Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
A Time for High Quality 0 For Advisor/Institutional Use Only. Not for Distribution to the Public High Quality over the Long Term. Returns (1985 - 2015) Volatility (1985 - 2015) 15.14% 9.98% 8.13% 14.91% High-Quality Broad market High-Quality 184 bps premium Broad market 23 bps less volatility Source: Facstset. High-quality returns and volatility based on MSCI USA quality index and broad market based on MSCI USA Index from 1/1/85 through 12/31/15. Annualized returns. Volatility measure based on annualized standard deviation. For Advisor/Institutional Use Only. Not for Distribution to the Public 1 What’s behind the recent shift to High Quality? Low quality rally: June 2012 – June 2014 High quality rally: June 2014 – Oct. 2015 80% 15% 70% 10% 60% 5% 50% 0% 40% 30% 20% -5% -10% 10% -15% 0% -20% Source: BofAML as of 10/31/15, cumulative returns. Stock ratings are provided by Standard & Poor’s and Bank of America Merrill Lynch US Quantitative Strategy. Stock rankings are assigned to all US equity securities which have the required 10 years of earnings and dividend history as required by Standard & Poor’s. For Advisor/Institutional Use Only. Not for Distribution to the Public 2 4 Reasons for High Quality Today Earnings Recession Earnings Deterioration Shrinking Operating Margins Widening Credit Spreads High Quality vs. Low Quality High quality stocks, generally,…. • Are less reliant on debt financing • Have more ways to influence growth • Have more stable sources of revenue • Have higher earnings visibility • Have solid balance sheets • Are more resilient in bear markets For Advisor/Institutional Use Only. Not for Distribution to the Public 3 Decelerating Earnings Growth. When EPS growth decelerates, as is the case today, high quality has outperformed. Average Performance by Quality When the Profits Cycle Decelerated (Last Four Cycles, 1986-2014) YoY Growth in S&P 500 EPS, 2007 – 2015 Actual, 1Q 2016 estimate 80% 40% 60% 37% 35% 29% 30% 40% 30% 25% 27% 25% 20% 20% 15% 15% 0% 9% 10% -20% 5% 0% 12/01/15 06/01/15 12/01/14 06/01/14 12/01/13 06/01/13 12/01/12 06/01/12 12/01/11 06/01/11 12/01/10 06/01/10 12/01/09 06/01/09 12/01/08 06/01/08 12/01/07 -40% A+ A A- B+ B B- C&D High Quality S&P Stocks Source: Factset, S&P EPS LTM from 2007 – 2015, 1Q 2016 estimate as of week ending 3/24/16; ML RIC Report Oct 13 2015, BofAML US Equity and Quantitative Strategy, S&P quality ranks For Advisor/Institutional Use Only. Not for Distribution to the Public 4 Earnings driven by Financial Engineering, not Revenue Percent of S&P 500 Companies Beating Earnings Estimates by Quarter Average 69% 75% 67% 65% 55% 45% '02 '04 '06 '08 '10 '12 '14 Percent of S&P 500 Companies Beating Revenue Estimates by Quarter 80% Average 60% 70% 60% 47% 50% 40% 30% '02 '04 '06 '08 '10 '12 '14 Source: Strategas 2002 - 2015 For Advisor/Institutional Use Only. Not for Distribution to the Public 5 Operating Margin Contraction. The potential for shrinking margins makes quality an attractive option. Profit margins sideways since all time high in 2014 Quality has outperformed when margins contract S&P Net Margins (12/31/99 through 3/31/16) Excess performance of quality given change in net margins 6% 11.00 Net margin contract 5% 10.00 4.75% Net margin expand 4% 9.00 2.81% 3% 8.00 2% 1.13% 7.00 1% 1.48% 0.63% 6.00 0% 5.00 -1% Source: Factset 07/15 08/14 09/13 10/12 11/11 12/10 01/10 02/09 03/08 04/07 05/06 06/05 07/04 08/03 09/02 10/01 11/00 12/99 4.00 -0.26% -0.41% -0.43% -0.76% -1.05% -2% 1 month 2 month 3 month 6 month 12 month Source: MSCI USA and MSCI USA Quality indexes from 1/1/2000 to 1/31/2016 For Advisor/Institutional Use Only. Not for Distribution to the Public 6 Credit Spreads Widening. Quality outperforms when credit is under pressure. U.S. BAA Corporate Spreads vs. S&P High Quality Relative to Low Quality 130 BAA Spreads (Investment Grade) 600 120 BAA Spreads 550 High vs. Low Quality 110 500 100 450 400 90 350 80 300 70 250 60 200 150 2007 High Quality less Low Quality Performance 650 50 2008 2009 2010 2011 2012 2013 2014 2015 Source: Strategas, 2/4/2016 For Advisor/Institutional Use Only. Not for Distribution to the Public 7 Increased Market Volatility. High Quality outperforms during times of stress. Increased volatility may benefit high quality. Correlation of Relative Performance vs VIX 12 mo Change A+ S&P Quality Rankings A AB+ B BC&D -0.5 -0.4 -0.3 -0.2 -0.1 0 Correlations 0.1 0.2 0.3 0.4 Source: BofAML US Equity & Quantitative Strategy,12 month performance correlation to 12 month change in VIX (1986-present), ML RIC Report Oct 13 2015 For Advisor/Institutional Use Only. Not for Distribution to the Public 8 Dimensions of Quality. While there is no uniform industry definition, “quality” companies generally have sustainable and growing earnings and cash flow accompanied with solid balance sheets Geneva S&P • Healthy historical and projected revenue and earnings growth • Strong financials and low leverage MSCI • ROE – Trailing 12 month • ROE - High trailing 12 month • Accruals Ratio • Debt to Equity - Low fiscal year Total Debt to Book Value • Financial Leverage Ratio • High ROE/ROA • High margins/margin expansion For Advisor/Institutional Use Only. Not for Distribution to the Public • Earnings Variability – Low standard deviation of year-overyear EPS growth over the past five fiscal years 9 Geneva Capital Management – Specializing in High Quality. High Quality Growth – Since Geneva’s inception in 1987, they’ve focused on finding high quality companies with superior management teams, conservative balance sheets and high, consistent growth rates. Experienced team – 11 dedicated investment professionals with over 200 years of combined experience. Experienced team Pioneers in mid and small caps – Geneva was started with the mission of finding mid cap companies which were in the sweet spot of their lifecycle. After tremendous success in mid caps, the same philosophy and process was utilized in Geneva’s small cap strategy in 1999. High Quality Growth Repeatable and timetested Pioneers in mid and small caps Repeatable and time-tested – Geneva’s focus on bottom-up, fundamental investing has allowed them to identify high quality companies early in their lifecycle. This process has yielded consistent results with a predictable pattern of performance. For Advisor/Institutional Use Only. Not for Distribution to the Public 10 Nationwide Geneva Small Cap Growth Fund Risk Stats (5 Yr) Performance 15 10 5 Standard Dev 13.83 Alpha 3.78 Beta 0.75 Sharpe 0.72 Tracking Error 6.67 Information Ratio 0.35 R-Squared 89.47 Overall Morning Rating as of 3/31/2016, IS share. An investment’s overall Morningstar Rating, based on its risk-adjusted return, is a weighted avg. of its 3-, 5-, and 10-year rating. See disclosure page for details. Lipper Ranking 2nd Percentile Lipper rating as of 3/31/2016, ranks 2 out of 554 Funds, IS share. 0 Characteristics -5 -10 -15 YTD 1Yr NW Geneva Small Cap 5Yr 10Yr Russell 2000 Growth Small Cap Growth Cat. Avg. NW Small Cap Growth Russell 2000 Growth Historical EPS – 3 Yr. 18.9% 19.3% Operating Margin 18.3% 10.2% Debt to Capital 31.4% 40.7% ROE 17.8% 9.5% Forecast P/E 23.9 18.9 PEG Ratio 2.16 1.75 Wtd. avg market cap $3.2B $2.0B 56 1,181 60% 22% Number of Issues Source: Performance, Risk Stats and Characteristics based on IS share class as of 3/31/16. Morningstar Rating NW Small Cap Growth % rated B+ or greater For Advisor/Institutional Use Only. Not for Distribution to the Public 11 Nationwide Geneva Mid Cap Growth Fund Risk Stats (5 Yr) Performance NW Mid Cap Growth Standard Dev 13.42 Alpha -0.30 Beta 0.86 8 Sharpe 0.65 6 Tracking Error 4.51 4 Information Ratio -0.36 2 R-Squared 91.48 12 10 0 Characteristics -2 Morningstar Rating Overall Morning Rating as of 3/31/2016, IS share. An investment’s overall Morningstar Rating, based on its risk-adjusted return, is a weighted avg. of its 3-, 5-, and 10-year rating. See disclosure page for details. Lipper Ranking 10th Percentile Lipper 1 year rating as of 3/31/2016, ranks 10 out of 401 funds, IS share NW Mid Cap Growth Russell Midcap Growth Forecast EPS – 3-5 Yr. 14.0% 13.1% -4 Operating Margin 19.8% 16.6% -6 Debt to Capital 34.2% 49.1% -8 ROE 22.7% 24.5% Forecast P/E 22.4 19.4 PEG Ratio 2.1 2.0 $8.5B $12.1B 53 498 82% 54% -10 YTD 1Yr NW Geneva Mid Cap 5Yr 10Yr Russell Mid Cap Growth Mid Cap Growth Cat. Avg. Wtd. avg market cap Number of Issues Source: Performance, Risk Stats and Characteristics based on IS share class as of 3/31/2016. % rated B+ or greater For Advisor/Institutional Use Only. Not for Distribution to the Public 12 Disclosures CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PAST PERFORMANCE SHOWN, WHICH DOES NOT GUARANTEE FUTURE RESULTS. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. To obtain the most recent month-end performance, go to nationwide.com/mutualfunds or call 800-848-0920. There is no assurance that the investment objective of any fund will be achieved. Investing in mutual funds involves risk, including the possible loss of principal. The Funds are subject to the risks of investing in equity securities (including small and mid-sized companies). Growth funds may underperform other funds that use different investing styles. Please refer to the most recent prospectus for a more detailed explanation of the Funds’ principal risks. Lipper Analytical Services, Inc. (Lipper) is an industry research firm whose rankings are based on total return performance and do not reflect the effect of sales charges. Each fund is ranked within a universe of funds similar in investment objective as determined by Lipper. The information is provided for educational purposes only and should not be considered investment advice. Lipper rankings are not intended to predict future results, and Lipper does not guarantee the accuracy of this information. Morningstar Ratings metrics. Morningstar Ratings are based solely on a proprietary mathematical formula based on measures of risk and performance that it recalculates each month. The ratings formula measures the amount of variation in a fund’s monthly performance (including the effects of sales charges, loads and redemption fees) emphasizing downward variations and rewarding consistency. Ratings are subject to change every month. The top 10% of the funds in the category receive 5 stars; the next 22.5%, 4 stars; the next 35%, 3 stars; the next 22.5%, 2 stars; and the bottom 10%, 1 star. Other share classes may have different performance characteristics. Ratings are based on each fund's (share class) performance. Current fund performance may be higher or lower, which may change a fund's star rating. Despite high ratings, funds may have experienced negative performance during the period. The Nationwide Mid Cap Growth fund received 2, 3 and 3 stars (A share class), 3, 3 and 4 stars (ALW share class), 3, 3, and 3 stars (C share class), 3, 4, and 4 stars (Int’l share class), 3, 4, and 4 stars (IS share class) for the 3-, 5- and 10-year periods among 640, 574, and 428, Mid Cap Growth Morningstar category funds respectively. The Nationwide Small Cap Growth fund received 4 and 4 stars (A share class), 5 and 5 stars (ALW share class), 5 and 5 stars (C share class), 5 and 5 stars (Int’l share class) and 5 and 5 stars (IS share class) for the 3-, and 5-year periods among 658, 588, and 423, Small Cap Growth Morningstar category funds respectively. © 2016 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Nationwide Funds distributed by Nationwide Fund Distributors, LLC (NFD), member FINRA, King of Prussia, Pa. NFD is not affiliated with any third-party entities that provided data for this material. Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2016 For Advisor/Institutional Use Only. Not for Distribution to the Public 13