 10% 90%

LIQUIDITY

Unless otherwise noted, it is assumed that the Investor does not need to maintain cash balances among these assets, other than amounts sufficient to fund the annual income target determined by the Investor or as may be dictated for investment or operational reasons.

PERMITTED ASSETS & INVESTMENTS

Investment of the Investor’s funds shall be limited to individual marketable securities or common investment pools in the following categories:

Permitted Asset Classes

Cash and Cash Equivalents. US and International Government obligations. Domestic and International Corporate Bonds. Large, Mid and Small Cap Equities–U.S. Large, Mid and Small Equities–Non-U.S. Equities–REITs Real Estate Commodities

Permitted Security Types

Individual stocks Mutual Funds-all classes, styles and allocations Individual corporate bonds or notes Individual US Treasuries Government Agency obligations Closed-End Funds Unit Investment Trusts Exchange-Traded Funds. Long, Short and Ultra. Investments in Limited Partnerships Bank Certificates of Deposit, Commercial Paper, Repur-

chase Agreements and similar short-term investments. Covered Calls, Married Puts, Collars and Spreads


Investment Pools and Aggregations.

Prohibited Asset Classes and/or Security Types

Any direct investment is permitted as long as it promotes the client’s general interests as well as contributes to the attainment of the overall goals of the portfolio.

Direct short sale of stocks Purchase of Letter Stock, Private Placements or direct

payments without additional client approval. Direct Commodity transactions without additional client

approval.

Other Investment Considerations

For accounts of approximately $200,000 or less, we may use a Bal-anced Asset allocation model that is primarily reliant on Ex-changed Traded Funds to achieve the correct asset allocation. Ex-change traded funds will allow for greater diversification potential and thus better management of these accounts.

No single stock (excluding ETF’s, Preferreds, bond like ETF’s or Mutual Funds) should represent more than 5% of the portfolio un-less and for specific Investor/Advisor approved exceptions as em-ployer stock, family business stock or small portfolio allocations that prevent otherwise.

ASSET ALLOCATION

Modern Portfolio Analysis suggests that the decision to allocate to-tal assets among various asset classes will outweigh security selec-tion and other decisions that impact portfolio performance. After reviewing the long-term performance and risk characteristics of various asset classes and balancing the risk and rewards of market, the following asset classes were selected to achieve the objectives of the various Portfolios.

Growth:

Small, Mid and Large cap Growth Stocks & associated ETF’s

International Stocks and associated ETF’s

Emerging Market Stocks and associated ETF’s


Commodities & associated ETF’s

Income:

Preferred Stocks

Income Funds. Open and Closed ended.

Bonds and Bond Funds

Reits

High Dividend Value Stocks

Master Limited Partnerships, Royalty Trusts and associated Exchanged traded funds.

It should be recognized that when the Portfolio invests in common investment pools, including mutual funds ETF’s and Pools, the ac-tual weightings of the investments within these common invest-ment pools can and will vary.

No guarantees can be given about future performance, and this In-vestment Policy Statement shall not be construed as offering such a guarantee.

Updated Allocations

From time to time, it may be desirable to amend the basic alloca-tion policy or calculations. When such changes are made, the In-vestment Policy Statement will be updated either directly or placed in an appendix.

Rebalancing Procedures

From time to time, market conditions may cause the Portfolio’s in-vestment in various asset classes to vary from the established allo-cation. To remain consistent with the asset allocation guidelines es-tablished by this Investment Policy Statement, the Advisor will consider rebalancing the portfolio back to the recommended weighting.

Additionally, our interpretation of Macro-Economic conditions may warrant changes in all portfolios’ basic allocation approach. During relatively good economic times, all portfolios will have more “Growth” categories represented in their holdings. When


Macro conditions appear more worrisome, all portfolios will have less “Growth” assets in their holdings. All of these changes are made to the client’s basic allocation model.

There may also be periods of time, sometimes lengthy, when the portfolio will hold a large portion if not all of the assets intended for equities, in the form of cash. Allocations will not be made to the target equities until risk and volatility have been reduced and modeling indicates action is appropriate.

Adjustment in the Target Allocation

The Investment Advisors at TTG Financial will review the target allocations every year, and if changes are warranted, make recom-mendations to the Investor on suggested modifications.

SELECTION/RETENTION CRITERIA FOR INVESTMENTS PERFORMANCE The performance of the overall investment portfolio will be mea-sured on a time-weighted return basis for rolling quarter, one, three, five and ten-year periods against a composite benchmark consistent with the investment policy allocation described earlier and individual asset benchmarks described in the policy statements below.

Investments shall be chosen using the following criteria:

Past performance, considered relative to other investments having the same investment objective. Consideration shall be given to both performance rankings over various time frames and consistency of performance.

Costs relative to other securities with like objectives and in-vestment styles.

Length of time the security has been in existence and length of time it has been under the direction of the current manager(s) and whether or not there have been material changes in the manager’s organization and personnel.

The historical volatility and downside risk of each proposed investment.

How well each proposed investment complements other assets in the portfolio.

The current economic environment. The likelihood of future investment success, relative to other

opportunities.


Measurement of the Overall Investment Portfolio

Performance Benchmarks

Cash Equivalent VehiclesCash equivalent investments shall be United States treasury bills. Generally, cash equivalent investments shall be made through in-vestment vehicles, such as money market funds, where the fund’s share price is intended to remain constant and the fund’s yield is comparable with the current risk-free rate of return.

Equities

Any selected Common Stock Funds shall be common investment pools, such as a publicly traded open or closed-end mutual fund, providing asset valuations at least monthly. Such investments may include any size domestic or non-U.S. stock.

Equity Performance Benchmarks

The Advisor will review each Security’s and or asset classes total returns compared with the appropriate benchmark listed below, for the previous one, three, five and ten-year periods, when data be-come available.

Broad equity market portfolios will be measured against the Wilshire 5000 index.

International investments will be against the Amex International index.

In the event any selected security or security class underperforms the applicable benchmarks, the Advisor may replace it at any time. Macro events such as loss of contracts, change in business funda-mentals, strikes, FDA approval, economic events , etc., may war-rant a preemptive adjustment.


The Advisor will make a determination as to whether the security continues to be a prudent and appropriate investment, and make any adjustments accordingly.

The relative risk of the selected investment vehicle will also be re-viewed on a quarterly basis, as measured by the fund’s standard deviation, over the most recent one-, three-, and five-year periods.

Bonds and Other Fixed Income Vehicles

Any selected bond or bond fund shall be a publicly traded Security providing net asset valuations or bid/ask spreads published on a regular basis.

The following criteria will be used for the selection and retention of Bond and Bond funds in an allocation:

Utilizing longer maturities in a stable or declining interest rate environment. Shorter maturities in a rising rate environment.

Majority of fixed income securities will be rated investment grade, with some use of sub BBB issues to improve yield.

Bond laddering to help lessen volatility of fixed income holdings.

Fixed Income Performance Benchmarks

The Advisor will review each security’s and asset classes total re-turns compared with the appropriate benchmark listed below for the previous quarter, one, three and five year periods.

Broad fixed income portfolios will be measured against the Lehman Brother’s Aggregate Bond index.

In the event any selected security, fund or allocation underper-forms the applicable benchmarks, the Advisor will make a determi-nation as to whether the security continues to be a prudent and ap-propriate investment.

The relative risk of the selected investment vehicle will also be re-viewed on a quarterly basis.

Additional Investments

The investor has established the following criteria for selecting and retaining other investment vehicles the Investor may wish to hold.


When determined to be appropriate by both the Investor and Advi-sor, such investments may include direct investments, either pub-licly available or limited in scope and, therefore, not available to the general public. Such vehicles may or may not provide daily valuations.

The selection and use of such vehicles shall be restricted by the following criteria:

1. All such vehicles, in the aggregate, shall be no more than 5% of the Investor’s portfolio.

2. The proposed manager(s) of such vehicles, if any, shall have a proven and successful track record of at least five years in en-deavors sharing a similar investment process.

3. Use of such vehicles shall be determined appropriate based on the needs of the overall portfolio, such that each such vehicle will be expected to help increase the overall portfolio return while not significantly increasing overall risk, or each such ve-hicle will be expected to help decrease the overall portfolio risk while not significantly decreasing overall returns.

INVESTMENT MONITORING AND CONTROL PROCEDURES

Reports

1. The Custodian shall provide at least quarterly a report that lists all assets held by the Investor, values for each asset and all transactions affecting assets within the portfolio, including ad-ditions and withdrawals.

2. The Investor shall receive no less frequently than on a quarterly basis and within 45 days of the end of each such quarter the following management reports from TTG Financial:

Portfolio performance results over the last quarter, year, 3 years and 5 years, or when such time comparisons are available.

Performance results of comparative benchmarks for the same periods.

Performance shall be reported on a basis that is in compli-ance with SEC standards.


End of quarter status regarding asset allocation—current versus policy.

Any recommendations for changes of the above.

Meetings and Communication between Investor and Advisor

As a matter of course, TTG Financial shall keep the Investor ap-prised of any material changes in the outlook, recommended in-vestment policy, and tactics. In addition, the Investment Advisors of TTG Financial shall attempt to meet with the Investor no less than annually to review and explain the Portfolio’s investment re-sults and any related issues. When meeting is not feasible due to geographical distances, phone conferences may be substituted.

DUTIES AND RESPONSIBILITIES

The Investor Alerting TTG Financial to any material change in financial

condition. Providing TTG Financial with all relevant information that

may affect the Investor’s risk tolerances and notifying TTG Financial promptly of any changes to this information.

The investor may receive proxy, annual reports and other communications directly from the companies, and may or may not take action on these as they see fit. TTG would vote all shares as directed by the Boards of Directors. If there were disagreement with the recommendations of the Boards, or the direction the company were taking, TTG would sell off the position in all portfolios.

The Advisor

TTG Financial is expected to manage the Portfolio in a manner consistent with this Investment Policy Statement and in accordance with State and Federal law and the Uniform Prudent Investor Act. TTG Financial shall act as the investment advisor and fiduciary to the Investor until the Investor decides otherwise or by mutual agreement.

TTG Financial shall be responsible for:

1. Designing, recommending and implementing an appropriate asset allocation plan consistent with the investment objectives, time horizon, risk profile, guidelines and constraints outlined in this statement.


2. Recommending an appropriate custodian to safeguard In-vestor’s assets.

3. Advising the Investor about the selection of and the allocation of asset categories.

4. Identifying specific assets and investment managers within each asset category.

5. Ensuring that the custodian provides the Investor, when re-quired, with a current prospectus for each mutual fund pro-posed for the portfolio.

6. Monitoring the performance of all selected assets.7. Recommending changes to any of the above.8. Periodically reviewing the suitability of the investments for

the Investor, being available to meet with the Investor at least twice each year, and being available at such other times within reason at the Investors request.

9. Preparing and presenting quarterly reports.10. Selecting a custodian who will hold any and all of the In-

vestor’s securities.


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