QS Investors Diversification Based Investing Whitepaper - FTSE

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3 | Performance analysis In this section, we detail how FTSE DBI Indices performed for the 10-year period ending December 31, 2010. Performance and performance patterns The FTSE DBI indices have outperformed their respective capitalization weighted indexes by an average of over 3% per annum. FTSE DBI Page 12 PERFORMANCE INFORMATION RATIO 12M (%) 3YR (%pa) 5YR (%pa) 10YR (%pa) 10YR IR FTSE DBI Developed Index 10.97 -5.12 5.67 6.52 0.80 FTSE Developed Index 12.28 -4.13 3.29 3.02 FTSE DBI Developed ex Japan Index 8.28 -4.69 6.87 6.75 0.81 FTSE Developed ex Japan Index 11.98 -4.09 3.97 3.23 FTSE DBI Developed ex US Index 11.48 -1.07 8.46 8.43 1.36 FTSE Developed ex US Index 9.85 -5.53 4.08 4.83 As of December 31, 2010 *Based on monthly annualized total returns. SOURCE: FTSE Group Historical outperformance in both up and down markets On average the FTSE DBI indices have outperformed their respective market capitalization benchmarks whether the market moved up or down. Figure 11 shows that each of the indices captured more positive stock movements than its benchmark, and declined less during the benchmark’s negative movements. Because of this, DBI’s diversification based approach has offered downside protection during Figure 11: Up market / Down market capture Up Market/Down Market Capture* Market participation FTSE DBI Developed 112.0% Up Market Capture 87.3% Down Market Capture Source: Zephyr StyleAdvisor based on quarterly returns for the 10 year period ending December 31, 2010. *Past performance is not a guarantee of future results. Performance is shown gross of fees and does not reflect investment advisory or other fees. Had such fees been deducted, returns would have been lower. falling markets. Falling markets are often driven by a segment of the market, or risk theme that has risen to be a large percentage of the index only to fall dramatically when investors realize that the rise was not justified. Examples would include Technology Stocks in the late 1990s and cyclical stocks such as Financials and Industrials in 2005-2007 period. FTSE DBI Developed Ex-US FTSE DBI Developed Ex-Japan 108.4% Up Market Capture 86.5% Down Market Capture 119.2% Up Market Capture 96.7% Down Market Capture
Low correlation of excess returns to the benchmark and alternatively weighted equity index strategies Because DBI uses a differentiated top-down, diversification based portfolio construction process, the strategy has shown low correlation of excess returns to both its market capitalization benchmarks and alternative weighted equity index approaches that focus on stock selection. This makes DBI a good portfolio diversifier as the excess return complements market capitalization indices and stock selection alternatively weighted index strategies. Figure 12 illustrates the correlation of the excess return of the FTSE DBI Figure 12: Low correlation of excess returns to other indexes 1 0 -1 Visa IPO on 19/03/2008 Data as of December 31, 2010 Start dates: FTSE Developed Index-1/2001; FTSE RAFI Developed 1000 Index -4/2007; FTSE EDHEC Risk Efficient Developed Index - 1/2003 *Past performance is not a guarantee of future results. Performance is shown gross of fees and does not reflect investment advisory or other fees. Had such fees been deducted, returns would have been lower. Source: FTSE Group, QS Investors analysis for longest available time frame. FTSE DBI Page 13 0.04 FTSE Developed Index Developed to the excess return of the FTSE RAFI Developed 1000 Index, the FTSE EDHEC Risk Efficient Developed Index and to the FTSE Developed Index from inception through December 31, 2010. As can be seen, the correlation of the excess return generated by the DBI process has a low correlation to the market capitalization index, the FTSE EDHEC Risk Efficient Developed Index and a negative correlation to the FTSE RAFI Developed 1000 Index. -0.13 FTSE RAFI Developed 1000 Index 0.04 FTSE EDHEC Risk Efficient Developed Index
Page 1: W H I T E P A P E R FTSE DBI (Diver
Page 4 and 5: 1 | Rationale and philosophy DBI is
Page 6 and 7: The increased weight reflected a st
Page 8 and 9: 2 | The DBI investment process DBI
Page 10 and 11: Step 3 | Weight The objective is to
Page 14 and 15: 4 | Risk exposures Active risk expo

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