osam - the big picture 10-8-13 - jim oshaughnessy - unlinked

7/27/2019 OSAM - The Big Picture 10-8-13 - Jim OShaughnessy - UNLINKED

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Expanding Horizons:

Taking a Global Perspective on Dividend Yield

The Big Picture

OCTOBER 8, 2013

Contact Information

Jim OShaughnessy, Chairman, CEO & CIO

[email protected]


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osam.com

Founded in 2007

Based upon the principles outlined in

What Work s o n Wall Street

33 staff, 11 Partners

$5.8 billion AUM

Dedicated to determining the best factors

for future results from historical data

OShaughnessy Asset Management (OSAM)

Past performance is no guarantee of future results. Please see important disclosure information at the end of this presentation. 2


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osam.com

Historical Yield on a Hypothetical Balanced Portfolio (60% Equity / 40% Bond)

(1/1/1871 to 6/30/2013)

0

1

2

3

4

5

6

7

8

9

10

3

An Unprecedented Environment

Generating yield has become more difficult than at any point in the last 140 years:

Source: Global Financial Data, OSAM C alculations. The Bond component is represented by 10 -Year U.S. Treasurys. The Equity component is represented by the S&P 500 Index.

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

Equity Contribution

to YieldBond Contribution

to Yield

BalancedPortfolio Yield

1871

1881

1891

1901

1911

1921

1931

1941

1951

1961

1971

1981

1991

2001

2011

2.03%(Jun-2013)

HistoricalAvg. Yield

4.36%


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osam.com

Historical Yield Ranges on Income-Producing Assets

Source: Global Financial Data, Morningstar EnCorr, Compustat, MSCI

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Cash3-monthT-bills

U.S.10-year

Treasurys

Municipals InvestmentGradeCredit

HighYieldDebt

Preferreds MLPs REITs S&P 500 TopDividend

Yield(U.S.)

MSCI

World

TopDividend

Yield(Global)

Start: Jan-1920 Oct-1790 Jan-1950 Apr-1915 Jan-1987 Dec-1992 Apr-1996 Dec-1971 Jan-1871 Jan-1963 J an-1970 Jan-1970

End: Jul-2013 Jul-2013 Jul-2013 Jul-2013 Jul-2013 Jul-2013 Jul-2013 Jul-2013 Jul-2013 Jul-2013 Jul-2013 Jul -2013

A Survey of Income-Generating Options

4Past performance is no guarantee of future results. Please see important disclosure information at the end of this presentation.

Across most asset classes, current yields are below historical averages and are charting new lows.

Global and global high-yielding equities are the only asset classes trading above their historical average yield.

Average Jul-2013


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Fiscal Imbalances and Inflation (19512011)

Source: Global Financial Data

0%

4%

8%

12%

16%

30%

40%

50%

60%

70%

80%

90%

100%

The Path of Least Resistance


Current U.S. Debt/GDP has not been this high since the post-WWII era

By 1980 the Debt/GDP ratio had fallen to 34% yet there were fiscal surpluses in only 8 of those 35 years

Inflation played a major role in reducing the Debt/GDP ratio to manageable levels

Inflation

Inflation

Debt/G

DP

Ratio

Debt/GDPRatio


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osam.com

Interest Rate Increases Could Result in Significant Price Declines


0.25

0.77

1.89

3.10

4.75

5.115.46

6.34

-1

0

1

2

3

4

5

6

7

3mo 1Yr 2Yr 3Yr 5Yr 7Yr 10Yr 20Yr 30Yr

U.S. Treasury Yield Curve Current Yield Curve (Feb 2013) One Percent Rise in Yields

Average Yield Curve (1940-2013)

-8.9%

-21.3%

-32.4%

-63.5%

* Bloomberg as of 2/28/13 Source: Bloomberg, Global Financial Data, OSAM Calculations

Resultant pricedecline if interest

rates rise

-2.0%-4.9%

-9.1%

-19.6%


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Inflationary Periods Damage Bond Returns


0

2

4

6

8

10

12

14

16

Bond Bear Market(19511981)

U.S. Small Stocks 14.5

U.S. High Yield Stocks 12.3

World ex U.S. Stocks 10.9

Emerging Markets Stocks 10.7

U.S. Stocks 9.8

T-bills 4.7

World ex U.S. Govt Bonds 4.6

Inflation 4.3

U.S. Int. Govt Bonds 4.0

U.S. LT Corp. Bonds 2.4

U.S. LT Govt Bonds 1.8

U.S. Municipal Bonds 1.6

Bond Bull Market(19812011)

Global High Yield Stocks 18.4

U.S. High Yield Stocks 13.9

Emerging Markets Stocks 12.0

U.S. LT Govt Bonds 11.4

U.S. Small Stocks 11.2

U.S. LT Corp. Bonds 11.2

U.S. Stocks 10.8

World ex U.S. Govt Bonds 10.0

World ex U.S. Stocks 9.6

U.S. Int. Govt Bonds 8.8

U.S. Municipal Bonds 7.5

T-bills 4.8

Inflation 3.0


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osam.com

Real Assets: Not the Diversifier You Thought They Were


Rolling 3-Year Correlations with the S&P 500 Index

MLPs and REITs have become increasing more correlated with equity markets:

0.70

0.86

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Alerian MLP Index FTSE NAREIT All Equity REITs Index


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osam.com

Percentage of Companies Paying Dividends by RegionWorldscope Stocks (5/1/1987 to 12/31/2012)

Not All Geographic Markets are Equal: Dividend Policy


Trends in dividend policy have reduced the opportunity set of dividend-paying companies in the U.S.:

35%

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

United States

Europe

Asia Pacific ex Japan

Japan


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osam.com

Median Yield of Dividend Payers by RegionWorldscope Stocks (6/1/1986 to 12/31/2012)

0%

1%

2%

3%

4%

5%

Not All Geographic Markets are Equal: Yield


A broad perspective allows diversification of exposure to monetary policy across the globe

Just as different investment factors come in and out of favor, regions exhibit different yields depending on position in

the economic cycle and interest rate regimes

Limiting the portfolio to a particular region arbitrarily restricts a strategys ability to seek out high-quality yield worldwide

United States

Europe

Asia Pacific ex Japan

Japan


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osam.com

Have Dividend Stocks Become Expensive Recently?

12Past performance is no guarantee of future results. Please see important disclosure information at the end of this presentation.Investment characteristics and performance are based on OSAM's Separately Managed Accounts. Should OSAM have another product or investment vehicle with a similar name, investment characteristics and performance may differ.

Price-to-Earnings Ratios(Bloomberg, Factset 6/30/2013)

21.

0

19.

0

16.3

15.0

14.

7

14.

3

13.

9

12.

5

Japan TopDividend

YieldU.S.

United

States

MSCI

AC

World

Asia

ex JapanEurope Top

DividendYieldGlobal

Emerging

Markets

5.0

The highest dividend-yielding stocks in the U.S.

are 37% more expensive than their

global counterparts.


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Percentage of Non-U.S. Revenues for S&P 500 Companies Rolling 5-Year Correlation: S&P 500 / MSCI EAFE

(Dec-1974 to Dec-2012)

Source: S&P Indices Source: EnCorr, Factset

41.8

%

43.8

%

4

3.3

%

43.6

%

45.8

%

47.9

%

46.6

%

46.3

%

46.1

%

2003

2004

2005

2006

2007

2008

2009

2010

2011

Does Geography Matter in a Globalized World?


As U.S. corporations move to take advantage of higher growth prospects around the world, revenues have become

increasingly global in nature 46 percent of S&P 500s 2011 revenues are from foreign sources.

The correlation of domestic and international indices has increased significantly over the past 15 years.

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.901.00

1974

1977

1979

1982

1984

1987

1989

1991

1994

1996

1999

2001

2003

2006

2008

2011

38%


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Annualized Excess Return*(1/1/1963 through 12/31/2012)

Sharpe Ratio(1/1/1963 through 12/31/2012)

VALUE COMPOSITE FACTORS

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

OSAM Research Key Findings: Value

14

* Versus U.S. All Stocks (1/1/1963 through 12/31/2012)

Base Rates* 1-Year 3-Year 5-Year 7-Year 10-Year

Decile1 82% 96% 99% 100% 100%

10 28% 15% 5% 1% 0%

Value outperforms the market, with less risk:


6.2

%

4.4

%

3.6

%

2.6%

1.2

%

-0.1

%

-1.9

%

-3.7

%

-6.0

%

-9.6

%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

0.7

3

0.6

3

0.58

0.5

3

0.4

4

0.3

5

0.2

3

0.1

2

0

.00

-0.1

3

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Decile

1 5

10

U.S. AllStocksUniverse

(0.34)

(U.S. All Stocks Universe: 11.1%)

1 5

10

Decile


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osam.com



FINANCIAL STRENGTH COMPOSITE FACTORS

External Financing, Debt-to-Cash Flow, Debt-to-Equity, 1-Year Change in Debt

2.1

%

2.3

%

2.4

%

2.2

%

1.1

%

0.0

%

0.2

%

-1.3

%

-2.7

%

-5.6

%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%


OSAM Research Key Findings: Financial Strength

15


Financial Strength outperforms the market, with less risk;

lowest Financial Strength underperforms with higher risk:


Decile

1 5

10

0.5

0

0.5

1

0.5

0

0.4

7

0.41

0.3

3

0.3

4

0.2

5

0.1

7

0

.03

0.00

0.10

0.20

0.30

0.40

0.50

0.60

Decile

1 5 10


(0.34)


Decile1 66% 80% 89% 95% 98%

10 20% 11% 5% 0% 0%


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osam.com



EARNINGS QUALITY COMPOSITE FACTORS

Current Accruals-to-Assets, Change in Operating Assets, Total Accruals-to-Total Assets, Depreciation-to-CapEx

4.6

%

3.1

%

2.8

%

1

.8%

1.3

%

0.1

%

0.1

%

-1.7

%

-2.8

%

-7.0

%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

1 5

10

Decile


0.5

6

0.5

1

0.5

0

0.44

0.4

1

0.3

4

0.3

2

0.2

3

0.1

6

-0.0

4

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

Decile

1 5

10


(0.34)

OSAM Research Key Findings: Earnings Quality

16Past performance is no guarantee of future results. Please see important disclosure information at the en d of this presentation.



Decile1 81% 87% 95% 100% 100%

10 19% 11% 5% 4% 0%

Earnings Quality consistently outperforms the market, with less risk;

lowest Earnings Quality underperforms with higher risk:


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osam.com

A Generational Selling Opportunity


Yield (%) on the 20-year Treasury Bond (January 1, 1926 June 30, 2013)

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

September 1981 high:

14.82%

Source: August 2013 http://www.osam.com/commentary.aspx
http://www.osam.com/commentary.aspxhttp://www.osam.com/commentary.aspx


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osam.com



Annualized Real Returns for All Rolling 40-year Periods, 20-year Treasury (January 1, 1900 June 30, 2013)


200

312

47 380.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00


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Bond-Stock Real Cumulative Over- and Underperformance (%) All Rolling 40-Year Periods (January 1, 1900 June 30, 2013)


-5500

-5000

-4500

-4000

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

500

U.S. Long Bonds have only twice

outperformed U.S. Stocks on a real

cumulative basis since January 1, 1900.

The maximum outperformanceoccurred for the 40 years ending

March 2009:16.04%


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Long Bond Outperformance of U.S. Equities (January 1, 1900 June 30, 2013)

For all rolling:

Number of Times

Outperforms

Total Number

Observations

Percentof the Time

Maximum RealCumulativeAdvantage

For Rolling

Period Ending:

10-yearperiods

165 957 17.24% 135% Aug-39

20-yearperiods

54 837 6.45% 119% Mar-09

30-yearperiods

6 717 0.84% 162% Sep-11

40-yearperiods

2 597 0.34% 16% Mar-09


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General Legal Disclosure/Disclaimer and Backtested Results

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 canbe more volatile.

Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specificinvestment, investment strategy, or product made reference to directly or indirectly in this presentation, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for any portfolio.Gross of fee performance computations are reflected prior to OSAMs investment advisory fee (as described in OSAMs written disclosure statement), the application of which will have the effect of decreasing thecomposite 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). Due to various factors, including changing market conditions,the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for,individualized investment advice from OSAM. Historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deductionof transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not beassumed that any account holdings would correspond directly to any comparative indices. Account information has been compiled solely by OSAM, has not been independently verified, and does not reflect the impact oftaxes on non-qualified accounts. In preparing this presentation, OSAM has relied upon information provided by the account custodian and/or other third party service providers. OSAM is a Registered Investment Adviserwith the SEC and a copy of our current written disclosure statement discussing our advisory services and fees remains available for your review upon request.

The risk-free rate used in the calculation of Sortino, Sharpe, and Treynor ratios is 5%, consistently applied across time.

The universe of All Stocks consists of all securities in the Chicago Research in Security Prices (CRSP) dataset or S&P Compustat Database (or other, as noted) with inflation-adjusted market capitalization greater than$200 million as of most recent year-end. The universe of Large Stocks consists of all securities in the Chicago Research in Security Prices (CRSP) dataset or S&P Compustat Database (or other, as noted) with inflation-adjusted market capitalization greater than the universe average as of most recent year-end. The stocks are equally weighted and generally rebalanced annually.

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 ofeach 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 orfuture 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 mighthave 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 accoun t, it may not consider all or any of such factors. OSAM may (and will) from time to time consider factors inaddition 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 performanceresults 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 andperformance 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 performanceresults 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 s ubject to additions and redemptions of asse ts under management, which may posi tively or negative ly affect performance depending generally upon the timing of such events i nrelation to the markets 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.


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