CAN SLIM Investment Program

Transcription

1 CAN SLIM Investment Program Investor Presentation N ORTHC OAST I NVESTMENT A DVISORY T EAM INFO@ NORTHCOASTAM. COM

2 N ORTHC OAST A SSET M ANAGEMENT EXPERIENCE STABILITY Based in Greenwich, CT $1.8 billion in firm AUM (as of 3/31/2018) 32 Professionals 100% proprietary research, trading, and management Systematic and rules -based investment execution Daily risk controls that proved their mettle in drawdowns of and 2008 Exclusive Agreement with Investor s Business Daily ETF Partnership with BlackRock ishares Recognized as a Financial Times Top 300 Registered Investment Adviser (2014, 2015) ishares and BlackRock are registered trademarks of BlackRock, Inc. and its affiliates ( BlackRock ) and are used under license. BlackRock makes no representations or warranties regarding the advisability of investing in any product or service offered by NorthCoast Asset Management LLC. BlackRock has no obligation or liability in connection with the operation, marketing, trading or sale of any product or service offered by NorthCoast. The 2015 Financial Times Top 300 Registered Investment Advisors is an independent listing produced by the Financial Times (June, 2015). The FT 300 is based on data gathered from RIA firms, regulatory disclosures, and the FT s research. As identified by the FT, the listing reflected each practice s performance in six primary areas, including assets under management, asset growth, compliance record, years in existence, credentials and accessibility. Neither the RIA firms nor their employees pay a fee to The FinancialTimes in exchangefor inclusionin the FT 300. Firm data as of 3/31/2018 2

3 F IRM O VERVIEW S YSTEMATIC I NVESTMENT P ROCESS Daily quantitative research Active portfolio construction & security selection Disciplined, rules-based risk controls Significant investment made in risk management systems I NSTITUTIONAL S TRUCTURE 30 Professionals (including Portfolio Management, Research, Trading, Investor Relations, Operations, & Compliance) Managing 19 separate account strategies & 1 mutual fund across multiple asset classes Diligent compliance program led by experienced compliance officer and counsel T ALENTED R ESEARCH T EAM 7 member Investment Committee - Expertise in quantitative research Career experience with Research Affiliates, Pyramis, and Numeric 2 CFAs, 2 MBAs, and 7 Masters with concentrations in computer science, engineering, statistics, and computational finance E XTENSIVE P ARTNERSHIPS Exclusive agreement with Investor s Business Daily utilizing the CAN SLIM investment program ETF partnership with ishares by BlackRock Separate account platform partners include Fidelity, Morgan Stanley, Wells Fargo, UBS, RBC, Raymond James, and others 3

4 I NVESTMENT P HILOSOPHY We believe a thoroughly researched and systematic investment process rooted in common sense will outperform over time. Our research shows that markets and securities reward certain factors and punish others. To capitalize on these factors, we employ a market exposure model and a security selection model based on fundamental rationales. These rationales are confirmed by thorough quantitative analysis, are systematically implemented and complemented with extensive risk controls. This proven and systematic investment process relies on portfolio managers to validate the model outputs daily and traders to implement the strategy efficiently. To maintain, refine and enhance our competitive edge, we remain committed to a continuous and comprehensive research effort. 4

5 I NVESTMENT T EAM Patrick Jamin, CFA, FRM Chief Investment Officer Julia Zhu, CFA, FRM SVP Market & Security Research Yaqiu Li, SVP Portfolio Construction Slava Malkin Senior Vice President Partner, Numeric Investors (European / World Fundamental Statistical Arbitrage) Partner, Portfolio Manager, Standard Pacific Capital; Global Long/Short Equity Fund Senior Quantitative Analyst, Invesco; Global Quantitative Fund M.B.A., Harvard Business School, Baker Scholar, Arthur Sachs Scholar M.S. Telecommunications, Ecole Nationale Superieuredes Telecommunications de Paris Ingenieur de I Ecole Polytechnique, Ecole Polytechnique Vice President, Research Affiliates - Quantitative research; equities and asset allocation Associate, First Quadrant Conducted research on GTAA and tactical currency allocation Master of Economics, Yale University, PhD Candidate M.B.A. with concentration in Finance, University of Southern California Climate Modeling National Key Lab of Atmospheric Science, Chinese Academy of Sciences M.S. Quantitative and Computational Finance & M.S. in Statistics, Georgia Tech PhD Candidate CFA Level III Candidate Quantitative currency trading strategies BNP Paribas Portfolio Manager of global macro strategies Research in Global Tactical Asset Allocation strategies Deutsche Asset Management M.S. in Statistics, Harvard University Jason Krugly Vice President Research experience with Bank of America, Merrill Lynch, Credit Suisse, Deutsche Bank M.S. in Financial Engineering, Baruch College B.S. & M.S. in Computer Science, Polytechnic Institute of New York University Sumanth Amarchinta Vice President Senior Investment Analyst, Pyramis Global Advisors - Quantitative research M.S. in Computer Engineering, Rochester Institute of Technology B.S. in Electrical Engineering, Roorkee Indian Institute of Technology 5

6 H EADLINES 6

7 W HITEPAPER: LONG/CASH E QUITY S&P500 HFRI Equity Hedge Return 18.2% 23.7% Volatility 13% 9% Drawdown -15.4% -9.0% S&P500 HFRI Equity Hedge Return -0.9% 5.4% Volatility 16.1% 9.2% Drawdown -50.9% -30.6% S&P500 HFRI Equity Hedge Return 13.2% 5.1% Volatility 11.9% 6.9% Drawdown -16.5% -13.2% Correlation 100% 65% Beta Correlation 100% 74% Beta Correlation 100% 90% Beta Month Beta 12/31/1991-4/30/2016 HFRI Equity Hedge HFRI MN HFRI Short Biased NorthCoast Long/Cash Equity Whitepaper June Past Performance is not indicative of future results. All investments involve risk, including loss of principal. Source: Bloomberg, HFRI 7

8 S EPARATELY M ANAGED A CCOUNT P LATFORM Over the past decade, NorthCoast has evolved as a result of investor demand and expanded its separate account offerings. Transparency Access to daily holdings and transactions Liquidity Managed account structure offers access to capital without lockups Customization Ability to customize portfolio based on risk exposures, investor mandate, or risk/return attributes. Cost Provide a low cost option giving clients a true alignment of interests Hybrid Bridging the gap of simply choosing between a long-only manager and a Long/Short Manager Learn more about the CAN SLIM Investment Program. Reference additional information located in the Appendix of this presentation. 8

9 I NVESTMENT P ROCESS NorthCoast applies a multi-step investment process to construct, manage and implement its portfolio solutions. Market Outlook Stock Selection Portfolio Construction Risk Management Proprietary market outlook determined by 40+ signals across four dimensions identifies opportunities & risks Daily market signal analysis Ongoing research assessment of market signals ensures accuracy and relevance Rigorous research shows stocks exhibit common characteristics before gains Daily scoring of 3,000+ stocks with 20+ signals Seeking stocks with superior risk-adjusted potential Dynamic optimizer properly maintains riskadjusted portfolio daily Assessment of total transaction costs and estimate of implementation shortfall Higher concentrated portfolio enhances long-term alpha Proprietary risk model Controls embedded through investment process Combination of active and passive risk management methods Daily monitoring of positions 9

10 D YNAMIC M ARKET E XPOSURE Market Outlook Stock Selection Portfolio Construction Risk Management Equity Target Lelvel TECHNICAL 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Market outlook determined by 40+ signals across four dimensions identifies opportunities & risks to determine exposure Momentum Reversal Fear SENTIMENT Consumers Producers Credit Surprise MACRO- ECONOMIC NorthCoast Equity Exposure Model 1/1/ /31/2016 Leading Indicators Federal Reserve Jobs Geopolitical VALUATION Technicals Sentiment Macroeconomic Valuation 0% Historical Forward Rate Adjusted Inflation Adjusted The chart above shows a hypothetical simulation of NorthCoast s proprietary market outlook analysis tool. This simulation is generated by using multiple data points across four broad dimensions including Technical, Sentiment, Macroeconomic, and Valuation indicators. The daily result determines equity exposure. It does not represent actual equity exposure. 10

11 S CORING S TOCKS Market Outlook Stock Selection Portfolio Construction Risk Management We believe underlying factors drive a stock s future performance (positive or negative). Our research focuses on identifying these factors. We utilize 21 individual data points across 7 broad categories. Valuation Comprehensive Value Sentiment Management Behavior Diffusion of Information Technical Institutional Attention Hypothetical Stock A Example Category Score Weighting Factor Category Score Example Factor 0.4 EBITDA trends vs. Enterprise value 2.4 Historical Earnings Yield relative to peer group 1.0 Earnings Estimates revisions 0.4 Stock buy-back or issuance 2.3 Stock price movement relative to information flow 1.0 Price trends in a 12 month window -0.7 Short borrowing activity Composite Score +2.1 Stock Score from -3 to +3 (on a relative scale) NorthCoast s proprietary model scores 3,000 stocks daily on a scale of -3 and +3 based on their expected performance over the next 12 months. 12/31/01-12/31/2016, bottom quintile stocks returned +1.5% annually vs % Universe 12/31/01-12/31/2016, top quintile stocks returned +20.7% annually vs % Universe The data above shows the performance of the top 20%, the total universe, and bottom 20% of stocks ranked according to a proprietary score-based model developed by NorthCoast. Past Performance is not indicative of future results. All investments involve risk, including loss of principal. 11

12 P ORTFOLIO C ONSTRUCTION Market Outlook Stock Selection Portfolio Construction Risk Management Daily Oversight Dynamic optimizer properly maintains risk-adjusted portfolio daily Proprietary internal and external transaction cost controls Corporate actions data to ensure integrity of inputs Portfolio management validation of trade (Data integrity, updated news, special situations) Daily portfolio rebalancing minimizes alpha decay Holdings-level transparency Systematic implementation coupled with daily oversight seeks to maximize risk-adjusted return Reduce exposure when bear market risk is high 0 2% # of Holdings current holdings 36 Position Size 2.6% Average Weighting Sector Allocation 40 4% +/- 10% weighting within S&P 500 sectors Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Materials Information Technology Telecommunication Services Utilities Cash Portfolio data as of 3/31/

13 R ISK C ONTROLS Market Outlook Stock Selection Portfolio Construction Risk Management Risk management is a continuous, multi-dimensional process administered throughout the investment cycle Risk Control Account Onboarding (Special Handling) Daily Monitoring Beta Reduction Market Exposure Sell-Stops Profit-Takes Position Sizing Sector Allocation Sustainable Research Management Implementation New cash accounts take 1-3 months to achieve current allocation target Attractive entry points targeted for new positions to reduce drawdown potential Positions monitored daily and action executed at strategic inflection points Analyze volatility and drawdown Active market outlook monitors macro environment Customized sell-stop target per position, depending on expected volatility of individual stock Lock in profit with every 25% price increase Range from target exposure from 2% to 4% to minimize stock specific risk on the downside Maintains +/- 10% allocation with market sector allocation to reduce sector-specific risk Assessing model behavior for sustained accuracy and relevance 13

14 CAN SLIM PORTFOLIO DOLLAR VALUES Equity Exposure Level 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% CAN SLIM Investment Program vs. Competititve Benchmarks Hypothetical Growth of $100,000: 1/1/2007-3/31/2018 Equity Exposure CAN SLIM S&P 500 Index Aggressive Competitor Avg Tactical Competitor Avg 0% $250,000 $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 Growth of $100, Total Thru 3/31/2018 CAN SLIM 12.5% -12.2% 10.1% 17.5% -10.8% 7.9% 26.9% 10.9% -8.0% 1.6% 17.5% 2.7% 94.9% Tactical Competitor Avg 6.3% -24.9% 19.6% 12.4% -2.9% 9.3% 8.5% 2.7% -5.9% 6.2% 12.3% -1.5% 40.4% Aggressive Competitor Avg 7.4% -34.4% 29.3% 13.4% -3.4% 13.4% 20.9% 5.6% -2.7% 7.7% 16.1% -1.1% 73.9% S&P 500 Index 4.9% -37.4% 25.6% 14.4% 1.5% 15.2% 31.5% 13.0% 0.7% 11.2% 21.1% -0.9% 120.2% Past Performance is not indicative of future results. Appendix for additional disclosure information. All investments involve risk, including loss of principal. Results are presented net-of-fees. Please reference the 14

15 CAN SLIM PORTFOLIO DOLLAR VALUES MONTHLY (%) - NET OF FEES AND EXPENSES JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC YEAR TOTAL 94.9 Past Performance is not indicative of future results. Appendix for additional disclosure information. All investments involve risk, including loss of principal. Results are presented net-of-fees. Please reference the 15

16 CAN SLIM PORTFOLIO DOLLAR VALUES Annualized Returns (Net) -- % As of 3/31/2018 Competitive Risk Metrics (vs. S&P 500 Index) 1-Year 3-Year 5-Year 10-Year Since Inception CAN SLIM Aggressive Competitor Average Tactical Competitor Average S&P /31/2006 3/31/2018 CAN SLIM Tactical Competitor Average Aggressive Competitor Average S&P 500 Beta R % 87.5% 95.2% 100.0% Standard Deviation 10.3% 8.5% 12.2% 13.9% Correlation Max Drawdown -19.6% -34.1% -45.2% -51.4% Past Performance is not indicative of future results. Appendix for additional disclosure information. All investments involve risk, including loss of principal. Results are presented net-of-fees. Please reference the 16

17 S UMMARY PORTFOLIO DOLLAR VALUES CAN SLIM Investment Program is a methodical alternative to passive buy and hold strategies. Consider the following benefits for your clients: Accessible Complementary A $100,000 account minimum Low correlation to typical benchmarks making it an appealing complement to a strategic or asset allocation portfolio Defensive Disciplined Able to shift between 100% equity and 100% cash equivalents or anywhere between, depending on market conditions Quantitative research and rules-based management Transparent Separately managed account (SMA) structure provides realtime account access 17

18 18

19 E NHANCEMENTS TO S TRATEGY F OUNDATION Creating an institutional product driven from a retail-centric, time-tested investment program utilizing quantitative, rules-based research. What is C-A-N-S-L-I-M? A stock management process derived from researching the top-performing stocks in history and identifying 7 (C-A-N-S-L-I-M) characteristics that each stock shared prior to significant price gains. Introduced and created by distinguished investor, William O Neil; Founder of the Investor s Business Daily newspaper & Author of the best-selling book: How to Make Money in Stocks. Built fromits retail origins, NorthCoast has engineered and evolved into a highly institutional investment firm. Factors Founding Guidelines Institutional Enhancements C Current Earnings Growth Current earnings up 20% or more Sustainable, reasonable, and industry-adjusted A Annual Earnings Growth Annual earnings increasing 20% or more Sustainable, reasonable, and industry-adjusted N S New Product or Service Supply/Demand of Shares Product, service, or management change provides a catalyst Shares outstanding should be large and trading volume should be big as the stock price increases L Leading Industry Buy the leading stock in a leading industry I M Institutional Sponsorship Market Direction Institutional ownership by mutual funds in recent quarters should be increasing The market should be in a confirmed up trend since three out of four stocks follow the market s overall trend Analyst estimates of forward earnings impact and relative strength Short interest indicators and share buybacks Historical price, profitability and management trends Sell side analyst recommendationsand estimates Market Technicals complemented with Valuation, Sentiment, and Macroeconomic indicators 19

20 - - I NSTITUTIONAL R ESEARCH P IPELINE MANAGING THE PRINCIPLES Ideas supported by Investment, Economic and Accounting knowledge PITCH Pitch & Prioritize Hours Establish potential and resource cost per phase Develop tests and goals of Phase 1 Present to Team and gather feedback - Prioritize Scientific approach to testing and prioritizing Phase system improves 5X speed and efficiency versus a linear research pipeline 1000s of ideas generated, 100+ ideas tested, 40 projects completed per year PHASE 1 PHASE 2 Feasibility Tests to confirm feasibility, rationale and potential Present results and steps for Phase 2 Validity In-depth evaluation of idea, custom tests Confirm validity, added value and model synergies IMPLEMENTATION Weeks Months 20

21 D ISCLOSURE I NFORMATION Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. You can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock s beta is 1.2, it's theoretically 20% more volatile than the market. Alpha: A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a security and compares its risk-adjusted performance to a benchmark index. The excess return of the security relative to the return of the benchmark index is a security's alpha. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. R-squared: A statistical measure that represents the percentage of a security's movements that can be explained by movements in a benchmark index. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the portfolio s performance patterns have been in line with the index. A portfolio with a low R-squared (70 or less) doesn't act much like the index. Standard Deviation: A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility. Sharpe Ratio: A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is: The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed. Correlation: Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random. Drawdown (Max Drawdown): The peak-to-trough decline during a specific record period of an investment. A drawdown is usually quoted as the percentage between the peak and the trough. For our purposes, the max drawdown refers to the maximum peak to trough decline between January 1, 2001 and the present time. 21

22 D ISCLOSURE I NFORMATION Past Performance is not indicative of future results. All investments involve risk, including loss of principal. The firm is defined as NorthCoast Asset Management LLC. NCAM was established in 1988 and is an independent Registered Investment Advisor (RIA) registered with the Securities and Exchange Commission (SEC). The firm is a full service investment management company. The firm specializes in quantitative investment programs. NCAM is located in Greenwich, CT, and is not affiliated with any parent organization and has no other offices operating under the same brand name. Returns are presented net-of-fees. Net-of-fee returns are reduced by trading costs and the portfolio s actual management fee. Valuations are computed and performance is reported in U.S. dollars. A complete list of composite descriptions is available upon request. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. To obtain a compliant presentation for the associated strategy, please contact one of our advisors at This information contained herein has been prepared by NCAM on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. This material is for informational and illustrative purposes only and should not be viewed as a recommendation or a solicitation to buy or sell any securities or investment products or to adopt any investment strategy. The CAN SLIM investment program is a tactical, long-term growth strategy focused on capital appreciation with a secondary objective of downside protection. The strategy invests in leading growth stocks during favorable equity environments and scales to cash to preserve gains when bear market risk is high. The strategy adheres to a flexible investment mandate that allows for allocation shifts that range between 0%-100% exposure to equities. Positions are managed (purchased and liquidated) through a combination of CAN SLIM guidelines and a proprietary stock scoring system designed to build a comprehensive growth portfolio. Benchmarks: Aggressive Competitor Avg = Morningstar Allocation--70% to 85% Equity Category Average. Funds in allocation categories seek to provide both income and capital appreciation by investing in multiple asset classes, including stocks, bonds, and cash. These portfolios are dominated by domestic holdings and have equity exposures between 70% and 85%.. Tactical Competitor Avg = Morningstar Tactical Allocation Category Average. Tactical Allocation portfolios seek to provide capital appreciation and income by actively shifting allocations between asset classes. These portfolios have material shifts across equity regions and bond sectors on a frequent basis. To qualify for the Tactical Allocation category, the fund must first meet the requirements to be considered in an allocation category. Next, the fund must historically demonstrate material shifts within the primary asset classes either through a gradual shift over three years or through a series of material shifts on a quarterly basis. The cumulative asset class exposure changes must exceed 10% over the measurement period. The S&P 500 Index is used for comparison purposes as it represents a sample of the 500 leading companies in leading industries of the U.S. economy. It is generally considered a proxy for the total market. 22

23 D ISCLOSURE I NFORMATION This information contained herein has been prepared by NorthCoast Asset Management, LLC ("NorthCoast") on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. NorthCoast has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. All opinions and views constitute judgments as of the date of writing without regard to the date on which the reader may receive or access the information, and are subject to change at any time without notice and with no obligation to update. This material is for informational and illustrative purposes only and is intended solely for the information of those to whom it is distributed by NorthCoast. No part of this material may be reproduced or retransmitted in any manner without the prior written permission of NorthCoast. NorthCoast does not represent, warrant or guarantee that this information is suitable for any investment purpose and it should not be used as a basis for investment decisions. PAST DOES NOT GUARANTEE OR INDICATE FUTURE RESULTS. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy. The reader should not assume that any investments in companies, securities, sectors, strategies and/or markets identified or described herein were or will be profitable and no representation is made that any investor will or is likely to achieve results comparable to those shown or will make any profit or will be able to avoid incurring substantial losses. Performance differences for certain investors may occur due to various factors, including timing of investment. Investment return will fluctuate and may be volatile, especially over short time horizons. INVESTING ENTAILS RISKS, INCLUDING POSSIBLE LOSS OF SOME OR ALL OF THE INVESTOR'S PRINCIPAL. The investment views and market opinions/analyses expressed herein may not reflect those of NorthCoast as a whole and different views may be expressed based on different investment styles, objectives, views or philosophies. To the extent that these materials contain statements about the future, such statements are forward looking and subject to a number of risks and uncertainties. 23