General Performance Information Disclosure

The contents and data made available on performance charts, any stated index values, and other information is intended for illustrative and informational purposes only and is not intended to represent actual results that could be considered a recommendation of an investment or investment strategy a user could rely on to make an investment decision. The performance charts represent hypothetical results that are based on information over a defined period of time. The charts themselves attempt to follow a standardized and consistent methodology for performance reporting, which we describe below. While we believe the performance data is gathered from reliable sources, the information that generates charts and performance results, uses historical data that has not been audited and validated, and may contain errors in pricing or other conditions. Further, Motif relies on third-party content providers for market data and information as the basis for the calculations it generates. However, Motif cannot be held responsible for the accuracy and timeliness of the content provided. You are responsible to validate the information used to aid you in your research of investments and the decisions you make.

You understand that any investment decisions you make are based on your own individual needs and tolerance for risk and that the content that you gather from any performance charts are just one of many factors you should consider before making your investment decision. The presentation of index performance for a motif should not be regarded as an offer or a solicitation for the purchase of any motif, and you are responsible for all investment decisions you make. Past performance is not an indication of future results and the index performance for any Motif is subject to fluctuation depending on shifting market conditions.

Calculating Motif Performance

Motifs are collections of stocks but are represented for purposes of performance as models, and as such, no actual money is invested in the underlying components of these models, no commissions or fees or other charges are reflected in Motif's performance calculations and no actual trades have been executed in the marketplace that could be expected to represent actual results. In calculating motif performance, we first assign each motif an index value of 1,000 at its origin date.

We then calculate the split-adjusted total returns (inclusive of cash and stock dividends) of each individual component (symbol) in the motif from the motif origin date. For example, if IBM were part of a particular motif, had a share price of $100 at the origin date, a current price of $110, had no stock splits, and had paid dividends of $10 during the intervening time, we would calculate its return as 20% (($110+$10)/$100-1). We repeat this calculation for each stock in the motif.

[The number of data points used in each return calculation depends on the length of the time period under consideration. For example, when calculating returns for a 5-year performance chart, we may use end-of-month trading data, or 60 data points for a 5-year period, while we may use end of day data for a 1-year performance chart or approximately 220 data points (trading days) for a 1-year period.]

Next, we multiply the return of each component in the motif by its respective weight within the motif. For example, if IBM represented 10% of the motif, we would calculate its weight-adjusted return as 2% (20% x 10%). We then sum the weight-adjusted returns of all of the components in the motif to generate the composite return for the motif.

The composite return for the components of the motif is then applied to the base index value of 1,000 to generate the current index value. Composite returns for each motif are calculated at the end of each trading day. During the trading day, an intraday change or delta factor using 20-minute delayed quotes is applied to the previous closing index value in order to calculate the current index's value.

The weights of each component in a motif are established at the motif's origin date, but those weights fluctuate as the price of each component's stock rises and falls. On a periodic basis following the establishment of a motif (usually quarterly, following the origin date), we review the motif and may elect to update it to reflect changes in the companies, industries and trends relevant to the motif. In particular, we may remove or add companies based on any changes in their relevance to the idea on which the motif is based, as a result of our review process.

For monthly, quarterly, yearly, and year-to-date returns, the performance is shown as the difference between the ending index value and beginning index value of that period over the beginning index value.

Information about Motif Returns

Motif returns are based on stock prices from the end of the normal trading day and include any distribution and cash dividends. The stocks that make up a motif may change from time to time - certain stocks may be removed and replaced with new stocks added to a motif, or the weighting of the stock represented within the motif may change. These returns track those changes. However, commissions and fees that are incurred for actual transactions are not deducted from these hypothetical returns.

Actual customer returns will likely vary from the motif returns shown due conditions such as corporate actions, transaction fees and customization. The calculation of split-adjusted total returns involves the adjustment of historical prices for corporate actions such as cash dividends, splits, spin-offs etc. Since we do not adjust the original cost basis for cash dividends, the returns on owned motifs do not include cash dividends and will therefore underperform the stated motif returns. While the original cost basis is not adjusted for cash dividends, the end of day security prices are adjusted for cash dividends and therefore the chart of portfolio performance excluding the date of purchase represent split-adjusted total returns. In addition, actual transactions would include the expense of commissions and customers may change the stocks in their motif on their own. Customers may choose not to change their motif when the stocks in a motif are changed in the motif's periodic rebalancing. There could be other corporate action events that may not be replicated in a motif until the rebalancing period.

Calculating Performance Returns

We calculate returns using a Modified Dietz Method, calculated intraday. Returns derived from the Modified Dietz method provide a reasonable idea of how the securities in your motif have performed adjusting for the amount invested which may vary over time.

We use a Value Weighted method to calculate motif returns since value weighted returns are considered more accurate measures of the actual profit or loss of your particular investment, versus other methods such as Time Weighted returns.

Formulas

We use the Modified Dietz Method to calculate returns over different periods of time.

The Modified Dietz Method:

Return = (EMV - (BMV) - CF) / (BMV + Σ Wi x CFi)

EMV = Ending Market Value of the portfolio.

BMV = Beginning Market Value of the portfolio.

CF = Total Cash Flows during the tested period of time. Cash inflows are treated as positive, while cash outflows are treated as negative.

Σ Wi x CFi = The sum of each cash flow, CFi, multiplied by its weight, Wi. The weight (Wi) is the proportion of the total amount of time remaining in the period after the cash flow, CFi, occurs. Wi can be calculated as Wi= (CT - Ti)/CT.

CT = Total time in the return period being calculated.

Ti = Time in the return period at which the cash flow, CFi, occurred.

Example

As an example of how this could work, please consider the following example.

  1. On January 1, 2011, you deposit $10,000 in cash to your account.
  2. Six months later, on July 1, 2011, you have made investments that help your account grow to $12,000 in value. At that time, you place an additional $3,000 in cash into your account; thus, your account value at the close of the market on July 1, 2011 was $15,000.
  3. Now, consider if on January 1, 2012, your account value has decreased to $10,000. Then, on the same day, you had lost an additional $1,000 in value and you withdrew $4,000 in cash, which would leave your account value at $5,000 at the end of the day.

In this example, your account value as of July 1, 2011, would have a 20% return from your initial investment. However, at the end of the day on January 1, 2012, your account value would have a (-35%) calculated return based on all the transactions, distributions, and market fluctuation. Here's a summary of how your returns were calculated on the dates within our example:

  1-Jan-11 1-Jul-11 1-Jan-12
Ending Market Value (EMV) $10,000.00 $15,000.00 $5,000.00
Beginning Market Value (BMV) $0 $12,000.00 $10,000.00
Cash Flow (CF) $10,000.00 $3,000.00 $(4,000.00)
Number of days in period (CD) 0 181 365
Return for day 0% 0% -10%
Portfolio Return (for entire period) 0% +20% -35%

Simulated Performance Calculations vs. Backtesting

Motif Investing endeavors to offer customers motifs corresponding to new and timely investing ideas. At the same time, investors may wish to see how those motifs could have potentially performed if they had owned them in the past, sometimes for time periods that pre-date the motif's origin date. There are two methods by which we calculate those simulated returns, depending on the type of motif being examined.

Simulated performance refers to the total return of a motif hypothetically purchased at some point in the past through the current time based on 20-minute delayed quotes. This method assumes no updates or other changes to the components of the motif during the time period under examination. We simply calculate the returns that would have been generated if someone had held this same set of equities in the same share-weighting as established at the origin date for a period of time that extends to a point in time prior to the origin date.

Backtesting refers to the total return of a motif hypothetically purchased at some point in the past through the current time based on 20-minute delayed quotes that does assume and calculate the impact of periodic updates throughout the hypothetical time period. This method is primarily, though not necessarily exclusively, used to generate the performance returns of Model Based motifs. These motifs are constructed using mathematical rules based on financial metrics derived from the operating and/or trading results of the component stocks of the motif. For example, we might screen the universe of equities that are traded publicly in the United States for those that have had the highest amount of revenue over the past twelve months. We might then set a rule for a motif that the motif would select the 20 companies that topped that screen at the end of each financial quarter. In each subsequent quarter, we would update that motif to select whichever 20 companies over the previous twelve months had generated the highest amount of revenue. The list of companies in the motif might be completely different from one quarter to the next, because inclusion in the list was caused by the application of a numerical rule. Backtesting is a method that could then be used to calculate that motif's hypothetical historical performance by applying the numerical rule retroactively on a quarterly basis over the time period being examined.

However, backtested results include inherent shortcomings that you should be aware of as you continue your research into an investment. These results do not represent actual returns that occurred in the marketplace, do not consider additional purchases and sales of stocks that can occur as an investor makes adjustments to their accounts, do not account for certain fees or corporate actions that can affect a stock, and cannot replicate the share prices you could have experienced had you personally entered buy and sell orders during market hours. The results of the performance calculations should not be considered an actual representation of results that a customer should expect to replicate, but is made available for informational purposes only.