Welcome to the Annual Investment Update November 21, 2014 - PowerPoint PPT Presentation

Welcome to the Annual Investment Update – November 21, 2014

Presenters Welcome Dianna L. Sutton CFFK President and CEO CFFK Investment Committee Tom Clements Investment Committee Chair CFFK Investment Advisors Barry Beach Senior Portfolio Manager Mason Investment Advisory Services

CFFK Events and Happenings Unsung Heroes Luncheon January 30, 2015 – Luncheon at Marriott Beachside December 15 th – Nomination Deadline Leadership Success Academy Starts February 26, 2015 FKCC – Tennessee Williams Theatre Lobby CFFK Annual Meeting February 19, 2015 at Marriott Beachside CFFK Website – www.cffk.org Fund Advisor Functionality

CFFK Investment Committee Tom Clements CFFK Investment Committee Chair

Investment Stewardship: So You Can Focus on Your Mission Presented to: Community Foundation of the Florida Keys Presented by: Barry Beach Senior Portfolio Manager 11130 Sunrise Valley Drive Suite 200 Reston, VA 20191 www.masoncompanies.com bbeach@masoncompanies.com (703) 716 – 6000 MASON INVESTMENT 5 ADVISORY SERVICES, INC.

Overview of Topics we will Cover 1. Brief Overview of Mason Investment Advisory Services 2. Our Overall Role with the Foundation and Working with the Foundation to Establish an Investment Policy Statement that will Guide the Committee and Mason in their Oversight of the Foundation’s Investments 3. Selecting and Evaluating Managers 4. Discussion of Short Term Volatility 5. Taking Advantage of Volatility through Rebalancing MASON INVESTMENT 6 ADVISORY SERVICES, INC.

Mason Investment Advisory Services, Inc. • Founded 1982 – Financial Planning Roots – 56 Employees – Independent, no proprietary products – Clients in 42 states| • Investment Advisory Summary Total Institutional – Assets under management $4.3B $1.6B – Investment management clients 660+ 55 – Recently listed in Forbes, Financial Times and Barron’s • Focus on Community Foundations & Nonprofits – 27 Community Foundation Clients in 16 states, totaling $840M in Assets Under Mgmt. – Working with Community Foundations since 1998 – 100% Community Foundation Client Retention MASON INVESTMENT 7 ADVISORY SERVICES, INC.

Role of Consultants (Mason’s Relationship with CFFK) • Investment Consultant to the Foundation since 2008 • Report to the Investment Committee (Quarterly) and the Board (as needed) • Recommend: o Changes to Investment Policy Statement o Asset Allocation Targets o Spending Policy o Rebalancing Methodology • Investment vehicles (funds & managers) o Selection o Evaluation • Review / rebalance portfolio on regular basis • Reporting (quarterly performance reports, donor reports, etc.) • Education & donor development as requested MASON INVESTMENT 8 ADVISORY SERVICES, INC.

Mason’s Investment Philosophy • Strategic Asset Allocation – Broad mix of asset classes – Timing does not work – Predicting the future does not work • Rebalancing is Important – Use volatility as a tool – Technology enables more precise and frequent monitoring • Manager Selection Process – Independence – Fund Family track records – Asset class fit • Composite Track Record MASON INVESTMENT ADVISORY SERVICES, INC.

Manager Selection and Evaluation Objectives 1. Identify superior fund families with the potential for higher returns relative to peers 2. Select individual funds to obtain optimal exposure to each category 3. Utilize funds with competitive fee structures MASON INVESTMENT 10 ADVISORY SERVICES, INC.

Manager Selection and Evaluation Comprehensive Study Conducted 1. Evaluated the 25 largest fund families over a 12 year period – Fund families were analyzed over rolling 5 year periods and over the entire 12 year period 2. Evaluated both open and terminated funds across fund families 3. Evaluated only lowest cost share classes Results: Study identified preferred fund families that have shown superior relative performance rankings versus their peers over time and have consistently demonstrated a repeatable process across all of their offerings. 1. Dodge & Cox 4. Vanguard 2. American Funds 5. T. Rowe Price 3. PIMCO 6. DFA MASON INVESTMENT 11 ADVISORY SERVICES, INC.

Manager Selection and Evaluation Ongoing Evaluation of Managers 1. Periodically we will update our study to continue to identify preferred fund families whose funds are most likely to succeed going forward 2. Replace managers when exposure can be better obtained elsewhere MASON INVESTMENT 12 ADVISORY SERVICES, INC.

Volatility is to be Expected Historically stocks have had superior returns but over the short term can be extremely unpredictable and volatile. With stocks we seldom experience the average return. From 1926 thru December 31, 2013 the S&P Composite had an average annual return of 10.08%. Over this period, the S&P Composite had a single year return of between 8% and 12% in only 5 years (out of 88 years). MASON INVESTMENT 13 ADVISORY SERVICES, INC.

Volatility is to be Expected S&P ¡Composite ¡Frequency ¡of ¡ Calendar ¡Year ¡Returns ¡1926-­‑2013 80.0% 72.7% 72.7% of years equity returns were positive 58.0% 60.0% 27.3% of years were negative 37.5% of the time equities gained over 20% Loss ¡of ¡20% ¡or ¡More 6.8% of the time equities lost more than 20% Loss ¡of ¡10% ¡or ¡More 37.5% 40.0% The data clearly supports the benefit of equities Loss over time and it is important to keep these odds 27.3% Gain in mind if taking money out of the market based on short term expectations or other market Gain ¡of ¡10% ¡or ¡More 20.0% timing strategies. 12.5% Gain ¡of ¡20% ¡or ¡More 6.8% However, recognize that 1 year out of 15 (6.8%) the S&P posted more than a 20% loss. These are times investors tend to react most strongly 0.0% to negativity in the media and are the most Loss ¡of ¡ Loss ¡of ¡ Loss Gain Gain ¡of ¡ Gain ¡of ¡ tempted to get out of the market. 20% ¡or ¡ 10% ¡or ¡ 10% ¡or ¡ 20% ¡or ¡ More More More More MASON INVESTMENT 14 ADVISORY SERVICES, INC.

Volatility is to be Expected S&P 500 (1980 – 2013) • Average calendar year return: 13.22% • 29 out of 34 years had positive returns • Every year experienced an intra-year decline o Average intra-year decline: - 14.03% (Range -2.5% to -46.95%) In 2014, the intra-year decline of the S&P 500 from 9-9-14 to 10-10-14 was -7.28%. Year-to-date as of 10-31-14 the S&P 500 is up 10.99% Short term volatility is normal, is to be expected, and long term investors should be indifferent to it. MASON INVESTMENT 15 ADVISORY SERVICES, INC.

Taking Advantage of Volatility through Rebalancing 1. Review Account every ten trading days 2. Rebalance when 30% band has been reached 3. Trade infrequently but opportunistically to take advantage of short term volatility MASON INVESTMENT 16 ADVISORY SERVICES, INC.

“C” Allocation with - 30% Rebalancing Bands Asset Allocation Targets - "C" Portfolio (Growth & Income) (30% bands) Rebalancing Portfolio Rebalancing Trigger - Percentage Trigger - Asset Category Low End Allocation High End I. Safety Assets 1.4% 2.0% 2.6% Total Safety Assets 2.0% II. Income Assets Domestic Bonds: Short Term Maturities (1-5 yrs) 5.1% 7.25% 9.4% Intermediate Term Maturities (5-10 yrs) 5.3% 7.5% 9.8% Long Term Maturities (10+ yrs) 5.3% 7.5% 9.8% Inflation Protected Bond 4.0% 5.75% 7.5% International Bonds 3.5% 5.0% 6.5% Total Income Assets 33.0% III. Growth Assets Large Cap U.S. Stocks - Value 9.5% 13.5% 17.6% Large Cap U.S. Stocks - Growth 5.6% 8.0% 10.4% International Stocks - Value 5.6% 8.0% 10.4% International Stocks - Growth 3.9% 5.5% 7.2% Growth Real Estate 7.7% 11.0% 14.3% Total Growth Assets 46.0% IV. Aggressive Assets Small Cap U.S. Stocks - Value 3.5% 5.0% 6.5% Small Cap U.S. Stocks - Growth 2.1% 3.0% 3.9% International Small Cap 1.8% 2.5% 3.3% Energy/Natural Resources 3.0% 4.25% 5.5% Commodities 3.0% 4.25% 5.5% Total Aggressive Assets 19.0% TOTAL PORTFOLIO 100.0% MASON INVESTMENT ADVISORY SERVICES, INC.

Summary Mason assists client through…. • Fiduciary Oversight and Compliance with the Policy Statement • Strategic Asset Allocation • Broadly Diversified Portfolios • Unique and Independent Approach to Fund Selection • Rebalancing Approach • Track Record of Performance • Detailed Performance Reporting • Development Program • Committee/Board Education MASON INVESTMENT ADVISORY SERVICES, INC.

CFFK INVESTMENT COMMITTEE • Performance to Market • Performance to Peers • Summary of CFFK / Mason Collaboration • Personal Observations on Mutual Fund Investing