History of ValuEngine

1
History of ValuEngine

• Founded in 1995 by Professors Zhiwu Chen and
  Chiayu Chang.
• Development of Models Takes a Team of a Dozen
  PhDs 4 Years and _at_ 4 Million Dollars.
• Chen and Changs Company becomes ValuEngine in
  1999.
• Company Restructured in early 2001 under
  Leadership of Current CEO Paul Henneman.

• 1115am, Restate My Assumptions
• One Mathematics is the Language of Nature.
• Two Everything around us can be Represented
  and Understood through Numbers.
• Three If you Graph the Numbers of any System,
  Patterns Emerge.
• Therefore, there are Patterns Everywhere in
  Nature.
• So, what about the Stock Market?
• Maximillian Cohen, Pi, 1998

2
The Fair Valuation Model

• The Fair Valuation Model Provides a Complex Price
  Calculation for a Given Stock, Sector, Industry,
  or Market in a Perfectly Efficient Market.
• It is Derived from Fundamental Data but is
  Calculated with a Quant-Based Approach
• The overall structure is based on a Dividend
  Discount Model in which certain variables are
  replaced with highly complex and proprietary
  stochastic calculus calculations.
• Firm-specific variables
• Long-run EPS growth rate
• Duration of Business-growth-cycle
• Volatility of EPS growth rate
• Systematic or beta risk of the firm
• Correlation between the firm's EPS and the
  interest rate environment
• EPS growth volatility
• Dividend payout ratio
• Buffer earnings
• Interest rate related criteria
• Interest rate (30 year yield) long-run level
• Duration of interest rate cycle
• Interest rate volatility
• The VE Fair Market Valuation uses 12-month
  historic and forecasted EPS values and the
  current 30-year treasury yield as primary
  determinants. When calculating risk/return values
  such as the Sharpe ratio, the historic periods
  used are five years.

3
The Forecast Model

• The Forecast Model is Based on the Fair Valuation
  Model with additional Variable Calculations in an
  effort to Predict at what Price a Stock will
  actually Trade.
• ValuEngine uses a distinct forecasting model for
  6 time horizons and each of the 11 sectors that
  ValuEngine covers.
• Additional Variables Utilized by the VE Forecast
  Model
• Short-term price reversals.
• Intermediate-term momentum continuation.
• Long-term price reversals.
• Short and long-term historic factors in the VE
  valuation model's calculation include
  past-valuation levels of the stock and its recent
  price-momentum factor relative to other stocks.
  These considerations, applied with the
  firm-specific variables, allow the model to
  differentiate a stock across sectors and within
  the company's own business-growth stages.

4
Implementation of the VE Research Program

• ValuEngine Provides a Variety of Products and
  Services that Implement Models
• Independent Research Provider for Major Banks and
  Research Distributors
• Clients include Deustche Bank, Thomson
  Financial, Bank of New York, UBS
• ValuEngine.com Retail Website for Individual
  Investors
• Streamlined Model Implementation, Portfolio
  Creation and Tracking Services
• Daily and Weekly Newsletters for Investors
• ValuEngine View Newsletter PortfolioManaged by
  Eric Stokes
• Basic and Detailed VE Reports for Individual
  Companies and Industry Groupings
• ValuEngine Institutional Research Services
  (VEIRS) for Institutional Clients
• VEI Software Package Provides Total Access to
  VE Stock Universe and Models
• Custom Hedgefund Strategy Development
• Ongoing RD has Successfully Ported VE Models
  to Tokyo Markets
• Europe is Next Major Project with Goal of Total
  EU Market Coverage

5
VE Standard MNS Strategy Performance

• VE Standard 100 -- Market Neutral Strategy (MNS)
  portfolio consists of long holdings with 100
  stocks and short holdings with 100 stocks.
  This strategy has NEVER posted a negative annual
  return.

6
VE Forecast MNS Strategy Performance

• VE Forecast 100 -- Market Neutral Strategy (MNS)
  portfolio consists of long holdings with 100
  stocks and short holdings with 100 stocks. This
  strategy has NEVER posted a negative annual
  return.

7
How Did VE Perform During Volatile Markets of
2007?
8
VE Sector Valuation and Sell Signals
2006NoteSwitch to Monthly Data Lowers
Resolution of Chart
9
Five Years of Monthly Data
10
(No Transcript)
11
(No Transcript)