Alpha Global Asset Allocation Presentation by Sanjun Chen

Alpha Global Asset Allocation Presentation by: Sanjun Chen Noah Harris Haley Lai Nicolas Tollie 0

Introduction Industries Factors Scoring Results Agenda • Introduction • Methodology • Industry – – Manufacturing Services Finance Transportation/Utilities • Factors – – 1 -Year EPS Growth Forward E/P Dividend Yield Inventory Turnover • Scored Strategy Returns – Subjective Estimates • Conclusions 1 Conclusions Agenda

Introduction Industries Factors Scoring Results Conclusions Establishing Long-Short Trading Strategy • Objective – Generate positive returns – Limit risk through hedging • Quantitative stock screen – Industry driven – Find predictive powers on positive and negative returns • Select factors with strong predictive powers – Go long stocks in top quintile – Go short stocks in bottom quintile 2 Introduction

Introduction Industries Factors Scoring Results Conclusions Description of parameters used for screening process • Sample – – US equities listed on both NYSE and NASDAQ Monthly data In-sample time frame: 1990 – 1999 Out-of-sample time frame: 2000 – 2004 • Selected Industries with at least 100 companies • Allocated factors into quintiles based on selected criteria • Rebalanced and resorted each month • Analyzed output and performance over time 3 Methodology

Introduction Industries Factors Scoring Results Conclusions Factors Description of Factors • Forward E/P: Expected next twelve months earnings over current price • Dividend Yield: Dividend Yield from Factset • EPS Growth: (IBES projection for next twelve months – This year earning)/ This year earning • Inventory Turnover: Sales/Inventory 4

Introduction Industries Factors Scoring Results Industries Chosen 5 Conclusions

Introduction Industries Factors Scoring Results Conclusions Manufacturing 1 -Year EPS Growth is a fairly good factor for Equal and Value Weighted • Quintile 4 Significant • Quintile 1 not consistently enough best performing portfolio, and quintile 5 not consistently enough worst performing portfolio 3. 5 1. 5 6

Introduction Industries Factors Scoring Results Conclusions Manufacturing Forward E/P is a good factor for Equal Weighted • Quintile 5 Significant • Quintile 1 not consistently enough worst performing portfolio 4. 5 7

Introduction Industries Factors Scoring Results Subjective Scoring of different Factors 8 Conclusions Scoring

Introduction Industries Factors Scoring Results Manufacturing 9 Conclusions Out-of-Sample Results

Introduction Industries Factors Scoring Results Services 10 Conclusions Out-of-Sample Results

Introduction Industries Factors Scoring Results Finance 11 Conclusions Out-of-Sample Results

Introduction Industries Factors Scoring Results Trans/Utilities 12 Conclusions Out-of-Sample Results

Introduction Industries Factors Scoring Results Conclusions? • Scoring Screens – Mixed to poor results out of sample – Conflicting performance of equal and value weighted screens – Good performances (Manufacturing equal weighted, Utility weighted). Luck? • Possible Improvements – More conservative scoring – only score factors that perform consistently across equal & value weighted – Industry groups too broad - test sub-groups – Bad in-sample/ out-of-sample time periods selections 90 -99 Boom, 20002004 Bust – Test more factors – Use optimizer to modify scores – Benchmark performances vs. industry indices 13

Manufacturing Dividend is a good factor for Equal and Value Weighted • Quintile 5 Significant • Quintile 1 and 2 give fairly poor performing portfolios -1. 5 2. 5 -3 14 2. 5

Manufacturing Inventory Turnover is a good factor for Equal and Value Weighted • Quintile 5 Great performance for Equal, Worst for Value Weighted 4 15 3 -3. 5

Services 1 -Year EPS Growth is a fairly good factor for Equal and Value Weighted • Quintile 1 generally poor performing portfolio • Quintile 4 consistently great performing portfolio -1 3 -2. 5 16 2

Services Forward E/P is a fairly good factor for Equal and Value Weighted • Quintile 1 poor performing portfolio most of the time -2 -2 17 -1. 5

Services Dividend is a good factor for Equal Weighted • Quintile 1 Significant poor performance -2. 5 18

Finance 1 -Year EPS Growth is a fairly good factor for Equal Weighted • Quintile 2 generally poor performing portfolio -1 19

Finance Forward E/P is a fairly good factor for Equal and Value Weighted • Quintile 4 poor performing portfolio most of the time for Equal Weighted • Quintile 1 good performance for Value Weighted -1. 5 20

Finance Dividend is a good factor for Equal • Quintile 1 Significant good performance 2 -1 1 21 1

Finance Inventory Turnover is a fairly good factor for Value Weighted • Quintile 5 fairly consistent good performance for Value Weighted -1. 5 22 2

Trans/Utilities Dividend is a good factor for Equal • Quintile 2 consistently poor performance; Quintile 5 consistently great performance -4 4. 5 23

Trans/Utilities Inventory Turnover is a fairly good factor for Value Weighted • Quintile 5 fairly consistently poor performance for Value Weighted -3 -2. 5 24