Providing Increased Portfolio Diversification for Affluent Investors

Exposure to investments that are not directly correlated to the equity indexes is a sound strategy for increasing portfolio diversification. Alternative investments may offer certain qualified investors that increased diversification.

Jeffrey D. Saut,

Raymond James Chief Investment Strategist

Alternative Investments and Your Portfolio

Diversification its the golden rule of investing. And appropriately allocating assets to account for personal objectives, risk tolerance and time horizon is a critical part of a thorough financial plan. For most, a mix of traditional investments such as stocks and bonds is a suitable approach. However, more affluent investors should also consider additional strategies to further broaden their portfolios.

While, as with all investments, past performance is not a guarantee of future results, the selective addition of alternative investments that have historically demonstrated lower correlation to traditional market indices may:

• Reduce overall portfolio volatility through diversification
• Increase long-term portfolio performance through a variety of market conditions 1

Examples of some of the investment opportunities in this class include: 2

• Hedge funds
• Funds of funds
• Managed futures
• Private equity and venture capital
• Real estate

1 There is no assurance that these objectives will be achieved. Diversification does not guarantee a profit or protect against loss.

2 Your financial advisor may provide specific information on current offerings.

Case Study: Leading U.S. Endowments

According to a 1998 report by the National Association of College and University Business Officers (NACUBO), the 31 university endowments in the U.S. managing more than $1 billion allocated an average of 24.5% of their portfolios to alternative asset classes at that time. By 2011, that percentage had steadily grown to 60% for the 73 endowments managing more than $1 billion, as illustrated in the chart below.

[Attached is the image (same name and size as the current one)]

As reflected in the chart, endowments have used a variety of alternative investment strategies focused on the potential benefits of better managing portfolio risk and enhancing long-term returns. It must be noted that endowments generally enjoy longer time horizons than do most individual investors, allowing for a greater consideration of less-liquid investment strategies. Individual investors are not afforded such Flexibility, and accordingly would not typically consider such a high concentration in alternative investments.

1 Information derived from the 2011 NACUBO-Commonfund Study of Endowments (NCSE) is based on the fiscal year ending June 30, 2011. NCSE categorizes alternative investments into the following categories: private equity (LBOs, mezzanine, M&A funds and international private equity); marketable alternative strategies (hedge funds, absolute return, market neutral, long/short, 130/30, and event-driven and derivatives); venture capital; private equity real estate (noncampus); energy and natural resources (oil, gas, timber, commodities and managed futures); and distressed debt. In the above chart, marketable alternative strategies and distressed debt are combined and reflected as Hedge Funds, venture capital and private equity are combined and reflected as Private Equity, and Real Estate consists of private equity real estate. Past performance is not indicative of future results. Performance is not inclusive of fees which would reduce an investor’s return.

The Raymond James Alternative Investment Group:

Providing Investment Opportunities Designed for Investors with Substantial Assets

The Raymond James Alternative Investments Group is a team of professionals who carefully review and select what they believe are high-quality, nontraditional investments to serve the more extensive financial needs of higher-net-worth clients. By providing thorough due diligence and ongoing monitoring of products within a variety of asset classes, the group assists financial advisors in determining the most appropriate alternative strategies to enhance qualified investors asset allocations and add value to their portfolios.

Using a combination of quantitative and qualitative analysis in researching and selecting managers, the Alternative Investments Group evaluates characteristics such as:

• Manager background and experience
• Manager tenure in the specific investment style
• Manager historical performance and volatility
• Historical correlation of manager performance to traditional benchmarks
• Performance during difficult markets
• Risk management policies and techniques
• Manager policies toward use of leverage and other speculative strategies

Selecting appropriate alternative investments is dependent on thorough evaluation and ongoing monitoring of managers. Your financial advisors relationship with Raymond James and access to the professionals within the Alternative Investments Group provides the necessary resources to address this challenge.

A Team Approach to Meeting Your Investment Needs

Your relationship with your Raymond James financial advisor presents a rare opportunity to work with someone who provides personalized attention and truly understands your goals, while offering the resources and support of a multinational financial services firm, including the expertise offered by the Alternative Investments Group. By partnering with your financial advisor, the group can create customized solutions to suit the specialized needs that are related to managing substantial assets, helping you reach your overall financial goals.

Since alternative investments may not be suitable for all investors, it is critical that you and your financial advisor work together to determine what investments may be right for you. Factors you should discuss with your financial advisor when evaluating alternative investments for your portfolio include:

• Your current asset allocation and the size of your portfolio
• Your time horizon and risk tolerance
• Liquidity needs in your portfolio
• Willingness to accept risk associated with more speculative strategies
• Tax considerations

This page is intended for informational purposes only, does not constitute investment advice, or a recommendation, or an offer or solicitation, and is not the basis for any contract to purchase or sell any security or investment product. While information herein has been obtained from sources considered to be reliable, Raymond James does not guarantee its accuracy or completeness. Please review any offering materials or the prospectus carefully, and consult with your tax advisor or accountant prior to investing. Alternative investments involve specific risks that may be greater than those associated with traditional investments and may be offered only to clients who meet specific suitability requirements, including minimum net worth tests. You should consider the special risks with alternative investments including limited liquidity, tax considerations, incentive fee structures, potentially speculative investment strategies, and different regulatory and reporting requirements. You should only invest in hedge funds, managed futures or other similar strategies if you do not require a liquid investment and can bear the risk of substantial losses. There can be no assurance that any investment will meet its performance objectives or that substantial losses will be avoided.