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  • Core Target Beta Allocation ModelsMay 31, 2015

    For Discussion Purposes Only


  • About FFCM, LLC

    Bill CareyChief Executive OfficerWilliam Carey has over 30 years of experience in the financial services industry with expertise in leading institutional retirement, asset management, and investment advisory businesses, and previously served as President of F-Squared Retirement Solutions, a registered investment advisory firm. Prior to that he held senior-level positions at leading financial services firms. He spent 15 years at Fidelity Investments where his responsibilities included serving as President of Fidelity Institutional Retirement Services Company, the nation's largest provider of retirement plan services for more than 12 million employees and 13,000 corporate and tax-exempt organizations. He also served as President of Fidelity Registered Investment Advisor Group supporting the needs of the wealth management industry. Mr. Carey also operated in executive roles at Aetna, Bank of America, and Oppenheimer funds. He is actively involved on industry boards and organizations. William received a BA in Economics from Bates College. He has served on a number of not-for-profit boards and is currently a trustee for Bates College.

    Bill DeRoche, CFAChief Investment Officer and Portfolio ManagerPrior to joining FFCM, Bill was a Vice President at State Street Global Advisors and was the head of the U.S. Enhanced Equities team. His focus was on managing long only and 130/30 US strategies, as well as providing research on SSgAs stock-ranking models and portfolio construction techniques. During Bills time at SSgA, the Global Enhanced Equities team grew to over $100 billion in assets. Prior to joining SSgA in 2003, Bill was a quantitative analyst and portfolio manager at Putnam Investments. Bill has been working in the investment management field since 1995. Bill holds a Bachelors degree in Electrical Engineering from the United States Naval Academy and a Master of Business Administration degree from the Amos Tuck School of Business Administration at Dartmouth College. He also has earned the Chartered Financial Analyst designation. Bill holds FINRA licenses 7,63 and 24.

    Chuck Martin, CFAChief Financial Officer and Portfolio ManagerPrior to joining FFCM, Chuck was a Vice President at State Street Global Advisors and a Senior Portfolio Manager in the firms Global Enhanced Equities group. He provided research and portfolio management for multiple investment strategies including large and small cap 130/30 funds. During Chucks time at SSgA, the Global Enhanced Equities team grew from $3 billion in assets to over $100 billion. Prior to joining SSgA in 2001, Chuck was an equity analyst at SunTrust Equitable Securities where he covered technology companies. Chuck has worked in the investment industry since 1993. Chuck earned his Bachelor of Arts degree in Economics from Colby College and his Master of Business Administration degree in Finance from Georgetown University. He also has earned the Chartered Financial Analyst designation. Chuck holds FINRA licenses 7 and 63

    Phillip Lee, Ph.DChief Operations Officer and Portfolio ManagerPrior to joining FFCM, Phil was an equity strategist at Platinum Grove Asset Management LP responsible for supervising electronic trade execution, automating trade operations, and building out systems infrastructure. Prior to that role, he co-managed statistical arbitrage strategies in the Japanese Equity Market. Previously, Phil was Director of Development at Principia Capital Management, LLC, a statistical arbitrage hedge fund, where he developed the firms quantitative research and trading platforms. Prior to joining Principia, Phil was a Vice President in Goldman Sachs Fixed Income Derivatives. He has fifteen years of investment experience. Phil holds engineering degrees from the University of Pennsylvania (PhD) and The Cooper Union.

    About ES Capital Advisors, LLCES Capital Advisors is a Boston-based investment company founded in 2011 that develops and implements risk-managed investment strategies.

    It is our belief that avoiding capital losses is more important to sustainable wealth creation than capital appreciation. We measure risk in terms of investor losses, including draw-downs, and so we seek to enhance returns through loss avoidance.

    Our risk-managed strategies set us apart from the many investment managers who employ Buy & Hold and/or Index tracking methodologies. The firms proprietary processes are based on bottom-up fundamentals, rules-based discipline and data driven analysis models, which combine to recommend investment changes based on market conditions. We believe our client centric strategies deliver simple, dynamic and low-cost solutions that meet investors needs.

    We utilize a multi-asset core and satellite portfolio strategy that empower investors with a higher degree of certainty in reaching their financial objectives.

    FFCM, LLC is a Boston-based SEC Registered Investment Adviser founded in 2009. Investment team is comprised of industry professionals with extensive experience at leading global financial institutions. FFCM, LLC has a fee paying asset base of $1.25B as of 12/31/2014.

    For Discussion Purposes Only

  • As the term suggests, core-satellite investing separates a portfolio of investments into two distinct segments: core and satellite. It means having a core of long-term investments, with other, perhaps more specialist or shorter-term satellite investments. The Core Target Beta Strategies are ETF managed portfolios that aim for a consistent Beta versus the S&P 500. Based on your Risk Tolerance and Investment Horizon. We offer three Core Target Beta models designed to provide optimal performance for varying levels of risk. Each model portfolio is diversified across an expanded range of investment categories.

    CoreBeta exposure

    to broad markets

    SatelliteAlpha strategies from successful managers

    SatelliteAlpha strategies from successful managers

    SatelliteAlpha strategies from successful managers

    Core-Satellite Approach

    For Discussion Purposes Only

    Strategy Objective: Creating the Optimal Core Targeted Beta StrategiesThe advent of ETFs has provided investors with a new and efficient way to access asset classes across the globe in order to create diversified portfolios in order to meet long term investment goals. In conjunction with the introduction highly diversified strategic allocations, tactical ETF strategies have also taken off as investors look to managers to manage the Beta risk of their portfolios to help avoid large drawdowns but to also participate in the upside returns of the equity markets. While many of these strategies have provided good returns over time, many have also been caught up in the whip saw events of the market and have lagged severely in the returns.

    Thus, for investors who are uncomfortable with the roller coaster ride of tactical strategies and the higher the higher risk of a pure equity strategy given the massive drawdowns that can occur, we have developed highly diversified targeted beta strategies. These strategies are designed to match investors varied risk tolerance needs, but also to provide returns that are greater than a static S&P 500/Bond undiversified portfolio. The strategies each have a specific beta target to the S&P 500 and achieve that by purchasing a highly diversified basket of ETFs that are expected to generate returns in excess of the plain vanilla blend.

    This construction technique we believe, is superior to the plain vanilla blend as it takes advantage if the entire breadth of ETFs including domestic and international equities; large, small and mid cap equities; and corporate, TIP, Treasury, and aggregate bonds. By creating diversified targeted beta strategies, we take advantage of the only free lunch in Modern Portfolio Theory, diversification, and provide investors with more consistent investment returns than tactical ETF strategies.

  • For Discussion Purposes Only

    Investors do not actively manage enough risk with traditional index strategies. Traditional index strategies subject the investor to the significant risk that a major market decline will occur within their investment horizon, diminishing the probability of meeting their long term goals. The table below shows how significant of a gain is required to break even after a market decline.

    The chart shows the percentage gain needed to break even, after a significant market decline.

    -10% -20% -30% -40% -50% -60% -70%














    Loss % Gain Required to Break Even

    Substantial market downturns are not uncommonHistorically, the market has seen several severe market downturns. In fact, since 1950, there have been 10 bear markets, defined as a market drawdown of 20% or more.

    Why is Beta Important? Beta is a measure of the tendency of securities to move with the market as a whole. A beta less than 1 indicates the security tends to be less volatile than the market, while a beta greater than 1 indicates the security is

    more volatile than the market. The most important measure of the risk or volatility of a stock can be determined by the stock's beta.

    Market Return Beta Portfolio Return % to Break Even

    0.5 10%

    20% 1.0 20%

    2.0 40%

    0.5 -10% 11%

    -20% 1.0 -20% 25%

    2.0 -40% 67%

    Having a beta greater than 1 offers the potential of higher rates of return, but also poses a higher risk of losses, which require even greater returns to break even.

  • For Discussion Purposes Only

    DiversificationA sound asset allocation strategy is all about finding the right mix of investments that may help you reach your goals. Asset allocation is important because over time it can be the main driver of a portfolios performance. According to a study by Gary Brinson, asset allocation determines 93.6% of the variation in a portfolios investment performance. While only 6.4% is from market timing and stock selection.1

    While no strategy can guarantee positive performance. ES Capitals Core Target Beta models broad portfolio diversification strives to provide exposure to areas of the market that may perform well in any given period. True diversification means investing in a mix of assets that perform differently in various economic environments. The table below demonstrates why it is important component of riskmanagement.

    1 Source: Study by Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, Determinants of Portfolio Performance, Financial Analysts Journal, January/February 1995.

    2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

    MSCI EAFE REIT MSCI EM Agg Bond Mid Cap Small Cap TIPS REIT Small Cap REIT

    14.82% 38.78% 18.59% 13.74% 39.03% 28.37% 13.56% 23.73% 37.91% 22.81%

    MSCI EM MSCI EAFE TIPS 1-3 Yr Treas Small Cap Mid Cap Agg Bond Mid Cap Mid Cap S&P 500

    13.75% 23.61% 11.64% 6.67% 37.75% 24.92% 9.81% 17.08% 36.29% 13.69%

    Mid Cap Small Cap Agg Bond TIPS MSCI EM REIT Corp Bond Small Cap S&P 500 Mid Cap

    12.70% 17.05% 9.01% -2.35% 37.52% 23.44% 8.84% 16.49% 32.39% 12.31%

    REIT MSCI EM 1-3 Yr Treas Corp Bond MSCI EAFE S&P 500 S&P 500 S&P 500 MSCI EAFE Corp Bond

    10.41% 16.91% 7.31% -10.48% 34.53% 15.06% 2.11% 16.00% 19.77% 7.69%

    Small Cap S&P 500 S&P 500 MSCI EM REIT MSCI EM REIT MSCI EM MSCI EM Small Cap

    5.76% 15.79% 5.49% -33.37% 33.68% 13.99% 1.70% 13.97% 3.59% 6.92%

    S&P 500 Mid Cap Mid Cap Small Cap Corp Bond MSCI EAFE 1-3 Yr Treas MSCI EAFE REIT Agg Bond

    4.91% 14.32% 5.23% -36.07% 30.50% 11.64% 1.55% 13.15% 2.81% 5.05%

    TIPS Corp Bond MSCI EAFE S&P 500 S&P 500 Corp Bond Mid Cap Corp Bond 1-3 Yr Treas TIPS

    2.84% 5.94% 4.04% -37.00% 26.46% 11.05% -0.81% 11.93% 0.36% 3.64%

    Agg Bond 1-3 Yr Treas Corp Bond Mid Cap TIPS TIPS Small Cap TIPS Corp Bond 1-3 Yr Treas

    2.79% 3.93% 3.97% -40.45% 11.41% 6.31% -2.57% 6.98% -0.68% 0.63%

    Corp Bond Agg Bond Small Cap MSCI EAFE 1-3 Yr Treas Agg Bond MSCI EM Agg Bond Agg Bond MSCI EM

    1.84% 3.08% -0.66% -44.42% 0.80% 5.87% -12.64% 1.99% -2.75% 0.44%

    1-3 Yr Treas TIPS REIT REIT Agg Bond 1-3 Yr Treas MSCI EAFE 1-3 Yr Treas TIPS MSCI EAFE

    1.62% 0.41% -11.13% -45.04% -3.57% 2.40% -17.13% 0.43% -8.61% -5.14%

  • 1 Asset Allocation / ETF Selection

    Starting with S&P Target Risk Index Asset Class AllocationsThe S&P Target Risk Index Series are designed to provide risk-adjusted exposure to a diversified array of financial assets. Eachyear, S&P Dow Jones Indices estimates the value-weighted market portfolio, which represents a large portion of globally traded stocks and bonds. Each index is then optimized to have high beta with the market portfolio, subject to specific shortfallconstraints for each risk level.

    S&P Target Risk Conservative Index S&P Target Risk Moderate Index S&P Target Risk Growth Index

    Asset Class ETF

    Large Cap iShares Core S&P 500

    Mid Cap Vanguard Mid-Cap

    Small Cap Vanugard Small-Cap


    Emerging Markets Vanguard FTSE Emerging Markets

    Aggregate Bond iShares Core US Aggregate

    Short Treasury iShares 1-3 Year Treasury

    Corporate Bond iShares Iboxx Investment Grade Bond

    TIPS iShares TIPS

    REIT Vanguard REIT

    Select ETFsThe models are comprised exclusively of exchange-traded funds (ETFs) and each ETF tracks a benchmark that is broadly representative of a major asset class. The eligible asset classes and instruments used are:

    There is no assurance that the strategies will achieve their investment objectives.

    For Discussion Purposes Only

    Investment Process

  • 2 Analyze Underlying ETFs 1-year & 3-month Betas

    Calculate 1-year & 3-month trailing Betas for Each ETFCore Target Beta Allocation Models combine, incorporate & smooth 3-month & 1-year trailing Betas.

    3 Optimize Model Weights to Target Betas

    4 Monitored Daily Rebalanced when out of Target Beta Range

    Heuristic Optimization process determines ETF weights to corresponding Target BetasBased on your Risk Tolerance and Investment Horizon. We offer three Core Target Beta models designed to provide optimal performance for varying levels of risk. Each model portfolio is diversified across an expanded range of investment categories.

    o Core Conservative Allocation Model 0.30 Beta ( range: 0.26 0.34 )

    o Core Moderate Allocation Model 0.50 Beta ( range: 0.43 0.54 )

    o Core Growth Allocation Model 0.70 Beta ( range: 0.62 0.74 )

    Confirm Model Betas using Bloomberg Risk ModelBloombergs proprietary fundamental risk factor models help measure, analyze and anticipate portfolio risk. They have the ability to use multiple lenses and filters, including tracking error analysis and value-at-risk, to evaluate the risk in a portfolio. They are also able to perform custom stress tests to gauge how a portfolio will respond to the next big market event.

    Core Target Beta Models are Monitored Daily and Rebalanced when Beta falls out of Target RangeWe constantly monitor the relationships of the ETFs to ensure that the expected beta of the portfolio is close to its target. By being proactive in the measurement of the targeted beta, we are able to incorporate any changes in the asset class relationshipswhich may be caused by various events around the world. Over time we expect that the universe of ETFs available to us will change and that we will be able to incorporate other diversifying assets while continuing to target a specific beta in each portfolio.

    There is no assurance that the strategies will achieve their investment objectives.

    For Discussion Purposes Only

  • Model Allocations as of 3/31/15

    Holdings Disclosures: The holdings and sector allocation are presented to illustrate examples of securities that the models hasbought and the diversity of areas in which the models may invest, and may not be representative of the models current or futureinvestments. Model holdings are subject to change and should not be considered investment advice.

    For Discussion Purposes Only

    Core Conservative Allocation Model

    Core Moderate Allocation Model

    Core Growth Allocation Model

    Conservative Moderate Growth

    Equities 36.26% 57.35% 75.60%

    Fixed Income 63.27% 40.16% 20.39%

    Other 0.00% 1.56% 3.24%

    Cash 0.47% 0.93% 0.77%

  • YTD 1 Year 3 Years 5 Years Since Inception (1/1/07)

    Core Conservative Allocation Model 2.91 4.24 7.01 6.94 5.06

    Core Moderate Allocation Model 3.53 5.37 9.36 8.76 5.08

    Core Growth Allocation Model 4.17 7.12 12.37 10.77 5.3

    S&P 500 TR 3.23 11.81 19.67 16.54 7.09

    Model Performance

    Performance Disclosures: The Core Target Beta Models were launched on October 1, 2014. Performance of the models prior totheir launch date are based on back-testing. Back-tested performance information is purely hypothetical and is provided solely forinformational purposes. Back-tested performance does not represent actual performance, and should not be interpreted as anindication of actual performance. Past performance is also not indicative of future results. Model performance does not reflectmanagement and other fees. Source: Morningstar Direct.

    The Standard & Poors (S&P) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalizationU.S. stocks. Indices are not managed and do not incur fees or expenses. It is not possible to invest directly in an index. The S&P 500 is a registered trademark of Standard & Poors, Inc. The index was started on 1/4/1988.

    For Discussion Purposes Only

  • DefinitionsModel Performance - Investment results of a "model" portfolio where the portfolio does not include any actual assets under management.

    Back-tested P erformance - Performance results created by applying an investment strategy or methodology to historical data. Back-testedperformance attempts to indicate how a product constructed with the benefit of hindsight would have performed during a certain period in the past ifthe product had been in existence during such time.

    Exchange Traded Fund (ETF) A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock onan exchange. ETFs experience price changes throughout the day as they are bought and sold.

    The Standard & Poors (S&P ) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization U.S.stocks. Indices are not managed and do not incur fees or expenses. It is not possible to invest directly in an index. The S&P 500 is a registeredtrademark of Standard & Poors, Inc. The index was started on 1/4/1988.

    Dow Jones Relative Risk Indices are total-portfolio indices that allow investors to evaluate the returns on their portfolios considering the amountof risk they have taken. The family includes global and U.S. indices for five risk profilesaggressive, moderately aggressive, moderate, moderatelyconservative and conservative. These profiles are defined based on incremental levels of potential risk relative to the risk of an all-stock index. EachDow Jones Relative Risk Index is made up of composite indices representing the three major asset classes: stocks, bonds and cash and will varydepending on the risk profile. The asset class indices are weighted differently within each relative risk index to achieve the targeted risk level. Theweightings are rebalanced monthly to maintain these levels.

    Beta - Is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

    How to InvestStrategies available through SMA, UMA & Model Portfolios

    Core Model Signals: 25 Basis Points

    Investment Advisory Agreement: 38 Basis Points

    For Discussion Purposes Only

    An innovative approach to asset allocation

    Core Target Beta Traditional Target Risk

    Risk Management Control: Rebalance to Beta Black Box / Algorithm

    Portfolio Risk: Fixed to Beta target range Variable to market conditions

    Rebalance Frequency: Beta is outside of target range Monthly / weekly Trading

    Significant Beta Drift: No Yes

    Managing portfolio risk is one of the biggest challenges investors face. Too much risk could set you up for a crash; too little might not earn the returns you need to retire. The objective is to find a mix of investments that can potentially grow your money while keeping your risks at a level thats appropriate for you. Core Target Beta models make it easy for you to find a single solution based on your risk tolerance and investment goals.

  • DisclosuresES Capital Advisors began to actively calculate the performance of the Core Target Beta Allocation Models on October, 1 2014. Performance resultsprior to October 1, 2014 are all back-tested and hypothetical. ES Capital Advisors began to manage and trade a brokerage account on October 1,2014, which sole purpose was to track the performance of the models. Before you invest in the Core Target Beta Allocation Models, you are stronglyencouraged to consult with your financial advisor. ES Capital Advisors shall have the right at any time, in its sole discretion, to substitute any or all ofthe ETFs or other securities utilized within the investment strategy.

    This presentation (including the hypothetical/back-tested performance results) is provided for informational purposes only and is subject to revision.This presentation relates to a rule-based model and related investment strategy which are managed by ES Capital Advisors. This presentation is notan offer to sell or a solicitation of an offer to purchase an interest or shares (Interests) in any pooled vehicle. ES Capital does not assume anyobligation or duty to update or otherwise revise information set forth herein. This document is not to be reproduced or transmitted, in whole or in part,to other third parties, without the prior consent of ES Capital. Certain information contained in this presentation constitutes forward-lookingstatements, which can be identified by the use of forward-looking terminology such as may, will, should, expect, anticipate, project,estimate, intend, continue, or believe, or the negatives thereof or other variations or comparable terminology. Due to various risks anduncertainties, actual events or results or the actual performance of an investment managed using the Core Target Beta Allocation Models may differmaterially from those reflected in such forward-looking statements or in the hypothetical back-tested composite results or the models performanceresults included in this presentation.

    The information in this presentation is made available on an as is, without representation or warranty basis. There can be no assurance that theCore Target Beta Allocation Models will achieve any level of performance, and investment results may vary substantially from year to year or evenfrom month to month. An investor could lose all or substantially all of his or her investment. Both the use of a single adviser and the focus on a singleinvestment strategy could result in the lack of diversification and consequently, higher risk. The information herein is not intended to provide, andshould not be relied upon for, accounting, legal or tax advice or investment recommendations. You should consult your investment adviser, tax, legal,accounting or other advisors about the matters discussed herein. These materials represent an assessment of the market environment at specificpoints in time and are intended neither to be a guarantee of future events nor as a primary basis for investment decisions. The hypothetical/back-tested performance results and model performance results should not be construed as advice meeting the particular needs of any investor. Pastperformance (whether actual, hypothetical/back-tested or model performance) is not indicative of future performance and investments in equitysecurities do present risk of loss. The ability to replicate the hypothetical or model performance results in actual trading could be affected by marketor economic conditions, among other things.

    No representation is being made that any account will achieve performance results similar to those shown in this presentation. In fact, there may besubstantial differences between back-tested performance results and the actual results subsequently achieved by any particular investment program.As a result, the models theoretically may be changed from time to time to obtain more favorable performance results. There are other factors relatedto the markets in general or to the implementation of any specific investment program which have not been fully accounted for in the preparation ofthe hypothetical/back-tested performance results, all of which may adversely affect actual portfolio management results. The information included inthis presentation reflects the different assumptions, views and analytical methods of ES Capital as of the date of this presentation.

    The Models performance during the Back-tested Period is not based on live results produced by an investors actual investing and trading, but wasachieved by the retroactive application of a model designed with the benefit of hindsight, and, other than the composite results, the modelperformance subsequent to October 1, 2014 is not based on live results produced by an investors investment and trading, and fees, expenses,transaction costs, commissions, penalties or taxes have not been netted from the gross performance results. The performance results includereinvestment of dividends, capital gains and other earnings. As the Hypothetical Information was back-tested, it does not reflect contemporaneousadvice or record keeping by an investment adviser. Actual, live client results may have materially differed from the presented performance results. Allinformation presented after the model inception date (October 1, 2014) is the models performance, which means it was calculated by ES Capital inreal-time (not on a back-tested basis), but does not reflect the payment of any fees, commissions or expenses (except as otherwise described in thispresentation).

    Accounts and funds managed by an adviser using the Core Target Beta Allocation Models are subject to additions and redemptions of assets undermanagement, which may positively or negatively affect performance depending generally upon the timing of such events in relation to the marketsdirection. While there have been periodic updates and improvements to the Core Target Beta Allocation Models, there have not been any materialchanges in the objectives or strategies of the model that have occurred that may affect results.

    While ES Capital believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs orcalculations and, therefore, does not warranty the accuracy of any third-party sources or information.

    For Discussion Purposes Only

  • Core Target Beta Allocation Models

    FFCM, LLC60 State Street

    Boston, MA

    (617) 292 - 9801

    Kevin Collins

    [email protected]

    (781) 960-3011

    ES Capital Advisors, LLC40 Walnut Street, 1st Floor

    Wellesley, MA

    (877) 486 -4702

    Patrick L. Mailer-Howat, CFP

    [email protected]

    (781) 263-1602


    For Discussion Purposes Only

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