AXA Rosenberg US Small/Mid Cap Fund Third Quarter 2009 2009 3Q Agg.pdf · Much of the write-offs...
Transcript of AXA Rosenberg US Small/Mid Cap Fund Third Quarter 2009 2009 3Q Agg.pdf · Much of the write-offs...
COPYRIGHT © 2009 AXA ROSENBERG INVESTMENT MANAGEMENT
Lawrence RemstedtPortfolio Manager
October 2009
AXA Rosenberg US Small/Mid Cap Fund
Third Quarter 2009
3
Table of Contents
1. Executive Summary: Challenges & Opportunities
2. Market Environment
3. Positioning & Performance
4. Appendix
Executive Summary
Executive Summary
� Encouraging signs that investors are starting to focus on fundamentals
� Reward to forecast earnings yield moving up but still below zero in the US
� Europe is starting to reward forward earnings yield
� Early Cycle Rebound continued in Q3—distressed companies with weak earnings and high Beta rewarded
� Volatility and dispersion remains elevated but subsiding
� Magnitude of write-offs stabilizing and priced-in, providing more confidence in earnings forecasts
� Portfolio well positioned for an environment that rewards future earnings
� Favoring companies with strong valuations and improving earnings
� Beta rally subsiding and reward to valuation is increasing
� Fundamental characteristics of the portfolios are compelling
� Latent value will result in above average alpha as market reconciles
8
Agustin SevillaGlobal Chief Investment Officer
(Industry Experience: 27 Years)
Barr RosenbergChairman
Thomas MeadDirector
(Average Industry Experience: 33 Years)
Research & Modeling
9 Professionals(Average Industry Experience:
16 Years)
Production Interface & Data Integrity
13 Professionals(Average Industry Experience:
10 Years)
Software Engineering & Tools
13 Professionals(Average Industry Experience:
9 Years)
Data Systems & Validity
6 Professionals(Average Industry Experience:
15 Years)
4 Regional CIO’s(Average Industry Experience:
16 Years)
+ 7 Investment Process Professionals
(Average Industry Experience: 13 Years)
Investment Management Companies
Oversight of Research and Investment Process
Ongoing Diagnostic Process
� Generate new ideas
� Alpha enhancements
� Risk model
� Protect the portfolios in exceptional conditions
� Corrupt balance sheet items
� Magnitude of relative strength
Kenneth ReidVice Chairman
Executive Summary
� Research is dynamic and continuous
� Comparability enhancements to the Valuation Model implemented in Q3
� Improved valuation from greater comparability across balance sheet items (notably, goodwill)
� Earning Forecast Model refinements on ROE and quality measures at the extremes
� Deployment underway
� Additional research ongoing, e.g. goodwill adjustments informing earnings forecasts
� Advancements in risk modeling in market extremes
US Mid/Small Cap Equity Composite3-Year Annualized Rolling Returns
Reporting Date 30 Sep 2009
Strategy Inception Date 1 Feb 1996
Composite Creation Date 1 Feb 1996
Currency USD
Annualized Returns Since Inception1
� AXA Rosenberg 10.82 %
� Benchmark2 7.87 %
� Alpha3 2.95 %
Tracking Error Since Inception 5.84 %
Source: AXA Rosenberg's fully compliant presentation, w hich is attached.
10
11
Fundamental Focus Follows Beta Rallies: US
Market environment information reconstructed based on Merrill Lynch research article published August 19th 2009. The graph was constructed using AXA Rosenberg's measure of monthly factor returns to the following risk measures: B/P, E/P Systematic Variability (Beta) and Quality Growth (a proprietary measure of earnings quality). The "Value" periods represent an equality weighted combination of the trailing 12-month return for B/P and E/P. The Value, Quality Growth and Beta epochs are defined by looking at (1) a ranking of the trailing 12-month cumulative return for each factor and (2) measuring the trailing 12-month return versus the historical average for the factor return over the full history. If the factor scores high along both dimensions that would indicate that factor as the dominant environmental return driver for that period.
AXA Rosenberg Performance in Various Market Epochs
-0.60
-0.40
-0.20
0.00
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0.60
Value - Fundmental Focus Stable Grow th Focus Beta - Volatility
Avera
ge M
onth
ly A
lpha
Broad Large Small
-20%
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-5%
0%
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1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Avera
ge P
eriod P
erf
orm
ance
Value Beta Stable Grow th
Valu
e
Sta
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Gro
wth
Beta
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Market Environment
15
Before the Credit Crisis
US Broad Market, March 2008: Significant Earning Expansion and Contractions
Source: AXA Rosenberg
Forecasted Change E/P >+0.05 Forecasted Change E/P < -0.05
Each square represents a company and its relative capitalization
Signs of trouble were already apparent a year ago• Relatively few companies were expected to improve
16
After the Credit Crisis
US Broad Market, March 2009: Significant Earning Expansion and Contractions
Source: AXA Rosenberg
Forecasted Change E/P >+0.05 Forecasted Change E/P < -0.05
Each square represents a company and its relative capitalization
The number of companies significantly contracting has hit historical highs• A surprising number of companies are poised for improvement during this recession
17
Market Returning its Focus to Expected Earnings
Source: AXA Rosenberg
� Trailing one-year relative return to forecast earnings yield modestly above zero and trending upwards
� Reward is above zero 80% of the time
� Just ended in September the second highest number of months below zero (23 months)
� Bubble period was 25 months
� AXA Rosenberg strategies poised to benefit from this improvement
� Strategies showing higher expected earnings yield than benchmark on both IBES and AXAR metrics
Quality EarningsGrowth
9/89 - 4/92
Energy and Inflation
5/78 - 6/81Nifty Fifty
6/71 - 11/72
The “New Economy”Information and
Technology12/98 - 11/2000
“A Crisis of Confidence”
Global Markets4/07 – 4/09
U.S. Mid-Small Cap: Reward to IBES Projected Earnings Yield
1967 - 2009
-60%
-40%
-20%
0%
20%
40%
60%
1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Tra
iling 1
Year
Retu
rns
AXA Rosenberg's Earnings Yield
Advantage
0%
4%
8%
IBES Estimates AXA Rosenberg
Estimates
Fore
cast
Earn
ings Y
ield
Representative AccountRU2500 IndexSpread
1818
Cross-sectional Volatility is Moderating
Source: AXA Rosenberg
� Level of volatility subsiding after unprecedented highs
� Currently still above average
Cross-Sectional Volatility
United States
January 1967 - July 2009
0%
20%
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100%
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ay R
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)
19
Evidence of Greater Earnings Visibility
� Dispersion in analysts’ estimates subsiding
� Record write-offs challenged investors’ earnings forecasts
� Much of the write-offs are now "in the market”
� Valuation model refinements will help us to capture write downs well in advance of the market
� Market and cross-sectional volatility declining
IBES Analyst Estimate DispersionMSCI World Standard Index
0
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4
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Dec -87 Dec -90 Dec -93 Dec -96 Dec -99 Dec -02 Dec -05 Dec -08
Sta
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via
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ea
n (
%)
Asset Write DownsUS Broad Market
$(350)
$(300)
$(250)
$(200)
$(150)
$(100)
$(50)
$-
Jun-98 Jun-00 Jun-02 Jun-04 Jun-06 Jun-08
Billio
ns
Global Earnings Environment, August 2009
AXA Rosenberg Proprietary Forecasts
Source: AXA Rosenberg; arithmetic averages, MSCI ACWI Index
3% 4%
-1%
4%6%
4%
7%
-45%
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-35%
-30%
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North America Europe Dev Japan Asia Pac Dev Americas EMG Asia Pac EMG Europe EMG
Projected 1 Yr EPS Growth
% Revision Changes in EPS July/Aug
Projected Earnings to Price
20
21
US Small Cap
3rd Quarter 2009
-6.5%
-8.9%
2.4%
5.3% 5.6%
-0.3%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
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Projected Earnings Yield Trailing Earnings Yield Proj. Earnings Yield Change
Re
lati
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to
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on
th A
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Best Performance Quintile vs Universe Representative Account vs Benchmark
US Small Cap
3rd Quarter 2009
(0.6)
(0.4)
(0.2)
0.0
0.2
0.4
0.6
AXAR Fair
Value to Price
Book to Price Relative
Strength
Financial
Leverage
Size Beta Trading Activity
Rela
tive S
tandard
Devia
tion
3-M
onth
Avera
ge
Best Performance Quintile vs Universe Representative Account vs Benchmark
Characteristics of the Early Cycle Rebound
� The top 20% of stocks led markets by 55% in Q3 and 60% in Q2
� Dominant characteristic of this group remains ‘cheap and beaten down’
� They show positive change in earnings but overall earnings yield remains low
Similar to Q2, the best performing stocks exhibited weak earnings characteristics
Investors preferred cheap book value, but not necessarily fundamentally-strong companies
The dominant features were again high beta and recent underperformers (low rel. strength)
Reward to Valuation – A Sign of Return to Fundamentals
Our proprietary estimate of value is superior to naive estimates of value
22
23
Spread Between High Beta and Low Beta Market Halves
U.S. Mid Small Market: Trailing 3-Month Total Returns: 1967 - 2009
-40%
-25%
-10%
5%
20%
35%
1968 1973 1978 1983 1988 1993 1998 2003 2008
3 M
on
th R
etu
rn
Spread Between High Relative Strength and Low Relative Strength Market Halves
U.S. Mid Small Market: Trailing 3-Month Total Returns: 1967 - 2009
-40%
-25%
-10%
5%
20%
35%
1968 1973 1978 1983 1988 1993 1998 2003 2008
3 M
on
th R
etu
rn
23
Drivers of Early Cycle Rebound Waning
Source : AXA RosenbergThe Broad Market Universe represents approximately 20,000 companies in AXA Rosenberg’s global database.
� The reward to high beta, beaten-down stocks reached historic highs in Q2 2009
� Although still elevated, the reward is returning to their long term averages
As of Sep 2009
Beta
Spread
RS
Spread
As of May 2009 30% -35%
As of Sep 2009 14% -12%
L-T Avg. 0% 1%
Positioning & Performance
2727
Source: AXA Rosenberg“Projected Change in Earnings Yield” is AXA Rosenberg’s proprietary forecast of earnings yield (earnings/price) for the next 12 months less the trailing earnings yield, as at the relevant dates shown above. The data shown is based on AXA Rosenberg’s representative account and its stock universe in the relevant strategy. The representative account was chosen because it utilizes an investment setup that is typical for accounts in the relevant strategy. The data shown is Supplemental to the composite performance presentation in the appendix. This information should not be read
to imply actual performance of the a portfolio in the relevant strategy, whether past or future.
Portfolio Positioning Driven by Proprietary Forecasts of Earnings
� Bottom-up forecasts of earnings yield change drive active industry and sector exposures
� Negative expectations in Utilities; positive in Info Tech & ConDisc
� Portfolio has a higher projected earnings yield advantage compared to the index in nearly every economic sector
� Strong operating results
� Stable projected earnings yield
Industry Stocks VM EFM
Added
PartnerRe ++ +
Douglas Emmett ++ -
Maintain Overweight in
Novell + +
Skyworks ++ -
Sold
Aeropostale - --
Dollar Tree + --
Finance
IT
ConDisc
AXARosenberg Projected Earnings Yield Change
Mid/Small Cap Strategy
-6%
0%
6%
12%
Dis
cret
ion
Staple
s
Energy
Finan
ceH
ealth
care
Indus
try
Info
. Tec
h.M
ater
ial
Telec
om
Util
ity
Active Weight Benchmark Projected Earnings Yield Change
AXARosenberg Projected Earnings Yield
Mid/Small Cap Strategy
-12%
-6%
0%
6%
12%
Dis
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Staple
s
Energy
Finan
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ealth
care
Indus
try
Info
. Tec
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ater
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Telec
om
Util
ity
FUNDMID RU2500
28
Characteristics Portfolio Benchmark
Price / Earnings 26.50 44.75
Price / Earnings (Forecast) 13.69 23.08
Price / Operating Income 5.95 8.50
Price / Cash Flow 14.83 28.67
Price / Book 1.44 1.74
Debt / Equity 0.73 1.03
ROE 4.63% -1.44%
5-Year Earnings Growth (%) 0.57% -5.73%
Sep 2009
Portfolio Benchmark
19.86 49.22
15.64 24.95
6.19 9.56
10.04 16.58
1.99 2.80
0.82 1.11
10.80% -42.78%
8.54% 5.60%
Feb 2000
“Tech Bubble”Current Period
Fundamental Strength in the Current Portfolio
Source: AXA Rosenberg. Source: AXA Rosenberg. Exposure based on a US Mid/Small Cap core active account with longest history managed against the Russell 2500 Index. Relative Fitted Value-to-Price measures the degree of misvaluation identified by AXA Rosenberg’s Valuation Model. The equity market in each region is divided into two equal capitalization halves based on the score from AXA Rosenberg’s Valuation Model: Undervalued half: 50% of market cap with the highest valuation scores, overvalued half: 50% of market cap with the lowest valuation scores. The ratio of the price-to-fitted value of the undervalued half to the overvalued half is measure of the “valuation gap” present in the market. The Relative Forecasted Earnings Yield measures AXA Rosenberg's opinion of projected earnings yield for stocks within the U.S. Mid/Small Universe over the forward 12-month period. A rising forecasted earnings yield indicates that our models are identifying increasing number of mispriced stock opportunities along this dimension.
� As a result of the disconnect between prices and the earnings for the stocks we hold, the spread along fundamental dimensions remain elevated
� We also continue to see an attractive valuation gap in our portfolios
U.S. Mid/Small Cap Strategy
Projected Earnings Yield and Fitted Value
vs. Russell 2500 Index
0%
10%
20%
30%
40%
50%
60%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0%
1%
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6%
Relative Fitted Value (LHS) Relative Forecasted Earnings Yield (RHS)
29
Ongoing Research
� Risk modeling
� Existing risk model uses a range of fundamental and market-related attributes to generate forecasts of risk and correlation
� Similar to Barra risk models
� Industry standard and tailored to our alpha modeling
� Captures the long-term nature of risk
� Additional risk model construct
� Aimed at capturing emergent themes improving risk forecasts around inflection points
� Designed to complement existing risk model
� Extensions of valuation and earnings forecasting research
Summary
� Encouraging signs that investors are focusing on fundamentals
� Performance is stabilizing
� Current portfolios well-positioned for post-beta market environment
� Portfolios favoring companies with stronger, more stable fundamentals
� Portfolios will struggle if the high beta market continues
Appendix
� There is a disconnect between the performance of the last 3-5 years and our long-term track record, which remains compelling
� This recent experience is heavily influenced by the last 2 years
� Whilst uncomfortably long and acute, the recent volatility of alpha is not completely unprecedented (tech bubble period)
USD Denominated
Annualized Returns Since
Jan-96 - Jun-09
AXA Rosenberg 9.75%Benchmark 6.56%
Outperformance 3.20%
U.S Mid/Small Cap Composite Quarterly Alpha
-10%
-5%
0%
5%
10%
Q2 1996 Q2 1997 Q2 1998 Q2 1999 Q2 2000 Q2 2001 Q2 2002 Q2 2003 Q2 2004 Q2 2005 Q2 2006 Q2 2007 Q2 2008 Q2 2009
33
Period of benign market environment characterized by extraordinarily stable earnings and low cross-sectional volatility
Period of soaring volatility
Magnitude of quarterly alphas similar to tech bubble period
33
Performance shown is gross of fees.Source : AXA Rosenberg
3333
OMRF Summary Performance - U.S. Mid/Small Cap Strategy
Performance as of:
Market Value (USD):
3rd Quarter 2009 15.15% 20.06% -4.91%
2nd Quarter 2009 13.58% 20.27% -6.69%
1st Quarter 2009 -8.25% -11.43% 3.18%
Year-to-Date 20.00% 27.89% -7.89%
Trailing 1 Year -16.07% -5.68% -10.39%
Trailing 3 Year -7.00% 3.78% -10.78%
Annualized Inception-to-Date
08-Sep-2005 - 30-Sep-2009 -3.85% -0.96% -2.89%
4,467,042
Portfolio Benchmark Alpha
30-Sep-2009
Benchmark: Russell 2500™ Index
3434
OMRFPositioning and Fundamental Characteristics as of September 30th, 2009
Source: AXA Rosenberg
Sector Positioning Portfolio Benchmark Active Top 10 Holdings Portfolio Benchmark Active
Consumer Discretionary 19.96% 16.44% 3.52% INTERPUBLIC GROUP OF COS INC 1.55 0.18 1.37
Consumer Staples 5.06% 2.75% 2.31% PARTNERRE LTD 1.52 0.21 1.30
Energy 1.00% 4.97% -3.97% WATSON PHARMA INC 1.50 0.19 1.31
Finance 18.16% 20.06% -1.90% ENERGIZER HOLDINGS INC 1.50 0.23 1.27
Healthcare 12.32% 10.57% 1.75% SYBASE INC 1.39 0.16 1.23
Industrials 12.81% 17.31% -4.50% SYNOPSYS INC 1.37 0.16 1.22
Information Technology 20.81% 14.48% 6.33% SEALED AIR CORP NEW 1.32 0.15 1.17
Materials 7.17% 6.00% 1.17% RALCORP HOLDINGS INC 1.31 0.16 1.15
Telecom 1.52% 1.99% -0.47% INVERNESS MED INNVNS INC 1.30 0.15 1.14
Utilities 1.18% 5.43% -4.24% EASTMAN CHEMICAL CO 1.29 0.19 1.10
Top/Bottom Industries Portfolio Benchmark Active Characteristics Portfolio Benchmark
Software 11.45% 7.22% 4.23% Price / Earnings 24.27 35.71
Insurance 8.54% 5.32% 3.22% Price / Earnings (Forecast) 13.73 23.09
IT Hardware 8.84% 5.94% 2.90% Price / Operating Income 5.95 8.50
Food 4.65% 1.80% 2.85% Price / Cashflow 12.77 28.68
Retail/Wholesale 7.74% 4.99% 2.75% Price / Book 1.43 1.75
Debt / Equity 0.74 1.04
Miscellaneous Finance 0.51% 2.47% -1.96% ROE 4.54% 0.01%
Instruments 2.04% 4.58% -2.54% 5-Year Earnings Growth (%) 2.18% -5.73%
Electric Utilit ies 0.48% 3.20% -2.72% Yield 1.16% 1.43%
Machinery/Metal Prod. 2.48% 5.44% -2.95% Average Market Cap ($ mil) 1,909 2,025
Oil 0.25% 3.25% -3.00% Total Number of Stocks 455 2,483
35
Q3 M&A Highlights
� Dell acquires Perot Systems for $3.9 Billion
� U.S. portfolio’s significantly overweight to Perot Systems
� Valuation model driving overweight as balance sheet appraisal highlights significant market misevaluation
� Dell acquisition driven by desire to compete with IBM in enterprise solutions space
� Sold our Perot positions, average holding period return approx. +100% for most portfolio’s
� Unilever agrees to buy Sara Lee European Soap and Detergent unit for $1.9 Billion
� U.S. portfolio’s significantly overweight Sara Lee (underweight Unilever)
� Valuation model driving overweight
� Unilever diversifying into lower cost merchandise
� Xerox buys Affiliated Computer Services $6.4 Billion
� U.S. portfolio’s large overweight to Affiliated Computer Services (ACS) – slightly over weight Xerox (XRX)
� Valuation model driving overweight as balance sheet appraisal highlights significant market misvaluation
� Xerox shifting to computer services as printing equipment sales decline
� Abbot Labs buys Solvay Pharmaceutical unit for €4.8 Billion
� Europe portfolio’s large overweight to Solvay (ACS) – U.S. portfolio’s slightly under weight Abbot Labs (ABT)
� Valuation model driving active positions
� Solvay is looking to diversify away from Chemicals and Plastics, Abbot is looking to add sales outside the U.S.
3636
Americas
Bill RicksChief Investment OfficerAugust 1989
Kathleen BrownDeputy Chief Investment OfficerJuly 1999
Portfolio Management12 Portfolio Managers
Trading4 Traders
Operations8 Managers
Research & Modeling9 Professionals(16 Years*)
Data Systems & Validity6 Professionals(15 Years*)
Production Interface & Data Integrity13 Professionals(10 Years*)
Software Engineering & Tools13 Professionals(9 Years*)
Tom MeadDirector
Global Portfolio ManagementBarr Rosenberg Research Center
Japan
Ikuya IzumiChief Investment OfficerJanuary 1995
Portfolio Management 4 Portfolio Managers
Trading3 Traders
Operations4 Managers
Asia Pacific
Kevin ChenChief Investment OfficerJuly 1999
Portfolio Management5 Portfolio Managers
Trading3 Traders
Operations14 Managers
Barr RosenbergChairman
Agustin SevillaGlobal Chief Investment Officer
* Average Years Industry Experience (as of June 2009) Source: AXA Rosenberg
AXA Rosenberg Global Investment Group
Europe
Gideon SmithChief Investment OfficerMay 1998
Adam WardDeputy Chief Investment OfficerApril 2003
Portfolio Management17 Portfolio Managers
Trading4 Traders
Operations9 Managers
Our Investment Process
Earnings Forecast Model
Valuation Model
+
Identifies most attractively priced stocks in each industry
Identifies companies with superior year-ahead earnings in each industry
Risk Model
=
Maximize return and minimise riskrelative to the benchmark
Predicted Return
Valuation of BASF SE
BASF Business Lines Assets/Share Market Valuation Valuation
Chemicals 52.5572 1.2280 64.5425
Agricultural Chemicals 10.3555 1.4924 15.4545
Plastics, Organic Synthetics 16.7825 1.1175 18.7552
Oil & Gas 17.5797 1.7589 30.9217
Zaitech 14.7728 0.2674 3.9501
Total Valuation of Assets by Business Segment 133.62
Adjustment for Balance Sheet Items
BASF Balance Sheet Assets/Share Market Valuation Valuation
Cash 2.6647 0.4098 1.0919
Receivables 20.0598 -0.0090 -0.1803
…
Current Liabilities 7.6976 -1.1941 -9.1913
Research & Development 13.5099 0.5662 7.6488
Total Adjustments from Balance Sheet -56.11
Adjustment for Income Statement Items 19.33
Adjustment for Unique Items
Unique Earnings
Unique Revenues
Unique Operating Earnings History
2.27
AXA Rosenberg Investment Management’sCompany Fair Value (EUR)
99.11
37
38
Valuation Model: Improvements in Comparability
� Refinements focused on improving comparability of data across companies
� Improve our valuation of assets by capturing the distinct historical transactions/accounting treatments underlying financial statement items and refining their comparability
� Goodwill enhancements implemented in the third quarter in the US and Europe
� Extensions:
� Accounting method, e.g. historical cost vs. market for real estate
� ‘Vintage’ for physical capital
Goodwill as % of each Sector Total Assets - EUROPE
-30%
-20%
-10%
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30%
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50%
Telec
omm
Mat
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Finan
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Info
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Con D
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Util
ities
Con S
taple
sIn
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lsH
ealth
care
Energy
% o
f S
ec
tor
To
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As
se
ts
Reported Goodwill Adjustment to Goodwill Adjusted Goodwill
Largest write-downs in Financials and Telecoms
Examples:Vodafone: € 27 B adjustment--half of its € 54 billion goodwill on booksIntesa San Paolo: €19 B adjustment--virtually all of its €20 billion goodwill
Goodwill as % of each Sector Total Assets - US
-30%
-20%
-10%
0%
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30%
40%
50%
Con D
iscr
Finan
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Mat
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lsIn
dustria
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ealth
care
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omm
Info
Tec
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Energy
Con S
taple
s
Util
ities
% o
f S
ec
tor
To
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Ass
ets
Reported Goodwill Adjustment to Goodwill Adjusted Goodwill
Largest write-downs in Financials and Consumer Discretionary
Examples:Bank of America: $71 B adjustment—most of its $ 87 B goodwill on booksTime Warner: $23 B adjustment—most of its $32 B goodwill on books
Risk Management
� The management of risk is fully-integrated with our alpha forecasts in the portfolio
construction process
� Active exposures are driven by bottom-up insights where the opportunity warrants
� Portfolio risk has been primarily driven by
� Increased market volatility within the various risk dimensions as well as for individual stocks
� Unusual alignment of portfolio positions along certain industry and risk dimensions that were highly penalized
� Current tracking error and alpha drawdown are at the extreme end of historical range, but are not unprecedented
� Preliminary findings of research enhancements suggest:
� A comparable to slightly improved alpha, but with lower volatility
� Better navigation of periods of market dislocation
39
As of
30-Jun-2009
US
Large
US
Small Europe
Europe
Small Japan
Japan
Small
Trailing 1 Year 6.2% 7.0% 5.1% 3.3% 3.8% 3.3%
Trailing 3 Years 4.9% 6.0% 4.0% 4.6% 3.6% 3.5%
Trailing 5 Years 4.2% 5.0% 3.5% 4.1% 3.3% 3.6%
Trailing 10 Years 6.3% 7.1% 3.4% 4.7% 4.8% 4.2%
Realized Composite Tracking Error
Cross Sectional Market Volatility and Tracking Error
As of June 2009
0%
20%
40%
60%
80%
1985 1989 1993 1997 2001 2005 2009
Cro
ss
Se
ctio
na
l V
ola
tility
Bas
ed
on t
wo m
onth
s d
aily
retu
rns
0.0%
3.0%
6.0%
9.0%
12.0%
Tra
ilin
g 1
2-m
on
th T
rac
kin
g E
rror
U.S. Europe Asia Pacific Ex Japan Japan World Composite Tracking Error (RHS)
Rise in Tracking Error Driven by Higher Market Volatility
Source: AXA Rosenberg, MSCI BarraThis information supplements the US Large Cap, US Small Cap, Europe Broad Market, Europe Small Cap, Japan Broad Market and Japan Small Cap composite performance presentations which are provided in the appendix. All of AXA Rosenberg’s composite performance presentations are available upon request. This information should not be read to imply actual performance of a portfolio in the relevant strategy, whether past or future.
� Over the last year market volatility has risen to record levels and remains high
� Seen across both stock and industry dimensions
� Our realized tracking error has moved with market volatility
� Tracking error is above average over the last 12 months, but from a historical perspective, is within expected levels
40
U.S. Mid/Small Cap Strategy
Active Stock Exposure
25%
50%
75%
100%
Mar-96 May-98 Jul-00 Sep-02 Nov-04 Jan-07 Mar-09
Acti
ve M
on
ey (
%)
Stock & Risk Exposures Have Been Stable But Volatility Has Spiked
Active money = Sum of absolute active positions across all stocks in the portfolio
Source: AXA Rosenberg Exposure based on a US Mid/Small core active representative account managed against the Russell 2500 Index. Stock specific risk is the twelve month trailing average of the square-root cap-weighted cross-sectional average of absolute stock-specific returns. Risk factor risk represents the average of the trailing twelve month equal-weighted volatilities of the nine risk model risk indices.
Risk Factor Risk (US Broad Market)
12 Month Moving Average
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Mar-96 May-98 Jul-00 Sep-02 Nov-04 Jan-07 Mar-09
Stock Specific Risk (US Broad Market)
12 Month Moving Average
0%
2%
4%
6%
8%
10%
12%
14%
Mar-96 May-98 Jul-00 Sep-02 Nov-04 Jan-07 Mar-09
U.S. Mid/Small Cap Strategy
Active Risk Exposures
-1.0
-0.5
0.0
0.5
1.0
Mar-
96
Apr-
97
May-
98
Jun-
99
Jul-
00
Aug-
01
Sep-
02
Oct-
03
Nov-
04
Dec-
05
Jan-
07
Feb-
08
Mar-
09
Sta
nd
ard
Devia
tio
n U
nit
s
Systematic Variability Earnings to Price Book to Price
Earnings Variation Relative Strength Financial Leverage
41
U.S. Mid/Small Cap Strategy
Active Industry Exposures
-15%
-10%
-5%
0%
5%
10%
15%
Ma
r-9
6
Ma
r-9
7
Ma
r-9
8
Ma
r-9
9
Ma
r-0
0
Ma
r-0
1
Ma
r-0
2
Ma
r-0
3
Ma
r-0
4
Ma
r-0
5
Ma
r-0
6
Ma
r-0
7
Ma
r-0
8
Ma
r-0
9
Industry Exposures Have Been Higher And Uniquely Aligned
Source: AXA Rosenberg Exposures based on a US Mid/Small core active representative account managed against the Russell 2500 Index. Industry risk represents the average of the trailing twelve month equal-weighted factor volatilities of AXA Rosenberg’s 45 industries.
� Exposures are driven by bottom-up security analysis and are controlled at the stock, risk, industry and country levels
� Active industry exposures increased following 2008 improvements to forecasts of earnings yield change
� The intensity of alpha signals over the past year resulted in an unusual alignment of portfolio positions along certain industry and risk dimensions
Industry Risk (US Broad Market)
12 Month Moving Average
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
Mar-96 May-98 Jul-00 Sep-02 Nov-04 Jan-07 Mar-09
42
US Mid/Small Cap Equity Composite
Performance Summary ($) as of 30 Sep 2009
Gross1
Net2
Benchmark
Alpha3
Since Inception
YTD Annualized4 Cumulative
21.57% 10.82% 307.34%
20.82% 9.89% 262.95%
27.89% 7.87% 181.52%
-6.32% 2.95% 125.82%
2008
-40.28%
-40.81%
-36.79%
-3.49%
2007
3.70%
2.82%
1.39%
2.31%
2006
14.08%
13.12%
16.16%
-2.08%
2005
10.94%
10.01%
8.09%
2.85%
Gross1
Net2
Benchmark
Alpha3
2004
19.86%
18.86%
18.30%
1.56%
2003
40.38%
39.23%
45.50%
-5.12%
2002
-6.09%
-6.89%
-17.79%
11.70%
2001
10.50%
9.58%
1.22%
9.28%
2000
16.91%
15.93%
4.26%
12.65%
1999
22.69%
21.67%
24.15%
-1.46%
1998
2.20%
1.33%
0.38%
1.82%
Gross1
Net2
Benchmark
Alpha3
1997
34.44%
33.33%
24.36%
10.08%
1996
24.23%
23.29%
18.19%
6.04%
1Gross of fee returns include reinvestment of dividends but do not reflect the deduction of investment management fees.
2 Net of model fee returns are calculated by subtracting one twelfth of the highest model management fee from the monthly gross
of fee composite return. The highest model management fee is 0.85% and consists of the highest standard fixed fee currently
offered to clients of AXA Rosenberg’s North American office (a U.S. SEC registered investment adviser) employing this strategy.
Such fees are available upon request and may be found in Part II of AXA Rosenberg Investment Management LLC’s Form ADV.
Some accounts in the Composite may have a performance fee that differs from the standard investment management fixed fee.
Returns for each client will be reduced by such fees and expenses as described in their individual contract. Actual advisory fees
charged may vary depending on, among other things, portfolio size and the applicable fee schedule including performance fees.
Net of fee returns have been revised from those previously reported.
3Alpha is the difference between the AXA Rosenberg composite's gross total return and the benchmark return.
4The annualized rate of return is equivalent to the annual rate of return which, if earned in each year of the indicated multi-year
period, would produce the actual cumulative rate of return over the time period.
Composite Summary (M$)
Composite Assets (M$)
Number of Accounts
Dispersion of Returns1
Total Firm Assets (M$)
31 Dec 2008 3,696 42 0.50 70,621
31 Dec 2007 6,545 44 0.56 135,013
31 Dec 2006 6,843 43 0.70 120,107
31 Dec 2005 5,201 39 0.84 84,074
31 Dec 2004 4,029 37 0.90 56,024
31 Dec 2003 3,090 27 1.10 38,815
31 Dec 2002 2,069 22 0.67 14,851
31 Dec 2001 2,036 17 1.09 10,342
31 Dec 2000 2,061 14 1.49 8,277
31 Dec 1999 1,892 9 1.27 8,757
31 Dec 1998 1,604 8 N/A 7,698
31 Dec 1997 826 5 N/A 5,647
31 Dec 1996 380 4 N/A 3,586
1The dispersion is measured by the standard deviation across asset-weighted account returns represented
within the composite for the full year. Standard deviation is not required for years in which there were five or
fewer accounts included in the composite. These are reflected as N/A in the Composite Summary, if
applicable.
43
US Mid/Small Cap Equity Composite
2009-10-15T03:23:36
Reporting Date 30 Sep 2009
Strategy Inception Date 1 Feb 1996
Composite Creation Date 1 Feb 1996
Currency USD
Composite Assets (M$) 3,761
Number of Accounts 38
Composite Construction
The AXA Rosenberg composite includes all fully-discretionary accounts with the Russell 2500 benchmark. Returns reflect the reinvestment of dividends and other earnings and are shown before the deduction of withholding taxes.
Benchmark
For comparison purposes, the benchmark is fully invested and includes the reinvestment of income. The returns for the benchmark do not include any transaction costs, management fees, or other costs. An investment cannot be made directly in an index. Benchmark returns are gross of withholding tax. Benchmark returns are not covered by the report of independent verifiers.
Standard Fee Schedule
� 0.85% of the first $50 million of assets under management � 0.75% on the value of assets from $50 million to $100 million � 0.65% on the balance thereafter
Notes to Performance
AXA Rosenberg Investment Management ("AXA Rosenberg" or the
"Firm") is an equity manager w ith offices in the US, UK, Japan,
Singapore and Hong Kong. AXA Rosenberg has prepared and
presented this report in compliance w ith the Global Investment
Performance Standards (GIPS®). Additional information regarding
policies for calculating and reporting returns is available upon request.
A complete list and description of AXA Rosenberg composites is
available upon request.
AXA Rosenberg Investment Management has been verified for the period from January 1, 1993 through December 31, 2008 by an independent verifier. The verification report is available upon request.
44
4545
General Disclaimers
This material is published by AXA Rosenberg for private informational and educational purposes only and is neither an offer, recommendation, endorsement or solicitation for any services, securities, products or investment funds described herein, nor is it intended to provide investment, tax or legal advice. To the extent that this material refers to investment funds, the offering documents for such funds should be read for further details, and any investments made in such funds are subject to the terms of such offering documents. This material is not directed at, nor is it available for distribution to, any persons or in any jurisdictions for which AXA Rosenberg is prohibited by law or regulation from making this information available to or in, and is not intended for any use which would be contrary to such law or regulation. AXA Rosenberg and any of its investment advisory subsidiaries may have acted upon or used any recommendations described herein. AXA Rosenberg does not represent that any of its services, securities, products or investment funds are suitable or appropriate for any particular investor. This material is based upon sources believed to be correct, but no guarantee, warranty or representation, express or implied, is given as to its accuracy or completeness. Investors should be aware that investments may increase or decrease in value, including loss of principal, and that past performance is no guarantee of future returns. No action should be taken on the basis of any article without seeking specific specialist advice. The investment models, research, risk controls and proprietary technology referred to herein do not guarantee against any loss of principal, nor do they guarantee that the investment objectives described herein will be achieved.
When used herein, “AXA Rosenberg” refers to the AXA Rosenberg worldwide group of companies rather than any particular entity. These companies are AXA Rosenberg Group LLC, AXA Rosenberg Investment Management LLC, Barr Rosenberg Research Center LLC, AXA Rosenberg Investment Management Limited (UK), AXA Rosenberg Investment Management Limited (Japan), AXA Rosenberg Investment Management Asia Pacific Ltd. (Singapore), AXA Rosenberg Investment Management Asia Pacific Ltd. (Hong Kong), AXA Rosenberg Canada Co., AXA Rosenberg Management Ireland Limited.
AXA Rosenberg’s financial services are available in Australia only to wholesale clients within the meaning of the Corporations Act 2001. AXA Rosenberg Investment Management Asia Pacific Ltd. (Singapore) (ARBN 115203622) is exempt from the requirement to hold an Australian Financial Services License and is regulated by the Monetary Authority of Singapore under Singaporean laws, which differ from Australian laws. AXA Rosenberg Investment Management Ltd. (UK) is authorized and regulated by the Financial Services Authority (25 The North Colonnade, Canary Wharf, London, E14 5HS) (“FSA”). In the United Kingdom, this material is intended for the use of persons meeting the MiFID client classification of Professional Customers or Market Counterparties and is not approved for communication to retail customers in any territory.
Investment consultants or other parties who provide this material to clients or prospective clients of AXA Rosenberg and its subsidiaries must do so in accordance with applicable law and regulation.
© 2009 by AXA Rosenberg Group LLC. All rights reserved.
464646
Notes and Descriptions
This presentation includes analysis utilizing proprietary content from AXA Rosenberg.
Please note that many of these graphs in this presentation relate to time periods before AXA Rosenberg’s existence as a company. Such information has been created using backtesting of AXA Rosenberg’s current earnings forecast model and valuation model with historical data. This information should not be read to imply AXA Rosenberg’s performance, whether past or future.
AXA Rosenberg’s universe of securities includes over 21,000 publically traded and liquid companies worldwide. The large cap universe represents the top three quartiles by market capitalization by country while the small cap universe represents the bottom quartile, by market cap, by country.
As used herein the following terms have the following meanings:
Projected_Earnings_to_price: 12 month forward earnings, as forecasted by AXA Rosenberg, divided by current price. A portion of the data displayed relates to time periods before AXA Rosenberg’s existence as a company, but the information has been created using backtesting of the firm’s current investment models with historical data.
Projected Change Earnings to Price: 12 month forward earnings as forecasted by AXA Rosenberg minus trailing 12 month earnings, divided by current price. A portion of the data displayed relates to time periods before AXA Rosenberg’s existence as a company, but the information has been created using backtesting of the firm’s current investment models with historical data.
Fitted value to price: derived from AXA Rosenberg’s valuation model. This model provides a robust perspective on the longer term fair value of a company. The estimation of fair value is created by dissecting that company’s financials and appraising each line item component of the balance sheet and income statement, then comparing the result to market prices throughout the day. As market prices change, so can the relative value of each component of a company’s detailed appraisal by business line. A portion of the data displayed relates to time periods before AXA Rosenberg’s existence as a company, but the information has been created using backtesting of the firm’s current investment models with historical data.
4747
Chief Investment Officers
Agustin Sevilla, Global Chief Investment Officer
Agustin is AXA Rosenberg’s global chief investment officer. Prior to his current position, he was the Europe chief investment officer in our London office from 2003 to 2007. Before joining AXA Rosenberg, Agustin was director of quantitative equity research at INVESCO in New York, and from 1998 to 2000, he was an adjunct professor for the graduate program in financial engineering at Polytechnic University in Brooklyn. Prior to that, Agustin was director of portfolio management for Japanese equity accounts at Barr Rosenberg Investment Management in Orinda, California.
Agustin obtained his MEE from Universidad Iberoamericana in Mexico City. He has an MSc from Santa Clara University and the University of California, Berkeley. In 1983, he received his PhD from the University of California, Berkeley.
William E. Ricks, Americas Chief Investment Officer
Bill is AXA Rosenberg’s Americas chief investment officer. He joined the firm in August 1989 as director of accounting research and has had various responsibilities, including portfolio engineering and client service. Prior to his current role Bill was the chief executive officer for AXA Rosenberg’s business in the Americas. From 1980 until 1989, Bill was associate professor of accounting at Duke University in Durham, North Carolina, and from 1973 to 1976, he was an auditor at Ernst and Ernst.
Bill earned a BS from the University of New Orleans in 1973 and a PhD from the University of California, Berkeley in 1980. He has published numerous articles in academic journals in the general area of financial accounting and equity markets.
Ikuya Izumi, Japan Chief Investment Officer
Ikuya joined AXA Rosenberg in 1995 as a portfolio engineer and systems programmer based in the firm’s Tokyo office. Over the next decade, Ikuya held several positions of increasing responsibility including senior portfolio engineer and global director of portfolio management, Tokyo. Prior to his current role as Japan Chief Investment Officer, Ikuya was based in the firm’s Orinda headquarters within the Barr Rosenberg Research Center where he was focused on the evaluation and implementation of model enhancements. Prior to joining AXA Rosenberg, Ikuya held several positions with The Industrial Bank of Japan Ltd.
Ikuya obtained an M.S. from Columbia University in New York and a B.A. from Doshisha University in Kyoto, Japan.
4848
Chief Investment Officers
Gideon Smith, Europe Chief Investment Officer
Gideon joined AXA Rosenberg in 1998 and is currently the Europe chief investment officer based in the company’s London office. He previously held a number of positions at the firm, including director of client services and head of strategy engineering for Europe. Prior to joining AXA Rosenberg, Gideon was a chartered accountant at Arthur Andersen, working in the Financial Markets Division in London.
Gideon received his MBA from London Business School in 2000. He also holds a Chartered Financial Analyst designation.
Kevin Chen, Asia Pacific Chief Investment Officer
Kevin joined AXA Rosenberg in 1999 as a portfolio engineer, and he is currently serving as the firm’s Asia Pacific chief investment officer. Before his current role, Kevin served as America’s deputy CIO. Prior to joining the firm, he was a summer associate with Aon Corporation in Chicago. Prior to Aon Corporation, he was a research assistant for The Catholic University of America in Washington, DC. Prior to that, from 1991 to 1995, Kevin was a journalist, director, and producer in Haikou, China.
Kevin obtained a BS from Zhejiang University in China and an MS from The Catholic University of America. He has an MBA from the University of Chicago Graduate School of Business and holds a Chartered Financial Analyst designation.
4949
Senior Research Directors
Barr Rosenberg, Chairman
Barr Rosenberg was named chairman of AXA Rosenberg and the Barr Rosenberg Research Center in 1999. He founded Rosenberg Institutional Equity Management, the predecessor company in 1985. Dr. Rosenberg is an acknowledged expert in modeling of complex processes with substantial elements of risk. In 1975 he founded Barr Rosenberg Associates, later Barra, Inc. where he was a managing partner and later chief scientist. Prior to that, he was a professor of finance, econometrics and economics at the University of California Business School, Berkeley from 1968 to 1984 where he founded the Berkeley Program in Finance.
Barr earned a BA from the University of California, Berkeley and an MSc from the London School of Economics. He obtained his PhD from Harvard University in Cambridge, Massachusetts.
Thomas Mead, Managing Director
Tom is director of the Barr Rosenberg Research Center. He joined the firm in 1989 and has had various responsibilities including portfolio engineering and client service. In addition to his role overseeing the Research Center, his focus is primarily on modeling. Tom is a member of the Investment Committee and the Product Development Committee and serves on the Board of Directors of the AXA Rosenberg Group. From 1982 until 1989, Tom was a managing director at Cambridge Associates, an investment-consulting firm in Boston, and from 1977 to 1982 he served as an economist and fixed-income portfolio manager with Allendale Insurance in Providence, Rhode Island.
Tom earned an BA in economics from Indiana University in 1973, where he was elected to Phi Beta Kappa. In 1975, he earned an MA in economics from Brown University.
50
Lawrence Remstedt, Portfolio Manager925.253.7271 – [email protected]
Lawrence joined the firm in 2008 as a portfolio manager within the North America client service team. Prior to joining AXA Rosenberg, Lawrence served as a director of institutional sales and client service at American Century Investments. From 1993-2003, he held various positions with Citigroup Asset Management, which included four years based in London. Lawrence entered the industry in 1988 with Wilshire Associates.
Lawrence obtained his BA in math and economics from the University of California, Santa Barbara, and his MBA from the Rotterdam School of Management, Erasmus University, in The Netherlands, with an emphasis in global finance and cross-cultural management.
Biographical Sketches of Presenter