Atlas Global Downside Protected (GDP)

Global Equity Strategy

July 2016 Update

Performance

The global capitalization weighted equity index (FTSE World net of tax) was down 0.62% in June 2016. GDP strategy performance net of fees in June was up 0.53%, 1.15% ahead of the index. From strategy inception on July 9, 2015 through the end of June 2016, the GDP strategy has a loss of 9.18%, net of fees. That is 4.88% below the loss of 4.30% for the global equity index over the same period. The underperformance since inception is primarily the result of the low weight in equities after the January downturn, which limited participation in the sharp rebound of the global equities market which ran from mid-February to April.

The GDP strategy went into June with 74% of the portfolio in the stock market. The choice by voters in the United Kingdom to exit the European Union (“Brexit”) roiled markets toward the end of the month. By June 27, the Monday after the vote, global stocks were off 5.5% for the month, with GDP off half as much at 2.7%. Global stocks then recovered almost all of that loss by June 30.

Most of the GDP positioning choices were beneficial in June. In particular, the strategy was helped by its underweight in Europe – just an 8.5% weight vs a benchmark weight of 20.7%. The other major benefits to performance were from:

1. –The overweight to Brazil. Brazil has a multitude of problems, just ahead of hosting the summer Olympic games, but nonetheless Brazilian stocks rocketed up 19.5% in June. Most of the gain was from a 12.4% rise in the Brazilian currency, which rallied on improved current account balances.
2. –The overweight to the US Telecom and Utilities sectors, each of which gained over 7% in June as investors sought “safe haven” assets.

Asset allocation is the most important decision one can make as an investor. Each quarter, Atlas Capital Advisors updates estimates of the expected returns of each asset class, and adjusts allocations accordingly. We make these decisions in a systematic repeatable way using approaches grounded in academic evidence.

Foundations of Atlas Risk Asset Allocation

We are fundamental investors. We seek to increase weights in asset classes that are attractively priced, and reduce weights in those that are not. Attractively priced asset categories, with higher expected returns, have “good value” in our terminology.

The evidence for making investment decisions in alignment with value is robust. On average, based on data since 1980, the annual return of single country stock markets with the top third most attractive valuations outperform the bottom third by 5% per year.

We also use price trends as a catalyst for determining when to enter positions. Through long experience in the markets, we have repeatedly seen asset classes that appear to have strong value characteristics continue to get cheaper. Many of the emerging equity markets have had this characteristic in the last five years. We have learned that it is better in the long run to wait for cheap asset classes to start rising in price before committing to an overweight. Similarly, it’s better to wait for expensive asset classes to start falling in price before moving to an underweight.

The evidence to consider trend is also strong. For instance, in stock market history, the future return tends to be better if the past return is positive than if it is negative. On average, if the past 6 – 12 month stock market return is positive, the next quarter return is 1.5% to 2.0% higher than if the prior 6 – 12 month return is negative.

4Q2016 update

• Overweight International vs US
• Overweight Asia, Emerging Markets, Underweight Europe
• Add Small Cap, reduce diversifiers

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