Week 11: Discussion Board 3

This Discussion Board builds on applying two key concepts of diversification: correlation of asset returns and risk reduction. In Chapter 11 last week we developed the analysis of correlations of returns from different stocks with the conclusion that the lower the correlation among the stock returns in the portfolio, the greater the risk reduction in the portfolio. In Chapter 12 this week we developed the concept of beta, or the sensitivity of a stocks return to a change in the markets return. For the homework problems this week you were asked in problem 5 to calculate the beta of two actual stocks, Ford and U.S. Steel, and interpret the results. (Specific chapter sections that you may want to review are Chapter 11, Section 11.4 Risk and Diversification and Chapter 12, Section 12.2 What Can You Learn From Beta?)

This Discussion Board focuses on examining five mutual funds or exchange- traded funds (which are like mutual funds but trade intraday) in the context of beta, correlations, diversification and performance returns over the last five years. To answer the four questions below, please read the attached article, Diversifications Role as a Risk-Reduction Tool, and the attached spreadsheet, Correlation Analysis and Performance Metrics, which provides statistics on the two funds mentioned in the article as well as a fund that simply buys gold, a domestic stock index fund that tracks the S&P 500, and a global stock mutual fund that tracks an index of global securities.

Please answer the following four questions and post your comments to two other respondents on Discussion Board 3 in Blackboard:

1. Long-term Treasury Bonds with a 10-year maturity are currently yielding about 0.70%, the lowest yields in many decades. Stocks on average have an annual return of around 10%. Why would anyone add long-term Treasury bonds to a stock portfolio?

2. Why does the Eaton Vance Richard Bernstein All Asset Strategy Fund (EARAX) have the lowest standard deviation among the funds?

3. If you were building your own portfolio, would you use gold as a diversifier? Explain your answer.

4. If you were given $1,000,000 to buy into any combination of the 5 funds in the spreadsheet, which allocation would you choose, based on your risk/return preferences? Calculate your weighted average portfolio return and portfolio beta based on the historical 5-year annualized returns.

Tools Fill & Sign Comment Diversification's Role as a Risk-Reduction Tool An Interview With Richard Bernstein se selectoral si Iwwel se me on. For a long time, you could actually balance out Attachment_1595911549.pdf - Adobe Reader File Edit View Window Help Open 21 (1 of 4 99.1%- Article Highlights Its not the number data that determine casino is the correlation among them Dersityine maas buying a class you don't like in order to see ainst your supersting w . The proft cycle is the driver of investment styles. When the profit cycle revs up, you want to take on more risk Ribu Beri de cont is the tuttalam , stwo Rond Bertha ALIC classes that determinacificacion Frarials naal irakiration amai' Figal Somboy naghiro could say, well, I have US, US stocks, corporate bonds, high-yield back, noes band, commodities, Charles Wow! (CRL You gold, penatana and hedge funds ad and wrywyd but there is no diversitation in the 2 thia v hoal : portfolin hecans that cons How do jednew what the regler named are tary highly correlated 50 koti at not a mocs of a classe. Richard Bernstein (BR): There You cechnically form a TY are omul fods sea Estoa ell-directed portfolio with Vene Rutad Benton Equy Starbagy bund ERBAX) 22 23 daw at the bezdicama se sve global equities fred, and we hme great latimade in that we can What we ike to do is to think of direnification as go police around the wodd. Esto Vance Richard Bernstein seurs. Some amets go np and some assets go down the All Asset Strategy fund "BAKAX) is probably the here at the weathe valtilite at your portfolio Sa e, all-weet fand you have to try to figure out which side of the secow you Tunch for cron RATE and an of the things on turto a portfolin laricind of an en mamber of cont clace The talk a lot about at Mezcl was that people never understood problems today and for the last five ce six yees is that the deliction. They se clusta sad they are told that if they seas ka become very skewed. Its completely imbalanced directify their portfolio, they will get less risk and higher What is happening is that the correlation of all of there are la Wal wealunya sed to all people sal dance dans up. Really the color carnaling out the tion is oot a rebrnehacement tool; it in a cist-reaction other side of the Seesaw is basicalls the Tree What we tool. If you happen to get higher secs, then that's gory do is try to find out the correlations in all of these differest that's the inng an the call wally what does a class, how much rak and how we want to talt that is all about is reducing the volaily of your portfolio. So see. That's kind of what we are doing that's one thing The final point is How do you measure the correlation Numberton is if that's the gaul, then how do you - Hemho can make carrelation companything you want doce the volatility of you portfolio Wellyou have to look depending on the time period you use. "I want to use dan at the couscation among the act classes. And it's not the data for the week. "I want to use monthly dare for five mamber of swet classes that determine the diversification particul pon can main correlation sa ating porn Type here to search OBE a oo P w 10040 PM 7/28/2020 Attachment_1595911549.pdf - Adobe Reader File Edit View Window Help Open 1 . 22 (2 of 4 99.1%- Tools Fill & Sign Comment Ho 00 Figure 1. Historical 5-Year Correlation of Selected Asset Classes to the ing wrong think that the S&P 500 are all attractive, well, the opposite side locis vezy nappesling If you're caly going to direcifes, on going to hne to hold something that is pretty distaste- Hedge Iul. Cara peen. Ta cely deveres FF asset class is Trescathink about how erecybody hates Teac Tere you gu hati pestet u So for individual escons, the first step in diversifying as calising that you have to Baki haldiate that you think en netgning Long Terms to cock And sobody was to do that. intermedia - CRT tortor or low Mana e r hair Comen of 12-only moteles cerchive-year period from 106 aradi u Trew, Lirough/ wydasis to be del retards the Sas index: NSW AN Aat its start Hedge Funds Fard Waghted Carpet Andet, REY - THE FTSE MAKEIT Ris: What's delicat. For sinal Cinder, TK Sovereno Marrych local Debt stats Plus de to to dost, at de har TM Poste - Tregging Market (Winder, Pop-ACT Podes why I'm so adividual financial plan- 3-Maut Teet Merrellyoz 3-Marths Tsity ander Islami Casaresi Spels Source COLOS Commnod! Bat within the context of a fund, Ta Mar Lynch 5-7 Your LS Trury Indies, Long-Term Trry Index - Bo Merlich 15+ rear US Treasury Index Municipals - Esti Meri Lwich US we try to gear the ikunu will get Mwal Securities index, Hist-Grade Corporates - Ost Mem Lynch 15-Year 44-44 Salas tanto che ill-asset funds, us Corporate Inder, S. Migh Yield Bad Merrick Charge Yald Indus Erat hanefily with larik That's what Pest patoarce na grande suture results we've been trying to do and knock on wood we have been succes. It is Source: Richard Bentstehus Bua Mexic, FR, Barbary. mery difficult for an individual, but again the key thing is the lame to realise that thay how to build that they lunk want If you nez commodity manager, that five years incorporates the majority are not going to wock. puust that commoditate at the schole you start at the negative correlatedall you have to bottom and wodoo wop, it's going CR: Whalwale ja do is find the night time period. We look to looks seally good and if you start til kartu suncu in the mix, at staat we call travel in the map, it's going to look really had to raise pour Stactical coelations use the long term five years is a paetty good time perod RB: Lacke arcana for a recond tha trend in the ccuelation. So we are so became modes most of a full code. you scade las some sect of final looking at all that and dorme. Te an and has conmulted a financial place terally ble steede Wikcm CR: Var www nec Then masyon do want to rebalance Hukum Jovado ir drying deciso sair bu to the phone. You bendency will be lo coccellations, and they don't change profile and durat here come to correct way, well, the stock market is going up vay layuely Tlut's what we maand naar hy isa'? guadalah and stocks will be 70% 80% 90% of that's how we go webe a R: It's a litlu lat dilbeut, wluchy pottels, and you slunk, thus notice that the sees was becoming is why I think they need someone like is gest. Theo all of a sudden we Pastot it is that they have to be musket and you're thinking, oli ar learned that it hax hacama try hard that drifying amang at cu 401k) in de 'The important thing to diversify portfolio That'l change. meus buyze thaps they don't Eke. about sebalancing is apt to rebalance by aliul detto correlation change Carterally an individual imaxtor will event, but to ebaluace by time. What we will change or portfolin load up on are that they think are people often do in rebalacca broma alactine, a wall clua oon olt cent, www.bea mket OL CR: Ihaponiad of the day carrier ting higher as a les cik tell med seg selulaxe. Ramostal sip kong mut pon can't do that. That's not the way it decision, and what we hme amas told RIS: We matk out for your own. You have to baklat ce poplayari want to use dute. The tradition callation for beth fou don't like became dire sification is an amanal dacice. You want to was five years. It wm ociginally thought all about incucing against your bets be- do it by time, do it at the end of every Type here to search OBE a WE ME 10040 PM 7/28/2020 Attachment_1595911549.pdf - Adobe Reader File Edit View Window Help Open 1 23 (3 of 4) 99.1%- Tools Fill & Sign Comment que o do southa Pick have an optimal combination of yield the US issues wea't happening in the a date your calendas and cacle it and and capital opucciation Some people United States, the these happening that's the day you're going to rebalance What do Ime off of, if I don'th is marging market That is probably You're not you to selbere in betwee dua yule Wet ante las where the usks, but most people still Llunk like Pro CC S xk doorlopente testa in LA CR7ket shu yi Yoldal for second An endowmeat spiss off mar.se Ground color by Brig 5% of its poetic by bn 2 ' pia', afi y is hair so wiry can't yoran ito at CR Ha's guated yuarat profilo strings every year. Maybe it doesa'there "Presbiter are the valpar Car RB: Theorghet me, I w tal Mar it should be 2% 3% je borate on that kwn to be a person who is tary hal brat sheen is this notion now that people RE: Prospin spend way too much moka on yield and thout it was very can't Eve off of their capital prins. And time lockade u GDP gross domestic important I was the one who came up think that is an IRA a tha thinking procact] Stock market dont trade with the statistic that ince NASDAQE 10 or 12 years ago People will have to on GDP They trade on corporate exception in 1971, utility to have bee that there should lose au poate the corporate actoe. Let or performed de NASDAQ.comporite ture of both back to 200 people were to confed Te shores on the power of componding as to how the stock market did so well devadend. So the way I decibe to the CR Doruk bus rational bersele One Bed that the compoule scle if you can win an NBA championship set but we want bar became the largest percent of GDP shooting three-pointers of Touca in w basen we terurature. Her ever and corporate profits were actu- an NHA chamoop shootinglay pure handle the abil for fall ally qute strong So if you're using why not shoot the larups? That field goal prieste Boud base prins iners GDP you're thinking, wow, GDP: 2 percentage in a wilde highes. Tots arining ale? so why is the stock masket propa? Tield and capital appreciation What RB: What interesting is that their bara ropa profits ako maitas, pueden of zes people people se scued that interest bates se me dome so well and composite puola hond always be sex meer in de toe, but they acfuse to hold me the legat percentage of the GDP their portfolio Yon Kosten forre equities 5o the question we home to ter 50 people pead too much time 25, peuple always say, "Young man wis way would interest westP locking si GDP x ml curul lux yumg woman, you have to anat de la catatea suger to me the lounge al cepocale petite What you growth Think about if you're retiring economy gerus erogge. If the economy will finds that tise deve of things like sor, you would have been 25 in soughly purta stronges, scuba da putty and style grat/val, buge/mall.al 1971, and someone havdou at nobody wants to make that leap it orches and all the other thing people need to investingosta Bat actually ? Everyone thinks that interest dates are talk about is the profit cycle. Soutien pan had imated in ince during that going pha the Federal Resi proteden pora hanrally waist timp, con probably would have been doing something artificial, the dollar is to take a more ask you want to happier today with just compounding poing to become tegexa, we are becomes down in e, you want to become more the ridenda ing a third-odd trete. You can clical, son want to go away from yield, Locomeas.com.datase wake all of this stull up, but the scalety cle. And uten profiteres colores depan, woed wall people will be back declete, u will become think Erebody should have come palende The home been backing defensive and more large capaod things axume the posilo, paduo become the conclus baseita ketat. I pretty well over time. how all you areThe proper mat i Pepla don't sem ta bebere a question of uk tolerance and act of in the business cycle anymore, we are CR le for any proti age What you find in that old people experiencing agerata bine cele gol atat ton poiad and water wat become mom income-dependent and are that has happened the stock era problem ita is that if we go back malet has continued to do well. So I What we do in take the year 10 or 12 years, money wanted capital don't think people should be put off to-year changnis trailing for parter appreciwtion and nobody wanted income Onear that was that mening Acne qarter can be quite become of the tech bubble. Now every people sae mal and about bakalcul solule, so that docan't tell tell you a one wante income od they don't be is non-US honde, became the dollar lot 50 se try to smooth testostec capital appreciation. The needle wet is strengthening and emerging market a longer peciod to look at the funda- com.cluele 190 degrees to the SELECT lave en ung h. othe direction, and I think people ne so it is free that people se occid being as wise as they were 10 of 12 about issues in the United States, and CR Sofirmadest, wild hata aga la metar should they are not that a lot of sing the SP 509 www wark Type here to search OBI a Oo WE ME 10040 PM 7/28/2020 Attachment_1595911549.pdf - Adobe Reader File Edit View Window Help Open 120% - BR B Tools Fill & Sign 24 (4 of 4 September 2013 Comment RB: Yes, that's what we use: S&P A lot of people say the market is very are uncertain, they say that it is terribly 500 reported earnings The S&P puts overvalued and there is great uncertainty overvalued and when they are certain, them out all the time you can get them Financial theory tells you that that is it is a bargain. That can't happen. anywhere an impossible combination. You can not have that. You are either going to CR: You said carb can be treated as an CR: What do your look al in terms of lave uncertainty and undervaluation arredor How does the fu in? Olssons's, anel salvatiow? certainty and overvaluation. That's called people have coach in their checking and caring RB: Asset valuations are a little bit a disk premium. I think most people around more difficult. We look at them in combi- would agree would agree that there is a fair amount RB: Actually, in the more recent nation with interest rates and sentiment of uncertainty in the marketplace today. volatility we have experienced, cash is We will hear people say that the S&P is If you think there is a fair amount of about the only thing that is proving to selling at 10 times earnings or 15 times uncertainty, you should say the market be diversified right now because people earnings or 18 times earnings, and we has got a fair amount of value. It is are freaking out about every asset class don't think that gives you enough infor that simple. I think for an individual that is out there, which is a bit odd. mation. There are times when the price investor that is all you have to do. They Cash can be a diversifier as well. Cash earnings ratio is 15, let's say, and interest have to say, "Am I certain?" And if they sits at the falceum of the seesaw. That Tates have been 1%. There are times the say, "Yeah, this is a really good invest is a good way to think about it. What is S&P is trading at a price-earnings ratio ment," then they should sit down and happening right now is that the seesaw of 15 and interest rates have been 5%. say, "Wait a minute, I just said that it is is gyrating like crazy in the short-term Are those two similar situations? No, really good." If it is really good and all volatility, so cash is sitting there look they are not Where inflation has been of my friends think it is really good and ing kind of nice. From time to time 5% and inflation has been 1%no, they everybody in my AAIT chapter thinks it that will happen. Over the longer term, are not the satnie. So what we like to do is really good, then is this really going however, we know that cash is a dragon is look at those other fundamentals and to be an undervalued asset? Probably a portfolio. Obviously cash is important then compare that to sentiment because not. If there is great uncertainty and we for transaction purposes and checking what we are always looking for is a gap can't decide and we're scared to get into accounts or something like that, but you between the scality of what fundamnen it, then we should probably think, well have to be careful about holding casl tals are and people's perception of what everyone is scared here, maybe there is for long periods of time those fundamentals are. some value in that asset class. Maybe we Let's talk about the valuation right should have a little bit in it. But what See more of our countersation is ibe online now, in June 2013, for the stock market people do instead is that when they version of this article ow AALI.com. A Richard Bernstein is the chief executive officer of Richard Bernstein Advisors LLC. Find out more at www.aaji.com/authors/ richard-bernstein. Charles Rotblut, CFA, is a vice president at AAN and editor of the Aall Journal. Find out more about Charles at www.aail.com/authors/charles-rotblut and follow him on Twitter at twitter.com/charlesrotblut. Type here to search OP a Co P wa 10:39 PM 7/28/2020 Clipboard Font Alignment Number Styles A1 fx Correlation Analysis and Performance Metrics B H K L M N D E F G Correlation Analysis and Performance Metrics 1 2 3 4 5 Start Date 6 End Date 7 Correlation Basis 12/1/2014 12/31/2019 Monthly Returns 5 Years Ending 12/31/19 8 9 Asset Correlations Annualized 10 Annualized Standard 11 Name Ticker ERBAX EARAX GLD SPY VT Return Deviation Beta 12 13 Eaton Vance Richard Bernstein Eq StratA ERBAX 1 0.977 -0.158 0.954 0.952 7.23% 11.22% 0.91 14 Eaton Vance Rich Bern All Asst Strat A EARAX 0.977 1 -0.084 0.916 0.928 4.46% 7.18% 0.57 15 SPDR Gold Shares GLD -0.158 -0.084 1 -0.175 -0.099 4.89% 13.77% -0.11 16 SPDR S&P 500 ETF Trust SPY 0.954 0.916 -0.175 1 0.961 11.31% 11.86% 0.97 17 Vanguard Total World Stock ETF VT 0.952 0.928 -0.099 0.961 1 8.12% 11.74% 1.00 18 (Benchmark) 19 20 Notes on results: 21 Past performance is no guarantee of future results, which may vary. All use is subject to terms of service. 22 Investing involves risk, including possible loss of principal. The value of the investments and the income derived from them may fluctuate over time. 23 The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete. 24 The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities. 25 The results are based on the total return of assets and assume that all received dividends and distributions are reinvested. 26 Time frame for correlation analysis is the full available data range unless a specific date interval is specified. 27 Annualized standard deviation is calculated from the standard deviation of monthly returns 28 Annualized return is calculated from the specific time period using compound annual growth rate formula. 29 30 Correlations 20200104125143 (1) + 4 an Tools Fill & Sign Comment Diversification's Role as a Risk-Reduction Tool An Interview With Richard Bernstein se selectoral si Iwwel se me on. For a long time, you could actually balance out Attachment_1595911549.pdf - Adobe Reader File Edit View Window Help Open 21 (1 of 4 99.1%- Article Highlights Its not the number data that determine casino is the correlation among them Dersityine maas buying a class you don't like in order to see ainst your supersting w . The proft cycle is the driver of investment styles. When the profit cycle revs up, you want to take on more risk Ribu Beri de cont is the tuttalam , stwo Rond Bertha ALIC classes that determinacificacion Frarials naal irakiration amai' Figal Somboy naghiro could say, well, I have US, US stocks, corporate bonds, high-yield back, noes band, commodities, Charles Wow! (CRL You gold, penatana and hedge funds ad and wrywyd but there is no diversitation in the 2 thia v hoal : portfolin hecans that cons How do jednew what the regler named are tary highly correlated 50 koti at not a mocs of a classe. Richard Bernstein (BR): There You cechnically form a TY are omul fods sea Estoa ell-directed portfolio with Vene Rutad Benton Equy Starbagy bund ERBAX) 22 23 daw at the bezdicama se sve global equities fred, and we hme great latimade in that we can What we ike to do is to think of direnification as go police around the wodd. Esto Vance Richard Bernstein seurs. Some amets go np and some assets go down the All Asset Strategy fund "BAKAX) is probably the here at the weathe valtilite at your portfolio Sa e, all-weet fand you have to try to figure out which side of the secow you Tunch for cron RATE and an of the things on turto a portfolin laricind of an en mamber of cont clace The talk a lot about at Mezcl was that people never understood problems today and for the last five ce six yees is that the deliction. They se clusta sad they are told that if they seas ka become very skewed. Its completely imbalanced directify their portfolio, they will get less risk and higher What is happening is that the correlation of all of there are la Wal wealunya sed to all people sal dance dans up. Really the color carnaling out the tion is oot a rebrnehacement tool; it in a cist-reaction other side of the Seesaw is basicalls the Tree What we tool. If you happen to get higher secs, then that's gory do is try to find out the correlations in all of these differest that's the inng an the call wally what does a class, how much rak and how we want to talt that is all about is reducing the volaily of your portfolio. So see. That's kind of what we are doing that's one thing The final point is How do you measure the correlation Numberton is if that's the gaul, then how do you - Hemho can make carrelation companything you want doce the volatility of you portfolio Wellyou have to look depending on the time period you use. "I want to use dan at the couscation among the act classes. And it's not the data for the week. "I want to use monthly dare for five mamber of swet classes that determine the diversification particul pon can main correlation sa ating porn Type here to search OBE a oo P w 10040 PM 7/28/2020 Attachment_1595911549.pdf - Adobe Reader File Edit View Window Help Open 1 . 22 (2 of 4 99.1%- Tools Fill & Sign Comment Ho 00 Figure 1. Historical 5-Year Correlation of Selected Asset Classes to the ing wrong think that the S&P 500 are all attractive, well, the opposite side locis vezy nappesling If you're caly going to direcifes, on going to hne to hold something that is pretty distaste- Hedge Iul. Cara peen. Ta cely deveres FF asset class is Trescathink about how erecybody hates Teac Tere you gu hati pestet u So for individual escons, the first step in diversifying as calising that you have to Baki haldiate that you think en netgning Long Terms to cock And sobody was to do that. intermedia - CRT tortor or low Mana e r hair Comen of 12-only moteles cerchive-year period from 106 aradi u Trew, Lirough/ wydasis to be del retards the Sas index: NSW AN Aat its start Hedge Funds Fard Waghted Carpet Andet, REY - THE FTSE MAKEIT Ris: What's delicat. For sinal Cinder, TK Sovereno Marrych local Debt stats Plus de to to dost, at de har TM Poste - Tregging Market (Winder, Pop-ACT Podes why I'm so adividual financial plan- 3-Maut Teet Merrellyoz 3-Marths Tsity ander Islami Casaresi Spels Source COLOS Commnod! Bat within the context of a fund, Ta Mar Lynch 5-7 Your LS Trury Indies, Long-Term Trry Index - Bo Merlich 15+ rear US Treasury Index Municipals - Esti Meri Lwich US we try to gear the ikunu will get Mwal Securities index, Hist-Grade Corporates - Ost Mem Lynch 15-Year 44-44 Salas tanto che ill-asset funds, us Corporate Inder, S. Migh Yield Bad Merrick Charge Yald Indus Erat hanefily with larik That's what Pest patoarce na grande suture results we've been trying to do and knock on wood we have been succes. It is Source: Richard Bentstehus Bua Mexic, FR, Barbary. mery difficult for an individual, but again the key thing is the lame to realise that thay how to build that they lunk want If you nez commodity manager, that five years incorporates the majority are not going to wock. puust that commoditate at the schole you start at the negative correlatedall you have to bottom and wodoo wop, it's going CR: Whalwale ja do is find the night time period. We look to looks seally good and if you start til kartu suncu in the mix, at staat we call travel in the map, it's going to look really had to raise pour Stactical coelations use the long term five years is a paetty good time perod RB: Lacke arcana for a recond tha trend in the ccuelation. So we are so became modes most of a full code. you scade las some sect of final looking at all that and dorme. Te an and has conmulted a financial place terally ble steede Wikcm CR: Var www nec Then masyon do want to rebalance Hukum Jovado ir drying deciso sair bu to the phone. You bendency will be lo coccellations, and they don't change profile and durat here come to correct way, well, the stock market is going up vay layuely Tlut's what we maand naar hy isa'? guadalah and stocks will be 70% 80% 90% of that's how we go webe a R: It's a litlu lat dilbeut, wluchy pottels, and you slunk, thus notice that the sees was becoming is why I think they need someone like is gest. Theo all of a sudden we Pastot it is that they have to be musket and you're thinking, oli ar learned that it hax hacama try hard that drifying amang at cu 401k) in de 'The important thing to diversify portfolio That'l change. meus buyze thaps they don't Eke. about sebalancing is apt to rebalance by aliul detto correlation change Carterally an individual imaxtor will event, but to ebaluace by time. What we will change or portfolin load up on are that they think are people often do in rebalacca broma alactine, a wall clua oon olt cent, www.bea mket OL CR: Ihaponiad of the day carrier ting higher as a les cik tell med seg selulaxe. Ramostal sip kong mut pon can't do that. That's not the way it decision, and what we hme amas told RIS: We matk out for your own. You have to baklat ce poplayari want to use dute. The tradition callation for beth fou don't like became dire sification is an amanal dacice. You want to was five years. It wm ociginally thought all about incucing against your bets be- do it by time, do it at the end of every Type here to search OBE a WE ME 10040 PM 7/28/2020 Attachment_1595911549.pdf - Adobe Reader File Edit View Window Help Open 1 23 (3 of 4) 99.1%- Tools Fill & Sign Comment que o do southa Pick have an optimal combination of yield the US issues wea't happening in the a date your calendas and cacle it and and capital opucciation Some people United States, the these happening that's the day you're going to rebalance What do Ime off of, if I don'th is marging market That is probably You're not you to selbere in betwee dua yule Wet ante las where the usks, but most people still Llunk like Pro CC S xk doorlopente testa in LA CR7ket shu yi Yoldal for second An endowmeat spiss off mar.se Ground color by Brig 5% of its poetic by bn 2 ' pia', afi y is hair so wiry can't yoran ito at CR Ha's guated yuarat profilo strings every year. Maybe it doesa'there "Presbiter are the valpar Car RB: Theorghet me, I w tal Mar it should be 2% 3% je borate on that kwn to be a person who is tary hal brat sheen is this notion now that people RE: Prospin spend way too much moka on yield and thout it was very can't Eve off of their capital prins. And time lockade u GDP gross domestic important I was the one who came up think that is an IRA a tha thinking procact] Stock market dont trade with the statistic that ince NASDAQE 10 or 12 years ago People will have to on GDP They trade on corporate exception in 1971, utility to have bee that there should lose au poate the corporate actoe. Let or performed de NASDAQ.comporite ture of both back to 200 people were to confed Te shores on the power of componding as to how the stock market did so well devadend. So the way I decibe to the CR Doruk bus rational bersele One Bed that the compoule scle if you can win an NBA championship set but we want bar became the largest percent of GDP shooting three-pointers of Touca in w basen we terurature. Her ever and corporate profits were actu- an NHA chamoop shootinglay pure handle the abil for fall ally qute strong So if you're using why not shoot the larups? That field goal prieste Boud base prins iners GDP you're thinking, wow, GDP: 2 percentage in a wilde highes. Tots arining ale? so why is the stock masket propa? Tield and capital appreciation What RB: What interesting is that their bara ropa profits ako maitas, pueden of zes people people se scued that interest bates se me dome so well and composite puola hond always be sex meer in de toe, but they acfuse to hold me the legat percentage of the GDP their portfolio Yon Kosten forre equities 5o the question we home to ter 50 people pead too much time 25, peuple always say, "Young man wis way would interest westP locking si GDP x ml curul lux yumg woman, you have to anat de la catatea suger to me the lounge al cepocale petite What you growth Think about if you're retiring economy gerus erogge. If the economy will finds that tise deve of things like sor, you would have been 25 in soughly purta stronges, scuba da putty and style grat/val, buge/mall.al 1971, and someone havdou at nobody wants to make that leap it orches and all the other thing people need to investingosta Bat actually ? Everyone thinks that interest dates are talk about is the profit cycle. Soutien pan had imated in ince during that going pha the Federal Resi proteden pora hanrally waist timp, con probably would have been doing something artificial, the dollar is to take a more ask you want to happier today with just compounding poing to become tegexa, we are becomes down in e, you want to become more the ridenda ing a third-odd trete. You can clical, son want to go away from yield, Locomeas.com.datase wake all of this stull up, but the scalety cle. And uten profiteres colores depan, woed wall people will be back declete, u will become think Erebody should have come palende The home been backing defensive and more large capaod things axume the posilo, paduo become the conclus baseita ketat. I pretty well over time. how all you areThe proper mat i Pepla don't sem ta bebere a question of uk tolerance and act of in the business cycle anymore, we are CR le for any proti age What you find in that old people experiencing agerata bine cele gol atat ton poiad and water wat become mom income-dependent and are that has happened the stock era problem ita is that if we go back malet has continued to do well. So I What we do in take the year 10 or 12 years, money wanted capital don't think people should be put off to-year changnis trailing for parter appreciwtion and nobody wanted income Onear that was that mening Acne qarter can be quite become of the tech bubble. Now every people sae mal and about bakalcul solule, so that docan't tell tell you a one wante income od they don't be is non-US honde, became the dollar lot 50 se try to smooth testostec capital appreciation. The needle wet is strengthening and emerging market a longer peciod to look at the funda- com.cluele 190 degrees to the SELECT lave en ung h. othe direction, and I think people ne so it is free that people se occid being as wise as they were 10 of 12 about issues in the United States, and CR Sofirmadest, wild hata aga la metar should they are not that a lot of sing the SP 509 www wark Type here to search OBI a Oo WE ME 10040 PM 7/28/2020 Attachment_1595911549.pdf - Adobe Reader File Edit View Window Help Open 120% - BR B Tools Fill & Sign 24 (4 of 4 September 2013 Comment RB: Yes, that's what we use: S&P A lot of people say the market is very are uncertain, they say that it is terribly 500 reported earnings The S&P puts overvalued and there is great uncertainty overvalued and when they are certain, them out all the time you can get them Financial theory tells you that that is it is a bargain. That can't happen. anywhere an impossible combination. You can not have that. You are either going to CR: You said carb can be treated as an CR: What do your look al in terms of lave uncertainty and undervaluation arredor How does the fu in? Olssons's, anel salvatiow? certainty and overvaluation. That's called people have coach in their checking and caring RB: Asset valuations are a little bit a disk premium. I think most people around more difficult. We look at them in combi- would agree would agree that there is a fair amount RB: Actually, in the more recent nation with interest rates and sentiment of uncertainty in the marketplace today. volatility we have experienced, cash is We will hear people say that the S&P is If you think there is a fair amount of about the only thing that is proving to selling at 10 times earnings or 15 times uncertainty, you should say the market be diversified right now because people earnings or 18 times earnings, and we has got a fair amount of value. It is are freaking out about every asset class don't think that gives you enough infor that simple. I think for an individual that is out there, which is a bit odd. mation. There are times when the price investor that is all you have to do. They Cash can be a diversifier as well. Cash earnings ratio is 15, let's say, and interest have to say, "Am I certain?" And if they sits at the falceum of the seesaw. That Tates have been 1%. There are times the say, "Yeah, this is a really good invest is a good way to think about it. What is S&P is trading at a price-earnings ratio ment," then they should sit down and happening right now is that the seesaw of 15 and interest rates have been 5%. say, "Wait a minute, I just said that it is is gyrating like crazy in the short-term Are those two similar situations? No, really good." If it is really good and all volatility, so cash is sitting there look they are not Where inflation has been of my friends think it is really good and ing kind of nice. From time to time 5% and inflation has been 1%no, they everybody in my AAIT chapter thinks it that will happen. Over the longer term, are not the satnie. So what we like to do is really good, then is this really going however, we know that cash is a dragon is look at those other fundamentals and to be an undervalued asset? Probably a portfolio. Obviously cash is important then compare that to sentiment because not. If there is great uncertainty and we for transaction purposes and checking what we are always looking for is a gap can't decide and we're scared to get into accounts or something like that, but you between the scality of what fundamnen it, then we should probably think, well have to be careful about holding casl tals are and people's perception of what everyone is scared here, maybe there is for long periods of time those fundamentals are. some value in that asset class. Maybe we Let's talk about the valuation right should have a little bit in it. But what See more of our countersation is ibe online now, in June 2013, for the stock market people do instead is that when they version of this article ow AALI.com. A Richard Bernstein is the chief executive officer of Richard Bernstein Advisors LLC. Find out more at www.aaji.com/authors/ richard-bernstein. Charles Rotblut, CFA, is a vice president at AAN and editor of the Aall Journal. Find out more about Charles at www.aail.com/authors/charles-rotblut and follow him on Twitter at twitter.com/charlesrotblut. Type here to search OP a Co P wa 10:39 PM 7/28/2020 Clipboard Font Alignment Number Styles A1 fx Correlation Analysis and Performance Metrics B H K L M N D E F G Correlation Analysis and Performance Metrics 1 2 3 4 5 Start Date 6 End Date 7 Correlation Basis 12/1/2014 12/31/2019 Monthly Returns 5 Years Ending 12/31/19 8 9 Asset Correlations Annualized 10 Annualized Standard 11 Name Ticker ERBAX EARAX GLD SPY VT Return Deviation Beta 12 13 Eaton Vance Richard Bernstein Eq StratA ERBAX 1 0.977 -0.158 0.954 0.952 7.23% 11.22% 0.91 14 Eaton Vance Rich Bern All Asst Strat A EARAX 0.977 1 -0.084 0.916 0.928 4.46% 7.18% 0.57 15 SPDR Gold Shares GLD -0.158 -0.084 1 -0.175 -0.099 4.89% 13.77% -0.11 16 SPDR S&P 500 ETF Trust SPY 0.954 0.916 -0.175 1 0.961 11.31% 11.86% 0.97 17 Vanguard Total World Stock ETF VT 0.952 0.928 -0.099 0.961 1 8.12% 11.74% 1.00 18 (Benchmark) 19 20 Notes on results: 21 Past performance is no guarantee of future results, which may vary. All use is subject to terms of service. 22 Investing involves risk, including possible loss of principal. The value of the investments and the income derived from them may fluctuate over time. 23 The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete. 24 The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities. 25 The results are based on the total return of assets and assume that all received dividends and distributions are reinvested. 26 Time frame for correlation analysis is the full available data range unless a specific date interval is specified. 27 Annualized standard deviation is calculated from the standard deviation of monthly returns 28 Annualized return is calculated from the specific time period using compound annual growth rate formula. 29 30 Correlations 20200104125143 (1) + 4 an