# 2 building portfolios

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Building Portfolios

Strategies that Stand Out

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DisclaimerAlthough the information contained herein is taken from sources believed to be reliable, Claymore Investments Inc. (Claymore) does notguarantee the accuracy or correctness of this information. No representation or warranty, express or implied, is or will be made, and noresponsibility or liability is or will be accepted, by Claymore or by any of our respective officers, directors, employees or agents as to or in relationto accuracy or completeness of this material or any other written or oral information made available to any interested party or its advisers and anyliability therefore is hereby expressly disclaimed. In particular, no representation or warranty is given as to the achievement or reasonableness ofany future projections, management estimates, prospects or returns.

This publication does not provide investment advice and is based on publicly available information. The information and opinions herein areprovided for informational purposes only, are subject to change and should not be relied upon for any other purpose. This publication has beenprepared without regard to the individual financial circumstances and objectives of those who receive it and the securities discussed in thiscommentary may not be suitable for all investors. Tax, investment and all other decisions should be made, as appropriate, only with guidance froma qualified professional. This publication is not and should not be construed as a solicitation or offering of units of any fund or other security in any

jurisdiction.

Any material contained in this presentation should not be considered a recommendation to buy or sell any securities. There is no assurance anyfund will achieve its investment objective. Index returns do not represent fund returns. Index performance results are hypothetical. Commissions,trailing commissions, management fees and expenses all may be associated with fund investments. The indicated rates of return are historicalannual compounded total return including changes in unit value and reinvestment of all distributions and do not take into account sales,redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Funds are notguaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing.

The trademarks and service marks contained herein are the property of their respective owners. Third-party data providers make no warranties orrepresentations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for anydamages of any kind relating to such data.

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Introduction to RAFI

Research Affiliates Fundamental Indexing

33


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4

Problems with Cap-Weighting

What if markets are not perfectly efficient?

Some stocks will be over-valued and some under-valued

The market attempts to seek out true value over time: overvalued stocks willdecrease in value, undervalued stocks will increase in value

Cap-weighting systematically Overweights all over-valued stocks

Underweights all under-valued stocks

Growth biased

Consequence: cap-weighted portfolios tend to be overvalued on aggregate


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The RAFI Approach

Weight holdings based on four fundamental factors of valuation

Total Cash Flow (5-Year Average)

Total Sales (5-Year Average)

Gross Dividends Paid (5-Year Average)

Book Equity Value (Shareholders Equity)

Price indifferent index

Strips away linkage between portfolio weight and any over- or under-valuation

Results in a portfolio that is similar to an equivalent cap-weighted portfolio, with someimportant performance differences

An index that represents companies economic footprints

Companies selected by fundamentals Companies weighted by fundamentals

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Fundamental versus Market Cap Performance

6

1 Year 3 Year 5 Year

FTSE RAFI Canada FundamentalIndex (C$)

+45.0% +2.6% 9.4%

S&P/TSX 60 Index (C$) +31.9% +0.3% 8.7%

Difference +13.1% +2.3% +0.7%

FTSE RAFI US 1000 FundamentalIndex (C$)

+22.0% -7.7% -0.6%

S&P 500 Hedged Index (C$) +8.7% -9.0% -2.3%

Difference +13.3% +1.3% +1.7

FTSE RAFI Global ex-US 1000Index (C$)

+22.3% -5.9% 3.9%

MSCI EAFE Index (C$) +13.8% -8.9% 1.2%

Difference +8.5% +3.0% +2.7%

Total Returns, as of December 2009

Source: Bloomberg


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-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35%

RAFIUSLarge3

-yearAnnualizedReturn

Cap 1000 3-year Annualized Return

For Cap Return< 0%, RAFI

adds value in92% of all

cases

For Cap Return0-10%, RAFI

adds value in83% of all cases

For Cap Return10-20%, RAFI


cases

For Cap Return> 20%, RAFI


cases

Note: The Cap 1000 is an annually rebalanced portfolio of the top 1,000 U.S. stocks by capitalization dating back to 1962. THE INDEX DATA PUBLISHED HEREIN ISSIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE ANDIS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. The simulated data contained herein is based on the patent-pending non-capitalization weighted indexing system, method, and computer program product first published in an article written by Robert D. Arnott, Jason Hsu, and PhilipMoore (2005), Fundamental Indexation, Financial Analysts Journal(March/April): 8399.

All data herein prepared by Research Affiliates, based on data from CRSP and Compustat.

Simulated RAFI vs. Cap-Weight

Three-Year Rolling Returns: 1962June 2009


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8

Asset Allocation as a Portfolio Driver

Numerous studies done to determine how much of a multiple asset class portfolios returndue to asset allocation vs. other factors

Results show that asset allocation decision is single most important factor in multipleasset portfolio

8Source: Financial Analysts Journal quarterly publication

Percentage Of Return Explained by AssetAllocation

Brinson(1986)

Brinson(1991)

Ibbotson-Mutual(2000)

Asset Allocation 93.6% 91.5% 81.4%

Active Return -1.1% -0.08% -0.27%


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9

Efficient Portfolio Development7 Asset Class Portfolio Construction (Jan 1990 December 2009)

Source: Bloomberg. For Illustrative Purposes Only.

Canadian Equity

Canadian Bonds

Global Equity

Global Bonds

Emerging Equity

Real Estate

Commodities

ASSET CLASS PORTFOLIO 1

Canadian Equity 50%

Canadian Bonds

Global Equity 50%

Global Bonds

Emerging Equity

Real Estate

Commodities

TOTAL 100%

PERFORMANCE

Returns (annualized) 7.27%

RISK

Standard deviation (annualized) 13.39%

RISK ADJUSTED PERFORMANCE

Return/Risk ratio 0.54

Maximum Monthly Drawdown -15.09%

PORTFOLIO 1

50% 50%


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Canadian Equity

Canadian Bonds

Global Equity

Global Bonds

Emerging Equity

Real Estate

Commodities

ASSET CLASS PORTFOLIO 1 PORTFOLIO 2

Canadian Equity 50% 30%

Canadian Bonds 20%

Global Equity 50% 30%

Global Bonds 20%Emerging Equity

Real Estate

Commodities

TOTAL 100% 100%

PERFORMANCE

Returns (annualized) 7.27% 7.96%

RISK

Standard deviation (annualized) 13.39% 8.26%


Return/Risk ratio 0.54 0.96

Maximum Monthly Drawdown -15.09% -8.59%

PORTFOLIO 2PORTFOLIO 1

50%

20%

30%30%

20%

50%


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Canadian Equity

Canadian Bonds

Global Equity

Global Bonds

Emerging Equity

Real Estate

Commodities

ASSET CLASS PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3

Canadian Equity 50% 30% 30%

Canadian Bonds 20% 20%

Global Equity 50% 30% 20%

Global Bonds 20% 20%Emerging Equity 10%

Real Estate

Commodities

TOTAL 100% 100% 100%

PERFORMANCE

Returns (annualized) 7.27% 7.96% 8.60%

RISK

Standard deviation (annualized) 13.39% 8.26% 8.65%


Return/Risk ratio 0.54 0.96 0.99

Maximum Monthly Drawdown -15.09% -8.59% -9.37%

PORTFOLIO 3PORTFOLIO 2PORTFOLIO 1

50%

20%

30%30%

20%

20%

20%

20%

30%50%

10%


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Canadian Equity

Canadian Bonds

Global Equity

Global Bonds

Emerging Equity

Real Estate

Commodities

ASSET CLASS PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3 PORTFOLIO 4 PORTFOLIO 5

Canadian Equity 50% 30% 30% 25% 20%

Canadian Bonds 20% 20% 20% 20%

Global Equity 50% 30% 20% 15% 15%

Global Bonds 20% 20% 20% 20%Emerging Equity 10% 10% 7.5%

Real Estate 10% 7.5%

Commodities 10%

TOTAL 100% 100% 100% 100% 100%

PERFORMANCE

Returns (annualized) 7.27% 7.96% 8.60% 8.73% 8.40%

RISK

Standard deviation (annualized) 13.39% 8.26% 8.65% 8.14% 7.36%


Return/Risk ratio 0.54 0.96 0.99 1.07 1.14

Maximum Monthly Drawdown -15.09% -8.59% -9.37% -8.45% -8.27%

PORTFOLIO 5PORTFOLIO 4PORTFOLIO 3PORTFOLIO 2PORTFOLIO 1

50%

20%

30%30%

20%

20%

20%

20%

30%50%

10%

20%

25%

15%

20%

10%10%

20% 15%

20%

7.5%7.5%

10%

20%


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What if We Used RAFI Instead of Market Cap?

RAFI adds significant value by improving return, but more importantly reducing risk

14

Using MarketCap*

Using RAFI* RAFI Benefit

Return 8.40% 10.55% 2.15%

Standard Deviation 7.36% 6.96% -0.40%

Risk Adjusted Return 1.14 1.52 0.37

Max Drawdown(Mos) -8.27% -7.00% 1.27%

Source: Bloomberg. For Illustrative Purposes Only *


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Correlations (1990 2009)

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CanadianEquity

CanadianBonds

GlobalEquity

GlobalBonds

EmergingMarkets

GlobalReal

Estate

Commodities

Canadian Equity 1

Canadian Bonds 0.27 1

Global Equity 0.67 0.19 1Global Bonds -0.32 0.24 0.08 1

Emerging Equity 0.67 0.13 0.70 -0.21 1

Global RealEstate

0.35 0.14 0.49 0.09 0.36 1

Commodities 0.18 -0.02 -0.01 0.00 0.03 0.01 1

Source: Bloomberg


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But Broadly, Correlations are Still Low

Correlations across multiple asset classes remain low

16Source: Bloomberg

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Average Correlation Across Asset Classesas of December 31, 2009

36 Month

24 Month

12 Month

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