table of contents - lindner capital · 2015-09-20 · standard & poor’s index services group...
TRANSCRIPT
Table of Contents
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Introduction • Welcome
• Focus on What You Can Control
Investment Strategy • Common Investment Approaches
• An Alternate Approach
• Lindner Capital’s Core Beliefs
• Lindner Capital Working for You
Portfolio Summary • Portfolio Allocations and Overview
• Fiduciary Oversight
Welcome
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Thank you for your interest in Lindner Capital Advisors (LCA). The goal
of this presentation is to introduce you to our company, our unique
investment strategy and our client service process.
Your Financial Advisor has partnered with LCA to offer you portfolios
designed to be consistent with key parameters, including your risk
tolerance, investment objective and time horizon.
Your Financial Advisor will assess your personal goals and objectives
and assist you in selecting the appropriate portfolio to fit your
investment needs. We thank you for the opportunity to introduce you to
our program and look forward to helping you enjoy a long-term
investment experience.
Focus on What You Can Control
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Many Investors Follow Their Emotions
Resist the Urge
Don’t allow your emotional state to
influence buy and sell decisions
during changing market conditions.
Focus on What You Can Control
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Are Investors Disciplined? Stay the Course
Annualized Returns (%), January 1994 – December 2013 (Gross of Fees)
Source: “Quantitative Analysis of Investor Behavior, 2014 Edition” DALBAR, Inc.
Standard & Poor’s Index Services Group & DFA Matrix Book 2014. See full disclosures on page 27.
9.22%
5.02%
2.37%
8.60%
9.90%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
S&P 500 AverageEquity
Investor
Inflation 60/40Portfolio
80/20Portfolio
Investor’s returns are more
dependent on their investor
behavior than their fund
performance. The goal is not
necessarily to beat the S&P
500, but more importantly,
not to experience what the
“average equity investor”
does. The real goal is to
invest in a diversified portfolio
that is appropriate for your
risk tolerance and objectives.
Then, commit to it.
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The Market’s Response to Crisis Performance of a Normal Balanced Strategy: 60% Stocks, 40% Bonds Cumulative Total Return
Focus on What You Can Control
Source: Dimensional Fund Advisors, Supplemental Slides dated September 10, 2014, slide 30
Focus on What You Can Control
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YOU CAN CONTROL:
1. Reducing expenses
2. Diversifying portfolios
3. Minimizing taxes
4. Staying disciplined
No one can reliably forecast the market’s direction or predict which stock or investment manager will outperform.
A financial advisor can help you create a plan and focus on actions that add
value, such as managing expenses and portfolio turnover while maintaining
broad diversification.
Common Investment Approaches
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Conventional Management – Seeks to profit from mistakes in prices; focus is on today’s story.
Attempts to identify mispricing in
securities on a consistent basis
Often relies on forecasting
techniques to pick securities
and/or time markets
Generates higher expenses,
trading costs, and excess risk
Conventional Management
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The size and complexity of the
mutual fund landscape masks
the fact that many funds
disappear each year, often as a
result of poor investment
performance. Most people are
on a hunt for funds that will
outperform a benchmark. What
were their chances of picking
an outperforming, or “winning”
fund?
Source: Dimensional Fund Advisors, The Mutual Fund Landscape Report 2014, slides 4-5
1 year 5 years 10 Years
Equity 49% 25% 19%
Fixed
Income 31% 26% 15%
Over 10 years, less than 20% of equity funds and fixed
income funds survived and outperformed their benchmarks.
Low Odds of Success: A Case of Disappearing Funds
Percentage of mutual funds that survived and beat their
index for 1, 5 & 10 years, ending Dec. 31, 2013
Conventional Management
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Source: Dimensional Fund Advisors, The Mutual Fund Landscape Report 2014, slide 6
Do Winners Keep Winning? Past Performance vs. Subsequent Performance – Equity Funds
3, 5 and 7 years of equity
fund track records, ending
December 2010
How likely are they to
continue to outperform in
subsequent 3 years (2011-
2013)?
Time Frame Percentage of Funds that
beat their benchmark
Percentage of funds that
outperformed in
subsequent 3 years
3 years: 2008-2010 30% 39%
5 years: 2006-2010 28% 34%
7 years: 2004-2010 23% 36%
Common Investment Approaches
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Indexing – Seeks to match the returns of widely followed benchmarks.
Allows commercial benchmarks
to define strategy
Tethered to a benchmark,
reducing flexibility
Accepts lower returns and
increased trading costs in favor
of tracking
Indexing
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Source: Dimensional Fund Advisors, Supplemental Slides dated September 10, 2014, Slide 7
Index Reconstitution’s Effect on Stock Prices
S & P 500
Index MSCI EAFE
Index
One-day Return after
Announcement [%] 3.2 3.4
Run-up to Effective Date [%] 3.8 4.5
Decay after Effective Date [%] -2.1 -2.6
Announcement
Effective
Price
Time
Stocks rise on
announcement of
inclusion
Index funds are
forced to buy on
effective date
Buying and selling to
track index changes
reduces tracking
error but generates
transaction costs
An Alternate Approach
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Lindner Capital Advisors, Inc. Takes an alternative approach to investing. Market-based investing seeks to profit from consistent and disciplined exposure to global markets.
Believes that, in liquid markets, prices
reflect all available information
Focuses strategies on the dimensions of
higher expected returns
Seeks to add value through portfolio design
and implementation
Lindner’s Core Beliefs
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Our Core Beliefs Complement Your Success
Core Principle One
Markets Are Efficient
Core Principle Two Diversification Is Key
Core Principle Three Structure Explains Performance
Core Principle Four Risk and Return Are Related
Core Principle One
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Markets are Efficient What Affects a Stock’s Current Price?
Given all information, a stock’s current price offers the best approximation of actual value.
All Available
Information
A company’s equity, its prospects for future
earnings, and perceived risk
Price
Source: Dimensional Fund Advisors, Investment Principles, April 24, 2014, slide 5
Core Principle Two
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Diversification is Key Diversification Helps Take the Guesswork out of Investing
Annual returns (%): 1999–2013
You never know which markets will outperform from year to year. By holding a globally diversified portfolio, investors are positioned to capture returns wherever they occur.
Source: Dimensional Fund Advisors, Investment Principles, April 24, 2014, slide 6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
66.4 31.0 12.3 7.6 60.2 33.2 34.5 36.0 39.8 8.8 79.0 28.1 9.4 18.6 38.8
30.2 9.0 8.4 5.1 56.3 32.1 22.6 32.6 8.2 6.6 44.8 26.9 3.4 17.1 32.4
21.3 8.3 7.3 3.6 47.3 26.0 13.8 26.3 8.0 4.7 28.5 20.7 2.3 16.8 25.8
21.0 7.3 6.4 3.4 36.2 18.3 4.9 18.4 6.3 -33.8 27.2 19.2 2.1 16.4 1.2
4.0 -3.0 2.5 -2.9 28.7 10.9 4.6 15.8 5.9 -37.0 26.5 15.1 0.6 16.0 0.6
3.6 -9.1 -2.4 -6.0 2.0 2.7 3.1 4.3 5.5 -39.2 2.3 3.7 -4.2 2.1 0.3
1.9 -12.3 -11.9 -20.5 1.9 1.3 2.4 4.1 -1.6 -47.1 0.8 2.0 -15.6 0.9 -0.1
-2.6 -30.6 -16.7 -22.1 1.5 0.8 1.3 3.8 -17.6 -53.2 0.2 0.8 -18.2 0.2 -2.3
S&P 500 Index
Russell 2000 Index
Dow Jones US Select REIT Index
Dimensional International Small Cap index
MSCI Emerging Markets Index (gross div.)
BofA Merrill Lynch One-Year US Treasury Notes Index
Barclays Treasury Bond Index 1-5 Years
Citigroup World Government Bond Index 1-5 Years (hedged to USD)
Higher
Return
Lower
Return
Core Principle Three
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Structure Explains Performance Investors can pursue higher expected returns by emphasizing the dimensions below.
Overlapping Periods: July 1926–December 2013
MARKET beat T-BILLS
15-Year
10-Year
5-Year
1-Year
95% of the Time
84% of the Time
75% of the Time
69% of the Time
Overlapping Periods: June1927–December 2013
SMALL beat LARGE
Overlapping Periods: July 1926–December 2013
VALUE beat GROWTH
Overlapping Periods: July 1963–December 2013
HIGH PROFITABILITY 1 beat LOW PROFITABILITY
15-Year
10-Year
5-Year
1-Year
95% of the Time
88% of the Time
76% of the Time
60% of the Time
15-Year
10-Year
5-Year
1-Year
82% of the Time
72% of the Time
64% of the Time
58% of the Time
15-Year
10-Year
5-Year
1-Year
100% of the Time
100% of the Time
93% of the Time
71% of the Time
Source: DFA Historical Performance of Premiums December 31, 2013, Slide 1. 1 Profitability is a measure of current profitability, based on information from individual companies’ income statements.
Core Principle Four
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Risk and Return Are Related The Capital Markets Have Rewarded Long-term Investors
Monthly Growth of Wealth ($1), 1926-2013 $17,474 US Small Cap Index
$4,673 US Large Cap Index
$109 Long-Term Government Bonds Index
$21 Treasury Bills
$13 Inflation (CPI)
Source: Dimensional Fund Advisors, Investment Principles, slide 20, April 24, 2014
2013
Our Commitment to You
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Lindner Capital Working for You
Client Investment Advisory Team
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CLIENT
Custodian reports on account activity and
provides statements, tax documents, etc.
to Client.
Financial Advisor
Lindner Capital Advisors, Inc. SEC Registered Investment Advisor (RIA)
Designs & Manages Portfolio
Custodian Fidelity, Schwab, TD Ameritrade, etc.
Holds Assets
RIA provides ongoing investment
services, rebalancing and quarterly
performance reports.
Investment Companies Dimensional (DFA) and other institutional funds
Why Dimensional Fund Advisors?
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Facts about Dimensional Fund Advisors (DFA)
Robert Merton
MIT Nobel laureate, 1997
• Institutional Fund Company, not readily available to retail investors o $372 Billion in assets under management, September 30, 2014
o 11 offices in 8 countries
o Among the Top 10 Fund Families as of Dec. 2013
Number 7 in total assets
Number 1 in one-year cash flows/starting assets at 14.21%
Number 1 in one-year asset growth at 34.28%
• Dimensional Key Differentiators o Invests in assets with long-term favorable risk/reward profile
o Security lending – reduces trading costs
o Patient trading strategies - reduces overall fund expenses
o Philosophy is based on Nobel Prize-Winning Research
Source: Introduction to Dimensional Fund Advisors, September 30, 2014 and Mutual fund universe statistical data provided by Morningstar, Inc. dated June 30, 2014
• Institutional Fund Company, not readily available to retail investors o $372 Billion in assets under management, September 30, 2014
o 11 offices in 8 countries
o Among the Top 10 Fund Families as of Dec. 2013
Number 7 in total assets
Number 1 in one-year cash flows/starting assets at 14.21%
Number 1 in one-year asset growth at 34.28%
• Dimensional Key Differentiators o Invests in assets with long-term favorable risk/reward profile
o Security lending – reduces trading costs
o Patient trading strategies - reduces overall fund expenses
o Philosophy is based on Nobel Prize-Winning Research
Why Dimensional Fund Advisors?
Facts about Dimensional Fund Advisors (DFA)
Source: Introduction to Dimensional Fund Advisors, September 30, 2014 and Mutual fund universe statistical data provided by Morningstar, Inc. dated June 30, 2014
Why Dimensional Fund Advisors?
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Many of the Greatest Advancements in Finance Have Come from Academia
Eugene Fama
University of Chicago Nobel laureate, 2013
Kenneth French Dartmouth College
Robert Merton
MIT Nobel laureate, 1997
Robert Merton
MIT Nobel laureate, 1997
Eugene Fama and Kenneth French are members of the Board of Directors for Dimensional
Fund Advisors LP. Robert Merton is a member of the Advisory Board of Dimensional
SmartNest LLC.
Source: Dimensional Fund Advisors, A Different Way to Invest, slide 14, May 2014
Traditional Portfolio Allocations
Your risk tolerance, investment objective & time horizon influence the recommended portfolio.
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Traditional Portfolio Overview
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Portfolio Options • 6 retirement & 6 taxable allocations, with 8 to 12 funds each
Low Fund Expenses
Fixed-income Investments • Short term, high quality
Equity Investments • Global diversification with tilt toward small cap and value stocks:
11,000 securities | 40 countries | 15 asset classes
Risk Tolerances • From very conservative to aggressive growth
Why a Traditional LCA Portfolio?
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Investing in a Traditional LCA Portfolio • Creates an environment conducive to a successful client investment
experience
• Places focus on the things you can control while ignoring media hype
• Delivers an investment plan tailored to your needs and goals:
o Based on market principles that potentially add investment value
o Includes global diversification, underpinned with financial science
o Keeps risk in line with client’s personal situation
Your Financial Advisor provides knowledge and encouragement to help you stay disciplined through various market conditions.
Fiduciary Oversight
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Certification for Global Fiduciary Standards of Excellence
Independent recognition of an
Investment Advisors conformity to the
Fiduciary Practices defined by the
Prudent Practices for Investment
Advisors handbook
ORGANIZE FORMALIZE IMPLEMENT
MONITOR
Disclosures
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Lindner Capital Advisors, Inc. (LCA) is an SEC registered investment advisor. The information contained in this document is confidential and is intended only for the use of the person to whom it is given and is not to be reproduced or redistributed without LCA’s consent. It is not a solicitation to invest in any specific investment product, nor is it intended to provide individualized investment advice. Asset allocation and diversification strategies do not assure a profit or protect against a loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be profitable. Each asset class has inherent risks associated with that asset class. Understanding these risks is critical to making reasonable risk/return comparisons and sound investment decisions. Each of LCA's strategies may make small-cap and micro-cap investments, which are subject to greater volatility than those in other asset categories. Each of LCA's strategies may invest in fixed-income investments, which are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, corporate events, tax ramifications, and other factors. Each of LCA's strategies may make international investments, which are subject to additional risks, such as currency fluctuation, confiscatory policy, political instability, or potential illiquidity. Investing in emerging markets may accentuate these risks. Since no one manager is suitable for all types of investors, it is important to review investment objectives, risk tolerance, liquidity needs, tax consequences and any other considerations with a financial professional before choosing an investment style or manager. The information contained in this document has been compiled from sources deemed reliable and it is accurate to the best of our knowledge and belief. However, LCA cannot guarantee its accuracy, completeness, and validity and cannot be held liable for any errors or omissions. Slide 5: Average investor (average equity investor) performance results are based on a DALBAR study, “Quantitative Analysis of Investor Behavior (QAIB), 2014. DALBAR is an independent, Boston-based financial research firm. Using monthly fund data supplied by the Investment Company Institute, QAIB calculates investor returns as the change in assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions and exchanges for the period. The S&P data are provided by Standard & Poor’s Index Services Group. US inflation data© Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. **DFA Matrix Book 2014; data as of December 31, 2013 - Page 63. 60/40 refers to 60% equity and 40% fixed.—Page 64. 80/20 refers to 80% equity and 20% fixed. Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Disclosures: All investments are subject to risk. There is no assurance that a diversified portfolio will achieve a better result than a non-diversified portfolio. Slide 6: Balanced Strategy: 7.5% each S&P 500 Index, CRSP 6-10 Index, US Small Value Index, US Large Value Index; 15% each International Value Index, International Small Index; 40% BofA Merrill Lynch One-Year US Treasury Note Index. The S&P data are provided by Standard & Poor’s Index Services Group. The Merrill Lynch Indices are used with permission; copyright 2012 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. CRSP data provided by the Center for Research in Security Prices, University of Chicago. US Small Value Index and US Large Value Index provided by Fama/French. International Value Index provided by Fama/French. International Small Cap Index compiled by Dimensional from StyleResearch securities data; includes securities of MSCI EAFE countries in the bottom 10% of market capitalization, excluding the bottom 1%; market-cap weighted; each country capped at 50%; rebalanced semiannually.
Disclosures
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Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance. Slide 12: S&P 500 data source: Anthony Lynch and Richard Mendenhall, “New Evidence on Stock Price Effects Associated with Changes in the S&P 500 Index,” Journal of Business 70, no. 3 (July 1997): 351-83. MSCI EAFE Index data source: Rajesh Chakrabarti, Wei Huang, Narayanan Jayaraman, and Jinsoo Lee, “Price and Volume Effects of Changes in MSCI Indices: Nature and Causes,” Journal of Banking and Finance 29, no. 5 (May 2005): 1237-64. For illustrative purposes only. Past performance is not a guarantee of future results. Slide 16: In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. US Small Cap Index is the CRSP 6–10 Index; US Large Cap Index is the S&P 500 Index; Long-Term Government Bonds Index is 20-year US government bonds; Treasury Bills are One-Month US Treasury bills; Inflation is the Consumer Price Index. CRSP data provided by the Center for Research in Security Prices, The S&P data are provided by Standard & Poor’s Index Services Group. University of Chicago. Bonds, T-bills, and inflation data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield). Slide 17: Indices are not available for direct investment. Past performance is not a guarantee of future results. Based on rolling annualized returns. Rolling multi-year periods overlap and are not independent. This statistical dependence must be considered when assessing the reliability of long-horizon return differences. US Market vs. T-Bills: US Market is S&P 500 Index. US Bills is One-Month US Treasury Bills. There are 871 overlapping 15-year periods, 931 overlapping 10-year periods, 991 overlapping 5-year periods, and 1,039 overlapping 1-year periods. US Value vs. Growth: US Value is Fama/French US Value Index. US Growth is Fama/French US Growth Index. There are 871 overlapping 15-year periods, 931 overlapping 10-year periods, 991 overlapping 5-year periods, and 1,039 overlapping 1-year periods. US Small vs. Large: US Small is Dimensional US Small Cap Index. US Large is S&P 500 Index. There are 860 overlapping 15-year periods, 920 overlapping 10-year periods, 980 overlapping 5-year periods, and 1,028 overlapping 1-year periods. US High Profitability vs. Low Profitability: US High is Dimensional US High Profitability Index. US Low is Dimensional US Low Profitability Index. There are 427 overlapping 15-year periods, 487 overlapping 10-year periods, 547 overlapping 5-year periods, and 595 overlapping 1-year periods. Dimensional Index data compiled by Dimensional. Fama/French data provided by Fama/French. The S&P data are provided by Standard & Poor's Index Services Group. Slide 18: In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. US Small Cap Index is the CRSP 6–10 Index; US Large Cap Index is the S&P 500 Index; Long-Term Government Bonds Index is 20-year US government bonds; Treasury Bills are One-Month US Treasury bills; Inflation is the Consumer Price Index. CRSP data provided by the Center for Research in Security Prices, The S&P data are provided by Standard & Poor’s Index Services Group. University of Chicago. Bonds, T-bills, and inflation data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
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Lindner Capital Advisors, Inc. 600 Village Trace, Building 23, Suite 300, Marietta, GA 30067
770-977-7779 | www.LindnerCapital.com TCP_12.14