Service Models: Trends & Best Practices New 3rd Party Managers: AlphaSimplex & Calvert December 15th 2016

Managed360 Website

Objectives Advisors should be able to create a effective service models Advisors should be able to select the appropriate 3rd Party Manager by applying their knowledge and resources.

Agenda SERVICE MODELS: Zeonia and Jeanne discuss implementation, trends & best practices of service models. NEW 3RD PARTY MANAGERS: Scott introduces AlphaSimplex & Calvert.

HELPFUL DOCUMENT: Service Model Guidelines & Checklist Download/Print at www.firstheartland.com/managed360 Hear more about it on the October Heartland Huddle recording Inside you will find: General Guidelines Questions to Consider Summary of service models submitted Example Fee Schedules

Service Models Service Level Agreement Example

Global Assets Under Management AlphaSimplex Uses Risk-Efficient strategies Tactical Strategy Key Management Convictions They constantly monitor to make sure their portfolios’ risk level (standard deviation) is in line with their target risk level. They can build on efficient market hypothesis (traditional asset allocation) by adjusting for human behavior Investors are rewarded for taking on risk only up a certain point and then it actually hurts portfolio performance. Not intended to outperform stocks and bonds during market rallies, and may underperform during periods of strong market performance. Inception Minimums Global Assets Under Management Investment Types 1999 $25,000 500 Million ETF & Mutual Funds

AlphaSimplex: Adaptive Markets Hypothesis Adaptive Market Hypothesis Addresses the “human factor” Reconciles efficient market hypothesis with behavioral finance anomalies. Believes markets are like people: often rational but sometimes emotional Portfolio Construction Implications Includes alternatives as core portfolio component Adapts to changing market conditions and relationships using trend analysis Manages risk explicitly

AlphaSimplex How do they manage risk? The managers use trend-based forecasts to overweight assets that have been gaining value and underweight assets that have been losing value. When markets are highly volatile, the managers can reduce the total allocation to riskier assets, such as stocks and commodities, with the goal of keeping the portfolio risk at its designated target. When market volatility is lower, exposure to riskier assets may offer better opportunities for return, without taking on undue risk.

AlphaSimplex Historically, investors generally have not been compensated for above-average market volatility Economic theory suggests investors should be compensated for accepting higher risk. This accounts for riskier assets (i.e. Stocks) have historically offered higher returns than safer assets (i.e. Bonds) However, the same relationship has not held overtime, i.e. when investing in stocks during periods of higher volatility vs. periods of lower volatility. The relationship between return and volatility has been negative (1927-2016).

AlphaSimplex: Who could benefit? Cautious investors who are reluctant to re-enter the market after experiencing losses during the financial crisis and who want to reduce the potential magnitude of losses Investors nearing or in retirement who would like to decrease portfolio volatility with the goal of reducing exposure to sequence of returns risk. Investors looking to optimize the return on the risk they are willing to take

Additional Alpha Simplex Resources

Calvert: Investment Philosophy Focused on taking Socially Responsible Investing to the next level with competitive investment performance. Choose investments after performing disciplined analysis of “ESG” Factors Environmental Social Governance (ESG) factors. Dedicated to being an active shareholder. Use their proxy votes to elevate the priority of ESG factors Pursue innovative opportunities for impact. Inception Minimums Global Assets Under Management Investment Types 1976 $25,000 12.31 Mutual Funds

Calvert: Responsible Investments Believe most corporations deliver a net benefit to society (Products, Services, Job Creation, Sum of Behavior) Seeks to invest in companies that provide positive leadership in the areas of their business operations and overall activities that are material to improving societal outcomes, including those that will affect future generations. The Calvert Principles for Responsible Investment guide their selection of companies not only for all indexed investment strategies, but also for many of our actively managed strategies. Not just negative screening, but pushing companies to improve

Calvert: Application of Principles Precludes investments in companies that:

Sample Model

Calvert Performance

Calvert Fund Performance

Calvert resources on FHC Website:

Additional Model Provider Fee A Quick Comparison 3rd Party Manager Additional Model Provider Fee Investment Types Minimum BlackRock 0.10% ETFs & Mutual Funds $25,000 MorningStar 0.25% Mutual Funds $50,000 Russel Investments 0.00% Vanguard ETFs AlphaSimplex Calvert

What Are Their Strategies? Strategy Income / Retirement Focus Strategic Asset Allocation Tactical Management Strategy Explanation focused on maximizing income then growth during retirement years. based on client risk/return objectives. Can be re-allocated on a periodic basis back to the targeted allocation on a quarterly, semiannual or annual basis. Dynamic investment strategy that actively adjusts a portfolio's asset allocation according to market conditions. 3rd Party Manager

Stoyan’s Decision Tree for Selecting 3rd Party Mangers www.firstheartland.com/managed360