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Aphilion Q² Quantitative Global Equity Fund November 2013

Aphilion Q² Quantitative Global Equity Fund November 2013 Jan Holvoet, Nico Goethals, fund managers. Aphilion. Founded in 2000 by Nico Goethals and Jan Holvoet (both ex-KBC) Quantitative research on equities Aphilion Q² Fund: global long-only, since 2001. Quant Models.

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Aphilion Q² Quantitative Global Equity Fund November 2013

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  1. Aphilion Q² Quantitative Global Equity Fund November 2013 Jan Holvoet, Nico Goethals, fund managers

  2. Aphilion • Founded in 2000 by Nico Goethals and Jan Holvoet (both ex-KBC) • Quantitative research on equities • Aphilion Q² Fund: global long-only, since 2001

  3. Quant Models • Investment process is based on a set of unique, in-house quantitative models and tools • Fundamental-based • Relationship between stock price movements and changes in the fundamentals of the company.

  4. Fundamentals • Initially we focussed on changes in consensus earnings estimates = base model • Gradually more sophisticated: relative changes in earnings (vs. peers, the business cycle, etc…), origin of changes (sales-volume, price), attempts at own estimates…

  5. Excess Return • Filter «common factors» out of the stock price • Principal Component Analysis • The result is the ‘excess return’, specific to each stock. This must be a reflection of changes in that stocks profit outlook.

  6. Transformations

  7. Opportunities (57%?) • See through the noise • Correct response (cfr. P/E players) • Capture earnings momentum

  8. Pitfalls (43%?) • Value traps • Market is often ‘ahead of the curve’

  9. Value vs. Growth? • « Dynamic value »: the change in the variables matters more than the absolute level • Model the relationship between changes in the fundamentals of a stock (earnings and sales) and relative price movements. • Exploit discrepancies

  10. Quant Methods • ROBUST : financial markets are full of outliers (fat tails) that produce misleading results • DYNAMIC: (risk) characteristics of a stock change over time; give more weight to the recent past

  11. InvestmentUniverse • Universe of more than 4000 stocks worldwide: evenly divided over 3 blocks: US, Europe and ROW • Including all of the largest stocks by market capitalization

  12. Investment Process • 1. Quantitative Inputs • 4000+ live price feeds • Analyst Estimates • Company Financials • 2. Model • Short-term dynamics • Robust Techniques • Result: Equities ranked according to extent over/undervalued • 3. Portfolio Construction • Correlations • Neutralise for Market Beta and other Common Risk Factors (sector, currency, oil price, interest rates...) • No ‘blind’ implementation. We are not a systematic fund • 4. Aphilion Portfolios • 70 Long Positions (Q² ) • Neutralised for Market Beta and other Risk Factors

  13. Practical

  14. Portfolio Q² • +/- 70 stocks • Regionally balanced • Choose among the best ranked stocks within each business sector • Model isn’t implemented ‘blindly’. Qualitative overlay, mainly to check on the quality of data input (‘garbage in, garbage out’).

  15. Performance Aphilion Q² • Return since launch: +119.6% vs. market average +2.1 % (MSCI World in EUR) • In a very consistent/stable fashion: annualised outperformance of ca 6.5% / year • Outperformance in 10 out of 12 years

  16. Q² vs. benchmark

  17. Q² vs. benchmark • Relative performance of Q² (Q² divided by MSCI World, basis=100) • Good performance in all kinds of market circumstances • No very long stretches of sub-par performance • Track record fully intact

  18. Value or Growth? • Relative performance of Q² vs. the relative performance of value vs. growth strategies • There is no correlation… we aren’t growth, we aren’t value • Which makes us a good diversification in any long-only strategy

  19. Stable Performance • “Opportunistic trading” • Over 2000 trades since fund launch • histogram: significant positive mode (+4.1%) • ‘law of large numbers’ is source of stable outperformance

  20. Trade Histogram

  21. To remember: • Alpha, with or without beta • Repeatability of past performance • Diversification vs. more traditional quants • 12 year track record with same managers & same basic methodology  no surprises

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