Market Review Definitions & Explanations

What’s Working - Definitions & Explanations:

Universe Return (Russell 1000/Russell 2000): Equal weighted total returns to firms within the Russell 1000 and Russell 2000.

Universe Return (Value/Growth): Companies within each index with a ranked Market Value / Net Invested Capital in that index between 0 and 50 (Value) or 51 and 100 (Growth)

Periods: 1 month, 2 months, 3 months, 6 months, and 12 months periods represent the months back from the report date used to measure all returns referenced in the report.

We will use the Price to Earnings factor, to explain how to read this table.

1) We rank companies in a universe (Russell 2000 in this case) based on different factors, such as Price to Earnings.

2) Top quintile represents theoretically the best 20% companies based on the rankings of a variable while bottom quintile represents theoretically the worst 20% companies based on the rankings of a variable. For example, P/E, top quintile represents low P/E stocks which are expected to outperform the universe

3) Top Quin. – Uni: Shows the spread between Top quintile (best) companies’ returns and the universe returns.

Uni. - Bottom Quin.: Shows the spread between the universe returns and the bottom quintile (worst) companies’ returns.

4) Green spreads represent good results, while Red spreads represent bad results: Green indicates that the best companies outperformed the universe in a given period, and the worst companies underperformed the universe in a certain period. Conversely, red indicates that the best companies underperformed the universe and the worst companies outperformed the universe in a given period.

5) Using factor Price to Earnings as an example: In the past 30 days, companies in the R2000 index with the lowest quintile P/E ratios outperformed the R2000 by 0.70%. Companies in the R2000 index with the highest quintile P/E ratios underperformed the R2000 by 1.22%. As a factor, P/E ratios have worked well in the past 30 days and 60 days. Over the longer horizon, however, low P/E stocks didn’t contribute alpha to investors. The lowest ranked P/E companies in the R2000 underperformed the index by 2.46%, 5.27%, and 6.21% respectively in the 90 day, 180 day, and 360 day periods.

Terms:

Summary Page

1. Value Score Current: Ranked Percent To Target for the current calendar year where 100 is the most undervalued and 0 is the most overvalued. Presented is the median Value Score Current of each sector and style universe as of the current month’s Buy/Sell List release.

2. EM +1 Change Rank: The higher the rank, the greater the EM Change. Ranked EM+1 Change where 100 is the largest change and 0 is the smallest change. Presented is the median EM +1 Change Rank of each sector and style universe as of the current month’s Buy/Sell list release.

3. 20 Day Total Return: Equal weighted cumulative 20 day total return of each sector, style universe and the AFG universe.

4. 200 Day Total Return: Equal weighted cumulative 200 day total return of each sector, style universe and the AFG universe.

Individual Pages

1. % Tgt Current Relative to Universe: Percent Tgt Current is defined as (Current Target Price – Closing Price)/Closing Price * 100. Presented is the median % Tgt Current value of each sector, style universe relative to the AFG universe across time.

3. 1 Month Total Cumulative Return Relative to Universe: 1 month is defined with the same start and end date of the Buy/Sell List. The historical starting date is Oct 30,1996.

4. Annualized Standard Deviation: Standard deviation is defined as the Standard Deviation (STD) of the equal weighted average daily returns for each sector and style universe for the month prior to the monthly Buy/Sell List release. Annualized Standard Deviation is defined as:

STD *SQRT(256).

6 Month Moving Average: 6 month moving average of annualized standard deviation.

5. % of Stocks Outperforming Universe: The number of stocks which have total returns greater than or equal to the AFG universe return for the month divided by the total number of stocks in the corresponding sector or style universe in that month.

6. 5, 20, 60, and 200 Trading Day Return: Equal weighted daily cumulative 5, 20, 60, and 200 trading day total return of each sector, style universe and the AFG universe as of the date prior to the monthly Buy/Sell list release.

Universe Definition

Large Universe: Companies in the AFG universe, which have market cap greater than $2 billion and EPS estimates.

Mid Universe: Companies in the AFG universe, which have market cap between $2 billion and $300 million and have EPS estimates.

Small Universe: Companies in the AFG universe, which have market cap less than $300 million and have EPS estimates.

Value Universe: Companies in the AFG universe, which have MVIC at the bottom 50% of the universe and have EPS estimates.

Growth Universe: Companies in the AFG universe, which have MVIC at the top 50% of the universe and have EPS estimates.

Size-Style Universe: Companies in the AFG universe satisfying certain market cap and MVIC criteria. For example, Large Value universe include companies with market cap greater than $2 billion, MVIC at the bottom of 50% of AFG universe, and EPS estimates.

Economic Sector: Economic sectors are sectors based on AFG classifications.