section ii osam quarterly commentary: international adr · 2018-04-30 · section ii osam quarterly...

Section II OSAM Quarterly Commentary: International ADR

Past performance is no guarantee of future results. Please see important disclosure information at the end of this presentation.

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1Q13 AND LTM FACTOR PERFORMANCE Strategy Performance Summary of Excess Factor Performance QTD LTM Best of Value Excess Return* QTD LTM International ADR 5.51% 12.14% (higher excess is better) MSCI EAFE Index 5.13% 11.25% Value Composite ‐1.3% ‐1.9% *Returns vary relative to our ADR All Stocks Universe which returned +4.5% for the quarter and +0.8% LTM .

Momentum Composite 4.6% 15.5%

Company Name QTD QTD Worst of Quality Excess Return* QTD LTM

Weight Contribution (lower excess is better) Quarter‐to‐Date ‐ Top Contributors from Return Earnings Quality ‐2.8% ‐12.4% Fuji Heavy Industries Ltd. ADS 3.4% 0.80% Financial Strength 0.8% ‐3.0% Allied World Assurance Company Holdings, AG 4.6% 0.79% Earnings Growth ‐1.1% ‐6.5% Quarter‐to‐Date ‐ Top Detractors to Return Altisource Portfolio Solutions S.A. 1.6% ‐0.24% Quarter‐to‐Date Comments: Hellenic Telecommunications Organization S.A. 1.5% ‐0.26% What Helped Returns:

‐The Momentum Composite performed well and contributed positively. ‐Our Earnings Quality Composite contributed to strategy returns.

Company Name LTM LTM What Did Not:

Weight Contribution ‐The Value Composite underperformed and detracted from returns. Quarter‐to‐Date ‐ Top Contributors from Return ‐Our Financial Strength Composite did not screen out poor performers. Telstra Corp. Ltd. ADS 4.7% 2.03% Last‐Twelve‐Month Comments: Fuji Heavy Industries Ltd. ADS 1.6% 1.68% What Helped Returns: Quarter‐to‐Date ‐ Top Detractors to Return ‐The Momentum Composite significantly outperformed for the period. Companhia Energetica de Minas Gerais‐CEMIG 1.4% ‐0.67% ‐Our Earnings Quality Composite contributed positively. Xyratex Ltd. 0.7% ‐0.85% What Did Not: ‐The Value Composite underperformed and detracted from returns. ‐An overweight to Energy detracted from performance.

Factors Used to SELECT Stocks(Quintiles: Positive is Better)

Factors Used to AVOID Stocks

(Quintiles: Negative is Better)

‐4.0%

‐3.0%

‐2.0%

‐1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Fin Strength Earnings Quality Earnings Growth

‐14.0%

‐12.0%

‐10.0%

‐8.0%

‐6.0%

‐4.0%

‐2.0%

0.0%

2.0%

Fin Strength Earnings Quality Earnings Growth

‐2.0%

‐1.5%

‐1.0%

‐0.5%

0.0%

0.5%

Cumulative Excess Return

Value Composite

‐4.0%

‐3.5%

‐3.0%

‐2.5%

‐2.0%

‐1.5%

‐1.0%

‐0.5%

0.0%

Cumulative Excess Return

Value Composite

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Momentum Composite

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Momentum Composite

Quarter‐to‐Date

Last‐Twelve

‐Mon

th

Source: Compustat, OSAM Calculations



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OSAM Quarterly Commentary: International ADR 1Q13 AND LTM FACTOR PERFORMANCE

The goal of this commentary is to walk through the characteristics

OSAM uses in its investment process and highlight those

characteristics that were rewarded and those that were not during

the period (Section I). This section covers the most recent quarter

and the last twelve months for the ADR All Stocks universe, which

consists of companies included in the COMPUSTAT database and

listed on U.S. exchanges meeting our market capitalization

requirements. Inference is drawn by looking at how stocks did from

different market capitalization ranges and economic sectors,

followed by portfolios formed on the top quintiles of factors used in

OSAM strategies. Section II includes commentary on our specific

strategies. All of the data throughout the commentary is in U.S.

dollars.

Most equity markets were positive in the first quarter of 2013. The MSCI

EAFE Index delivered a total return of 5.28% for the quarter. International

markets primarily focused on a spirited election contest in Italy before

turning to the debt crisis negotiations in Cyprus. Fears that the Cypriot

bank recapitalization via deposit haircuts would set precedent for future

bailouts have, thus far, proved to be unfounded. Though it received little

attention, the Organization for Economic Cooperation and Development

raised their estimated growth of the G7 economies to a 2.4% annualized

rate for Q1 2013 despite struggles in the euro area. Concerns around a

hard landing for the Chinese economy, which has implications for

commodity prices, global exports and ultimately global growth, subsided

as reports of economic growth showed improvement for the latter half of

2012.

OSAM RESEARCH TEAM

Jim O’Shaughnessy Chris Meredith, CFA Scott Bartone Travis Fairchild, CFA Patrick O’Shaughnessy Ashvin Viswanathan, CFA

PRODUCT MANAGEMENT

Ehren Stanhope, CFA

CONTENTS

Section I

MARKET CAPITALIZATION

ECONOMIC SECTORS

COUNTRIES INVESTMENT FACTORS

Value Composite Price-to-Sales Price-to-Earnings EBITDA-to-Enterprise Value Free Cash Flow-to-Enterprise Value Shareholder Yield

Momentum Composite 3-Month Momentum 6-Month Momentum 9-Month Momentum Return Volatility

Earnings Growth Composite 1-Year Earnings Growth Unexpected Earnings Return on Equity

Financial Strength Composite External Financing Debt-to-Cash Flow Debt-to-Equity 1-Year Change in Debt

Earnings Quality Composite Current Accruals-to-Assets Change in Operating Assets Total Accruals Depreciation-to-CapEx

Section II

O'SHAUGHNESSY INTERNATIONAL ADR

MARKET OUTLOOK

OSAM CONTACT INFORMATION:

Ari Rosenbaum, Director of Financial Advisor Services ■ 203.975.3340 Tel ■ [email protected]

O’Shaughnessy Asset Management, LLC ■ Six Suburban Avenue ■ Stamford, CT 06901 ■ 203.975.3333 Tel ■ 203.975.3310 Fax



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MARKET CAPITALIZATION

The market rally in the first quarter was led by small cap stocks, which were up +6.5%. Mid cap and large cap

stocks also had positive returns of +3.8% and +2.0%, respectively, but lagged the small cap universe. All of the

market cap portfolios are constructed by equally weighting names within the specific market cap grouping.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Cum

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Ret

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QTD Cumulative Return by Market Capitalization - ADR All Stocks

Large Cap Mid Cap Small Cap

The ADR All Stocks Universe was relatively flat over the last twelve months returning +0.8%. The returns for the

market cap universes were mixed and offsetting. The total returns for the last twelve months were +6.0%, +4.6%,

and -2.7% for large cap, mid cap, and small cap stocks, respectively.

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Cum

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LTM Cumulative Return by Market Capitalization - ADR All Stocks

Large Cap Mid Cap Small Cap





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ECONOMIC SECTORS

There was significant divergence among the economic sectors during the first quarter. Based on market cap

weighted returns for each sector in the ADR All Stocks Universe, Health Care performed the best with a return of

+10.9%. Consumer Staples also performed well with a return of +9.3%. Materials was the worst performing sector

at -11.2%, followed by Energy at -5.4%.

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Cum

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QTD Cumulative Return by Economic Sector - ADR All Stocks

Energy Materials Industrials Cons Disc Cons Staples

Health Care Financials Info Tech Telecom Utilities

Over the last twelve months, Energy was the worst performing sector at -8.6%. Materials also lagged other

sectors and returned -5.9%. Health Care performed the best at +25.5%, followed by Consumer Staples at

+19.9%.

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Cum

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YTD Cumulative Return by Economic Sector - ADR All Stocks

Energy Materials Industrials Cons Disc Cons Staples

Health Care Financials Info Tech Telecom Utilities





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COUNTRIES

Looking at market-cap weighted country returns in the ADR Universe, the country returns were mixed in the first

quarter and there was significant deviation in the range of returns. The European countries represented had

mixed returns in the quarter, the best performers were Ireland (+27.6%) and Switzerland (+12.5%) while the worst

were Spain (-6.3%) and Italy (-9.6%). In addition, Japan (+7.4%) and Australia (+4.1%) performed well relative to

other countries while China (-7.0%) and Hong Kong (-7.5%) were some of the worst performers for the quarter.

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Cum

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QTD Cumulative Return by Country - ADR UniverseUNITED KINGDOM AUSTRALIA JAPAN BRAZIL FRANCESWITZERLAND HONG KONG NETHERLANDS CHINA GERMANYSPAIN TAIWAN ITALY IRELAND PORTUGAL

Looking at performance over the last twelve months most countries held up well. There was significant deviation

in the range of returns. The European countries represented had mixed returns in the period. The best

performers were Switzerland (+23.7%) and the Netherlands (+14.3%) while the worst were Italy (-2.6%) and

Spain (-3.6%). In addition, Australia (+18.9%) and Portugal (+10.4%) performed well relative to other countries.

China (-1.7%) and Brazil (-16.7%) were some of the worst performers over the period.

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Cum

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YTD Cumulative Return by Country - ADR UniverseUNITED KINGDOM AUSTRALIA JAPAN BRAZIL FRANCESWITZERLAND HONG KONG NETHERLANDS CHINA GERMANYSPAIN TAIWAN ITALY IRELAND PORTUGAL





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INVESTMENT FACTORS

O’Shaughnessy Value Composite℠

During the first quarter, the various individual value factors were mixed but the Value Composite underperformed.

Price/Earnings was the worst relative performer (-4.0%). EBITDA/Enterprise Value (-2.0%) and Price/Sales

(-1.6%) also underperformed. The Value Composite was aided by outperformance from Free Cash

Flow/Enterprise Value (+3.6%) and Shareholder Yield (+1.4%), but the composite still underperformed by -1.3%.

-5.0%-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%

Cum

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Exce

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QTD Cumulative Excess Return by Value - ADR All Stocks

Price/Sales Price/Earnings EBITDA/EV Free Cash Flow/EV Shareholder Yield Value Composite

Over the last twelve months, the value factors were very mixed, and the Value Composite underperformed.

Price/Earnings (-9.9%), EBITDA/Enterprise Value (-7.7%) and Price/Sales (-4.8%) underperformed relative to the

ADR All Stocks Universe. Investing on Shareholder Yield (+8.6%) and Free Cash Flow/Enterprise Value (+2.1%)

performed well. Overall, the Value Composite underperformed the ADR All Stocks Universe by -1.9%.

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

Cum

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YTD Cumulative Excess Return by Value - ADR All Stocks

Price/Sales Price/Earnings EBITDA/EV Free Cash Flow/EV Shareholder Yield Value Composite





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O’Shaughnessy Momentum Composite℠

3-Month, 6-Month, and 9-Month Momentum all had strong returns during the first quarter. The total relative

performance versus the ADR All Stocks Universe for the quarter was +2.1%, +3.1%, and +4.6% for 3-Month, 6-

Month, and 9-Month Momentum, respectively. Stocks with Low Price Volatility outperformed for the quarter with

an excess return of +2.2%. Combining momentum and low volatility, the Momentum Composite outperformed by

+4.6%.

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Cum

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QTD Cumulative Excess Return by Momentum - ADR All Stocks

3-Month Mom 6-Month Mom 9-Month Mom Price Volatility Momentum Composite

Over the last twelve months, 3-Month, 6-Month, and 9-Month Momentum all had strong returns. The total relative

performance versus the ADR All Stocks Universe for the period was +5.3%, +8.7%, and +11.5% for 3-Month, 6-

Month, and 9-Month Momentum, respectively. Stocks with Low Price Volatility dramatically outperformed for the

period with an excess return of +11.9%. Combining momentum and low volatility, the Momentum Composite

outperformed by +15.5%.




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0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Cum

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YTD Cumulative Excess Return by Momentum - ADR All Stocks

3-Month Mom 6-Month Mom 9-Month Mom Price Volatility Momentum Composite

Our research indicates that

stocks with a history of volatility

are more likely to continue to

be volatile, while stocks with a

stable return pattern are more

likely to remain stable.

Comparing a portfolio of stocks

with the lowest monthly return

volatility to a portfolio with the

highest volatility, the low

volatility stocks outperformed

for the last twelve months by

+11.9%, while the highest

volatility underperformed by

-16.9%.

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Cu

mu

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xces

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YTD Cumulative Excess Return by Volatility - ADR All Stocks

Lowest Volatility Highest Volatility Momentum Composite





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QUALITY FACTORS

The previous portfolios were formed on the best quintiles of the factors we use to select stocks. The following

portfolios are based on the worst quintiles of our quality factors. We use these factors to filter out stocks that,

based on our research, we expect to perform poorly. This is consistent with our investment process and

representative of the companies we eliminate prior to security selection. Negative excess returns in the following

graphs are a good sign, and demonstrate that we accurately identified and removed underperforming stocks.

O’Shaughnessy Financial Strength Composite℠

The performance of our Financial Strength factors were mixed in the first quarter and the Financial Strength

Composite did not help distinguish winners from losers. The worst quintile of External Financing (-1.8%), Cash

Flow to Debt (-1.2%), and Debt / Equity (-0.9%) added value in filtering out poor investments this quarter but was

offset by Change in Debt (+0.3%) which did not. Filters based on the Financial Strength Composite did not

perform well as the worst quintile outperformed by +0.8% (the more negative the better).

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

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QTD Excess Return by Worst Financial Strength - ADR All StocksExternal Financing Change in Debt Cash Flow to Debt Debt/Equity Financial Strength Composite

Over the last twelve months, the Financial Strength factors had mixed results but the Financial Strength

Composite still added value by identifying underperforming stocks. The worst quintile of Cash Flow to Debt

(-14.3%), External Financing (-13.9%), and Change in Debt (-4.8%) added value in filtering out poor investments.

This was offset by Debt / Equity (+2.9%) which did not. Filters based on the Financial Strength Composite

performed well for the year as the worst quintile underperformed by -3.0% (the more negative the better).

-20.0%

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-10.0%

-5.0%

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YTD Excess Return by Worst Financial Strength - ADR All StocksExternal Financing Change in Debt Cash Flow to Debt Debt/Equity Financial Strength Composite





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O’Shaughnessy Earnings Quality Composite℠

During the first quarter, the Earnings Quality factors exhibited mixed results but the Earnings Quality Composite

still added value. The worst quintile of Total Accruals (-4.2%), Change in Operating Assets (-2.4%), and Current

Accruals (-1.5%) added value in filtering out poor investments this quarter. Filters based on the Earnings Quality

Composite performed well as the worst quintile underperformed by -2.8% (the more negative the better).

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

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3.0%

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QTD Excess Return by Worst Earnings Quality - ADR All Stocks

Current Accruals Change in Operating Assets Total Accruals Depreciation to CapEx Earnings Quality Composite

Over the last twelve months, all Earnings Quality factors successfully helped in avoiding poorly performing stocks.

The worst quintile of Total Accruals (-21.1%), Depreciation to CapEx (-12.1%), Change in Operating Assets

(-11.9%), and Current Accruals (-11.4%) all contributed to help the Earnings Quality Composite flag stocks that

underperformed by -12.4% (the more negative the better).

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

Cum

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YTD Excess Return by Worst Earnings Quality - ADR All Stocks

Current Accruals Change in Operating Assets Total Accruals Depreciation to CapEx Earnings Quality Composite





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O’Shaughnessy Earnings Growth Composite℠

All Earnings Growth factors successfully identified poorly performing stocks during the first quarter. The worst

quintile of Unexpected Earnings (-2.4%), Return on Equity (-1.6%), and 12-Month EPS Change (-0.7%) all

contributed to the Earnings Growth Composite adding value during the period. The worst quintile of the

composite returned -1.1% (the more negative the better).

-3.0%

-2.0%

-1.0%

0.0%

1.0%

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QTD Excess Return by Worst Earnings Growth - ADR All Stocks

12-Month EPS Chg Unexpected Earnings ROE Earnings Growth Composite

Over the last twelve months, all Earnings Growth factors successfully helped avoid poorly performing stocks. The

worst quintile of Return on Equity (-11.3%), 12-Month EPS Change (-7.1%), and Unexpected Earnings (-2.6%) all

contributed to help the Earnings Growth Composite flag stocks which returned -6.5% during the period (the more

negative the better).

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

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YTD Excess Return by Worst Earnings Growth - ADR All Stocks

12-Month EPS Change Unexpected Earnings ROE Earnings Growth Composite





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O'SHAUGHNESSY INTERNATIONAL ADR

The O’Shaughnessy International ADR strategy seeks to provide long-term appreciation through exposure to

international equities, primarily using American Depository Receipts (ADRs). Generally, the holdings are selected

evenly across a value model, a core model, and a growth model. The submodels narrow the universe of

companies to those with superior Financial Strength, faithfully represent earnings in their financial statements,

and with attractive valuation. Once the universe is established, the strategy selects the stocks that rank the

highest based on our Momentum Composite and/or Value Composite.

1Q 2013 Performance

Below are QTD returns for the strategy (Gross of Fees):

International ADR: 5.51%

MSCI EAFE Index: 5.13%

In the first quarter of 2013, International ADR outperformed returning +5.5% while the MSCI EAFE Index returned

+5.1%. The strategy had a negative contribution from allocation effects of -1.1% and a positive contribution from

stock selection effects of +1.4%. An overweight in Energy and an underweight in Consumer Staples detracted

-0.4% and -0.5%, respectively, from excess returns. This was partially offset by underweighting Utilities and

Materials which each contributed +0.1%. Stock selection within Energy and Telecommunication Services

detracted -0.3% and -0.6% from excess returns, but this was more than offset by selection effects in Consumer

Discretionary and Financials which contributed +0.6% and +0.7%.

From a country perspective, strategy returns were hurt by allocation effects and benefited by stock selection

effects, which detracted -1.9% and added +2.2%, respectively. The strategy benefited from an overweight in

Bermuda and Panama which contributed +1.1% and +0.3%. These benefits were offset by an overweight in

Mexico and an underweight in Japan which detracted -2.3% and -0.6%, respectively. Stock selection in France

and Greece detracted -0.5% and -0.3%. Meanwhile, the strategy’s stock picks in Mexico and the United Kingdom

added +2.2% and +0.9%, respectively. Overall stock selection effects ended the quarter positive.

During the quarter, the factors used in International ADR had mixed performance. The Earnings Quality and

Earnings Growth Composites helped screen out underperforming stocks during the period, but Financial Strength

was not as effective. Looking at the factors the strategy uses for final ranking and selection, we see the

performance was mixed for the quarter. The Value Composite underperformed and likely detracted from

performance, however, the Momentum Composite significantly outperformed and contributed positively to the

returns of International ADR.

Last Twelve Months Performance

Below are LTM returns for the strategy (Gross of Fees):

International ADR: 12.14%

MSCI EAFE Index: 11.25%



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Looking at the last twelve months, International ADR outperformed returning +12.1% while the MSCI EAFE Index

returned +11.3%. The strategy had negative contribution from allocation effects of -1.5% and positive contribution

from stock selection effects of +2.7%. An underweight in Health Care and an overweight in Energy detracted

-0.7% and -1.0%, respectively, from excess returns. This was partially offset by overweighting Financials and

underweighting Materials which contributed +0.2% and +0.5%, respectively. Stock selection within

Telecommunication Services and Information Technology detracted -0.6% and -1.1%, respectively, from excess

returns. On the positive side, stock selection effects in Materials and Industrials contributed +1.2% and +1.6%.

From a country perspective, strategy returns were hurt by allocation effects and benefited from stock selection

effects, which detracted -4.5% and added +5.8%, respectively. The strategy benefited from an underweight in

Japan and an overweight in Bermuda which contributed +0.9% and +0.5%. These benefits were offset by

overweights in Mexico and China which detracted -1.6% and -1.5%, respectively. Stock selection in France and

New Zealand detracted -1.0% and -0.8%. The strategy’s stock picks in Mexico and China added +2.7% and

+2.0%. Overall stock selection effects ended the period positive.

From a factor perspective, the factors used in International ADR had mostly positive excess performance. The

quality characteristics performed well with the Financial Strength, Earnings Quality, and Earnings Growth

Composites all screening out underperforming companies. The Value Composite did not perform well and likely

detracted from performance. While the Momentum Composite outperformed significantly and added to the returns

of International ADR, the interaction with the Value Composite likely tempered the magnitude of outperformance.

MARKET OUTLOOK

Stock returns during the first quarter of 2013 were strong in most global regions with the exception of emerging

markets. Concurrent with this strong quarterly return was a marked shift in the appetite for equities as an asset

class. Flows into foreign equity funds were impressive, with year to date net inflows of +$50 billion, dwarfing the +$7

billion inflows to foreign funds in the first quarter of 2012. Clearly, investors have grown more comfortable with all of

the structural problems facing Europe and with slow global economic growth.

As investors continue to rethink their asset allocations, we expect flows into equities to be consistently positive if

market volatility remains relatively low. With new market highs, however, have come more expensive valuations for

stocks, especially in the U.S. We believe that when the market as a whole becomes more expensive that it is

especially important to own high quality stocks that remain very cheap relative to the overall market, but still have

strong recent momentum and/or shareholder yields. Right now, international stocks are particularly attractive

because they are trading at a significant discount relative to U.S. stocks. The MSCI EAFE Index trades at 14.4x

earnings, which compares very favorable to the 15.9x multiple on the Russell 3000 Index. As such, we think

investors should have a healthy allocation to international stocks in their equity portfolio in the coming year.

Building international portfolios based on quality, valuation and momentum has been a powerful way to beat the

market over time. The cheapest stocks by our Value Composite, for example, have outperformed the market by

+8.4%, annualized, since 1990. Similarly, stocks with the strongest momentum delivered +9% annualized

outperformance. We believe that high quality companies with great valuations and strong and consistent recent

momentum are poised to do very well in the future.



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Given the historical efficacy of using value and momentum to select stocks, we believe that the International ADR

portfolio is very well positioned. Its Price/Earnings ratio is 9.1x, a discount from the 14.4 multiple for the MSCI EAFE

Index. The portfolio is also cheaper based on Price/Sales, with a 0.7x multiple compared to a 0.9x multiple for the

MSCI EAFE Index while its dividend yield is 4.2%, compared to 3.3% for benchmark. Finally, stocks in the portfolio

have very strong momentum, with an average 6- month return of 15.6% vs. 9.9% for the benchmark. We continue

to believe that these characteristics will drive returns over time, and that the International ADR portfolio offers an

excellent opportunity for investors looking to diversify their portfolio with international stocks.



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SUMMARY OF EXCESS RETURNS

Factors Used to Select Stocks(higher return is better)

QTD LTM Factors Used to Avoid Stocks (lower return is better)

QTD LTM

Best Price to Sales -1.56% -4.85% Worst Unexpected Earnings -2.42% -2.57%

Best Price to Earnings -4.01% -9.91% Worst 1 Year EPS Growth -0.68% -7.13%

Best EBITDA/ Enterprise Value -1.96% -7.66% Worst Return on Equity -1.62% -11.25%

Best Free Cash Flow to EV 3.63% 2.07% Worst of Earnings Growth Composite -1.08% -6.49%

Best Shareholder Yield 1.45% 8.59%

Best of Value Composite -1.28% -1.88% Worst Debt Change 0.31% -4.80%

Worst Cash Flow to Debt -1.23% -14.28%

Best 3 Month Momentum 2.05% 5.31% Worst Debt to Equity -0.86% 2.90%

Best 6 Month Momentum 3.10% 8.72% Worst External Financing -1.81% -13.88%

Best 9 Month Momentum 4.58% 11.47% Worst of Financial Strength Composite 0.80% -3.04%

Lowest Return Volatility 2.25% 11.88%

Best of Momentum Composite 4.57% 15.49% Worst Change in Operating Assets -2.43% -11.89%

Worst Total Accruals -1.47% -11.44%

Worst Current Accruals to Assets -4.21% -21.09%

Worst Depreciation to Capex 0.04% -12.10%

Worst of Earnings Quality Composite -2.82% -12.40%

Excess Factor Returns vs. ADR All Stocks: 1st Quarter 2013

VALUE EARNINGS GROWTH

MOMENTUM & VOLATILITY

FINANCIAL STRENGTH

EARNINGS QUALITY




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International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in emerging markets can be more volatile.

Notes

All factor portfolios cited in this attribution report are calculated using a compositing methodology. Monthly portfolios are created with a 12-month holding period based on a single characteristic within a universe of stocks. The 12 monthly portfolios are then combined together to create the composite portfolio.

Universes

1. The All Stocks Universe includes all stock included in the Compustat Database listed on a U.S. exchange with a market value greater than $200mm and a price per share greater than $1.

2. The Large Stocks Universe consists of all the stocks in the All Stocks Universe where the market capitalization is greater than the universe average. 3. The ADR All Stocks Universe consists of all the stocks where the headquarters are domiciled outside of the United States and Canada. 4. The ADR Large Stocks Universe consists of all the stocks in the ADR All Stocks Universe where the market capitalization is greater than the universe average.

Characteristics

1. Market Capitalization Ranges are defined follows: Small Cap stocks range from $200m to $2bn, Mid Cap from $2bn to $10bn, Large Cap stocks greater than $10bn. Market capitalizations are inflation-adjusted to December 2008. Universes are equally weighted

2. Dividend Yield is calculated by the indicated annual dividends in IDC ex-Share divided by the current market capitalization. 3. Price to Sales is calculated by the trailing 12-month revenues from Compustat divided by the current market capitalization. 4. Momentum is the total return of the stock over the period indicated, including price appreciation and dividends. 5. Earnings Growth is a one-year calculation, looking at the percentage change in Earnings per Share in the last twelve months versus the twelve months before. To account

for negative earnings, the scalar is taken as an absolute value.

General Legal Disclosure/Disclaimer and Backtested Results

It should not be assumed that your account holdings correspond directly to any comparative indices. Individual accounts may experience greater dispersion than the composite level dispersion (which is an asset weighted standard deviation of the accounts in the composite for the full measurement period). This is due a variety of factors, including but not limited to, the fresh start investment approach that OSAM employs and the fact that each account has its own customized re-balance frequency. Over time, dispersion should stabilize and track more closely to the composite level dispersion. Gross of fee performance computations are reflected prior to OSAM’s investment advisory fee (as described in OSAM’s written disclosure statement), the application of which will have the effect of decreasing the composite performance results (for example: an advisory fee of 1% compounded over a 10 year period would reduce a 10% return to an 8.9% annual return). Portfolios are managed to a target weight of 3% cash. Account information has been compiled by OSAM derived from information provided by the portfolio account systems maintained by the account custodian(s), and has not been independently verified. In calculating historical asset class performance, OSAM has relied upon information provided by the account custodian or other sources which OSAM believes to be reliable. OSAM maintains information supporting the performance results in accordance with regulatory requirements. Please remember that different types of investments involve varying degrees of risk, that past performance is no guarantee of future results, and there can be no assurance that any specific investment or investment strategy (including the investments purchased and/or investment strategies devised and/or implemented by OSAM) will be either suitable or profitable for a prospective client’s portfolio. OSAM is a registered investment adviser with the SEC and a copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request.

Hypothetical performance results shown on the preceding pages are backtested and do not represent the performance of any account managed by OSAM, but were achieved by means of the retroactive application of each of the previously referenced models, certain aspects of which may have been designed with the benefit of hindsight.

The hypothetical backtested performance does not represent the results of actual trading using client assets nor decision-making during the period and does not and is not intended to indicate the past performance or future performance of any account or investment strategy managed by OSAM. If actual accounts had been managed throughout the period, ongoing research might have resulted in changes to the strategy which might have altered returns. The performance of any account or investment strategy managed by OSAM will differ from the hypothetical backtested performance results for each factor shown herein for a number of reasons, including without limitation the following:

Although OSAM may consider from time to time one or more of the factors noted herein in managing any account, it may not consider all or any of such factors. OSAM may (and will) from time to time consider factors in addition to those noted herein in managing any account.

OSAM may rebalance an account more frequently or less frequently than annually and at times other than presented herein.

OSAM may from time to time manage an account by using non-quantitative, subjective investment management methodologies in conjunction with the application of factors.

The hypothetical backtested performance results assume full investment, whereas an account managed by OSAM may have a positive cash position upon rebalance. Had the hypothetical backtested performance results included a positive cash position, the results would have been different and generally would have been lower.

The hypothetical backtested performance results for each factor do not reflect any transaction costs of buying and selling securities, investment management fees (including without limitation management fees and performance fees), custody and other costs, or taxes – all of which would be incurred by an investor in any account managed by OSAM. If such costs and fees were reflected, the hypothetical backtested performance results would be lower.

The hypothetical performance does not reflect the reinvestment of dividends and distributions therefrom, interest, capital gains and withholding taxes. Accounts managed by OSAM are subject to additions and redemptions of assets under management, which may positively or negatively affect performance depending

generally upon the timing of such events in relation to the market’s direction. Simulated returns may be dependent on the market and economic conditions that existed during the period. Future market or economic conditions can adversely affect the

returns.

section ii osam quarterly commentary: international adr · 2018-04-30 · section ii osam quarterly...

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