Building a High Probability Positive Return Portfolio

8/7/2019 Building a High Probability Positive Return Portfolio

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Pacific Asset Management

Pacific Asset Management Pamria

Overview

Shawn A. Mesaros, Principal

Pacific Asset Management, LLC

Two Union Square

601 Union Street, Suite #4200

Seattle, WA 98101

(206 933-1600 Voice(206) 600-3175 Fax(877) 637-2767 Toll Free

Building a High Probability Positive Return Portfolio


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Pacific Asset Management

Section 1

Partnership


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Pacific Asset Management Our Approach to Investing

Needs Drive Investment Parameters

Level One

Level Two

Level Three

WealthLevel

Time

HigherWealthLevel

LowerWealthLevel

Wealth Seeding Phase Wealth Building Phase Wealth Realization Phase

Basic Needs1. Housing2. Healthcare

3. Sustenance

Intermediate Needs1. Education2. Retirement3. Lifestyle enhancement

Advanced Needs1. Philanthropy2. Multiple estates3. Capital intensive pursuits Venture Capital

Absolute Return Investments

Private Equity

Private Real Estate

International Equities

International Fixed Income

Real Estate and REITS

Commodities

Domestic Fixed Income

Domestic Equities

Mutual Funds

Cash Equivalents

Asset ClassesWith Generally GreaterLiquidity and PricingFrequency, and Lesser

Complexity

Asset ClassesWith Generally LesserLiquidity and Pricing

Frequency, and GreaterComplexity

Matching Asset Classes with Wealth Levels and Investor Needs

We believe these two words asset allocation - are the mostoverused and abused words in

our business. We have fourgeneral statements concerningasset allocation:

1. The more equity (stocksand related assets)exposure you choose, themore risk you accept andthe more return you shouldexpect.

2. Emotions will not be yourfriend.

3. Long term actions shouldproduce better results than

short term reactions.4. There are no investment

short cuts.


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Pacific Asset Management Our Approach to Investing

Asset Allocation Over Time

U.S. Stocks60%

U.S. Bonds30%

Cash

10%

Historical Strategy:Cash, Stocks, and Bonds

%

Traditionally, most U.S. private clients'

portfolios were invested almost

completely in domestic stocks, bonds,

and cash, with an asset mix that

averaged about 60% in stocks, 30% in

bonds, and 10% in cash over time.

U.S. Stocks30%

EMDebt2%

EMEquity10%Int'l Debt

(Developed)5%

Int'l Equity(Developed)18%

Private Equity(VC, LBOs, O&G)5%

Real Estate5%

Cash10%

U.S. Bonds

15%

1980s:

Alternative and International Assets

%

Beginning in the mid- to late 1980s,

some institutional and a smaller

proportion of private client investors

began to shift some assets into venture

capital, real estate, LBOs, oil and gas

investments, and, more recently, into

international and emerging markets

equity and debt.

In the 1990s and after the turn of the

Millennium, institutional and private

client investors have pursued various

market-neutral strategies based on

equities (including warrant and

convertible arbitrage, hedged closed-

end fund strategies, hedged balance

sheet or cross ownership arbitrage,paired shares arbitrage, synthetic

security arbitrage, and other techniques

involving derivative instruments)

and/or fixed-income securities

(including futures, swap arrangements,

and mispricings of credit risk, yield

curve shape, and embedded and

explicit option features).

U.S. Stocks

26%

AbsoluteReturn8%

EMDebt2%

EMEquity10%

Int'l Debt(Developed)5%

Int'l Equity(Developed)18%

Private Equity(VC, LBOs,O&G) 5%

RealEstate5%

Cash9%

U.S. Bonds

12%

1990s and post-2000:Absolute Return Strategy

%

See attached disclaimer

Understanding investmentalternatives is paramount to

making prudent allocationdecisions

Different asset classespresent very differentrisk/reward characteristics

Our clients input, inconjunction with our

investment outlook, ultimatedrives the allocation decision


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GIC Chart Book| June 2010

Please refer to important information, disclosures and qualifications at the end of this material.

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation

of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

(19.9) (13.1)(12.0) (14.3)

8.3 7.6 6.7 5.8

(60.7) (53.9)(47.1) (40.3)

(33.5)(26.7)

11.1 10.5 9.9 9.3 8.7 8.1 5.66.26.97.5

48.146.455.0

146.6 131.4116.1

100.885.6

70.349.7

4.9 4.211.5 10.7 10.1 9.6

(80)

(40)

0

40

80

120

160

Worst One-Year Return

Average of One-Year Returns

Best One-Year Return

Median One-Year Return

Portfolio Mix

90%

0%

10%

Stocks

Bonds

Cash

80%

10%

10%

Stocks

Bonds

Cash

70%

20%

10%

Stocks

Bonds

Cash

60%

30%

10%

Stocks

Bonds

Cash

50%

40%

10%

Stocks

Bonds

Cash

40%

50%

10%

Stocks

Bonds

Cash

30%

60%

10%

Stocks

Bonds

Cash

20%

70%

10%

Stocks

Bonds

Cash

10%

80%

10%

Stocks

Bonds

Cash

0%

90%

10%

Stocks

Bonds

Cash

Year Ending December 2009

Worst One-Year Return

Average of One-Year Losses

Average of One-Year Returns

Median One-Year Return

Average of One-Year Gains

Best One-Year Return

% One-Year Negative Returns

% One-Year Positive Returns 83.2

(13.4)%

(14.3)

(3.3)

5.6

4.2

7.9

49.7

20.6

79.4

4.9

8.1

48.1

16.8

(9.3)%

(12.0)

(3.1)

6.2

82.2

(5.1)%

(13.1)

(3.5)

6.9

5.8

8.8

46.4

15.9

84.1

6.7

10.0

55.0

17.8

(1.0)%

(19.9)

(4.2)

7.5

3.1 %

75.3

(26.7)

(5.2)

8.1

7.6

11.5

70.3

20.7

79.375.9

7.3 %

(33.5)

(6.4)

8.7

8.3

13.2

85.6

22.9

77.1

9.6

14.8

100.8

24.1

11.4 %

(40.3)

(7.9)

9.39.9

10.1

16.3

116.1

24.7

74.3

15.5 %

(47.1)

(9.6)

10.7

18.0

131.4

25.7

19.7 %

(53.9)

(11.2)

10.5

73.4

11.5

19.8

146.6

26.6

23.8 %

(60.7)

(12.8)

11.1

January 1926June 2010

Returns Expressed in Percentage Terms

U.S. Domestic Risk and Reward AnalysisRolling One-Year Returns(1)(2)(3)

Note: (1) Rolling one-year returns data are calculated using 996 sample time periods. (2) Indexes used for this analysis include: (i) Stocks: S&P 500 Index Total Return; (ii) Bonds: Ibbotson U.S. Long-Term 20-Year Government IndexTotal Return; and (iii) Cash: U.S. 30-Day T-Bill Index Total Return. (3) Historical data shown represent past performance and do not guarantee comparable future results. The indexes are unmanaged. An investor cannot investdirectly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lowerperformance.

Source: Morgan Stanley Global Wealth Management Asset Allocation Group, Ibbotson Associates.

80


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GIC Chart Book| June 2010

Please refer to important information, disclosures and qualifications at the end of this material.

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation

of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

(15.5) (13.2)(11.5)

(9.2)(7.2)

(5.2)(3.2) (1.7) (2.1) (2.4)

6.8 6.3 5.8 5.4

22.0 22.4 22.7 23.1

8.4 7.9 7.2 6.5 5.8 5.3 4.7 4.37.27.78.28.3

9.19.6

22.122.723.926.4

29.532.5

9.410.1

(20)

(10)

0

10

20

30

40

Worst Five-Year Return

Average Five-Year Return

Best Five-Year Return

Median Five-Year Return

Portfolio Mix

90%

0%

10%

Stocks

Bonds

Cash

80%

10%

10%

Stocks

Bonds

Cash

70%

20%

10%

Stocks

Bonds

Cash

60%

30%

10%

Stocks

Bonds

Cash

50%

40%

10%

Stocks

Bonds

Cash

40%

50%

10%

Stocks

Bonds

Cash

30%

60%

10%

Stocks

Bonds

Cash

20%

70%

10%

Stocks

Bonds

Cash

10%

80%

10%

Stocks

Bonds

Cash

0%

90%

10%

Stocks

Bonds

Cash

Year Ending December 2009

Worst Five-Year Return

Average of Five-Year Losses

Average of Five-Year Returns

Median Five-Year Return

Average of Five-Year Gains

Best Five-Year Return

% Five-Year Negative Returns

% Five-Year Positive Returns

22.7

1.6

98.4

23.1

4.0

96.095.7

22.4

1.4

98.693.8

22.1

6.1

93.990.8

23.9

7.5

92.587.7

29.5

10.6

89.4

5.9 5.6

32.5

12.3

26.4

9.2

22.7

6.2

22.0

4.3

4.7 4.3

11.6 10.7 9.5 9.1 8.4 7.8 7.1 6.4

5.8 5.4

10.1 9.4 8.4 7.9 7.2 6.5 5.8 5.3

(0.7) (0.8)

9.5 9.1 8.2 8.2 7.7 7.2 6.8 6.3

(2.1) (2.4)

(5.3) (4.8) (4.4) (3.9) (3.2) (1.8) (0.9) (0.7)

4.4 % 4.9 %

(15.5) (13.2) (11.5) (9.2) (7.2) (5.2) (3.2) (1.7)

2.5 % 3.0 % 3.5 % 4.0 %0.7 % 1.1 % 1.3 % 2.1 %

January 1926 June 2010

Returns Expressed in Percentage Terms

U.S. Domestic Risk and Reward AnalysisCompound Annual Growth Rate of Rolling Five-Year Returns(1)(2)(3)

Note: (1) Rolling five-year returns data are calculated using 948 sample time periods. (2) Indexes used for this analysis include: (i) Stocks: S&P 500 Index Total Return; (ii) Bonds: Ibbotson U.S. Long-Term 20-Year Government IndexTotal Return; and (iii) Cash: U.S. 30-Day T-Bill Index Total Return. (3) Historical data shown represent past performance and d o not guarantee comparable future results. The indexes are unmanaged. An investor cannot investdirectly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lowerperformance.

Source: Morgan Stanley Global Wealth Management Asset Allocation Group, Ibbotson Associates.

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Building a High Probability Positive Return Portfolio

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