With heavyweights like Paci� c In-vestment Management Company(PIMCO) throwing its hat into the man-aged futures mutual fund ring, interest from both investors and asset manage-ment in this investment vehicle appears

to be rising. On August 16,

PIMCO � led a preliminary prospectus with the Securities and Exchange Com-mission, which calls for the mutual fund o� ering that “seeks absolute risk-adjusted returns.” � e PIMCO TRENDS Managed Futures Strategy Fund serves as the 42-year-

old � rm’s new mutual fund in the space. “� e Fund seeks to achieve its investment

objective by pursuing a quantitative trading strategy intended to capture the persistence

of trends (up and/or down) observed global � nancial markets and commodi-ties,” the prospectus reads.

While a PIMCO spokesperson was unable to comment on the fund, ana-lysts from independent research � rm Morningstar indicate that the interest from the investment management � rm with nearly $2 trillion in assets under management is emblematic of an over-all shi� in assets among certain alterna-tive vehicles.

“I think it shows that there is a demand even though the managed futures as a category has performed poorly for the past few years,” said

Reproduction or electronic forwarding of this product is a violation of federal copyright law. Site licenses are available - please call Customer Service at 1-800-221-1809 or custserv@sourcemedia.com

American Wealth Playing Portfolio Defense

By Paula Vasan

Laif Meidell is president of American Wealth Management and a FINRA registered representa-tive with Foothill Securities, a hybrid Reno, Nev.-based RIA � rm. Meidell shares his thoughts with MME regarding how he is responding to market

volatility by adopting a more defensive portfolio position

with his AdvisorShares Meidell Tactical Advan-tage ETF (aka MATH).

Recent sentiment shows investors are increasingly fearful of volatility, according to the Volatility Index

DEFENSE, cont. on page 9

MME Q&A

A new study by retirement and investment trends research � rm Hearts & Wallets, LLCfound that more retirement � rms are considering the lifetime value of consumers—currently 55%, up from 43% in 2010—showing an increased focus

on younger investors. � e survey included nearly

two dozen leading distributors, employer-spon-sored plans, insurers, asset managers and interme-diary platform solution providers with more than $12 trillion in AUA and more than $10 trillion in AUM, serving more than 50 million retail custom-

Retirement Firms Target Younger Investors

YOUNGER cont. on page 8

Retirement

By Erin Kello

What’s the Future of Alternative Mutual Funds?

FUTURE, cont. on page 6

Alternatives

By Michael Giardina

The Premier News Source for Asset Management Leaders

September 9, 2013 | Volume 21 • Number 34 | www.mmexecutive.com | feedback-mme@sourcemedia.com

management executive

Scorecard25 Largest Funds

P. 11

IN THIS ISSUE

ViewPointBenefi ts of a Knowledge Partner

P. 3

Executive Briefi ngTrillion-Dollar Managers Abound

P. 4

ExpertViewAdding Managed Futures

P. 10

SOURCE: Cerulli Associates

ETF Strategist Expectations for Growth in the Next Three Years, 2013

More than two-thirds of strategists expect their growth to outpace that of

the wider ETF market.

ETF strategist asset growth

will outpace the ETF market

ETF strategist assets will grow at a lower rate than the

ETF market

ETF strategist assets will grow at the same rate than

the ETF market

5%

68%

28%

MME090913_page01 1 9/5/2013 6:54:42 PM

The Premier News Source for Asset Management Leaders

MME041513_page02 1 4/11/2013 3:03:21 PM

www.mmexecutive.com

MME Editorial Board

Neil BathonPartner,

FUSE Research Network

Ted BennaFounder,

401(k) concept

Lisa A. CohenPresident,

Momentum Partners

Richard DaviesManaging Director, Defined Contribution

Russell Investments

Carl FrischlingPartner,

Kramer Levin Naftalis & Frankel

Debralee GoldbergSenior Vice President,

DST

Burton J. GreenwaldPresident,

B.J. Greenwald Associates

Christopher P. KeatingHead of Institutional SalesRiverSource Investments

Peter MuratoreChairman Emeritus

Money Management Institute

George WilbanksManaging Partner, Wilbanks Partners

Operating in an environment where we are all expected to do more with less, asset managers increasingly rely on ser-vice providers. By constantly reinvesting in their businesses and infrastructure, established providers can easily scale and position asset managers for the fu-ture. Combining the voice of the cus-tomer and robust internal knowledge resources into creative new tools, service providers are continuing in their evolu-tion as solution providers.

Innovation through Data Analysis Greater transparency helps asset

managers improve decision making and better understand their business oppor-tunities and risks. Outsource providers are ideally positioned to assist.

The ability to create actionable in-formation—to harness raw data and then analyze it—improves transpar-ency. Companies are learning that their fund-specific information on share-holder investment patterns can be used to reveal key trends. By unlocking the knowledge in data, firms can better understand—and act on—customer preferences, investment behaviors and more.

Delivering Insights & Best-PracticesThird-party providers have deep

insights into the marketplace as they regularly witness the business trends across their large and sophisticated cli-ent base. Fund companies agree that being a part of this customer commu-nity is beneficial, as they gain a more complete view of industry best-prac-tices. Service providers contribute

important views to outside industry groups and associations, and effective-ly become a voice of the client, with their representative opinions helping to shape a wide array of policies and regulatory mandates. In an era of rapid technological changes, new regulatory reform and the rise of new players in the distribution chain, understanding the position of others in the industry is a decided benefit.

With the wave of new regulations and changes to existing regulation, asset managers continue to focus on compli-ance. Service providers are assisting by developing new solutions that automate some of the compliance burden, deliv-ering capabilities to help manage and identify risks.

Evolution of ExpectationsAs the industry continues to change,

expectations are shifting too. The right outsource partner invests in their core capabilities, helping fund companies streamline, gain efficiencies and grow. Service providers are also consulting on ways to implement regulations, respond to shareholder expectations and navi-gate new channels and new technolo-gies, while continuing to deliver service excellence. MME

George Costas and Nicole DeBlois are Global Relationship Executives at Boston Financial Data Services, Inc.

To view the complete version of this Industry Commentary, visit the Mutu-al Fund Service Guide website at mmex-ecutive.com/mutual-fund-guide. Click on the Transfer Agent section.

The Benefits of a Knowledge PartnerNew Insights and Innovations through Outsourcing

Editor’sDeskViewPoint

By George Costas and Nicole DeBlois

September 9, 2013 Money Management Executive �

MME090913_page03 1 9/5/2013 6:55:05 PM

As Industry Consolidates, Trillion-Dollar Money Managers AboundThe 50 largest asset managers account-

ed for more than US$38 trillion in assets under management at the end of 2012. This is a full US$4 trillion more than the year be-fore, even as the biggest firms in the indus-try continue to enlarge, according to The Cerulli Report: Global Markets 2013.

Eleven money managers have assets in excess of US$1 trillion (compared with nine a year ago), and there are twice as many firms with more than US$2 trillion in as-sets (four compared with two, previously). BlackRock is still the only global firm with assets in excess of US$3 trillion, according to the annual report.

While the trend for consolidation in the asset management industry is not a new one, “there has definitely been a quickening of pace since the financial crisis,” said Shiv Taneja, the firm’s London-based managing director for international research in a state-ment. “Big firms can do many good—and not so good—things. Regulators have a huge role to play here, and in their desire to boost investor protection (a good thing) should ensure they do not make it tough on smaller firms,” added Taneja.

Chief Operating OfficerLeaving Calamos

Calamos Investments, a global invest-ment management firm, announced the

planned departure of James Boyne, Presi-dent and Chief Operating Officer, effective September 30, 2013. Until that time, Boyne will act in an advisory role and assist the company in the orderly transition of his du-ties and responsibilities.

Boyne joined Calamos in 2008 and served in several executive positions since then. He is pursuing a leadership position in the non-profit sector, focusing on the bet-terment of children and young adults.

“I appreciate Jim’s leadership during his tenure at the firm and wish the best to him and his family,” said John P. Calamos Senior Chairman, Chief Executive Officer and Global Co-Chief Investment Officer in a statement.

The firm does not plan to replace the role of President and COO, and Boyne’s re-sponsibilities will be assumed by other se-nior leaders at Calamos, including the firm’s Executive and Operating Committees.

Morningstar: Wealth Management Companies Poised for SuccessMorningstar published its inaugural

issue of Financial Services Observer, a research report examining the competi-tive shifts in the U.S. wealth management industry, companies responses to indus-try changes following the financial crisis, and which companies Morningstar equity analysts think are poised to be a boon for shareholders.

Notable points from the first Financial

Services Observer issue, “Differing Strat-egies Will Contribute to the Evolution of Moats in Wealth Management,” include:

• Financial services firms with the stron-gest economic moats are those that serve ultra-high-net-worth investors—those with more than $20 million in investable assets. Northern Trust and Morgan Stanley are two such players in this segment;

• The high-net-worth customer seg-ment—with between $1 million and $20 million of investable assets—is increas-ingly competitive;

• Raymond James is a financial services firm that is well positioned to compete in the high-net-worth customer segment, be-cause of the firm’s unique business model in employing advisors; and

• Charles Schwab is considered as a more successful wealth manager for the mass affluent customer segment—those with less than $1 million in investable as-sets—while Bank of America’s large size and scope of services could create a strong competitive advantage for serving both high-net-worth and mass affluent clients.

“Our research team views wealth man-agement as a profitable business with high shareholder returns, because these firms tend to have wide economic moats, or strong competitive advantages, which we attribute to long-standing client rela-tionships and falling costs as production increases,” Jim Sinegal, Morningstar’s di-rector of financial services equity research, said in a statement.

Estimated Long-Term Mutual Fund Flows Down

Total estimated outflows from long-term mutual funds were $7.71 billion for the week ending Wednesday, August 28, 2013, as reported by the Investment Company Institute.

Equity funds had estimated inflows of $300 million for the week, compared to estimated inflows of $1.34 billion in the previous week. Domestic equity funds had estimated outflows of $1.00 billion, while estimated inflows to world equity funds were $1.30 billion.

News scaN

ReseaRch

Hybrid funds, which can invest in stocks and fixed income securities, had estimated inflows of $1.15 billion for the week, compared to estimated inflows of $1.11 billion in the previous week.

Bond funds had estimated outflows of $9.16 billion, compared to estimated outflows of $11.14 billion during the previous week. Taxable bond funds saw estimated outflows of $6.26 billion, while municipal bond funds had estimated outflows of $2.91 billion.

Turner Introduces Turner Emerging

The Turner Emerging Markets Fundinvests in about 60-100 growth stocks of all market capitalizations from issuers tied economically to emerging markets.

The no-load Turner Emerging Markets Fund is offered in both shares(TFEMX).

Invesco Rolls Out New Share Classes Invesco

classes to provide financial advisors with greater access to Strategy Fund

Effective August 28, 2013, the fund is now available through Class A, C, R, R5, R6 and Y shares. The fund’s original H1 shares, launched September 26, 2012, converted to Y shares.

First Trust Announces Name Change

First Trust Advisors L.P. that the Board of Trustees of Exchange-Traded Fund IVa name change for Long/Short ETFtive September 4, 2013, the Fund’s name changed to “ETF.not change.

The Fund is an actively managed exchange-traded fund that seeks to provide

ExEcutivE BRiEFiNG

SOurce: cerulli Associates

Top-10 Asset Managers by Global Assets Under Management, December 2012(uS $ in billions)

Rank Company AUM1 BlackRock 3,792.02 State Street Global 2,086.03 Vanguard Group 2,000.04 PIMCO 2,000.05 Fidelity Investments 1,690.96 AXA Group 1,474.87 J.P. Morgan Asset Management 1,400.08 Bank of New York Mellon 1,386.09 Deutsche Asset Management 1,247.510 Capital Group 1,081.7

� Money Management Executive September 9, 2013

MME090913_page04 1 9/5/2013 6:55:00 PM

ExecutiveBriefing

issue, “Differing Strat-egies Will Contribute to the Evolution of Moats in Wealth Management,” include:

• Financial services firms with the stron-gest economic moats are those that serve ultra-high-net-worth investors—those with more than $20 million in investable assets.

Morgan Stanley are

• The high-net-worth customer seg-ment—with between $1 million and $20 million of investable assets—is increas-

is a financial services firm that is well positioned to compete in the high-net-worth customer segment, be-cause of the firm’s unique business model

is considered as a more successful wealth manager for the mass affluent customer segment—those with less than $1 million in investable as-

s large size and scope of services could create a strong competitive advantage for serving both high-net-worth and mass affluent clients.

“Our research team views wealth man-agement as a profitable business with high shareholder returns, because these firms tend to have wide economic moats, or strong competitive advantages, which we attribute to long-standing client rela-tionships and falling costs as production

, Morningstar’s di-rector of financial services equity research,

Estimated Long-Term Mutual Fund

Total estimated outflows from long-term mutual funds were $7.71 billion for the week ending Wednesday, August 28, 2013,

nvestment Company

Equity funds had estimated inflows of $300 million for the week, compared to estimated inflows of $1.34 billion in the previous week. Domestic equity funds had estimated outflows of $1.00 billion, while estimated inflows to world equity funds

“One of the things we always tell investors is, you can control your cost you can’t control your return.”

—Gerri WalshSenior Vice President

Investor EducationFINRA

Quote of the Week

Hybrid funds, which can invest in stocks and fixed income securities, had estimated inflows of $1.15 billion for the week, com-pared to estimated inflows of $1.11 billion in the previous week.

Bond funds had estimated outflows of $9.16 billion, compared to estimated out-flows of $11.14 billion during the previous week. Taxable bond funds saw estimated outflows of $6.26 billion, while munici-pal bond funds had estimated outflows of $2.91 billion.

Turner Introduces Turner Emerging Markets Fund

The Turner Funds have introduced the Turner Emerging Markets Fund, which invests in about 60-100 growth stocks of all market capitalizations from issuers tied economically to emerging markets.

The no-load Turner Emerging Markets Fund is offered in both Institutional Class shares (TEEEX) and Investor Class shares (TFEMX).

Invesco Rolls Out New Share Classes Invesco has launched a variety of share

classes to provide financial advisors with greater access to Invesco Global Markets Strategy Fund for their clients.

Effective August 28, 2013, the fund is now available through Class A, C, R, R5, R6 and Y shares. The fund’s original H1 shares, launched September 26, 2012, converted to Y shares.

First Trust Announces Name Change for First Trust ETF

First Trust Advisors L.P. announced that the Board of Trustees of First Trust Exchange-Traded Fund IV, has approved a name change for First Trust High Yield Long/Short ETF, a series of the Trust. Effec-tive September 4, 2013, the Fund’s name changed to “First Trust Tactical High Yield ETF.” The Fund’s ticker symbol (HYLS) will not change.

The Fund is an actively managed ex-change-traded fund that seeks to provide

current income as its primary investment objective. The Fund’s secondary investment objective is to provide capital appreciation. Under normal market conditions, the Fund invests at least 80% of its net assets (plus the amount of any borrowing for invest-ment purposes) in high yield debt securi-ties that are rated below investment grade at the time of purchase or unrated securi-ties deemed by the Fund’s advisor to be of comparable quality.

Loomis Sayles Welcomes New Head of Emerging Markets

Loomis, Sayles & Company an-nounced that Peter Marber has joined the company as head of emerging markets investments.

Marber’s du-ties will encompass emerging markets

fixed income and equity investing. He will report to Jae Park, chief investment officer.

“As emerging markets have grown in importance we have continued to add in-vestment professionals focused in this area. Peter’s depth of experience and expertise will help ensure we bring the full power of our firm’s resources to bear in identifying emerging markets investment opportuni-ties for our clients’ portfolios,” said Park in a statement.

Manulife Names New MD ToInstitutional Sales Team

Manulife Asset Management an-nounced that Scott S. Eversole has joined the firm as Managing Director on the insti-tutional sales team. Based in San Francisco, Eversole reports to Frank Saeli, Senior Managing Director and Head of U.S. Sales and Relationship Management.

Eversole, whose appointment is effec-tive immediately, is responsible for institu-tional asset management sales in the west-ern U.S. MME

StatiSticS

NG

PETER MARBER

SOURCE: Morningstar

This is a 250% increase over 2010.

This rate is for the United States through 2015.

7.3%

$132B

SOURCE: US SIF

ProductSarrivalS

September 9, 2013 Money Management Executive �

MME090913_page05 2 9/5/2013 6:55:42 PM

Phil Guzeic, a Morningstar analyst. “It’s not necessarily that it discreetly is a big deal, it’s just indicative of the trend in the industry that there are these persistent trends systematically over time, investors want access to them, and it’s getting more liquid and cheaper to get this access.”

Morningstar data indicates that U.S. open-end managed futures mutual funds have in-creased in total net assets and funds since 2008. As of July 31, there were 52 total funds and over $10 million in net assets for the managed futures cat-egory. But in the 2008-2013 period, the number increased from one in 2008 to 52 in 2013, which points to a growing de-mand in this niche investment area.

According to Morningstar, managed futures funds managed by Paris- and Bos-ton-based Natixis Global Asset Manage-ment’s AlphaSimplex and Credit Suisse,with offices in New York, have been able to post good numbers when compared to the year-to-date ending in August. The Credit Suisse Managed Futures Strat-egy Fund (CSAIX) and the Natixis ASG Managed Futures Strategy Fund (AS-FYX) bulldozed through the managed futures category’s return for the year-to-date, and publicized positives in the 4-6% return range.

Overall, managed futures have posted negative returns for the year-to-date at-3.20% and the one-year at -7.58%. When compared to conventional markets, the S&P 500 Index and the Barclays Capi-tal U.S. Aggregate Bond Index were polar opposites over the same periods of measurement. For stocks, figures were near -0.08% for the year-to-date and nearly hit an 18% return for the one year. Bonds fared much worse when the Bar-clays Capital Indices benchmark reached about -2.84% and -2.12 for the one year and year-to-date at the end of last month.

Jordan Drachman, portfolio manager of the Credit Suisse Managed Futures Strategy Fund, said the managed futures

strategy “essentially does well when you have stable trending markets.”

“We’ve seen some steady trends, for in-stance a lot of fixed-income has been go-ing down, and equities have been steadily going up and those types of trends can create a good environment for a managed futures strategy,” Drachman explained.

Decision makers at the Natixis ASG Managed Futures Strategy utilize similar tactics.

“We believe it has been a high performer because it doesn’t focus on a fixed set of time horizons for identifying trends, but rather is adaptive based on the recent environ-ment,” said Jerry Chafkin,president of Cambridge, Mass.-based AlphaSimplex Group.

The ’40-Act structure warrants men-tioning because open-end mutual funds need to be transparent and disclose fi-nancials. An inherent problem in the ’40-Act format is daily pricing on man-aged futures funds, which are essentially a hedge fund-like vehicle.

“The one nuisance is that some ’40-Act mutual fund requirements preclude tak-ing positions that will be physically deliv-ered or they have to be 100% collateral-ized, which doesn’t allow for the amount of leverage in these managed futures positions,” Guzeic explained. “They have to access the strategies through a swap agreement through a bank, and they will do a total return swap, so they don’t have physical delivery.”

This swap is costing 20-30 basis points, according to Guzeic, who added that cus-tomary hedge fund compensation was in the “two and twenty” range.

Due to its characteristic to take vari-ous positions in futures and option swaps, the industry has been under added regu-latory scrutiny by the Commodity Fu-tures Trading Commission. On August 13, following news that the U.S. Court of Appeals for the D.C. Circuit had upheld the CFTC’s amendments to Commis-sion Regulation 4.5, the CFTC said that it would adopt “harmonization” rules for

companies registered with both the SEC and the CFTC.

This means that commodity pool op-erators of investment companies under the ’40-Act umbrella will “accept the SEC’s disclosure, reporting and record-keeping” systems going forward. The agency did not respond to our requests for comment.

When the U.S. Court of Appeals first accepted the watchdog agency’s appeal, mutual fund executives and the indus-try saw the added financial inquiry as a “redundant regulation,” according to the Investment Company Institute.

In a statement, the ICI said previ-ously that it was “currently reviewing the CFTC’s latest release in detail” as it was adamantly against the agency’s proposed amendments from February 2011 due to “duplicative burdens and unnecessary costs on funds and their investors.”

Last week, an ICI spokesperson dis-closed that it was still reviewing the pro-posed harmonization rules and would be unable to comment on specifics.

Industry players like Chafkin are less worried because “regulations governing exchange traded futures contracts are al-ready established for the most part.”

“We believe this process will be good for managed futures strategies as regula-tory clarity reduces regulatory risk and broadens interest,” Chafkin said while noting that adopted harmonization rules can rectify instances where both agencies’ rules conflicted.

Shifts in assets from the hedge fund industry to the ’40-Act structure for li-quidity purposes may “drive additional launches because investors prefer the oversight, liquidity of a ’40-Act fund,” Guzeic said.

However, for the funds already estab-lished, they are happy with the inflows wherever they are coming from.

“I think what we’ve seen is an interest in managed futures as a strategy in gen-eral, because over the long term it does have a low correlation to most other asset classes because it can go long and short in different asset classes,” Drachman noted.

MME

FUTUREfrom page 1

Alternatives

JORDAN DRACHMAN

� Money Management Executive September 9, 2013

MME090913_page06 2 9/5/2013 6:55:26 PM

www.mmexecutive.com

MME Editorial Board

Neil BathonPartner,

FUSE Research Network

Ted BennaFounder,

401(k) concept

Lisa A. CohenPresident,

Momentum Partners

Richard DaviesManaging Director, Defined Contribution

Russell Investments

Carl FrischlingPartner,

Kramer Levin Naftalis & Frankel

Debralee GoldbergSenior Vice President,

DST

Burton J. GreenwaldPresident,

B.J. Greenwald Associates

Christopher P. KeatingHead of Institutional SalesRiverSource Investments

Peter MuratoreChairman Emeritus

Money Management Institute

George WilbanksManaging Partner, Wilbanks Partners

Operating in an environment where we are all expected to do more with less, asset managers increasingly rely on ser-vice providers. By constantly reinvesting in their businesses and infrastructure, established providers can easily scale and position asset managers for the fu-ture. Combining the voice of the cus-tomer and robust internal knowledge resources into creative new tools, service providers are continuing in their evolu-tion as solution providers.

Innovation through Data Analysis Greater transparency helps asset

managers improve decision making and better understand their business oppor-tunities and risks. Outsource providers are ideally positioned to assist.

The ability to create actionable in-formation—to harness raw data and then analyze it—improves transpar-ency. Companies are learning that their fund-specific information on share-holder investment patterns can be used to reveal key trends. By unlocking the knowledge in data, firms can better understand—and act on—customer preferences, investment behaviors and more.

Delivering Insights & Best-PracticesThird-party providers have deep

insights into the marketplace as they regularly witness the business trends across their large and sophisticated cli-ent base. Fund companies agree that being a part of this customer commu-nity is beneficial, as they gain a more complete view of industry best-prac-tices. Service providers contribute

important views to outside industry groups and associations, and effective-ly become a voice of the client, with their representative opinions helping to shape a wide array of policies and regulatory mandates. In an era of rapid technological changes, new regulatory reform and the rise of new players in the distribution chain, understanding the position of others in the industry is a decided benefit.

With the wave of new regulations and changes to existing regulation, asset managers continue to focus on compli-ance. Service providers are assisting by developing new solutions that automate some of the compliance burden, deliv-ering capabilities to help manage and identify risks.

Evolution of ExpectationsAs the industry continues to change,

expectations are shifting too. The right outsource partner invests in their core capabilities, helping fund companies streamline, gain efficiencies and grow. Service providers are also consulting on ways to implement regulations, respond to shareholder expectations and navi-gate new channels and new technolo-gies, while continuing to deliver service excellence. MME

George Costas and Nicole DeBlois are Global Relationship Executives at Boston Financial Data Services, Inc.

To view the complete version of this Industry Commentary, visit the Mutu-al Fund Service Guide website at mmex-ecutive.com/mutual-fund-guide. Click on the Transfer Agent section.

The Benefits of a Knowledge PartnerNew Insights and Innovations through Outsourcing

Editor’sDeskViewPoint

By George Costas and Nicole DeBlois

September 9, 2013 Money Management Executive �

MME090913_page03 1 9/5/2013 2:23:01 PM

that measures the price that consumers are willing to pay for downside protection. So, during the past several weeks you have become more defensive, with 50% in cash and little equity exposure. How does this compare with your previous allocation model, and why are you so defensive now?

We think the best solution is to have a process that lets the portfolio adapt to the prevailing market trends by selecting those areas that are in uptrends and then allocating to those areas that have the greatest probability to outperform. We were 100% invested in stocks from the start of the year through May, but our models began reducing our equity exposure in mid to late June.

Our shift from stocks to bonds and cash was in part a function of stocks underperforming shorter-term bonds. Additionally, high volatility is inherently bearish for the stock market, so when we see high volatility we use an additional non-linear trending model to tell us what if any positions should be sold to reduce the portfolio’s volatility.

How have investors been responding to the defensiveness of your fund?

Quite favorably I think. We have seen a pickup in inflows into the fund the past couple of months as we have worked to lower the portfolio’s volatility. I think advisors are watching our moves and appreciate our efforts to protect their clients’ assets during these turbulent times. However, we also participated in the market rally earlier in the year while some of our competitors didn’t.

What is the fund’s performance since inception? What is the current asset allocation of the fund?

MATH has returned 12.49% since inception.

We’re 20% foreign stock, 5% U.S stock, 5% commodities, 19% short-term bonds and 51% cash.

DEFENSEfrom page 1

ers and supporting more than 60,000 reg-istered reps.

When thinking of lifetime value, that means a focus on investors in the accu-mulation phase of saving. “Traditional firms are becoming more interested in younger investors. They re-alize that acquisition should be a priority and they have to think about acquiring in-vestors when they are a little younger generally in their late 30s and 40s,” said Chris Brown, principal Hearts & Wallets. That’s when people form those lasting relation-ships,” he added.

Brown indicated that increased competition for the larger ac-counts of older investors could be driving this newfound interest. “There was more of a thought in the past that it was cheaper to acquire accounts later when the balanc-es are larger rather than trying to bring people with smaller balances along,” he noted.

“Now that’s shifting, possibly because of increased competition for people in their 50s and 60s. Firms are realizing that it’s expensive to get the assets when people are at that point and maybe it is a better strategy to take in smaller accounts and build the relationships,” he stated.

Messaging for investors in the accu-mulation phase is a big piece of the puzzle. “Part of the study is that we went out and looked at the homepages of the leading online BDs and enrollment kits for 401(k) providers. A lot of the goals and mes-saging are not aligned with the needs of younger investors. We’ve had comments from people in our focus groups about the “typical old white guy” who is seen in the commercials for the brokerage firms,” Brown said.

Preparing not only for retirement but also for life’s financial challenges is im-portant to younger investors. “Some of the things we saw were that both the enroll-ment kits and the websites tended to leave out a lot of the needs and goals of younger

investors. The focus is so much on retire-ment that they forget about the things younger investors are looking for,” said Brown. “This includes building an emer-gency fund, saving for college, children they don’t have yet and a home,” he noted.

Pricing is another touchpoint when it comes to the younger demographic.

“The fees are another issue. Younger people are looking for clear pricing, they want to comparison shop. They want to know the cost and how it com-pares to other firms. There are some firms that do a nice job of laying out the costs. They say here is what it costs to use our platform versus our com-petitors,” Brown stated. ”We think if these firms changed

the revenue model a little bit it could be profitable. The margins won’t be as high as most of these firms are public com-panies and they have quarterly earn-ings to meet. They have concerns about keeping margins where they are and it’s tough to change the business model,” he added.

Brown cites two companies that could shake up the space—NestWise (a business unit of LPL) and Learnvest. Instead of giving investments they give service levels and the cost.

Still the revenue model for firms like NestWise and Learnvest are yet to be proven. It was announced in late August that LPL would be shuttering NestWise September 1 due to unmet growth targets.

To increase participation among inves-tors in the accumulation phase, providers are working with plan sponsors to target specific demographics, making use of technology and utilizing behavioral driv-en innovations.

“We have a comprehensive plan review report broken up by age bands and the age bands are 30 and younger, 30-39, 40-49, 50-59 and 60 plus,” said John Prescott, vice president of relationship management and strategic initiatives for CPI Qualified Plan Consultants. “It reports to the em-ployer and the advisors the participation rates and the deferral percentages on each

bracket. If the employer and the advisors select a bracket that is not participating as much as it should, we put together Pow-erPoint presentations that they can use in specific employee education meetings,” he notes.

Using technology that younger inves-tors are familiar with is another part of the strategy, Prescott said. “We have 60 iPads that we use in enrollments for the younger generation and they really relate to that. ‘This is my generation’s equipment.’ We hand out 20 of these in a classroom set-ting. We let them use the iPad to access their participant account.

“Another tool is auto enrollment, which we are pushing hard. It’s a proven fact that people do not ‘un-enroll.’ This is a great tool for all age brackets and probably more effective for the under 40 crowd,” said Prescott.

Prudential is using behavioral cues in a soon-to-be released plan that is being test-ed primarily on millennial companies.

“We’ve tested a few retirement readiness meters. The first didn’t do so well. It was overly sophisticated, there was too much depth on the algorithm,” said George Castineiras, senior vice president of Pru-dential Retirement’s Total Retirement Solutions. One of the clients we tested it on is made up of 70% millennials—also known as Generation Y. The greatest re-sponse was, ‘I like this but I don’t know what you are asking me to do to elevate my success rate,’ ” he stated.

To more clearly articulate the pur-pose of the meter, Castineiras indicated the program was changed to focus on achievement. “We changed it and now we call it an achievement meter. This is behavior based. If you are contributing you get a point, if you are contributing at a higher level you get another point, if you are optimizing the match from the employer you get another point, if you don’t have any outstanding loans, you get another point,” he stated.

“That made it much easier for indi-viduals to understand right behaviors. It’s driving on average two to three be-havior changes that were not in place before,” noted Castineiras. MME

youNgErfrom page 1

Retirement

GEORGE CASTINEIRAS

� Money Management Executive September 9, 2013

MME090913_page08 3 9/5/2013 6:55:46 PM

that measures the price that consumers are willing to pay for downside protection. So, during the past several weeks you have be-come more defensive, with 50% in cash and little equity exposure. How does this compare with your previous allocation model, and why are you so defensive now?

We think the best solu-tion is to have a process that lets the portfolio adapt to the prevailing market trends by selecting those areas that are in uptrends and then allocat-ing to those areas that have the greatest probability to outper-form. We were 100% invested in stocks from the start of the year through May, but our models began reducing our equity expo-sure in mid to late June.

Our shift from stocks to bonds and cash was in part a function of stocks underper-forming shorter-term bonds. Additionally, high volatility is inherently bearish for the stock market, so when we see high volatil-ity we use an additional non-linear trend-ing model to tell us what if any positions should be sold to reduce the portfolio’s volatility.

How have investors been responding to the defensiveness of your fund?

Quite favorably I think. We have seen a pickup in inflows into the fund the past couple of months as we have worked to lower the portfolio’s volatility. I think advisors are watching our moves and ap-preciate our efforts to protect their clients’ assets during these turbulent times. How-ever, we also participated in the market rally earlier in the year while some of our competitors didn’t.

What is the fund’s performance since in-ception? What is the current asset allocation of the fund?

MATH has returned 12.49% since in-ception.

We’re 20% foreign stock, 5% U.S stock, 5% commodities, 19% short-term bonds and 51% cash.

What motivated the launch of your fund?We have been successfully running the

strategy for clients since 2008, well before the launch on June 23, 2011. We saw that there was an opportunity to provide our style of investing to the market by part-nering with AdvisorShares, and given the fund choices consumers had available at

the time we felt we could pro-vide additional value that in-vestors weren’t getting.

What makes your Advisor-Shares Meidell Tactical Advan-tage ETF unique?

The fund is designed to cap-ture gains during bull markets and protect assets during bear markets. The fund’s ability to shift from 100% cash and

bonds to 100% stocks creates a mechanism designed to limit the fund’s drawdowns during bear markets. To do this we look at an investment pool of roughly 55 ETFs and use a quantitative, non-emotional ap-proach to selecting where in the market to be invested at any given time. The fund’s investment process allows it to be adaptive to the markets and align the portfolio to the prevailing market trends.

Who is this ETF best suited for?I think this fits in the portfolio of the per-

son who wants a mechanism to dial down the portfolio’s volatility during market corrections as well as having a strategy for getting back into the market once trends reverse up. Those that are more risk averse might see MATH as a core holding where as those with a larger appetite for risk may use the fund as a satellite position.

You are a principal of your own indepen-dent RIA firm. How do your clients react to volatility in general? How does your position at an RIA influence this ETF?

I feel I have a greater appreciation of what the average advisor goes through and what investors want from them, versus someone who is more removed from the investment experience. We want the advi-sor to look good in front of his or her clients and want MATH to help them do that.

Where do you see the most opportunity in region/asset class?

After having underperformed U.S. eq-uities for most of the year we are seeing some foreign equities moving back into the portfolio, so if the stock market can rally higher I think foreign stocks could start to outperform.

What are your favorite ETFs now? Why?We have owned the iShare Europe ETF

(IEV) for several weeks now and when we were buying it Europe was still a dirty word, but the price was moving up. I like the fact that we can see trends emerging early enough to identify and participate in them. We also own the Powershares DB Commodity index (DBC), which again has underperformed most of the year but is holding up quite well now given the geo-political backdrop we are looking at today.

Critics say the fund-of-fund model is dead due to higher fees, lack of transparency, etc. How do you respond to them?

First, with ETFs there is complete trans-parency on a daily basis as to the holding in the portfolio. I have the same issues with the lack of transparency in mutual funds, but that doesn’t exist with ETFs and cer-tainly not with MATH. So, the transpar-ency argument is actually a strength for ETFs. Regarding higher fees, the fact that we own primarily index ETFs inside the fund makes us more competitive on a fee basis and we are very competitive if not significantly when it comes to comparing us to actively managed mutual funds and those funds are managing tens of billions of dollars. If people vote with their wallet, there is a lot of money in those funds that says it’s not dead.

Have managers of purely institutional as-sets and/or public funds (state pensions, trea-suries, endowments and foundations, i.e. not asset managers who deal with private funds) utilized actively managed ETFs to a large de-gree yet?

Most institutions won’t consider a fund like MATH until it has a three-year track record, so we still have that hurdle but we are less than a year away. MME

MME Q&A

DEFENSEfrom page 1

LAIF MEIDELL

bracket. If the employer and the advisors select a bracket that is not participating as much as it should, we put together Pow-erPoint presentations that they can use in specific employee education meetings,” he

Using technology that younger inves-tors are familiar with is another part of the strategy, Prescott said. “We have 60 iPads that we use in enrollments for the younger generation and they really relate to that. ‘This is my generation’s equipment.’ We hand out 20 of these in a classroom set-ting. We let them use the iPad to access

“Another tool is auto enrollment, which we are pushing hard. It’s a proven fact that people do not ‘un-enroll.’ This is a great tool for all age brackets and probably more effective for the under 40 crowd,” said

is using behavioral cues in a soon-to-be released plan that is being test-ed primarily on millennial companies.

“We’ve tested a few retirement readiness meters. The first didn’t do so well. It was overly sophisticated, there was too much depth on the algorithm,” said George

, senior vice president of Pru-dential Retirement’s Total Retirement

One of the clients we tested it on is made up of 70% millennials—also known as Generation Y. The greatest re-sponse was, ‘I like this but I don’t know what you are asking me to do to elevate my

To more clearly articulate the pur-pose of the meter, Castineiras indicated the program was changed to focus on achievement. “We changed it and now we call it an achievement meter. This is behavior based. If you are contributing you get a point, if you are contributing at a higher level you get another point, if you are optimizing the match from the employer you get another point, if you don’t have any outstanding loans, you

“That made it much easier for indi-viduals to understand right behaviors. It’s driving on average two to three be-havior changes that were not in place

MME

September 9, 2013 Money Management Executive �

MME090913_page09 4 9/5/2013 6:56:25 PM

The 2008 and 2009 global financial crisis left many investors disappointed with the high volatility and negative per-formance of their portfolios and leading them to re-evaluate the risk reducing ability of asset allocation. They were surprised to find that many of the his-torically non-correlated asset classes had become highly correlated during the crisis, rendering asset allocation less effective at diversifying returns and lowering risk. As such, it is no coincidence that many in-vestors are now implement-ing hedging strategies (such as short futures contracts), in conjunction with their as-set allocation strategy, in an effort to better manage port-folio volatility, avoid large losses during substantial market declines, and create a smoother overall investment experi-ence.

As asset managers increasingly focus on risk management, it is imperative that they develop strategies to combat both individual and systemic risks, which can be detrimental to investors’ ability to gen-erate wealth and maintain prosperity in retirement.

Historically, the common answer to overcoming portfolio volatility and large portfolio losses has been to stay invested in the market; continue saving and in-vesting in your portfolio across all market conditions; when the market goes down, ride out the storm—eventually growth will return and the damage to a portfolio will be repaired. When the damage is as devastating to portfolios as the most re-cent crisis, the recovery time may be lon-ger than investors heading toward retire-ment can afford.

If nothing else that crisis stressed the importance of non-correlated diversifi-cation and risk management, two of the primary benefits to including managed futures in an investor’s portfolio. Utiliz-

ing futures contracts within a hedging strategy provides an inversely correlated asset class that is tailored to perform best during periods of volatility and financial crisis. The equity market has a tendency to fall sharply during periods of high vola-tility and rise slowly during periods of low volatility, making managed futures im-

portant simply for the diver-sification benefits they offer.

Managed futures traders participate in more than 150 markets around the world that deal in currencies, energy, minerals, and commodities, among others. They also have the ability to realize profits from positive and negative developments in multiple markets at the same time by

practicing both long and short trading strategies as conditions dictate.

Now that managed futures are avail-able in a mutual fund wrapper retail investors have access in a highly cost effective manner that maintains liquid-ity. Previously, hedging strategies using futures were accessed through cum-bersome limited partnerships, which required a K-1. The bulk of managed futures funds use multi-managers that have access to, and employ, a number of underlying commodity trading advisors, which creates another layer of fees and could be a potential downside to these types of funds. The high expenses are a factor of the fact that these funds engage in a tremendous amount of trading and there is almost always a market open somewhere in the world. One of the things that expensive trading brings to investors is downside risk management. The investor also must bear the expense of the fund manager, but paying for a manager to manage the allocation and monitor the risk and performance of managers specializing in specific futures can be well worth the incremental cost to reduce risk and to get the diversifica-

tion benefits. Below are some additional facts inves-

tors should know about futures contracts:• Are agreements to trade cash back

and forth with the exchange at the end of each trading day based on market move-ments

• Are based on broad market indices, both domestic (S&P 500, Russell 2000, etc) and international (EAFE, MSCI Emerg-ing Markets, FTSE, Nikkei, etc.)

• Have leveraging power of 12 to 1 (i.e. the upfront cash needed to invest in $100 of futures notional contracts is about $8)

• Enable the strategy to operate based upon a small cash position of typically 3% to 5% of portfolio assets

• Have virtually no counterparty risk, as any changes in their values are settled in cash at the end of every day

If investors really want to move the needle in their portfolios, managed fu-tures should be 5% to 10% of the total portfolio. Managed futures will reduce overall volatility because of their non-correlated nature to other holdings within the portfolio. By lowering your portfolio volatility, if you’d like to invest more in a certain sector of the market, managed futures can allow you the con-fidence to do just that.

As more risk management strategies hit the marketplace, it will be imperative the advisors and investors “look under the hoods” of each method. It is likely that those strategies continuing to man-age portfolio volatility via asset allocation will still be exposed to periods of systemic risk, in which asset allocation will be ren-dered ineffective. Identifying those strat-egies that address both types of risk are likely to provide a better overall invest-ment result. MME

Andrew Rogers is Chief Executive Officer of Gemini Fund Services, LLC, which pro-vides comprehensive, pooled investment solutions as an engaged partner to inde-pendent advisors.

Managed Futures Can Increase Diversification and Reduce RiskBy Andrew Rogers

ExpertView

10 Money Management Executive September 9, 2013

MME090913_page10 1 9/5/2013 6:56:00 PM

Lipper Performance Report: The 25 Largest ETFs & Mutual Funds

Scorecard

Total YTD to 52 Weeks 2 Years* 3 Years* 5 Years*Net Assets 12/31/12 8/2/12 7/28/11 7/29/10 7/31/08

($ in Millions) to to to to toFund Name 6/30/2013 8/1/13 8/1/13 8/1/13 8/1/13 8/1/13

Source: Lipper

September 9, 2013 Money Management Executive 11

MME090913_page11 1 9/5/2013 6:56:57 PM

Hyatt Regency Boston | September 19 - 20, 2013

To be held on September 19th and 20th at the Hyatt Regency Boston, this year's meeting is jam-packed with expert speakers, engaging breakout sessions and ex-

hibitors you won't want to miss!

Register today to join NICSA this Fall in Bostonwww.nicsa.org/gmm2013

Join us at the 2013 NICSAGeneral Membership Meeting!

MME080513_page07 2 7/31/2013 5:10:36 PM