FEG Diversif ying Strategies Por t folio

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Fund Evaluation Group, LLC (FEG) recently executed changes to the FEG Diversifying Strategies Portfolio. The
changes are intended to simultaneously improve manager quality as well as help reduce risks commonly seen
in broader investment portfolios. This strategic change is consistent with our investment philosophy of taking
a long-term approach and utilizing effective active managers who can maximize investment opportunities.

BACKGROUND
Diversifying strategies serve as an important tool in portfolio construction. An investment in diversifying
strategies can produce more consistent returns relative to traditional long-only equities while maintaining a
low correlation to equities. They have also historically been insulated against the interest rate risk that can
befall some areas of fixed income.
Diversifying strategies do not constitute an asset class. They are a form of active management and have
structures that allow for strong risk management. The FEG Diversifying Strategies Portfolio is thoughtfully
constructed by allocating to each of the following three sub-categories:
Relative Value
Event Driven
Global Macro/Managed Futures
Relative Value strategies are focused on relative mispricing of securities. They generally take little directional
exposure in search for consistent returns. Strategies include arbitrage, market neutral equity and credit
trading, and volatility strategies.
Event Driven strategies are focused on corporate activities and less liquid process-driven investments.
Managers can have directional bias in either equity or credit. Strategies include distressed, activism, and
market dislocations.
Global Macro/Managed Futures strategies are focused on systematic or discretionary model-driven
investing, which generally benefit from periods of increased or increasing volatility.
A combination of these three categories is expected to not only provide the performance, volatility, and
diversification characteristics expected from diversifying strategies, but also take fewer unintended risks
that may appear elsewhere in the broader investment portfolio.

Portfolio Construction
Our portfolio construction process is based upon the following three considerations:
Manager Conviction
Portfolio Mandate
Strategy-Based Tactical Repositioning

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We invest with managers in whom we have a high degree of confidence and conviction. This conviction
results from our detailed due diligence process based upon evaluating them according to six key tenets that
we believe effective managers possess. The six tenets are conviction, consistency, pragmatism, investment
culture, risk management, and active return. As a research-based investment advisor, we continuously
scour the investment universe in search of high-quality investment management firms. The opportunity to
upgrade the manager lineup within the diversifying strategies category portfolio serves as a primary reason
we have made the recent portfolio changes.
We consider each potential modification in light of the portfolio mandate. Over long periods of time, the FEG
Diversifying Strategies Portfolio will hold approximately five to ten institutional mutual funds. The portfolio
is expected to outperform inflation by three percentage points annualized, have a correlation of less than
0.6 to the S&P 500 Index, and a beta to that index of less than 0.3. The target standard deviation is expected
to fall between 5% and 7% annualized. In aggregate, the portfolios broad category allocations are expected
to approximate 40% relative value, 30% event driven, and 30% global macro, but will vary depending upon
tactical opportunities.
Strategy-based tactical repositioning occurs when we see an opportunity to tilt the portfolio toward an
opportunity that is expected to improve performance or tilt away from a potential risk. Part of the thesis
behind one recent portfolio change was based upon a tactical opportunity to reduce credit risk.

Credit
Investing in credit involves the risk that a corporation or some other bond-issuing entity defaults on their
obligation, or a deterioration in confidence that they will be able to pay leads to downward price pressure.
Defaults and downgrades are cyclical. Strong economic times generally coincide with less negativity in credit
while credit-related issues are more prevalent in poor economic times.
Since the depths of the 2008-2009 financial crisis, the credit environment has improved and is currently
quite strong with prices of credit-related fixed income near all time highs and yield spreads relative to
U.S. Treasuries nearly as tight as they have ever been. Although we do not necessarily expect that the
currently favorable credit cycle suddenly will reverse, yields have declined to a point where the higher risk
is less justified. Therefore, we reduced (as opposed to completely eliminated) credit exposure in the FEG
Diversifying Strategies Portfolio.

Manager Access
The investment universe, however, is constantly evolving and the quality of fully liquid diversifying strategies
fund offerings has improved.

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SUMMARY
The pie charts below illustrate how the tactical reduction in credit exposure led to a smaller overall allocation
to relative value strategies and an increase in global macro. The table that follows summarizes the specific
manager changes.

P R E V I O U S D I V E R S I F Y I N G S T R AT E G I E S
PORTFOLIO EXPOSURES
CurrentDiversifyingStrategiesPortfolioExposures

Relative
Value,38%

C U R R E N T D I V E R S I F Y I N G S T R AT E G I E S
PORTFOLIO EXPOSURES
ProposedDiversifyingStrategiesPortfolioExposures

Macro,30%

EventDriven,
32%

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Relative
Value,28%

Macro,37%

EventDriven,
35%

FundName

Before

After

DriehausActiveIncome

17.5%

TFSMarketNeutral

19.5%

DoublelineTotalReturnBond

14.5%

AQRMultiStrategyAlternative

7.0%

11.8%

JohnHancockGlobalAbsoluteReturnStrategy

9.5%

19.6%

TouchstoneFlexibleIncome

9.8%

CollinsAlternativeSolutions

9.8%

DriehausSelectCredit

17.6%

ASGManagedFuturesStrategyFund

7.0%

6.9%

EatonVanceGlobalMacroAbsoluteReturnAdvantage

13.0%

12.7%

ForwardTacticalGrowthFund

10.0%

9.8%

Cash

2.0%

2.0%

Total

100%

100%

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F E G D I V E R S I F Y I N G S T R AT E G I E S

MANAGER CHANGES
Driehaus Fund Change
One portfolio change involved swapping two funds managed by the same organization. The Driehaus Active
Income (Active Income) fund was replaced by the Driehaus Select Credit (Select Credit) fund. The Active
Income fund remains on FEGs recommended list, but we believe the Select Credit fund will help our clients
more effectively capture credit-based opportunities within diversifying strategies.
The Active Income fund is a highly diversified, longer-biased credit strategy than Select Credit. The Select
Credit fund is a more concentrated and opportunistic credit strategy, which can place meaningful short
credit positions when the opportunity to do so presents itself. The Select Credit fund generally invests in the
30-40 best ideas from the Driehaus research team, and thus exhibits greater conviction than Active Income,
which typically invests in between 50-60 ideas while managing approximately four times the assets as Select
Credit.
We believe that replacing Active Income with Select Credit will help our clients benefit from credit-based
strategies through a more concentrated and opportunistic strategy.

Increased Allocations
Additionally, we moved to increase our allocations to both the AQR Multi-Strategy Alternative fund and
the John Hancock Global Absolute Return Strategies fund sub-advised by Standard Life Investments.
AQR Capital Management is a Greenwich, Connecticut-based investment management firm that manages
over $98 billion (as of December 31, 2013) in both traditional and alternative investment strategies for
institutions and retail investors. The firm was founded by four principals: Cliff Asness, Ph.D.; David Kabiller,
CFA; Robert Krail; and John Liew, Ph.D.
The AQR Multi-Strategy Alternative fund is designed to efficiently capture a diversified set of classic hedge
fund strategies and deliver them to investors in a transparent and liquid vehicle with low average correlation
to traditional asset classes. Using a bottom-up investment process, the fund provides exposure to Convertible
Arbitrage, Event Driven, Fixed Income Relative Value, Dedicated Short Bias, Equity Market Neutral, Long/
Short Equity, Global Macro, Managed Futures, and Emerging Markets strategies.
The allocation to AQR has been increased due to the expertise of the key individuals who are applying their
hedge fund experience in a mutual fund format.
Standard Life Investments developed the John Hancock Global Absolute Return Strategy (GARS) to reduce
portfolio-wide volatility while maintaining the return potential of global equity markets.
GARS provides access to a portfolio that typically holds 20-35 opportunistic positions with low correlation
to traditional asset classes. The fund is designed to offer less volatile returns than conventional equity funds
with similar return objectives. By using a combination of uncorrelated, diversified instruments, GARS seeks
to reduce overall portfolio risk.

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The investment process is designed to capitalize on an array of research and investment techniques. Each
position in GARS is derived through a variety of research approaches based on the skills and experience
of the Standard Life Multi-Asset Investment Team (MAIT). These include broad global macro-economic,
fundamental analysis, and valuation modeling.
The wide array of strategies employed by GARS results in a highly diversified approach drawing on the skillful
experience of the Standard Life Investments MAIT. The inclusion of GARS is expected to help improve our
clients risk-adjusted returns through diversification and total return.

New Funds
In addition to these changes, we have added two new funds: The Touchstone Flexible Income fund, subadvised by ClearArc Capital (formerly Fifth Third Asset Management) and the Collins Alternative Solutions
fund.
Touchstone Investments (a member of Western & Southern Financial Group) is a mutual fund company
that provides access to institutional asset managers who act in a sub-advisory capacity. ClearArc Capital
manages over $6 billion in assets, primarily allocated to fixed income.1 The Flexible Income fund is an
opportunistic credit strategy that has significant exposure to preferred equities, convertible bonds, and
structured products.
The objective of the Flexible Income fund is to generate attractive risk-adjusted returns versus fixed income
alternatives, deliver alpha while improving portfolio efficiency, provide a significant yield advantage over
stocks and bonds, provide a globally diversified core portfolio, and help mitigate risks that are normally
associated with traditional asset classes.
Collins Capital Investments, LLC (Collins), is a Miami-based investment advisor founded in 1995 by siblings,
Dorothy Weaver and Michael Collins, as a multi-manager alternative investment management boutique.
Collins employs its investment philosophy based on the principles of diversification, capital preservation,
and risk mitigation with the objective of delivering stable absolute returns across all market cycles. Collins
Capital has built and managed diversified portfolios of hedge fund managers with skill sets and expertise in
specific market niches for nearly two decades.
The Collins Alternative Solutions fund is designed to efficiently capture a diversified set of classic hedge fund
strategies and deliver them to investors in a transparent and liquid vehicle with low average correlation to
traditional asset classes. Using both macroeconomic and bottom-up investment process, the fund provides
exposure to Arbitrage, Global Macro, Market Neutral, Long/Short Credit, and Long/Short Equity strategies.
The weightings will fluctuate depending on the current attractiveness of each strategy. The investment
philosophy and process is a combination of qualitative due diligence, and quantitative analysis using
proprietary risk management tools.

As of December 31, 2013

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While mutual funds are limited in their ability to execute true hedge fund strategies at the fund level, Collins
seeks to mitigate this problem by allocating capital to hedge fund managers and then offering the pooled
investments through a mutual fund format. Although sub-optimal relative to a direct allocation to true
hedge funds, it does allow for a broader spectrum of strategies to drive returns. It also mitigates singlemanager risk through its fund-of-funds structure.

Removals
Two managers were removed from the FEG Diversifying Strategies Portfolio: The Doubleline Total Return
Bond fund and the TFS Market Neutral fund.
Although the Doubleline Total Return fund remains recommended by FEG, it is no longer included in the
FEG Diversifying Strategies portfolio. The Doubleline fund is a fixed income-focused mandate primarily
allocated to agency and non-agency mortgage-backed securities. Although over long periods of time the
fund is expected to exhibit the return, risk and diversification characteristics anticpated from diversifying
strategies managers, it exhibits risks that are often found in other parts of broader (core) portfolios. Given
these characteristics, as well as the availability of mutual funds that more closely match the composition
of true diversifying strategies hedge funds, we took the opportunity to remove Doubleline from the FEG
Diversifying Strategies Portfolio.
Finally, we removed the TFS Market Neutral fund. In similar fashion to Doubleline, TFS Market Neutral is
expected to exhibit the performance characteristics desired from a diversifying strategies mandate, but
the fund is exposed to risks that are common elsewhere in broader portfolios. The TFS fund is a long/
short equity fund. Although it will likely experience less volatility than long-only equity mandates, its equity
exposure is a risk that most investors hold in other parts of their portfolios. Diversifying strategies mandates
are expected to help mitigate more traditional risks like stock market exposure. For this reason, the TFS fund
was removed from the FEG Diversifying Strategies Portfolio.
The investment industry is in a constant state of evolution. One particularly acute area of change and
advancement is within liquid diversifying strategies mandates. Not long ago, investors seeking the
diversification benefits historically exhibited by these strategies were limited to private partnerships with
liquidity constraints, which are only accessible to accredited or qualified investors. More recently, however,
the number of mutual funds that employ strategies previously exclusive to hedge funds has been growing.
We believe the recent portfolio changes have allowed us to improve the quality of our manager lineup
through a greater allocation to hedge fund strategies while reducing mandates with risk characteristics
exhibited elsewhere in broader portfolios.

CONCLUSION
The investment industry is in a constant state of evolution. One particularly acute area of change and
advancement is within liquid diversifying strategies mandates. Not long ago, investors seeking the
diversification benefits historically exhibited by these strategies were limited to private partnerships with
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liquidity constraints, which are only accessible to accredited or qualified investors. More recently, however,
the number of mutual funds that employ strategies previously exclusive to hedge has been growing. We
believe the recent portfolio changes have allowed us to improve the quality of our manager lineup through
a greater allocation to hedge fund strategies while reducing mandates with risk characteristics exhibited
elsewhere in broader portfolios.

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INDICES
The S&P 500 Index is a capitalization-weighted index of 500 stocks. The S&P
500 Index is designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing all
major industries.

FEG Managed Portfolios is a discretionary asset management service offered

by Fund Evaluation Group, LLC, a registered investment adviser. Prior to April
1, 2009, FEG Managed Portfolios was called FEG/Advisors. The firm maintains
a complete list and description of composites, which is available upon request.

Information on any indices mentioned can be obtained either through your consultant or by written request to information@feg.com.

Index performance results do not represent any managed portfolio returns. An

investor cannot invest directly in a presented index, as an investment vehicle
replicating an index would be required. An index does not charge management
fees or brokerage expenses, and no such fees or expenses were deducted from
the performance shown.

DISCLOSURES
This report was prepared by Fund Evaluation Group, LLC (FEG), a federally
registered investment adviser under the Investment Advisers Act of 1940, as
amended, providing non-discretionary and discretionary investment advice to
its clients on an individual basis. Registration as an investment adviser does not
imply a certain level of skill or training. The oral and written communications of
an adviser provide you with information about which you determine to hire or
retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directed to: Fund Evaluation Group, LLC, 201 East Fifth
Street, Suite 1600, Cincinnati, OH 45202 Attention: Compliance Department.
The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information in this report is given as of the date indicated and believed
to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it.
FEG is not affiliated with the managers mentioned in this report.
Due to the differing nature of investment advisory services offered by FEG, all
clients may not realize performance results discussed in our general publications. There is no assurance that any security discussed will remain in an accounts portfolio at the time you receive this report.

Neither the information nor any opinion expressed in this report constitutes
an offer, or an invitation to make an offer, to buy or sell any securities. FEG, its
affiliates, directors, officers, employees, employee benefit programs, and client
accounts may have a long position in any securities of issuers discussed in this
report.
Any return expectations provided are not intended as, and must not be regarded as, a representation, warranty or predication that the investment will achieve
any particular rate of return over any particular time period or that investors will
not incur losses.
Past performance is not indicative of future results.
This report is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of
any person who may receive this report.
All data is as of January 31, 2014 unless noted otherwise.
Supplemental fact sheets available upon request. MPS-3309-A 2.26.2014

Fund Evaluation Group, LLC / 201 East Fif th St. / Suite 160 0 / Cincinnati, Ohio 45202 / P: 513.977.4 4 0 0 / F: 513.977.4 430 / w w w.feg.com
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