* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Why Use a Fund for Your Core Fixed Income Allocation?
Business valuation wikipedia , lookup
Modified Dietz method wikipedia , lookup
Syndicated loan wikipedia , lookup
Financialization wikipedia , lookup
Internal rate of return wikipedia , lookup
Beta (finance) wikipedia , lookup
Financial economics wikipedia , lookup
Investor-state dispute settlement wikipedia , lookup
Negative gearing wikipedia , lookup
Private equity wikipedia , lookup
Global saving glut wikipedia , lookup
Public finance wikipedia , lookup
Private equity in the 1980s wikipedia , lookup
Private equity in the 2000s wikipedia , lookup
International investment agreement wikipedia , lookup
Securitization wikipedia , lookup
Private equity secondary market wikipedia , lookup
Land banking wikipedia , lookup
Corporate finance wikipedia , lookup
Early history of private equity wikipedia , lookup
History of investment banking in the United States wikipedia , lookup
Investment banking wikipedia , lookup
Anfield Capital Management, LLC “Unconstrained” What it isn’t…and why it really matters right now! a long time ago….in a galaxy far far away…… All heck broke loose! And a generation of excess came home to roost in the form of a nasty debt, asset subordination and systemic leverage unwind It was clear things would take a long time to normalize And that fixed income investment management needed to adapt……. • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 2 Fast Forward to the Need The historic interest rate bull market is coming to an end Fiduciaries need a solution, a tool, to manage the next 5 years Hence the birth of “unconstrained” fixed income investing So there is no need to exit debt markets altogether • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 3 Hot Topic: Alternative Fixed Income Survey of Advisors and Institutions What do you value most in an alternative fixed-income product? % Respondents Low Correlation Traditional Fixed I ncome I nstitutions Adv isors 35 39 Go-Anyw here Capabilities 21 19 Yield 19 12 I nterest-Rate Hedging 16 20 Other 8 9 Credit Hedging 2 1 Source: Morningstar • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 4 “Opportunistic” Bond Fund Ruler Unconstrained ≠ unpredictable The Goal: unconstrained opportunity set, not unconstrained risk Not really unconstrained, mostly marketing 1 2 3 Unconstrained yet disciplined 4 5 6 7 Unconstrained and highly aggressive (Hedge Fund like) 8 9 10 In reality there are multiple rulers which should be: 1) Prospectus flexibility = 10 2) Management philosophy = 7 3) Risk adjusted performance/positioning = Ideally an 8 or 9 with typically ½ the risk of other funds • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 5 Bond Fund Flexibility For all rate environments Multi-Sector Bond Funds Strategic Income Funds Universal Bond Funds Hedge Funds Allocations to multiple sectors Long Investments Active duration management Yield curve trading Hedged fixed income Long/short fixed income Primary Investment Strategy Go-anywhere flexibility Relative value: pair trading Credit: event driven Stressed/distressed debt • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 6 Things Needed to be Truly “Unconstrained” 1. The ABILITY to manage the array of security types, sectors, markets etc. +1 : the AGILITY to use your ability 2. The MINDSET to use all that flexibility 3. The WILL to implement it (without commercial impediments of a product line-up) • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 7 Because You Can, Doesn’t Mean You Should… Fund A Portfolio Statistics Duration Yield Quality Yield/Duration Fund B Fund G Fund J Fund M Fund P Fund JA Fund O Fund L 1.52 3.85% BBB 2.53% 0.90 2.35% BBB 2.61% -0.29 -5.30 2.80% 1.75% BB NA -0.53% -6.03% 1.50 2.30% BB 1.53% 2.07 1.16% NA 0.56% 5.06 3.00% BBB 0.67% 1.94 4.30% B 2.22% 4.43 4.24% BB 0.96% -9.7% 42.0% 12.7% 13.9% 3.0% 19.4% 18.6% 39.6% 6.3% 1.2% 0.0% 6.0% 25.1% 21.9% 31.7% 1.9% 8.6% 9.7% 6.9% 30.1% 11.1% 0.1% 1.0% 22.4% 0.0% 1.4% 6.6% 68.8% 1.1% 3.7% 3.7% 0.0% 1.0% 68.7% 21.9% 63.9% 1.7% 1.7% 5.0% 1.5% 4.8% 21.2% 22.8% 30.1% 17.4% 1.7% 0.2% 24.4% 3.1% 0.0% 13.9% 60.0% 6.8% 1.0% 0.2% 18.3% 20.6% 31.0% 24.1% 10.6% 3.1% 3.1% 7.4% 4.34% 0.80% 6.62% 0.94% 3.43% 2.08% 2.02% 0.76% 4.33% 0.87% 2.94% 1.65% 6.59% 2.07% 6.09% 13.20% 1.25% 3.39% Sectors US Govt IG Corporate HY Corporate Bank Loan/Alt Credit EM Debt Mortgage/ABS Short Term/Cash Equiv** **(< 1 year duration) 12 Months performance Standard Deviation (% Ann) 1 Yr Rank in M* Category 7 10 • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 56 8 78 48 64 35 91 8 A Potential Solution Overcoming the traditional allocation dilemma Illustration of a Typical Comprehensive Fixed Income Allocation Framework: Satellites A Versatile Role in A Portfolio 15-35% Multiple ways investors can make Anfield Universal Fixed Income Fund part of their overall strategy: Emerging Market Sovereign High Yield As a core bond complement, with a distinct risk/return profile and absolute return orientation ABS/MBS As an equity diversifier, potentially reducing overall volatility As a defensive holding, with the ability to pursue positive returns in any environment as well as manage duration amid challenging market conditions As a single fund alternative to an array of Satellite funds How the fund fits into a broader portfolio is ultimately a reflection of your individual circumstances. Currencies Core Fixed Income 30-50% Leveraged Loans Non-Traditional Bond Alternative Debt • Event Driven • Long/Short Credit • Debt Arbitrage Emerging Market Corporate Alternatives 10-20% For illustrative purposes. • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 9 UFIF’s “Flexible Core” Allows evolution with the market environment Defensive Aggressive Increasing Interest Rates Decreasing Interest Rates Spread Duration / Risk Premia Market Interest Rate Risk MBS ABS Credit Low/Negative Interest Rate Duration EM MBS ToolKit: IG Sector Quality Long/Short Derivatives Currencies Leveraged Loans Structural HY ABS Credit High/Moderate Interest Rate Duration EM HY MBS – Mortgage-backed security HY – High Yield ABS - Asset-backed security IG - Investment Grade Credit EM – Emerging Market Credit – All grade credit Spread Duration – measures the % price change for a % change in yield spread Risk Premia – additional yield associated with one or more sources of investment risk • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 10 IG UFIF’s “Flexible Core” Allows evolution with the market environment US 10 Year Treasury Rate 7.00 10 year Treasury Rate (%) 6.00 Anfield believes interest rates are likely to rise from here and we have positioned the fund accordingly 5.00 4.00 2.17% as of 12/31/14 3.00 2.00 1.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Shaded bars indicate economic recessions according to NBER The referenced US 10 Yr Treasury Rate is shown for illustration purposes only and does not reflect any fees, expenses or sales charges. This illustration is not meant to represent the Fund. There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 11 …and why it really matters right now! 12 Divergence of the “Dual Economy” Creates asset & systemic bubbles Real Estate Fed Policy Regulatory Reform US Treasuries • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 13 Rates Don’t Always Rise During Recovery Steadily lower growth rates in last 4 recoveries have induced steadily lower policy rates US 10YR yield change during expansions Creating faster and a greater number of asset bubbles These bubbles have been imploding before inflation has a chance to accelerate and central banks can move to tighten In the last 4 cycles, US bond yields did not rise through the economic expansion 2.35% as of 8/31/14 % cumulative change in the US 10YR yield from the last day of the recession until the last day of the expansion for all expansions since 1953. Expansion dates are based on the NBER business cycle dates. The year next to each line shows the year of the expansion started. • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 14 Size of the Global Financial Economy 955 $ trillion total volume of foreign currency transactions 601trillion $ off-exchange trading of financial derivates 87 trillion $ volume of shares and bonds For comparison: $ 63 trillion Value of all goods and services produced (GDP) Source: Bundesbank, 2012 15 Recovery from the ‘08/09 Recession Experienced unusually weak real economy expansion Real Economy Performance 115.00 113.63 Real GDP 113.00 111.00 Personal Consumption 113.34 Employment 111.65 Hourly Earnings 109.00 106.37 107.00 105.00 103.00 101.00 • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 16 Oct-14 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 Feb-13 Dec-12 Oct-12 Aug-12 Jun-12 Apr-12 Feb-12 Dec-11 Oct-11 Aug-11 Jun-11 Apr-11 Feb-11 Dec-10 Oct-10 Aug-10 Jun-10 Apr-10 Feb-10 Dec-09 Oct-09 Aug-09 Jun-09 97.00 Apr-09 99.00 Not so for the Financial Economy …which may be overheating Financial Economy Performance 350.00 312.91 S&P 500 300.00 Barclay's Agg Residential RE 250.00 Commercial RE Commodities 200.00 218.03 167.72 126.79 150.00 100.00 111.71 • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 17 Oct-14 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Aug-13 Jun-13 Apr-13 Feb-13 Dec-12 Oct-12 Aug-12 Jun-12 Apr-12 Feb-12 Dec-11 Oct-11 Aug-11 Jun-11 Apr-11 Feb-11 Dec-10 Oct-10 Aug-10 Jun-10 Apr-10 Feb-10 Dec-09 Oct-09 Aug-09 Jun-09 0.00 Apr-09 50.00 Implications 1. The Fed and other central banks are behind and will be forced to raise rates sooner than expected 2. Risk assets can and will rally further 3. If the interest rate environment is normalized in a deliberate step-wise manner it does not have to be disorderly / disruptive to the real economy or capital markets – but the broad bond market will still suffer re-pricing 4. There is still time to adopt a defensive fixed income posture…but time is running short • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 18 Current Strategy Summary Fixed Income U.S. DURATION 1 - 3 YRS CURVE POSITIONING Short/I nt. U.S TREASURIES -10 - 0% MORTGAGES 20 - 30% INVESTMENT GRADE CREDIT 20 - 30% HIGH YIELD 20 - 30% MUNICIPALS 0 - 5% Non-U.S. NON-U.S. DEVELOPED 0 - 10% EMERGING MARKETS 0 - 10% CURRENCY 0 - 5% Red = zero to negative exposure Yellow = modest allocation 19 Green = attractive exposure, material allocation Appendix 20 Core of Fixed Income Market ≠ Core of Fixed Income Allocation Remember - the CORE is the foundational part, NOT a reflection of fixed income issuance patterns which are driven by many forces We now have to address the other misconception: “the Core must be generally stable or stationary” While this makes it easier to define and explain, it also results in our Core being exposed to interest rate, credit and other cycles To avoid this, we have to continuously adjust our Core as the world unfolds • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 21 A Comprehensive Toolkit Anfield Universal Fixed Income Fund The Fund has broad discretion to apply what Anfield believes to be it’s best investment ideas across the global bond universe This greater investment discretion allows Anfield to adjust duration exposure, allocate across sectors, and otherwise express active views and tap into Anfield’s global toolkit Portfolio Construction Method Manager discretion, based on Anfield's global economic outlook Bond Universe ∙ U.S. Treasuries ∙ U.S. and non-U.S. investment grade corporates ∙ Yankee bonds and Eurobonds ∙ U.S. Treasuries ∙ Asset-backed securities ∙ U.S. investment grade corporates ∙ Convertible securities ∙ Agency bonds ∙ Preferred stock ∙ Mortgage-backed securities ∙ Non-U.S. sovereign debt ∙ Agency bonds ∙ Asset-backed securities ∙ Emerging markets bonds ∙ Yankee bonds ∙ Inflation-indexed bonds ∙ Municipal bonds ∙ Bank loans ∙ Foreign currencies ∙ Duration ∙ Relative value trades ∙ Structural trades ∙ Sector rotation ∙ Yield curve positioning • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. Market capitalization-weighted representation of current U.S. bond market ∙ High yield bonds ∙ Mortgage-backed securities Tools Barclays Capital U.S. Aggregate Bond Index 22 ∙ Currency hedging/allocation Current Strategy Summary Equity U.S. OVERWEIGHT STOCKS 0 - 5% DIVIDEND YIELD 5 - 10% MEGA CAP 15 - 20% LARGE CAP 25 - 35% SMALL CAP 10 - 15% Non-U.S./Alts NON-U.S. DEVELOPED 10 - 15% EMERGING MARKETS 10 - 15% ALTERNATIVES 10 - 15% Red = zero to negative exposure Yellow = modest allocation 23 Green = attractive exposure, material allocation Benchmarking- 2 Epic Fallacies 1. Started out as a way to measure ex-post performance, then morphed into a way to categorize investment managers becoming the ex-ante paradigm Now ALM drives Required Return, which drives asset allocation, and allocation drives manager selection because you have to fit into a box to get funded. 2. Desire to define manager risk via benchmark relative guidelines This is in complete contravention to the reality and logic: Increased concentration of risk factors Reduced manager diversification (all have to operate the same zones) And if you believe the opportunity set is non-stationary, and forced buying and selling at ranges (guidelines) reduces tail risk; then the only logical conclusion is that stationary rules in a non-stationary world must result in a lower, flatter distribution of returns skewed to the left – and therefore a lower mean return with higher risk over time – the exact anti-thesis of the goal. • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 24 The Result? Investment guidelines and parameters are determined using this backwards logic, resulting in: A construct of “beat the benchmark” not “make smart investments and earn good risk adjusted returns” Limitations for managers: their latitude and tools to get out of the way of trouble and capitalize on opportunity have been removed Concentrating risk factors Many guidelines are in % NAV space Assets, however, operate in risk factor space % NAV space ≠ % risk factor space • Investment advisory services offered through Anfield Capital Management, LLC, a registered investment advisor **There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. 25 Disclosures Anfield Capital Management, LLC is a registered investment advisor with the SEC. The purpose of this presentation is to provide general information on our products and services only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. We may change these materials at any time in the future without notice to you. We are not providing you with investment, tax, or legal advice. Past performance is not necessarily indicative of future performance. We are not offering to buy or sell any financial instrument or inviting you to participate in any trading strategy. This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under US federal tax laws. Anfield Capital Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has calculated your performance returns in accordance with the Global Investment Performance Standards. To receive a compliant presentation and/or the firm’s list of composite descriptions, please contact us at 949-891-0600. Past performance is not indicative of future results. Presented performance results are total return and include the reinvestment of all income. Net of fee performance was calculated using the highest applicable annual management fee. Valuations and performance is reported in U.S. dollars. The results for individual accounts and for different periods may vary depending on market conditions and other factors. The performance results displayed herein represent the investment performance record for a composite. All performance results prior to the establishment of Anfield in August 2009 were achieved by the portfolio manager prior to the formation of Anfield and have been linked to the performance history of Anfield. These results should not be interpreted as the actual historical performance of Anfield. Anfield has adhered to the performance record portability requirements outlined in the GIPS Guidance Statement on Performance Record Portability in regard to the presentation and linking of this performance track record. 26 Simulated Backtest Disclosure Diversified Liquid Alternatives simulated backtest results were derived from the retroactive application of a model and do not represent actual investment performance or trading. Returns have not been reduced by trading costs which would be charged if the adviser were actually managing client’s money. Returns have been reduced by an annual management fee of 1.25% applied on a quarterly basis. The backtested results have inherent limitations as the results are derived from the retroactive application of a model developed with the benefit of hindsight. Performance may not reflect the impact that certain material economic and market factors might have had on the decision-making process if Anfield Capital Management was actually managing client assets according to the model. The strategy could not have been implemented before Jan 2011as this was the first date that the majority of the securities in the portfolio were available. Beginning May 2014, Anfield Capital Management started managing actual client accounts according to the Diversified Liquid Alternatives strategy 27 Composite Disclosures Our portfolios have assets diversified among equity and equity related instruments, fixed income securities, and cash or cash equivalents. Total Yield Composite includes all discretionary portfolios that seek to generate superior yields over cash investments by blending securities with different sources of premium yield advantage over traditional cash, and to preserve capital by minimizing the risk of loss. The strategy harvests meaningful yield spreads where they naturally occur and blends the primarily "spread duration risks" to achieve an optimum yield vs. liquidity and risk. It is best thought of as substitute to conventional narrow cash management strategies and investments. The portfolio may invest in all sectors of the fixed income market via primarily either ETFs or mutual funds. Prior to January 2012, the Total Yield Composite was called Capital Preservation Composite. Core Fixed Income Composite includes all discretionary portfolios that seek total return through a combination of income and price appreciation. The strategy invests in a wide range of fixed income and related securities spanning all maturities, sectors and credit ratings. Our portfolios have assets diversified among equity and equity related instruments, fixed income securities, and cash or cash equivalents. The target equity allocation of the strategy will vary over time but typically will consist of 100% of portfolio assets. This strategy may be appropriate for investors seeking intermediate to long-term returns with risk similar to the broad U.S. bond market. Income Plus Composite includes all discretionary portfolios that seek to total return through modest growth and a focus on income through investing in a balanced portfolio of fixed income and related securities spanning all maturities, sectors and credit rating and diversified equity. The target equity allocation of the strategy will vary over time but typically consists of 20% of portfolio assets. This strategy may be appropriate for investors seeking intermediate growth of capital combined with partial insulation from the impact of inflation. Real Balanced Growth & Income includes all discretionary portfolios that seek to provide a blend of income and growth of capital through investing in a balanced portfolio of diversified equity and fixed income securities. It emphasizes “real” returns - the growth of purchasing power over time. The strategy also invests in inflation-linked instruments including but not limited to U.S. TIPS, commodities contracts, and REITS. The target equity allocation of the strategy will vary over time but typically consists of 40% of portfolio assets. This portfolio may be appropriate for investors seeking intermediate to long-term growth of capital combined with partial insulation from the impact of inflation. Real Wealth Accumulation Composite includes all discretionary portfolios that emphasize growth of capital by investing in a diversified portfolio of primarily equities. The portfolio’s overall risk is tempered by allocations to fixed income and inflation-linked securities. The target equity allocation of the strategy will vary over time but typically consists of 60% of portfolio assets. This strategy may be appropriate for investors seeking intermediate to long-term growth of capital combined with insulation from the impact of inflation. Aggressive Real Growth Composite includes all discretionary portfolios that seek maximum capital appreciation by investing in a portfolio heavily weighted to equities. The strategy’s overall risk is similar to the broad stock market. The portfolio also holds modest allocations of inflation-linked securities. The target equity allocation of the strategy will vary over time but typically consists of 80% of portfolio assets. This strategy may be appropriate for investors seeking long to very long term growth of capital. Diversified Equity Composite includes all discretionary portfolios that seek maximum capital appreciation by investing in a portfolio consisting primarily of equity securities. The target equity allocation of the strategy will vary over time but typically consists of 100% of portfolio assets. The portfolio’s overall risk is expected to be similar, on average and over time, to the broad stock market. Diversified Liquid Alternatives Composite includes all discretionary portfolios that seek positive return over full market cycles by investing in a broad spectrum of all asset classes. Tactical adjustments are made with the goal of reducing risk and increasing returns. The portfolio may invest in all domestic and international asset classes, including but not limited to equity, debt, commodities, all categories of alternatives, real estate, etc. The portfolio will look to invest in a diverse set of assets classes, typically ten different markets, sectors, and themes with a target of approximately 20 to 30 different positions, dependent on market conditions. 28 Benchmark Disclosures Index returns are presented as additional information. We do not believe that any index return is a proper point of reference to directly compare our strategy and composite performance against; as such, the index returns are provided as general market indicators. U.S. Consumer Price Index (CPI) is a measure estimating the average price of consumer goods and services purchased by households. It is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer LIBOR (London Interbank Offered Rate) is an average interest rate, determined by the British Bankers Association that banks charge one another for the use of short-term money (one month) in England’s Eurodollar market. Barclays U.S. Aggregate 1-3 Index represents securities that are SEC-registered, taxable, dollar-denominated, and with a remaining term to final maturity of at least one year and less than three years. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Barclays Intermediate Government/Credit Index measures the performance of the U.S. dollar denominated U.S. Treasuries, government related and investment grade U.S. corporate securities that have a remaining maturity of greater than or equal to 1 year and less than 10 years. Barclays Intermediate U.S. Aggregate Bond Index is an unmanaged index representing domestic taxable investment grade bonds with an average maturity and duration in the intermediate range, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Barclays U.S. Aggregate 10+ Index represents securities that are SEC-registered, taxable, dollar-denominated, and with a remaining term to final maturity of at least ten years. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. S&P 500 Total Return Index is an index of a basket of 500 stocks designed to provide a broad snapshot of the overall U.S. equity market representing all major industries. Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. MSCI EAFE Index is an unmanaged index of issuers in countries of Europe, Australia, and the Far East. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure emerging market equity performance. The MSCI Emerging Markets Index consists of the following 21 emerging market country indices: Brazil, Chile, China, Columbia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey. 29