Asset Allocation – Compass

Description

Objective

A dynamically allocated portfolio of stocks and bonds that is designed to take advantage of Cornerstone’s active management approach at both a security and asset level. The strategy’s goal is to deliver attractive risk-adjusted returns versus a passive 60/40 equity and bond portfolio over a full market cycle.

Investment Merits

1. Driven by an active and dynamic asset allocation approach

Market valuations are not static, so why are portfolio allocations? Compass increases the equity allocation when the market is undervalued and decreases it when the market is overvalued

2. Lower volatility than an equity-only portfolio

We are believers in equities, but recognize that bonds are both less volatile and generally move differently than equities over time. While it likely reduces returns, diversifying a portfolio with bonds often reduces risk

3. Equity portfolio based on Cornerstone’s Concentrated 30 strategy

Many balanced portfolios utilize passive equity strategies that give up the opportunity for outperformance. Compass uses Cornerstone’s Concentrated 30 equity portfolio that has demonstrated attractive risk-adjusted performance over time

4. This combination has driven significant alpha over time

In isolation, both the allocation approach and the Concentrated 30 portfolio have delivered attractive risk-adjusted returns since inception. When combined, the portfolio has produced compelling results versus its 60/40 benchmark

Performance

December 31, 2019

compass bar graph
Cornerstone
Gross Returns
Cornerstone
Net Returns
60% S&P500 /40% Barclays Capital Index
QTD 7.28% 6.96% 5.46%
1 Year 23.37% 22.15% 22.18%
3 Year 11.54% 10.35% 10.87%
5 Year 7.19% 5.93% 8.37%
7 Year 9.89% 8.55% 9.96%
10 Year 9.90% 8.52% 9.77%
Since Inception* 7.92% 6.55% 7.27%

Annual compounding rates of return ending 12/31/2019
*Composite inception date is 12/31/2006

Cornerstone
Gross Returns
Cornerstone
Net Returns
60% S&P500 /40% Barclays Capital Index Composite
3yr St Dev
Benchmark
3yr St Dev
Composite assets $millions Accounts at period end Percent of firm assets Firm assets $millions Net Composite dispersion % of non fee paying clients % of bundled fees
2019 23.37% 22.15% 22.18% 9% 7% 48.0 77 2.1% 2,300.8 0.6 0.0 40.7
2018 -4.08% -5.01% -2.35% 8% 6% 63.7 65 2.9% 2,169.9 0.7 0.0 35.6
2017 17.27% 15.81% 14.21% 9% 6% 31.2 60 1.3% 2,458.6 0.4 0.0 82.3
2016 12.68% 11.24% 8.31% 10% 6% 27.9 63 1.1% 2,609.7 0.7 0.0 84.2
2015 -9.52% -10.75% 1.28% 9% 6% 49.2 102 1.4% 3,480.2 0.6 0.0 88.3
2014 7.68% 6.25% 10.62% 8% 5% 64.4 112 0.7% 9,154.3 0.5 0.0 86.6
2013 26.98% 25.31% 17.55% 10% 7% 55.3 92 0.7% 8,210.6 0.5 0.0 80.6
2012 12.70% 11.25% 11.31% 12% 9% 41.4 70 0.7% 5,725.4 0.7 0.0 77.9
2011 4.78% 3.41% 4.69% 15% 11% 41.8 77 1.2% 3,466.7 0.5 0.0 80.2
2010 12.50% 10.85% 12.13% 17% 14% 37.7 73 1.6% 2,394.8 0.5 0.0 80.8
2009 20.36% 18.72% 18.40% 16% 12% 35.3 68 2.5% 1,437.6 0.7 0.0 88.6
2008 -21.50% -22.54% -22.06% N.A. N.A. 11.3 34 1.8% 613.0 0.7 2.6 77.5
2007 10.91% 9.52% 6.22% N.A. N.A. 9.7 19 1.7% 569.1 0.9 0.0 76.7

*Composite inception date is 12/31/2006

Characteristics

December 31, 2019

The end result of the investment process is a portfolio comprised of companies with solid growth prospects trading at compelling valuation levels.

Characteristics Compass – Equity S&P 500
5-Year Historical Earnings Growth 11.1% 12.5%
Long-Term Estimated Earnings Growth 8.8% 10.7%
Price to Earnings (TTM) 15.4x 20.1x
Price to Cash Flow 10.5x 13.9x
Return on Equity 22.1% 24.5%
Long-Term Debt to Equity 0.9x 1.4x
Dividend Yield 2.1% 1.8%
Market Cap ($ wtd) 228.5B 291.3B

Sector Weights

December 31, 2019

equity bar graph

Sector weights can be materially different from the benchmark as a result of our bottom-up investment process

Disclaimer

The Compass Composite contains fully discretionary accounts that are comprised of domestic stocks and bonds that are actively allocated.  Clients should average about 60% in stocks and 40% in bonds over the long run. Cornerstone Investment Partners set weights accordingly between stocks and bonds based on their relative attractiveness and repositions portfolios at the beginning of the month if the move is greater than a 5% difference in the weighting between the asset classes. Equity allocation can range from 40-80% and Fixed income 20-60%. The fixed income portion includes cash.  Portfolios are rebalanced on a monthly basis. For comparison purposes the composite is measured against 60% of the  S&P 500 Index and 40% of the Barclays Aggregate Index. The custom blended benchmark is calculated within our accounting and performance measurement system and is static.  Cornerstone Investment Partners’ has constructed a universe of 800 large, liquid securities, including non-US companies, traded on US exchanges.  **Pure gross returns are presented as supplemental information as they do not reflect the deduction of any expenses, including trading costs. Cornerstone Investment Partners, LLC is an independent, employee owned investment advisory firm.  The firm maintains a complete list and description of composites, which is available upon request.  Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Past performance is not indicative of future results. The U.S. Dollar is the currency used to express performance. Returns are presented gross and net of management fees and include the reinvestment of all income.  The composite includes both bundled fee and non-bundled fee accounts. Gross returns for non-bundled fee accounts were reduced by transaction costs and gross returns for bundled fee accounts are shown as supplemental information and have not been reduced by transaction costs.  Net of fee performance for these accounts have been reduced by the entire bundled fee. Other than brokerage commissions the bundled fee includes administrative and custodial services, and in some cases the investment management fee.  Some of the bundled fee accounts included pay the investment management fee separately from the bundled fee.  For these accounts, net of fee performance has been reduced by both the bundled fee and the investment management fee.  Net of fee performance for non-bundled fee accounts was calculated using actual management fees. Beginning October 1, 2008, composite policy requires the temporary removal of any portfolio incurring a client initiated significant cash inflow or outflow of 30% of portfolio assets.  The Compass composite was created and incepted on December 31, 2006. The annual composite dispersion is an asset-weighted standard deviation calculated for the accounts in the composite the entire year. Cornerstone Investment Partners, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Cornerstone Investment Partners, LLC has been independently verified for the periods September 30, 2001 through September 30, 2019. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Compass Composite has been examined for periods December 31, 2006 through December 31, 2018.  The verification and performance examination reports are available upon request. Benchmark returns are not covered by the report of independent verifiers.  Additional information regarding the policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.  Submit requests to Cornerstone Investment Partners: 3438 Peachtree Rd, NE; Suite 900; Atlanta, GA 30326. Phone: 404-751-3850   Email: marketing@cornerstone-ip.com The general fee schedule for equity accounts is as follows: 0.75% on the first $10,000,000; 0.55% on the next $10,000,000 and 0.35% on the balance. Actual investment advisory fees incurred by clients may vary.