1. 0 Presentation by: Sanjun Chen Noah Harris Haley Lai Nicolas Tollie Global Asset Allocation Alpha

2. 1 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 Agenda Introduction Industries Factors ScoringResultsConclusions

3. 2 Establishing Long-Short Trading Strategy Introduction 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 Introduction Industries Factors ScoringResultsConclusions

4. 3 Description of parameters used for screening process Methodology 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 Introduction Industries Factors ScoringResultsConclusions

5. 4 Description of Factors 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 Introduction Industries Factors ScoringResultsConclusions

6. 5 Industries Chosen Introduction Industries Factors ScoringResultsConclusions

7. 6 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 Manufacturing 3.5 1.5 Introduction Industries Factors ScoringResultsConclusions

8. 7 Forward E/P is a good factor for Equal Weighted Quintile 5 Significant Quintile 1 not consistently enough worst performing portfolio Manufacturing 4.5 Introduction Industries Factors ScoringResultsConclusions

9. 8 Subjective Scoring of different Factors Scoring Introduction Industries Factors ScoringResultsConclusions

10. 9 Manufacturing Out-of-Sample Results Introduction Industries Factors ScoringResultsConclusions

11. 10 Services Out-of-Sample Results Introduction Industries Factors ScoringResultsConclusions

12. 11 Finance Out-of-Sample Results Introduction Industries Factors ScoringResultsConclusions

13. 12 Trans/Utilities Out-of-Sample Results Introduction Industries Factors ScoringResultsConclusions

14. 13 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, 2000- 2004 Bust –Test more factors –Use optimizer to modify scores –Benchmark performances vs. industry indices Introduction Industries Factors ScoringResultsConclusions

15. 14 Dividend is a good factor for Equal and Value Weighted Quintile 5 Significant Quintile 1 and 2 give fairly poor performing portfolios Manufacturing -1.5 -1.5 2.5 -3 2.5

16. 15 Inventory Turnover is a good factor for Equal and Value Weighted Quintile 5 Great performance for Equal, Worst for Value Weighted Manufacturing 4 3 -3.5

17. 16 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 Services -1 3 -2.5 2

18. 17 Forward E/P is a fairly good factor for Equal and Value Weighted Quintile 1 poor performing portfolio most of the time Services -2 -2 -1.5 1.5

19. 18 Dividend is a good factor for Equal Weighted Quintile 1 Significant poor performance Services -2.5

20. 19 1-Year EPS Growth is a fairly good factor for Equal Weighted Quintile 2 generally poor performing portfolio Finance

21. 20 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 Finance -1.5 1.5

22. 21 Dividend is a good factor for Equal Quintile 1 Significant good performance Finance 2 -1 1 1

23. 22 Inventory Turnover is a fairly good factor for Value Weighted Quintile 5 fairly consistent good performance for Value Weighted Finance -1.5 2

24. 23 Dividend is a good factor for Equal Quintile 2 consistently poor performance; Quintile 5 consistently great performance Trans/Utilities -4 4.5

25. 24 Inventory Turnover is a fairly good factor for Value Weighted Quintile 5 fairly consistently poor performance for Value Weighted Trans/Utilities -3 -2.5