Issue link: https://resources.envestnet.com/i/1527507
PMC Foundation Series Portfolios Comprehensive, diversified solutions designed for low-minimum investors For more information, go to investpmc.com Envestnet | PMC PMC Research and Due Diligence Capital Market Assumptions Capital Markets Assumptions (CMAs) are the expected returns, standard deviations, and correlations that represent the long-term (10+ year) risk/return forecasts for almost 48 asset classes, including alternatives. Guiding Principles: • Global capital markets are largely efficient in the long run • Investors, as a whole, are not compensated for risk that can easily be diversified away • There is a trade-off between risk and return • The mean-variance/CAPM frameworks are reasonable models of this risk/return tradeoff 5. Incorporating Black-Litterman process 6. Forecasting expected returns for alternatives 4. Developing fixed income views 1. Estimating standard deviations and correlations 2. Performing reverse optimization 3. Forecasting Russell 3000 expected return Universe Screening Process Exceptions Ranking Approved- Quantitative Products ETF and Index Mutual Funds/SMAs Quantitative Ranking Methodology Qualitative Approval Process • Qualitative research goes beyond the quantitative scoring imbedded in our Q-Score • Seek to identify high conviction strategies within a variety of asset classes • Clients often use this list of high conviction strategies, as well as the research content provided on them, as the foundation of their advisory programs 13,000+ products Fixed income Qualitative analysis FSP Equity Liquid alternatives High conviction strategies QRG considers for evaluation: • All available US-based ETFs in Morningstar Direct database • All index mutual funds in Morningstar US Mutual Funds database QRG narrows the universe based on: • Legal structure classification • Active vs passive (exclude active) • Data history (exclude funds without complete 24-month returns) • ENV platform style (use PMC MF/SMA Q-Score ranking) • Total firm AUM • Minimum fund AUM ($100M) • Exclude Strategic Beta ETFs (separate process) QRG will manually rank some funds: • Categories which result in small number of funds meeting criteria (too few peers). • "Approved-by-exception" granted to some funds. QRG scores each fund based on: • Tracking Error: how closely a fund follows its benchmark (ideally < 20 bps). • Liquidity: degree to which a fund can be traded without affecting its price. • Cost: lower net expense ratio and tax ratio mean investors spend less to own the fund. • Overall score is top 30% within peer group • AUM > max AUM within peer group • "Approved-by- exception" funds • QRG re-evaluates and ranks on quarterly basis