Increasing control over your investments.

TAKE CONTROL OF YOUR INVESTMENT DESTINY

Challenge for Investors

Case for Factor-based Investing

What Next?

The Real World

3

Economic and Market Outlooks are Constrained…

Economic Growth Forecasts

SSGA forecasts, as of 31 December 2015. The above estimates are based on certain assumptions and analysis made by SSGA.  There is no guarantee that the estimates will be achieved.

Low economic growth will impact profitability, and therefore equity returns Weakness in global trade and strong US dollar will weigh on EM equities Ripple effect of decelerating growthin China Continued weakness in commodity prices Geopolitical risks

Volatility Risk is to the Downside

2015 2016

Developed Global 3.1% 3.3%

US 2.5% 2.5%

Eurozone 1.5% 1.7%

Japan 0.8% 1.2%

Emerging Markets 4.2% 4.1%

4

Equity Return Forecasts are Low State Retirement Systems Target

…Creating a Mismatch Between Expected and Required Returns

%

1‐Year 10‐Year

Developed Global 2.1% 6.1%

US LC 1.4% 6.0%

Europe 2.6% 6.1%

UK ‐0.4% 6.4%

Japan 5.9% 6.4%

Emerging Markets 1.2% 6.9%SSGA forecasts, as of 31 December 2015. The above estimates are based on certain assumptions and analysis made by SSGA.  There is no guarantee that the estimates will be achieved.

Source: NASRA, Public Pension Plan Investment Return Assumptions , September 2015.

5

Investors are Looking for Ways to Close the Gap

SEEKING HIGHER RETURN OPTIONSMore active managementIlliquid assetsTactical overlays

Factor-based investing strategies can help meet each of these aims.

MANAGING RISKMinimize drawdownsLiability matchingManage risk budget

EVALUATING COSTSAlign costs with valueManage implementationConsider “soft” costs

5

Challenge for Investors

Case for Factor-based Investing

What Next?

The Real World

7

Firmly Grounded in Academic Research

Fama & French, “Common risk factors in the returns on stocks and bonds” 

(1992)Rosenberg, Reid & Lanstein “Persuasive Evidence of Market Inefficience” (1985)

Arnott, Hsu & Moore, “Fundamental 

Indexation” (2005)

Ang, Goetzmann & Schaefer “Evaluation 

of Active Management” (2009)

Black, Jensen and Scholes, “The Capital Asset Pricing Model: Some Empirical Tests” (1972) Baker, Bradley & 

Wurgler“Benchmarks as 

Limits to Arbitrage: Understanding the Low‐Volatility 

Anomaly” (2011)

1980’s 1990’s 2000’s 2010’sCap‐weightede.g. S&P 500

Style awaree.g. Value, Growth, Small

Alternative weightinge.g. Fundamental

Factor‐targetede.g. ‘Smart Beta’

8

What Are Factors?

Factors are the underlying drivers of the risks and return of an asset class. They’re the building blocks that enable investors to shape investment returns.

Sample Equity factors include:

Value Size Volatility Quality Momentum

Premium in Low Valuation stocks.

Smaller cap stocks tend to outperform.

Lower volatility stocks tend togenerate a higher risk‐

adjusted return.

Quality companies are rewarded withstronger share 

prices.

Stocks whichhave done well recently tend to 

carry on doing well in the near term.

9

Factors Can Generate Positive Excess Annual Returns

Value Volatility QualitySize Momentum

Source: SSGA as of 31 December 2015. The above results are derived from backtested data covering the period from April 1993 to December 2015. Backtested performance is not indicative of the past or future performance of any SSGA offering. The results represent a backtest of SSGA's Factor-Tilted models, which means that those results were achieved by means of the retroactive application of the models which were developed with the benefit of hindsight. All data shown above does not represent the results of actual trading, and in fact, actual results could differ substantially, and there is the potential for loss as well as profit. The performance does not reflect management fees, transaction costs, and other fees and expenses a client would have to pay, which reduce returns. Please reference the Backtested Methodology Disclosure for a description of the methodology used as well as an important discussion of the inherent limitations of backtested results. The results show annualized excess returns over the MSCI Developed Equities Index since April 1, 1993.

February 2016.

Backtested Annualized Excess Returns Over Developed Equities Since 1993

10

Factors are Present Across Asset Classes, Not Just Equity

EQUITY FIXED INCOMEValueSizeVolatilityQualityMomentum

ValueSizeVolatilityQualityMomentumTerm Premium

CURRENCYValueTrendCarry

Challenge for Investors

Case for Factor-based Investing

What Next?

The Real World

12

How Can investors Use Factors Effectively?

Size?

Value?

Momentum?

Quality?

13

You’re Already a Factor investor, but You Can Increase Your Control

Source: Bender, Hammond and Mock; Journal of Portfolio Management, May 2013

Cap‐Weighted Index Return

Passive Return

Factor exposures are a significantcomponent of active management returns.On average, 50% of active management excess returns can be accounted for by exposure to factors.

PORTFOLIORETURN

+ Factor Returns

Active Return

Manager Skill+=

14

MARKETCYCLE

VALUE

SIZE

VOLATILITY

QUALITY

MOMENTUM

Factors Returns Vary Under Different Environments

Source: Russell, SSGA. Example for illustrative purposes only. Past performance is not a guarantee of future results.

DownturnPositive Economic Growth but Slowing

Mixed

–

+

+

Mixed

RecessionNegative Economic Growth and Slowing

–

–

+ +

+ +

–

RecoveryNegative Economic 

Growth but Improving

+ +

+

– –

–

Mixed

BoomPositive Economic 

Growth and Improving

+

+

–

–

+

15

Factor Valuations – What Looks Good Now?

Source: SSGA, FactSet based on estimates.  As of December 31, 2015. Universe: MSCI World Index.  For each factor, spreads calculated by subtracting the median Book‐to‐Price (B/P) of bottom quintile (lowest ranked stocks) from the median B/P of top quintile (highest ranked stocks).  Quintiles contain equal weighted number of securities.  Average Spread represents the average median B/P spread over previous 120 months. Valuation spread data is as of the date indicated, are subject to change, and should not be relied upon as current thereafter. Valuation spreads may be different when measured within different equity universes.

2.0

1.5

1.0

0.5

0

‐0.5

‐1.0

‐1.5

VALUELooks expensive

VOLATILITYNot currently attractive

QUALITYLooks

attractive

SIZELooks fairly neutral

MOMENTUMLooks

expensive

Average

Attractive

Expensive

CurrentBase = 0

Attractive

Expensive

Attractive

Expensive

Attractive

Expensive

Attractive

Expensive

16

3 Approaches to Implement Your Factor Convictions

ValueVolatility

Quality

Size

Momentum

… or combine factors such as Value and Quality.

Value

SINGLE FACTOR MULTI-FACTOR

Value Quality

ACTIVE QUANTFocus onindividual factors 

Dive deeply into advanced factor definitions.

APPROACH 1 APPROACH 2 APPROACH 3

Challenge for Investors

Case for Factor-based Investing

What Next?

The Real World

18

What Problems Can Factor Investing Solve?

Managing Downside Volatility

The Search forYield

The Need forExcess Returns

Getting the MostOut of Fees

Uncorrelated Returns

19

In Our Recent Global Survey of 400 Institutional Investors

%

of respondents who had implemented Smart Beta 

reported moderate to significant improvement in meeting their long-term aims.

Source: SSGA, FT Remark, “The Great Divide”. March 2016. About this study: FT Remark, in association with State Street Global Advisors (SSGA), surveyed senior executives with asset allocation responsibilities at 400 institutional investors (with at least $200Mn AUM). The Respondents are distributed: 24% Asia, 38% Americas, 38% EMEA. The survey included a combination of qualitative and quantitative questions and all interviews were conducted by phone. The results were analyzed and collated by FT Remark and all responses are anonymized and presented in aggregate.

20

CASE 1“Improving

passive exposure”

CASE 2“Taking the desired risk exposures”

CASE 3“Replacing/reducing active 

manager allocations”

CLIENTS

21

Improving Passive Exposure

CASE STUDY

Return PA

+5.51 0.20Sharpe Ratio Return PA Sharpe Ratio

+ 6.02 0.24

100% MSCI World Index (Passive Strategy)

RESULTS BETTER RETURNS, BETTER SHARPE RATIO

CHALLENGE SOLUTION

Reduce risk and improve return with a multi‐factor allocation.

Remain passive but achieve better risk‐adjusted returns.

Source: State Street Global Advisors. As of 31 December 2015.Represents results for a period of 5 years to 31 December 2015. The information contained above is for illustrative purposes only. Forecasted returns are based upon estimates and reflect subjective judgments and assumptions. These results were achieved by means of a mathematical formula and do not reflect the effect of unforeseen economic and market factors on decision‐making.The Forecasted returns are not necessarily indicative of future performance, which could differ substantially.

75% MSCI World Index (Passive Strategy)

25% MSCI Quality Mix Index (Smart Beta)

22

Taking the Desired Risk Exposure

CASE STUDY

RESULTS FUNDING PRESERVED, BETTER RETURNS

CHALLENGE SOLUTION

Optimize portfolio’s credit risk premium. Assess Quality versus Value and capture mispriced credit risk.

US Defined Benefit Fund needed to improve fixed income performance relative to liabilities without jeopardizing funding status. Return

BPS

+

Source: State Street Global Advisors. Results illustrated represent the effect of the change on 31 August 2014. The information contained above is for illustrative purposes only. 

23

Reducing Active Manager Allocations

CASE STUDY

RESULTS FOCUSED EXPOSURES, REDUCED FEES

Fundamental CharacteristicsSecurity Count 708Active Risk 0.43Portfolio Ending Active Share 23.63Risk (%)Asset Specific Risk 57.33Factor Risk 42.67Total Fees (%) 0.28

ClassicCore-Satellite

50%Passive

50%

Active Managers

25%

Active Managers75%

Active Beta

Value Low Vol Size

Fundamental CharacteristicsSecurity Count 737Active Risk 1.21Portfolio Ending Active Share 31.76Risk (%)Asset Specific Risk 22.71Factor Risk 77.29Total Fees (%) 0.19

FactorizedCore Portfolio

CHALLENGE SOLUTION

Source: State Street Global Advisors. The information contained above is for illustrative purposes only. 

24

Cost-efficient implementation.

You decide what matters.

Aim for growth. Control volatility.

Take control of your investment destiny.

Flexibility Meet Challenges ControlFee Productivity

WHY FACTOR INVESTING?

Disclosures FOR INSTITUTIONAL USE ONLY. Not for Use with the Public. 

Value stocks can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time. The strategy employs a momentum style of investing that emphasizes investing in securities that have had higher recent price performance compared to other securities, which is subject to the risk that these securities may be more volatile and can turn quickly and cause significant variation from other types of investments. This document provides summary information regarding the Strategy. This document should be read in conjunction with the Strategy's Disclosure Document, which is available from SSGA. The Strategy Disclosure Document contains important information about the Strategy, including a description of a number of risks. Investments in small/mid‐sized companies may involve greater risks than in those of larger, better known companies. Companies with large market capitalizations go in and out of favor based on market and economic conditions. Larger companies tend to be less volatile than companies with smaller market capitalizations. In exchange for this potentially lower risk, the value of the security may not rise as much as companies with smaller market capitalizations. Risk associated with equity investing include stock values which may fluctuate in response to the activities of individual companies and general market and economic conditions. Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries. Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon.  You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.Past index performance is not a guarantee of future results. Investing involves risk including the risk of loss of principal.The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. 

SSGA Global Value, Volatility, Size, Quality and Momentum Tilted Performance: Returns are back‐tested from April 1, 1993 to December 31, 2014, unless stated otherwise. The testing methodology is a rules‐based process to generate historical portfolios. The data used was only the data which would have been available at the time when the historical portfolios were generated, now what is available now. These processes help to eliminate various forms of survivorship bias, both in terms of a “smarter model” and in terms of making decisions based on information that was not available at the time. The results shown do not represent the results of actual trading using client assets but were achieved by means of the retroactive application of an investment process that was designed with the benefit of hindsight, otherwise known as back‐testing. Thus, the performance results noted above should not be considered indicative of the skill of the advisor or its investment professionals. The back‐tested performance was compiled after the end of the period depicted and does not represent the actual investment decisions of the advisor. These results do not reflect the effect of material economic and market factors on decision making. In addition, back‐tested performance results do not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risks associated with actual investing. No representation is being made that any client will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently significant differences between back‐tested performance results subsequently achieved by following a particular strategy. The back‐tested performance data is reported on a gross of fees basis, but net of administrative costs.

Web: www.ssga.com

State Street Global Advisors, One Lincoln Street, Boston, MA 02111‐2900 

© 2016 State Street Corporation — All Rights Reserved. 

© 2016 State Street Corporation —All Rights Reserved.GLSTND‐2378  Exp. Date 31/03/2016