1. March 1, 2001 A Predictive Contrarian- Momentum Strategy Sharpe Minds Asset Management Ray Jacobson Venkata Kodali Josh Rose Jim Sheehan John Watts

2. Sharpe Minds Asset Management Objective and Methodology Develop a predictive contrarian-momentum strategy. Data based on top (momentum) and bottom (contrarian) five monthly performers from 27 S&P industry sectors. Utilize logistic regression to trigger when one position is better than the other (Long Momentum minus Short Contrarian, or vice versa). Third alternative is investing in T-bills. Note that overall strategy is market-neutral.

3. Sharpe Minds Asset Management Model Variables Dependent Variable: Return from a Long Momentum-minus-Short Contrarian strategy. If return is positive, LM_SC = 1. If negative, LM_SC = 0. Independent Variables: Lagged change in 30Y – 5Y US Treasury bond yield spread (1 period) Lagged change in Baa – Aaa corporate bond yield spread (1 period)

4. Sharpe Minds Asset Management Other Variables Considered

5. Sharpe Minds Asset Management Regression Stats

6. Sharpe Minds Asset Management Regression Predictive Power

7. Sharpe Minds Asset Management Strategy Execution Raw Predicted > 0.6 Take position LM – SC Raw Predicted < 0.4 Take position LC – SM 0.4 < Raw Predicted < 0.6 Take position T-Bills

8. Sharpe Minds Asset Management Performance of SMAM portfolio

9. Sharpe Minds Asset Management Cumulative Returns

10. Sharpe Minds Asset Management Out of Sample Looks Good Optimized StrategyT-Bill Date Sample Period Avg. MonthlyAvg. AnnualAvg. MonthlyAvg. Annual 1980- 2000 Total 0.82%10.34%0.54%6.65% 1980- 1997 In Sample0.77%9.64%0.57%7.00% 1997- 2000 Out of Sample1.07%13.65%0.41%5.06%

11. Sharpe Minds Asset Management Concluding Remarks Market-neutral strategy generated positive returns in excess of T-bills. May be better to just invest in T-bills (less volatility), especially given transaction costs. Financial variables (e.g. Book/Market, P/E, DivYield) failed to have predictive power. Credit spreads did well, possibly signaling when riskier Contrarian stocks should outperform.