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Market & Portfolio Strategy Review
First Quarter 2016
� Market Review
� Investment Outlook & Portfolio Positioning
Agenda
2
Market Review
� It was a tale of two halves in the first quarter of
the year as stock markets plunged early on, falling
10% or more before reversing, and staging a
furious rally into quarter end.
� Emerging-markets stocks led the charge, gaining
5.9% for the quarter. Larger-cap U.S. stocks also
finished in the black, up 1.3% while developed
international stocks trailed, down 1.9%.
� A bottoming in oil prices seemed to trigger the
reversal in global stock markets. After reaching its
lowest price since May 2003, oil prices surged
more than 50% through the middle of March.
� Bonds were a main beneficiary of the market
selloff as investors flocked to lower risk asset
classes, but somewhat surprisingly bonds were
able to hold their gains even as risk assets rallied.
� Monetary policy was an important factor this
quarter as investors digested announcements
from the Fed, European Central Bank, and Bank of
Japan.
*Data source information can be found in the disclosure slide
Market Review
4
Asset Class Q1 2016Year-to-Date
(3/31/16)
U.S. Treasurys 3.2% 3.2%
U.S. Investment-Grade Bonds
(Intermediate-Term)3.1% 3.1%
Municipal Bonds 1.7% 1.7%
Floating-Rate Loans 1.5% 1.5%
High-Yield Bonds 3.2% 3.2%
U.S. Larger-Cap Stocks 1.3% 1.3%
U.S. Smaller-Cap Stocks -1.5% -1.5%
Developed International
Stocks-1.9% -1.9%
Emerging-Markets Stocks 5.9% 5.9%
Stock Markets Got Off to One of Their Worst Starts to a Year Ever Before Reversing
and Rallying Strongly Into Quarter End
5
Source: Morningstar Direct. Using price and U.S. dollar returns.
� The major global stock markets got off to a rocky start for 2016, falling 10% or more through the lows of
February.
� In mid-February, global stock markets reversed quickly and rallied sharply into quarter end. The rally was led by
a strong turnaround in emerging-markets stocks.
-10.3%-12.2% -10.9%
+12.9% +11.8%
+18.8%
-20.0%
-10.0%
0.0%
10.0%
20.0%
U.S. Stocks Developed Int'l Stocks Emerging-Markets Stocks
A Tale of Two Halves
1/1/16 - 2/11/16 2/12/16 - 3/31/16
A Bottoming in Oil Prices Seemed to Trigger the Reversal in Global Stocks
6
Source: Morningstar Direct. Using price and U.S. dollar returns. Data as of 3/31/2016.
Managed Futures Funds Helped to Cushion the Selloff in Stocks
7
Source: Morningstar Direct. Using price and U.S. dollar returns.
� Our position in managed futures helped to buffer the downdraft, as the funds were up more than 10% during
the first half of the quarter.
� While the managed futures funds gave up some return as the markets reversed and rallied, in aggregate they
still outperformed U.S. stocks over the full quarter.
� Trend-following strategies have historically offered attractive diversification benefits (almost zero long-term
correlation) to traditional portfolios, with long-term positive returns and a high likelihood of strong relative
performance during equity bear markets.
-10.3%
10.7% 11.2%14.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
U.S. Larger-Cap
Stocks
AQR Managed
Futures
ASG Managed
Futures
PIMCO
Managed
Futures
Returns 1/1/16 – 2/11/16
1.4%
0.2%
6.3%7.0%
0.0%
2.0%
4.0%
6.0%
8.0%
U.S. Larger-Cap
Stocks
AQR Managed
Futures
ASG Managed
Futures
PIMCO Managed
Futures
Returns 1/1/16 - 3/31/2016
Pension Consulting Alliance, Inc. – Risk Overview
8
Pension Consulting Alliance, Inc. – Risk Overview
9
Investment Outlook and Portfolio Positioning
Outlook: Unchanged
� U.S. Equities: Risk
� Profit margins are well above historical averages and unsustainable
� Stocks are pricey and most likely expected returns from current valuation levels are not encouraging
� Rising interest rates: Risk
� Low returns expected for core bonds over the next five years
� Absolute-return-oriented fixed-income funds can better manage their interest rate sensitivity
� International Equities: Opportunity
� Attractive stock valuations despite recent elevated uncertainty
� Probability is high that market earnings growth will be higher than current depressed levels indicate
� Alternative Strategies: Opportunity
� Better risk-adjusted return potential in volatile equity and bond markets
� Diversification and a source of return independent from traditional stock and bond markets
The U.S. Economy Appears in Decent Shape, But Growth Remains Subpar Relative
to Previous Expansions
12
Source: Bureau of Economic Analysis. Data as of 12/31/2015.
95
105
115
125
135
145
155
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41
Current Expansion vs. Last Seven Expansions
Real GDP
Current Expansion
1961 Expansion
1970 Expansion
1975 Expansion
1980 Expansion
1982 Expansion
1991 Expansion
2001 Expansion
Quarters After Recession Ends
Household Balanced Sheets are Solid and Consumers Have Reduced Their Debt
Load Considerably Since the Financial Crisis
13
Source: Board of Governors of the Federal Reserve System. Data as of 12/31/2015.
8%
10%
12%
14%
16%
18%
1980 1985 1990 1995 2000 2005 2010 2015
Financial Obligations Ratio Household Debt Service Ratio
30%
50%
70%
90%
110%
130%
1952 1962 1972 1982 1992 2002 2012
Household Debt as a % of Disposable Personal Income
138.2%
104.7%
� Household debt as a percentage of disposable income fell to its lowest level since 2002, while household net
worth hit an all-time high of $87 trillion – 25% above its previous high before the financial crisis.
� Thanks in part to all-time low interest rates, household debt-service payments and financial obligations as a
percentage of disposable income remain around all-time lows.
� Consumers are conservatively positioned and have the ability to increase their spending and/or borrowing if
they choose to do so.
The Labor Market Continues to Improve
14
Source: Board of Governors of the Federal Reserve System. Data as of 12/31/2015.
Inflation is Rising But Still Below the Fed’s Preferred Levels
15
Source: U.S. Bureau of Economic Analysis. Data as of 2/29/2016.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1995 2000 2005 2010 2015
Core PCE Core CPI
Shrinking Profit Margins Are Pressuring Earnings Growth – And Potentially Stock Prices
16
Source: Robert J. Shiller and Standard & Poor’s. Data as of 12/31/2015.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
1973 1978 1983 1988 1993 1998 2003 2008 2013
Ne
t M
arg
ins
S&P 500 Net Margins Average Net Margins
Historically, very high profit margins have been followed by sharp
declines in company profitability.
Earnings and Revenue Growth Were Disappointing in 2015
17
Source: S&P Dow Jones Indices. *Estimates. Data as of 4/12/2016.
Consensus estimates are for earnings and sales growth to
jump 28% and 3.5% next year. This seems overly optimistic
given low economic growth and declining profit margins.
Accommodative Monetary Policy and a Weaker Currency Should Provide Support for the
European Economy
18
0.80
1.00
1.20
1.40
1.60
2000 2005 2010 2015
EU
R/U
SD
The Euro-U.S. Dollar Exchange Rate
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2008 2009 2010 2011 2012 2013 2014 2015 2016
10-Year Government Bond Yields
United States
France
Germany
Switzerland
� The European economy continues to deal with a number of challenges, but rock bottom interest rates,
a cheaper currency, and low oil prices should provide support in the near term.
� In addition, the ECB expanded their QE program to include buying debt issued by non-bank
corporations – which reduced corporate borrowing costs and should provide a small short-term boost
to the economy.
Source: Bloomberg. Data as of 3/31/2016.
Valuations for European Stocks are Attractive, Both in Absolute
Terms and Relative to U.S. Stocks
19
Source: BCA Research and Thomson Reuters. Data as of 3/31/2016.
— Euro Area Shiller P/E Ratio ---- U.S. Shiller P/E Ratio
Economic Data in Emerging Markets has Modestly Improved
20
— Manufacturing PMI: Emerging Markets ---- Manufacturing PMI: Developed Markets
Source: BCA Research Markit Economics. Data as of 3/31/2016.
Emerging-Markets Stocks are Trading at Attractive Valuations vs. U.S. Stocks
21
Source: BCA Research and Thomson Reuters, OECO Main Indicators. Data as of 3/31/2016.
Expect Future Returns of Stocks and Bonds to be Lower than
Experienced Historically
22
1 Projections under our base case, subpar economic scenario as of 3/31/2016.
2 As measured by the Barclays Capital U.S. Aggregate Bond Index.
9.9%
6.6%
4.1%
1.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
S&P 500 Investment-Grade Bonds
Historical Returns
(4/1/1986-3/31/2016)
5-Year Projected Annualized Returns
1 2
Current Portfolio Positioning and Rationale
23
Asset ClassPortfolio Position vs.
Strategic AllocationComments
Fixed-Income:
Traditional Investment-GradeUnderallocated
Low expected returns but important for risk reduction, especially in
deflationary or weak economy
Absolute-Return-OrientedOverallocated
Flexible strategies that can perform well even with rising interest
rates
Floating-Rate Loans (defensive balanced,
conservative balanced, and balanced strategies)Overallocated Protection from rising interest rates with potential for higher returns
Equities:
Larger-Cap U.S. StocksUnderallocated Equities appear overvalued and potential returns low relative to risk
Smaller-Cap U.S. Stocks Underallocated Similar to large cap; more downside in poor economic conditions
Foreign Stocks – Developed MarketsOverallocated Attractive both in absolute terms and relative to U.S. stocks
Foreign Stock – Emerging-Markets Overallocated
Moderately attractive relative to U.S. on risk-adjusted basis; broader
opportunity set and diversification benefits
Alternative Investments:
Alternative Strategies (except Equity strategy)Overallocated Attractive risk-adjusted returns; low correlation to stocks and bonds
Disclosures
24
Advisory services offered through Alsworth Capital Management, LLC, an
independent Registered Investment Advisory firm. Broker Dealer services
offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Alsworth
Capital Management, LLC and Cadaret, Grant & Co. are separate entities.
Projections and opinions in this presentation are attributed solely to Shane
Alsworth and Alsworth Capital Management, LLC.
*Indexes Used (source Morningstar Direct)
• Domestic Investment-Grade Bonds (Barclays Capital U.S. Aggregate Bond Index): We are currently using the Vanguard Total Bond Market Index Fund
to represent the Barclays Capital U.S. Aggregate Bond Index, an index of domestic investment grade bonds.
• Domestic Larger-Cap Stocks (S&P 500 Index): We are currently using the Vanguard 500 Index Fund to represent the S&P 500, an index of primarily
domestic larger-cap stocks.
• Domestic Smaller-Cap Stocks (Russell 2000 Index): We are currently using the Russell 2000 Index iShares Exchange Traded Fund (ETF) to represent the
Russell 2000, an index of primarily domestic smaller-cap stocks.
• International Developed-Market Stocks (FTSE Developed Markets Index): We are currently using the Vanguard FTSE Developed Markets Index
Exchange Trade Fund (ETF) to represent an index of international developed-market stocks.
• International Emerging-Markets Stocks (FTSE Emerging Markets Index): We are currently using the Vanguard FTSE Emerging Markets Index Exchange
Traded Fund (ETF) to represent an index of emerging markets in international emerging market stocks.
• High-Yield Bonds (Merrill Lynch U.S. High Yield Master Cash Pay Index): We are currently using the Merrill Lynch U.S. High Yield Master Cash Pay
Index to represent an index of domestic high yield bonds.
• Floating-Rate Loans (S&P/LSTA Leveraged Loan Index): We are currently using the S&P/LSTA Leveraged Loan Index to represent an index of floating
rate loans.
• U.S. Treasurys (Barclays US Treasury Index): We are currently using Barclays US Treasury Index
• Municipal Bonds: We are currently using the Barclays Municipal Bond index for municipal bonds