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Factor Performance Report Summary - New Zealand (as of January, 2020)

Core Content

This report provides an analysis of the performance of 23 individual equity factors in the New Zealand market as of January 2020. The factors are categorized into Value, Yield, Growth, Quality, Size, and Volatility factors, each offering unique insights into the drivers of portfolio risk and return. The analysis is conducted using a consistent methodology across all factors, ensuring that the results are comparable and reliable.

Methodology

• Single Factor Portfolio Construction:
  Equity securities in the selected region are sorted in descending order based on a specific factor (e.g., Book to Price). The top 70% of the market by this factor is selected to form a single factor portfolio, which is then compared to the overall market performance.

• Performance Measurement:
  The performance of each factor portfolio is measured over various time frames (1 month, 3 months, 6 months, YTD, 2018–2019, 1 year, 3 years annualized, 5 years annualized) by calculating the relative return compared to the entire market.

• Adjustments:
  For regions representing a single country (e.g., US), "Sector Adjusted" analysis is used. For regions with multiple countries (e.g., Asia Pacific), "Country and Sector Adjusted" analysis is applied. These adjustments ensure that factor impacts are not conflated with sector or country effects.

Key Factors and Their Definitions

Value Factors

• Book to Price: Ratio of book value to share price. Measures intrinsic value.
• Earnings Yield: Annual earnings per share divided by share price. Reflects after-tax earnings support.
• Cash Flow Yield: Annual cash flow per share divided by share price. Includes depreciation and provisions.
• Sales to Price: Net sales per share divided by share price. Less susceptible to manipulation.
• EBITA to EV: EBITDA to Enterprise Value. Measures operational performance relative to valuation.

Yield Factors

• Dividend Yield: Annual dividend per share divided by share price. Reflects dividend income.
• Shareholder Yield: Sum of Net Buyback Yield, Dividend Yield, and Net Debt Paydown Yield. Measures value distribution to shareholders.

Growth Factors

• Earnings Growth 5Y: Average annual earnings growth over the past five years. Clear but subject to reporting distortions.
• Sales Growth 5Y: Average annual sales growth per share over the past five years. Less affected by reporting conventions.
• Forecast Growth 12M: Consensus forecast of earnings growth over the next 12 months. Calculated pro-rata from annual forecasts.
• Dividend Growth 5Y: Average annual dividend growth over the past five years.

Quality Factors

• Return on Equity (RoE): Net income after preferred dividends divided by book value of common equity. Measures profitability and growth potential.
• Net Profit Margin: Net income before preferred dividends divided by net sales. Indicates potential for sustained growth.
• Low Gearing: Negative of debt to equity. Higher quality due to lower debt burden.
• Earnings Growth Stability: Negative of standard deviation of earnings growth over 3 years. Measures earnings consistency.
• Sales Growth Stability: Negative of standard deviation of sales growth over 3 years. Measures sales consistency.

Size Factors

• Market Cap: Market capitalization of the stock. Used to determine the size of the portfolio and benchmark.

Volatility Factors

• Market Beta: Slope coefficient from regression of security returns against market returns. Measures systematic risk.
• Daily Volatility 1Y: Standard deviation of daily total returns over the past year, annualized.
• Volatility 3Y: Standard deviation of total returns over the past 36 months, annualized.

Momentum Factors

• Momentum ST: 6-month weighted return of monthly total returns. Measures trend following.
• Momentum 12-1: Total return over the last 12 months, excluding the most recent month. Helps identify reversal effects.
• Forecast 12M Revisions: Difference between upward and downward earnings forecast revisions, expressed as a percentage. Reflects market expectations and analyst sentiment.

About Style Analytics

Style Analytics is an independent, global software provider for investment professionals. With over 20 years of experience, they serve more than 280 investment institutions across 30 countries. Their tools and innovations help investment professionals build objective and comprehensive factor analysis, enabling better validation and decision-making.

Global Reach

• London: +44 20 7467 5500
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• Melbourne: +613 9225 5040
• Tokyo: +81 3 5219 1279
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• Shanghai: +86 21 28909032
• Sofia: +359 2 805 7126

Main Points

• The report provides a detailed breakdown of factor performance across multiple time frames.
• A consistent methodology is used to ensure comparability and reliability of results.
• Factor adjustments are made to isolate factor impacts from sector and country effects.
• Each factor is defined clearly, highlighting its purpose and relevance to investment decisions.
• The analysis is aimed at helping investment professionals understand market trends and make informed decisions.