Process

Forstrong employs a multi‐disciplined approach in determining an optimal global asset mix defined by risk, reward and diversification/composition requirements. Our firm methodically surveys a wide array of global economic and financial conditions in order to assess the relative attractiveness of the major asset classes and asset types — stocks, bonds, cash, and alternative assets.All active strategies for actual portfolio mandates are expressed proportionately

Asset Mix Process

On a regular quarterly basis, the Forstrong Investment Team (FIT) determines the relative desirability of the major asset types by grading them according to 10 groups of criteria and conditions as described below. Many factors influence the relative investment return prospects of global financial asset classes and are graded according to their favorability or hostility to the performance prospects for each.

Broadly, the relative influence of the factors surveyed in determining asset mix policy can be categorized as follows:

Fundamental Factors and Conditions

Qualitative Assessments

Risk/Return Characteristics

Quantitative Ratings

Asset Mix Ranges

Though asset mix ranges for any given portfolio are determined by the nature of investment objectives — low risk, high income, aggressive growth … etc. — basic investment policy is expressed in terms of the Forstrong Global Balanced Portfolio Benchmark. All other investment mandates are linked to this base strategy and are expressed proportionately. The weighting ranges for each of the major asset classes of this hypothetical portfolio are shown below.

COMPONENTS OF GLOBAL ASSET SELECTION MODEL

The following seven categories of factors are considered in determining the relative attractiveness of the three main financial asset classes. The Asset Mix Score Sheet portrays this grading exercise. Ratings are weighted and summed to indicate the relative attractiveness of an individual asset class. A high relative rating will recommend a portfolio weighting for that particular asset class towards the higher end of its allowed range (see previous page). Conversely, a low rating relative to other investment classes will force a portfolio weighting towards the lower end of that asset class’ prescribed range.

All of the following categories have separate defined methodologies and approaches.

Long-Term

Investment Guardrails

1. Super Trends and Themes

Global macro super trends such as globalization, financialization, population growth, political developments are assessed for their impact on, and attractiveness of each asset class. Investment themes are then identified relative to the performance prospects of each asset class. Factors such as capital shortages, high real interest rates, fiscal retrenchment, low income growth, global savings imbalances… etc. may be considered.

2. Relative Expected Returns

Forstrong Investment Team forecasts individual asset class returns (nominal and real) for stocks, bonds and cash of each major global region. These forecast returns are rated and risk‐adjusted then weighted to replicate the return profile of a world equity and fixed‐income index. After adjusting these returns with required risk premiums the relative attractiveness of the return is rated.

Medium-Term

Macro Environment & Fundamentals

3. World Economic Outlook (vs Consensus)

4. Monetary Policy/Credit Conditions

a. Global Monetary Policy/Conditions

Factors which identify the general policy stance of the world’s central financial institutions are surveyed and assessed. World reserve growth, major yield curve trends, monetary growth … etc. may be among the factors considered.

b. Global Investment Liquidity Conditions

Idle cash balance conditions, interest rate trends, and conditions of excess or inadequate liquidity relative to expected economic growth trends and statistics indicative of investment fund liquidity are among the factors reviewed to help predict future relative investment returns.

5. Historical Valuation Ranking

a. Absolute Valuation Ranking (to Country History)

The valuation level — over‐ or under‐valued — of global equities and bonds are individually assessed in terms of factors independent of each other. Forstrong employs its own valuation barometers. The value rating of cash assets is considered a residual of the bond and stock ratings.

b. Relative Valuation Globally

Stocks, bond and cash valuation are graded relative to each other.

Short-Term

Tactical Positioning

6. Technical (Momentum, Trends)

a. Relative Performance Trends:

Global rotational trends are seen as offering important insights.

b. Other Technical Factors

Forstrong does not consider ultra-short-term indicators (i.e. less than 13 weeks.)