1. Enhanced MACS Combo Platform

2. Enhanced MACS Manager Combos
Bringing together 3 SIRG inputs:
Economic and Market Outlook
Investment Manager Research Views
Quantitative Methods for Identifying and Managing Risk

3. 1. SIRG Economic & Market Outlook
Current Outlook:
Consensus economic forecasts are likely to disappoint
Near-term equity market returns are likely to be weak
Neutral on investment style (i.e. growth versus value)

4. 2. Manager Research Views
Focus on Select List Managers (i.e. managers receiving internal rating of 4 or 5)
May use favorably viewed non-Select List managers to fulfill on specific investment criteria

5. 3. Quantitative Analysis
Identify multiple risk factors
Macroeconomic risk exposures
Investment style bias
CAPM beta & volatility
Construct combo recommendations to take on desired risk characteristics based on market outlook

6. Combo Comparisons Measuring Business Cycle Risk
TCW LCG
27% less exposed to Bus. Cycle risk than S&P
LA/TCW Combo
S&P 500
Fayez LCG
LA/Fayez Combo
Lord Abbett LCV
Lord Abbett LCV
Source: Strategic Investment Research Group, BIRR Analytics

7. Understanding Manager Sub-Styles
Domestic Equity
Value
Core
Growth
Deep
Traditional
Relative
GARP
Momentum
Large X
Mid
Small
Value Tilt

8. Resources for Constructing Manager Combos in MACS
MACS Combo Matrix Guide
Investor tool for building a custom combo
Recommendations on which strategy to combine with your existing manager
MACS Combo Focus List
Menu of SIRG highlighted combinations
Risk exposures consistent with SIRG’s economic and market view
Select List or favorably viewed non-Select List strategies
Focus mainly on where to put new assets to work

9. Macs Custom Combo Matrix—
Example Using LCV – Alliance & Berkley

10. Macs Custom Combo Matrix—
Example Using LCG – Fayez & TCW

11. MACS Combo Focus List LARGE CAP Combination Strategies Strategy Risk
SIRG Comments
Rittenhouse Financial
Services
MFS Financial Management
Large Growth
(Traditional)
Large Value
Moderately
Conservative -
Approximately 30% less
business cycle risk than S&P500
index 15
25% portfolio overlap
Rittenhouse typically has
underweight in tech relative to
style R1000 growth
MFS is a Select List Manager
Furman Selz Capital Management
Rorer Asset Management LLC
Large
Growth
(GARP)
(Relative)
Approximately 20% less
business cycle risk than S&P 500 20
30% portfolio overlap
Furman may have significant
underweight in tech and/or health
care periodically relative to the
R1000Growth
Both Select List Managers
Fayez Sarofim & Co.
Lord Abbett & Co.
Moderate
20% less business- cycle risk
than S&P 500 –
Fayez typically has very low
weight in tech relative to R1000

12. MACS Combo Focus List (cont.)
LARGE CAP
Combination Strategies
Strategy
Risk
SIRG Comments -
20% more business cycle risk
exposure than S&P 500, but low
relative to other possible
moderately aggressive
TCW Investment Management Co.
Large Growth
Moderately
combinations
(Traditional)
Aggressive -
Tempered growth bias
Rorer Asset Management LLC
Large Value - 15 –
25% portfolio overlap
(Traditional) -
TCW is aggressive growth
manager with high tech weighting
relative to R1000 growth -
Both Select List Managers
SMALL/MID CAP -
35% less exposure to business
Moderately
Aggressive
cycle risk relative to Russell Small
Small Growth
Cap Index
WestCap Investors
(Traditional) - –
5% portfolio overlap
Earnest Partners
Small Value -
Market oriented to slight growth
(Relative)
bias -
Both Select List Managers -
Exposure to business cycle risk in
line with Russell Mid–Cap Index
Calamos Investment
Mid -
Cap Growth
Aggressive - –
5 percent portfolio overlap
Management
(Traditional) -
Market oriented (slight growth bias)
TCW Investment
Mid -
Cap Value
Management Co.
(Relative) -
Both Select List Managers

13. Defining the Macro Economic Risk Factors
Confidence Risk: Exposure to this factor reflects a stock’s sensitivity to unexpected changes in investor confidence. Most assets have a positive exposure to Confidence Risk. Thus, having a high exposure to this factor helps when consumer confidence is rising.
Time Horizon Risk: Exposure to this factor reflects a stock’s sensitivity to unexpected changes in investors’ willingness to invest for the long term. An increase in time horizon tends to benefit growth stocks, while a decrease tends to benefit income stocks.
Inflation Risk: Exposure to this factor reflects a stock’s sensitivity to unexpected changes in the inflation rate. Unexpected increases in the inflation rate put a downward pressure on stock prices, so most stocks have a negative exposure to Inflation Risk.
Business Cycle Risk: Exposure to this factor reflects a stock’s sensitivity to unexpected changes in the growth rate of business activity. Stocks of companies such as retail stores that do well in times of economic growth have a higher exposure to Business Cycle Risk than those that are less affected by the business cycle, such as utilities or government contractors.
Market Timing Risk: Exposure to this factor reflects a stock’s sensitivity to moves in the stock market as a whole that cannot be attributed to the other factors. Sensitivity to this factor provides information similar to that of the CAPM Beta about how a stock tends to respond to changes in the broad market.
This multi factor approach to risk is based on the Arbitrage Pricing Theory, which enjoys wide academic and practitioner support. The multi factor approach allows a much richer understanding of the economic factors that drive equity returns.

14. Since no one manager/investment program is suitable for all type of investors, this information is provided for informational purposes only. The managers presented here may or may not be included as an option based upon information your client provided in the MACS questionnaire.
Past performance is not indicative of future results. The principal value of investments and investments returns will fluctuate with changes in market conditions. An Investor’s MACS account, when liquidated, may be worth more or less than its initial value.
MACS is distributed by Prudential Investment Management Services LLC (PIMS), Three Gateway Center, 14th Floor, Newark, NJ , and offered through Pruco Securities Corporation, 751 Broad Street, Newark, NJ Both are Prudential Financial companies and members SIPC.
Prudential Financial and the Rock logo are registered service marks of The Prudential Insurance Company of America, Newark, NJ, and its affiliates.
IFS-A Ed. 10/1/2003