APHILION Q²QUANTITATIVE 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

• 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.

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…

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.

TRANSFORMATIONS

OPPORTUNITIES (57%?)

• See through the noise• Correct response (cfr. P/E players)• Capture earnings momentum

PITFALLS (43%?)

• Value traps• Market is often ‘ahead of the curve’

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

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

INVESTMENT UNIVERSE

• 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

INVESTMENT PROCESS2. 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

1. Quantitative Inputs

- 4000+ live price feeds- Analyst Estimates- Company Financials

4. Aphilion Portfolios

- 70 Long Positions (Q² )-Neutralised for Market Beta and other Risk Factors

PRACTICALAphilion Q²

Launched December 2001

Legal Belgian SICAV, Ucits III

Asset Class Equity

Methodology Quantitatively managed

Directional Long Only

Target Beta 1

Geographical Focus

Global

Type of Investors All (Retail, Prof, Inst)

Minimum Investment

5 000 EUR

• +/- 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’).

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

Q² VS. BENCHMARK

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

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

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

TRADE HISTOGRAM

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