2016 MARKET OUTLOOKPREPARED JANUARY 2016

1Newfound Case #4093212

LONG-TERM RETURN FORECASTS

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EQUITY VALUATIONSShiller Cyclically Adjusted Price-to-Earnings Ratio (“CAPE”): Price divided by 10-year average of earnings, adjusted for inflation.

Current Shiller CAPE is in 89th percentile of historical readings, implying that U.S. large-cap stocks are currently expensive.

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101520253035404550

Shiller Cyclically-Adjusted P/E

Source: Robert Shiller; Newfound Research.

EQUITY VALUATION RETURN IMPLICATIONSHistorically, valuations have been a strong predictor of long-term forward returns.

With a Shiller CAPE reading of 26.03, 10-year annualized real returns are expected to be 4.9%.

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y = -0.0046x + 0.1676

-10%

-5%

0%

5%

10%

15%

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25%

0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00Forw

ard

Ann

ualiz

ed 1

0-Y

ear R

eal

Ret

urn

Shiller CAPE

Shiller CAPE vs Forward 10-Year Annualized Real Returns

See important disclosures at the end of the presentation.

ANOTHER WAY OF EVALUATING RETURNS

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Total Return = Investment Yield + Speculative Re-Pricing

Investment Yield: Dividend Yield + Earnings Growth

Speculative: Price change pressures due to over- or under-valuations; e.g. “reversion to the mean” of P/E ratios

OTHER EXPERTS ON EQUITY VALUATIONS

Jack Bogle(Nominal)*

Research Affiliates (Real)**

Yield 2.0% 2.0%Growth 5.0% 1.3%Valuation -3.0% -2.1%

Nominal Return 4.0%Inflation -2.0%

Expected Real Return 2.0% 1.1%

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* Source: http://news.morningstar.com/cover/videocenter.aspx?id=718639** Source: https://www.researchaffiliates.com/AssetAllocation/Pages/Core-Overview.aspx

BOND VALUATIONS10-Year U.S. Treasury rates sit near all-time lows.

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0.00

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10-Year Treasury Constant Maturity Rate

Source: St. Louis Federal Reserve Economic Data Repository; Newfound Research.

BOND VALUATION RETURN IMPLICATIONSStarting yields are a great predictor for ending returns in a constant maturity bond index.

At 2.2%, we can expect a 2.2% annualized return over the next decade from a constant maturity 10-year Treasury index. If we assume inflation is 2%, then this is a 0.2% real return.

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R² = 0.87559

-2%

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0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Subs

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nt 1

0-Ye

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Starting Yield

Bond Valuations vs. Subsequent Nominal 10-Year Returns (1963-2015)

See important disclosures at the end of the presentation.

60/40 10-YEAR REAL RETURN FORECAST

With Shiller CAPE Estimates

60% * 4.9% + 40% * 0.2%

With Jack Bogle Estimates

60% * 2.0% + 40% * 0.2%

With Research Affiliates Estimates

60% * 1.1% + 40% * 0.2%

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3.03%

1.28%

0.74%

INVESTMENT IDEAS

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IDEA #1:DIVERSIFY YOUR APPROACH

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0.05

0.17 0.20

0.30 0.33

0.47 0.48 0.52 0.53

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Best 5-Year Track Record

Best 3-Year Track Record

U.S. Equity 60/40 Ivy Portfolio Tactical Equity Risk Parity Equal Weight Portfolio of Five

Strategies

Permanent Portfolio

Shar

pe R

atio

Diversifying Across Strategies Increases Risk-Adjusted PerformanceChasing Strategy Performance Destroys It

Much like asset classes, different investment strategies will perform well in different market environments.

Diversifying across multiple strategies has historically increased risk-adjusted returns. Chasing the recent performance of the best performing strategies, on the other hand, has proven to be destructive to risk-adjusted returns.

IDEA #2: ACTIVELY MANAGE RISK10-Year periods with poor returns tend to have a higher frequency and severity of drawdowns. A focus on reducing the impact of these drawdowns can help increase total return.

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23.34

19.7317.70

16.3014.67

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Poor Decade Below Average Decade Average Decade Above Average Decade Very High Decade

"Ulc

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Mag

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Ulcer Index (Frequency & Severity of Drawdowns) for Different Quintiles of 10-Year Market Returns

Individual ETF Ideas: USMV, PBP, WDTI

Managed Portfolio Idea: Newfound Risk Managed U.S. Sectors

IDEA #3: GO GLOBALValuations are the biggest drag on forward looking returns for U.S. equities. Many foreign markets are much more fairly priced and offer higher expected returns.

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U.S. Large Cap Emerging Market Equity EAFE Equity

Yield 2.0% 3.1% 3.3%

Growth 1.3% 1.5% 1.3%

Valuation -2.1% 1.3% -0.4%

FX 2.1% 1.1%

Expected Real Return 1.1% 7.9% 5.3%

Volatility 14.6% 23.7% 17.1%Source: https://www.researchaffiliates.com/AssetAllocation/Pages/Core-Overview.aspx

Individual ETF Ideas: VEA, VWO, SCID, SCIX, SCIJ

Managed Portfolio Idea: Newfound Risk Managed Global Sectors

IDEA #4: PURSUE ALPHAEquity factor exposures have historically outperformed the broad market and are widely used by institutional investors to increase risk-adjusted returns. Accessing a diversified basket of factors can help smooth out short-term under-performance of a single factor allocation.

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Individual ETF Ideas: SCIU, RPV, RSP, MTUM, USMV, NOBL

Managed Portfolio Idea: Newfound U.S. Factor Defensive Equity

Volatility-26%

Dividend-22%

S&P 500-37%

Size-40%

Momentum-41%

Value-48%

Value53%

Value22%

Volatility13%

Value25%

Value47%

Dividend16%

Size45%

Dividend26%

S&P 50026%

Volatility18%

Momentum17%

Size21%

Dividend19%

Momentum18%

S&P 50015%

Volatility15%

Dividend8%

Momentum6%

S&P 5002%

Size-1%

Value-1%

Size17%

Dividend17%

S&P 50016%

Momentum15%

Volatility11%

Size36%

Momentum34%

S&P 50032%

Dividend32%

Volatility25%

Size14%

Volatility16%

Momentum15%

S&P 50013%

Value12%

2008 2009 2010 2011 2012 2013 2014

Value26%

Momentum19%

Volatility15%

S&P 5005%

Volatility14%

Size16%

Momentum17%

S&P 50011%

Dividend15%

Value13%

Size7%

S&P 5005%

Dividend3%

Volatility6%

Value20%

Dividend17%

S&P 50016%

Size15%

Momentum11%

Volatility4%

Momentum18%

Size1%

Dividend-2%

Value-4%

2004 2005 2006 2007

Size-2%

Dividend1%

Volatility6%

Momentum10%

S&P 5002%

Value-8%

2015

2.1%Average annual outperformance vs. the S&P 500 (SPY) across all factors (December 1996 to December 2015)

IDEA #5: SEEK HIGHER YIELDSOne way to increase total return is to increase yield.

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REITs EM Local Debt High Yield EM (Non-Local)Debt Bank Loans

Yield 4.6% 3.2% 4.2% 3.2% 2.6%

Growth -2.0%

Roll 0.5% 1.5% 1.0% 0.6%

Credit Loss -0.8% -2.8% -1.4% -1.0%

Valuation -0.1% -0.3% -0.1% 0.1%

FX 2.4%

Expected Real Return 2.5% 5.0% 2.8% 2.6% 2.2%

Volatility 21.8% 17.6% 9.8% 9.4% 8.6%

Source: https://www.researchaffiliates.com/AssetAllocation/Pages/Core-Overview.aspx

Individual ETF Ideas: VNQ, PCY, HYG, ANGL, EMLC, SNLN

Managed Portfolio Idea: Newfound Multi-Asset Income

ACCESSING NEWFOUND

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CONTACT

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thinknewfound.cominfo@thinknewfound.com617-531-9773

MUTUAL FUNDS

thinknewfoundfunds.com

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TAMP AVAILABILITY

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DISCLOSURESNewfound’s investment universe for Newfound investment strategies identified in this presentation includes – and therefore may, at any time, hold positions – the following ETFs: VNQ, PCY, HYG, EMLC, SNLN, RPV, MTUM, USMV, NOBL, RSP, PBP, WDTI.

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

These materials represent an assessment of the market environment at specific points in time and are intended neither to be a guarantee of future events nor as a primary basis for investment decisions. The performance results should not be construed as advice meeting the particular needs of any investor. Neither the information presented nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any security. Past performance is not indicative of future performance and investments in equity securities do present risk of loss. Newfound Research LLC’s results are historical and their ability to repeat could be affected by material market or economic conditions, among other things.

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DISCLOSURESP4

Source: Robert Shiller; Newfound Research. Past performance does not guarantee future results. Data is for the period from January 1871 to September 2005.

10-year annualized real returns were calculated by adjusting the 10-year total return of the U.S. equity market for inflation using the Consumer Price Index and converting to an annualized return. The Consumer Price Index measures changes in the price level of a market basket of consumer goods and services. Prior to 1923, U.S. equity market returns refer to the common stock index maintained by Cowles Commission, which is an unmanaged composite of all stocks listed on the New York Stock Exchange for which data was available when the index was calculated in 1939. From 1923 to 1926, the S&P 233 is utilized, which is an unmanaged composite of 233 large capitalization companies calculated weekly. From 1926 to March 1957, the S&P 90 is utilized, which is an unmanaged composite of 90 large capitalization companies calculated daily. From March 1957 to present, the S&P 500 is utilized. The S&P 500 index is an unmanaged composite of 500 large capitalization companies. The index is widely used by professional investors as a performance benchmark for large-cap stocks. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. The referenced index is shown for general market comparisons and is not meant to represent any Newfound index or strategy.

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Source: Newfound Research, Federal Reserve Bank of St. Louis, Yahoo! Finance. Past performance does not guarantee future results.1963 is the first year for the information presented because 1953 is the first date with monthly 10-year constant maturity interest rate data.Data is through 2/28/15.

Yields are defined as the coupon rate of 10-year U.S. Treasuries on their issue date. The 10-Year U.S. Treasuries index is a constantmaturity index calculated by assuming a 10-year bond is purchased at the beginning of every month and sold at the end of that month topurchase a new bond at par at the beginning of the next month. You cannot invest directly in an index and unmanaged index returns donot reflect any fees, expenses or sales charges. The referenced index is shown for general market comparisons and is not meant torepresent any Newfound index or strategy. R2 is the coefficient of determination, which ranges between 0 and 1, inclusive, and quantifieshow well the data is described by a linear model.

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DISCLOSURESP11

Source: Yahoo! Finance and Newfound Research LLC. Past performance does not guarantee future results. Data is through December 24m 2014.

The Ivy portfolio consists of a 40% allocation to global equities (VHGEX) a 20% allocation to fixed income (VBIIX), a 20% allocation to commodities (DGL and DBC and related indices prior to ETF launch), and a 20% allocation to REITs (VGSIX). The permanent portfolio consists of a 25% allocation to U.S. Equities (VTSMX), a 25% allocation to long-term Treasuries (VUSTX), a 25% allocation to cash equivalents (VFISX), and a 25% allocation to gold (DGL). The risk-parity portfolio consists of an equal risk contribution allocation to global equities (VGHEX), fixed income (VUSTX and VBIIX), and commodities (DGL and DBC). The 60/40 portfolio consists of a 60% allocation to global equities (VHGEX) and a 40% allocation to fixed income (VBMFX). The tactical equity portfolio allocates to U.S. equities (VTSMX) when its 50-day moving average is above its 200-day moving average and to cash equivalents (VFISX) otherwise. U.S. equities are represented by VTSMX.

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Source: Robert Shiller; Newfound Research. Past performance does not guarantee future results. Data is for the period from January 1871 to December 2014.

10-year annualized real returns were calculated by adjusting the 10-year total return of the U.S. equity market for inflation using theConsumer Price Index and converting to an annualized return. The Consumer Price Index measures changes in the price level of a marketbasket of consumer goods and services. Prior to 1923, U.S. equity market returns refer to the common stock index maintained by CowlesCommission, which is an unmanaged composite of all stocks listed on the New York Stock Exchange for which data was available whenthe index was calculated in 1939. From 1923 to 1926, the S&P 233 is utilized, which is an unmanaged composite of 233 largecapitalization companies calculated weekly. From 1926 to March 1957, the S&P 90 is utilized, which is an unmanaged composite of 90large capitalization companies calculated daily. From March 1957 to present, the S&P 500 is utilized. The S&P 500 index is an unmanagedcomposite of 500 large capitalization companies. The index is widely used by professional investors as a performance benchmark forlarge-cap stocks. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.The referenced index is shown for general market comparisonsand is not meant to represent any Newfoundindex or strategy.

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DISCLOSURESP14

Source: Yahoo! Finance, Newfound Research. Past performance does not guarantee future results. 2015 data is through 12/30/15.

To compute the average annual return differentials, partial year returns are annualized. Value is represented by the Guggenheim S&P 500Pure Value ETF and the underlying index prior to the ETF’s launch. Volatility is represented by the iShares MSCI USA Minimum VolatilityETF and the underlying index prior to ETF launch. Size is represented by the Guggenheim S&P 500 Equal Weight ETF and the underlyingindex prior to ETF launch. Momentum is represented by the iShares MSCI USA Momentum Factor ETF and the underlying index prior toETF launch. Dividend is represented by the ProShares S&P 500 Dividend Aristocrats ETF and the underlying index prior to ETF launch.The S&P 500 is represented by the SPDR S&P 500 ETF. The referenced ETFs/indices are shown for general market comparisons and arenot meant to represent the strategy.

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