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20 | Envestnet | PMC Investment Methodology Guide FOR ONE-ON-ONE USE WITH A CLIENT'S FINANCIAL ADVISOR ONLY terms of people or firm. Analyst Alerts These are simple alerts analysts can post on the platform when a material event occurs for a particular strategy or fund. Scorecards These research reports provide detailed qualitative and quantitative research and due diligence insights and analyst opinions to support our strategist portfolio research approval process. Through PMC's research and due diligence reviews, each of the segments below receives a 'score' of 1 to 10. The Scorecard includes score/ rating on the following elements: • Asset class and business • Investment team • Marketing and distribution • Investment philosophy and process • Portfolio holdings • Portfolio risk management • Performance results • Performance attributes • Overall score/rating PMC Portfolio Solutions PMC combines specialist asset managers and PMC capital markets intelligence to create advanced mutual fund wrap, unified managed account, and separate account portfolios. PMC Strategist Portfolios Through a multifaceted, collaborative effort among portfolio management, consulting, strategist research team, and QRG teams, PMC delivers a robust selection of total, targeted, and custom portfolio solutions to fit the needs of almost any investor. PMC Strategic Asset Allocation and Diversification Strategic asset allocation and diversification are fundamental principles of PMC's investment philosophy. PMC believes strategic asset allocation and long-term diversification will help clients meet their long-term investment goals. Central to this philosophy is that investors benefit from diversified exposure to the set of global asset classes. While there are periods in which diversification detracts from performance, over time, allocation across various domestic and international asset classes and styles helps to produce smoother risk- adjusted returns and client outcomes. In our ACP construction process for a given risk profile, the general equity/ fixed income allocation is the most important consideration. We support more than 46 asset classes, and each asset class rolls up into the broader equity and fixed income asset classes. PMC offers standard ACPs across the risk spectrum, with the portfolios comprising only a subset of the available asset classes. Within PMC's managed strategies, PMC portfolio managers are generally required to comply with a risk profile's equity/fixed income allocation, but may complete those respective allocations using various combinations of the available asset classes. For example, portfolio managers may choose to employ any of the nine diversifying asset classes. For philosophical reasons, PMC does not implement any type of style bias in its asset class portfolios or in its managed strategies. For example, our allocations are neutral regarding growth and value styles, but portfolios may reflect a slight overweight to small cap in the domestic equity segment, as well as a modest "home country bias." PMC Portfolio Construction and Maintenance Process PMC's ACP construction methodology consists of several primary components. Modern Portfolio Theory (MPT) has been widely acclaimed as a theoretical portfolio construction framework since its introduction more than 60 years ago. Despite its theoretical and academic success, PMC believes the use of MPT in the finance industry is limited. When MPT is used, it typically either applies a large set of constraints or employs some type of methodological improvement, because MPT optimal portfolios can experience extreme fluctuations over time and across the