Model Portfolios

Portfolio Purpose

At NI we uniquely provide our clients investment advice from the financial planning viewpoint.

That is, when we design a client investment portfolio, it addresses the critical question:

"What is the purpose of the portfolio?"

Generally, portfolios can be categorized by purpose as follows:

1. To fund long term goals
•   e.g. retirement, education
•   Utilize managed funds (unit trusts) primarily
2. To enhance returns on liquidity (cash)
•   Bonds or quasi bonds (preferably tax-exempt)
3. To enhance returns on speculative assets
•   Stock picks, direct investments, hedge funds

"NI Model Portfolios are designed to address the first purpose: "To fund long term goals".

NI Model portfolios are sub-divided by portfolio risk and size. There are 5 portfolio risk categories.

NI Model Portfolios by risk

Each portfolio risk category would have a different mix of fixed income and equities. A conservative portfolio would have far less equities than an aggressive one. An example of our strategic asset allocation would be:

Asset Type	Conservative	Moderate Conservative	Moderate	Moderate Aggressive	Aggressive
Equities	25%	40%	55%	70%	85%
Bonds	72%	57%	42%	27%	12%
Cash	3%	3%	3%	3%	3%

NI Model Portfolios by size

Each portfolio risk category size is then sub-divided into 3 sizes generally. An example of portfolio size categories:

	Small:	<$50K	- < 5 funds (G)
	Medium:	$50K to $100K	- 5 to 10 funds (G,R)
	Standard:	>$100K	- >10 funds (G,R,S)

An example of how equities are allocated strategically:

Portfolio Size	Global	Regional	Sector
Standard	40%	40%	20%
Medium	50%	50%	-
Small	100%	-	-

There are essentially 3 ways for an equities portfolio to be diversified:

For standard size portfolios, we are able to diversify across all 3 ways. However, if the portfolio is too small, this might not make economic sense. However, we offset the lack of diversification with a more defensive portfolio. Thus, moderating risk without sacrificing returns too much.

Strategic Asset Allocation

The strategic asset allocation (SAA) of a client's portfolio is the long-term (over-business-cycles) asset allocation he or she ought to have for a given investment risk appetite. Periodic rebalancing here would not only ensure that it is consistent with the clients' needs, but ensures that significant out performance in a particular asset class is locked-in as realized profits.

Tactical Asset Allocation

The tactical asset allocation (TAA) is the on-going variation which NI recommends to the client as the investment and business climate changes, periodically as well as a-periodically. During different phases of the global business cycle, different types of assets (bonds, equities, cash etc.) would tend to outperform relative to each other. TAA is therefore intended to squeeze more performance out of a portfolio, over and above the gains derived from periodic SAA rebalancing.

Fund Selection

Our fund selection process is driven by:

1. Performance consistency over varying time periods.
2. Performance relative to benchmarks and peers.

It would be ideal to have a fund which is consistently number 1. This, of course, is rarely possible. As Asset Allocation is a bigger contributor to portfolio performance, we therefore place more emphasis on performance consistency rather than outstanding but with a history of high volatility. This unpredictability would be disruptive and detrimental to the asset allocation process.

NI Model Portfolio Performance

Important Notes:

1. The Benchmark portfolio is a typical moderate risk one and has the following asset allocation: 55% MSCI World; 42% 12mth FD; 3% current account. In practice, it is not possible to "invest" exactly in a benchmark portfolio. We can only approximate it from below because of intermediation costs.

2. The comparison of portfolio performance is before transaction costs for both the NI Model and Benchmark Portfolios. This is because transaction costs will vary as a percentage of the portfolio depending on (a) the size of the portfolio and (b) whether in wrap or non-wrap accounts.

3. The above comparison is NI's internal benchmarking and although we believe it is fair and of best-practice, it has not been independently audited.

DISCLAIMER

This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of securities or units in any funds. The respective markets' and funds' past performance are not a guarantee of future performance. Although information has been obtained from and is based upon sources New Independent believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness. New Independent accepts no liability whatsoever for any direct or consequential loss or damage from any use of this report or its contents. This report does not take into account the investment objectives or financial situation of any particular person. Investors should always obtain advice based on their own individual circumstances before making an investment decision.