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Alternative Investment Allocation Tool

WHY ALTERNATIVES

Generally, an alternative investment is one that seeks to provide risk and returns that are different than stocks, bonds and cash. In our opinion, an important objective of alternative investing is to reduce a portfolio's risk while maintaining returns over time. Different allocations to alternative investments, funded via various combinations of stocks and bonds, can potentially help accomplish that objective.  

POTENTIAL IMPACT OF ALTERNATIVES

When allocating to alternatives from bonds, as represented by the Barclays Global Aggregate Bond TR Hedged Index, the tool shows that the resulting portfolios tend to generate slightly higher returns and higher risk over the long periods of time it measures. Investors should consider that historically, during shorter periods of market stress, interest rates declined and bonds tended to outperform alternatives. Conversely, during previous periods of rising rates, alternatives tended to outperform bonds.

When allocating to alternatives from equities, as represented by the FTSE 100 Growth Index, the tool shows that the resulting portfolios tended to generate similar returns and lower risk over the long periods of time it measures. Investors should consider that historically, during shorter periods of market stress, alternatives tended to outperform equities.  Conversely, during previous periods of strong equity returns, alternatives have historically underperformed stocks.

MANAGE ALLOCATION

1 The sliders in the tool can be adjusted independently to reflect the stock and bond allocations of a theoretical portfolio without alternative investments, and one that includes alternatives.
2 The allocation to alternatives can be made from stocks, bonds, or a combination of both.

RISK CONSIDERATIONS

The above tool reflects index performance and does not represent the performance of any Goldman Sachs product.

Past performance does not guarantee future results which may vary

Traditional Portfolio
Traditional Portfolio
Portfolio with Alternatives
Portfolio with Alternatives
Stocks (MSCI World Index)
Stocks (MSCI World Index)
Bonds (Barclays Global Aggregate Bond TR Hedged)
Bonds (Barclays Global Aggregate Bond TR Hedged)
Alternatives (HFRI FoF Hedged)
Alternatives (HFRI FoF Hedged)
Traditional Portfolio
Traditional Portfolio
Portfolio with Alternatives
Portfolio with Alternatives
Stocks (MSCI World Index)
Stocks (MSCI World Index)
Bonds (Barclays Global Aggregate Bond TR Hedged)
Bonds (Barclays Global Aggregate Bond TR Hedged)
Alternatives (HFRI FoF Hedged)
Alternatives (HFRI FoF Hedged)

ROLLING PERIODS (of the {ROLLING_PERIOD} {ROLLING_YEAR}yr rolling period from {START_DATE} to {ASOF_DATE})

Potential Impact

What impact could adding alternatives have on my client's portfolio?

(median of all rolling periods, annualised monthly data)

Returns
10
%
Traditional Portfolio
10
%
Portfolio with Alts
Volatility
10
%
Traditional Portfolio
10
%
Portfolio with Alts

Frequency

How often might the portfolio with alternatives deliver better results than the traditional portfolio?

(of the historical rolling periods)

Higher Return
100
%
of the time
Lower Volatility
100
%
of the time

Loss of Value in Times of Market Stress

Loss of Value in Times of Market Stress

Traditional portfolios of stocks and bonds have historically seen significant drops in value during times of market stress. Funding an allocation to alternative investments, in whole or in part, from equities may have resulted in less severe declines.

Global Financial Crisis

October 31, 2007 - February 28, 2009

Dotcom Collapse

August 31, 2000 - September 30, 2002

Russian Default

June 30, 1998 - August 31, 1998

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

Investors should also consider some of the potential risks of alternative investments:
Alternative strategies often engage in leverage and other investment practices that are speculative and involve a high degree of risk. Such practices may increase the volatility of performance and the risk of investment loss, including the entire amount that is invested. There is also a potential for fund-level risks that arise from the way in which a manager constructs and manages the fund. Bonds and fixed income investing involves interest rate risk. When interest rates rise, bond prices generally fall. Leverage increases a fund's sensitivity to market movements. Funds that use leverage can be expected to be more "volatile" than other funds that do not use leverage. This means that if the investments a fund buys decrease in market value, the value of the fund's shares will decrease by even more. Alternative strategies often make significant use of over-the-counter (OTC) derivatives and therefore are subject to the risk that counterparties will not perform their obligations under such contracts. Alternatives strategies may make investments that are illiquid or that may become less liquid in response to market developments. At times, a fund may be unable to sell certain of its illiquid investments without a substantial drop in price, if at all. There is risk that the values used by alternative strategies to price investments may be different from those used by other investors to price the same investments. The above are not an exhaustive list of potential risks. There may be additional risks in the fund's offering documents that should be considered before investment decision.

For More Information
Shareholder Services Team
ess@gs.com
+971 4376 34444

Past results are not indicative of future results. No assurance can be given that the investment objective may be achieved.

Loss of Value During Times of Market Stress represents the most three most severe equity drawdowns since January 1, 1990, the common inception date of all indices used. Monthly dates shown refer to the end of the month.

The results presented above are based on the median, or 50th percentile, of rolling 3-year, 5-year and 10-year results using monthly returns since January 1990, the earliest common inception date of the indices used. Median is used to ensure extreme observations are not overrepresented. We believe rolling time periods present more comprehensive data.

Investment allocation tools are for personal use. They are not intended to provide investment advice. This calculator provides analysis based on your input. All examples are for illustrative purposes only.

Investment analysis tools have limitations; results may vary. An investment in alternatives is not appropriate for all investors. Investors should carefully review and consider their personal investments, risks, charges and expenses before investing.

Volatility: As measured by standard deviation, a risk calculation of the dispersion of individual returns around the average return.

Simulated performance results do not reflect actual trading and have inherent limitations. No representation is made that a client will achieve results similar to those shown. Simulated performance is hypothetical and may not take into account material economic and market factors, such as liquidity constraints, that would impact the client’s actual decision-making. Simulated results are achieved by retroactively applying a model with the benefit of hindsight. The results reflect the reinvestment of dividends and other earnings, but do not reflect fees, transaction costs, and other expenses a client would have to pay, which would reduce returns.

The hypothetical historical returns were created using the percentage allocations indicated above. Any changes will have an impact on the hypothetical historical performance results, which could be material. Hypothetical performance results have many inherent limitations and no representation is being made that any investor will, or is likely to achieve, performance similar to that shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved.

This information is shown for illustrative purposes only and does not constitute a recommendation for allocations for any account. Allocations will differ for an account because of specific client guidelines, objectives and restrictions.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

Alternative strategies often engage in leverage and other investment practices that are speculative and involve a high degree of risk. Such practices may increase the volatility of performance and the risk of investment loss, including the entire amount that is invested.

Manager risk includes those that exist within a manager's organization, investment process or supporting systems and infrastructure. There is also a potential for fund-level risks that arise from the way in which a manager constructs and manages the fund. Bonds and fixed income investing involves interest rate risk. When interest rates rise, bond prices generally fall. Leverage increases a fund's sensitivity to market movements. Funds that use leverage can be expected to be more "volatile" than other funds that do not use leverage. This means if the investments a fund buys decrease in market value, the value of the fund's shares will decrease by even more. Alternative strategies often make significant use of over-the-counter (OTC) derivatives and therefore are subject to the risk that counterparties will not perform their obligations under such contracts. Alternatives strategies may make investments that are illiquid or that may become less liquid in response to market developments. At times, a fund may be unable to sell certain of its illiquid investments without a substantial drop in price, if at all. There is risk that the values used by alternative strategies to price investments may be different from those used by other investors to price the same investments. The above are not an exhaustive list of potential risks. There may be additional risks that should be considered before investment decision.

Index Benchmarks

Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices.

The indices referenced herein have been selected because they are well known, easily recognised by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice, provide a suitable benchmark against which to evaluate the investment or broader market described herein. The exclusion of “failed” or closed hedge funds may mean that each index overstates the performance of hedge funds generally.

Starting point selected given longest common index inception (HFRI FoF inception 01.01.1990).

HFRI FoF = HFRI Fund of Funds Composite Index; HFRI and related indices are trademarks and service marks of Hedge Fund Research, Inc. ("HFR") which has no affiliation with GSAM. Information regarding HFR indices was obtained from HFR’s website and other public sources and is provided for comparison purposes only. HFR does not endorse or approve any of the statements made herein.

The Hedge Fund Research, Inc. ("HFR") Fund of Funds Composite Index is an equal-weighted index of over 500 domestic and offshore fund of funds. All funds report in USD and report Net of All Fees returns on a monthly basis. All funds included in the index must have at least $50 million in assets under management or have been actively trading for at least 12 months. Source: Hedgefundresearch.com.

The Barclays Global Aggregate Bond Index provides a broad-based, total return measure of the global investment-grade fixed income markets. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate and the Asian-Pacific Aggregate Indices.

The Barclays Global Aggregate Bond Index is hedged to USD. A “hedged index” represents a close estimation of the return that can be achieved by hedging the foreign currency exposures of the index in the one-month forward market at each end of month, and necessarily introduces exposure to short-term interest rate differentials between USD and foreign currency constituents of the index. The Barclays Global Aggregate Index is comprised of USD, EUR, JPY, GBP, and other currencies.

The MSCI World Index a market capitalisation-weighted, total return, net of foreign withholding taxes, equity index consisting of a wide selection of stocks traded in 23 developed countries.

All benchmarks used in the analysis presented above are denominated in USD.