Investment Strategy 2017 11

INVESTMENT STRATEGY 20 17

Balamory Investments is an authorised financial services provider FSP: 41688

www.balamory.co.za

CONTENTS 1 Our Competitive Advantage (4 points)

2 Why these points are a Competitive Advantage 3

Our Portfolio building Methodology: ETFs 4 Why only US exchanges for global exposure 5 Our current Service offering (Portfolios)

6 Summary & Closure Balamory Investments FSP: 41688

Strategic Asset Allocation

Rule Based

Competitive Advantage

Complete Risk Management

Portfolio Regime changes Balamory Investments FSP: 41688

Competitive Advantage #1 Strategic Asset Allocation

Specific weightings

Style/Category exposure

Geographic exposure

Core & satellite approach

Equities Cash

Bonds

Alternatives

Properties Strategic Asset Allocation

Asset Classes Balamory Investments FSP: 41688

Competitive Advantage #2 Rule-Based System, no manual intervention

Secondary Inputs

Main Indicators

• Momentum of the S&P500

• Geographic view

• Company earnings & estimates (S&P500)

• Currency view

• Developed Markets Inflation rate trends • Developed Markets Interest rate trends

• Style view

• • • •

Asset Class Triggers

Regime Portfolios

• Focused Growth Portfolio • Global Neutral Portfolio • (Risk off Portfolio)

Fund Flows; Relative Strength; Correlations; Beta (Asset Classes)

Balamory Investments FSP: 41688

Competitive Advantage #3 Complete Risk Management Portfolio management can address this risk

Investment Goals

Investment Horizon

Risk (variance)

Cash flow needs

Portfolio management cannot address this risk

Risk Profile of Investor

non-Systemic

Systemic

Diversification

More Stable Assets & Less Risky Assets

Balanced between Risky & Stable Assets

More Risky Assets & Less Stable Assets

Global Portfolios on Risk Continuum Balamory Investments FSP: 41688

Competitive Advantage #4 Portfolio Regime Changes More Stable Assets & Less Risky Assets

Balanced between Risky & Stable Assets

More Risky Assets & Less Stable Assets

Return of Portfolio

Global Portfolios on Risk Continuum

Pie in the sky portfolios

Efficient Frontier line

Our portfolios

Regime A: Focused Growth

Not optimum portfolios

Cash

Regime B: Global Neutral Regime C: Risk Off

Volatility of Portfolio Regimes for each Portfolio and each of the FOUR asset classes Balamory Investments FSP: 41688

CONTENTS 1 Our Competitive Advantage (4 points)

2 Why these points are a Competitive Advantage 3

Our Portfolio building Methodology: ETFs 4 Why only US exchanges for global exposure 5 Our current Service offering (Portfolios)

6 Summary & Closure Balamory Investments FSP: 41688

Why these points are a Competitive Advantage Less Volatility Keep the Investor PROTECTED (Optimum Sharpe Ratio)

Minimize Portfolio RISK

Reduce Maximum Drawdowns

Minimise Downside Risk

Maximise Diversification

Maximise Sortino ratio

Beta, R-Squared, Alpha

Maximize Portfolio RETURNS

Portfolio Regime Switching The RESULT is better Portfolio Returns

No predictions of the future or biases

Structured ReBalance Policy

Best Portfolio Return Balamory Investments FSP: 41688

Why Investors care about Volatility!

It creates market inefficiencies!

Position sizing

Required cash flows are influenced & could result in a shortfall

The wider the swings in a portfolio, the more emotional worry

When withdrawals are taking place, high volatility have a permanent impact

Retirement shortfall possibility

Balamory Investments FSP: 41688

CONTENTS 1 Our Competitive Advantage (4 points)

2 Why these points are a Competitive Advantage 3

Our Portfolio building Methodology: ETFs 4 Why only US exchanges for global exposure 5 Our current Service offering (Portfolios)

6 Summary & Closure Balamory Investments FSP: 41688

Our Portfolio building Methodology: ETFs

Fit

Liquidity

Risk

Structure Balamory Investments FSP: 41688

Our Methodology in short to build Portfolios

Fit Index followed & Benchmarking

Concentration Risks & Type

Diversification success & contribution

Tracking error & NAV

Liquidity Exposure: Currencies; Geographic; Style

Baskets vs Holdings

AUM

Bid-Ask spread costs

Fund flows vs packets vs % of AUM

Issuer

Weighting

Volumes & tradability

Structure Turnover frequencies

Tax exposure

Script lending & Associated risks & benefits

TER & other expenses

Hidden costs

The Risk (volatility) of using one of the 2,096 ETFs listed on the 4 exchanges in the US, has a separate set of due diligence points to adhere to.

Balamory Investments FSP: 41688

CONTENTS 1 Our Competitive Advantage (4 points)

2 Why these points are a Competitive Advantage 3

Our Portfolio building Methodology: ETFs 4 Why only US exchanges for global exposure 5 Our current Service offering (Portfolios)

6 Summary & Closure Balamory Investments FSP: 41688

Why do we only use the US exchanges for Global exposure? +70% of all ETF AUM in US exchanges

Low liquidity cost

Balamory Investments FSP: 41688

CONTENTS 1 Our Competitive Advantage (4 points)

2 Why these points are a Competitive Advantage 3

Our Portfolio building Methodology: ETFs 4 Why only US exchanges for global exposure 5 Our current Service offering (Portfolios)

6 Summary & Closure Balamory Investments FSP: 41688

Our current Service offering (Portfolios)

5 1 1 5 3

Global Multi-Asset

Risk continuum

Global Money

Active Strategy

Strategic Growth

All Equity

Reg 28 Multi-Asset

Risk continuum

Onshore non-Reg 28 Multi-Asset

Risk continuum Balamory Investments FSP: 41688

CONTENTS 1 Our Competitive Advantage (4 points)

2 Why these points are a Competitive Advantage 3

Our Portfolio building Methodology: ETFs 4 Why only US exchanges for global exposure 5 Our current Service offering (Portfolios)

6 Summary & Closure Balamory Investments FSP: 41688

Summary & Closure Global Portfolios on Risk Continuum More Stable Assets & Less Risky Assets

5 Yr Return in USD

9.6%

Balanced between Risky & Stable Assets

10.8% 12.7%

More Risky Assets & Less Stable Assets

13.5%

14.7%

Balamory Investments FSP: 41688