Cornerstone US Long/Short Alpha

Transcription

1 Cornerstone US Long/Short Alpha

2 Strategy Overview: The investment objective of the Strategy is to earn attractive riskadjusted returns that are uncorrelated with the broad equity market, while seeking to mitigate volatility. The Strategy seeks to profit by detecting and exploiting perceived mispricings in individual securities. By constructing a portfolio of approximately equal dollar amounts of long and short positions, the Strategy seeks to generate returns that are independent of the direction of the underlying market.

3 Strategy Philosophy: The investment team believes the key to investment success is adhering to a disciplined and intuitive investment process that brings together the important elements of security analysis, risk management, and superior portfolio construction. The team uses innovative portfolio construction techniques and sophisticated trading technologies in an effort to provide predictable alpha generation for its clients. Although markets are generally efficient, the investment team believes inefficiencies can and do exist, creating investment opportunities and the potential to generate alpha. To detect and exploit these opportunities, the team utilizes a proprietary multi-factor stock selection model to identify high conviction buy and sell ideas and seeks to build a portfolio maximizing expected returns on a risk-adjusted basis.

4 Portfolio Construction: The investment team utilizes a proprietary multi-factor stock selection model to identify high conviction buy and sell ideas and seeks to build a portfolio maximizing expected returns on a risk-adjusted basis. The alpha model generates excess return forecasts through the combination of relative value, sentiment, and price momentum factors. The team combines these forecasts with volatility forecasts derived from commercial risk models to create portfolios that seek to provide the desired trade-off between expected return and volatility. Because its model is intuitive, the investment team can quickly determine what information is driving investment decisions. If the team believes that an investment decision is flawed due to a blind spot in the model, the team will seek to either eliminate the position from the portfolio or adjust the portfolio construction process to avoid blind spots that arise at the industry, factor, or security level.

5 Risk Management: Risk management is an integral part of the investment process. Risk is controlled via regular rebalancing by an optimizer and risk model provided by Axioma. Systematic risk is controlled by limiting the net exposures to a wide variety of systematic risk factors, such as industries, sectors, and beta, in addition to those present in the risk models used in portfolio construction. Max position size: 1.00% Max gross exposure: 300% Max net exposure: ±10% Max Long Exposure: 150% Max Short Exposure: 150% Sector/Industry: ±5 net exposure

6 Winning Trade Example: February: Fund entered a short position in NII Holding Inc, due to poor trend factors, negative analyst revisions, and hedge funds were shorting it with a high degree of conviction. August: Fund covered and closed the position as stock loan fees reached extreme levels, one week before it fell further.

7 Losing Trade Example: February: Fund entered into long position in Arctic Cat Inc, due to relative cheapness of ACAT vs. peers and trend had stabilized following poor 3Q results. August: Fund sold out and closed position after poor 4Q results, a CEO change, and an increase in hedge fund activity in the name.

8 Company Overview: Cornerstone Capital Management offers fundamental and systematic long-only and liquid alternative equity strategies across multiple market capitalizations and styles including US, international, emerging, and global markets. The firm has built itself on a foundation of fundamental principles, independent thinking, and practical application of investment ideas. Cornerstone Capital Management Holdings LLC ( CCMH ) was founded in 2004 as Equity Investors Group, a division of New York Life Investment Management LLC. In January 2009, Equity Investors Group became Madison Square Investors LLC, a separate legal entity and indirect wholly-owned subsidiary of NYL. In January 2013, New York Life Insurance Company acquired an ownership stake in Minnesota-based Cornerstone Capital Management LLC. As part of the transaction, MSI changed its name to Cornerstone Capital Management Holdings LLC. The two entities are each federally registered as investment advisers but are run as one firm.

9 Management Bios: Andrew Ver Planck, CFA Senior Vice President, Lead Portfolio Manager (14 years of investment experience) Andrew joined Cornerstone Capital Management Holdings LLC (including predecessor entities) in 2006 and is the head of the Global Systematic Equity team. Andrew leads the Global Systematic research team and is responsible for all portfolio management decisions for systematically managed products. Previously, he spent three years as a Senior Quantitative Analyst at Gartmore Investment Management in London where he was part of a management team responsible for long/short market-neutral hedge funds investing in Europe, Asia, and the US. Prior to Gartmore, Andrew was a Quantitative Investment Associate at Putnam Investments in Boston where he began his career in quantitative equity research. Andrew graduated from Cornell University with a Bachelor of Science degree in operations research and industrial engineering. He holds the Chartered Financial Analyst designation from the CFA Institute. Jeremy Roethel, CFA Vice President, Portfolio Manager & Senior Analyst (12 years of investment experience) Jeremy joined Cornerstone Capital Management Holdings LLC (including predecessor entities) in 2008 and is a Portfolio Manager & Senior Analyst, responsible for the management of the firm s global systematic equity strategies. His responsibilities include oversight of our global systematic strategies and research infrastructure. Jeremy has previously worked for Merrill Lynch in London and has experience as an independent investment consultant. He began his asset management career in 1999 with DuPont Capital Management, where he was responsible for international research and analytics. Jeremy earned his MBA from the New York University Stern School of Business and graduated from the University of Delaware Honors Program with an Honors BS in finance and a BS in economics. He holds the Chartered Financial Analyst designation from the CFA Institute.