Presentation by: Sanjun Chen Noah Harris Haley Lai Nicolas Tollie

1. Alpha Global Asset Allocation Presentation by: Sanjun Chen Noah Harris Haley Lai Nicolas Tollie 0

2. Introduction Industries Factors Scoring Results Conclusions Agenda Agenda • Introduction • Methodology • Industry • Manufacturing • Services • Finance • Transportation/Utilities • Factors • 1-Year EPS Growth • Forward E/P • Dividend Yield • Inventory Turnover • Scored Strategy Returns • Subjective Estimates • Conclusions 1

3. Introduction Industries Factors Scoring Results Conclusions Introduction Establishing Long-Short Trading Strategy • Objective • Generate positive returns • Limit risk through hedging • Quantitative stock screen • Industry driven • Find predictive powers on positive and negative returns • Select factors with strong predictive powers • Go long stocks in top quintile • Go short stocks in bottom quintile 2

4. Introduction Industries Factors Scoring Results Conclusions Methodology Description of parameters used for screening process • Sample • US equities listed on both NYSE and NASDAQ • Monthly data • In-sample time frame: 1990 – 1999 • Out-of-sample time frame: 2000 – 2004 • Selected Industries with at least 100 companies • Allocated factors into quintiles based on selected criteria • Rebalanced and resorted each month • Analyzed output and performance over time 3

5. Introduction Industries Factors Scoring Results Conclusions Factors Description of Factors • Forward E/P: Expected next twelve months earnings over current price • Dividend Yield: Dividend Yield from Factset • EPS Growth: (IBES projection for next twelve months – This year earning)/ This year earning • Inventory Turnover: Sales/Inventory 4

6. Introduction Industries Factors Scoring Results Conclusions Industries Chosen 5

7. Introduction Industries Factors Scoring Results Conclusions Manufacturing 1-Year EPS Growth is a fairly good factor for Equal and Value Weighted • Quintile 4 Significant • Quintile 1 not consistently enough best performing portfolio, and quintile 5 not consistently enough worst performing portfolio 3.5 1.5 6

8. Introduction Industries Factors Scoring Results Conclusions Manufacturing Forward E/P is a good factor for Equal Weighted • Quintile 5 Significant • Quintile 1 not consistently enough worst performing portfolio 4.5 7

9. Introduction Industries Factors Scoring Results Conclusions Scoring Subjective Scoring of different Factors 8

10. Introduction Industries Factors Scoring Results Conclusions Out-of-Sample Results Manufacturing 9

11. Introduction Industries Factors Scoring Results Conclusions Out-of-Sample Results Services 10

12. Introduction Industries Factors Scoring Results Conclusions Out-of-Sample Results Finance 11

13. Introduction Industries Factors Scoring Results Conclusions Out-of-Sample Results Trans/Utilities 12

14. Introduction Industries Factors Scoring Results Conclusions Conclusions? • Scoring Screens • Mixed to poor results out of sample • Conflicting performance of equal and value weighted screens • Good performances (Manufacturing equal weighted, Utility weighted). Luck? • Possible Improvements • More conservative scoring – only score factors that perform consistently across equal & value weighted • Industry groups too broad - test sub-groups • Bad in-sample/ out-of-sample time periods selections 90-99 Boom, 2000-2004 Bust • Test more factors • Use optimizer to modify scores • Benchmark performances vs. industry indices 13

15. Manufacturing Dividend is a good factor for Equal and Value Weighted • Quintile 5 Significant • Quintile 1 and 2 give fairly poor performing portfolios -1.5 -1.5 2.5 -3 2.5 14

16. Manufacturing Inventory Turnover is a good factor for Equal and Value Weighted • Quintile 5 Great performance for Equal, Worst for Value Weighted 4 3 -3.5 15

17. Services 1-Year EPS Growth is a fairly good factor for Equal and Value Weighted • Quintile 1 generally poor performing portfolio • Quintile 4 consistently great performing portfolio -1 3 -2.5 2 16

18. Services Forward E/P is a fairly good factor for Equal and Value Weighted • Quintile 1 poor performing portfolio most of the time -2 -2 -1.5 1.5 17

19. Services Dividend is a good factor for Equal Weighted • Quintile 1 Significant poor performance -2.5 18

20. Finance 1-Year EPS Growth is a fairly good factor for Equal Weighted • Quintile 2 generally poor performing portfolio -1 19

21. Finance Forward E/P is a fairly good factor for Equal and Value Weighted • Quintile 4 poor performing portfolio most of the time for Equal Weighted • Quintile 1 good performance for Value Weighted -1.5 1.5 20

22. Finance Dividend is a good factor for Equal • Quintile 1 Significant good performance 2 -1 1 1 21

23. Finance Inventory Turnover is a fairly good factor for Value Weighted • Quintile 5 fairly consistent good performance for Value Weighted -1.5 2 22

24. Trans/Utilities Dividend is a good factor for Equal • Quintile 2 consistently poor performance; Quintile 5 consistently great performance -4 4.5 23

25. Trans/Utilities Inventory Turnover is a fairly good factor for Value Weighted • Quintile 5 fairly consistently poor performance for Value Weighted -3 -2.5 24