Build a Better Bond

James C. McClendon, Chief Investment Officer & Managing Director

Interest Rates

Fixed Income Sector Returns

Source: J. P. Morgan Asset Management

Treasuries

Mortgage Related

Corporates

AgenciesAsset Backed

The Bond Market Has Many Different Components

Total Bond Market

Interest Rate Sensitive Economically Sensitive

Fixed Income market has changed

Source: Guggenheim Partners, SIFMA, Credit Suisse, Barclays. Data as of June 30, 2013

Global Bond Market• Bond market has evolved, so

has volatility

Global Opportunities = Higher Vol

STANDARD DEVIATIONIndex 1 Year 3 Year 5 Year

Barclays US Aggregate Bond Index 2.58 2.67 2.83

Barclays Global Aggregate Bond Index 4.18 4.17 5.19

JPMorgan Emerging Markets Bond Index 6.37 8.02 7.40

Price Impact of 1% Change in Interest Rates

• Large impact on returns across sectors with 1% increase in rates.

• No where to run• No where to hide

Price Impact of 1% Change in Interest Rates

• Floating Rate Fixed income Portfolio would be down -0.1%

• 30yr UST Portfolio would be down -17.4%

Portfolio returns could range

from -0.1% to -17.4%

Taper Tantrum

4 month return = -4.5%

11

Taper Tantrum

4.5% Drawdown

Rolling Returns

• One Year Rolling Returns

J F M A M J J A S O N D J F M A

Rolling Returns

• Three Year Rolling Returns

JFMAMJJASONDJFMAJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASOND

Barclays Intermediate Government/CreditRolling Returns 1 – 15 years

1 3 5 7 9 11 13 15 17 19 21 23 2518.06% 15.19% 11.18% 11.15% 11.07% 9.77% 9.68% 9.48% 8.98% 9.02% 8.51% 8.02% 7.88%-1.93% 2.90% 3.99% 4.39% 4.23% 4.13% 4.94% 4.98% 5.36% 5.76% 5.58% 6.05% 6.44%7.23% 7.16% 7.06% 7.03% 6.95% 6.92% 6.95% 6.93% 6.95% 6.96% 6.93% 7.00% 7.05%

Expectations of Return

• For Returns: BONDS*Average Return Range of Returns

1 Yr -1.93 to 18.13 Yrs 2.90 to

15.195 Yrs 3.99 to 11.187 Yrs 4.39 to 11.159 Yrs 4.23 to 11.0711 Yrs 4.13 to 9.77

1 Yr 7.233 Yrs 7.165 Yrs 7.067 Yrs 7.039 Yrs 6.9511 Yrs 6.92

*BARCLAYS INTERMEDIATE GOVT/CREDIT Interm Index (1/1/1984 through 12/31/2013)

Interest Rates

Rates and bond prices move in opposite directions

A Better Bond Portfolio

Bonds

Equities

TraditionalBalanced Portfolio

Traditional Balanced Portfolio

• Combining stocks and bonds in a Balanced Portfolio offers investors diversification and an opportunity to achieve improved risk-adjusted performance

Bridging the performance gap between stocks and bonds (10yrs)

100% 100% 60% StocksBonds Stocks 40% Bonds

2003 4.10% 28.68% 18.64%2004 4.34% 10.88% 8.35%2005 2.43% 4.91% 3.94%2006 4.33% 15.79% 11.14%2007 6.97% 5.49% 6.19%2008 5.24% -37.00% -21.63%2009 5.93% 26.46% 18.46%2010 6.54% 15.06% 12.19%2011 7.84% 2.11% 4.98%2012 4.21% 16.00% 11.37%2013 -2.02% 32.39% 17.73%

Annual Returns

S&P 500 TR

Traditional Balanced Portfolio

Barclays Agg Bond

22

Drawdown (10 yrs)

Taper Tantrum

4 month return = -4.5%

How did Traditional Balanced Portfolio performed during 4/2013 through 11/2013?

24

Taper Tantrum

Barclays drop = -4.5%

Traditional Balanced drop = -1.3%

Traditional Balanced Portfolio• The 60/40 Traditional Balanced portfolio provides

an opportunity for improved risk-adjusted performance, capturing 90% of the return delivered by equities with only 65% of the volatility

Equities

Bonds

Risk/Reward profile

Traditional Balanced Portfolio

• Higher return than Bond Portfolio• Lower volatility than Equity Portfolio• Steady, consistent, predictable returns

A Better Balanced Portfolio

TPFG Better Balanced PortfolioGuarantee no annual lossUse annuities to offset equityStrong risk-adjusted-returns

TPFG Better Balanced Portfolio

Annuity

Equities

TPFGBalanced Portfolio

30

TPFG Balanced 30% Fixed, 70% Equity

Traditional Balanced

TPFG Balanced 50% Fixed, 50% Equity

TPFG Balanced 70% Fixed, 30% Equity

Barclays US Agg Bond

S&P 500

Taper Tantrum

4 month return = -4.5%

How about TPFG Better Balanced Portfolio performance during this time?

Taper Tantrum

Barclays Agg with 0% loss

Barclays Agg.

33

Taper Tantrum

Traditional Balanced drop = -1.3%

Barclays drop = -4.5%

TPFG Better Balanced Portfolios never dropped below zero

Deliver predictable results with reasonable risk

TPFG’s ROLE

THANK YOU!

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