USA Swimming
June 2012
ABOUT FIRST WESTERN • A unique Western-based private bank offering integrated wealth management
services• Nine (9) locations throughout the western United States• As of January 2012, over $4 billion in assets under management, advice and
administration and over $630 million in bank assets• Inc. 500/5000’s fastest growing companies in 2008, 2009, and 2010, consistently
among the top ranked bank/bank holding company on the list• Best Places to Work – Denver Business Journal, 2008 finalist, Phoenix Business
Journal 2010 finalist• Fastest Growing Private Companies (Flight II) 2009-2010 Denver Business Journal --
#4• Who’s Lending? -- Denver Business Journal, 2010- # 1 bank with overall loan and
lease portfolio growth among Denver-based banks • Ranked as the #8 Denver-Area Trust Organization, based on the total Colorado
fiduciary assets, according to the Denver Business Journal • CoBIZ magazine’s Top Company 2010 Finalist• Recipient of Colorado Business Committee for the Arts Philanthropy Award 2011• Ranked as the #3 Denver-based Investment Manager by the Denver Business Journal,
2011
BIOGRAPHYKatherine Berke, CFP® Senior Vice President | Senior Portfolio Manager
Experience Katherine is a responsible for managing client relationships and developing and implementing custom financial plans. Ms. Berke has more than 17 years of professional experience, including an extensive background in comprehensive financial planning advisory services. Prior to joining First Western Trust, she headed her own financial planning firm where she specialized in wealth accumulation and management, retirement planning and retirement income distribution for her clients.
Credentials • MS degree in Management Science from the MIT, Sloan School of Business • BS degree in Computer and Management Science from Metropolitan State College of Denver • Carnegie Mellon University, Graduate School of Administration, eCommerce Program• Series 7 and Series 66 licenses • Certified Financial Planner®
Involvement • Board member of the Colorado Women’s Association of Financial Consultants • Board member of the Denver Business Series • Active member of the Financial Planning Association • Volunteer mentor for Junior Achievement’s “Business Week” program
OVERVIEW
• Have an investment committee appointed by the board of directors to include the LSC Treasurer.
• Have a written Investment Policy Statements (IPS) approved by the board of directors.
• Obtain professional advice at a reasonable cost. A written service agreement must clearly state how the advisor is compensated.
• Have a diversified portfolio to meet the IPS’s goals, objectives, and risk profile.
• Advisor must be free of any conflicts of interest (real or perceived) with members of the board of directors and investment committee.
I. Fundamentals of Investing
II. Features of a quality
investment process
III. What to look for in a
investment advisor
Objectives
LSC Investment Recommendations
FUNDAMENTALS OF INVESTING
0.10
1
10
100
1,000
$10,000
1926 1936 1946 1956 1966 1976 1986 1996 2006
$16,055
$2,982
$21$12
$93
Small Cap StocksCompound Annual Return: 12.1%
Large Cap stocksCompound Annual Return: 9.9%
Government Bonds Compound Annual Return: 5.5%
T-Bills Compound AnnualReturn: 3.6%
InflationCompound Annual Return: 3.0%
HISTORICAL GROWTH BY ASSET CLASS:1926-2010
Source: Ibbotson Associates. 3/1/2011.
Historically Large Cap U.S. Equities have provided superior long-term returns but . . .
See Disclosure Information at the end of this presentation which are an integral part of this presentation and each page of the presentation.
HISTORICAL VOLATILITY. . . the potential for higher returns comes with higher risk.
Time
Return V alues
-50.0%
60.0%
-45.0%
-40.0%
-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
15.1%
7.1%
Dec1926
Dec2010
Dec1930
Dec1935
Dec1940
Dec1945
Dec1950
Dec1955
Dec1960
Dec1965
Dec1970
Dec1975
Dec1980
Dec1985
Dec1990
Dec1995
Dec2000
Dec2005
IA SBBI S&P 500 TR USD IA SBBI US IT Gov t TR USD
Source: Ibbotson Associates. 3/1/2011.
Small stocks Large stocks Government bonds Treasury bills
-60
-30
0
30
60
90
120
150%
1-yearHolding period
5-year 20-year 1-year 5-year 20-year 1-year 5-year 20-year 1-year 5-year 20-year
Compound annual return:12.1% 9.9%
5.5% 3.6%
REDUCTION OF RISK OVER TIME1926–2010
Past performance is no guarantee of future results. Each bar shows the range of compound annual returns for each asset class over the period 1926–2010. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2011 Morningstar, Inc. All rights reserved. 3/1/2011
WHAT IS INVESTMENT RISK?
• Permanent Impairment of Capital
• Liquidity
• Inflation
PERMANENT IMPAIRMENT OF CAPITAL
• Business Failure• Counterparty• Fraud• Regulatory• Credit/Default• Interest Rate• Failed Trading
Strategies
LIQUIDITY RISK
• Regulatory• Leverage• Credit/Default• Equity Volatility• Counterparty
INFLATION
Inflation Cash S&P0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
3.9%4.4%
10.7%
Annual Returns: 1946-2010
DIVERSIFYING AWAY RISK
• Example of five equity funds
• Correlations
• Building an efficient portfolio
LARGE CAPGROWTH
16.71
BONDS
7.84
BEST PERFORMANCE
WEAKEST PERFORMANCE
Please note that this chart is based on past index performance and is not indicative of future results. Indexes are unmanaged and cannot be invested in directly. Index performance does not include fees and expenses an investor would normally incur when investing in a mutual fund. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets.
REAL ESTATE
-37.73
LARGE CAPGROWTH
-38.44
SMALL CAPGROWTH
-38.54
INT’L
-43.06
LARGE CAPVALUE
-36.85
LARGE CAP
-37.60
SMALL CAPVALUE
-28.92
BONDS
5.24
SMALL CAP
-33.79
INT’L
11.63
LARGE CAPGROWTH
38.71
SMALL CAP GROWTH
43.09
BONDS
10.26
SMALL CAP GROWTH
48.54
LARGE CAPGROWTH
23.12
LARGE CAPGROWTH
33.16
INT’L
20.33
INT’L
27.30
BONDS
11.63
BONDS
8.44
SMALL CAP VALUE
46.03
INT’L
20.70
LARGE CAPGROWTH
30.49
INT’L
39.17
BONDS
8.69
INT’L
-15.66
SMALL CAP GROWTH
1.23
SMALL CAP GROWTH
-9.23
SMALL CAP GROWTH
14.31
SMALL CAP GROWTH
11.26
SMALL CAP GROWTH
12.95
INT’L
-13.96
INT’L
6.36
LARGE CAPGROWTH
-22.42
LARGE CAPGROWTH
-20.42
LARGE CAPGROWTH
-27.89
LARGE CAPGROWTH
29.75
LARGE CAPGROWTH
6.30
BONDS
3.63
INT’L
2.06
SMALL CAP GROWTH
-22.43
INT’L
-21.21
SMALL CAP GROWTH
-30.26
BONDS
4.10
BONDS
4.34
20081996 1997 1998 1999 2000 2001 2002 2003 2004
SMALL CAP VALUE
4.71
INT’L
14.02
LARGE CAPGROWTH
5.26
BONDS
2.43
2005
SMALL CAPGROWTH
4.15
LARGE CAPVALUE
35.18
LARGE CAPVALUE
21.64
LARGE CAPVALUE
15.63
LARGE CAPVALUE
7.01
LARGE CAPVALUE
-15.52
LARGE CAPVALUE
-5.59
LARGE CAPVALUE
16.49
LARGE CAPVALUE
7.35
LARGE CAPVALUE
30.03
LARGE CAPVALUE
7.05
LARGE CAPVALUE
22.25
SMALL CAP GROWTH
13.35
2006
BONDS
4.33
LARGE CAPGROWTH
9.07
LARGE CAP
32.85
LARGE CAP
27.02
LARGE CAP
22.45
LARGE CAP
20.91
LARGE CAP
-7.79
LARGE CAP
-12.45
LARGE CAP
-21.65
LARGE CAP
29.89
LARGE CAP
11.40
LARGE CAP
6.27
LARGE CAP
15.46
SMALL CAP
47.25
SMALL CAP
21.26
SMALL CAP
2.49
SMALL CAP
18.33
SMALL CAP
22.36
SMALL CAP
-3.02
SMALL CAP
16.49
SMALL CAP
-20.49
SMALL CAP
-2.55
SMALL CAP
4.55
SMALL CAP
18.37
SMALL CAP VALUE
14.03
SMALL CAP VALUE
22.83
SMALL CAP VALUE
22.25
SMALL CAP VALUE
31.78
SMALL CAP VALUE
-11.43
SMALL CAP VALUE
21.37
BONDS
-0.82
BONDS
9.65
SMALL CAP VALUE
-6.45
SMALL CAP VALUE
-1.49
SMALL CAP VALUE
23.48
INT’L
26.86
REAL ESTATE
35.26
REAL ESTATE
26.35
REAL ESTATE
31.57
REAL ESTATE
13.93
REAL ESTATE
3.81
REAL ESTATE
37.14
REAL ESTATE
20.29
REAL ESTATE
-17.51
REAL ESTATE
-4.62
REAL ESTATE
12.15
REAL ESTATE
35.06
LARGE CAPVALUE
-0.17
SMALL CAP GROWTH
7.05
2007
BONDS
6.97
LARGE CAPGROWTH
11.81
LARGE CAP
5.77
SMALL CAP
-1.57
SMALL CAP VALUE
-9.78
REAL ESTATE
-15.69
INT’L
32.46
SMALL CAP GROWTH
34.47
BONDS
5.93
LARGE CAPGROWTH
37.21
2009
LARGE CAPVALUE
19.69
LARGE CAP
28.43
SMALL CAP
27.17
SMALL CAP VALUE
20.58
REAL ESTATE
27.99
SMALL CAP GROWTH
29.09
REAL ESTATE
27.95
SMALL CAP
26.85
SMALL CAP VALUE
24.50
LARGE CAP
16.10
LARGE CAPVALUE
15.51
INT’L
8.21
BONDS
6.54
2010
VALUE OF DIVERSIFICATION 1996-2011
LARGE CAPGROWTH
2.64
REAL ESTATE
8.28
2011
LARGE CAP
1.50
LARGE CAPVALUE
0.39
SMALL CAP GROWTH
-2.91
SMALL CAP
-4.18
SMALL CAP VALUE
-5.50
INT’L
-12.14
VALUE OF DIVERSIFICATION 1996-2011
Small Cap ValueRussell 2000®Value Index
Measures the performance of those Russell 2000® Index securities with lower price-to-book ratios and lower forecasted growth values, representative of US securities exhibiting value characteristics.
Small CapRussell 2000® Index
Measures the performance of the 2,000 smallest companies in the Russell 3000® Index, representative of the US small capitalization securities market.
Small Cap GrowthRussell 2000® Growth Index
Measures the performance of those Russell 2000® Index securities with higher price-to-book ratios and higher forecasted growth values, representative of US securities exhibiting growth characteristics.
Large CapRussell 1000® Index
Measures the performance of the 1,000 largest companies in the Russell 3000® Index, representative of the US large capitalization securities market.
Large Cap ValueRussell 1000®
Value Index
Measures the performance of those Russell 1000® Index securities with lower price-to-book ratios and lower forecasted growth values, representative of US securities exhibiting value characteristics.
Large Cap GrowthRussell 1000®
Growth Index
Measures the performance of those Russell 1000® Index securities with higher price-to-book ratios and higher forecasted growth values, representative of US securities exhibiting growth characteristics.
An index, with income reinvested, generally representative of intermediate-term government bonds, investment-grade corporate debt securities, and mortgage-backed securities.
BondsBarclays Capital U.S.
Aggregate Bond Index
InternationalMSCI® EAFE Index
An index, with dividends reinvested, representative of the securities markets of twenty developed market countries in Europe, Australasia, and the Far East.
Real EstateNAREIT Equity
REIT Index
An index, with dividends reinvested, representative of tax-qualified REITS listed on the New York Stock Exchange, American Stock Exchange, and the NASDAQ National Market System.
SOURCES:
MORE FUNDS DO NOT ALWAYS MEAN GREATER DIVERSIFICATIONIdentifying potential security overlap
Equity portfolio BDeep-value Core-value Core Core-growth High-growth
Mic
roSm
all
Mid
Larg
eG
iant
Equity portfolio ADeep-value Core-value Core Core-growth High-growth
Mic
roSm
all
Mid
Larg
eG
iant
Source: Morningstar, 2011.
EFFICIENT FRONTIER
• The theoretical maximum return for a portfolio of risky assets for a given level of “risk”.
• The theoretical minimum “risk” for a portfolio of risky assets for a given level of return.
• Frontier incorporates assumptions about risk and return that can be derived from historical data or developed using other methods.
CORRELATIONS: 1926-2010
Large Cap
Mid CapSmall Cap
IntlEmerg. Mkts
REITs CmdtyReal
ReturnHigh Yield
Corp BC AggUS IT Govt
Cash
Large Cap 1.00 0.91 0.83 0.61 0.66 0.57 0.27 0.28 0.65 0.26 0.24 0.08 (0.01) Mid Cap 1.00 0.86 0.62 0.69 0.62 0.32 0.30 0.60 0.29 0.19 0.03 0.01 Small Cap 1.00 0.50 0.65 0.64 0.25 0.23 0.70 0.16 0.12 0.02 (0.04) Intl 1.00 0.68 0.45 0.40 0.29 0.45 0.24 0.16 0.04 (0.03) Emerg. Mkts 1.00 0.42 0.39 0.24 0.55 0.20 0.01 (0.18) (0.04) REITs 1.00 0.23 0.11 0.54 0.23 0.17 0.03 (0.04) Cmdty 1.00 0.37 0.29 0.22 0.03 (0.06) - Real Return 1.00 0.23 0.23 0.05 (0.04) 0.23 High Yield 1.00 0.51 0.48 0.23 - Corporates 1.00 0.76 0.66 0.06 BC Agg 1.00 0.93 0.13 US IT Govt 1.00 0.20 Cash 1.00
Traditional Equities REITs, Commodities,Real Return
Bonds
STOCKS AND BONDS: RISK VERSUS RETURN
Maximum risk portfolio:100% Stocks
60% Stocks, 40% Bonds
50% Stocks, 50% Bonds
100% Bonds
Minimum risk portfolio:28% Stocks, 72% Bonds
80% Stocks, 20% Bonds
Return
Risk
EQUITY RETURNS An eventful three years!
• Staying the course through 2008 was challenging, but rewarding for investors who persevered• Average calendar year return of 12%• Note the distribution of returns to the right of 0%• Trying to time the market to experience only positive years is very challenging
Calendar Year S&P 500 Returns: 1926-2010
Rates of Return
200620041993 2009
2000 1988 2003 19971990 2007 1986 1999 19951981 2005 1979 1998 19911977 1994 1972 1996 19891969 1992 1971 1983 19851962 1987 1968 1982 19801953 1984 1965 1976 19751946 1978 1964 1967 1955
2001 1940 1970 1959 1963 19501973 1939 1960 1952 1961 1945
2002 1966 1934 1956 1949 1951 1938 19582008 1974 1957 1932 1948 1944 1943 1936 1935 1954
1931 1937 1930 1941 1929 1947 1926 1942 1927 1928 1933
-50% -40% -30% -20% -10% x 0% 10% 20% 30% 40% 50% 60%
Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.
2010
FEATURES OF A QUALITY INVESTMENT PROCESS
INVESTMENT PROCESS
Asset allocation
Portfolio construction
Implementation
Thorough understanding of capital market behavior
Consideration of the available asset classes
Well defined objectives and financial goals
Effectively capture intended asset class exposure
Focus on consistent return drivers
Management of unrewarded risks
Avoid areas of performance slippage
Managed explicit and implicit costs
Utilize unique insights to add value
Create and Implement an Investment Policy Statement
Managerresearch
Broad coverage of available opportunities
Access and perspective
Combination of qualitative and quantitative analysis
ASSET ALLOCATION
• Why Do We Do It?
• What Is It?
• How Do We Do It?
BROAD ASSET ALLOCATION STOCK TO BOND RATIO
Equities51%
Fixed Income44%
Real Estate4%
Cash1%
EQUITY ASSET ALLOCATION
Fixed Income44%
Real Estate4%Cash
1%US Large Cap Equi-
ties19%
US Small Cap Equi-ties6%
International Developed
19%Emerging Markets
7%
FIXED INCOME ASSET ALLOCATION
Equities51%
Real Estate4%
Cash1%
Investment Grade Fixed Income
42%
High Yield Bonds2%
MANAGER SELECTION PROCESS
Universe
Initial Screen
Quantitative Analysis
Qualitative Analysis
Final Selection
Over 135,000 open-ended funds and over 10,000 separately managed accounts within the Morningstar Direct universe.
Investment category, asset size of product, manager tenure, expense ratio & consistency to style.
Rank based on performance parameters (Risk-adjusted return, upside/downside capture, category rank, consistency of performance.
Analyze investment philosophy & style, manager compensation structure, firm reputation.
Final selection is determined by the Investment Policy Committee, taking into account the criteria listed above.
MULTI MANAGER No one is best at everything
Source: Beijing 2008 Olympic Games
0
5
10
15
20
25
30
35
40
% O
utpe
rfor
man
ce b
y In
divi
dual
Eve
nt C
ham
pion
Event 100m Long Jump
Shot Put
High Jump
400m 110m Hurdles
Discus Pole Vault
Javelin 1500m
Olympic Champion 8.34m9.69s 21.51m 2.36m 43.75s 12.93s 68.82m 5.96m 90.57m 3:32.94
Decathlon Champion 7.78m10.44s 16.27m 1.99m 48.92s 13.93s 53.79m 70.97m 5:06.595.00m
RUSSELL BY THE NUMBERS
For the fifth time in six years, Russell has been recognized as the “Best Multi-Manager of the Year” at the Global Pensions Awards.
Best Multi-Manager of the Year
Russell has one of the most effective due diligence practices in theconsulting industry, according to a 2012 FundFire survey of more than50 consultant relations specialists.
Voted Top inDue Diligence
Unless otherwise indicated, all data is as of December 31, 2011. * As of 3/31/2012The awards shown here do not pertain to specific mutual funds referenced in this presentation.**Global Investor “Top Marks” categories include: project management, operational efficiency, pre trade analysis, trading / execution, risk management, reporting during transition, post trade analysis, accuracy of pre trade analysis, transparency of fees and costs, relationship management, overall service.
Russell received “Top Marks” in every category* in 2011 – for the sixth year in a row – in the transition management survey conducted by Global Investor magazine.**
Received Top MarksIn Every Category
29
› U.S. $155 billion assets under management*
› 1,900 associates globally› 24 offices worldwide
› Over 6,000 investment products researched› As a consultant to some of the largest pools of
capital in the world, Russell has over $2 trillion in assets under advisement (as of 12/31/2011).
RUSSELL MONEY MANAGERSGrowth Market-oriented ValueBlackRock Capital Management, Inc.Columbus Circle InvestorsSustainable Growth Advisers, LP
Lazard Asset Management, LLCSuffolk Capital Management, LLC
Institutional Capital, LLCSchneider Capital Management CorporationSnow Capital Management L.P.
Aronson+Johnson+Ortiz, L.P.INTECH Investment Management, LLCJacobs Levy Equity Management, Inc.Numeric Investors, LLCPanAgora Asset Management, Inc.
EAM Investors, LLCFalcon Point Capital, LLCNext Century Growth Investors, LLCRanger Investment Management, L.P.
ClariVest Asset Management, LLCPENN Capital Management Company, Inc.
Chartwell Investment PartnersDePrince, Race & Zollo, Inc.Huber Capital Management LLCJacobs Levy Equity Management, Inc.Signia Capital Management, LLC
Axiom International Investors, LLCDriehaus Capital Management, LLCMarsico Capital Management, LLCWilliam Blair & Company, LLCAQR Capital Management, LLCMFS Institutional Advisors, Inc.
AQR Capital Management, LLCMFS Institutional Advisors, Inc.
del Rey Global Investors, LLCMondrian Investment Partners LimitedPzena Investment Management, LLC
UBS Global Asset Management(Americas), Inc.
Arrowstreet Capital, Limited PartnershipGenesis Asset Managers, LLPHarding Loevner, LPVictoria 1522 Investments, LP
AllianceBernstein, L.P.Delaware Management Company (a series of Delaware Management Business Trust)
Global Market OrientedAEW Capital Management, L.P.Cohen & Steers Capital Management, Inc.INVESCO Advisers, Inc., through INVESCO Real Estate Division
Russell U.S. Core Equity
Russell U.S. Quantitative Equity
Russell U.S. Small Cap Equity1
Russell Int’l Developed Equity
Russell Emerging Markets
Russell Global Real Estate Securities
Money managers listed are current as of 03/31/12. Subject to the fund's Board approval, Russell has the right to engage or terminate a money manager at any time and without a shareholder vote, based on an exemptive order from the Securities and Exchange Commission. Investments in the Funds are not deposits with or other liabilities of any of the money managers and are subject to investment risk, including loss of income and principal invested and possible delays in payment of redemption proceeds. The money managers do not guarantee the performance of any Fund or any particular rate of return.1 Small cap investments are subject to considerable price fluctuations and are more volatile than large company stocks.
PORTFOLIO CONSTRUCTION SUMMARY
Manager selection
• Primary source of excess return• “Best of breed” security pickers• Specific opinions for individual
investment managers• Asset class specialists
Portfolio construction
• Source of improved consistency• Limit uncompensated risk• Diverse and complementary
sources of excess return• Low return correlations*
*Correlation is a statistical measure of how two variables move in relation to each other.
CUSTOMIZING A PORTFOLIO
Asset AllocationImplementation
Stocks Bonds Cash Management Alternatives
Risk Management
Manager Selection
Investment Grade TaxablesHigh Yield
MuniGlobal
Small CapMid Cap
Large CapMajor Foreign Markets
Emerging Markets
CDARsMoney Market
CommoditiesREITS
Balanced Portfolio
WHAT TO LOOK FOR IN AN INVESTMENT ADVISOR
PORTFOLIO MANAGEMENT OBJECTIVES
• Manage portfolio strategies that effectively represent asset classes and risk profiles
• Captures value added from research inputs
• Combine premier managers with complementary investment portfolios
• Manage risks that offer no long-term rewards
• Generate above-average returns with long-term consistency
Core Growth
EarningsMomentum
CoreNeutral
CoreValue
LowP/E
High Yield
ConsistentGrowth
Determine goals and objectives
Develop optimal asset allocation to achieve goals and objectives
Actively manage investment portfolioFiduciary Oversight
Monitor and update goals and objectives
FIRST WESTERN APPROACH
FIRST WESTERN FEE STRUCTURE
LSC Investment Size Solution Fee Structure Fees IPS
$100-$250,000 Investment Mgmt Fee .50% Stand aloneAverage LifePoints Fund 1.03%Total Approx. Fee 1.53%
$250-$750,000 Investment Mgmt Fee .75% MasterAverage Fund Expense .77%Total Approx. Fee 1.52%
Over $750,000 Investment Mgmt Fee .75% Stand aloneAverage Fund Expense .77%Total Approx. Fee 1.52%
QUESTIONS?
Top Related