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Model Portfolio Monthly Update: December 31, 2014
There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. Please see additional disclaimers and disclosures at the back of this report.
We highlight stocks that demonstrate solid growth at a reasonable price (GARP). Stocks selected for our model portfolio strategies all rank highly for the following metrics, with an emphasis on proxies for cash flow growth and ROIC:
• Relative Value
• Operating Momentum
• Analyst Revision Momentum
• Fundamental Quality
Page 2 contains rebalancing actions for our long-only model portfolio.
Page 3 contains rebalancing actions for our short-only model portfolio.
Target and stop prices, as well as updated return data, to be provided in our daily reports that will follow.
Model Portfolio Monthly Update: December 31, 2014
There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. Please see additional disclaimers and disclosures at the back of this report.
We highlight stocks that demonstrate solid growth at a reasonable price (GARP). Stocks selected for our model portfolio strategies all rank highly for the following metrics, with an emphasis on proxies for cash flow growth and ROIC:
• Relative Value
• Operating Momentum
• Analyst Revision Momentum
• Fundamental Quality
Page 2 contains rebalancing actions for our long-only model portfolio.
Page 3 contains rebalancing actions for our short-only model portfolio.
Target and stop prices, as well as updated return data, to be provided in our daily reports that will follow.
Model Portfolio Monthly Update: December 31, 2014
There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. Please see additional disclaimers and disclosures at the back of this report.
We highlight stocks that demonstrate solid growth at a reasonable price (GARP). Stocks selected for our model portfolio strategies all rank highly for the following metrics, with an emphasis on proxies for cash flow growth and ROIC:
• Relative Value
• Operating Momentum
• Analyst Revision Momentum
• Fundamental Quality
Page 2 contains rebalancing actions for our long-only model portfolio.
Page 3 contains rebalancing actions for our short-only model portfolio.
Target and stop prices, as well as updated return data, to be provided in our daily reports that will follow.
There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. Please see additional disclaimers and disclosures at the back of this report. We highlight stocks that demonstrate solid growth at a reasonable price (GARP). Stocks selected for our model portfolio strategies all rank highly for the following metrics, with an emphasis on proxies for cash flow growth and ROIC:
Relative Value Operating Momentum Analyst Revision Momentum Fundamental Quality
Page 2 contains rebalancing actions for our long-only model portfolio.
Page 3 contains rebalancing actions for our short-only model portfolio. Target and stop prices, as well as updated return data, to be provided in our daily reports that will follow.
Ascendere Associates LLC
J. Stephen Castellano
Page 1
December 31, 2014
steve@ascenderellc.com
Commentary Long model, 1-year holding period We update the model portfolio on a monthly basis but it also works well for longer holding periods. A model long portfolio held for one year (updated as of 12/31/13 and held through 12/31/2014) returned 15.67% for the year versus 11.43% for the S&P 500, excluding dividends. The average dividend yield for the model portfolio averaged approximately 1.58% versus 1.92% for the S&P 500. 17 of the 26 stocks outperformed the S&P 500 (excluding dividends). The best performing stock for the year was American Airlines Group (AAL), up 112%. The worst performing was Nu Skin Enterprises (NUS), down 68.4%. The Sharpe Ratio for the 1yr long-only model portfolio was 1.05 compared to 1.00 for the S&P 500, indicating a slightly better risk/reward profile compared to the index. Please see the back of the report for additional return data. Core long model, rebalanced monthly The Core long model portfolio that was rebalanced monthly returned 12.81% in 2014 versus 11.43% for the S&P 500, excluding dividends. Since its 3/31/2009 inception, this model has returned 151.5% versus 102.8% for the S&P 500. Sharpe Ratio since inception is 1.04 versus 1.07 for the index. Opportunistic long model, rebalanced monthly The Opportunistic long model portfolio is composed of the same stocks of the Core model, but will occasionally move into a 100% cash position at certain volatility and portfolio return triggers. The purpose of this strategy is to trade return potential for reduced volatility. This model returned 5.81% for the year and 135.6% since its 3/31/2009 inception. The Sharpe Ratio since inception is 1.21. Dollar Neutral model portfolio, rebalanced monthly A model portfolio that begins each month at an assumed 100% long position offset by a 100% short portfolio returned 23.78% for the year. This model benefited greatly by volatility in late 2014, which greatly enhanced short portfolio returns. The Sharpe Ratio for this dollar neutral model is 1.26 since its 3/31/2009 inception.
Ascendere Associates LLC
J. Stephen Castellano
Page 2
December 31, 2014
steve@ascenderellc.com
Long Model Portfolio -- Rebalancing Actions
12/31/2014 Rebalancing Core and Opportunistic Long Portfolio: 25 stocks in the model portfolio = 4.00% weight per position
Close Position FMC Technologies, Inc. FTI Synchrony Financial SYF SunTrust Banks, Inc. STI Kirby Corporation KEX Manhattan Associates, Inc. MANH MAXIMUS, Inc. MMS Brocade Communications Systems, BRCD Inc. RF Micro Devices Inc. CDW CDW Corporation CDW TE Connectivity Ltd. TEL Anixter International Inc. AXE F5 Networks, Inc. FFIV Lam Research Corporation LRCX
Hold/Rebalance Cablevision Systems Corporation CVC Pilgrim's Pride Corporation PPC StanCorp Financial Group Inc. SFG VCA Inc. WOOF Robert Half International Inc. RHI Southwest Airlines Co. LUV Micron Technology, Inc. MU Flextronics International Ltd. FLEX Texas Instruments Inc. TXN Skyworks Solutions Inc. SWKS
Source: Ascendere Associates LLC
Ascendere Associates LLC
J. Stephen Castellano
Page 3
Open Position Skechers USA Inc. Intercontinental Hotels Group plc Lowe's Companies Inc. Cracker Barrel Old Country Store, Inc. CVS Health Corporation PrivateBancorp, Inc. Omega Healthcare Investors Inc. HEALTHSOUTH Corp. Alexion Pharmaceuticals, Inc. MAXIMUS, Inc. Union Pacific Corporation General Dynamics Corporation Broadridge Financial Solutions, Inc. Autohome Inc. YY Inc.
When the market anticipates an improving economy from low price levels, low-quality stocks will at times out-perform high-quality stocks as the expected improvements in fundamentals are discounted from a relatively more depressed price level.
12/31/2014 Rebalancing Core and Opportunistic Short Portfolio: 17 stocks in the model portfolio = 5.88% weight per position
Close Position The Priceline Group Inc. General Motors Company Dish Network Corp. SINA Corporation Carpenter Technology Corp. Agrium Inc.
Source: Ascendere Associates LLC
Ascendere Associates LLC
J. Stephen Castellano
PCLN GM DISH SINA CRS AGU
Hold/Rebalance TripAdvisor Inc. TRIP Phillips 66 PSX Golar LNG Ltd. GLNG Memorial Resource Development MRD Corp. ING Groep N.V. ING Credit Suisse Group AG CS Salix Pharmaceuticals Ltd. SLXP 3D Systems Corporation DDD Qlik Technologies, Inc. QLIK CRH plc CRH Axiall Corporation AXLL The Mosaic Company MOS Allegheny Technologies Inc. ATI
Page 4
Open Short Sale
Melco Crown Entertainment Limited Liberty Broadband Corporation Medidata Solutions, Inc. NOW Inc.
MPEL LBRD.K MDSO DNOW
December 31, 2014
steve@ascenderellc.com
Return Data
Core & Opportunistic Long Model
Theoretical Longs MTD Stopped Out on 8/4/2011 close for a -12.33% loss
11/30/2014 to 12/31/2014 Sector Information Technology Information Technology Financials Financials Information Technology Information Technology Health Care Information Technology Industrials Financials Information Technology Consumer Discretionary Consumer Staples Industrials Information Technology Information Technology Information Technology Information Technology Information Technology Energy Information Technology Information Technology Industrials
Ascendere Associates LLC
J. Stephen Castellano
Company RF Micro Devices Inc. Skyworks Solutions Inc. SunTrust Banks Inc. StanCorp Financial Group Inc. Brocade Communications Systems, MAXIMUS Inc. VCA Antech Inc. Manhattan Associates, Inc. Robert Half International Inc. Synchrony Financial Anixter International Inc. Cablevision Systems Corp. Pilgrim's Pride Corporation Southwest Airlines Co. F5 Networks Inc. Flextronics International Ltd. CDW Corp. Tyco Electronics, Ltd. Texas Instruments Inc. FMC Technologies, Inc. Micron Technology Inc. LAM Research Corp. Kirby Corp.
Ticker
RFMD SWKS STI SFG Inc. BRCD MMS WOOF MANH RHI SYF AXE CVC PPC LUV FFIV FLEX CDWC TEL TXN FTI MU LRCX KEX
Theoretical MTD shorts hit target 8/4/2011 for 14.84% gain
11/30/2014 to 12/31/2014 Sector Energy Energy Financials Consumer Discretionary Information Technology Financials Materials Materials Materials Energy Consumer Discretionary Information Technology Materials Information Technology Consumer Discretionary Materials Materials Consumer Discretionary Health Care
Ascendere Associates LLC
J. Stephen Castellano
Company Ticker Memorial Resource Development Corp. MRD Golar LNG Ltd. GLNG ING Groep NV ING Dish Network Corp. DISH 3D Systems Corp. DDD Credit Suisse Group CS Agrium Inc. AGU Carpenter Technology Corp. CRS Axiall Corporation AXLL Phillips 66 PSX Priceline.com Inc. PCLN Sina Corp. SINA Mosaic Co. MOS Qlik Technologies, Inc. QLIK TripAdvisor LLC TRIP CRH plc CRH Allegheny Technologies Inc. ATI General Motors Company GM Salix Pharmaceuticals Ltd. SLXP
Opportunistic Model Long Short Opportunistic Long/Short
-0.44% 0.00% -0.44%
1.68% -8.66% 10.33%
5.81% -17.97% 23.78%
135.6% 19.5% 116.1%
1.21 0.10 1.26
Stock Targets and
Portfolio Targets
Opportunistic Model III
Long Stocks Long Inverse ETF ^SH Opportunistic Long/Short III
-0.44% 0.00% -0.44%
1.68% 0.10% 1.77%
5.81% -11.55% -5.74%
135.6% -77.0% 58.7%
1.21 (1.04) 0.67
S&P 500 Index
-0.60%
-0.32%
11.43%
102.76%
1.07
* Return figures are calculated using cumulative simple returns. This table represents returns of several theoretical portfolios that do not assume any costs. This table is not to be construed as advertising for any investment service. Real portfolios that attempt to exactly replicate these theoretical strategies will generate lower returns relative to these models due to slippage, transaction costs, tax expenses and other costs. There are limitations inherent in our theoretical results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money. We do our best to provide accurate information, but do not guarantee this. Please see additional disclosures and disclaimers.
Ascendere Associates LLC
J. Stephen Castellano
Page 7
December 31, 2014
steve@ascenderellc.com
Ascendere Associates LLC
J. Stephen Castellano
Page 8
December 31, 2014
steve@ascenderellc.com
Ascendere Associates LLC
J. Stephen Castellano
Page 9
December 31, 2014
steve@ascenderellc.com
Return Data 1-year holding period
Buy-and-hold 1-year portfolio 12/31/2013 to 12/31/2014 Sector Industrials Information Technology Consumer Discretionary Consumer Discretionary Health Care Information Technology Consumer Discretionary Financials Industrials Information Technology
Industry Company Airlines American Airlines Group Inc. Semiconductors NXP Semiconductors NV Specialty Stores Signet Jewelers Limited Apparel, Accessories and Luxury Goods Hanesbrands Inc. Healthcare Facilities VCA Antech Inc. Computer Storage and Peripherals SanDisk Corp. Apparel Retail Foot Locker Inc. Specialized REITs Omega Healthcare Investors Inc. Aerospace and Defense Huntington Ingalls Industries, Inc. Data Processing and Outsourced Services FleetCor Technologies, Inc.
Ticker
Health Care
Life Sciences Tools and Services
Parexel International Corp.
PRXL
45.18
55.56
23.0%
Consumer Discretionary
Department Stores
Dillard's Inc.
DDS
97.21
125.18
28.8%
Materials
Paper Packaging
Packaging Corp. of America
PKG
63.28
78.05
23.3%
Financials
Specialized REITs
Entertainment Properties Trust
EPR
49.16
57.63
17.2%
Health Care
Biotechnology
United Therapeutics Corp.
UTHR
113.08
129.49
14.5%
Financials
Asset Management and Custody Banks
SEI Investments Co.
SEIC
34.73
40.04
15.3%
Industrials
Building Products
Lennox International Inc.
LII
85.06
95.07
11.8%
Consumer Discretionary
Casinos and Gaming
Bally Technologies, Inc.
BYI
78.45
83.27
6.1%
Information Technology Healthcare Energy Financials Industrials Energy Consumer Discretionary Consumer Staples
Data Processing and Outsourced Services
Paychex Inc. Biotechnology Grifols, S.A. Oil and Gas Refining and Marketing Western Refining Inc. Property and Casualty Insurance Old Republic International Corp. Industrial Machinery Flowserve Corp. Oil and Gas Equipment and Services Oceaneering International, Inc. Home Improvement Retail Lumber Liquidators, Inc. Personal Products Nu Skin Enterprises Inc.
DISCLOSURES Ascendere is in the business of providing equity research and related consulting services to investors and their advisors. The equity research it provides includes basic quantitative model portfolios and more detailed fundamental research with respect to individual stocks. In addition, the firm manages stock portfolios for itself and clients. Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets should generally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion. Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific disclosures made by Ascendere: 1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies and members of the analyst's immediate family have a financial interest in one or more of the Companies. 2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of the Companies. 3) Ascendere does not make a market in the securities of any of the Companies. 4) Ascendere has not received compensation from the Companies. 5) Ascendere has not managed or co-managed a public offering for any of the Companies. 6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any of the Companies. 7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of the Companies.
DISCLAIMERS This report is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments. The report is not intended to be in furtherance of the specific investment objectives, financial situation, or particular needs of any individual recipient. Investment decisions should be based on an individual's own goals, time horizon and tolerance for risk. The information contained herein accurately reflects the opinion of Ascendere at the time the report was released. The opinions of Ascendere are subject to change at any time without notice and without obligation or notification. The officers, affiliates or family members of Ascendere Associates may hold positions in the securities of the Companies. No warranty is made as to the accuracy of the information contained herein. The views and opinions expressed in the market commentary reflect the opinions of the author and may be based upon information obtained from third-party sources believed to be reliable but not guaranteed. These opinions are subject to change at any time based upon market or other conditions. Ascendere disclaims any responsibility to update such views. This information is intended for the sole use of clients of Ascendere. Any other use, distribution or reproduction is strictly prohibited. Investing in stocks includes a high degree of risk, including the risk of total loss. This is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. All information, opinions and estimates are current as of original distribution by author and are subject to change at any time without notice. Any companies, securities and/or markets referenced are solely for illustrative purposes. Past performance is not indicative of future performance, and no representation or warranty, express or implied, is made regarding future performance. For Investment Professional use only. NOT FOR FURTHER DISTRIBUTION. Any dissemination or copying of this commentary is strictly prohibited.
Ascendere Associates LLC
J. Stephen Castellano
Page 12
December 31, 2014
steve@ascenderellc.com
J. Stephen Castellano founded Ascendere Associates LLC to provide innovative equity research and investment advisory services that blends fundamental and quantitative approaches. In general, our approach is quite simple -- we believe that return on invested capital and long-term earnings growth are key to stock valuation. More specifically, we use powerful and unique financial models that combine publicly available data, consensus estimates and our own inputs to generate consistent and actionable stock recommendations. Among the services that Ascendere provides are: 1) detailed custom equity research analysis; 2) valuation scenario analysis studies; 3) supply /demand studies; 4) long and short stock idea generation; 5) portfolio feedback; 6) detailed fundamental financial modeling services; and 7) additional analytical consulting services. Additional information is available at www.ascenderellc.com. Mr. Castellano has over 15 years of experience in equity research and related consulting work. At PaineWebber, Warburg Dillon Read and Credit Lyonnais Securities he developed fundamental equity valuation models and conducted in-depth research on the steel and telecom services industries. At Boston Private Value Investors, he developed quantitative models for stock idea generation and also provided general fundamental equity research coverage. Steve received a MBA from the F. W. Olin School of Business at Babson College (2005) and a BA from Oberlin College (1993). Mr. Castellano's career history is highlighted below:
Startup Ecommerce Company (2013-Present)
Ascendere Associates, LLC (2009-Present) Boston Private Value Investors , Equity Research, Equity Research Analyst (2005-2009) Pyramid Research, Contract Consultant, Telecom Services (2002-2003) Credit Lyonnais Securities (USA), Equity Research, Telecom Services, Vice President (2000-2001) Warburg Dillon Read, Equity Research, Telecom Services, Research Associate (1999-2000) PaineWebber, Equity Research, Steel and Nonferrous Metals, Research Associate, Editor (1995-1999)
