Contemporary!

Investment!Management!™!
!!

Introduction!
!
Lindner!Capital!Advisors’!(LCA)!Contemporary!Investment!Portfolios™!are!deeply!rooted!in!academic!research,!analytical!
science!and!practical!experience.!LCA!has!established!specific!guidelines!for!their!investment!decisions!and!established!
meaningful!criteria!to!enhance!the!investor’s!experience.!Clearly!defined!protocols!for!the!maintenance!and!monitoring!
of!the!portfolios!are!intended!to!enhance!the!investor’s!understanding!of!his!or!her!portfolio.!If,!as!an!investor,!you!have!
questions!or!are!concerned!about!your!current!portfolio,!your!portfolio!needs!to!be!reviewed,!perhaps!modified!and/or!
maintained!to!a!more!rigorous!standard.!!!

Table!of!Contents!
!

!
Introduction..............................................................................................................................................................................1!
Table!of!Contents......................................................................................................................................................................1!
An!Introduction!to!Modern!Portfolio!Theory ...........................................................................................................................2!
Modern!Portfolio!Theory .....................................................................................................................................................2!
Risk!and!Return ....................................................................................................................................................................3!
Standard!Deviation!(Risk)!Explained ....................................................................................................................................3!
Systematic!Risk!versus!Non"Systematic!Risk ........................................................................................................................5!
Correlation!(Co"Variance).....................................................................................................................................................6!
Diversification!between!Asset!Classes .................................................................................................................................6!
The!Core/Satellite/Alternative!Approach.............................................................................................................................7!
Contemporary!Investment!Management™ .............................................................................................................................8!
The!Core ...............................................................................................................................................................................8!
The!Satellite..........................................................................................................................................................................9!
The!Alternative.....................................................................................................................................................................9!
Managed!Futures ...............................................................................................................................................................10!
Income!Requirements!or!Scheduled!Near"Term!Withdrawals...............................................................................................10!
Maintaining!Cash!Allocations .................................................................................................................................................11!
Conclusion!and!Recommendations ........................................................................................................................................11!
Addendum ..............................................................................................................................................................................12!
1.!The!Potential!to!Lower!Overall!Risk ...............................................................................................................................12!
2.!An!Opportunity!to!Enhance!Overall!Portfolio!Returns...................................................................................................12!
3.!Broad!Diversification!Opportunities...............................................................................................................................13!
4.!Opportunity!To!Profit!In!A!Variety!Of!Economic!Environments.....................................................................................14!
5.!Limited!Losses!Due!to!a!Combination!Of!Flexibility!And!Discipline................................................................................15!
The!Efficiencies!and!Performance!of!Futures!Markets ......................................................................................................16!
About!the!Firm........................................................................................................................................................................17!
Robert!J.!Lindner!President/CEO ............................................................................................................................................17!
Scott!Wetherington!Senior!Portfolio!Analyst .........................................................................................................................18!
An!Introduction!to!Modern!Portfolio!Theory!
Modern!Portfolio!Theory!
Modern!Portfolio!Theory!(MPT)!was!inspired!in!part!by!Harry!Markowitz!in!his!1952!paper!titled!simply!Portfolio!Selection.!
He!later!earned!the!Nobel!Prize!in!Economics!in!1990!for!this!work,!and!it!is!the!application!of!this!theory!that!the!core!
allocations!of!Lindner!Capital!Advisors!portfolios!have!been!constructed.!The!basic!premise!of!MPT!is!that!investors!can!
reduce!risk!for!given!levels!of!expected!returns!by!creating!properly!diversified!portfolios.!More!importance!is!given!to!
diversification!within!and!between!broad!asset!classes!than!to!the!selection!of!any!individual!security!in!the!portfolio.!The!
goal!is!to!select!and!construct!portfolios!that!lie!on!an!“efficient!frontier”!which!is!defined!as!portfolios!that!have!the!least!
amount!of!risk!for!a!given!level!of!return.!!This!level!of!return!is!illustrated!by!the!green!line!in!the!figure!below.!
!

!
The!points!lying!on!the!green!line!represent!Efficient!Portfolios.!All!points!not!lying!on!the!green!line!are!deemed!non"
efficient!portfolios.!The!total!grey!line!represents!portfolios!with!decreasing!fixed!income!allocations.!For!example,!Point!
D!(the!start!of!the!grey!line)!represents!a!100%!fixed!income!portfolio.!Point!C!represents!an!80%!fixed!income,!a!20%!
equity!portfolio!while!Point!B!represents!a!30%!fixed!income,!a!70%!equity!portfolio!and!so!on.!
!
Point!A!–!A!Non"Efficient!Portfolio.!By!adjusting!the!asset!allocation!an!investor!could!reduce!the!risk!of!this!portfolio!for!
the!same!level!of!return!(Point!C),!or!the!investor!can!adjust!the!asset!allocation!to!increase!the!return!at!the!same!level!
of!risk!(Point!B).!
!
Point!D!–!A!Non"Efficient!Portfolio.!Modern!Portfolio!Theory!has!shown!that!a!100%!fixed!income!portfolio!(Point!D)!
actually!has!more!risk!and!less!expected!return!than!does!a!portfolio!that!is!80%!fixed!income!and!20%!equity!(Point!C).!

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Risk!and!Return!
A!fundamental!concept!of!investing!is!the!relationship!that!exists!between!risk!and!return.!!

A!“risk"free”!rate!of!return!is!normally!quoted!as!the!return!offered!on!Government!Treasury!Bills!(T"Bills!for!short).!While!
there!is!no!risk!of!losing!your!principal,!the!investor!will!earn!a!very!small!rate!of!return.!Nonetheless,!that!small!return!is!
guaranteed.!

However,!if!an!investor!is!willing!to!take!on!risk,!it!would!only!be!rational!to!expect!to!be!compensated!for!that!risk!
through!gaining!a!higher!potential!return!on!his!or!her!investment.!The!greater!the!potential!return,!the!greater!the!risk.!
This!is!a!fundamental!relationship,!and,!it!should!also!be!noted!that!such!a!relationship!is!not!linear!in!nature.!Rather,!for!
every!extra!unit!of!potential!return!one!desires,!one!should!expect!a!disproportionately!greater!amount!of!additional!risk;!
risk!grows!exponentially!with!the!expected!potential!return.!This!relationship!is!presented!in!the!figure!below.!

Standard!Deviation!(Risk)!Explained!
According!to!the!Capital!Asset!Pricing!Model,!the!term!“risk”!can!be!used!interchangeably!with!“standard!deviation”!with!
respect!to!well"diversified!portfolios.!In!other!words,!risk!can!be!a!measure!of!portfolio!volatility.!We!can!see!in!the!above!
figure!that!Standard!Deviation!increases!exponentially!with!Potential!Return,!but!what!does!this!translate!to!in!real!world!
application?!Again,!the!concept!is!best!explained!with!examples.!Let!us!consider!two!different!investment!portfolios.!
Portfolio!A!has!a!potential!return!of!6%!and!a!standard!deviation!of!6%.!!
Portfolio!B!has!a!potential!return!of!8%!and!a!standard!deviation!of!10%.!

Let’s!start!by!examining!Portfolio!A.!The!long"term!expected!rate!of!return!for!this!portfolio!is!6%.!With!a!standard!
deviation!of!6%,!it!is!expected!that!68.3%!of!the!time!the!annual!return!of!the!portfolio!will!be!within!one!standard!
deviation!of!6%,!or!6%!+/"!6%.!This!means!that!roughly!7!years!out!of!every!10!years!the!annual!portfolio!return!will!be!

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between!0%!and!+12%.!Further,!it!is!expected!that!the!portfolio!will!occasionally!have!some!annual!returns!outside!this!
range!and!this!can!be!further!expected!to!lie!within!two!standard!deviations!from!6%!roughly!2!years!out!of!10,!for!a!
range!of!6%!+/"!12%!(two!standard!deviations),!or!in!other!words!between!!"6%!and!18%.!Finally,!there!would!be!some!
very!extreme!cases!where!the!portfolio!would!be!expected!to!have!outlying!data!points,!occurring,!perhaps!once!in!every!
10!years!where!the!portfolio’s!annual!return!would!be!within!3!standard!deviations!from!6%.!This!means,!that!on!
occasion,!the!portfolio!may!have!an!annual!return!that!ranges!between!"12%!and!+24%.!

Range!of!Annual!Returns!and!Expected!Long!"Term!Return!

While!the!standard!deviation!in!the!first!few!years!may!result!in!performance!that!is!dramatically!different!than!the!
expected!long"term!return!of!the!portfolio,!over!time!it!is!expected!to!balance!out!and!revert!to!the!expected!average.!
Portfolio!A!is!represented!as!the!solid!lines!in!the!above!chart:!Solid!green!line!is!the!long!term!expected!rate!of!return,!
and!the!heavy!black!arrows!depict!the!reversion!to!this!average!over!time.!

Portfolio!B,!which!has!a!higher!expected!return!(8%)!and!a!higher!standard!deviation!(10%)!would!be!more!volatile!and!
expected!to!deliver!a!higher!potential!return;!it!should!be!noted!that!this!higher!return!is!not!guaranteed.!For!example,!
referring!again!to!the!above!figure;!while!the!expected!return!line!would!be!higher!by!2!%!(shown!as!the!stippled!green!
line),!the!range!of!ending!values!would!have!a!greater!distance!between!them!(shown!by!the!stippled!arrow!lines).!!

In!summary,!Portfolio!A!with!a!long"term!expected!return!of!6%!and!a!standard!deviation!of!6%!may!perform!as!follows:!

Seven!years!out!of!10!the!annual!return!may!be!between!0%!and!12%!
Two!years!out!of!10!the!annual!return!may!be!between!"6%!and!+18%!
One!year!out!of!10!the!annual!return!may!be!between!"12%!and!+24%!

After!30!years!the!portfolio!may!have!returned!between!5%!and!7%!on!an!annualized!basis.!

If!we!apply!the!same!calculations!to!Portfolio!B!which!has!a!slightly!higher!long!term!expected!rate!of!return!of!8%,!and!a!
much!higher!standard!deviation!of!10%!we!can!see!the!following!possibilities:!

! ! Seven!years!out!of!10!the!annual!return!may!be!between!"2%!and!+18%!
! ! Two!years!out!of!10!the!annual!return!may!be!between!"12%!and!+28%!
! ! One!year!out!of!10!the!annual!return!may!be!between!"22%!and!+38%!

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After!30!years!the!portfolio!may!have!returned!between!6%!and!10%!on!an!annualized!basis.!

In!conclusion,!a!portfolio!with!a!higher!expected!rate!of!return!may!in!fact!return!a!lower!long"term!average!than!a!less!
risky!portfolio.!In!the!above!examples,!it!is!possible!that!Portfolio!A!would!have!returned!7%,!and!it!is!possible!that!
Portfolio!B!would!have!returned!6%.!The!point:!More!risk!does!not!guarantee!higher!returns;!more!risk!offers!the!
potential!of!higher!returns.!
!

Systematic!Risk!versus!Non"Systematic!Risk!
With!respect!to!any!given!securities!market!both!Systematic!Risk!and!Non"Systematic!Risk!will!exist.!

!Systematic!risk!is!the!general!ebb!and!flow!of!the!market!as!a!whole!–!or!the!tendency!for!all!stocks!to!increase!or!
decrease!in!value!at!the!same!time!with!a!certain!degree!of!positive!correlation.!!For!example,!“Black!Monday,”!October!
19,!1987,!was!a!systematic!event!since!almost!all!stocks!fell!in!value!that!day.!!Macro"economic!events!and!stimuli!can!be!
expected!to!have!broad!systematic!effects!on!capital!markets,!positive!or!negative,!on!an!on"going!basis!that!includes!
interest!rate!levels,!political!events,!war,!etc.!It!is!important!to!note!that!systematic!risk!cannot!be!diversified!away.!In!
other!words,!you!may!have!a!portfolio!that!is!diversified!to!include!1000!different!stocks!from!a!given!market,!but!there!
will!always!be!a!base!level!of!return!variance!(shown!as!the!asymptote1 !in!the!figure!below).!

Non"Systematic!risk!is!the!element!of!price!risk!that!can!be!largely!eliminated!through!sufficient!diversification!within!a!
particular!asset!class.!The!best!way!to!describe!this!concept!is!to!use!an!analogy.!Let!us!assume!you!owned!just!one!stock;!
if!that!company!goes!bankrupt!you!will!lose!100%!of!your!portfolio.!If!you!owned!one!hundred!different!stocks,!and!one!
company!went!bankrupt,!you!would!lose!just!1%!of!your!portfolio.!Conversely,!what!if!that!one!company!doubled!in!
value?!You!either!doubled!your!money,!or!only!gained!1%,!if!you!held!one!stock!or!100!stocks.!!Non"Systematic!risk!is!the!
individual!business!risk!associated!with!an!underlying!stock;!if!that!company!goes!bankrupt,!it!is!a!non"systematic!risk!
event!and!generally!has!very!little!to!do!with!the!general!ebb!and!flow!of!the!markets!overall.!

!!!!!!!!!!!!!!!!!!!!!!!!!!Non"Systematic!Risk!Decreases!as!the!Number!of!Securities!in!a!Portfolio!Increases!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1
!A!line!to!which!a!curve!draws!increasingly!near!without!ever!meeting!it.!
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Often!debated;!How!many!securities!does!one!need!to!hold!to!eliminate!non"systematic!risk?!!Research!has!shown!that!
between!thirty!and!forty!different!securities!are!enough!to!eliminate!non"systematic!risk. 2!

A!rational!investor!would!be!expected!to!take!measures!to!eliminate!non"systematic!risk!from!a!portfolio!by!increasing!
the!number!of!holdings!within!each!distinct!asset!class,!a!task!that!is!easily!accomplished!through!the!asset!class!indexing!
of!products!that!may!routinely!hold!hundreds!of!asset!class!constituents.!

Correlation!(Co"Variance)!
Correlation!is!a!measure!of!the!strength!and!direction!of!relationships!between!random!variables.!Two!variables!will!
exhibit!strong!correlation!if!they!both!tend!to!move!in!the!same!direction!(either!positive!or!negative)!with!similar!
magnitudes!or!degrees!of!movement.!Two!variables!will!exhibit!a!strong!negative!correlation!if!they!move!in!opposite!
directions!with!similar!magnitudes!of!movement.!

Ideally,!the!goal!for!long"term!investors!is!to!find!securities!that!have!high!expected!long"term!rates!of!return!and!do!not!
correlate!strongly!with!each!other.!We!illustrate!this!principle!using!an!example!of!two!separate!hypothetical!stocks!as!
depicted!in!the!chart!below.!One!can!see!that!both!Sample!Stock!1!and!Sample!Stock!2!are!trending!positively!over!time,!
but!with!different!patterns!of!return.!By!combining!both!stocks!in!a!portfolio,!we!see!that!the!return!variance!of!the!
combined!portfolio!is!less!than!the!return!variance!for!either!of!the!individual!stocks,!while!the!long"term!rate!of!return!
has!not!been!compromised.!

Combining!Securities!with!Weak!or!Negative!Correlation!Reduces!the!Return!Variance!

!
!
Diversification!between!Asset!Classes!
The!advantages!of!diversification!between!asset!classes!are!similar!to!the!advantages!of!diversification!between!stocks.!
The!figure!on!the!next!page!shows!the!annual!performance!(in!percentage)!of!various!different!asset!classes,!each!
depicted!by!a!grey!line!(the!asset!classes!are!explained!in!the!figure!legend).!The!single!green"colored!line!represents!a!
weighted!average!of!all!the!asset!classes!combined!together!in!one!portfolio,!with!a!simple!annual!rebalancing!schedule.!
Note!how!smooth!the!green!line!appears,!which!reflects!a!reduction!in!return!variance!compared!to!the!multiple!grey!
lines.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2
!M.!Statman,!"How!Many!Stocks!Make!a!Diversified!Portfolio?"!Journal!of!Financial!and!Quantitative!Analysis!22!
(September!1987),!pp.!353"64.!
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 !

Diversification!Across!Asset!Classes!Reduces!Portfolio!Return!Variance!(Risk)!

!
!

The!Core/Satellite/Alternative!Approach!
In!today’s!complex!investing!environment,!traditional!portfolios!may!not!meet!the!needs!of!most!investors.!Traditional!
stock!and!bond!only!portfolios!do!not!incorporate!the!wider!range!of!investment!choices!necessary!to!build!a!successful!
portfolio!that!will!maximize!returns!and!minimize!risk.!!!As!an!extension!to!Modern!Portfolio!Theory,!Lindner!Capital!
Advisors’!Contemporary!Investment!Management™!!uses!a!strategic!foundation!of!three!portfolio!components:!Core,!
Satellite,!and!Alternative,!which,!when!combined,!may!maximize!portfolio!returns!and!reduce!downside!risk.!
!

Lindner!Capital!Advisors!portfolios!use!a!“core"satellite”!approach.!The!main!premise!of!this!approach!is!that!relative!
performance!can!be!increased!and!costs!can!be!dramatically!reduced!by!employing!a!passively!managed!core!portfolio!to!
gain!exposure!to!the!market!and!also!temper!the!overall!risk!and!volatility!of!the!portfolio!with!a!risk"reduction!strategy!in!
a!satellite!portfolio!(that!works!in!tandem!with!the!core!portfolio).!Furthermore,!incorporating!diversified!alternative!
investment!mandates!can!increase!actual!risk"adjusted!returns.!

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Contemporary!Investment!Management™!
!

Comparison!of!Stocks!Only!versus!a!Diversified!Portfolio!

Considerable!empirical!data!provides!evidence!that!neither!the!average!investor!nor!the!average!professional!money!
manager!can!outperform!the!markets!over!long!periods!of!time!as!documented!by!Burton!Malkiel!in!his!book,!A!Random!
Walk!Down!Wall!Street 3 ,!and!espoused!similarly!by!John!C.!Bogle 4 ,!the!founder!of!The!Vanguard!Group.!The!factors!for!
this!average!underperformance!can!be!attributed!to:!1)!General!underperformance!of!actively!managed!mutual!funds,!2)!
High!relative!fees!of!actively!managed!products,!and!3)!Investor!behavior!and!lack!of!investment!decision!protocols.!
Support!for!the!effect!of!a!lack!of!investor!discipline!and!investment!protocol!is!provided!by!the!Quantitative!Analysis!of!
Investor!Behavior!report!released!by!DALBAR.!It!noted!in!that!report!that!from!the!period!of!January,!1984,!to!December,!
2002,!the!S&P!500!Index!averaged!a!return!of!12.22%!while!the!average!American!mutual!fund!investor!experienced!a!
return!of!only!2.57%5 .!!This!finding!represents!a!general!underperformance!of!9.65%.!It!should!also!be!noted!that!other!
reports!have!estimated!that!such!underperformance!is!closer!to!5%.!Nonetheless,!all!reports!attribute!these!findings!to!
the!performance"chasing!nature!of!the!average!investor!who!is!prone!to!picking!investments!based!primarily!on!recent!
performance!as!opposed!to!implementing!a!clear!set!of!investment!protocols!provided!by!an!Investment!Policy!Statement!
(“IPS”).!!

The!Core!
The!Core!allocation!of!a!portfolio!can!represent!between!60%!and!100%!of!the!overall!portfolio.!The!Core!of!the!portfolio!
is!constructed!using!lower!cost,!indexation!products.!Performance!of!the!underlying!benchmark!indices!has!been!shown!
to!consistently!outperform!the!vast!majority!of!actively!managed!portfolios.!Where!the!investor,!in!tandem!with!an!
advisor,!has!expressed!an!interest!in!active!risk"reduction!strategies,!the!Core!allocation!can!be!reduced!as!necessary!to!
facilitate!a!larger!Satellite/Alternative!allocation.!!!

The!Core!Portfolio!Allocation!should!be!constructed!to!provide!broad!market!exposure!with!a!volatility!and!risk!similar!to!
the!overall!market.!The!Core!Portfolio!should!reflect!the!investor’s!goals!which!then!dictate!the!weightings!among!US!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
3
!Burton!G.!Malkiel,!A!Random!Walk!Down!Wall!Street,!W.!W.!Norton,!1996,!ISBN!0"393"03888"2!
4
!John!Bogle,!Bogle!on!Mutual!Funds:!New!Perspectives!for!the!Intelligent!Investor,!Dell,!1994,!ISBN!0"440"50682"4!
5
!DALBAR!Inc.,!Quantitative!Analysis!of!Investor!Behavior,!2003!
! 8
Equities,!Fixed!Income,!and!International!or!Emerging!Markets.!The!Core!portfolio!should!be!broadly!diversified!with!
passive!investments!that!are!low!cost.!Actively!managed!funds!can!be!included!in!the!Core!portfolio!as!long!as!each!fund!
has!a!small!tracking!error!relative!to!the!market!it!is!replicating.!

The!Satellite!!
The!Satellite!portion!of!the!portfolio!is!designed!to!use!risk"reduction!strategies!for!those!investors!who!are!looking!to!
reduce!overall!portfolio!volatility!during!prolonged,!turbulent!markets.!These!active!risk"reduction!strategies!can!take!the!
form!of!using!specialized!narrowly!defined!asset!class!managers.!!It!is!not!necessary!to!have!a!Satellite/Alternative!
allocation!in!a!portfolio.!The!criteria!for!investments!to!include!in!the!Satellite/Alternative!allocation!of!a!portfolio!should!
be!clearly!detailed!in!your!custom!Investment!Policy!Statement.!

The!Satellite!Allocation!seeks!to!increase!the!overall!return!potential!of!a!portfolio!while!maintaining!a!favorable!risk!and!
return!profile!with!Core!investments.!The!Satellite!Allocation!should!be!the!Alpha!portion!of!the!portfolio!and!
complement!the!Core!portfolio.!This!Satellite/Alpha!portion!should!add!incremental!return!without!a!corresponding!
increase!in!risk.!The!investment!types!and!asset!classes!included!in!a!Satellite!portfolio!may!include!opportunistic!and!
manager!skill!based!strategies.!Examples!include!funds!that!have!unconstrained!strategies!and!are!capable!of!investing!in!
all!styles,!market!caps,!and!geographies.!!

The!Alternative!
!The!Alternative!portfolio!is!designed!to!diversify!an!overall!portfolio!further!and!to!lower!the!correlation!with!the!Core!
and!Satellite!portion!of!the!portfolio.!These!investments!include!non"traditional!asset!types!such!as!hedge!funds,!
managed!futures,!and!private!equity.!Many!such!alternative!investments!have!high!minimum!investments,!complicated!
fee!structures,!and!a!relative!lack!of!liquidity.!!Because!of!their!complex!structure!and!liquidity!constraints,!most!investors!
will!choose!to!have!only!a!small!portion!(10"25%)!of!their!portfolio!allocated!to!Alternatives.!

Average!investors!may!have!found!the!process!of!investing!in!Managed!Futures!or!similar!alternatives!either!too!costly!or!
too!time!consuming.!!The!powers!these!financial!products!wield!in!the!financial!universe!are!best!applied!by!professional!
advisers!who!grasp!the!concept!of!risk"adjusted!returns!and!properly!correlated!assets!with!a!portfolio.!!The!investor!who!
participates!in!a!professionally!Managed!Futures!program!is!likely!to!participate!for!years.!!
!!
The!Alternative!Allocation!seeks!to!have!a!low!correlation!with!Core!and!Satellite/Alpha!portfolios!while!producing!
favorable!returns!regardless!of!market!direction.!!There!are,!generally,!five!classifications!of!alternatives,!each!offering!
different!correlations,!risk!metrics,!liquidity,!and!fee!structures.!!They!can!include!the!following:!

Hedge!Funds:!Strategies!include!Long/Short,!Market!Neutral,!Global!Macro!or!Absolute!Return!Strategies.!

Private!Equity:!Strategies!include!leverage!buyouts,!venture!capital,!distressed!investments,!and!mezzanine!
capital.!

Real!Estate:!Direct!investment!in!land,!apartments,!warehouses,!and!office!buildings.!

Commodities:!Investments!in!metals,!energy,!and!agriculture.!

Managed!Futures:!Investments!in!futures!and!derivatives!in!over!150!markets!including!commodities,!interest!
rates!and!stock!indices.!

! 9
Managed!Futures!
Managed!futures!have!been!used!by!investment!professionals!for!over!30!years.!!Trusts,!endowments,!public!and!
corporate!pension!funds!and!banks!have!implemented!managed!futures!as!a!way!to!control!portfolio!risk.!!By!their!very!
nature,!managed!futures!provide!a!diversified!investment!opportunity.!Trading!advisors!can!participate!in!more!than!150!
global!markets,!from!grains!and!gold!to!currencies!and!stock!indices.!Many!funds!further!diversify!these!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
investment!instruments!by!using!several!trading!advisors!with!different!trading!approaches.!These!strategies!can!be!
either!short"term!or!long"term,!and!either!discretionary!or!systematic.!

The!benefits!of!having!managed!futures!within!a!well"balanced!portfolio!include:!

1. Potential!to!lower!overall!portfolio!risk;!
2. Opportunity!to!enhance!overall!portfolio!returns;!
3. Broad!diversification!opportunities;!
4. Opportunity!to!profit!in!a!variety!of!economic!environments;!
5. Limited!losses!due!to!a!combination!of!flexibility!and!discipline.!
!
Detailed!explanations!of!these!benefits!are!provided!by!the!CME!Group:!a!CME"Chicago!Board!of!Trade"NYMEX!Company!(with!permission)!in!the!
Addendum!
!

“ Portfolios . . . including judicious investments . . . in leveraged

managed futures accounts show substantially less risk at every possible
level of expected return than portfolios of stocks (or stocks and bonds)
alone.”
Dr. John Lintner
Harvard University
!

Income!Requirements!or!Scheduled!Near"Term!
Withdrawals!
If!there!is!a!requirement!of!income!from!a!portfolio!beyond!interest!and/or!dividend!income!provided!by!the!nascent!
Core/Satellite!portfolio,!a!portion!of!the!overall!portfolio!that!is!required!for!this!additional!income!(or!any!portion!of!the!
portfolio!that!is!expected!to!be!withdrawn!within!three!years)!should!be!allocated!to!Cash!and!Cash!Equivalents,!or!
guaranteed!Government!Bonds!and!like!securities!ONLY.!

Further,!it!is!recommended!that!this!portion!of!the!portfolio!be!segregated!from!the!investment!and!asset!allocation!
guidelines!provided!elsewhere!in!your!custom!IPS!so!as!to!not!violate!the!fundamental!principles!of!the!IPS!for!longer!
term!assets!based!on!the!following!methodology:!

Any!portion!of!the!portfolio!required!within!3!years!which!is!to!be!placed!in!the!appropriate!Near!Term!
investments!shall!be!deducted!from!the!overall!portfolio’s!value.!The!remaining!portfolio!value!shall!be!
allocated!according!to!the!original!Core/Satellite!allocations.!

For!example,!if!the!portfolio!is!$475,000!with!a!50%!Core!/!20%!Satellite!/!20%!Alternative!Allocation!/!10%!
Cash!and!there!is!a!near!term!requirement!of!$50,000,!then!the!Core!/!Satellite!/!Alternative!/!Cash!
allocations!should!be!applied!to!only!$425,000!($475,000!"!$50,000),!with!the!$50,000!required!for!income!
! 10
 or!for!near!term!withdrawals!invested!in!Cash,!Cash!Equivalents!and/or!Guaranteed!Government!Bonds!or!
like!securities.!

Maintaining!Cash!Allocations!
The!general!rule!of!thumb!with!respect!to!investing!is!that!an!investor!should!endeavor!to!“buy!low,!and!
sell!high”.!The!calendar!years!2008!and!2009!have!shown!that!at!times,!many!asset!classes!tend!to!
correlate!highly!in!a!systematic!bear!market.!Therefore,!if!one!were!to!attempt!to!“buy!low”,!the!ability!to!
do!so!would!depend!solely!on!the!availability!of!cash!at!the!investor’s!disposal.!The!alternative!would!be!
to!sell!other!securities!to!liquidate!cash!positions,!but!if!those!other!securities!were!also!de"valued!in!the!
market!there!might!be!no!net!long"term!benefit.!Therefore,!having!cash!positions!in!a!portfolio!allows!
investors!to!take!advantage!of!market!opportunities!when!they!do!present!themselves.!

Conclusion!and!Recommendations!
Traditional!approaches!used!to!determine!appropriate!asset!allocations!can!be!applied!to!the!selection!of!
alternative!strategies.!!!

Portfolio!optimization!and!strategic!rebalancing!techniques!should!ultimately!enhance!returns!and!lower!
portfolio!volatility.!!!

Alternatives!should!never!be!intentionally!over"weighted!in!a!well!diversified!portfolio.!!Risk!becomes!
extremely!difficult!to!quantify.!

Managed!futures,!fixed"income!hedge!funds!and!indexed!commodity!investments!are!considered!
acceptable!alternative!investments.!!Venture!capital,!bankruptcy!funds,!and!leveraged!buy"out!funds!are!
considered!high"risk!investments!and!will!not!be!utilized!regardless!of!any!perceived!benefit!to!an!
investor.!!!

The!returns!of!managed!futures!are!largely!non"correlated!to!traditional!equity!and!fixed"rate!securities!
over!long!periods!of!time.!

A!portfolio!incorporating!managed!futures!reduces!risk!at!every!possible!level!of!return!when!compared!
to!a!portfolio!comprised!of!just!stocks!and!bonds.!

A!portfolio!incorporating!managed!futures!is!a!strategically!designed!investment!strategy!designed!to!participate!
in!global!futures,!options!and!foreign!exchange!markets.!!!

Portfolios!are!highly!flexible!and!can!be!customized!to!a!variety!of!investor!objectives.!!Lindner!provides!multiple!
levels!of!monitoring!and!risk!control.!

A!Lindner!Capital!Advisors!portfolio!constructed!using!the!principles!of!Contemporary!Investment!Management™!
embraces!the!concepts!of!Modern!Portfolio!Theory!to!stress!proper!asset!allocation!for!the!Core!portion!of!the!portfolio.!
Satellite!portfolio!allocations!are!implemented!usin g!a!third"party!managed!futures!strategy!that!is!expected!to!reduce!
the!overall!risk!of!the!portfolio.!Every!effort!has!been!made!to!minimize!costs!associated!with!the!various!underlying!
expenses!typically!associated!with!this!portfolio!strategy.!!It!is!expected!that!for!a!given!risk"return!profile,!these!
Contemporary!Portfolios!should!outperform!the!majority!of!all!other!investment!strategies!for!investors!over!long!periods!
of!time.!

! 11
Addendum!
!

1.!The!Potential!to!Lower!Overall!Risk!
The!main!benefit!of!adding!managed!futures!to!a!balanced!portfolio!is!the!potential!to!decrease!portfolio!volatility.!Risk!
reduction!is!possible!because!managed!futures!can!trade!across!a!wide!range!of!global!markets!that!have!virtually!no!
long"term!correlation!to!most!traditional!asset!classes.!Moreover,!managed!futures!funds!generally!perform!well!during!
adverse!economic!or!market!conditions!that!negatively!affect!stocks!and!bonds,!thereby!providing!excellent!downside!
protection!for!most!portfolios.!

Correlation!of!Selected!Asset!Classes*!

! Managed!Futures! Bonds! U.S.!Stocks!

Managed!Futures! 1.00! 0.30! "0.23!

Bonds! 0.30! 1.00! "0.29!

U.S.!Stocks! "0.23! "0.29! 1.00!

!
*Based!on!a!10"year!period!ending!December!31,!2007!
1)!Managed!futures:!Barclay!CTA!Index;!
2)!Bonds:!Lehman!Brothers!Long"Term!U.S.!Treasury!Index;!
3)!U.S.!stocks:!S&P!500!Total!Return!Index;!
Source:!BarclayHedge,!Ltd.!

2.!An!Opportunity!to!Enhance!Overall!Portfolio!Returns!
While!managed!futures!can!decrease!portfolio!risk,!these!futures!
can!also!simultaneously!enhance!overall!portfolio!performance.!
The!following!chart!illustrates!how!adding!managed!futures!to!a!
traditional!portfolio!improves!overall!investment!quality!while!
also!potentially!reducing!risk.!This!strategy!has!been!
substantiated!by!an!extensive!amount!of!academic!research,!
beginning!with!the!landmark!study!by!Dr.!John!Lintner!of!
Harvard!University!in!which!he!wrote:!“…!the!combined!
portfolios!of!stocks!(or!stocks!and!bonds)!after!including!
judicious!investments!…!in!leveraged!managed!futures!accounts!
show!substantially!less!risk!at!every!possible!level!of!expected!
return!than!portfolios!of!stocks!(or!stocks!and!bonds)!alone.”6 !!
Goldman!Sachs!studied!the!ability!of!futures!to!
enhance!returns!of!traditional!portfolios.!Covering!a!
25"year!period,!they!found!that!even!a!10%!
allocation!to!commodities!yielded!vastly!improved!
performance.!The!CME!also!noted,!“Portfolios!with!
as!much!as!20%!of!assets!in!managed!futures!yield!
up!to!50%!more!than!a!portfolio!of!stocks!and!
bonds!alone.”!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
6
!Lintner,!John,!“The!Potential!Role!of!Managed!Commodity!Financial!Futures!Accounts!(and/or!Funds)!in!Portfolios!of!
Stocks!and!Bonds,”!Annual!Conference!of!Financial!Analysts!Federation,!May!1983.!
! 12
3.!Broad!Diversification!Opportunities!
The!Many!Different!Futures!Markets!

Managed!futures!are!highly!flexible!financial!instruments!that!are!traded!on!many!regulated!financial!and!commodity!
markets!around!the!world.!By!broadly!diversifying!across!the!global!markets,!managed!futures!can!simultaneously!profit!
from!price!changes!in!stock,!bond,!currency!and!money!markets,!as!well!as!from!diverse!commodity!markets!that!have!
virtually!no!correlation!to!traditional!asset!classes.!

International!futures!
exchanges!are!
continuing!to!adapt!to!
growing!consumer!
demand!with!more!and!
more!new!futures!
contracts!entering!the!
market.!In!recent!years,!
futures!contracts!have!
been!issued!on!ethanol,!
water!and!even!the!
weather.!

Ease!of!Global!Diversification!

The!substantial!growth!of!futures!
exchanges!across!the!globe!affords!
trading!advisors!countless!
opportunities!to!diversify!their!
portfolios!by!geographic!markets!as!
well!as!by!product.!Thus,!advisors!can!
have!ample!opportunity!for!profit!
potential!and!risk!reduction!among!a!
broad!array!of!non"correlated!markets.!
Investing!in!managed!futures!on!a!
global!scale!also!provides!protection!
against!geospecific!variables!such!as!
poor!weather!or!political!unrest,!which!
affect!some!commodities!or!financial!
futures!more!than!others.!

Source:!FIA!2007!

! 13
!

4.!Opportunity!to!Profit!in!a!Variety!of!Economic!Environments!
Managed!futures!trading!advisors!can!
generate!profit!in!both!increasing!or!
decreasing!markets!due!to!their!ability!
to!go!long!(buy)!futures!positions!in!
anticipation!of!rising!markets!or!go!
short!(sell)!futures!positions!in!
anticipation!of!falling!markets.!
Moreover,!trading!advisors!are!able!to!
go!long!or!short!with!equal!ease.!!
!
This!capability,!coupled!with!a!virtual!
non"correlation!with!most!traditional!
asset!classes,!has!resulted!in!managed!
futures!funds!performing!well!relative!
to!traditional!asset!classes!during!
adverse!periods!for!stocks!and!bonds.!
For!example,!during!periods!of!
hyperinflation,!hard!commodities!such!
as!gold,!silver,!oil,!grains!and!livestock!
tend!to!do!well,!as!do!the!major!world!
currencies.!!
!
Conversely,!during!deflationary!times,!
futures!provide!an!opportunity!to!profit!
by!selling!into!a!declining!market!with!
the!expectation!of!buying,!or!closing!out!
a!position,!at!a!lower!price.!Trading!
advisors!can!even!use!strategies!that! As!the!above!chart!shows, during!the!stock!market!crash!in!1987,!panic!
employ!options!on!futures!contracts!and! hit!the!stock!markets!following!the!largest!one"day!loss!in!history.!
allow!for!profit!potential!in!flat!or!neutral! Managed!futures!reported!above!20!percent!returns.!Similarly!after!the!
markets.! terrorist!attacks!of!9/11,!the!stock!market!plummeted!16.3!percent.!In!
! contrast,!managed!futures!gained!8.3!percent!in!the!same!period.

This!ability!to!accommodate!and!protect!portfolios!against!unpredictable!events!is!invaluable!in!today’s!volatile!global!
markets.!

! 14
5.!Limited!Losses!Due!to!a!Combination!of!Flexibility!and!Discipline!
The!Potential!to!Limit!Drawdowns!

Drawdowns,!or!the!reduction!of!a!fund,!
might!be!experienced!during!a!market!
retrenchment!and!are!an!inevitable!
part!of!any!investment.!However,!
because!managed!futures!traders!can!
go!long!or!short!–!and!typically!adhere!
to!strict!stop"loss!limits!–!managed!
futures!funds!can!limit!their!
drawdowns!more!effectively!than!can!
many!other!investments.!!

As!the!accompanying!chart!shows,!
drawdowns!for!managed!futures!have! The!chart!above!shows!the!worst!historic!drawdowns!for!each!of!the!
been!less!steep!than!those!for!major!! indices!from!11/1990!through!02/2008.
global!equity!indices.!!
!
The!Ability!to!Recover!Quickly!

Additionally,!managed!futures!generally!
have!shorter!recovery!times!after!
drawdown!periods.!This!characteristic!is!
due,!in!part,!to!the!ability!to!use!short!
trading!to!take!advantage!of!falling!
markets,!as!well!as!the!fact!that!
managed!futures!often!have!fewer!
losses!to!recover.!!

When!unable!to!use!short!trading!to!
take!advantage!of!falling!markets,!
traditional!stock!indices!may!experience!extreme!drawdowns!in!bear!markets.!With!reference!to!the!above!chart,!the!
maximum!drawdown!for!stocks!was!–44.7!percent!from!09/2000!through!09/2002.!It!takes!much!longer!to!make!up!for!
such!large!drawdowns.!To!recover,!the!stock!index!needed!to!re"achieve!almost!80!percent!of!its!new!low!level.!

! 15
The!Efficiencies!and!Performance!of!Futures!Markets!
While!managed!futures!are!new!to!
some!investors;!banks,!corporations!
and!mutual!fund!managers!have!for!
decades!used!futures!markets!to!
manage!their!exposure!to!price!change.!
Futures!markets!let!these!companies!
“hedge”!or!transfer!their!risk!to!other!
market!participants,!including!
speculators,!who!assume!this!price!risk!
in!anticipation!of!making!a!profit.!

Without!speculators,!price!discovery!
would!only!occur!when!both!a!
producer!and!an!end!user!execute!a!
transaction!at!the!same!time.!
Speculation!increases!the!number!of!
ready!buyers!and!sellers!in!the!marketplace;! Over!the!past!27!years,!managed!futures!have!outperformed!almost!
resulting!in!hedgers!being!able!to!execute! every!other!asset!class,!including!high"performing!S&P!500!Total!
larger!orders!at!their!convenience,!without! Returns.!
effecting!dramatic!change!in!price.!!This!
action!provides!additional!liquidity,!which!helps!ensure!market!integrity.!By!selling!futures!when!prices!are!rising!and!by!
purchasing!futures!as!prices!fall,!their!trading!activity!can!have!a!stabilizing!effect!on!volatile!markets.!

Looking!back!over!the!past!few!decades,!managed!futures!have!consistently!outperformed!other!asset!classes!such!as!
stocks!and!bonds.!Consider!an!initial!investment!of!$10,000!invested!in!1980.!If!placed!in!a!U.S.!stock!fund!mirroring!the!
S&P!500,!that!investment!would!have!been!worth!approximately!$288,000!in!early!2008.!Allocating!the!same!amount!to!a!
basket!of!international!equities!reflecting!the!Morgan!Stanley!Capital!International!Index!of!world!stocks,!the!initial!
investment!would!have!grown!to!nearly!$120,000!in!the!same!period.!!The!same!investment!in!managed!futures,!based!
on!the!Center!for!International!Securities!and!Derivatives!Markets!weighting,!would!have!grown!to!more!than!$513,000.!

! 16
About!the!Firm!
Lindner!Capital!Advisors,!Inc.!(LCA)!is!a!federally!registered!investment!advisor!based!in!the!Atlanta,!GA,!metropolitan!
area.!LCA!was!formed!in!1996!to!provide!asset!management!services!through!an!exclusive!group!of!financial!professionals!
and!selected!broker/dealers.!
LCA!applies!a!unique!and!academically!sound!strategy!to!portfolio!construction!utilizing!the!principles!of!Modern!Portfolio!
Theory.!!Discretionary!portfolios!are!designed!to!capture!diversification!benefits!with!favorable!risk"return!characteristics.!
The!firm!designs!portfolios!consistent!with!the!investor’s!risk!tolerance,!investment!purpose!and!time!horizons.!By!
establishing!target!rates!of!return,!LCA!is!able!to!develop!different!models!and!combinations!of!investments!that!have!the!
highest!probability!of!achieving!client!goals.!In!order!to!provide!the!investor!with!individualized!solutions,!a!written!
investment!policy!is!prepared!that!provides!specific!information!covering!client!objectives!and!constraints,!target!returns,!
risk!tolerance,!time!horizons,!anticipated!withdrawals!and!contributions,!and!taxation!and!regulatory!issues.!Today,!
Lindner!Capital!Advisors!asset!management!services!are!offered!by!a!select!group!of!independent!representatives!of!
other!broker!dealers,!Certified!Public!Accountants,!attorneys,!independent!registered!investment!advisors,!and!other!
financial!professionals.!

Robert!J.!Lindner!
President/CEO!
!In!1996,!Robert!Lindner!filed!the!necessa ry!documents!with!the!SEC!to!open!an!investment!advisory:!!Lindner!Capital!
Advisors,!Inc.!(“LCA”).!!The!following!year!he!expanded!the!scope!of!the!advisory!to!provide!fee!based!turnkey!asset!
management!services!to!representatives!of!other!broker!dealers,!Certified!Public!Accountants,!attorneys!and!
independent!registered!investment!advisors.!!

Considering!Lindner’s!history,!this!was!a!natural!progression.!!He!had!entered!the!insurance!industry!in!1977,!with!Paul!
Revere!Life!Insurance!Company!in!a!sales!management!training!position.!!In!1983,!Covington,!Lindner!and!Associates!
opened!for!business!selling!insurance!and!mutual!funds;!in!1986,!the!name!was!changed!to!Financial!Planning!Strategies,!
Ltd.,!and!the!focus!shifted!to!financial!planning.!!In!1988,!Financial!Planning!Strategies!registered!as!an!investment!advisor!
with!the!SEC.!!As!the!focus!and!service!changed,!so!did!the!name.!!

Fast!forward!to!2005;!Lindner!Capital!Advisors!engaged!CEG!Worldwide!to!develop!the!Lindner!Elite!Advisor!Form.!!The!
following!year!Lindner!College!was!born!and!LCA!was!certified!by!the!Centre!for!Fiduciary!Excellence!(CEFEX)!for!its!
conformity!to!the!Global!Fiduciary!Standards!of!Excellence.!!

!Since!1986,!Lindner!has!employed!the!tenets!of!Modern!Portfolio!Theory!to!manage!their!portfolios.!!Relationships!have!
been!maintained!with!key!institutional!managers!that!do!not!offer!retail!distribution,!choosing!to!work!directly!with!large!
organizations!and!pension!funds!only.!!LCA!continues!to!employ!the!same!core!academic!beliefs!that!have!been!awarded!
the!Nobel!Prize!in!Economics!seven!times!since!1990!and!maintains!relationships!with!key!academicians!from!the!
University!of!Chicago,!Stanford!University,!University!of!Pennsylvania’s!Wharton!School!and!Dartmouth!University.!!In!
2009,!Lindner,!with!his!team!of!investment!analysts,!developed!the!Contemporary!Portfolio!Series™,!based!on!the!
academic!work!of!Dr.!John!Lintner,!Harvard!University.!
!
Robert!earned!his!undergraduate!degree!in!Business!Management!from!Mercer!University!and!his!graduate!degree!in!
Financial!Services!from!the!American!College.!!He!is!an!Accredited!Investment!Fiduciary!(AIF™),!a!professional!designation!
awarded!by!the!Center!for!Fiduciary!Studies,!Katz!Graduate!School!of!Business!at!the!University!of!Pittsburg!and!an!
Accredited!Asset!Management!Specialist!(AAMS™).!!He!is!a!licensed!Certified!Financial!Planner™!(CFP™)!and!was!
admitted!to!the!Registry!of!Financial!Planning!Practitioners!in!1994.!!Robert!serves!on!the!Executive!Boards!of!the!Atlanta!
Humane!Society!and!the!Georgia!Chapter!of!the!March!of!Dimes.!!He!and!his!wife,!Ann,!live!in!Marietta.!!!

! 17
Scott!Wetherington!
Senior!Portfolio!Analyst!
Scott!brought!17!years!of!investment!management!experience!with!him!when!he!joined!Lindner!Capital!Advisors!in!2009.!
Most!recently,!a!portfolio!manager!at!ING,!he!has!extensive!experience!in!trading!and!analysis!in!fixed!income,!
derivatives,!commodities,!hedge!funds,!private!and!public!equity,!and!short!duration!money!market!instruments.!!He!has!
a!thorough!knowledge!of!working!with!large!institutional!clients,!insurance!companies,!pension!funds,!state!treasury!and!
endowments.!!Most!important,!Scott!is!experienced!in!all!aspects!of!the!portfolio!management!process!including!
investment!policy!statement!design,!optimal!asset!allocation,!monitoring!investments,!and!client!feedback.!
Scott’s!investment!knowledge!is!vast!and!varied:!As!an!energy!analyst,!he!evaluated!natural!gas,!power!markets!and!
energy!derivatives;!as!a!liquidity!manager,!he!was!responsible!for!managing!financing!trades!for!a!leveraged!hedge!fund;!
as!a!liquidity!trader,!he!was!responsible!for!the!daily!investment!of!available!cash!and!financing!daily!borrowing!
requirements!for!hedge!fund!client!portfolios!and!large!institutional!fixed!income!portfolios.!!

Scott!supervised!the!investment!research!that!lead!to!the!development!of!the!Contemporary!Portfolio!Series™,!based!on!
the!academic!work!of!Dr.!John!Lintner,!Harvard!University.!!Scott!performed!the!due!diligence!and!oversaw!the!selection!
process!for!a!new!group!of!exclusive!institutional!managers,!enabling!Lindner!to!implement!the!Contemporary!Portfolio!
Series™!on!an!extremely!cost"effective!basis.!
!
Scott!earned!his!BBA!in!Finance!from!James!Madison!University.!He!is!a!CFA!Level!III!candidate.!Scott!and!his!wife,!Nicole,!
live!in!Woodstock,!GA.

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