risk management: combining strategic and tactical aprpoaches to investment management - mark...

Risk Management: Combining Strategic and Tactical Approaches to Investment Management

“Consistently Good Advice in a Constantly Changing World”™

AEPG Wealth Strategies25 Independence Blvd

Warren, NJ 07059908-757-5600

www.aepg.com

Mark Ukrainskyj, CFA

IFG Wealth Management Forum

April 24, 2012

Mark Ukrainskyj

CIO

AEPG Wealth Strategies

Risk Management: Combining Strategic and Tactical

Approaches to Investment Management

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Agenda


Approaches to Investment Management Mark Ukrainskyj

CIOAEPG Wealth

Strategies

�Define

�Short History

�Approach


�Approach

�Cases

Definitions



CIOAEPG Wealth

Strategies

�Strategic•a long-range plan for achieving something or reaching a goal, or the skill of making such plans


�Tactical•done in order to get a particular result

Mark Ukrainskyj

CIO




Large

Growth

Large

Core

Large

ValueLarge

US Stocks International Stocks

Traditional Stock Diversification


Small

Value

Small

Core

Mid CoreMid ValueMid

Growth

Small

Growth

Mid

Small

Mark Ukrainskyj

CIO


Risk Management: Combining Strategic and

Tactical Approaches to Investment Management

Traditional Portfolio Diversification


BondsStocks

Mark Ukrainskyj

CIO




Updated ‘Traditional’ Portfolio Diversification


AlternativesCommoditiesREITS/

Real Estate

BondsStocks

Mark Ukrainskyj

CIO




Retu

rn

8%

10%

12%

14%

MSCI ACWI

Wilshire 5000 (Full Cap)

MSCI EAFE

MSCI EM (EMERGING MARKETS)

Russell 1000

Russell 2000

Barclays Capital U.S. Aggregate

Barclays Capital U.S. Treasury: 1-3 Year

Treasury Indexes

Corporates

REIT's

Commodities

High Yield

Fund of Funds

Hedge Funds

Stocks

Return/Correlation vs. MSCI World 1/92 -6/08


Retu

rn

0%

2%

4%

6%

Correlation vs. MSCI WORLD

-0.2 0 0.2 0.4 0.6 0.8 1


Barclays Capital U.S. Treasury: Long

BofA Merrill Lynch US Treasury Master

BofA Merrill Lynch US Corporate Master

BofA Merrill Lynch High Yield Master II

BofA Merrill Lynch Mortgage MasterBofA Merrill Lynch Municipal Master

Dow UBS Commodity Index

Wilshire REIT

HFRI Fund of Funds Composite Index

HFRI Fund Weighted Hedge Fund Index

Aggregate, Mortgages, Munis

Corporates

Source: Zephyr

Mark Ukrainskyj

CIO



Tactical Approaches to Investment ManagementR

etu

rn

-10%

0%

10%

20%

30%

MSCI ACWIWilshire 5000 (Full Cap)

MSCI EAFEMSCI EM (EMERGING MARKETS)

Russell 1000

Russell 2000

Barclays Capital U.S. Aggregate


Treasury 1-3Years

Treasuries and Mortgages

Aggregate

MunisCorporates

Hedge Funds and FoF's

Return/Correlation vs. MSCI World 7/08 – 12/08


Retu

rn

-60%

-50%

-40%

-30%

-20%

Correlation vs. MSCI WORLD

-0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1



Barclays Capital U.S. Treasury: LongBofA Merrill Lynch US Treasury MasterBofA Merrill Lynch US Corporate Master

BofA Merrill Lynch High Yield Master II

BofA Merrill Lynch Mortgage Master

BofA Merrill Lynch Municipal MasterDow UBS Commodity Index

Wilshire REIT

HFRI Fund of Funds Composite Index

HFRI Fund Weighted Hedge Fund Index

REIT's

Commodities

Stocks & High Yield

Source: Zephyr

Mark Ukrainskyj

CIO




US equities outperformed

non-US equities

High quality fixed income

was the leader in 2008

MSCI EAFE

BarclaysAgg

GSART Index

Russell 2000

Russell MidCap

3 MonthT-Bill

DJ Wilshire

RESIRussell 1000

Russell 1000 Value

BarclaysHighYieldMuni

BarclaysMuniAgg

RussellMidCap

Growth

FTSE/EPRA Global Real

Estate

Russell 1000

Growth

RussellMidCap

Value

Russell 2000

Growth

Russell 2000 Value

S&P 500

BarclaysUS

Treasury

MSCIBRICs

S&PGSCI

BarclaysHighYield

MSCIEmerging Markets

Fears of global

recoupling hurt

emerging markets

2008 Returns for Market Indices (%)


Small caps:

equity leaders

despite the

turbulence After rallying in the first

half of the year, a

precipitous drop in oil

prices drove commodity

returns negative

Source: Bloomberg



Historical Returns

Mark Ukrainskyj

CIOAEPG Wealth

Strategies

When Stocks Fall, Government Bonds Usually Rise

U.S. Intermediate Government Bonds


Source: Ibbotson Associates. Selected years shown represent all calendar years from 1929 to 2008 in which the S&P 500 Index had a negative total return. U.S. Intermediate-Term Government Bonds are represented by the 1-10 year U.S. Government Bond Index. Past performance is not indicative of future results. Please note that indices are unmanaged and do not take into account any fees or expenses of investing in the individual securities that they track, and that individuals cannot invest directly in an index.

Years in which the S&P 500 showed a negative return

S&P 500 Index



Recent Historical Returns

Mark Ukrainskyj

CIOAEPG Wealth

Strategies

27.7%

Index Performance7/26/11 – 10/4/11


Source: Bloomberg and Ibbotson Associates

-21.5%

-15.6% -14.7%

-10.4%

4.3%

MSCI ACWIMI S&P 500 DJ UBS Commodity Index

DJ REIT Index Intermediate Term Treasuries

Long Term Treasuries

MSCI ACWIMI S&P 500 DJ UBS Commodity Index DJ REIT Index Intermediate Term Treasuries Long Term Treasuries

Tactical Diversification History



CIOAEPG Wealth

Strategies

�Minimal Use•Sector or Asset Class Over/Under Weights




Portfolio Structure

Mark Ukrainskyj

CIO


Low RiskLow Risk Risk BasedRisk Based


US Treasury

Model

US Treasury

ModelCore Equity

Investments

Core Equity

Investments

Satellite

Investments

Satellite

Investments

Strategic Long TermStrategic Long TermTactical Short

Term

Tactical Short

Term

IncomeIncome

Low Risk



CIOAEPG Wealth

Strategies

Treasuries - Low Risk�Bond Model with staggered maturities

�Safe money

�Provides cash flow for distribution

�

Low RiskLow Risk


�Treasuries will appreciate in value

during periods of sharp decline in the

equity markets

US Treasury

Model

US Treasury

Model

Strategic Long TermStrategic Long Term

Risk Based



CIOAEPG Wealth

Strategies

Strategic Risk Based Assets

� Income Investments

�High Quality Income

Stream

� Investment Grade Spread

Investments

Risk BasedRisk Based


� Core Equities

�Low Cost Beta Exposure

� Individual stocks

�Exchange Traded Funds

(ETFs)

�Tracks global equity index

�Low cost third party

manager

Core Equity

Investments

Core Equity

Investments

Strategic Long TermStrategic Long Term

IncomeIncome

Risk Based



CIOAEPG Wealth

Strategies

Tactical Risk Based Assets

� Alpha Generation� Risk Management� Possible Satellite Investments

�Cash

Risk BasedRisk Based


�Sector Funds

�Country/Regional Funds

�Market Cap or Style ETF’s

�Commodities

�Alternative ETF’s

�High Yield Bonds

�Investment Grade Bonds

�US Treasuries & TIPS

Satellite

Investments

Satellite

Investments

Tactical Short

Term

Tactical Short

Term

Core Satellite



CIOAEPG Wealth

Strategies

Advantages

� Core Equities - Strategic

�Low Cost

�Broad Based

�Tax Loss Harvesting

Satellite Satellite


� Satellite - Tactical

�Flexible

�Tactical

�Concentrated

�Risk Management

�Hedging

Core

SatelliteSatellite

Satellite Satellite

Satellite



CIOAEPG Wealth

Strategies

Process

� Set/Limit Number of Satellites

� Research Possible Investments

� Analyze Primary Drivers and Risks


� Analyze Primary Drivers and Risks

� Identify Specific Entry and Exit points

� Set Risk Management Parameters

� Execution/Discipline

Satellite



CIOAEPG Wealth

Strategies

Research

�Qualitative

�Quantitative

�Technical


�Technical



Satellite Example

Mark Ukrainskyj

CIOAEPG Wealth

Strategies

Satellite Activity6/30/11 – 9/30/11

Bonds

Cash

60%

70%

80%

90%

100%


Equity

Bonds

0%

10%

20%

30%

40%

50%

Equity Bonds Cash



Satellite Example

Mark Ukrainskyj

CIOAEPG Wealth

Strategies

Risk Management Example #16/30/11 – 9/30/11


Source: Bloomberg



Satellite Example

Mark Ukrainskyj

CIOAEPG Wealth

Strategies

Risk Management Example #23/30/11 – 4/13/12


Source: Bloomberg

Summary/Benefits



CIOAEPG Wealth

Strategies

�Structural Diversification

�Risk Management

�Low Costs


�Low Costs

�Alpha Generation

�Tax Management



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