Current events move markets
• Domestic:– Effects of Sequester– U.S. Debt
• International:– Global Debt– Chinese GDP– Japanese Recovery
Economic Indicators move markets
• Key U.S. Indicators:– Gross Domestic Product – Unemployment– CPI (Inflation)– Consumer Sentiment– Retail Sales– Housing Starts– ISI Company Surveys
The Federal Reserve moves markets
• Monetary Policy– Easing or Tightening?– Fed Funds Rate– Open Market Operations
• Commentary/Outlook on:– Unemployment– GDP– Inflation– Future policy decisions
Investment Basics
• Assets may be held for many reasons:– A stream of income through dividends or pre-
defined payments (REITs, MLPs, dividend stocks, preferred shares, oil & gas royalties, fixed income instruments)
– Appreciation potential (long positions in stocks, discount bond, mutual or exchange-traded funds)
– Depreciation potential (short positions in stocks)
Investment Basics
• An investment represents partial ownership in an asset.– Liquid assets (easily convertible into cash)• Publically traded companies are registered with major
exchanges (NYSE, NASDAQ, LSE, etc.)
– Illiquid assets (not easily convertible into cash)• Bonds• Equity shares in private companies
Mutual Funds
• Ownership in a “basket” of individual assets• Potential Advantages:– Broad diversification– Active management– Specific strategies, methods
• Potential Disadvantages:– Over diversification– Management fees and initial fees– NAV calculated at the end of each day
Exchange Traded Funds (ETFs)
• Managed to mirror the returns of a specific index, sector, or asset class– Gold (GLD)– S&P 500 (SPY)– Global Autos (CARZ)
• Advantages:– Access “pure-plays” on specific asset classes– Generally have smaller management fees
• Disadvantages:– May be illiquid, thinly traded– Difference in supply/demand for an ETF’s shares may vary
from the underlying asset, resulting in a price difference.
Investments in individual securities (assets)
• Advantages:– Targeted investments have potential to
outperform peer groups and benchmarks’ returns– May have terminal values (bonds)
• Disadvantages:– Lack of diversification– May be illiquid depending on daily trading volume
Equities – Broad Classifications
• American Depository Receipts (ADRs)– International stocks traded on domestic
exchanges, denominated in U.S. dollars.– May trade differently than similar issues that trade
on foreign exchanges– May be either preferred or common stock
Equity Styles
• Growth stocks– Usually have higher P/E multiples and do not pay
dividends; however, have high future earnings expectations
• Value stocks– Trading at a discount to historic multiples or other
valuation metrics• Blend stocks– A blend of growth and value, with no tilt towards
either style
Equity Classifications
• Market Capitalization – the total value of a company’s shares in the marketplace
• Large Cap (Big companies) – Market Cap over $10 billion (Ford, Google, DuPont)
• Mid Cap (Medium sized companies)– Market Cap between $2-$10 billion (Frost)
• Small Cap (Small Companies)– Market Cap between $0-$2 billion (O’reilly’s)
Fixed Income Instruments
• Government Debt (Treasury Bills)• Corporate Debt– AAA (least risky, lowest yield)– AA (more risky, higher yield)– A (most risky, high yield) – Junk Bonds (rated lower than BB by S&P, highest
yields)• Municipal Debt (Localities)– Taxable– Tax Exempt
Equities – Broad Classifications
• Preferred Stock– Bond-like characteristics– Senior to common stock, but junior to Bonds in the
event of company default– May be cumulative or non, provisions for participation
in certain earnings distributions • Common Stock– Only pay dividends if announced by company– Junior to both preferred stock and bonds– Represent ordinary part-ownership of a company
Case Study – Client XYZ
• Scenario:– $2.5 million available for investment– 1 portfolio– Time horizon >5 years– Risk tolerances differ between family members– Liquidity needs to be approximately $3,000/month
Case Study – Client XYZ
• Scenario (ctd.)– Multiple family members with multiple objectives:• Charitable giving• Growth• Income for retirement• Stability
• Problem solve: How do you structure their portfolio to meet their objectives?
Client Considerations
• It’s necessary to consider the client’s personal needs– Short-term needs • Liquidity• Return
– Long-term needs• Income• Stability• Return in excess of inflation
Client Considerations• It’s also necessary to consider the client’s risk
profile, comprised of their:– Ability to take risk • current stage of life• dependence on the portfolio’s long-term value (is it
their life savings or an amount roped off for discretionary/speculation?)
– Willingness to take risk• How much potential decline are they comfortable with
in a given year?• Are they trying to significantly increase wealth, grow it
modestly, or generate monthly income?
Case Study – Client XYZ
• Based on the client’s considerations, their portfolio’s assets will be allocated towards a certain model to fulfill their specific investment objectives.
Optimum Asset Allocation ModelsInvestment Objective Asset Class Minimum % Current Mix % Maximum %
Cash Equivalent Cash Equivalents 100 100 100
Capital Preservation Cash EquivalentsFixed Income Assets
55
8020
9595
Diversified Fixed Income Cash Equivalents Fixed Income Assets
180
1090
2099
Conservative Income Cash EquivalentsFixed Income AssetsEquity Assets
5405
404515
507515
High Current Income Cash EquivalentsFixed Income AssetsEquity Assets
100
107515
1009520
Income with Growth Cash EquivalentsFixed Income AssetsEquity Assets
13020
36730
207040
Balanced Growth & Income Cash EquivalentsFixed Income AssetsEquity Assets
14040
34750
206060
Long-term Growth Cash EquivalentsFixed Income AssetsEquity Assets
12050
33265
205080
Capital Appreciation Cash EquivalentsFixed Income AssetsEquity Assets
10
70
31780
252590
Diversified Equity Only Cash EquivalentsEquity Assets
190
397
1099
ALLOWABLE ALLOCATION RANGES
Frost’s Investment Team
• Professional investment team with many years of experience– Portfolio Managers– Internal Research team– Traders– Operations & Compliance personnel– Marketing/Administrative staff
Frost’s Investment Team
• Investment team members are comprised of:– CFA Charterholders– Certified Financial Planners– Certified Public Accountants– MBA & other graduate degrees– Staff with high levels of industry experience
Firm Overview• 2008 - Filed with SEC as Registered Investment
Advisor• July 2013 - $9.16 billion assets under
management• July 2013 - Adviser to $2.89 billion in mutual
fund assets• Areas of expertise:– Management of mutual fund family– Management of separate accounts for institutional,
high net worth clients, and trust portfolios.
Firm Overview
• Frost Managed Strategies include:– Growth (FICEX)– Value (FIDVX)– Fixed Income (FIJEX)– Diversified Strategies (FDSFX)– Natural Resources (FNRFX)
Highlights through 2013
• Barron’s named Frost one of their top family of mutual funds (2010-2012)
• Growth of funds (thru 6/30/2013)– Retail share ownership has increased to 39.3
million– Institutional share ownership has increased to
236.9 million