rules based etfs –here to stay - etf 2018 toronto · 31-03-2013 · funds mutual funds etfs. 4...
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May 2013
Rules Based ETFs – Here to Stay
Rohit Mehta, Senior Vice President Sales & Marketing
David Barber, Vice President, National Accounts
www.firstasset.com 2
Agenda
FIRST ASSET OVERVIEW
WHAT IS RULES/SCREEN BASED INVESTING
MEASURING THE BENEFITS OF SCREENS
INDIVIDUAL FACTOR ANALYSIS
INVESTIBLE SOLUTIONS
1
2
3
4
5
www.firstasset.com 3
About First Asset
� $2.6 billion assets under management
� Independent Canadian investment firm founded in 1996
� Management owned
� Advisor and investor focused
1 distinct brand
3 unique product lines
1 unifying thesisFOCUS ON BETTER
RISK-ADJUSTED RETURNS
Closed-End Funds
Closed-End Funds
Mutual Funds
Mutual Funds
ETFsETFs
www.firstasset.com 4
Recent highlights
400% AUM growth in 3 Years
Over $140 million in ETFs since inception
5 Analyst ETF recommendations for 20131
Leader of Canadian dividend and income equity mutual funds
over 1 year2
John Stephenson recognized by Brendan Wood International as a
TopGun Portfolio Manager for the past four years
www.firstasset.com 5
First Asset ETFs: First to deliver
June
2011
February
2012
July
2012
October
2012
January
2013
Covered Call ETFs
Canada’s First Convertible
Bond ETF
Tech Giants Covered Call
ETF
Canada’s First Morningstar®
Index ETFs
Canada’s First Barbell Index
ETFs
Morningstar® Emerging Markets
Composite Bond ETF
First Asset DEX Provincial
Bond Index ETF
LXF | OXF
CXF
TXF PXFEXMAXF | KXF | GXFDXM | WXM |FXM
QXM | UXM
October
2011
FXF | MXF
www.firstasset.com 6
Universe of stocks
What are rules based strategies?
Rules (Filters)
to Determine
Inclusion
Top 30Top 30selected stocks
www.firstasset.com 7
Measuring the benefits of screens
What we looked for:
� Screened for Value and Momentum factors
Who we worked with:
� Morningstar™ CPMS
� Provides data on more than 4,000
companies in North America
� 30 Toronto based analysts
What we did:
� Built individual factor portfolios for testing
� Construction rules:
� 10 year test
� Rebalanced quarterly
� Liquidity screen for investability
Source: Morningstar®.
www.firstasset.com 8
Momentum
www.firstasset.com 9
Momentum – is the trend your friend?
Basic thesis is that leadership in the marketplace persists
Momentum strategies predict earnings
Slowness to incorporate new data
Behavioural finance – bandwagon effect
www.firstasset.com 10
Factors tests
� Built individual factor portfolios for testing
� Construction rules:
� 10 year test
� Rebalanced quarterly
� Liquidity screen for investability
www.firstasset.com 11
Factor Test: Price change from 12 mo. high
Source: Morningstar®Direct.
Best Price Change from 12 M High S&P/TSX Composite Return
1 year 12.8% 7.2%
3 year 11.3% 4.8%
5 year 4.8% 0.8%
10 year 12.9% 9.2%
Worst Price Change from 12 M High S&P/TSX Composite Return
1 year -4.2% 7.2%
3 year -12.5% 4.8%
5 year -4.9% 0.8%
10 year -4.4% 9.2%
www.firstasset.com 12
Factor Test: 3 month estimate revisions
Source: Morningstar®Direct.
Best 3m Estimate Revisions S&P/TSX Composite Return
1 year -3.8% 7.2%
3 year -1.0% 4.8%
5 year -2.2% 0.8%
10 year 13.6% 9.2%
Worst 3m Estimate Revisions S&P/TSX Composite Return
1 year -10.2% 7.2%
3 year -3.4% 4.8%
5 year -7.9% 0.8%
10 year -3.9% 9.2%
www.firstasset.com 13
Factor Test: Earnings surprise
Source: Morningstar®Direct.
Best Earnings Surprise S&P/TSX Composite Return
1 year 19.1% 7.2%
3 year 9.9% 4.8%
5 year 2.0% 0.8%
10 year 13.1% 9.2%
Worst Earnings Surprise S&P/TSX Composite Return
1 year -15.3% 7.2%
3 year 0.7% 4.8%
5 year 6.1% 0.8%
10 year 6.8% 9.2%
www.firstasset.com 14
Factor Test: Trailing return on equity
Source: Morningstar®Direct.
Best Trailing ROE S&P/TSX Composite Return
1 year 10.7% 7.2%
3 year 10.3% 4.8%
5 year 7.7% 0.8%
10 year 18.3% 9.2%
Worst Trailing ROE S&P/TSX Composite Return
1 year -14.7% 7.2%
3 year -17.7% 4.8%
5 year -14.5% 0.8%
10 year -7.1% 9.2%
www.firstasset.com 15
How has momentum performed?
30X
US MOMENTUM STOCKS VS S&P500
U.S. Momentum
S&P 500 TR*
$70,000
$10,000
$5,000
$2,000
$200
$100
$20
$10
$2
$1
$0.3
Ind
ex
Va
lue
s (U
SD
)
Jul1927
Dec1940
Dec1950
Dec1960
Dec1970
Dec1980
Dec1990
Dec2000
Jul2011
$67,309
$2,321
Source: Tacita Capital. * IA Extended.
www.firstasset.com 16
Value
www.firstasset.com 17
Factor Test: Trailing price to earnings
Best Trailing Price to Earnings S&P/TSX Composite Return
1 year 19.1% 7.2%
3 year 13.3% 4.8%
5 year 15.5% 0.8%
10 year 18.9% 9.2%
Source: Morningstar®Direct.
Worst Trailing Price to Earnings S&P/TSX Composite Return
1 year 0.9% 7.2%
3 year 4.6% 4.8%
5 year 5.4% 0.8%
10 year 10.4% 9.2%
www.firstasset.com 18
Factor Test: Price to cash flow
Source: Morningstar®Direct.
Best Price to Cash Flow S&P/TSX Composite Return
1 year 12.2% 7.2%
3 year 8.1% 4.8%
5 year 10.0% 0.8%
10 year 17.7% 9.2%
Worst Price to Cash Flow S&P/TSX Composite Return
1 year -2.5% 7.2%
3 year 2.4% 4.8%
5 year -4.0% 0.8%
10 year 3.3% 9.2%
www.firstasset.com 19
Best Price to Book S&P/TSX Composite Return
1 year -6.2% 7.2%
3 year 0.9% 4.8%
5 year 0.0% 0.8%
10 year 3.4% 9.2%
Worst Price to Book S&P/TSX Composite Return
1 year 7.5% 7.2%
3 year 0.2% 4.8%
5 year -2.9% 0.8%
10 year 4.9% 9.2%
Source: Morningstar®Direct.
Factor Test: Price to book
www.firstasset.com 20
Best Price to Sales S&P/TSX Composite Return
1 year 24.5% 7.2%
3 year 13.6% 4.8%
5 year 1.1% 0.8%
10 year 9.3% 9.2%
Worst Price to Sales S&P/TSX Composite Return
1 year -13.8% 7.2%
3 year -6.2% 4.8%
5 year -6.8% 0.8%
10 year 2.7% 9.2%
Source: Morningstar®Direct.
Factor Test: Price to sales
www.firstasset.com 21
COMPARATIVE CUMULATIVE PERFORMANCE
How has value performed?
Source: Tacita Capital.
$10,000
$1,000
$100
$10
$1
$0.1
Ind
ex
Va
lue
s (U
SD
)
Jul1927
Dec1940
Dec1950
Dec1960
Dec1970
Dec1980
Dec1990
Dec2000
Dec2009
Fama . French Large Value TR USD
Fama . French Large Growth TR USD
IA SBBI S&P 500 TR USD
$4,454
$868
$1,578
www.firstasset.com 22
Morningstar Canada Momentum Index ETF
HIGHLIGHTS� Designed to provide diversified
exposure to Canadian issuers which
have demonstrated, among other
things, positive momentum in earnings
and price
� Equal weighted and rebalanced
quarterly
� Symbol: WXM
WXM
SELECTION FACTORS
Canadian Equities
Top 30Top 30selected stocks
Trailing Return on Equity
3-Month EPS Estimate Revision (Current Year)
Latest Quarterly Earnings Surprise
Price Change from Month-End 3 Months Ago
Price Change from Month-End 9 Months Ago
Percent Change in Price from 12 Month High
www.firstasset.com 23
Morningstar Canada Momentum Index3
Source: Morningstar®Direct.
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GROWTH OF $10,000
Morningstar Canada Momentum TR CAD
Ending Value: $53,547
S&P/TSX Composite TR
Ending Value: $19,104
$53,547
$19,104
WXM
AS AT MARCH 31, 2013
www.firstasset.com 24
Morningstar Canada Momentum Index ETF
Source: Morningstar®Direct.
First Asset
Morningstar Canada
Momentum ETF
Morningstar Canada
Momentum Index3
Trailing Returns
Standard
Deviation
Sharpe
Ratio
Max
Drawdown
1-Year SI 3-Year 5-Year 10-Year
16.68 17.41 13.19% 9.01% 17.52% 14.45% 0.76 -37.67%
S&P/TSX
Composite 6.11 6.13 4.86% 2.06% 9.97% 14.67% 0.34 -43.35%
WXM
MORNINGSTAR CANADA MOMENTUM INDEX RISK/RETURN PROFILEAS AT MARCH 31, 2013
www.firstasset.com 25
Morningstar Canada Value Index ETF
HIGHLIGHTS
� Designed to provide diversified exposure
to liquid equity securities with relatively
low prices given anticipated per-share
earnings, book value, cash flow, sales and
earnings estimates
� Equal weighted and rebalanced quarterly
� Symbol: FXM
FXM
selected stocks
SELECTION FACTORS
Price to Latest 4 Quarter Sales
EPS Estimate Revision
Canadian Equities
Current Price/Book Ratio
Price to Latest Cash Flow
Trailing Price to Earning Ratio
Top 30Top 30
www.firstasset.com 26
Source: Morningstar®Direct.
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Morningstar Canada Value Index3
GROWTH OF $10,000
Morningstar Canada Value Index TR
Ending Value: $73,356
S&P/TSX Composite TR
Ending Value: $19,104
$73,356
$19,104
FXM
AS AT MARCH 31, 2013
www.firstasset.com 27
Source: Morningstar®Direct.
Morningstar Canada Value Index ETF
MORNINGSTAR CANADA VALUE INDEX RISK/RETURN PROFILEAS AT MARCH 31, 2013
First Asset
Morningstar Canada
Value ETF
Morningstar Canada Value
Index3
Trailing Returns
Standard
Deviation
Sharpe
Ratio
Max
Drawdown
1-Year SI 3-Year 5-Year 10-Year
15.55 18.90 12.39% 10.70% 16.81% 14.77% 0.86 -40.75%
S&P/TSX
Composite 6.11 6.13 4.86% 2.06% 9.97% 14.67% 0.34 -43.35%
FXM
www.firstasset.com 28
Summary
1
2
3
4
First Asset is an innovative, independent management – owned
company providing unique solutions to ETF investors in Canada
Momentum and Value factors have been shown to add market
premiums
First Asset Morningstar Canada Value (FXM) and Momentum
(WXM) are great vehicles to access this premiums when added to
TSX Composite portfolios, increase risk adjusted returns
FXM and WXM have been endorsed by third parties
www.firstasset.com 29
Disclaimer
1: Raymond James Insights and Strategies, Feb 2013; Dundee Recommended list for WXM, EXM, Jan 2013; CIBC World Markets Report, Jan. 2013; RBC Analyst Report, Jan. 2013;
2: “Leading dividend fund steers clear of bank stocks”, Shirley Won, Globe and Mail, July 2012
3: An investor cannot invest directly in either of the Morningstar Indices. The performance data for these Indices assumes the reinvestment of all distributions. Index performance data results prior to 12/31/2011 are hypothetical, but are calculated using the same methodology that has been in use by the index provider since the Index was first published. Information regarding the Indices, including the applicable index methodology, is available at www.firstasset.com. As a result of the risks and limitations inherent in hypothetical performance data, hypothetical results may differ from actual Index performance.
This communication is confidential and for the exclusive use of registered dealers and their representatives. The contents may not be reproduced or distributed to any clients or potential clients of such dealers or to the public generally or to the press. This communication is intended for informational purposes only and is not, and should not be construed as, investment and/or tax advice. Important information about the Fund is contained in its prospectus. Please read a prospectus before investing.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. The indicated rates of return are the historical annual compound total returns including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or operational charges or income taxes payable by any security holder that would have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Performance is calculated net of all fees. The performance information shown is for Common units of the Funds, and may not be indicative of theperformance of other series of the same Fund. Variations in performance data among various classes of the same Fund is due to differences in management fees attributed to each series.
Morningstar Canada Value Index and Canada Momentum Index (the “Indices”) are trademarks of Morningstar, Inc. and have been licensed for use for certain purposes by First Asset. The Funds are not sponsored, endorsed, sold or promoted by Morningstar or any of its affiliates (collectively, "Morningstar"), and Morningstar makes no representation regarding the advisability of investing in these Funds. Returns of the Indices do not represent the Fund's returns. The S&P/TSX Composite Total Return Index is a capitalization-weighted index designed to measure market activity of all stocks listed on the TSX and is used as a benchmark to show how the Morningstar Indices are performing in relation to the broader Canadian equity market on a relative basis.
The opinions contained in this document are solely those of First Asset and are subject to change without notice. This document includes information that has been obtained from third party sources. The reference information was obtained from publicly available sources, and although First Asset believes that these independent sources are generally reliable, the accuracy and completeness of such information is not guaranteed and has not been independently verified. First Asset assumes no responsibility for any losses or damages, whether direct or indirect, which arise from the use of this information and expressly disclaims liability for any errors or omissions in this information. First Asset is under no obligation to update the information contained herein. The Funds are managed by First Asset Investment Management Inc.
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