We Have Your Hedge, Mr. Price”

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Brandywine Asset Management commentary for the month of August 2017, titled, “We Have Your Hedge, Mr. Price.”

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A recent article in Institutional Investor magazine highlighted the changes made to the Contra Costa County Employees'
Retirement Association by its CIO, Timothy Price. The article points out how the $7.7 billion fund breaks out its investment
portfolio into three categories, each designed to serve one function well.

The first is the liquidity allocation. This portion of the fund is tasked with the ability to pay out four years of benefits at near-zero volatility.

To satisfy the requirement this portion of the fund is invested in fixed-income securities.

The second portion of the fund is designed to grow the assets to ensure its ability to pay out future pensions. Equity positions make up the bulk of this allocation.

But it is the third “diversifying” portion of the portfolio that interests us the most. Mr. Price states the ideal requirements of this allocation as follows:

“A: low to negative correlation to the broad equity markets.

B: Extremely high liquidity during periods of equity market stress.

C: Positive carry during ‘normal’ periods.”

He sums it up with this statement, “If we could find a single asset class that delivers all three of those, that would be perfect. If it exists, we haven’t found it yet.”

Consider it found...

What Mr. Price describes — quite accurately — is an allocation to a Return Driver based managed futures program.

Brandywine’s investment programs exactly fit the requirements specified by Mr. Price. The table and chart to the upper right illustrate Brandywine’s “low to negative correlation to the broad equity markets,” and show how Brandywine has profited when stocks fell. And the futures markets traded by Brandywine exhibit “extremely high liquidity during periods of equity market stress. Brandywine’s positions generally total just a fraction of 1% of the daily volume traded during stress events. But the ’kicker’ is that these benefits are provided with positive carry. You get paid to hedge with Brandywine. As the table to the left shows, Investing in the Brandywine Investment Programs over the past six years produced a positive return not just during equity market selloffs, but also during “normal’ periods.

As always, we encourage you to contact us by calling or emailing us at our address listed in this report’s header.

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Additional Reasons to Invest Now With Brandywine

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(Non) Correlation (highlighted in table at right) of Brandywine’s Investment Programs to Other Investment Indexes3

It is this non-correlation - combined with Brandywine’s repeatable investment process and broad strategy and market diversification - that makes Brandywine such a positive addition to most investment portfolios.

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Descriptions of the Brandywine Investment Programs(1)

Brandywine trades pursuant to a fully-systematic model that incorporates a wide range of both fundamental and technical trading strategies. Brandywine’s Symphony Program began trading in July 2011 and the performance of the other programs is extracted from the actual performance of trades executed within the Brandywine Symphony Program. “Brandywine CPU” is the composite performance that could have been achieved by allocating across all four Brandywine programs.

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Monthly Performances of Brandywine’s Investment Programs1,4

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