NorthCoast CAN SLIM Investment Strategy For Presentation to Morgan Stanley Wealth Management Financial Advisors A growth portfolio with downside risk protection This presentation is to report on the investment strategies as reported by NorthCoast Asset Management and is for illustrative purposes only. The information contained herein is obtained from multiple sources and believed to be reliable. Information has not been verified by Morgan Stanley Wealth Management and may differ from documents created by Morgan Stanley Wealth Management. You can obtain a copy of the Morgan Stanley Wealth Management Profile from the Morgan Stanley Wealth Management Performance Analytics. For additional information on other programs, please speak to Alex Dempster (adempster@northcoastam.com) at (203) 532-7000.
30+ years of firm-level investment management experience 13+ year partnership with Investor s Business Daily managing the CAN SLIM Investment Program 20+ unique investment offerings to meet the needs and objectives of investors from income to growth and alternative opportunities 30+ member professional team 7 member portfolio management team with an institutional skill set in global tactical asset allocation and security selection 15 licensed investment advisors Firm overview as of 9/30/2018 2
NorthCoast partners with top institutions to deliver industry leading services NorthCoast CAN SLIM available at Morgan Stanley since 2007. Approved on CES platform in 2014 and now available on single-contract UMA platform. 13-year partnership as the investment arm for one of the country s most distributed weekly financial publications. Utilizing the world s largest provider of Exchange-Traded Funds (ETFs) to construct and manage investment portfolios. 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 Asset Management LLC. 3
NorthCoast CAN SLIM A hedged equity strategy NorthCoast CAN SLIM invests in leading growth stocks in favorable market environments and scales to cash to preserve gains when bear market risk is high. Positions are scored, selected and managed through a combination of CAN SLIM guidelines and a proprietary stock scoring system designed to build a comprehensive growth portfolio. CAN SLIM is a system of stock analysis introduced by William O Neil, founder of Investor s Business Daily newspaper, and author of the bestselling book: How to Make Money in Stocks. O Neil carefully analyzed the top-performing stocks dating back to 1953 and identified 7 characteristics they all shared. The 7 characteristics provide the foundation for the stock selection methodology in the CAN SLIM Investment Program and are complemented by enhanced signals and metrics utilized by NorthCoast to deliver a long-term growth solution. 2018 marks the 13 th year of partnership between Investor s Business Daily and NorthCoast Asset Management. 4
Portfolio Construction An individual stock SMA that combines variable market exposure and active security selection Ability to shift between 0% - 100% equity exposure, based on market environment Proprietary scoring model with a universe of 3,000+ stocks filtered by CAN SLIM attributes and enhanced metrics Holds between 0 40 Individual Stocks, targeting a 2% - 4% position weighting 5
Determine Equity Exposure Step 1 Investment Process We have found that disciplined, data-driven investing outperforms intuition over time. We utilize comprehensive data sets to discover, interpret and leverage valuable patterns and trends. We implement a market exposure model that utilizes 40+ signals to identify optimal market exposure in changing environments. Is now a good time to invest? Understanding the factors determining equity exposure 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% CAN SLIM Equity Exposure NorthCoast CAN SLIM Equity Exposure 2007-2018 YTD 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The allocation above is shown for informational purposes only. It can change and is not a recommendation to allocate a portfolio in this manner. 6
Score & Select Stocks Step 2 Investment Process What s in a name? Understanding the factors determining stock selection We believe underlying factors drive a stock s future performance. Our research focuses on identifying these factors. We utilize 21+ individual data points across 7 broad categories. Founding Guidelines NorthCoast Enhancements C Current earnings up 20% or more Sustainable, reasonable, and industry-adjusted C A N S L I Current Earnings Growth Annual Earnings Growth New Product or Service Supply/Demand of Shares Leading Industry Institutional Support A Annual earnings increasing 20% or more Sustainable, reasonable, and industry-adjusted N S L I Product, service, or management change provides a catalyst Shares outstanding should be large and trading volume should be big as the stock price increases Buy the leading stock in a leading industry Institutional ownership by mutual funds in recent quarters should be increasing Analyst estimates of forward earnings impact and relative strength Short interest indicators and share buybacks Historical price, profitability and management trends Sell side analyst recommendations and estimates M Market Direction M Market should be in a confirmed up trend Technical indicators complemented with Valuation, Sentiment, and Macroeconomic data points Sample Factors (C) EBITDA trends vs. enterprise value; (A) Historical earnings yield relative to peer group; (A) Earnings estimates revisions; (N) Stock buy-back or issuance; (S) Stock price movement relative to information flow; (L) Trailing 12-month price trends; (I) Short borrowing activity 7
By The Numbers Maximize the upside Minimize the downside Market Participation. Less Drawdown. Lower Volatility. Annualized Return Maximum Drawdown Beta vs. S&P 500 8.0% 7.9% -18.5% 1.00-51.4% 0.55 CAN SLIM S&P 500 CAN SLIM S&P 500 CAN SLIM S&P 500 Performance results from 1/1/2007 9/30/2018 Past Performance is not indicative of future results. All investments involve risk, including loss of principal. Returns are presented net-offees. Net-of-fee returns are calculated by subtracting the highest applicable SMA fee (0.65% on an annual basis, or 0.054% monthly) on a monthly basis from the gross composite monthly return. Please reference additional important disclosure & benchmark information at the end of this document. Data sourced from Bloomberg, NorthCoast Asset Management. 8
By The Numbers Benchmark Comparison Relative Performance to Competitive Benchmarks: (+, /, Underperformance) S&P 500 Index Tactical Competitor HFRI Equity Hedge Average Index S&P 500 + Put Option 70/30 S&P 500/Cash 2007 9% 8% 3% 12% 10% 2008 26% 14% 15% -3% 16% 2009-14% -8% -13% 1% -7% 2010 5% 6% 8% 13% 9% 2011-11% -7% -1% -3% -11% 2012-6% 0% 2% 3% -1% 2013-3% 20% 14% 9% 7% 2014-1% 10% 11% 4% 3% 2015-8% -1% -6% -1% -7% 2016-8% -3% -2% -3% -5% 2017-2% 7% 6% 5% 5% 2018 3% 11% 11% 7% 6% Average -1% 4% 3% 3% 2% NorthCoast CAN SLIM outperformed competitive benchmarks by an annual average of 2% since inception. *Average relative performance is calculated on full year performance only and excludes 2018 YTD. Performance results from 1/1/2007 9/30/2018 Past Performance is not indicative of future results. All investments involve risk, including loss of principal. Returns are presented net-offees. Net-of-fee returns are calculated by subtracting the highest applicable SMA fee (0.65% on an annual basis, or 0.054% monthly) on a monthly basis from the gross composite monthly return. Please reference additional important disclosure & benchmark information at the end of this document. Data sourced from Bloomberg, NorthCoast Asset Management. 9
By The Numbers 10+ years of participating in market growth with downside protection Year-by-Year Returns 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Cumulative Returns Total Return Growth of $100,000* NorthCoast CAN SLIM 13.8-11.3 11.3 18.9-9.5 9.5 28.6 12.4-6.8 3.0 19.2 13.2 148.0 $248,026 Tactical Competitor Average 6.3-24.9 19.6 12.4-2.9 9.3 8.5 2.7-5.9 6.2 12.3 1.7 44.9 $144,890 HFRI Equity Hedge 10.5-26.7 24.6 10.5-8.4 7.4 14.3 1.8-1.0 5.5 13.3 1.9 54.0 $153,991 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 10.1 144.6 $244,632 Annualized Return (Net %) Risk Metrics (since inception vs S&P 500 Index) 1-Yr 3-Yr 5-Yr 10-Yr Since Inception (1/1/2007) Beta R2 Standard Deviation Correlation Maximum Drawdown NorthCoast CAN SLIM 20.7 12.8 9.4 9.3 8.0 0.55 60.4% 10.2% 0.78-18.5% Tactical Competitor Average 5.4 6.7 4.1 4.8 3.2 0.57 87.5% 8.8% 0.94-34.1% HFRI Equity Hedge 5.4 7.4 5.2 5.2 3.7 0.49 75.1% 8.2% 0.87-30.6% S&P 500 Index 17.2 16.6 13.2 11.2 7.9 - - 14.4% - -51.4% Performance results from 1/1/2007 9/30/2018. *Growth of $100,000 is hypothetical and shown for illustrative purposes. Past Performance is not indicative of future results. All investments involve risk, including loss of principal. Returns are presented net-offees. Net-of-fee returns are calculated by subtracting the highest applicable SMA fee (0.65% on an annual basis, or 0.054% monthly) on a monthly basis from the gross composite monthly return. Please reference additional important disclosure & benchmark information at the end of this document. Data sourced from Bloomberg, NorthCoast Asset Management. 10
Position CAN SLIM into a client s portfolio Complement a portfolio with CAN SLIM as the tactical/satellite piece Diversify. Can offer low correlation to standard asset classes and strategic allocations. Utilized as a tactical sleeve or a growth supplement, CAN SLIM is designed to complement an existing strategic allocation. Defend. Ability to shift to 100% cash equivalents when bear market risk is high. The portfolio s daily management seeks to adapt to the ever-changing market environment. Differentiate. The only separately-managed-account to use the time-tested CAN SLIM investment system, developed by William O Neill, founder of Investor s Business Daily. Allocation is for educational & illustrative purposes only is not a recommendation to allocate a portfolio in this manner. 11
Portfolio Management Team Expertise in quantitative research with MS concentrations in economics, computer science, engineering, statistics, and computational finance Patrick Jamin CFA, FRM Chief Investment Officer Julia Zhu CFA, FRM SVP Market & Security Research Yaqiu Li SVP Portfolio Construction 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 Superieure des 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 Slava Malkin Senior Vice President 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 12
Past Performance does not guarantee or indicate future results. Investing entails risks, including possible loss of some or all of the investor s principal. NorthCoast Asset Management LLC claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. NorthCoast Asset Management LLC has been independently verified for the periods August 1, 2006 through December 31, 2017. The firm is defined as NorthCoast Asset Management LLC ( NorthCoast ). NorthCoast 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. NorthCoast is located in Greenwich, CT, and is not affiliated with any parent organization and has no other offices operating under the same brand name. 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. Returns are presented net-of-fees. Net-of-fee returns are calculated by subtracting the highest applicable SMA fee (0.65% on an annual basis, or 0.054% monthly) on a monthly basis from the gross composite monthly return. The composite contained 5% or fewer non fee paying accounts at the end of each year. If any account makes an addition >/= 20% of the overall account value on the day prior to the addition, the account is removed from the composite for the month. The account is then treated as a new account. No changes are made for withdrawals. 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. The composite was created in December 2009.To obtain a compliant presentation for the associated strategy, please contact one of our advisors at 800.274.5448. 13
Tactical Competitor Average: 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. S&P 500 Index: 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. HFRI Equity Hedge (Total) Index: The HFRI Monthly Indices ("HFRI") are a series of benchmarks designed to reflect hedge fund industry performance by constructing equally weighted composites of constituent funds. Equity Hedge Investment Managers maintain positions both long and short in primarily equity and equity derivative securities. S&P 500 + Put Option: This Annual-Options methodology replicates the returns observed by an investor buying exposure in the S&P 500 Index, and simultaneously buying an at-themoney one-year European Put option on the S&P500. This investor would pay the option premium upfront, invest the remainder of the capital in the S&P500, and receive dividends, price appreciation and the value of the option, if any, at expiration. 70/30 S&P 500 / Cash: 70% multiplied by S&P 500 index return plus a 30% allocation to cash. The information contained herein has been prepared by NorthCoast Asset Management LLC 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 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. 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. 14
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