masters’ select funds › pdfs › lgm-small-presentation.pdfmasters’ select funds...

Masters’ Select FundsLitman/Gregory Fund Advisors

LITMAN GREGORY MASTERS SMALLER COMPANIES FUND

MSSFX

This information is authorized for investment advisors, broker/dealers, and other registered financial professionals only.

DISTINCTIVE SOLUTIONS TO CHALLENGING ASSET CLASSES


2


DISCLOSURE

Each fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling (800) 960-0188, or visiting www.mastersfunds.com. Please read it carefully before investing.

Mutual fund investing involves risk. Principal loss is possible. Diversification does not assure a profit nor protect against loss in a declining market.

References to other mutual funds should not be deemed an offer to sell or solicitation of an offer to buy shares of such funds.

Litman Gregory Fund Advisors LLC has ultimate responsibility for the performance of the Masters Funds due to its responsibili ty to oversee the investment managers and recommend their hiring, termination and replacement.

Multi-investment management styles may lead to higher transaction expenses compared to single investment management styles. Outc omes depend on the skill of the sub-advisors and advisor and the allocation of assets amongst them.

Each of the funds may invest in foreign securities. Investing in foreign securities exposes investors to economic, political, and market risks and fluctuations in foreign currencies. Each of the funds may invest in the securities of small companies. Small -company investing subjects investors to additional risks, including security price volatility and less liquidity than investing in larger companies. The International Fund will invest in emergi ng markets. Investments in emerging market countries involve additional risks such as government dependence on a few industries or resources, government -imposed taxes on foreign investment or limits on the removal of capital from a country, unstable government, and volatile markets. The Alternative Strategies Funds will invest in debt securities. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in mortgage-backed securities include additional risks that investor should be aware of including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. The Alternatives Strategies Fund will invest in derivatives. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous . Investing in derivatives could lose more than the amount invested. The Alternative Strategies Fund may make short sales of securities, which involves the ri sk that losses may exceed the original amount invested. Merger arbitrage investments risk loss if a proposed reorganization in which the fund invests is re negotiated or terminated. The Alternative Strategies fund may employ leverage. Leverage may cause the effect of an increase or decrease in the value of th e portfolio securities to be magnified and the fund to be more volatile than if leverage was not used.

Investment in absolute return strategies are not intended to outperform stocks and bonds during strong market rallies.

Litman Gregory Masters Funds are distributed by ALPS Distributors Inc. LGM000404 exp. 4/18/2017


3


DISCLOSURE

The Morningstar percentile ranking is based on the fund's total-return percentile rank relative to all funds that have the same category for the same time period. The highest (or most favorable) percentile rank is 1%, and the lowest (or the least favorable) percentile rank is 100%. Morningstar total return includes both income and capital gains or losses and is not adjusted for sales charges or redemption fees.

The Morningstar Fund Manager of the Year award recognizes fund managers who had a good calendar year, have blazed a trail with original research and who stick to their strategies through thick and thin, and are good stewards, putting fund holders' interests first rather than trying to extract every last penny from shareholders. Morningstar selects leaders in three asset classes—domestic stock, international stock, and fixed-income. Morningstar’s fund analysts select the Fund Manager of the Year award winners based on Morningstar’s proprietary research and in-depth evaluation.

(c) 2016 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.


TWO SIMPLE PREMISES: DRAWING ON OVER 25 YEARS OF LITMAN GREGORY RESEARCH DUE DILIGENCE

1. We believe only a small group of skilled investment managers are likely to outperform passive benchmarks over the long term.

2. We believe we can identify skilled stock pickers who within their more diversified portfolios, have higher confidence in the return potential of some stocks than others.

3. We believe portfolios comprised of only these managers “high confidence” stocks are likely to outperform their more diversified portfolios over a market cycle.

4


Masters’ Select FundsLitman/Gregory Fund AdvisorsOUR BELIEFS: KEY TENETS

• Skilled investment managers exist and we believe we can identify them

• We believe that a concentrated portfolio of an investment manager’s highest-conviction ideas will outperform their broader portfolios over the long term

• Combining investment managers with differing approaches provides diversification at the fund level

• We believe that the flexibility afforded by reasonable asset levels and a mandate that ignores short-term performance pressure increases the odds of managers performing better than an appropriate passive benchmark over the long term

5



6


DESIGNED AS STRATEGIC SOLUTIONSTO CHALLENGING ASSET CLASSES

Litman Gregory Masters FundsCore Offerings With Institutional Shares

• Highly respected managers whom we believe to be the best in their strategy

• Multi-manager structure provides diversification in investment style and strategy

1See slide 24 for expense information2Based on total returns over 1, 3, 5, 10, & 15 years through 3/31/16, the International Fund ranked in the top 96%, 75%, 82%, 23%, & 17% for each period among 786, 712, 624, 359, & 206 foreign large blend funds respectively.3Awards not related to management of MSILX

Alternative Strategies Fund (MASFX) International Fund (MSILX) Smaller Companies Fund (MSSFX)

Core offering that seeks to beat 40/60 stock/bond mix over the long term, at potentially lower volatility

15-year+ track record of strong relative performance (ranks in the top 17% by Morningstar among 206 foreign large blend funds based on total return for the 15-years ending 3/31/16) 2

Currently open capacity in a highly constrained investment category

Complementary yet flexible alpha-focused strategies provide diversification and low correlation

3 Morningstar® International Managers of the Year3 Individual sub-advisor concentration focusing on 8 to 15 highest-conviction ideas

Low relative cost, fully liquid and transparent strategies1

Individual sub-advisor concentration focusing on 8 to 15 highest-conviction ideas

Compelling historical MPT statistics

Absolute-return and risk management focus Core, diversified international equity strategy Core small-cap blend strategy

Masters’ Select FundsLitman/Gregory Fund AdvisorsDIFFERENTIATING TRAITS OF OUR SUB-ADVISORS

We seek investment managers who we believe possess the following traits:

• A clearly defined, disciplined investment process that we believe contributes to a sustainable investment edge

• Experience, intelligence, and skillful

• Passionate about investing and committed to the Litman Gregory Masters Funds concept

• Confident, independent thinkers

• Intellectual honesty

7


Masters’ Select FundsLitman/Gregory Fund AdvisorsKEY FUND DIFFERENTIATORS

• Distinctive portfolios of investment managers running individualized sleeves for Litman Gregory – these are not funds of funds

• Portfolios that can not be replicated by “building” a comparable mix of funds run by these investment managers

• High-conviction, high-active-share equity portfolios at manager and aggregate portfolio level

• Achieving sufficient diversification at the overall fund level in terms of number of positions, investment approach, and market capitalization

8



FOUNDATION OF THE PARTNERSHIP BETWEEN LITMAN GREGORY AND OUR SUB-ADVISORS

LONG-TERM RELATIONSHIPS

• Our relationships with the sub-advisors pre-date their tenure on the funds. We have invested with some of them for over 20 years.

MUTUAL RESPECT

• They respect the depth of our due diligence process and rational, long-term approach to investing; we respect their skill, investment thinking and ability.

INTELLECTUAL CHALLENGE

• Managing a concentrated portfolio requires a sharp focus on stock selection; many managers have told us they welcome the opportunity of managing a Litman Gregory Masters Funds portfolio, and the experience coupled with necessary discipline has improved their own investment process.

STRUCTURAL ADVANTAGE

• Independently managing a concentrated portfolio within a multi-manager structure frees the managers from many portfolio-construction distractions and allows them to pursue their highest-conviction ideas.

9


Masters’ Select FundsLitman/Gregory Fund AdvisorsLITMAN GREGORY CORE RESEARCH TEAM

10


JACK CHEE Principal, Sr. Research Analyst

JEREMY DEGROOT, CFA Principal, Chief Investment Officer

KEN GREGORYCo-Founding Principal

RAJAT JAIN, CFAPrincipal, Sr. Research Analyst

JASON STEUERWALT, CFASr. Research Analyst

ALISTAIR SAVIDES, CFAResearch Analyst

KIKO VALLARTAResearch Analyst

18 years of investment experience







Manager due diligence focusing on domestic equity and fixed-income, asset-class coverage of fixed-income and REIT markets

Oversight of asset class research, tactical allocation, and manager due diligence with specialization inalternatives

Founder of the funds and president of Litman Gregory Fund Advisors

Manager due diligence focusing on domestic and international equity,asset-class coverage of domestic and international markets

Research focus: Fixed income, alternativestrategies

Responsible for investment research and analytical support across Litman Gregory’s asset class and manager research capabilities

Responsible for investment research and analytical support across Litman Gregory’s asset class and manager research capabilities

Previously with Value Line Mutual Fund Survey

Previously with KPMG Peat Marwick and Sr. Economist with Law & Economics Consulting Group

Previously with Bank of America Executive Financial Counseling Group and President of Williams Asset Management

Previously with Montgomery Asset Managementand Associate Director with BARRA Rogers Casey

Previously with Hall Capital Partners

Previously with the Principia Corporation’s endowment fund and StraightLine

Previously with Financial Designs, Ltd

Drexel University (BS - Mechanical Engineering)

University of Wisconsin (BS – Economics); University of California – Berkeley(MA – Economics)

University of the Pacific(BA - Business); University of Michigan (MBA)

St. Stephen’s College (BS – Physics); University of South Carolina (MBA –International)

Brown University(BA – Economics, Political Science)

Principia College (BA – Economics, and International Relations); Haas School of Business (MBA)

San Diego State University (BS–Finance); St. Mary’s College of California (MS–Financial Analysis and Investment Management)

Masters’ Select FundsLitman/Gregory Fund AdvisorsLITMAN GREGORY CORE RESEARCH TEAM

• History since firm inception of specialized manager due diligence

• Thoughtful and thorough research

• Long-term investment horizon

• Flexible and innovative thinking

• Respect for differentiated investment process

• Shareholder orientation

• Risk-aware, alpha-driven mentality

“[Gregory and DeGroot] specialize in overseeing multimanager funds, and their oversight has led to great long-term results here.”

- William Samuel Rocco, Morningstar.com (January 2013)

11



DEVELOPING AND MAINTAINTING A SUSTAINABLE EDGEWITH IN-DEPTH, ON-GOING DUE DILIGENCE

Available universe analysis and quantitative screening process

In-depth due diligence:questionnaires, multiple

interviews, historical analysis, site visits,

test portfolios

A select few make the final cut: managers with a sustainable edge

Define investment guidelines

Continuously monitor portfolios, reassessing and reaffirming via hands-on understanding and

updating of holdings and positioning, strategic thinking,

investment theses, attribution, and performance compared to appropriate benchmarks

Maintain constant communication

From overall portfolio positioning to understanding the conviction behind specific holdings and strategies, we are always deeply analyzing the ‘why’ and ‘how’.

IDENTIFYING AND SELECTING MONITORING AND MANAGINGCRITERIA WE LOOK FOR

• Disciplined Approach

• Comfort with Concentration

• Obsessive in Seeking an Edge

• Focus

• Organizational Quality

• Quality Team and Culture

12


Masters’ Select FundsLitman/Gregory Fund AdvisorsSMALLER COMPANIES OVERVIEW

Litman Gregory Masters Smaller Companies Fund is a core U.S. small-cap equity strategy seeking to generate superior long-term performance relative to its peer group and corresponding benchmarks. The fund will invest primarily in the securities of small and mid-sized U.S. companies.

• Each of the three managers separately runs a portion of the fund's assets by independently managing a portfolio comprised of between 8 and 15 of their highest-conviction stocks.

• The fund will invest primarily in the securities of small and mid-sized U.S. companies. The Advisor defines a "Smaller Company" as one whose market-capitalization falls within the range of market capitalizations of any company in the Russell 2500 Index.

• Overall, the Advisor expects the majority of the fund's holdings at any point to be in the smaller half of this market capitalization range, but the fund will have the flexibility to hold mid-sized companies if the investment managers believe that holding these companies will lead to higher overall returns.

13



JEFFREY BRONCHICK,Cove Street Capital

DICK WEISS, Wells Capital Management

DENNIS BRYAN, FPA

“Classic value investors in the tradition of Graham and Buffett – with a keen focus on small-cap”

An outstanding long-term track record of stock picking based on a focus on companies with low institutional investor ownership, low analyst coverage, high-quality management, and sustainable competitive advantage

Highly selective process with disciplined approach to identifying absolute – not relative – value

Value-based idea generation driven by quantitative and qualitative processes

Invests in companies that are not broadly recognized, and are out of favor based on short-term, cyclical factors

Identify stocks that are cheap relative to their peer group, characterized by strong balance sheets, solid fundamentals, and strong competitive positions

Analysis of corporate and executive behaviors – share repurchase and insider activity

Private market value approach evaluates degrees of potential under-valuation

Patient approach focused on intrinsic value and attractive reward-to-risk ratio

Allocation: 33%Style: Small Value

Allocation: 33%Style: Small Blend

Allocation: 33%Style: Small Value

SMALLER COMPANIES MANAGERS

14



SUB-ADVISORCOVE STREET CAPITAL

INVESTMENT PHILOSOPHY

• Classic fundamental, research-driven value

• Blend rigorous modeling with practical wisdom to identify intrinsic value and margin of safety

• Concentrate

• Leverage intensive research

• Repeatable scalable process

• Think… and act long-term

• The market will be inefficient – wait for it

• The mathematics of compounding

• Less is more

To paraphrase Buffett, paraphrasing Graham, we will neither be right nor wrong because the crowd disagrees with us.

We will be right when our data and reasoning are right.

15




INVESTMENT PROCESS

1. GENERATING IDEAS

• Screen for cheap securities

• Screen for good businesses

• Collective investment experience/contact network/out of office experiences/obvious headline issues

2. DATA DOWNLOAD

• CSC analytical spreadsheet

• Digest public company information

• Does it appear to be either a great business at a reasonable price (Buffett)

OR

an exceedingly cheap security that provides enough margin of safety (Graham)

16




INVESTMENT PROCESS (continued)

3. TEAM TACKLE + DEEP DIVE

• Determine a reasonable estimate of intrinsic value: DCF, private market values, enterprise value to cash flow and revenue historicals

• Is there competitive advantage that can generate sustainably strong returns on invested capital?

• Management: friend, neutral or foe?

• PEST control: political, economic, social, technological issues?

• What are we thinking that others are not?

• What will it cost if things go very wrong?

4. PORTFOLIO CONSIDERATION

• Best risk/reward profile

• Full (10 %), half (5 %), or overweight (15-20%) positions

• Holdings: 8 to 13 positions

• Cash held if “best idea” criteria not met

FINAL DECISION IS MADE BY THE CHIEF INVESTMENT OFFICER

17



SUB-ADVISORFPA


They believe that market leading companies with a history of profitability, proven track records, successful management teams, and demonstrably strong balance sheets selling at deep discounts to their intrinsic value, hold the best potential for long-term appreciation of capital.

In the absence of these absolute value stock opportunities, we believe cash presents the most advantageous and disciplined use of investment capital.

18



SUB-ADVISORFPA

INVESTMENT PROCESS

Key Attributes• A focus on absolute value• Concentrated portfolios, not benchmark emulative

• Strategic cash reserves

• Low turnover, long-term focused• Average annual turnover 15% • Average holding period 7 years

• Not emulative of a benchmark index • No minimum sector or industry weights • Maximum sector weight typically < 35%• Not managed for tracking error

• Powered by fundamental analysis and a bottom-up investment process • Risk managed, by design, at each process stage

CONTINUOUS MONITORING AND RISK MANAGEMENT

Idea Generation

Small & Mid Cap Stock Universe

Portfolio

Security Analysis

Narrowed Field

ActiveDiscovery/

Institutional Knowledge

SystematicScreens

Russell 2500 Index

Transaction

Buy Decisions

SellDecisions

Fundamental Research

Qualitative Research

Current Holdings

and Candidates

19



SUB-ADVISORFPA

PURCHASE AND SALE CRITERIA

BUY DECISION• Characteristics of purchases:

• Industry leaders

• Strong balance sheets

• Potential for improving returns on capital

• Capable, experienced management teams

• Bargain priced favorable reward to risk ratio at the time of purchase to fair market value

• Allocation

• Typical full position – 3-5% of portfolio

• Maximum initial position – 5%

• Objectives:

• Average holding period 6 years

• Solid potential for increasing share price

SELL DECISION• The stock commands a premium to fair market value (they were right)

• A mistake in analysis has occurred (they were wrong)

• Something changes in the company, negating our investment rationale

• A superior value opportunity is available

• Stock is acquired for cash

20



SUB-ADVISORWELLS CAPITAL MANAGEMENT


• Public equity markets are fraught with emotion, in part, because investors do not control nor do they have all the information about the companies they invest in.

• Successful investing in that environment is a function of conviction in individual securities and diversification across sectors.

• Conviction comes from an in-depth private market analysis of the business model, key trends and worth of an enterprise, coupled with pragmatic assessment of management.

• The business model, management team, key trends and worth of an enterprise are much more stable than it’s associated public market stock price.

• A consistent, repeatable and accurate private market discipline that captures these key elements, provides the opportunity to exploit market emotion and generate alpha.

21



SUB-ADVISORWELLS CAPITAL MANAGEMENT

INVESTMENT PROCESS – STOCK SELECTION

A good company should have a rising valuation over time. However, its public stock value has historically tended to trade between 50% and 80% of its PMV.

Private Market Value:

• Mitigates the impact of emotion

• Capitalizes on the market’s mispricing of stocks

• Avoids getting caught up in the volatility of “risk-on, risk-off” market changes

• PMV – The price an acquirer would pay to purchase the entire company.

• They use several valuation methodologies to derive our PMVs. They then continuously monitor for fundamental changes impacting valuation or the business model.

For illustrative purposes only

22


Masters’ Select FundsLitman/Gregory Fund AdvisorsSMALLER COMPANIES ALLOCATIONS

Jeff Bronchick Cove Street Capital 33% Small ValueDick Weiss Wells Capital Mgmt. 33% Small BlendDennis Bryan FPA 33% Small Value

MANAGERS FIRM ALLOCATIONS STYLE

23


Masters’ Select FundsLitman/Gregory Fund AdvisorsPERFORMANCE

Performance quoted represents past performance and does not guarantee future results. The investment return and principal

value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original

cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain standardized performance

of the funds, and performance as of the most recently completed calendar month, please visit www.mastersfunds.com

* The gross and net expense ratios can be found in the most recent Summary Prospectus (4/30/2014).** There are contractual fee waivers in effect through 4/30/2015. Through 4/30/2015, Litman Gregory has voluntarily agreed to waive a portion of its management fee to pass through any costs benefits resulting from sub-advisor breakpoints, changes in the sub-advisory fee schedules or allocations. In December 2014, the Advisor agreed to extend the waivers and/or expense limitations agreement through 4/30/16.

As of 3/31/2016, The Morningstar Multialternative Category average expense ratios were 3.25% Gross and 1.97% Net.

As of 3/31/2016 Average Annual Total Returns

Institutional Class Performance 3 MonthYear-to-

Date 1 Year 3 Year 5 Year 10 YearSince

Inception

Smaller Companies Fund (6/30/03) 4.02% 4.02% -8.48% 1.28% 4.80% 3.72% 7.20%

Russell 2000 Index -1.52% -1.52% -9.76% 6.84% 7.20% 5.26% 8.82%

Morningstar Small Blend Category Average -1.49% 0.50% -8.18% 6.52% 6.80% 4.76% 8.47%

Gross Expense Ratio*: 1.55% Net Expense Ratio**: 1.45%

24

http://www.mastersfunds.com/

masters’ select funds › pdfs › lgm-small-presentation.pdfmasters’ select funds...

Documents