*Rev. Date December 11, 2023*

## What is the purpose of this feature?

Hypothetical Drawdown Analysis was designed to help allocators understand which historical periods, if repeated today, could create a drawdown in a portfolio or investment given the portfolio’s or investment’s factor exposures as determined on Venn.

## What returns are used to determine the factor exposures?

The factor exposures are calculated using at least the last 6 months of daily data or 1 year of monthly data.[1]

# What-if Drawdown Chart

This chart displays a current portfolio’s or investment’s estimated performance during a prior drawdown period. This feature does not tell you how your portfolio or investment actually performed during the selected period.

## How is the performance shown calculated?

Hypothetical Drawdown Analysis takes a current portfolio’s or investment’s factor exposures and multiplies them by the historical factor returns. If a benchmark is selected, its estimated performance, calculated as described above, is displayed as a blue line alongside the portfolio’s or investment’s estimated performance.

## What rebalancing frequency is used?

Portfolio and investments are not rebalanced during the drawdown or recovery.

## How do you calculate the residual contribution?

To account for any residual, Hypothetical Drawdown Analysis uses the annual residual return over the last 3 years to estimate historical residual for that portfolio or investment and uses that number as a constant for any period selected, making adjustments to account for the length of the drawdown.[1]

## What do the error bars in this chart represent?

The error bars shown attempt to capture the uncertainty of the portfolio’s or investment’s residual based on its volatility.

# Factor Returns and Change in Correlations

The left display highlights returns from factors during the drawdown period (not including the recovery period) and, for comparison, the historical average for that factor (displayed as a black dotted line). The right display highlights increases in factor correlations during a selected drawdown period. If Venn observed an increased correlation between two factors in the drawdown period, the cell will be marked accordingly per the color-coded scale beneath the chart. Users can also hover over cells to see additional data.

## How is the historical average calculated?

This historical average is calculated using Venn’s factor returns from 1997 to date. For drawdown periods less than one year, the historical average factor return is scaled to correspond to the same length of time as the drawdown. For drawdown periods over a year, both factor returns during the drawdown and the historical average factor returns are shown as annualized metrics.

# Portfolio / Investment Factors

This section shows your portfolio’s or investment’s average factor exposures for the selected period as well as each factor’s contribution to the drawdown. If a benchmark is selected, its factor exposures will be displayed as a blue diamond alongside your portfolio’s or investment’s exposures.

# Portfolio Investments

This section displays a strategy’s or investment’s contribution to the drawdown when performing the analysis on a portfolio.

Strategy and investment drivers are organized into three columns:

The first column displays the strategy’s or investment’s percent of the portfolio’s drawdown

The second column displays your current allocation to the strategy or investment, as set in Venn

The third column displays the strategy’s or investment’s hypothetical return during the drawdown

[1] The minimum amount of data required depends on data frequency and type of analysis. For Hypothetical Drawdown Analysis, if a user’s portfolio or investment has daily data, Venn will require at least 6 months, or if monthly it will require at least 1 year. For both daily and monthly data, Venn will prefer to use up to 3 years. For quarterly data, Venn requires 3 years (or 12 data points) but will prefer to use up to 9 years to run analysis. The period used to calculate the annual residual will correspond with the available data.

*This document highlights certain aspects of this analytic. As an overview, it does not discuss all material facts or assumptions. Please see** Important Disclosure and Disclaimer Information**.*