strategy and research

Strategy and ResearchSamuel Kunz, CFA, MFTA

For Financial Professional Use Only Samuel Kunz, CFA, MFTA - Strategy and Research

SELECTION PROCESS

› Macro Filter

› Fundamental

› Quantitative

› Technical/Timing


APPROACH

Macro Laffer

Fundamental Argus

Technical/Timing DeMark / Oscillators / Paterns / Etc…

Quantitative Q Prime


APPROACH

Macro Laffer

Fundamental Argus



Strategy

Don Hahn


LAFFER/MACRO/WHY?

› Father of “Supply Side Economics”

› Founding member of Congressional Policy Advisory Board

› Member of President Reagan’s Economic Policy Advisory Board (1981-1989)


LAFFER/MACRO/WHY?

› Created the Laffer’s Curve

- “Memorable event in financial history” Institutional Investor July 1992

- “A few of the advances that powered this extraordinary century” Times March 1999


LAFFER/MACRO/WHY?

7.60%

-12.07%

-19.99%

60%

1.30%

22.42%

-12.69% -11.89%

-22.10%

28.69%

1.47%

-21.75%-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

2000 2001 2002 2003** 2004 YTD ITD**

LAFFER MACRO-100 COMPOSITES&P 500 INDEX

Investment ReturnsLaffer Macro-100 Large Cap. Composite Vs. S&P 500

Index09/2000 -05/2004*


LAFFER/MACRO/WHY?

34.14%

4.30%

18.56%

7.14%

18.33%

-2.14%-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1 Year 2 Years 3 Years

LAFFER MACRO-100 COMPOSITE

S&P 500 INDEX

Annualized ReturnsLaffer Macro-100 Large Cap. Composite Vs. S&P 500

Index09/2000 -05/2004*


Laffer / Methodology / Economic Outlook

› 5 Areas of Information

Incomes Policy

Incomes Policy

Trade Policy

Trade Policy

Monetary Policy

Monetary Policy

Fiscal Policy

Fiscal Policy

Special Situations

Special Situations

RESULT

Economic Outlook




Incomes Policy

Incomes Policy

Trade Policy

Trade Policy

Monetary Policy

Monetary Policy

Fiscal Policy

Fiscal Policy

Special Situations

Special Situations

Impact on Private SectorImpact on Private Sector

Regulations

Restrictions

Requirements




Incomes Policy

Incomes Policy

Trade Policy

Trade Policy

Monetary Policy

Monetary Policy

Fiscal Policy

Fiscal Policy

Special Situations

Special Situations

Affects Terms Of TradeAffects Terms Of Trade

GAAT

NAFTA

Exchange Rates




Incomes Policy

Incomes Policy

Trade Policy

Trade Policy

Monetary Policy

Monetary Policy

Fiscal Policy

Fiscal Policy

Special Situations

Special Situations

Federal Reserve Systems

Monetary Base

Interest Rates




Incomes Policy

Incomes Policy

Trade Policy

Trade Policy

Monetary Policy

Monetary Policy

Fiscal Policy

Fiscal Policy

Special Situations

Special Situations

Taxing

Spending Government




Incomes Policy

Incomes Policy

Trade Policy

Trade Policy

Monetary Policy

Monetary Policy

Fiscal Policy

Fiscal Policy

Special Situations

Special Situations

Monopolies / OPEC

Wars

Weather

Etc…


Laffer / Methodology / Macro Models

Company Size

Company Size

Domestic Location

Domestic Location

Earnings Forecast

Earnings Forecast

Fiscal Sensitivity

Fiscal Sensitivity

Global Location

Global Location

Laffer Top 100

Interest Rate

Sensitivity

Interest Rate

SensitivityTrade

Sensitivity

Trade Sensitivity


Laffer / Methodology / Macro Models

Macro Model Biases

Company Size

Company Size

+1

0

-1

LAR

GE

CA

PITA

LISA

TIO

NSM

ALL

C

API

TALI

SATI

ON

Domestic Location

Domestic Location

+1

0

-1

+ FI

SCA

L C

HA

NG

E- F

ISC

AL

CH

AN

GE

Earnings Forecast

Earnings Forecast

+1

0

-1

+ EA

RN

ING

SC

HA

NG

E- E

AR

NIN

GS

CH

AN

GE

Fiscal Sensitivity

Fiscal Sensitivity

+1

0

-1

+ FI

SCA

L C

HA

NG

E- F

ISC

AL

CH

AN

GE

Global Location

Global Location

+1

0

-1

+ FI

SCA

L C

HA

NG

E- F

ISC

AL

CH

AN

GE

Interest Rate

Sensitivity

Interest Rate

Sensitivity

+1

0

-1

RIS

ING

RA

TES

FALL

ING

RA

TES

Trade Sensitivity

Trade Sensitivity

+1

0

-1

+ VA

LUE

AD

DED

- VA

LUE

AD

DED


LAFFER/MACRO/Performance

391.53 - 1st Quintile

182.09 - 2nd Quintile

132.58 - 3rd Quintile

134.49 - 4th Quintile

81.78 - 5th Quintile

165.47 - S&P-500

0

50

100

150

200

250

300

350

400

450

Mar

-99

Jun-

99

Sep-

99

Dec-9

9

Mar

-00

Jun-

00

Sep-

00

Dec-0

0

Mar

-04

Jun-

04

Sep-

04

Dec-0

4

Mar

-04

Jun-

04

Sep-

04

Dec-0

4

Mar

-04

Jun-

04

Sep-

04

Dec-0

4

Mar

-04

Jun-

04

Sep-

04

Macro PortfolioPerformance By Quintiles vs. The S&P-500


Argus Fundamental / Why

› Independent Research Firm

› In Business for nearly 70 years

› 6-point system is a blend of:

A. Top Down

B. Bottom Up


Argus / Methodology / 6-Point System

Industryanalysis

Industryanalysis

GrowthAnalysis

GrowthAnalysis

Financialstrengthanalysis


Quality of Management


RiskAnalysis

RiskAnalysis

Result

Buy / Hold / Sell Rating

ValuationAnalysis

ValuationAnalysis



Industryanalysis

Industryanalysis

GrowthAnalysis

GrowthAnalysis





RiskAnalysis

RiskAnalysis

ValuationAnalysis

ValuationAnalysis

Outperforming IndustriesOutperforming Industries

Forecast Economy

Forecast Interest Rates

Collaborate with Industry Analysts



Industryanalysis

Industryanalysis

GrowthAnalysis

GrowthAnalysis





RiskAnalysis

RiskAnalysis

ValuationAnalysis

ValuationAnalysis

Peer Market ComparisonPeer Market Comparison

Sales

Earnings

Dividends

Cash Flows


Argus / Methodology / 6 Point System

Industryanalysis

Industryanalysis

GrowthAnalysis

GrowthAnalysis





RiskAnalysis

RiskAnalysis

ValuationAnalysis

ValuationAnalysis

Ratio AnalysisRatio Analysis

Financial Statements

Footnotes



Industryanalysis

Industryanalysis

GrowthAnalysis

GrowthAnalysis





RiskAnalysis

RiskAnalysis

ValuationAnalysis

ValuationAnalysis

Know ManagementKnow Management

Meetings

Road Shows

Conference Calls



Industryanalysis

Industryanalysis

GrowthAnalysis

GrowthAnalysis





RiskAnalysis

RiskAnalysis

ValuationAnalysis

ValuationAnalysis

QualitativeQualitative

Porter five Forces

QuantitativeQuantitative

Institutional Ownership

Insider Ownership



Industryanalysis

Industryanalysis

GrowthAnalysis

GrowthAnalysis





RiskAnalysis

RiskAnalysis

ValuationAnalysis

ValuationAnalysis

Establish Target PriceEstablish Target Price

Forecasts

Adjust for Beta


Q Prime / Quantitative / Why ?

› Flexible Tailor-made

A. Relative factors

B. Historical factors

› Proven track record from Morningstar


Q Prime / Quantitative / Methodology

6 Categories6 Categories 11 22 33 44 55 66

17 Factors17 Factors11 22 33 44 55 66 77 88 99 1010 1111 1212 1313 1414 1515 1616 1717

Infinite Combinations



ValuationsValuations DividendsDividends MomentumMomentum GrowthGrowth ReliabilityReliability ReturnReturn

A/PE

R/PE

A/PB

R/PB

A/PS

› 6 Categories




Yield

Payout

Reinv. Rate

› 6 Categories




Quarterly EPS

Quarterly Sales

› 6 Categories




Estimated Growth

Estimated Revisions

Time Weighted Revisions

› 6 Categories




Growth

EPS Surprises

Vola. Ajd. EPS Surprises

› 6 Categories




Long Term Price Trend

1-Month Relative Perf.

2- Month Relative Perf.

Etc...

› 6 Categories


Q Prime / Quantitative / Model

1) Value

2) Growth

3) Rotational (Balanced)

4) Q-Score


Q Prime / Quantitative / Value Model

1) Deep Value

2) EPS Surprises

3) EPS Revisions

4) 6-month returns


Q Prime / Quantitative / Value Model

Top Decile S & P Russell Q Prime

500 1000 Universe Value Model

Full Year 1999 19.53% 19.46% 18.90% 22.07%

Full Year 2000 -10.14% -8.84% 11.67% 20.10%

Full Year 2001 -13.04% -13.59% 3.59% 22.78%

Full Year 2002 -23.37% -22.94% -16.16% -22.30%

Full Year 2003 26.38% 27.54% 43.00% 87.52%

2004q1 1.30% 4.74% 6.53%2004q2 1.30% 1.71% 1.34%

Half Year 2.60% 7.96%

Annual Rate Return 13.10% 27.02%


Technical/Timing

› Don Hahn Long/Intermediate-term

› DeMark Overbought/Oversold

› Oscillators Momentum

› Pattern Recognition Bar charts,

candlesticks, P&F


Recap

Macro Laffer

Fundamental Argus



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