rules based etfs –here to stay - etf 2018 toronto · 31-03-2013 · funds mutual funds etfs. 4...

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


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


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


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


Universe of stocks

What are rules based strategies?

Rules (Filters)

to Determine

Inclusion

Top 30Top 30selected stocks


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®.


Momentum


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


Factors tests

� Built individual factor portfolios for testing

� Construction rules:

� 10 year test

� Rebalanced quarterly

� Liquidity screen for investability


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%


Factor Test: 3 month estimate revisions


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%


Factor Test: Earnings surprise


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%


Factor Test: Trailing return on equity


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%


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.


Value


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%


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%


Factor Test: Price to cash flow


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%


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%


Factor Test: Price to book


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%


Factor Test: Price to sales


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


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


Morningstar Canada Momentum Index3


$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


$53,547

$19,104

WXM

AS AT MARCH 31, 2013


Morningstar Canada Momentum Index ETF


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


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



$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


S&P/TSX Composite TR


$73,356

$19,104

FXM

AS AT MARCH 31, 2013



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


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


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.

rules based etfs –here to stay - etf 2018 toronto · 31-03-2013 · funds mutual funds etfs. 4...

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