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Ron Surz President PPCA Inc (949)488-8339 Amazingly Helpful Alternative.

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Presentation on theme: "Ron Surz President PPCA Inc (949)488-8339 Amazingly Helpful Alternative."— Presentation transcript:

1 Ron Surz President PPCA Inc (949) Amazingly Helpful Alternative

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3 Apathy can be overcome by enthusiasm, and enthusiasm can be aroused by two things: first, an idea which takes the imagination by storm; and second, a definite, intelligible plan for carrying that idea into action. -- Arnold Toynbee ( ) The Idea : Replace market indexes with a true core non-dilutive complement to active managed money programs. Its a A-Ha moment. The Plan : Build partnerships to create and distribute this revolutionary idea.

4 Blend (Traditional): Value and Growth and the stuff in the middle (e.g. S&P500, Russell 3000) Centric: Just the stuff in the middle

5 Just as mid-cap serves an important role, so too does mid-style, namely centric core. Traditional core indexes are not mid-style. They are all-style. (S&P500, Russell 3000) All-style dilutes active managers – it diminishes their merits. Mid-style completes active managers – it rounds out their merits.

6 Large Mid Sm 65% 25% 10% 225 Stocks Value 40% Centric Core 20% Growth 40% 45 Names $14 B $2B

7 Proprietary process assigns every publicly traded security into a style and capitalization category. Capitalization: Top 65% of market capitalization identified as large cap (approximately 225 stocks). Style: Top 40% assigned to Growth, Bottom 40% assigned to Value and remaining 20% assigned to Centric Core Analyzed quarterly

8 Rebalanced quarterly Neutral weight to Total Market index sectors Equal weight within sectors Moderate drift to value or growth permitted in order to reduce turnover.

9 Low cost trading Tax enhanced availability True core style and core capitalization Complements, rather than dilutes, active managers

10 Market-like style location Match sector allocations Exclusively large companies

11 S&P Total Market Centric Core S&P Total Mkt Centric Core Mid Cap Large Growth Large Core Large Value Large Growth Large Core Large Value

12 Centric S&P Market

13 Sector Allocations as of June 30, 2011

14 Representative Holdings asof June 30, 2011

15 Centric Core is an index designed to capture an important part of the stock market. It is not designed to outperform anything.

16 We expect long run risk and return to be in line with market averages. The purpose of centric core is not to win a race. Its purpose is to smooth out the ride.

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18 Staples Disc Health Matls Tech Energy Indus Utility Finance Total

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20 Relative to S&P 500 Index Fund (IVV) Active Return16.19 Excess Return1.62 Relative Return1.60 Standard Deviation1.15 Tracking Error4.65 Consistency of Performance Periods Outperforming58 Periods Underperforming50 Consistency Ratio0.54 Up Market Capture1.09 Down Market Capture1.01 Downside Risk2.78 Annualized Returns Centric Core4.34% S&P 500 Index Fund (IVV)2.72% Regression Results Alpha1.30 Beta1.12 R-Squared0.94 Standard Deviation19.13 T-Value1.10 Ratio's Information Ratio0.35 Sharpe Ratio0.23 Treynor Ratio1.45

21 Higher Returns Improved Diversification

22 1.Basic: 4-Corner 2.Advanced, Level 1: Institutional Optimized Diversification 3.Advanced, Level 2: Sortino Optimized Desired Target Return

23 Value Growth Large Small Cart before the Horse Bad bet against the non-corners

24 Centric Blend Core Dilutes active managers: S&P500 Russell 3000 Wilshire – 5000 Stocks Centric Core Complements active managers: Surz Style Pure ® Centric Core 45 Stocks Blend Core Value + Growth+ Everything Else

25 1. Develop talent pool: team of managers 2. Optimizer solves for most diversified allocation across team. Can be coupled with risk budgeting. 3. Add core diversifier: compare blend to centric

26 Optimizer wants 80% in S&P500 but only 20% in Centric Core S&P500 Centric Core Optimizer wants Centric Core but has to take the entire S&P to get the 20% it wants. Centric Core is like the sweet filling in a sandwich cookie and the S&P is like the entire cookie.

27 1. Develop talent pool: team of managers 2. Optimizer allocates to maximize achievement of DTR while simultaneously maintaining style neutrality. 3. Final step is filling in style voids, which usually calls for Centric Core.

28 1. Find Skill by Looking Everywhere, not Just Style Corners. Use 21 st Century tools. (Maximize) CORE 2.Allocate to Skill to Maintain Diversification (Optimize).

29 Low correlation to styles Little overlap with active managers Return history on most platforms Models on several UMA platforms

30 Enhanced Diversification Relative to: All-active construction Blend core – satellite, like S&P Increased Retu rns Relative to: Blend core-satellite, like S&P Periods when centric core outperforms, like 2008, when unintended bet against centric penalized performance.

31 Proof Statement

32 Placemark TD Ameritrade Folio Dynamix Smartleaf Adhesion MPI Zephyr PSN/Informa Morningstar Frontier/Sunguard Investment Technologies Evestment Alliance First Rate PPCA

33 Blanchett, David. Core Vs Blend. Journal of Indexes, Jan-Feb 2011 Steyer, Robert. Large-cap funds dominate DC index landscape. Pensions & Investments, June 13, 2011 Surz, Ronald. Refining Core-Satellite. Journal of Performance Measurement, Fall 2010, and Advisor Perspectives, August 17, 2010

34 Rescue Your Investment Managers From the SPDRs Web The Little Index That Could. 45 stocks that improve both performance and diversification.


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