PAGE 1 Canadian Large Caps ITATIVE ECONOMICS, PORTFOLIO & STRATEGY Q2 2015 By accessing this report you have agreed to our terms of use and privacy policy on our website
ABOUT All great things are simple and can be expressed easily. Winston Churchill PAGE 2
Summary Key Points in a Nutshell PAGE 3 Quant Maven is proud to launch a high performance Canadian Large Caps portfolio with institutional level liquidity and minimal drawdowns using Compustat data. The portfolio gains on average 25% per year investing in 10 stocks. It consistently beats the S&P TSX benchmark both in a relative and absolute risk adjusted return basis. The portfolio seeks to enhance its returns by cherry picking stocks with innovative fundamental, momentum and technical factors while limiting drawdowns. This portfolio should be held as a core inside an existing well diversified portfolio. We are committed to the success of this model by investing real money in it. 5 Main Header oes In this Area
Objectives Setting a Way to Achieve Success PAGE 4 This portfolio is designed for potential subscribers with medium risk tolerance seeking exposure to Canadian issuers by following a rigorous quantitative approach. The implied volatility is that associated with equity securities. The primary investment objectives of the portfolio are to: Target long term capital appreciation among Canadian Large Caps companies. Consistently deliver solid performance by beating the S&P TSX benchmark. Minimize risk by achieving a lower correlation versus the benchmark.
Universe Defining Our Investment Environment PAGE 5 1 $billion of market cap minimum. This is what we consider a large cap in Canada although it is usually 5 $billion in the United States. 20 $million of average two quarter daily liquidity expressed as price x volume of the universe in 2015. CAN The Canadian Universe is historically highly concentrated in four sectors: financials, energy, materials and info tech. 200 Stocks passing the universe filter in 2015. They are all part of the S&P TSX Composite. We excluded trusts companies due to unfavourable tax treatment for foreign investors. 10 Stocks in our portfolio, are chosen from the best ranking decile.
MODEL Those who are successful at investing usually like to KISS: Keep It Simple & Sweet Quant Maven PAGE 6
Factors Choosing Them Right PAGE 7 We tested individually hundreds of factors from the academic literature as well as our own creations across our universe to find the ones generating the most alpha over the last two investment cycles. We selected the best standalone and synergistic factors based on top decile, slope and stability. This is the weight grouped per category: 60% Fundamental 20% Momentum 20% Technical 6 Factors 2 Factors 2 Factors Notice The ranking system is the sum of the equal weighting of these factors. [Grade 100 = Highest & Grade 1 = Lowest]
Factors Our Curated Selection PAGE 8 Our ten factors are all proprietary. They cannot be reverse engineered easily because there is more than meet the eye: they contain conditional rules, specific definitions and complex innovative formulas. We provided only basic guidelines to give the main essence behind each factor and avoid the model being a complete black box. FWPE Forward P/E EBTV EBITDA / EV FCFV Future CF / EV FCFA Future CF / Assets FCFE Future CF / Equity YIELD Total Yield REV1 1 Week Earnings Revisions REV4 4 Week Earnings Revisions TREN Long-Term Trend Measure PULL Short-Term Pullback Measure
TSX TR 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 90-100 Ranking System Return Distribution and Grading PAGE 9 Return by Decile Canadian Large Caps vs. S&P TSX TR Few Stocks Ranking in the Best Decide 90-100 35 30 25 20 15 10 5 0-5 Ticker Sector Grade CLS:CN INFT 99.5 THO:CN MATR 99.1 CPX:CN UTIL 98.6 FTT:CN INDU 98.2 MNW:CN INFT 97.7 OTC:CN INFT 97.3 SCL:CN ENRS 96.8 MAL:CN INDU 96.3 RBA:CN INDU 95.9 IAG:CN FINL 95.4 RON:CN COND 95.0 MRC:CN FINL 94.5 CG:CN MATR 94.0 Source: Quant Maven, Bloomberg, Compustat Source: Quant Maven, Bloomberg, Compustat
Rules Parameters of the Portfolio PAGE 10 G General Rules B Buy Rules S Sell Rules The model is long only for each company without any leverage. Approximately 10 stocks are held with 50% max weight deviation. Transactions are recorded at the average high low of trade day. Rebalance frequency is by default every Monday of each week. Variable slippage (depending on liquidity) appears for each trade. Only the companies meeting a consistent threshold of liquidity are considered for investment. No penny stocks are allowed. In other words, no stocks below $1.00 are part of the simulation. Avoid stocks part of industries experiencing recent weakness. Only buy stocks in the first decile and discard the rest. Sell stocks when the ranking falls below three deciles.
RESULTS The true measure of value of any business and portfolio manager is performance. Brian Tracy PAGE 11
Performance $100 Invested in 2000 is Worth $3150 Today Key Statistics PAGE 12 4000 3500 3000 2500 2000 1500 1000 500 0 0-20 -40-60 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Canadian Large Caps S&P TSX Composite Index 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Canadian Large Caps S&P TSX Composite Index Annualized Return (S&P TSX = 3.6%) 24.9% Maximum Drawdown (S&P TSX = -49.9%) -25.0% Sharpe Ratio (S&P TSX = 1.00) 1.55 Correlation /w Index (S&P TSX = 1.00) 0.63 Portfolio Turnover (S&P TSX = None) 464% Source: Quant Maven, Bloomberg, Compustat
Performance Visualizing the Performance PAGE 13 90 80 70 60 50 40 30 20 10 0-20 to -16-16 to-12 to -12-8 Monthly Performance Distribution -8 to -4-4 to 0 0 to 4 4 to 8 8 to 12 12 to 16 16 to 20 20 & + 60 50 40 30 20 10 0-10 -20-30 -40 Yearly Performance 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Canadian Large Caps S&P/TSX Composite Index Canadian Large Caps S&P TSX Composite Index Source: Quant Maven, Bloomberg, Compustat Source: Quant Maven, Bloomberg, Compustat
Performance As of 30 th June 2015 PAGE 14 Annualized Performance by Calendar Year Return (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015** Model 53.8 25.4 22.1 53.0 23.5 26.2 39.0 7.5-9.3 30.3 49.7-0.6 25.3 32.5 20.3 14.5 Benchmark 6.2-13.9-14.0 24.3 12.5 21.9 14.5 7.2-35.0 30.7 14.5-11.1 4.0 9.6 7.4-1.1 Excess 47.7 39.4 36.1 28.8 11.0 4.3 24.5 0.3 25.7-0.4 35.2 10.5 21.3 22.9 12.9 15.6 Monthly Performance (Last 12 Months) Return (%) Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Model -1.8 4.2-3.5 3.0 6.0 3.7 1.9 4.4-1.6 0.0 5.1-2.9 Benchmark 1.2 1.9-4.3-2.3 0.9-0.8 0.3 3.8-2.2 2.2-1.4-3.1 Excess -3.1 2.3 0.8 5.3 5.1 4.4 1.7 0.6 0.6-2.2 6.5 0.2 Source: Quant Maven, Bloomberg, Compustat
Statistics Trading and Risk Profile PAGE 15 Since Inception Model S&P TSX Trailing 3 Year Model S&P TSX Annualized Return (%) 24.9 3.6 Annualized Return (%) 26.6 7.1 Max Drawdown (%) -25.5-50.0 Max Drawdown (%) -8.2-12.5 Standard Deviation 16.4 18.3 Standard Deviation (%) 10.7 10.3 Sharpe Ratio 1.37 0.22 Sharpe Ratio 2.22 0.72 Sortino Ratio 1.92 0.30 Sortino Ratio 3.12 0.96 Correlation with Benchmark 0.68 - Correlation with Benchmark 0.62 - R-Squared 0.46 - R-Squared 0.39 - Beta 0.60 - Beta 0.65 - Alpha (%) (annualized) 22.2 - Alpha (%) (annualized) 20.9 - Realized Unrealized All Winners Losers All Winners Losers Trades 950 626 324 10 4 6 Avg Return 3.52 % 9.07 % -7.19 % 0.19 % 5.28 % -3.20 % Avg Days Held 57 58 55 112 188 61 Source: Quant Maven, Bloomberg, Compustat
Allocation Market Cap and Sector Distribution PAGE 16 8% Large Caps 19% 14% 37% Info Tech Discretionary Utilities Materials Industrial 100% 22%
SERVICES An investment in knowledge pays the best interest. Benjamin Franklin PAGE 17
Coverage Different Needs for Different Investors PAGE 18 Description Individual Investor Institutional Investor Full Coverage Model signal membership Regular communication Institutional research Model customization Live presentations
THANK YOU Please do not hesitate to contact us for any question, comment or business enquiry. - Quant Maven PAGE 19