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Factor Returns, Low Volatility and Buyback

September 2015 Nick KalivasSr. Equity Product Strategist

Road Map

Factor Returns – The Winners and Losers

Low Volatility Investing

The Buyback Factor

3 FOR INSTITUTIONAL INVESTOR USE ONLYP-NKCFA-PPT US9696 08.15 x 09.15

Reviewing Factor ReturnsThis Year’s Winners and Losers at June 30

5

Source: Bloomberg L.P., as of June 30, 2015. An investment cannot be made directly into an index. Index returns do not reflect any fees, expenses or sales charges. Nor do they represent fund performance. Past performance does not guarantee future results. Diversification does not ensure a profit or eliminate the risk of loss.

FOR INSTITUTIONAL INVESTOR USE ONLYP-NKCFA-PPT US9696 08.15 x 09.15

First Half 2015 Returns by Investment Factor

Factor YTD Return

(6/30/15)2014 1 Year 5 Year 10 Year

Since Inception

ReturnInception Date Index Name

Momentum Small 6.53% -1.14% 6.52% - - 21.08% 6/27/2012 Dorsey Wright® SmallCap Technical Leaders Index

Multi Factor Large Growth 5.56% 14.23% 14.19% 20.70% 8.81% 8.65% 12/9/2003 Dynamic Large Cap Growth Intellidex Index

Momentum Mid Large 5.05% 11.98% 10.56% 18.70% - 7.75% 1/9/2007 Dorsey Wright® Technical Leaders Index

S&P 400 Index 4.20% 9.77% 6.40% 17.81% 9.74% - - S&P MidCap 400 Index

S&P 600 Index 4.16% 5.76% 6.72% 18.43% 9.27% - - S&P SmallCap 600 Index

Multi Factor Broad 3.65% 9.70% 5.71% 18.97% 7.73% 10.79% 4/25/2003 Dynamic Market Intellidex Index

Fundamental Mid-Small 3.46% 4.70% 4.36% 17.45% - 9.03% 5/4/2006 FTSE RAFI US 1500 Small-Mid Index

Low Vol Mid 2.02% 18.38% 8.63% - - 16.75% 9/24/2012 S&P MidCap 400 Low Volatility Index

Buyback 1.98% 13.52% 10.32% 21.59% - 10.31% 11/9/2006 NASDAQ Buyback Achievers Index

Large Equal Weight 1.93% 11.06% 2.96% - - 3.55% 6/25/2014 Russell 1000 Equal Weight Index

S&P 500 Index 1.23% 13.69% 7.42% 17.33% 7.89% - - S&P 500 Index

Fundamental Large 0.19% 12.63% 4.81% 17.42% - 8.85% 11/28/2005 FTSE RAFI US 1000 Index

Low Vol Small 0.00% 11.17% 6.66% - - 15.93% 9/24/2012 S&P SmallCap 600 Low Volatility Index

Quality Large -0.06% 16.40% 9.73% 18.41% - 16.60% 6/20/2010 S&P 500 High Quality Rankings Index

Dividend Growth -0.20% 18.45% 7.03% 16.46% - 3.31% 4/30/2006 NASDAQ Dividend Achievers 50 Index

High Beta -0.95% 13.05% 2.16% - - 8.50% 4/4/2011 S&P 500 High Beta Index

Multi Factor Large Value -1.24% 12.93% 3.24% 17.48% 10.31% 11.10% 12/9/2003 Dynamic Large Cap Value Intellidex Index

Dividend & Vol Large -1.70% 20.25% 4.47% - - 12.85% 9/17/2012 S&P 500 Low Volatility High Dividend Index

Low Vol Large -2.11% 17.49% 5.82% - - 13.67% 4/4/2011 S&P 500 Low Volatility Index

Active -5.81% 5.77% -2.95% 7.70% - 11.38% 12/20/2005 S&P 500 Dynamic VEQTOR Index

Source: Bloomberg L.P., as of June 30, 2015. An investment cannot be made directly into an index. Index returns do not reflect any fees, expenses or sales charges. Nor do they represent fund performance. Please see slide 38 for index proxies. Past performance does not guarantee future results. Diversification does not ensure a profit or eliminate the risk of loss.

Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

High Beta6.2%

Buyback14.6%

Buyback4.9%

Buyback10.2%

High Beta13.7%

High Dividend4.9%

High Dividend7.8%

S&P 5001.1%

Low Volatility9.2%

Momentum5.9%

Growth0.6%

Small Cap3.6%

High Dividend13.4%

Small Cap4.9%

Small Cap10.2%

Growth10.8%

Low Volatility3.3%

High Beta7.2%

High Quality1.1%

High Quality8.6%

Growth4.9%

S&P 5000.3%

Fundamental2.2%

Value13.2%

High Beta4.2%

Growth9.0%

Buyback10.7%

Value3.0%

Dividend Growers5.4%

Growth1.0%

Small Cap7.9%

Small Cap3.4%

Small Cap0.1%

Momentum1.6%

Low Volatility13.2%

Value3.7%

High Beta8.9%

Fundamental10.5%

Fundamental2.5%

S&P 5005.2%

Value1.0%

Buyback7.8%

Buyback3.0%

Fundamental-0.1%

High Quality1.3%

Fundamental12.8%

Fundamental3.5%

Momentum8.3%

Value10.5%

High Beta2.2%

Low Volatility5.2%

Momentum0.9%

High Dividend7.6%

High Quality1.2%

Value-0.3%

Value1.0%

Small Cap12.1%

High Quality3.0%

High Quality5.6%

S&P 50010.5%

High Quality1.8%

Fundamental5.0%

Buyback0.3%

Growth7.1%

High Dividend1.0%

Momentum-0.8%

Growth0.4%


Growth2.9%

S&P 5005.2%

Small Cap9.8%

S&P 5001.8%

Value4.9%

Fundamental-0.1%

S&P 5004.9%

S&P 5001.0%

Buyback-1.0%

Buyback0.3%

High Quality11.3%

S&P 5002.9%

Fundamental5.2%

High Quality9.4%

Small Cap1.6%

Growth4.7%

Dividend Growers-0.3%


Low Volatility0.7%

High Quality-1.3%

S&P 500-0.4%

Growth11.1%

Momentum1.2%


Momentum8.4%

Momentum1.6%

Momentum4.7%

High Beta-0.3%

Fundamental4.8%

High Beta0.7%

High Beta-1.6%

Low Volatility-0.9%

Momentum10.7%

High Dividend1.1%

Value3.0%



High Quality4.1%

Low Volatility-1.0%

Momentum4.3%

Fundamental0.3%



S&P 50010.6%


Low Volatility1.2%

Low Volatility7.0%

Buyback1.4%

Buyback3.5%

High Dividend-1.3%

Value3.5%

Value-1.0%

High Dividend-2.7%

High Dividend-1.6%

High Beta9.5%

Low Volatility0.9%

High Dividend0.5%

High Dividend5.2%

Growth0.8%

Small Cap2.2%

Small Cap-6.5%

High Beta3.4%


Low Volatility-2.8%

Difference Between Top and Bottom Performing Market Segments

7.8% 5.1% 4.0% 9.7% 8.5% 4.1% 5.7% 7.7% 5.8% 7.2% 3.4%

Factor Leadership Can Change Rapidly


Drivers of first half 2015 Returns

� Momentum has liked dispersion– Falling correlations during H1– Expected earnings varied greatly by sector• S&P 500 energy & material sector 2015 EPS were expected to contract 67.5% and

0.4% year over year, respectively1

• S&P 500 healthcare & consumer discretionary 2015 EPS forecast to rise 26.3% and 8.8% year over year, respectively1

� Small caps less impacted by a strong dollar

� Falling volatility hurt low volatility and quality– VIX fell from 19.2 at end of 2014 to 11.9 on June 23rd prior to Greek crisis1

– Historically low volatility and quality show outperformance in high or rising VIX environments as depicted on slide 24.2

� Rising rates pressured dividends (REITs & utilities)– Drumbeat of Fed rate hikes amplified – US 10 year treasury rose from 1.64% on Jan 30th to 2.47% on June 261

1 Source: Bloomberg, L.P. as of June 30, 2015 Past performance does not guarantee future results.

2. High Quality is represented by S&P 500 High Quality Rankings Index which was incepted on June 20, 2010. The S&P 500 High Quality Rankings Index is designed to provide exposure to the constituents of the S&P 500 Index that are identified as stocks reflecting long-term growth and stability of a company's earnings and dividends. Low Volatility is represented by the least volatile quintile of the S&P 500 Index. The low volatility quintile is calculates by taking the 100 of the least volatile stocks from the S&P 500 Index. Volatility defined as 36-month price return volatility.


Source: Bloomberg L.P., since index inception shown as of June 30, 2015. An investment cannot be made directly into an index. Index returns do not reflect any fees, expenses or sales charges. Nor do they represent fund performance. Please see slide 38 for index proxies and definitions. These are the indexes most commonly recognized by investors to represent smart beta indexes. Past performance does not guarantee future results. Smart beta strategies may underperform cap-weighted benchmarks and increase portfolio risk. There is no assurance that an investment strategy will outperform or achieve its investment objectives.

Factorbased Indexes Historical Performance

Smart Beta Index Excess Return Since Respective Index Inception – Focus on the investment cycle

Annualized Excess Return

Index inception 11/9/2006 12/9/2003 11/28/2005 4/4/2011 11/23/2004 6/20/2010 4/4/2011 1/9/2007 1/1/1984 12/9/2003 12/9/2003


Based on Predetermined

Rules

Expanding the Investor ToolboxDecoding Smart Beta

Common ingredients“The common thread among [smart beta ETFs] is that they seek to either improve their return profile or alter their risk profile relative to more traditional market benchmarks.” 1

1 Source: “The Strategic Factor of Smart Beta” Morningstar Magazine, April/May 2014Beta is a measure of risk representing how a security is expected to respond to general market movements. Smart Beta: an alternative and selection index based methodology that may outperform a benchmark or mitigate portfolio risk, or both in active or passive vehicles. Smart beta funds may underperform cap-weighted benchmarks and increase portfolio risk.

COMMON INGREDIENTS FOR SMART BETA

Provide Exposure To Risk Factors

Also Known As:

�Alternative Beta

�Alternative Indexing

�Strategic Beta

�Advanced Beta

Systematically rebalanced

Ben Johnson, Director of Passive Funds Research, Morningstar


Highlighting Low Volatility Investing

� Defined

� Evidence

� Why does it exist

For US Institutional Use Only

Low Volatility Research

What is Low Volatility Investing?

Breaks the idea that risk and return are related, turning text book finance on its head

Strategies that aim to deliver

� Protection in falling markets

� Participation in rising markets

Different Implementation Approaches

�1/Volatility = weighted by the inverse of volatility– Sort universe of stocks by standard deviation and invest in lower standard deviation stocks– Simple, transparent and unconstrained exposure to low volatility

�Optimized Minimum Variance

– Constructed from a parent universe of stocks that takes into account both stock volatility and correlation between stocks

– Less transparent construction process by which portfolio is optimized and constrained to match risk factor characteristics of a parent index


Of course, low volatility cannot be guaranteed.


A Persistent Anomaly

Source: FactSet as of Mar 31, 2015. Includes 1,000 largest U.S. stocks by market cap. Equal-Weighted monthly rebalances, compounded. Volatility defined as 36-month price return volatility.Past Performance is no guarantee of future results

Source: FactSet as of Mar 31, 2015. Includes 1,000 largestU.S. stocks by market cap. Equal-Weighted monthly.Past Performance is no guarantee of future results

CAPM Alphas of Volatility Quintiles of the Russell 1000 Index , US Dec 1988 to Mar 2015


Global Persistence

Low Volatility Effect Has Existed Across Developed Countries ...

Source: “Low risk stocks outperform within all observable markets of the world”, Nardin Baker and Robert Haugen, as of April 2012. Most recent data available. Past Performance is no guarantee of future results.


Global Persistence

... and is Strong Across Emerging Market Equities Too

Source: “Low risk stocks outperform within all observable markets of the world”, Nardin Baker and Robert Haugen, as of April 2012. Most recent data available. Past Performance is no guarantee of future results.



Why Does the Low Volatility Anomaly Exist?

Behavioral Explanations

�Preference for Lotteries – investors tend to make irrational decisions in the face of volatility, similar to behaviors when playing the lottery -- odds against them but yet they seek high payoffs

�Overconfidence – investor overly confident in their estimates of future value –particularly pervasive with more volatile stocks

Structural Explanations

�Leverage constrained – leverage constraint may cause investors to synthetically create“leverage” by purchasing higher volatility stocks thus bidding up their price

�Limits to arbitrage: fixed-benchmark mandates typically makes institutional investment managers less likely to exploit the low volatility anomaly


Benefits of Unconstrained Sector Allocation

� Seeking to avoid potholes

� Seeking to capture opportunity


The Importance of an Unconstrained Sector ApproachCase Study #1: Technology Bubble

�From 2000-2002, technology sector declined by a cumulative 73%. During this period, the 100 least volatile companies in the S&P 500 Index only consisted of two stocks from the tech sector

�A minimum variance sector constrained approach would be required to maintain a weight within 5% of the cap-weighted parent index.

�The technology sector represented 29% of the S&P 500 Index in January 2000 and averaged 21% over the next three years thus a constrained low volatility approach would have been required to start the period with least 24% exposure to technology and maintain an average 16% exposure during a period when the sector lost nearly three quarters of its value.

Source: Invesco PowerShares and Bloomberg LP. As of March 31, 2015. For Illustrative purposes only. Investors cannot invest directly in a basket of the 100 least volatile companies in the S&P 500® Index. Although the unconstrained methodology outperformed the constrained methodology in these case studies an investor may benefit from a sector constrained methodology. An unconstrained methodology can dynamically increase exposure to sectors with lower volatility, a sector constrained methodology limits the sector allocation to +/- 5% of the sector weight of its market capitalization weighted benchmark. This may increase sector concentration risk relative to the broad market.


The Importance of an Unconstrained Sector ApproachCase Study #2: Global Financial Crisis

�From October 2007 to February 2009, the market declined 51% with financials dropping 76%.

�During this time period, the unconstrained low volatility basket had an average weight in financials of 3% dropping from over 30% in June 2007 to 4% by January 2008. A constrained methodology would been required to hold an average of 11% in financials over the crisis period.


Source: Invesco PowerShares and Bloomberg LP. As of March 31, 2015. For Illustrative purposes only. Investors cannot invest directly in a basket of the 100 least volatile companies in the S&P 500® Index. Although the unconstrained methodology outperformed the constrained methodology in these case studies an investor may benefit from a sector constrained methodology. An unconstrained methodology can dynamically increase exposure to sectors with lower volatility, a sector constrained methodology limits the sector allocation to +/- 5% of the sector weight of its market capitalization weighted benchmark. This may increase sector concentration risk relative to the broad market.

The Importance of an Unconstrained Sector Approach

�Seeks to offer a pure low volatility stock portfolio

�Allows for a sector allocation that’s dynamic and can rotate as market conditions change

�Results in a pure low volatility stock portfolio which does not simply equal a Utilities portfolio. The S&P 500 low volatility quintile reduced exposure to Utilities by 28.36% or over 90% between May 2012 and March 2015, as the Utilities sector’s volatility increased

Source: Invesco PowerShares and Bloomberg LP. As of March 31, 2015

Utility exposure reduction of the least volatile quintile of the S&P 500 Index

Total sector holdings percent of the leastvolatile quintile of the S&P 500 Index


Low Volatility Performance in Different Market Conditions

• Bull/Bear Markets• Seasonality • Rising/Falling Interest Rates• Rising/Falling Volatility


Low Volatility Performance in Bull & Bear Markets

Source: FactSet, Bloomberg, L.P. and Invesco PowerShares as of March 31, 2015Past performance is no guarantee of future results

Post 1992 Equity Bear Markets (Absolute Decline)

S&P 500 Low S&P 500 High S&P 500 IndexLeast Volatile Quintile of

the S&P 500 Index

Least Volatile Quintile

Excess Return

Aug-98 Aug-01 22.98% 40.82% 17.84%

Sep-02 Oct-07 108.39% 97.34% -11.05%

Feb-09 Apr-11 93.95% 45.36% -48.59%

Sep-11 Mar-15 97.08% 85.99% -11.09%

Average 80.60% 67.38% -13.22%

Median 95.52% 65.68% -11.07%

Post 1992 Equity Bull Markets (Absolute Gain)

S&P 500 High S&P 500 Low S&P 500 IndexLeast Volatile Quintile of

the S&P 500 Index

Least Volatile Quintile

Excess Return

Jun-98 Aug-98 -15.37% -9.15% 6.22%

Aug-01 Sep-02 -26.91% -1.59% 25.32%

Oct-07 Feb-09 -50.95% -24.35% 26.60%

Apr-11 Sep-11 -16.26% -0.36% 15.91%

Average -27.37% -8.86% 18.51%

Median -21.58% -5.37% 20.61%


Using Low Volatility for Seasonal Investing

Source: FactSet, Bloomberg, L.P. and Invesco PowerShares as of Dec 31 2014Low Volatility is represented by the least volatile quintile of the S&P 500 Index. The low volatility quintile is calculates by taking the 100 of the least volatile stocks from the S&P 500 Index. Volatility defined as 36-month price return volatility. Past Performance is no guarantee of future results. An investor cannot invest directly in an index.

April to October Performance 1992 to 2014 October to April Performance 1992 to 2014

Least Volatile Quintile of the S&P 500 Index S&P 500 Index

Return 4.74% 2.65%

Volatility 7.77% 10.92%

Return/Volatility 0.62 0.24


Least Volatile Quintile of the S&P 500 Index S&P 500 Index

Return 7.03% 7.65%

Volatility 7.02% 9.64%

Return/Volatility 1.00 0.79

Low Volatility in a Rising and Falling Rate Environment

Source: FactSet, Bloomberg, L.P. and Invesco PowerShares as of March 31, 2015Past performance is no guarantee of future results

Returns are annualized

Sep-93 Nov-94 2.52% -5.29% 1.84% -7.13%

Dec-95 Aug-96 1.37% 6.40% 11.35% -4.96%

Sep-98 Jan-00 2.25% -3.77% 28.23% -32.00%

May-03 Mar-06 1.48% 16.72% 12.97% 3.75%

Dec-08 Dec-09 0.92% 22.25% 27.72% -5.48%

Jul-12 Dec-13 1.56% 17.37% 25.70% -8.33%

Average 1.68% 8.95% 17.97% -9.02%

Median 1.52% 11.56% 19.33% -6.31%

10 Year Yield High 10 Year Yield Low10 Year Yield

Change

Least Volatile Quintile of the S&P 500 Index

S&P 500 IndexLow Vol Excess

Return

Nov-94 Dec-95 -2.33% 34.80% 36.02% -1.22%

Aug-96 Sep-98 -2.52% 20.63% 25.99% -5.36%

Jan-00 May-03 -3.30% 12.18% -9.21% 21.40%

Mar-06 Dec-08 -1.93% -3.24% -10.77% 7.53%

Dec-09 Jul-12 -2.37% 14.76% 10.83% 3.93%

Average -2.49% 15.83% 10.57% 5.26%

Median -2.37% 14.76% 10.83% 3.93%

Least Volatile Quintile of the S&P 500 Index In a Falling Rate Environment

Least Volatile Quintile of the S&P 500 Index In a Rising Rate Environment


Low Volatility and the Trend in Market Volatility

Source: FactSet, Bloomberg, L.P. and Invesco PowerShares as of March 31, 2015Past performance is no guarantee of futures performance

Returns are annualized

Vix Low Vix High VIX ChangeLeast Volatile Quintile of the S&P 500 Index

S&P 500 IndexLow Vol Excess Return

Nov-95 Oct-97 23.51 20.80% 26.50% -5.69%

Feb-98 Aug-98 25.73 -4.47% -15.35% 10.87%

Aug-00 Oct-01 16.72 12.96% -25.58% 38.55%

Mar-02 Sep-02 22.29 -10.34% -48.21% 37.87%

Jan-07 Oct-08 49.47 -10.89% -18.57% 7.68%

Mar-10 Jun-10 16.95 -19.27% -38.53% 19.26%

Apr-11 Sep-11 28.21 -9.39% -34.52% 25.13%

Average 25.78 -1.87% -19.96% 18.09%

Median 23.51 -9.39% -25.58% 19.26%

VIX High VIX Low VIX ChangeLeast Volatile Quintile of the S&P 500 Index

S&P 500 IndexLow Vol Excess Return

Oct-97 Feb-98 -16.54 23.82% 55.02% -31.20%

Aug-98 Aug-00 -27.44 7.88% 27.49% -19.61%

Oct-01 Mar-02 -16.16 23.88% 23.26% 0.62%

Sep-02 Jan-07 -29.27 16.04% 16.05% -0.01%

Oct-08 Mar-10 -42.30 14.70% 17.12% -2.42%

Jun-10 Apr-11 -19.79 31.51% 42.65% -11.14%

Sep-11 May-14 -31.56 20.10% 24.71% -4.60%

Average -25.25 19.64% 30.27% -10.63%

Median -27.44 20.10% 24.71% -4.60%

Least Volatile Quintile of the S&P 500 Index in a Rising VIX Environment

Least Volatile Quintile of the S&P 500 Index in a Falling VIX Environment


Low Volatility Performance by Range of Market Volatility

Source: FactSet, Bloomberg, L.P. and Invesco PowerShares as of March 31, 2015Past Performance is no guarantee of future results. An investor cannot invest directly in an index.

The least volatile quintile of the S&P 500 Index historically outperformed when volatility Increased

Average Monthly Return by VIX Range: Least Volatile Quintile of the S&P 500 Index & S&P 500 Index

Implementation Considerations


Ideas for Implementing Low Volatility Strategies

� Core Holding

� Tactical

� Fixed income substitute


A Core Holding May Help Improve Absolute & Risk Adjusted Return

Source: FactSet, Bloomberg LP, and Invesco PowerShares as of March 31, 2015Past Performance is no guarantee of future results. An investor cannot invest directly in an index

100% least volatile quintile of the S&P 500 Index

Strategy

Combinations of Least Volatile Quintile of the S&P 500 Index and the S&P 500 Index in 10% Increments January 1992 to March 2015


Low Volatility as a Tactical Tool

Source: FactSet, Bloomberg, L.P. and Invesco PowerShares as of March 31, 2015Past Performance is no guarantee of future results. An investor cannot invest directly in an index

Investors can use a low volatility portfolio to dial up or dial down risk depending on their market view or market timing signal

The low volatility portfolio is made up of theleast volatile quintile of the S&P 500 Index reconstructed quarter.

The switching strategy encompasses being long momentum when the S&P 500 is above the 200 day moving average and long low volatility when the S&P 500 is below the 200 day moving average. A 2% filter on the 200 day moving average is used to trigger a signal.

As of March 31, 2015 Since

Return 1 Year 3 Year 5 Year Mar-07

Switch Strategy 16.675% 16.938% 16.519% 12.377%

S&P 500 Index 12.732% 16.115% 14.465% 7.088%

Volatility

Switch Strategy 9.680% 9.520% 11.361% 14.178%

S&P 500 Index 8.672% 9.522% 13.037% 16.209%

Return/Unit of Risk

Switch Strategy 1.723 1.779 1.454 0.873

S&P 500 Index 1.468 1.692 1.110 0.437

Source: Bloomberg LP as of March 31, 2015

Value of $10,000 Starting Mar 31, 2007

Source: Bloomberg, L.P. and FactSet as of March 31, 2015

Strategy


A Core Holding for Income Generation

Source: FactSet, Bloomberg LP, and Invesco PowerShares as of December 31 2014. For Illustrative Purposes Only. Past Performance is no guarantee of future results. An investor cannot invest directly in an index

Portfolio Balance & Distribution Based on a 4% Annual Withdrawal Rate

Strategy

Least Volatile Quintile of the S&P 500 Index

S&P 500 Index

Aggregated Bond Index

Total Payout $2,292 $1,876 $1,198

Cap Gain $3,759 $1,982 $445

Distribution Growth 7.32% 5.06% 1.52%

Distribution Volatility 37.11% 42.98% 21.43%

Distribution Growth/Volatility 0.20 0.12 0.07

Starting Yearly Balance of $1000Yearly Distribution with $1000 Starting Balance


Low Volatility & Currency Hedge

� Seek to mitigate risk through stock Selection and FX hedge

� Europe Opportunity?


European Stocks are Volatile and Currency can add Volatility

� Volatility of MSCI EMU in local currency terms has been 14% higher than the S&P 500 Index.

� Volatility of MSCI EMU in dollars has been 37% more volatile than MSCI EMU in local currency and 56% more volatile than the S&P 500 Index.

� Academic research has found a global low volatility portfolio has reduced risk by nearly 40% compared to a cap-weighted unhedged index (9.3% to 15.2%).

– 73% of the reduction was from equity selection

– 27% was a function of the currency hedge1

Source: Bloomberg, L.P. as of December 31, 2014

1 Source: “To Hedge or Not Hedge: The Slings and Arrows of Currency Risk in Minimum Volatility Investing”,Sanne De Boer, PhD, CFA, James Norman, QS Investors. Oct 2013


The Eurozone Low Volatility/FX Hedged Opportunity

For US Institutional Use Only32

� Euro depreciation argues for strong returns into 2016.

� Eurozone Composite PMI points to economic expansion.

� Little competition from interest rates and ongoing ECB QE.

� Euro Stoxx 50 found support on recent correction above the June 2014 high, showing technical strength.

� Low volatility provides an opportunity for risk mitigation and upside participation in the face of rich valuations – good news being priced.

– Euro Stoxx 50 Price to EBITDA (7.05) highest since tech bubble 1

– Euro Stoxx 50 estimated PE 10+ year high (15.77)1

– Euro Stoxx 50 price to sales ratio elevated at 1.051

� Divergent monetary policy highlights FX risk and need for a currency hedge.

1 Source: Bloomberg, L.P. as of June 24, 2015Past Performance is no guarantee of future resultsAn investor cannot invest directly in an index

P-NKCFA-PPT US9696 08.15 x 09.15

Buyback

� Definition

� Justification

� Rules based value strategy


Why Buyback?

� Buyback Achievers Index

– Universe NASDAQ, NYSE or NYSE Market

– Net reduction in outstanding shares of 5% in trailing 12 months subject to liquidity threshold

– End of December evaluation with additions/deletions in January

– Market cap weighted subject to cap of 5%

� Objective play on value

– When companies reduce share count they signal value (management insight)

– Easy to understand and transparent methodology

– Investors looking for value may be reading the tea leaves of public information (investor insight)

– Empirical evidence confirms the buyback factor

� Technical factors

– Supply/demand benefit – fewer shares & bigger piece of the corporate pie

– Help perception of earnings per share growth

– Buybacks can be a tax efficient return of capital

Invesco PowerShares does not offer tax advice. Please consult your own tax advisor for information regarding your own tax situation.


Buyback Achievers Index Holdings Vary

Source: Bloomberg LP, Factset as of December 31, 2014Past Performance is no guarantee of future results. An investor cannot invest directly in an index

Don’t get caught up in the macro environment

�Little correlation between number of companies repurchasing and excess return

�Numbers of holdings changes over time depending on market conditions & balance sheet health

� 300 in 2008 and 327 in 2009

� 90 in 2010 and 171 in 2014


It’s not about QE

Source: Bloomberg, L.P. as of July 31, 2015Past Performance is no guarantee of future results. An investor cannot invest directly in an index


Value Conflict - Stocks Cheap or Expensive Depending on Reference?

Source: Bloomberg, L.P. as of July 31, 2015 Source: Bloomberg, L.P. as of July 31, 2015Past Performance is no guarantee of future results. An investor cannot invest directly in an index


Conclusion

Wrapping up:

�Momentum and growth have been leaders in 2015, but factor returns vary in short term and expected to outperform over a market cycle

�Low Volatility investing runs contrary to financial theory (more risk does not equal more return)

�Low Volatility investing can be used as core positioning or tactically, depending on investor preference

�Buyback is a value based strategy with a transparent and objective methodology

�Focus on the buyback factor more than the macro conditions


Index Proxies and Definitions for Information on Slides 4, 5 and 7


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