The Timely Case for Quality and Value Stocks

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1 Click here to visit the Barrow Funds website When you click on link above, you are leaving the Barrow Street Advisors website BARROW STREET ADVISORS The Timely Case for Quality and Value Stocks December 2016

2 Executive Overview Outperformance Quality and Value have outperformed the market over rolling 3-year periods on average by 13.4% and 13.2%, respectively. This is based on data since December 1994 for the S&P 500 Quality Index and since June 1995 for the S&P 500 Pure Value Index. Consistency On a rolling 3-year basis, this outperformance has been consistent. Opportunity The periods when Quality and Value are out of favor have represented the best time to invest in these styles based on historic subsequent performance. Source: Bloomberg Data is as of 9/30/16 and is provided for illustrative purposes only. Market information shown (such as that of the S&P 500 Index, S&P 500 Quality Index and S&P 500 Pure Value Index) is inclusive of reinvestment of dividends and shows relative market performance for the periods indicated. Market index information shown is based on widely available information believed to be reliable; however, Barrow Street makes no guarantee or warranty hereby as to the completeness or accuracy of such data. Information herein should not be construed as an offer to sell, or a solicitation of an offer to buy, an interest in any funds or accounts managed by BSA or as a recommendation for or against any security or financial product. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. Barrow Street Advisors LLC Every investment involves the risk of loss. Please see the last page of this presentation for additional important disclosures. Page 2

3 Historical Quality Overview

4 S&P 500 Quality Index Overview S&P 500 Quality Index: Designed to track high quality stocks in the S&P 500 using a quality score, which is calculated based on a blend of return on equity, financial leverage, and quality of earnings (accruals ratio) Construction Methodology Universe Members of S&P 500 Constituent Selection Top 100 eligible securities are selected for index by quality score. The score is based on a composite of each stock s return on equity, financial leverage, and accruals ratio Weighting Components are weighted by a product of quality score and the float-adjusted market cap Barrow Street Advisors LLC Page 4

5 Rolling 3-Year Quality Returns S&P 500 Quality Index S&P 500 Index Relative Rolling 3-Year Returns (12/94 9/16) 40% S&P 500 Index outperforms S&P 500 Quality Index leading up to tech bubble S&P 500 Index outperforms S&P 500 Quality Index leading up to financial crisis S&P 500 Index outperforms S&P 500 Quality Index leading up to... 30% 20% 10% 0% -10% -20% 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13 12/14 12/15 9/16 Source: Barrow Funds and Bloomberg S&P 500 Quality Index minus S&P 500 Index Data is as of 9/30/16 and is provided for illustrative purposes only. Market information shown (such as that of the S&P 500 Index and S&P 500 Quality Index) is inclusive of reinvestment of dividends and shows relative market performance for the periods indicated. Market index information shown is based on widely available information believed to be reliable; however, Barrow Street makes no guarantee or warranty hereby as to the completeness or accuracy of such data. Information herein should not be construed as an offer to sell, or a solicitation of an offer to buy, an interest in any funds or accounts managed by BSA or as a recommendation for or against any security or financial product. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. Barrow Street Advisors LLC Every investment involves the risk of loss. Please see the last page of this presentation for additional important disclosures. Page 5

6 Rolling 3-Year Quality Returns S&P 500 Quality Index Returns Outperform the S&P 500 Index in 93% of 3-Year Rolling Periods (12/94 9/16, measured monthy) Outperform 150% S&P 500 Quality Index 100% 50% Underperform 0% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% 140% 160% -50% S&P 500 Index Source: Bloomberg Data is as of 9/30/16 and is provided for illustrative purposes only. Market information shown (such as that of the S&P 500 Index and S&P 500 Quality Index) is inclusive of reinvestment of dividends and shows relative market performance for the periods indicated. Market index information shown is based on widely available information believed to be reliable; however, Barrow Street makes no guarantee or warranty hereby as to the completeness or accuracy of such data. Information herein should not be construed as an offer to sell, or a solicitation of an offer to buy, an interest in any funds or accounts managed by BSA or as a recommendation for or against any security or financial product. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. Barrow Street Advisors LLC Every investment involves the risk of loss. Please see the last page of this presentation for additional important disclosures. Page 6

7 Historical Relative Quality Returns S&P 500 Quality Index NAV/S&P 500 Index NAV Relative Wealth Chart (12/94 9/16) Beginning in November 1998 the S&P 500 Index outperforms the S&P 500 Quality Index until the Tech Bubble bursts in March 2000 From October 2002 until the lead up to the Financial Crisis, the S&P 500 Index and the S&P 500 Quality Index move in lock step Since September 2011 the S&P 500 Index and the S&P 500 Quality Index have moved together /94 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13 12/14 12/15 9/16 S&P 500 Quality Index/ S&P 500 Index Line Trending Up = Outperformance Line Trending Down = Underperformance Source: Bloomberg Data is as of 9/30/16 and is provided for illustrative purposes only. Market information shown (such as that of the S&P 500 Index and S&P 500 Quality Index) is inclusive of reinvestment of dividends and shows relative market performance for the periods indicated. Market index information shown is based on widely available information believed to be reliable; however, Barrow Street makes no guarantee or warranty hereby as to the completeness or accuracy of such data. Information herein should not be construed as an offer to sell, or a solicitation of an offer to buy, an interest in any funds or accounts managed by BSA or as a recommendation for or against any security or financial product. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. Barrow Street Advisors LLC Every investment involves the risk of loss. Please see the last page of this presentation for additional important disclosures. Page 7

8 Historical Value Overview

9 S&P 500 Value Index Overview S&P 500 Pure Value Index: Designed to track stocks in the S&P 500 that exhibit the strongest value characteristics using a style attractiveness-weighting scheme Construction Methodology Universe Members of S&P 500 with strongest value characteristics Constituent Selection Securities are selected for index by a value score. The score is based on a composite of each stock s ratio of price to book value, price to earnings, and sales to price Weighting Components are weighted according to their value score Barrow Street Advisors LLC Page 9

10 Rolling 3-Year Value Returns S&P 500 Pure Value Index S&P 500 Index Relative Rolling 3-Year Returns (6/95 9/16) 170% S&P 500 Index greatly outperforms S&P 500 Pure Value Index leading up to tech bubble S&P 500 Index Outperforms S&P 500 Quality Index Leading Up to Tech Bubble S&P 500 Index outperforms S&P 500 Pure Value Index leading up to financial crisis S&P 500 Index Outperforms S&P 500 Quality Index Leading Up to the Financial Crisis S&P 500 Index outperforms S&P 500 Pure Value Index over the last three years S&P 500 Index Outperforms S&P 500 Quality Index Leading Up to % 70% Average 3- Year Rolling Outperformance = 13.20% 20% -30% -80% 6/98 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13 12/14 12/15 9/16 S&P 500 Pure Value Index minus S&P 500 Index Source: Bloomberg Data is as of 9/30/16 and is provided for illustrative purposes only. Market information shown (such as that of the S&P 500 Index and S&P 500 Pure Value Index) is inclusive of reinvestment of dividends and shows relative market performance for the periods indicated. Market index information shown is based on widely available information believed to be reliable; however, Barrow Street makes no guarantee or warranty hereby as to the completeness or accuracy of such data. Information herein should not be construed as an offer to sell, or a solicitation of an offer to buy, an interest in any funds or accounts managed by BSA or as a recommendation for or against any security or financial product. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. Barrow Street Advisors LLC Every investment involves the risk of loss. Please see the last page of this presentation for additional important disclosures. Page 10

11 Rolling 3-Year Value Returns S&P 500 Pure Value Index Returns Outperform the S&P 500 Index in 67% of 3-Year Rolling Periods (6/95 9/16, measured monthly) 250% S&P 500 Pure Value Index 200% 150% 100% 50% Outperform Underperform 0% -100% -50% 0% 50% 100% 150% 200% -50% S&P 500 Index -100% Data is as of 9/30/16 and is provided for illustrative purposes only. Market information shown (such as that of the S&P 500 Index and S&P 500 Pure Value Index) is inclusive of reinvestment of dividends and shows relative market performance for the periods indicated. Market index information shown is based on widely available information believed to be reliable; however, Barrow Street makes no guarantee or warranty hereby as to the completeness or accuracy of such data. Information herein should not be construed as an offer to sell, or a solicitation of an offer to buy, an interest in any funds or accounts managed by BSA or as a recommendation for or against any security or financial product. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. Barrow Street Advisors LLC Every investment involves the risk of loss. Please see the last page of this presentation for additional important disclosures. Page 11

12 Historical Relative Value Returns S&P 500 Pure Value Index NAV/S&P 500 Index NAV Relative Wealth Chart (6/95 9/16) The S&P 500 Pure Value Index greatly underperforms leading up to the Tech Bubble From mid-2000 until mid-2007 the S&P Pure Value Index outperforms the S&P 500 Index The S&P Pure Value Index underperforms the S&P 500 Index during the financial crisis Since the S&P 500 Pure Value Index rolled over in April 2014 it has continued to underperform the S&P 500 through the present /95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13 12/14 12/15 9/16 S&P 500 Pure Value Index/S&P 500 Index Line Trending Up = Outperformance Line Trending Down = Underperformance Data is as of 9/30/16 and is provided for illustrative purposes only. Market information shown (such as that of the S&P 500 Index and S&P 500 Pure Value Index) is inclusive of reinvestment of dividends and shows relative market performance for the periods indicated. Market index information shown is based on widely available information believed to be reliable; however, Barrow Street makes no guarantee or warranty hereby as to the completeness or accuracy of such data. Information herein should not be construed as an offer to sell, or a solicitation of an offer to buy, an interest in any funds or accounts managed by BSA or as a recommendation for or against any security or financial product. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. Barrow Street Advisors LLC Every investment involves the risk of loss. Please see the last page of this presentation for additional important disclosures. Page 12

13 For further details or information please contact Barrow Street Advisors: (203) barrowstreetadvisors.com Disclosures This presentation does not constitute investment advice or an offer to sell or buy any securities, and are intended for informational purposes only. These materials are confidential, are intended solely for the information of the person to whom it was intended and may not be republished or redistributed, in whole or in part, to any third parties. Past performance is no guarantee of future results and every investment may lose money. The performance discussed in this presentation reflects a relatively short time period which may not be representative of future performance. No guarantees or assurances are or can be made as to performance. This presentation contains forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements are inherently uncertain, because the matters they describe are subject to known (and unknown) risks, uncertainties and other unpredictable factors, many of which are beyond Barrow Street Advisors, LLC s control. Actual results could and likely will differ, sometimes materially, from those projected or anticipated. We are not undertaking any obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise. You should not take any statements regarding past trends as a representation those trends or activities will continue in the future. All data presented in this presentation was prepared by Barrow Street Advisors, LLC using information we believe to be correct at the time of production, but may be subject to revision and/or adjustment. Information we use may be internally derived or may come from outside sources including, but not limited to, Morgan Stanley, Jefferies, Bloomberg and Yahoo Finance. Market indices are included in this report only as context reflecting general market results during the period and should not be considered a comparable benchmark. Accordingly, no representation is made that the performance or volatility of the Fund will track or otherwise reflect any particular index. The S&P 500 Total Return Index is an index of 500 stocks chosen for market size, liquidity, and industry grouping, among other factors, and is designed to be a leading indicator of the risk/return characteristics of the U.S. large cap equity universe. Barrow Street Advisors LLC Page 13