Analytic Investors, LLC Mandate: Buy Write Strategy Hired: 2011
Firm Information Investment Approach Total ARMB Mandate Wells Fargo Asset Management acquired Analytic Investors on October 1, 2016. As of 12/31/2016, Analytic’s total assets under management were $17.6 billion. Key Executives: Harin de Silva, Ph.D., CFA President / Portfolio Manager
Greg McMurran Chief Investment Officer / Portfolio Manager
Dennis Bein, CFA Chief Investment Officer / Portfolio Manager
Michael Brogan Managing Director
Amy Stueve Chief Compliance Officer
Megan Miller, CFA Portfolio Manager
Analytic’s investment objective is to outperform the CBOE S&P 500 BuyWrite (BXM) Index while managing tracking error to be less than 2% relative to the BXM Index. Given this low tracking error limit, the strategy is structured to behave very similarly to the BXM Index. The BXM Index is comprised of the S&P 500 Index with a one month at the money S&P 500 Index call option sold monthly at regular expiration (3rd Friday of each month). The equity component of this strategy is managed by SSGA and is passively managed relative to the S&P 500 index. Analytic attempts to add value by option security selection. While Analytic limits the options they sell to S&P 500 Index options, they actively select call options that they believe are overvalued to add value versus the BXM Index. Benchmark: CBOE S&P 500 BuyWrite Index
Assets Under Management: 12/31/2016: $317 Million
Concerns: None
12/31/2016 Performance
Last Quarter 1-Year 3-Years
Annualized 5-Years
Annualized Analytic Investors 2.61% 8.52% 6.56% 8.03% CBOE S&P 500 BuyWrite Index 2.64% 7.07% 5.98% 7.24%
ALASKA RETIREMENT MANAGEMENT BOARD REVIEW
March 2, 2017
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
2
Contents
Analytic Buy-Write Strategy
1
2
3
4
Firm Update
Investment Objective and Results
Volatility Risk Premium and BXM Index
Appendix
Analytic Attendees:
Greg McMurran, Chief Investment Officer, Portfolio Manager
Megan Miller, CFA, Portfolio Manager
Kevin Clark, CFA, Director, Relationship Management
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
1.7
10.9
5.0
As of 12/31/2016
*Includes four clients and $1.52B of non-discretionary assets as of 11/30/2016, where Analytic does not have trading authority over the client portfolio.
3
Profile
Quantitative Investment Manager
Organization Headquarters: Los Angeles
Investment professionals: 19
Client Service/Marketing: 11
Capabilities Benchmark Oriented (Beta 1)
─ Core Equity
─ Short Extension
Low Volatility Equity
Alternatives
─ Long/Short Equity
─ Covered Call
─ Market Neutral Equity
20
50
10
11
3 1 4
Asset Composition Total Assets:$17.6B USD*
50% Financial Services
20% Public
11% Corporations
10% Multiemployer
4% Insurance
4% Superannuation/Sovereign
Wealth Fund
1% Endowments/Foundations/
Charitable
$ 1.7 Benchmark Oriented
$ 10.9 Low Volatility Equity
$ 5.0 Alternatives
Clients Total Client Relationships: 81*
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
PORTFOLIO MANAGERS Harindra de Silva, Ph.D., CFA – President / Portfolio Manager Dennis Bein, CFA – Chief Investment Officer / Portfolio Manager
Joined firm in 1995; 31 years of investment experience Ph.D. in Finance, University of California, Irvine MBA in Finance, University of Rochester MS in Econometrics, University of Rochester BS in Mechanical Engineering, University of Manchester
Joined firm in 1995 26 years of investment experience MBA in Finance, University of California, Riverside BS in Business Administration, University of California, Riverside
David Krider, CFA – Portfolio Manager Ryan Brown , CFA – Portfolio Manager
Joined firm in 2005 14 years of investment experience BA in Economics, California Institute of Technology BS in Computer Science, California Institute of Technology
Joined firm in 2007 11 years of investment experience MS in Finance, University of Utah BS in Economics, Brigham Young University
Greg McMurran – Chief Investment Officer / Portfolio Manager Megan Miller, CFA – Portfolio Manager
Joined firm in 1976 40 years of investment experience MA in Economics, California State University, Fullerton BS in Economics, University of California, Irvine
Joined firm in 2008 11 years of investment experience BS in Mathematics, University of California, Los Angeles
4
Investment Team
As of 9/30/2016
Andrew Claeys, CFA – Director of Trading
Joined firm in 2007 12 years of investment experience BS in Business Administration, University of Denver
CHAIRMAN TRADING
Roger Clarke, Ph.D. – Chairman
Joined firm in 1985 39 years of investment experience Ph.D. in Finance, Stanford University MBA, Brigham Young University MS in Economics, Stanford University BA in Physics, Brigham Young University
Doug Savarese, CFA – Research Advisor
Joined firm in 1998 29 years of investment experience BA in Mathematics, The Richard Stockton College of New Jersey BS in Business Administration, The Richard Stockton College of New
Jersey
Stephen Thorley, Ph.D., CFA – Research Advisor
Joined firm in 2000 27 years of investment experience Ph.D. in Financial Economics, University of Washington MBA in Business, Brigham Young University B.S. in Mathematics, Brigham Young University
RESEARCH ADVISORS
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
5
Account Summary
Alaska Retirement Management Board
RESULTS
Inception Date: March 9, 2011
December 31, 2016 Account Value: $316.6 Million
Annualized Since Inception Excess Return: 1.05%
Since Inception Tracking Error: 1.50%
OBJECTIVES
Outperform BXM Index, over time, net of fees
Manage Tracking Error to be less than 2% versus the BXM Index
Long U.S. equity positions managed by SSgA (passive S&P 500 Index)
Call options managed by Analytic
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
Periods greater than one year are annualized. Performance is presented gross of fees and does not reflect the deduction of investment advisory fees. Client’s return will be reduced by the advisory fees (as described in Part II of the adviser’s Form ADV) and any other expenses it may incur in the management of its investment advisory accounts. Past performance does not guarantee future results.
6
Performance
March 9, 2011 (Inception) – December 31, 2016
Alaska Retirement Management Board Performance
Return (%) Standard
Deviation (%)
Volatility Reduction vs.
S&P 500
ARMB (Gross) 7.88 7.78 32.3%
CBOE BuyWrite (BXM) Index 6.83 8.09 29.7%
S&P 500 Index 11.89 11.51
ARMB
BXM
S&P 500 Index
0
5
10
15
0 5 10 15 20
AN
NU
ALIZ
ED
RETU
RN
(%
)
STANDARD DEVIATION (%)
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Jan-9
6
Jun-9
6
Nov-9
6
Apr-
97
Sep-9
7
Feb-9
8
Jul-
98
Dec-9
8
May-9
9
Oct-
99
Mar-
00
Aug-0
0
Jan-0
1
Jun-0
1
Nov-0
1
Apr-
02
Sep-0
2
Feb-0
3
Jul-
03
Dec-0
3
May-0
4
Oct-
04
Mar-
05
Aug-0
5
Jan-0
6
Jun-0
6
Nov-0
6
Apr-
07
Sep-0
7
Feb-0
8
Jul-
08
Dec-0
8
May-0
9
Oct-
09
Mar-
10
Aug-1
0
Jan-1
1
Jun-1
1
Nov-1
1
Apr-
12
Sep-1
2
Feb-1
3
Jul-
13
Dec-1
3
May-1
4
Oct-
14
Mar-
15
Aug-1
5
Jan-1
6
Jun-1
6
Nov-1
6
Implied Volatility (VIX)
Realized Volatility (25 Day)
Source: Bloomberg
7
Volatility
January 1996 – December 2016
The Market Tends to Consistently Overprice Volatility O
verp
riced
Underp
riced
VO
LATIL
ITY L
EVEL (
SPX)
IMPLIE
D V
OLATIL
ITY S
PREAD
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan-9
6
Jun-9
6
Nov-9
6
Apr-
97
Sep-9
7
Feb-9
8
Jul-
98
Dec-9
8
May-9
9
Oct-
99
Mar-
00
Aug-0
0
Jan-0
1
Jun-0
1
Nov-0
1
Apr-
02
Sep-0
2
Feb-0
3
Jul-
03
Dec-0
3
May-0
4
Oct-
04
Mar-
05
Aug-0
5
Jan-0
6
Jun-0
6
Nov-0
6
Apr-
07
Sep-0
7
Feb-0
8
Jul-
08
Dec-0
8
May-0
9
Oct-
09
Mar-
10
Aug-1
0
Jan-1
1
Jun-1
1
Nov-1
1
Apr-
12
Sep-1
2
Feb-1
3
Jul-
13
Dec-1
3
May-1
4
Oct-
14
Mar-
15
Aug-1
5
Jan-1
6
Jun-1
6
Nov-1
6
Implied minus Realized Volatility Spread Average Spread: 4.32
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
8
Analytic
Our Edge
IMPLEMENTATION
RISK MANAGEMENT
Implementing a BXM replicating option portfolio has proved difficult for other
managers
Our investment and trading experience has resulted in a low tracking error
high value added BXM replicating covered call portfolio
We have consistently maintained a low tracking error option portfolio and a
hedging option portfolio relative to BXM
RESEARCH Research focused on obtaining better exposure to the Volatility Risk Premium
than present in BXM by adjusting option strikes and expirations
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
9
Benchmark Construction
What is the BXM Index?
The CBOE S&P 500
BuyWrite Index (BXM) is a
benchmark index designed
to track the performance
of a hypothetical buy-write
strategy on the S&P 500
Index
The BXM is a passive total return index based on:
(1) buying an S&P 500 stock index portfolio, and
(2) "writing" (or selling) a near-term "covered" call option,
generally on the third Friday of each month.
– The SPX call written will have about one month remaining to
expiration, with an exercise price just above the prevailing
index level (i.e., slightly out of the money).
– The SPX call is held until expiration and cash settled, at which
time a new one-month, near-the-money call is written.
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
Source: Analytic Investors, Bloomberg
10
2016 Market Environment
S&
P 5
00 I
ndex L
evel
Market
1825
1875
1925
1975
2025
2075
2125
2175
2225
2275
2325
BXM outperforms S&P
BXM matches S&P
S&P 500 Level
Monthly BXM Strike
Monthly BXM Breakeven Level
The following details the monthly roll levels for the BXM Index for the year. The solid dark blue line charts the return for the S&P 500 Index. The solid green indicate the BXM option strike price for each option cycle, and the dotted red line is the break-even price for the option cycle. Once the S&P breaks through the dotted red line, the upside is capped and the option return becomes negative. The premium provides some protection against this loss which is why the breakeven strike price is higher than the actual strike price.
BXM underperforms S&P
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
Source: Bloomberg and Zephyr StyleAdvisor
July 1988 is the inception date of the CBOE BuyWrite (BXM) Index.
11
Benchmark Performance
July 1, 1988 – December 31, 2016
BXM versus S&P 500 Index
Return (%) Standard
Deviation (%) Volatility Reduction
Sharpe Ratio
CBOE BuyWrite (BXM) Index 9.02 10.04 29.9% 0.58
S&P 500 Index 10.06 14.32 0.48
BXM
S&P 500 Index
0
5
10
15
0 5 10 15 20
AN
NU
ALIZ
ED
RETU
RN
(%
)
STANDARD DEVIATION (%)
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
Source: Zephyr StyleAdvisor
July 1988 is the inception date of the CBOE BuyWrite (BXM) Index.
12
Historical Market Returns
July 1, 1988 – December 31, 2016
Downside Protection, Up-Market Participation
-7.59
16.32
8.03 9.58
-16.00
22.89
7.19
11.29
-25.0
-15.0
-5.0
5.0
15.0
25.0
Down Market
<0%
Sharply Rising Market
>12%
Moderately Rising
Market
0% to 12%
Average
AVERAG
E 1
2-M
ON
TH
RETU
RN
(%
)
CBOE BuyWrite Index
S&P 500 Index
555 West Fifth Street 50th Floor
Los Angeles, CA 90013
Tel: 800-618-1872
Fax: 213-688-8856
www.aninvestor.com
555 West Fifth Street 50th Floor
Los Angeles, CA 90013
Tel: 800-618-1872
Fax: 213-688-8856
www.aninvestor.com
Contents
A N A L Y T I C I N V E S T O R S D I S C I P L I N E D | R E S P O N S I V E | R I S K C O N T R O L L E D
14
As Chief Investment Officer, Greg McMurran oversees the implementation of the firm’s investment strategies. He is a major contributor to the firm’s ongoing research efforts as well as new product development and strategy applications. As a portfolio manager, Greg focuses on day-to-day portfolio management and research related to derivatives-based investment strategies. With 30 years of quantitative research, portfolio management and trading experience, Greg has an extensive background in managing quantitative investment portfolios. Greg is also recognized as an authority on options valuation and strategies and has authored several articles. Greg is a frequent participant of the CBOE Roundtable Committee, which meets and discusses industry trends, new product ideas and indexes. The introduction of the BXM Index and weekly options were inspired by this Committee.
Joined firm in 1976 40 years of investment experience M.A. in Economics, California State University, Fullerton B.A. in Economics, University of California, Irvine
Senior Team Members
Contents
A N A L Y T I C I N V E S T O R S D I S C I P L I N E D | R E S P O N S I V E | R I S K C O N T R O L L E D
15
Senior Team Members
Megan Miller is responsible for portfolio management and trading support for derivatives-based investment strategies. Megan is involved in both research and the portfolio construction of client portfolios. Specifically, she researches new models and ways to enhance existing models used in the investment process, develops and maintains optimization inputs and volatility forecasts, and develops and maintains optimization frameworks used to create client portfolios. Joined firm in 2008 11 years investment experience B.S. in Applied Mathematics, University of California, Los Angeles
ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED ANALYTIC INVESTORS DISCIPLINED | RESPONSIVE | RISK CONTROLLED
Periods greater than one year are annualized. Performance is presented gross and net of fees. Past performance does not guarantee future results.
16
Performance
Performance
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
DEC 4Q16 1 Year 3 Year 5 Year Since Inception
RETU
RN
(%
)
ARMB (Gross)
ARMB (Net)
BXM Index
Standard Deviation
Volatility Reduction
vs. S&P 500 ARMB (Gross) 7.78 32.3% BXM Index 8.09 29.7% S&P 500 Index 11.51
Inception Date 3/9/2011
Reporting End Date 12/31/2016
Currency USD
DEC 4Q16 1 Year 3 Year 5 Year Since Inception
ARMB (Gross) 0.42 2.61 8.52 6.56 8.03 7.88
ARMB (Net) 0.41 2.58 8.39 6.42 7.88 7.72
BXM Index 0.11 2.64 7.07 5.98 7.24 6.83