keep investment calm solutions for uncertain ......uncertain times frontier investment management...

KEEPCALMAND

CARRYON

INVESTMENT SOLUTIONS

FOR UNCERTAIN

TIMES

Frontier Investment Management Overview

• Frontier Investment Management (“Frontier”) specialises in advanced indexation strategies toprovide a range of low-cost multi-asset investment funds

• The firm was founded in 2004 as an independent, privately owned business that has grown to 20partners/employees with an AUM of $650m

• Frontier differentiates itself by using an innovative approach to access alternative asset classes thattarget low correlation to traditional asset classes

• Frontier’s investment philosophy is “Evidence-Based” and is supported by 100 years of empiricalevidence and academic research

• Frontier has attracted a diversified, high-quality client base comprising leading financial planningbusinesses, wealth managers, charities and institutions

2

Table of Contents

1. Long term asset class returns : Achieving “real returns” above inflation

2. Strategic vs tactical investing: How important is market timing and fund selection?

3. Diversification: Why modern portfolio theory is still modern

4. “True” diversifiers: an introduction to hedge funds and managed futures

5. Endowment Style Investing: Theory into practice

6. The importance of low cost investing

7. Frontier’s Multi-Asset Platform Fund

8. Frontier Investment Management & Your Business

3

LONGTERMASSET CLASS

RETURNS

“The length of time investments will be held…is the single most powerful factor in any investment program”Charles D. Ellis, Winning the Loser’s Game: Timeless Strategies for Successful Investing

Asset Classes Generate Long Run “Real Returns”

• Historical returns have been significantly higher than cash and inflation

• The return above cash is known as the “Excess Return” or “Risk Premium”

• Return embedded in asset class (index); fund manager not required

5

Asset Class Returns Above InflationJanuary 1973 to December 2011

Asset Class Returns Above InflationJanuary 1991 to December 2011

Each asset class is represented by a relevant benchmark index. 4 and 8 Asset Class Portfolios are equally weighted and rebalanced annually on December 31. Returns are GBP hedged. Asset class returns areshown gross and have not been adjusted for management, administration and access costs incurred by the Fund. Accompanying notes are an integral part of this presentation.

Rolling Returns explained

6

-100

-80

-60

-40

-20

0

20

40

60

80

100

Jan-

08Fe

b-08

Mar

-08

Apr-

08M

ay-0

8

Jun-

08Ju

l-08

Aug-

08Se

p-08

Oct

-08

Nov

-08

Dec-

08

Jan-

09Fe

b-09

Mar

-09

Apr-

09M

ay-0

9Ju

n-09

Jul-0

9Au

g-09

Sep-

09O

ct-0

9N

ov-0

9

Dec-

09Ja

n-10

Feb-

10M

ar-1

0Ap

r-10

May

-10

Jun-

10

Jul-1

0Au

g-10

Sep-

10

Oct

-10

Nov

-10

Dec-

10Ja

n-11

Feb-

11

Mar

-11

Apr-

11

May

-11

Jun-

11Ju

l-11

Aug-

11Se

p-11

Oct

-11

12m Rolling Period 1

12m Rolling Period 2

Rolling Returns

• Rolling returns illustrate returns for holding periods experienced by an investor. For example, the 1year rolling return to March 2010 will be the return for April 2009 to March 2010.

Months

Probability of Return Capture Increases with Time

7

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Multi Asset Portfolio (1Y Annualised)Cash (1Y Annualised)Inflation (1Y Annualised)

1 Year Rolling Returns: December 1973 – December 2011 (456 periods)

90% of 12 month periods produce positive returns

73% of 12 month periods produce returns above cash

Number of rolling periods included in calculations: 1 Year = 456, 3 Year = 432, 5 Year = 408, 10 Year = 348. Multi-Asset Portfolio is 4 and 8 asset class portfolio as shown previously.Returns are in GBP. Cash is 1 Month UK Libor less 0.5%. Accompanying notes are an integral part of this presentation.


8


-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011


99% of 36 month periods produce positive returns




9

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011


5 Year Rolling Returns: December 1977 – December 2011 (408 periods)100% of 60 month periods produce positive returns




10

-10%

-5%

0%

5%

10%

15%

20%

25%

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010


10 Year Rolling Returns: December 1982 – December 2011 (348 periods)Worst 10 year period produced 4% p.a. above cash



11

12 Month vs 10 Year Rolling Returns vs Inflation +3%December 1982 – December 2011 (348 periods)

Number of rolling periods included in calculations: 10 Year = 348. Accompanying notes are an integral part of this presentation.

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Inflation + 3% (10Y Annualised)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Multi Asset Portfolio (1Y Annualised)



12


76% of 12 month periods are over inflation +3%


-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Multi Asset Portfolio (1Y Annualised)Multi Asset Portfolio (10Y Annualised)Inflation + 3% (10Y Annualised)


13


76% of 12 month periods are over inflation +3%

100% of 10 year periods are over inflation +3%


-10%

-5%

0%

5%

10%

15%

20%

25%

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Multi Asset Portfolio (10Y Annualised)



14



100% of 10Y periods above Inflation + 3%Worst 10 year period 5.2% over inflation

Long Term Asset Class Returns & Your Business

• Multi-asset portfolios generated an “Excess Return” of 6.7% p.a. over the past 20 years

• Adopting a longer term horizon maximises the probability of achieving “real returns” aboveinflation in line with the client’s financial plan (cash flow model)

• Clients that understand the importance of time will be less reactive to adverse movements inthe market resulting in fewer phone calls and meetings to discuss market volatility

15

Value of Initial 250,000 Investment (11.3% growth pa)

8 Asset Class Portfolio

Cash

6.2 million

0.9 million

5.3 million

6.7% annual return above cash

5yrs 25yrs20yrs15yrs 30yrs10yrs

Accompanying notes are an integral part of this presentation.

STRATEGICVS

TACTICALINVESTING

“For the individual investor, the asset allocation decision is by far the most important factor in determining returns”Sandler Report, July 2002

Strategic Asset Allocation as a Portfolio Driver

17

Drivers of Portfolio Return and Risk

Brinson, Hood, Beebower, Journal of Finance (1986)

Managers Deliver Performance of the Asset Class

Managed Funds tend to rise/fall with the Asset Class

18

Source: Bloomberg

-30%

-20%

-10%

0%

10%

20%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2000-2010(A)

FTSE All Share (UK Equities) IMA Active Managed

Strategic Asset Allocation as a Portfolio Driver

• Asset class performance determines the majority of the return and risk of the portfolio

• Therefore, ASSET CLASS selection and strategic allocations are the MOST IMPORTANT drivers of multiple asset class portfolio returns and risk

19

Research: Brinson Brinson Ibbotson - Ibbotson -

(1986) (1991) Mutual Pension

Percentage 94% 92% 81% 88%Active Return -1.1 -0.1 -0.3 -0.4

Percentage of Return Explained by Asset Allocation

Market Timing/Tactical Asset Allocation

• Definition: A market timer attempts to move into and out of different asset classes in order to increase returns i.e. moving out of stocks and into bonds during a bear market

• David Dreman study of “expert” market strategists going back to 1929

• Results indicated that the consensus was WRONG 77% of the time

• Graham and Campbell study of 237 “market timing” newsletters

• Less than 25% of recommendations were correct (less than the random 50% achievable by throwing darts)

• No advisors were consistently correct (no persistence)

• The only consistency found was for the worst advisors who were wrong very often

• Malcolm Forbes: “The only money made in the investment newsletter business is in the subscription fees – not in the advice”

20

-60

-40

-20

0

20

40

60

-40

-30

-20

-10

0

10

20

30

40

Jan 07 Jan 08 Jan 09 Jan 10

21

Behavioral Responses: 2008 Financial CrisisThe financial crisis of 2008 exhibited a typical behavioral response resulting in investors selling at the market bottom – The MSCI World Index fell 50.4% between October 2007 and February 2009

New Net Cash Inflows ($Bn)Total Return on Equities

Net new cash flow to equity funds is plotted as a six-month moving average. The total return on equities is measured as the year-over-year change in the MSCI All Country World DailyTotal Return Index. 3. Sources: Investment Company Institute and Morgan Stanley Capital International.

Net investor flows relative to total return on equities: January 2007 – March 2010

Extreme Variability of Asset Class Performance

Not possible to consistently forecast asset class winners / losers

Frequent tactical changes increase cost / risk

22

For example, Emerging Equities were the top performing asset class 1991-1993, then consistently bottom (with the exception of 1999) to 2002. This asset class was again a top performer 2003-2007 followed by a loss of more than 50% in 2008., a gain of 79% in 2009 and -18% in 2011

Accompanying notes are an integral part of this presentation. Returns are in USD.

Best

Worst

Commodities Hedge Funds Managed FuturesGlobal Equities Global Bonds Emerging Equities Emerging Bonds Real Estate

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

60% 11% 75% 5% 27% 39% 24% 22% 66% 50% 10% 32% 56% 31% 34% 37% 39% 17% 79% 22% 9%

39% 11% 44% -1% 21% 34% 17% 11% 41% 20% 7% 14% 31% 26% 26% 32% 25% 8% 31% 19% 5%

20% 9% 25% -2% 20% 29% 15% 8% 29% 16% 3% 11% 29% 17% 16% 17% 11% -10% 26% 17% -4%

16% 8% 22% -4% 18% 18% 13% -6% 26% 11% 2% 9% 24% 12% 12% 10% 8% -22% 26% 12% -5%

14% 7% 20% -4% 14% 14% 11% -11% 25% 5% -1% 6% 21% 11% 12% 5% 6% -38% 15% 10% -7%

13% 4% 19% -6% 11% 13% 9% -14% 3% 3% -3% 0% 12% 6% 6% 3% 6% -39% 10% 9% -7%

13% 2% 12% -7% 10% 8% -12% -25% 1% -8% -14% -6% 11% 5% 5% 0% 6% -45% 3% 5% -7%

-6% -4% -12% -19% -5% 6% -14% -36% -4% -31% -32% -25% 3% 3% 4% -15% -16% -53% -4% 5% -18%

Ranked Asset Class Returns – Calendar Years (January 1991 to December 2011)

Strategic Asset Allocation & Your Business

• The Strategic Asset Allocation of a portfolio will determine the vast majority of a

portfolio’s risk and return characteristics

• The impact of manager selection and short term market timing or tactical asset

allocation changes is likely to be negligible over time and could negatively effect

portfolio performance

• Behavioural responses to bull and bear markets can precipitate poor investment

decisions that severely impact returns

• An important role of a financial planner is to educate clients on the merits of strategic

asset allocation helping them “stay the course” during market downturns

23

DIVERSIFICATION:WHY

MODERNPORTFOLIO

THEORYIS STILL

MODERN

“A good portfolio is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies”Harry Markowitz, Portfolio Selection: Efficient Diversification of Investments (1959)

Modern Portfolio Theory

• Harry M. Markowitz developed MPT in 1952 with the publication of a paper : “PortfolioSelection” for which he received the Nobel Laureate in Economics in 1990

• Markowitz identified that combining investments with less than perfect correlationproduced portfolios with higher risk-adjusted returns

• The key principle was that different investments can be un-correlated to each other overvarious periods of time - the lower the correlation, the greater the benefit derived

25

Expe

cted

Ret

urn

(%)

Risk/Volatility (%)

Bonds

Stocks

HF/MF

Addition of alternative asset classes

Retu

rn

Risk

Multi Asset Investing improves risk-adjusted returns

Combining asset classes with variable correlations significantly decreases risk

PORTFOLIO 1 PORTFOLIO 2 PORTFOLIO 3 PORTFOLIO 4 PORTFOLIO 5 PORTFOLIO 6Current MAP

AllocationGlobal Equities 100% 60% 50% 40% 30% 25% 12%Global Fixed Income 30% 30% 30% 30% 25% 20%Global Real Estate 10% 10% 10% 10% 10% 8%Commodities 10% 10% 10% 10% 10%Emerging Equities 5% 5% 5% 5%Emerging Bonds 5% 5% 5% 5%Hedge Funds 10% 10% 20%Managed Futures 10% 20%TOTAL 100% 100% 100% 100% 100% 100% 100%

Annualised Return 7.7% 8.7% 8.8% 9.5% 9.5% 9.6% 9.5%

Volatility (Ann Std Deviation) 14% 10% 9% 9% 8% 7% 6%

Maximum Loss -49% -35% -34% -33% -30% -26% -20%

Avg Top 3 Maximum Losses -36% -23% -21% -19% -17% -15% -12%

Return/Volatility Ratio 0.5 0.9 1.0 1.1 1.2 1.3 1.5

Return/Maximum Loss Ratio 0.2 0.2 0.3 0.3 0.3 0.4 0.5

Return/Top 3 Max Loss Ratio 0.2 0.4 0.4 0.5 0.6 0.6 0.8

Each asset class is represented by a relevant benchmark index with returns hedged into GBP where relevant. Portfolios are rebalanced annually. See notes for further information. The portfolio assetallocations above are intended to illustrate the impact of diversification across an increasing number of asset classes. Current MAP allocation represents the current asset allocation of Frontier’s multi-assetfunds applied to gross asset class returns over the whole period and is not representative of actual fund performance.

Benefits of Modern Portfolio Theory (January 1991 – December 2011)

Modern Portfolio Theory & Your Business

• A key objective when constructing a portfolio should be to build a globally diversifiedportfolio of asset classes that exhibit varied correlations

• The inclusion of alternative asset classes which are exposed to a different set ofreturns/risks adds large value when combined with equity/bond portfolios

• Educating clients about the benefits of diversification through the inclusion ofadditional asset classes results in:

More resilient performance across varying market cyclesReducing the volatility of their portfolio (higher risk-adjusted returns)Providing clients and you with greater peace of mind

27

TRUE DIVERSIFIERS:AN

INTRODUCTION TO

HEDGE FUNDS AND

MANAGED FUTURES

“Good quality portfolio diversification is based on assets that are exposed to different risks. The alternative class, through the strategies and instruments it contains, provides this difference”Benefits and Risks of Alternative Investment Strategies, EDHEC-Risk Institute Research (2002)

-30%

-20%

-10%

0%

10%

20%

30%19

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Annual Performance of Hedge Funds

Annual Performance of Managed Futures

Annual Performance

• Attractive annual returns, few negative years

Annual Returns from 1991 to 2011

Source: Bloomberg, Frontier Investment Management LLP

Performance in Negative Equity Markets

30

• Hedge funds positive in 44% of FTSE down months• Managed Futures positive in 51% of FTSE down months

Note: Hedge Fund and Managed Futures returns were hedged in to GBP and adjusted by 1% per annum. See accompanying notes for further information.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-10% -9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Hedge Fund Returns

Managed Futures Returns

Multi Asset Performance During Bear Markets

31

Returns in USD

Asset Class Performance During Largest Equity Drawdowns Over 31 years

PeriodGlobal

EquitiesGlobal Real

EstateComm - odities

Hedge Funds

Managed Futures

Nov-07 to Feb-09 -49% -63% -44% -21% 19%

Sep-00 to Mar-03 -44% 25% 3% 4% 34%

Jan-90 to Sep-90 -24% -16% 58% 21% 31%

Sept-87 to Nov-87 -20% -15% 3% -7% 9%

Dec-80 to July-82 -23% 1% -19% na 17%

Average: -32% -14% 0% -1% 22%

What is Managed Futures?

• Professional money managers pursuing an alternative investment strategy

• Industry has been in existence for more than 30 years

• Managers trade extremely liquid listed futures contracts and currencies across over 80 markets/instruments worldwide on a 24 hour basis

• Global opportunity set across commodities, currency and financial futures

• Generally pursue market momentum or trend following strategies using rules based trading strategies. A minority of managers use discretion

• Considered a separate asset class to Hedge Funds due to unique return profile and low correlation to other asset classes particularly to equities during bear markets

• Benefits from the technical and behavioural characteristics exhibited in financial markets

Trading Strategies

Market Focus

Source: Frontier Investment Management LLP. Estimated market breakdown based on Managed Futures funds that report to industry databases.

Managed Futures Performance vs Global Equities

• Low correlations and positive performance in all bear markets

Source: Bloomberg, Frontier Investment Management LLP

From To Global Equities Managed Futures Correlation

January-80 November-80 Bullish 25% 45% -0.10

December-80 July-82 Bearish -24% 17% -0.04

August-82 August-87 Bullish 279% 147% 0.04

September-87 November-87 Bearish -21% 8% -0.01

December-87 December-89 Bullish 68% 29% 0.20

January-90 September-90 Bearish -28% 24% -0.76

October-90 August-00 Bullish 304% 125% 0.01

September-00 March-03 Bearish -46% 29% -0.47

April-03 May-06 Bullish 119% 25% 0.53

June-07 February-09 Bearish -50% 23% -0.20

March-09 December-10 Bullish 65% 5% 0.26

January-80 December-10 1320% 2491% -0.03

Academic Research: Benefits of Alternative Asset Classes

Managed Futures and Hedge Funds: A Match Made in HeavenHarry M. Kat, Cass Business School, November, 2002

• “We found that allocating to Managed Futures allows investors to achieve a verysubstantial degree of overall risk reduction at limited costs.”

• “Overall portfolio standard deviation can be reduced further by combining both hedgefunds and managed futures with stocks and bonds.”

Lintner Revisited: The Benefits of Managed Futures 25 Years LaterCME Group research paper, 2009

• “The results are so compelling that the board of any institution…should be forced toarticulate in writing their justification in not having a substantial allocation to the liquidalpha space of Managed Futures”

35

No longer perceived as ‘alternative’

• Rapid acceptance by most investor types

• More than 7% of UK pension funds invest in hedge funds1, including BT, the BBC,Dorset County Council and many other local authorities

• Top performing Endowment Funds (e.g. Cambridge, Oxford, Harvard and Yale) have asignificant proportion (c. 20%) of their assets in hedge funds and managed futures

“Hedge funds … no longer seem so alternative but rather a core component ofa modern and dynamic market place.”

Financial Services Authority, 2006

36

Source: Mercer research, September 2006

Expe

cted

Ret

urn

(%)

Risk/Volatility (%)

Benefits of Alternative Asset Classes

• Diversification and portfolio enhancement– Moderate to high returns vs. traditional asset classes– Low volatility relative to other asset classes– Varied correlations to other asset classes– Addition creates overall large improvement in portfolio efficiency

• Hedge Funds and Managed Futures should be considered a “strategic” allocation

37

For illustrative purposes only.

Bonds

Stocks

Increasing Alternatives allocation

HF/MF

HF/MF

*

Risk

Retu

rn

Hedge Funds, Managed Futures & Your Business

38

• Hedge Funds and Managed Futures can be powerful diversification tools when

included within an investor’s portfolio as a result of their varied correlations thus

enhancing the portfolio’s risk/return profile

• Alternative asset classes have been readily accepted by all main investor groups and are

becoming a significant component of sophisticated portfolios

• Frontier’s MAP Funds are unique by providing access to Hedge Funds and Managed

Futures providing clients with the full benefits of diversification

ENDOWMENTSTYLE

INVESTING:THEORY

INTOPRACTICE

“Substantial allocations to alternative assets offer a level of diversification unavailable to investors in traditional assets, allowing the creation of portfolios with superior risk and return characteristics”David F. Swensen, CIO, Yale Endowment FundThe Yale Endowment Report 2010

Endowments: Innovative Multi Asset Portfolios

Multi asset portfolios with high historical risk adjusted returns

40

Source: NACUBO 2011; Annual reports (various); Frontier Investment Management. Accompanying notes are an integral part of this presentation.

Top 20 Endowments (Assets > $1bn)

Innovative Portfolios & Exceptional Returns

• Innovative portfolios with exposure to multiple asset classes; large allocations to alternatives

• Significantly higher returns than traditional equity/bond portfolios

• Allocations to alternative assets have been a key performance driver

41

Returns by Endowment Fund Size to June 2011Alternative

Assets %of Total

10yr Annualised Return



US Equity/Bond Portfolio (60/40) 0% 4.6% 6.7% 7.8%

Average US Endowment Fund 53% 5.6% NA NA

Top 20 US Endowment Funds by Assets 59% 8.0% NA NA

Top 5 US Endowment Funds with AUM > $10bn 72% 9.7% NA NA

Harvard and Yale (Average) 69% 9.8% 12.6% 13.5%

Emulating Endowment Funds• If Brinson et al are correct, then Asset Allocation drives portfolio return and risk

• Therefore, emulating the asset allocation of the Endowments, should generate similar performance

• Frontier research indicates that an “Indexed” Endowment portfolio achieves excellent results

42


10yr Annualised Volatility

Return/Vol Ratio

Harvard and Yale (Average) 9.8% - -

Endowment Index Portfolio GBP 9.1% 9.3% 1.0

UK Equities 4.8% 15.3% 0.3

UK Equity/Bond Portfolio (60/40) 5.8% 8.8% 0.7

IMA Active Managed 3.6% 13.5% 0.3

Relative Performance of Super Endowments to June 2011

Large Endowments: Stable Asset Allocations• Harvard and Yale average annual change only 7% pa

• Most of this small change is due to asset class movement, not tactical decisions

43

Harvard/Yale Average Asset Allocation

Estimated average asset allocation of the Harvard/Yale is calculated by Frontier. The lagged impact of returns uses Frontier asset benchmark indices and the estimated average asset allocation of the Harvard/Yale. Accompanying notes are an integral part of this presentation.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Endowment Style Investing & Your Business

44

• Harvard and Yale have achieved excellent performance due to their multi-asset

approach to investing, their strategic approach to asset allocation, and their significant

exposure to alternative asset classes

• Investors cannot invest like the Endowment funds, however by applying multi-asset

principles to an index based portfolio generates risk-adjusted returns that have

historically been superior to those of traditional portfolios

• Taking inspiration from an investment philosophy that is backed by empirical evidence

and employed by some of the most successful investors in the world provides sound

justification when presenting Frontier’s investment proposition as a core solution to

your clients

THE IMPORTANCE OF

LOW COST INVESTING

“Most investors will find the best way to own equities is through an index fund that charges minimal fees. They are sure to beat the net results (after fees and expenses) delivered by the majority of investment professionals”

Warren Buffett

Active versus Index

• Asset Allocation has taught us that the asset class return (index) is the main driver of

portfolio return and risk

• Modern portfolio theory has taught us that combining uncorrelated return streams

generates the greatest benefit to portfolios

• Therefore, additional returns above or below the index from active management

(positive or negative) are less important than the above points

• There are two central questions in the active versus passive (indexing) debate

1. Does the average active fund outperform the index?

2. Is there a reliable method to pick the funds that will outperform in the future?

46

Logic: Average Active Fund Must Underperform

47

• The total holdings of all active managers is identical to the holdings contained in the index

• Therefore, gross returns will be identical but net returns very different

Stock % PortfolioStock X X%

BP 5.07%

Stock Y Y%

Stock % Portfolio Stock Market Cap ($bn) % Portfolio Stock Title Market Cap ($bn) % IndexStock X X% BHP BILLITON 10.57 6.26% BHP BILLITON 10.57 6.26%BP 3.99% RIO TINTO 9.46 5.60% RIO TINTO 9.46 5.60%Stock Y Y% ROYAL DUTCH SHELL-B 8.89 5.27% ROYAL DUTCH SHELL-B 8.89 5.27%

GLAXOSMITHKLINE 7.32 4.34% GLAXOSMITHKLINE 7.32 4.34%BP 7.30 4.33% BP 7.30 4.33%VODAFONE GRP 7.21 4.27% VODAFONE GRP 7.21 4.27%

Stock % Portfolio RECKITT BENCK GRP 6.06 3.59% RECKITT BENCK GRP 6.06 3.59%Stock X X% HSBC HLDG 5.52 3.27% HSBC HLDG 5.52 3.27%BP 4.62% BG GROUP 5.15 3.05% BG GROUP 5.15 3.05%Stock Y Y% BRIT AMER TOBACCO 4.70 2.78% BRIT AMER TOBACCO 4.70 2.78%

Stock % PortfolioStock X X%

BP 3.66%

Stock Y Y%

Active Manager 4

Aggregate Active Manager Portfolio

Active Manager 1

Active Manager 2 FTSE All Share Index - Top 10 Holdings

Active Manager 3

Logic: Average Active Fund Must Underperform

“The Arithmetic of Active Management” (1991), William Sharpe: Nobel Laureate

• The total equity holdings off all active investors is identical to the equity holdingsrepresented in the FTSE All Share Index

• The total return of all active equity portfolios must be equal to the total market return(e.g. FTSE All Share Index) minus:

– Management Fees– Custody and Administration expenses– Trading commissions paid during the year(£ billions)– Bid/Ask spreads incurred during the year– Market impact incurred paid during the year

• Therefore, the total return on the average indexed investment must always be higherthan the total return on the average actively managed investment

• Why? Both produce the same gross return but the active strategy has higher cost andtherefore must underperform a low cost index strategy

48

Source: Fitzrovia and Legal and General

Index Investing Minimises Hidden Cost

49

• Active management costs are significantly higher than index investing costs

• Visible “Above Water” Costs• Management Fees:• Significantly higher vs indexing

• Hidden “Below Water” Costs– Trading Commissions:

Active funds have higher turnover than buy & hold indexing

– Bid / Ask Spread:Price to buy, another to sell

– Market Impact Costs:Larger buy/sell orders affect price

Total Cost Iceberg

Large CapSmall Cap

and ForeignEmerging Markets

Expense Ratio 1.3% 1.6% 2.0%Commissions 0.3% 0.5% 1.0%Bid-ask Spread 0.3% 1.0% 3.0%Impact Costs 0.3% 1.0% 3.0%Total 2.2% 4.1% 9.0%

Active Expenses

Average US Active Fund Expenses

50

Source: French – “The Cost of Active Investing”, National Bureau of Economic Research, 2008. Bernstein - “The Intelligent Asset Allocator”

• Research: “The Cost of Active Investing” (2008) – Kenneth R. French PhD

• US Research conducted between 1980 and 2006 found active investors paidapproximately $80bn annually in active management fees over the period

Increasing

Active Underperformance

Percentage of Active Funds Underperforming The Index

51

Source: Lipper, MSCI, S&P, The Vanguard Group

No Performance Persistence in USA• Only 3/269 and 1/124 managers remain top quartile after 5 years

• Manager turnover approximately 20% - therefore unlikely the same manager is running the fund

• Most funds grow after good performance increasing costs leading to underperformance

52

Source: Standard and Poor's: Mutual Fund Performance Persistence (2006)

Number of 1st Quartile Funds Repeating

Index Investing Quotes

“Most investors will find the best way to own equities is through an index fund that charges minimal fees. They are sure to beat the net results (after fees and expenses) delivered by the majority of investment professionals.”

Warren Buffett, 1997

“Most people think they can find managers who can outperform … I would say that 85 to 90 percent of [active] managers fail to match their benchmarks.”

Jack Meyer, former President, Harvard University Endowment Fund, 2004

“Most of the mutual fund investments I have are in index funds.”

Charles Schwab, pioneer of online brokerage, 1998

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The Importance of Low Cost Investing & Your Business

54

• Asset allocation is the main driver of portfolio returns and risk – not manager selection

• An investor must therefore build a portfolio with an appropriate asset allocation fortheir risk profile

• We have seen that index returns with no active management have provided morereturn than required by most clients to achieve their objectives

• Logic dictates that the average fund cannot beat the index

• There is a low probability of consistently selecting fund managers that outperform theindex

• Talented fund managers tend to leave the long only world and migrate to hedge fundsdue to the higher compensation structure

• Educating clients about the Arithmetic of Active Asset Management and the Total CostIceberg makes the provision of a core passive investment solution a logical step whencreating their risk rated portfolio

FRONTIER INVESTMENTSOLUTIONS

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Expanding the Frontier of Investment Opportunities

Frontier Investment Solutions

• Your business can access Frontier’s Multi-Asset Funds in 3 ways:

1. Directly access Frontier’s Multi-Asset Funds on one of the platform providers below

2. Frontier Select Portfolios™ - 5 unique platform-based model portfolios that combineFrontier’s multi-asset fund with a selection of leading low cost fund providers

3. Use our Portfolio Analyser Tool™ to build risk rated portfolios that incorporateFrontier as an integrated part of your investment solution

56

Next Steps: Working with Frontier

• Use our Portfolio Analyser Tool™ to build risk rated portfolios that incorporate Frontieras an integrated part of your investment solution

57

Frontier Multi Asset Funds• The IFDS Frontier Multi Asset Fund range provides investors with the returns of eight asset

classes, both traditional and alternative, in a single investment at low cost

• The Fund range includes a Balanced and Cautious Fund with 0.75% AMC

• Strategic Asset Allocation, Low Cost Indexation and Annual Rebalancing

58

UniversityEndowments

Quantitative Analysis

FrontierExperience

2012 Asset AllocationIFDS Frontier MAP Balanced Fund IFDS Frontier MAP Cautious Fund

One Fund … Eight Asset Classes

59

Global Equities

MSCI World Index

24 Countries, 1649 Equities

Global Bonds

Barclays Capital Global Aggregate Bond Index

35 Countries, 12105 Bonds

Emerging Equities

MSCI Emerging Market Index

25 Countries, 854 Equities

Emerging Bonds

JP Morgan Emerging Bond Index

33 Countries, 145 Bonds

Global Real Estate

Dow Jones Real Estate Index

27 Countries, 238 Securities

Commodities

S&P GSCI Light Energy Index

5 Sectors, 24 Commodities

Hedge Funds

HFRI Fund of Funds Index

10 Strategies, 800+ Funds

Managed Futures

NewEdge CTA Index

20 Largest CTA Funds

Frontier Multi-Asset Fund

IFDS Frontier MAP Balanced Summary

• The IFDS Frontier MAP Balanced fund launched April 2009 and has risen 28% to date

• Fully FSA Regulated, Daily Dealing UK OEIC, 0.75% Annual Management Charge

• Investment Objective: Deliver asset class index returns at ultra-low cost

• One fund, 8 asset classes, 15,000+ securities*, ideal core investment

• Disciplined asset allocation with rebalancing

IFDS Frontier MAP Balanced Fund Monthly Returns

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD

2009 4.02% 4.87% 0.89% 2.11% 2.48% 1.50% 0.66% 0.99% 0.69% 19.66%

2010 -2.58% 0.44% 3.53% 0.67% -4.03% -0.33% 2.66% 0.24% 3.28% 1.86% -1.05% 2.83% 7.45%

2011 0.07% 1.13% 0.10% 1.97% -1.70% -1.22% 0.68% -2.42% -3.41% 2.94% -3.32% 1.44% -3.91%

2012 2.27% 2.22% -0.89% 0.13% 3.75%

Frontier Select Portfolios

• Frontier Select Portfolios™ - 5 unique platform-based model portfolios that combineFrontier’s multi-asset fund with a selection of leading fund providers

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Risk Grade Asset Allocation Cost Historical Performance

Frontier Select Rating GE GB EE EB RE CO HF MF AMC Ann. Return

Ann. Risk

Max Loss

Frontier Select 1 3 5% 67% 2% 5% 5% 4% 5% 8% 0.58% 3.7% 4.5% -2.3%

Frontier Select 2 4 8% 50% 3% 9% 8% 7% 7% 9% 0.62% 5.4% 5.7% -3.7%

Frontier Select 3 5 15% 37% 5% 8% 9% 9% 8% 9% 0.63% 6.7% 7.5% -6.4%

Frontier Select 4 6 18% 25% 10% 8% 12% 10% 9% 9% 0.65% 8.2% 9.4% -8.9%

Frontier Select 5 7 20% 10% 16% 9% 14% 11% 10% 10% 0.68% 10.0% 11.3% -11.3%FSP 1 FSP 2 FSP 3 FSP 4 FSP 5

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Global Equities Global Bonds Emerging Equities Emerging Bonds Real Estate Commodities Hedge Funds Managed Futures



• 5 Model Portfolios tailored to meet a range of client risk profiles

• Multi-Manager, Multi-Strategy, Multi-Asset

• Up to 20 underlying holdings centred around Frontier’s established Multi-Asset Funds

• Flat portfolio management fee of 10bps

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FSP 1

FSP 2

FSP 3

FSP 4

FSP 5

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0%

FRONTIER &

YOUR BUSINESS

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Integrating Frontier’s Investment Philosophy into Your Business

• Adoption of this investment philosophy transforms the Client/Financial Plannerrelationship:

“Evidence based” approach backed by empirical data makes it logical and straight-forward for clients to understandClient review meetings are no longer about short term market/portfolio performanceYou and your clients are much less stressed during periods of market crisisLess “re-active” behaviour by clients means less work for youClients assets are more stickyCash flow modelling is backed by empirical evidence that increases client confidenceYour role as an “Educator” is perceived as a large value added by the client

• End result is satisfied clients and a more profitable business

65

Adapting to RDR: Frontier and the MOT

66

• The Frontier funds save approximately 2% p.a. in fees/costs vs an active investment

• RDR means providing financial planning advice and charging a financial planning fee

• MOT: Moment of Truth – The moment when you explain your value proposition and fee tothe client and ask for commitment

• Integrating Frontier’s Funds as a core investment solution saves the client MORE thanyour annual financial planning fee

• Combining this client saving with Frontier’s investment philosophy will help bolster your valueproposition ensuring success for your financial planning business

5yrs 25yrs20yrs15yrs10yrs

4.4 million

2.2 million

2.2 million

Low Cost Portfolio

High Cost Portfolio

Value of Initial 250,000 Investment (10% growth pa)

30yrs

2.3% Annual Savings

Frontier total cost savings based on Benchmark Asset Allocation weights and published research on cost savings across asset classes.

Our Value Proposition

67

Financial Planning Ltd

Frontier Value Proposition

Asset Flows

Core Multi-Asset Investment Solution

Endowment Style: Alternative Assets Low Cost Indexation

Platforms / Wraps Risk Rated Investment Solutions

Strategic Partner Business Services:• Help define investment philosophy• Formulate investment policy statement• Frontier Speaker at your client events• Develop professional connections

Our Client’s Feedback

"The Frontier MAP funds make available an extremely sophisticated investment solution in avery straightforward and cost effective manner, providing clients with a much simplerexperience with low total costs of ownership"

Andrew Brook Dobson, Director, Brook-Dobson Brear Ltd

“It took me time to properly understand the Frontier proposition, now that I do, it hastransformed my approach to investment planning. When recommending Frontier, I havecomplete confidence that I'm doing the right thing for my clients”

Mike Dobson, Managing Director, Blue River Wealth Management

"The investment seminar run by Frontier really gave me a fresh perspective on the investmentmanagement industry and motivated me to redesign my investment proposition for myclients. It has been a resounding success“

Derek Stewart, Managing Director, Strategic Asset Managers Ltd

“Every IFA should make a point of hearing Mike Azlen’s investment seminar ... it will be timewell spent and prove invaluable in helping shape one’s own Investment solution”

Mark Pittaccio, Investment Director, In Partnership

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KEEPCALMAND

CARRYON


Contact Details

70

Frontier Investment Management Berkeley Square HouseBerkeley Square, MayfairLondon, W1J 6DBUnited Kingdom

t: +44 (0) 207 317 6900 f: +44 (0) 207 317 6901 w: www.frontierim.come: [email protected]

Andrew CracknellPartner, Head of Intermediary Business

t: +44 (0) 152 783 9747 m: +44 (0) 781 0484 023 e: [email protected]

Bruce GascoineBusiness Development Manager

m: +44 (0) 776 0263 666 e: [email protected]

Conor O’DonnellRelationship Manager

t: +44 (0) 207 317 6923 e: [email protected]

Jill LaidlawBusiness Development Manager

m: +44 (0) 7825 198 667 e: [email protected]

Notes & Disclaimer

71

1. The Frontier Investment Management (“Frontier”) Multi Asset Platform Funds were invested on September 2nd, 2005. Prior data is pro-forma and has been calculatedfrom the original asset allocation weights applied to the original Indices and rebalanced annually at December 31 each year. Pro-forma performance is net of 50 basispoints per annum to take into account index replication costs, currency hedging and annual rebalancing costs. Performance data from September 2005 to October2006 inclusive is based on actual fund NAVs restated to reflect current fee levels. The Plus fund was invested in July 2006.

2. While Frontier has developed methods of preparing pro-forma returns that it believes to be reasonable, fair and complete, there can be no assurances that the resultsderived from such methods are correct, accurate or reliable. Accordingly, the informational value of pro-forma returns is limited.

3. Non-USD index returns have been hedged into USD except for Emerging Market Equities. All returns are USD based unless otherwise stated.4. Frontier annual cost savings are based on current asset allocation weights and published research on the total costs of active investing vs index investing across asset

classes, with management fee savings based on fund of funds investing.5. Each asset class is represented by a relevant market index. UK Equities are represented by the FTSE All Share Total Return Index. UK Bonds are represented by the

Citigroup 10-year Gilt Benchmark Index. US Equities are represented by the Standard & Poor’s 500 Total Return Index. US Bonds are represented by the Citigroup 10-year Treasury Benchmark Index. European Equities are represented by the MSCI Europe ex UK Total Return Index. European Bonds are represented by the Citigroup 10-year European Benchmark Index. Commodities are represented by the S&P GSCI Index until April 2007 and the S&P GSCI Light Energy Index thereafter. Hedge Fundsare represented by the HFR Fund of Funds index (minus 1% survivorship bias) and Managed Futures by the CISDM Asset Weighted Index (minus 1% survivorship bias).Cash returns are UK 1 Month Libor minus 1% per annum.

6. Fund performance persistence data is sourced from S&P Mutual Fund Performance Scorecard (2006) and covers those firms that were top quartile over five years toJune 2001 (393 funds, comprising 269 Large cap US equity and 124 small cap US equity). Over the following five years, only 3 large cap funds and one small cap fundmaintained a top quartile performance ranking.

7. The Frontier asset allocation process combines multiple inputs including reference to major US University endowments but also includes quantitative analysis and theinputs of the Frontier Asset Allocation Committee. Frontier does not expect similar returns to those of the endowments in the MAP Conservative Fund due to the lack ofprivate equity exposure and a significantly lower volatility target than most endowments.

8. Endowment data is sourced from NACUBO and annual reports; calculations by Frontier Investment Management.9. Fund data is sourced from Bloomberg and assumes the reinvestment of any dividends issued at the time of their issuance. Bloomberg data has not been checked or

verified by Frontier Investment Management

DISCLAIMERThis document is issued for information purposes only by Frontier Investment Management LLP (“Frontier”) in respect of the IFDS Frontier Multi Asset Fund(“the Fund”). Frontier is authorized and regulated by the Financial Services Authority (“FSA”).

This document does not constitute an offer by Frontier to enter into any contractual/agreement nor is it a solicitation to buy or sell any investment. Nothingin this document should be deemed to constitute the provision of investment, financial or other professional advice in any way. Potential investors aredirected to the read the Fund prospectus and should always consult with their professional advisors.

The contents of this document are based upon sources of information believed to be reliable. Frontier has taken reasonable care to ensure the informationstated is factually true. However, Frontier make no representation, guarantee or warranty that it is wholly accurate and complete.PAST PERFORMANCE IS NOT NECESSARILY A GUIDE TO FUTURE PERFORMANCE.

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