Rise and Importance of Dividends

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THE POWER OF THE RIGHT ADVISOR

The Calandro Group

With over one hundred years of combined experience in the financial services industry The Calandro Group has made it our business to care deeply about the people we serve, deliver innovative ways of helping them, and respond to challenges resolutely and creatively. Seeking to eliminate financial jargon and to bring high-net-worth individuals a sophisticated level of attention and impeccable service we go to great lengths to build meaningful, respectful wealth management relationships that provide refreshing and rewarding experiences.The Calandro Group believes that the legacy of our firm, Merrill Lynch, – who we are, what we’ve accomplished and what we stand for – is nothing short of extraordinary. It is a company where every employee is willing to help others. You don’t see this at many firms. At Merrill Lynch it’s about doing the best for all of the firm’s clients and the company in its entirety. It is the challenge and opportunity that come from playing on the best team.

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Presenter: Timothy Pettee, Chief Investment Strategist, SunAmerica Asset Management Corporation

Timothy is lead Portfolio Manager for rules-based funds including $10 billion, 5-star (Morningstar) SunAmerica Focused Dividend Strategy Fund (FDSAX). He is also lead portfolio manager for SunAmerica International Dividend Strategy Fund (SIEAX) and SunAmerica Strategic Value (SFVAX). Timothy has deep experience in the asset management industry including Chief Investment Officer for SunAmerica Asset Management 2003 - 2013. He oversaw growth of internally assets under management from < $5 billion to $30+ billion in mutual fund and annuity fund assets, including rules based equity, active equity, equity index, fixed income and asset allocation products.

Monthly Market Update

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The Rise and Importance of Dividends in U. S. Markets

Timothy PetteeChief Investment StrategistLead Portfolio Manager – Rules based Funds

June 28, 2016 SunAmerica Asset

Management is a member of American International Group, Inc. (AIG). Funds distributed by AIG Capital Services, Inc. (ACS), member FINRA. ACS is also a member of AIG.Version 4.2 Revised 052616

6Source: Bureau of Economic Analysis, data as of first quarter 2016. Factset

'11 '12 '13 '14 '15-2%

-1%

0%

1%

2%

3%

4%

5%

U.S. Economic Growth Slowing but Economy Remains Healthy

U. S. GDP Growth

7.

Car Sales Barometer of a Healthy Economy

Total Light Vehicle sales, seasonally adjusted, rolling three month average, as of April 2016 Source: Bureau of Economic Analysis, Factset.

1980 1985 1990 1995 2000 2005 2010 20158

9

10

11

12

13

14

15

16

17

18

19

Light Vehicle Sales5 Year Average

Car Sales as Measure of U. S. Economy

8

S&P 500 Index 3-Year Performance

Source: Standard & Poor’s, as of May 25, 2016; Factset

7/13 10/13 1/14 4/14 7/14 10/14 1/15 4/15 7/15 10/15 1/16 4/161,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

S & P 500 Index (Short Term)

9

10-Year Rolling Returns of the S&P 500

Rolling 10-year annual returns, as of May 25, 2016. Source: Standard & Poor’s, Factset.

1980 1985 1990 1995 2000 2005 2010 2015-10

-5

0

5

10

15

20

S & P 500 Index (Long Term)

10.FY-1 (Mean) Price-to-earnings ratio for S&P500; 1996 – Present. Source: Standard & Poor’s, Factset

Stock Valuations Below Average Levels

Stock Valuations

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '155

10

15

20

25

30

35

11Source: U.S. Dept. of the Treasury; Factset. Data as of May 25, 2016

10-Year Treasury Yields Since 1962

Historical Yield of the 10-Year Treasury

'62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '160.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1.87

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Balance Sheets Improving: Net Long-Term Debt-to-Equity Ratio

Source: Empirical Research Partners LP; Corporate reports. Data smoothed on 3-month basis.

10

15

20

25

30

35

40

45

50

55

60

%

Balance Sheet Improvements

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Corporate Profits Increasing (Over Long Term)

National Income, corporate profits before tax w IVA + CCAdj, SAAR, as of December 31, 2015. $Billions. Source: Factset

Corporate Profits

'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '160

500

1,000

1,500

2,000

2,500

14

Cash and Liquid Assets at All-Time Highs

Source: Federal Reserve Board, Z1 Statistical Release, L103 Nonfinancial corporate business; liquid assets (broad measure) , in billions of USD; March 2016.

Cash and Liquid Assets on Balance Sheets

15

Capital Expenditures

'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140

20

40

60

80

100

120

140

160

Gross private domestic investment, fixed investment, nonresidential. Index, 2009 = 100. Source: US Bureau of Economic Analysis, Factset

Where is the Cash Going?

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Source: Dealogic, M & A Review, Full Year 2015

Mergers and Acquisitions


17S&P 500 aggregate share repurchases, $Billions. Source: Factset

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '150.2

0.4

0.6

0.8

1.0

1.2

1.4

Share Repurchases


18

Dividends


Source: Federal Reserve Board, Z1 Statistical Release, F3 Distribution of National Income, Corporate business net dividends paid, in billions of USD; December 2015.

19

Source: Robert Shiller, Standard and Poor's, Corporate Reports, Empirical Research Partners Analysis.

%

Dividend Payout Ratios Below Historical Highs


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Source: Factset

Long-Term Impact of Dividends

1990 1995 2000 2005 2010 2015

200

400

600

800

1,000

1,200

1,400

S&P 500 - Total ReturnS&P 500 - Indexed Price


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Focused Dividend Strategy Portfolio30 stocks

Dogs of the Dow10 highest yielding stocks

(defined by dividend to price)

Enhancement20 highest ranking stocks based on

valuation, profitability & dividend yield+

=

Dow Jones Industrial Average Russell 1000(ex Financials and Utilities)

Portfolio Construction

SunAmerica Focused Dividend Strategy Portfolio

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Enhancement – Metrics

Dividends

Profitability

Valuation

High dividend payers

High returns on capital employed

Low valuations on cash flow metrics


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At the annual reconstitution, on or about November 1, all positions are resized to 3.33%

The Portfolio may benefit from low-cost trading strategies

There are no limits on sector or security weightings

Turnover averages 12 names per year, but may be more or less

Positions may be sold in between reconstitutions which do not meet dividend or liquidity hurdles

The Portfolio adheres to the stated investment process regardless of market conditions

Trading Discipline


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Consumer DiscretionaryCoachGap, IncKohl’s CorporationWal-MartGameStopStaplesOmnicomViacom Inc.McDonald’s*

Consumer StaplesAltria GroupPhillip Morris InternationalProcter & Gamble*

EnergyChevron*Exxon*Helmerich & Payne

IndustrialsGeneral Electric*Emerson ElectricCaterpillar*Cummins Inc.Eaton Corp.Paychex

MaterialsLyondellBasell Indus.Dow Chemical Corp.

TelecommunicationsVerizon*

Overweight

Underweight

Information TechnologyHP IncInternational Business* SymantecWestern Digital

Health CareMerck* Pfizer*

Financials[None]

Utilities[None]

Source: Factset. As of 05/15/2016. Weights are relative to Russell 1000 Value. *Denotes Dog-of-the-Dow.

The Portfolio’s equity holdings and sector weightings are subject to change every month. The Portfolio is actively managed and its holdings and composition will differ over time. The Portfolio holdings list does not constitute investment advice or an offer to purchase or sell any particular security. To review the complete Portfolio holdings, please visit www.safunds.com.


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Performance data quoted represents past performance and is not a guarantee of future results. The data assumes reinvestment of all distributions at net asset value (NAV). Class A gross operating expenses: 1.07%. Class A maximum sales charge: 5.75%. The Fund’s daily NAV is not guaranteed and shares are not insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be higher or lower than the original cost. Current performance may be higher or lower than that shown. Performance as of the most recent month end is available at www.safunds.com. For the periods ending March 31, 2015 the Focused Dividend Strategy Portfolio’s Morningstar Overall, 5-, and 10-year ratings are 5 stars and its 3-year rating is 3 stars. Overall Rating is based out of 1,125 funds in the Large Value category. The Fund ranked #53 out of 1,305 funds for 1 year, #53 out of 1,125 funds for 3 years, #6 out of 991 funds for 5 years and #4 out of 689 funds for 10 years. Morningstar is an independent investment research firm that rates the performance of mutual funds based on return and risk. For each fund with at least a 3-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variations in a fund’s monthly performance (including the effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) Morningstar Rating metrics. Morningstar Rating is for the A share class only; other classes may have different performance characteristics. Past performance is not a guarantee of future results.

© 2015 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is not a guarantee of future results.

Ranking and Returns (as of 03/31/2015)

Focused Dividend Strategy

* Ratings not calculated by Morningstar for this time period.

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Focused Dividend Strategy

FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR USE WITH PUBLIC.

Performance data quoted represents past performance and is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the active management of an actual portfolio. The data assumes reinvestment of all distributions at net asset value (NAV). Class A gross operating expenses: 1.13%. Class A maximum sales charge: 5.75%. The Fund’s daily NAV is not guaranteed and shares are not insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be higher or lower than the original cost. Current performance may be higher or lower than that shown. Performance as of the most recent month end is available at www.safunds.com.

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Rules Based Portfolio Management Team

Timothy Pettee – Lead Portfolio Manager SunAmerica Asset Management 2003 - Present Schroeder Investment Management 2000 to 2002 U.S. Trust 1998 to 2000 Alliance Capital Management 1990 to 1998

Andrew Sheridan – Co-Portfolio Manager SunAmerica Asset Management 2003 - Present U.S. Trust 1999 to 2003

Timothy Campion – Co-Portfolio Manager SunAmerica Asset Management 2012 - Present Pinebridge Asset Mangement 2010 to 2012 AIG Global Investment 1998 to 2010

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Focused funds are less diversified than typical mutual funds, therefore the performance of each holding in a focused fund has a greater impact upon the overall portfolio, which increases risk.

Stocks of small-cap and mid-cap companies are generally more volatile than, and not as readily marketable as those of larger companies, and may have less resources and a greater risk of business failure than do large companies.

The Fund employs a Disciplined Strategy and will not deviate from its strategy (except to the extent necessary to comply with federal tax laws or other applicable laws). If the Fund is committed to a strategy that is unsuccessful, the Fund will not meet its investment goal. Because the Fund will not use certain techniques available to other mutual funds to reduce stock market exposure, the Fund may be more susceptible to general market declines than other mutual funds.

Tax laws are subject to legislative modification, and while many such modification. Clients should seek the advice of an independent tax advisor or attorney for more complete information concerning their particular circumstances and any tax statements made in this material.

Investors should carefully consider a Fund’s investment objectives, risks, charges and expenses before investing. The prospectus, containing this and other important information, can be obtained from your financial advisor, the SunAmerica Sales Desk at 800-858-8850, ext. 6003, or at www.safunds.com. Read the prospectus carefully before investing.

Funds distributed by AIG Capital Services, Inc., member FINRAHarborside Financial Center, 3200 Plaza 5, Jersey City, NJ 07311-4992

PPTTPFDS.1– 9/15


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Rise and Importance of Dividends

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Transcript of Rise and Importance of Dividends