Shenkman Website
Positioning for Rising Rates?
Presentation
Top 3 Reasons
Fact Card
Resources
1, 2
Dividend-paying stocks declined, on average, roughly 10% less than non-dividend payers in bear markets (-12.8% vs -22.9%) from 1/31/1973 - 1/31/2023.
1
Dividends represented 100% of the S&P 500’s 2011 total return.
1
The 2000s (12/31/1999-12/31/2009) encompassed the bursting of the “technology-media-telecom” bubble as well as the beginning of the financial crisis. During this period, the index’s income return was positive, while its price and total return were both negative.
1
During the 1930s, which included the Great Depression, dividends represented 1,693% of the S&P 500’s total return.
1972 - 2018
2011
2000s
1930s
Historically, dividends have provided a cushion against volatility and market downturns with dividend-paying stocks tending to weather ups and downs better than non-dividend-payers.
Dividends can provide
a cushion during
market declines
2
Dividend-paying stocks averaged 2.1% higher return per year than non-dividend payers during bull markets.
Higher Yearly
%
2.1
1
The S&P 500’s annualized
return with dividends
reinvested – compared to
5.8% without dividends
Annual return
%
9.7
1
Amount of the S&P 500
Index’s total returns
driven by dividends
%
40.6
Dividend payments can provide a strong foundation for a stock’s total return, through bull and bear markets. Dividend payments have been crucial to the S&P 500’s total return:
Power of Compounding Interest
This highly repeatable process has been in place for over 30 years. The relative stability of the Fund’s net asset value illustrates Shenkman’s success at achieving these goals since the Fund’s inception.
aCHIEVEMENTS
The ability to pay a dividend is an important indicator to investors that the company has
a proven and sustainable business model.
RISK MANAGEMENT
Direct communication with company management.
ACCESS
Rigorous in-depth credit and liquidity analysis.
ANALYSIS
Shenkman focuses first and foremost on capital preservation and avoiding defaults, which they believe are the two key drivers of success in short duration high yield.
How does Shenkman seek to avoid defaults? They don’t rely on the ratings agencies, instead choosing to conduct their own rigorous analysis utilizing a consistent proprietary credit scoring process they call C.Scope®. The process is rules-based, extremely structured and detailed, and incorporates:
Preservation of Capital is Primary Focus
Potential Risk Reduction
Power of Compounding Interest
Preservation of Capital is Primary Focus
How do investors uncover the next companies that will revolutionize an industry or transform a society?
Some of the biggest transformations are likely to result from technologies that today seem unthinkable. But with innovative companies entering the market at rapid paces…
identifying transformative technologies
See why
Transformers
ETF
SHENKMAN
TICKER SYMBOLS CLASS F: SCFFX / CLASS A: SCFAX / CLASS C: SCFCX / CLASS I: SCFIX
1973 - 1/31/2023
30
Preservation of Capital is Primary Focus
What is a bond ladder?
TAX-EXEMPT INCOME
Inflation:
Remains Above the Trend
In short, we expect inflation could remain
above-trend, possibly still as high as 4.5%+/- by
year-end 2023. Why is that? Simply put, the Fed can only destroy demand, it can’t solve some of the more pernicious drivers of inflation. For example, the Fed cannot drill for oil, grow food, increase supply chains, or stop deglobalization. Wages are another challenge that could lead to sticky inflation with gains north of 5% and broadening across many industries as the labor shortage could be very difficult to overcome given growing unionization, job hoarding, long-COVID, early retirees and aging demographics.
Importantly, history also shows that once inflation gets going, even if it is declining, it can remain above-trend for years (four years on average).
Source: Federal Reserve Economic Data (FRED), Haver Analytics, CEA Calculation
6 Episodes of Post-WWII Inflation
% change year over year
Click to Close
33.0
3.5
Germany
21.0
2.2
Japan
14.6
1.4
France
14.5
1.5
United Kingdom
12.1
4.9
United States
11.8
2.8
Canada
10.0
1.2
India
8.6
2.9
South Africa
5.5
0.6
Brazil
COVID-19 crisis
2008 financial crisis
2
Interest Rates
Move Higher
Enhanced Bond Ladder
Project Sales
Growth
Recession:
Likely in 2023
Not all R&D spending is equal. Spending that can translate to sales is of primary importance. Many companies may be spending toward these initiatives but may not have developed the superior product or become an industry leader. Since it is difficult to predict which companies possess transformative power, TRFM uses an additional screen filter for projected sales growth for more clarity in identifying companies entering the monetization phase of their innovations. The strategy tailors its sales growth criteria for each company according to its industry classifications. This approach allows TRFM to identify growth companies specific to its industry and market caps, as opposed to utilizing broad, across-the-board growth requirements. The end result is the potential to gain exposure to companies prior to or during their strongest periods of growth.
The Role of R&D
in Spending
Projected Sales
Growth
GICS Sub-Industry
Classification
The first step in screening for companies to include in the portfolio involves taking a granular approach to traditional sector exposures. The strategy refines conventional Global Industry Standard Classification Standards (GICS) sectors by drilling down to a select list of sub-industry classifications to identify companies that challenge traditional business models, revolutionize industries, and have potential for substantial growth. This allows TRFM to invest in promising companies leading the advancements in areas such as robotics, cloud computing, artificial intelligence, autonomous vehicles, and cyber security.
aCHIEVEMENTS
Preservation of Capital is Primary Focus
Shenkman focuses first and foremost on capital preservation and avoiding defaults, which they believe are the two key drivers of success in short duration high yield.
How does Shenkman seek to avoid defaults? They don’t rely on the ratings agencies, instead choosing to conduct their own rigorous analysis utilizing a consistent proprietary credit scoring process they call C.Scope®. The process is rules-based, extremely structured and detailed, and incorporates:
ANALYSIS
Rigorous in-depth credit and liquidity analysis.
ACCESS
Direct communication with company management.
RISK MANAGEMENT
The ability to pay a dividend is an important indicator to investors that the company has
a proven and sustainable business model.
aCHIEVEMENTS
30
This highly repeatable process has been in place for over 30 years. The relative stability of the Fund’s net asset value illustrates Shenkman’s success at achieving these goals since the Fund’s inception.
Factors Considered in the Selection Process Include:
Preservation of Capital is Primary Focus
GICS Sub-Industry
Classification
The Role of R&D
in Spending
Studies indicate that a company’s innovative capacity has been largely driven by their investment in R&D expenditures. R&D spending, a key performance indicator, is critical for businesses looking to increase their ability to invent or deliver technological innovations, particularly in today’s dynamically changing, competitive environment. In fact, global spending on the digital transformation (DX) of business practices, products, and organizations is expected to grow at a five-year compound annual growth rate (CAGR) of 16.6% over the five-year period ending through 2025. By analyzing various factors such as growth of R&D spending as a percentage of sales, TRFM targets a portfolio of companies that are increasingly investing to be the leaders of the future development of transformative technologies
Shenkman focuses first and foremost on capital preservation and avoiding defaults, which in the firm’s opinion are the two key drivers of success in short duration high yield.
PHILOSOPHY
PRESENCE
Direct communication with company management.
DEPTH OF RESEARCH TEAM
The ability to pay a dividend is an important indicator to investors that the company has
a proven and sustainable business model.
RISK MANAGEMENT
30
This highly repeatable process has been in place for over 30 years. The relative stability of the Fund’s net asset value illustrates Shenkman’s success at achieving these goals since the Fund’s inception.
Highlights of the Fund's Investment Approach
Transform Your Portfolio With
TRFM
2/4
3/4
4/4
As innovation can come from select aspects of our economy, investors require more precise tools to unlock future growth opportunities. TRFM offers a focused and specific approach in its selection process in seeking to uncover the most promising, transformative companies.
Shenkman combines the potential advantages of a $30.5 billion high yield platform with the nimbleness of a
$7.8 billion short duration strategy.
PRESENCE
Shenkman’s 21-member credit research team is organized by sector with each analyst responsible for the entire capital structure and maturity spectrum.
depth of
research team
Innovative credit risk analytics that can help to outperform in difficult and uncertain markets.
risk management
Shenkman capital
TRFM
Advisors Asset Management
Embrace the Power of Disruptive
INNOVATION
Select indices may be structurally-biased toward the most indebted issuers
Market-weighted allocations often lead to concentrated portfolios
Passively managed fixed income funds may be prone to forced selling
Select indices may be structurally-biased toward the most indebted issuers
Market-cap weighted indices, by definition, grant the largest index weights to the issuers and sectors with the most debt outstanding.
Earnings power
Regular dividends that follow a defined payout ratio are a
useful proxy for management’s confidence in the business.
Earnings Quality
The ability to pay cash from reported earnings points to the inherent quality of those earnings.
Business Stability
The ability to pay a dividend is an important indicator to investors that the company has
a proven and sustainable business model.
Financial Strength
Dividends are a powerful tool
in communicating financial health to the capital markets.
Market-weighted allocations often lead to concentrated portfolios
Dividend payments can provide a strong foundation for a stock’s total return, through bull and bear markets. Dividend payments have been crucial to the S&P 500’s total return:
42.0
%
Amount of the S&P 500
Index’s total returns
driven by dividends
1
9.7
%
Annual return
The S&P 500’s annualized
return with dividends
reinvested – compared to
5.6% without dividends
1
3
%
Higher Yearly
Dividend-paying stocks averaged an almost 3%
higher return per year than
non-dividend payers during
bull markets.
2
Passively managed fixed income funds may be prone to forced selling
Historically, dividends have provided a cushion against volatility and market downturns with dividend-paying stocks tending to weather ups and downs better than non-dividend-payers.
1930s
2000s
2011
1972 - 2018
During the 1930s, which included the Great Depression, dividends represented 1,693% of the S&P 500’s total return.
1
The 2000s (12/31/1999-12/31/2009) encompassed the bursting of the “technology-media-telecom” bubble as well as the beginning of the financial crisis. During this period, the index’s income return was positive, while its price and total return were both negative.
1
Dividends represented 100% of the S&P 500’s 2011 total return.
1
Dividend-paying stocks declined, on average, about half as much as
non-dividend payers in bear markets from 1/31/1972-3/31/2018.
1, 2
Disruptive
Evolving
Growing
Disruptive
Evolving
Growing
Disruptive companies are those that have the proven ability to develop transformative technologies.
Portfolio companies are specifically screened for spending toward research & development (R&D), a vital factor for a company striving to adapt and innovate for the future.
TRFM screens companies that are expected to sustain stronger sales and capex growth relative to their respective industries.
identifying transformative technologies
TRFM seeks to track the investment results of the Pence Transformers Index. The Pence Transformers Index follows a rules-based methodology that aims to target companies whose products and services show compelling potential to transform consumer behavior, technological innovation, and the global economy.
Top 5 GICS Sub-Industries Projected Sales Requirements
TRFM sPOTLIGHT
FACT CARD
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Contact Us at 866.606.7220
Interested in Finding Out More?
To learn more about how TRFM seeks to leverage the power of disruptive innovation contact your financial professional or visit www.aamlive.com/ETF. If you are a financial professional and need more information, please contact your AAM Representative or complete the form below.
©2024 Advisors Asset Management. Advisors Asset Management, Inc. (AAM) is an SEC-registered investment advisor and member FINRA/SIPC. Registration does not imply a certain level of skill or training. AAM ETFs are distributed by Quasar Distributors, LLC. Quasar and AAM are not affiliated.
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CRN: 2024-0314-11537 R
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The investment objectives, risks, charges and expenses must be considered carefully before investing. Each fund’s statutory and summary prospectuses contains this and other important information about the investment company, and may be obtained by calling 800.617.0004 or visiting www.aamlive.com. Read it carefully before investing.
Risks: Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV) and may trade at a discount or premium to NAV. Shares are not individually redeemable from the Fund and may be only acquired or redeemed from the fund in creation units. Brokerage commissions will reduce returns. Information Technology Sector Risk: Market or economic factors impacting information technology companies and companies that rely heavily on technological advances could have a significant effect on the value of the Fund’s investments. The value of stocks of information technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Stocks of information technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market. Information technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. Market Capitalization Risk: The fund invests in large- and midcapitalization companies. The securities of mid-capitalization companies may be more vulnerable to adverse issuer, market, political, or economic developments than securities of large-capitalization companies. ADR Risk: ADRs involve risks similar to those associated with investments in foreign securities, such as changes in political or economic conditions of other countries and changes in the exchange rates of foreign currencies. Models and Data Risk: The composition of the Index is heavily dependent on proprietary quantitative models as well as information and data supplied by third parties (“Models and Data”). Portfolio Turnover Risk: The Fund may trade all or a significant portion of the securities in its portfolio in connection with each quarterly rebalance and reconstitution of its Index.
Definitions: Pence Transformers Index is a rules-based index that measures the performance of U.S.-listed common equity securities, including American Depositary Receipts (“ADRs”) for foreign securities, of companies poised to benefit from a significant disruption and/or transformation of consumer behavior and technological innovation. Examples of significant disruptions and/or transformation of consumer behavior and technological innovation include, but are not limited to, (i) advancements in autonomous driving capabilities and electric vehicle technology disrupting the automobile manufacturers and trucking sub-industries; (ii) changes in consumer behavior shifting retail sales from brick and mortar businesses to digital channels transforming the internet and digital marketing retail sub-industry; (iii) recent developments in cellular data speeds and improvements in mobile technologies disrupting the interactive media and services sub-industry; and (iv) new technologies that provide carbon offsets for existing business models or the development of greener alternatives to existing energy production transforming the renewable electricity producers sub-industry. The Index is reconstituted quarterly. CAPEX: Capital expenditures (capex) are the investments that companies make to upgrade, grow or maintain their business operations.
As of 12/31/2023
TRFM v. S&P 500 Index: Top 5 Companies by R&D Spending as a Percentage of Net Sales
Source: FactSet | As of 9/30/2024
