Dynamic Large Cap Value Equity

Objective

We seek to outperform the Russell 1000® Value Index by investing quantitatively in undervalued large-cap stocks, as identified by a low price-to-earnings (P/E) or price-to-book (P/B) ratio, while avoiding significant downside relative to the index.

Investment Process Summary

We invest in undervalued large-cap stocks with an attractive ranking in our quantitative multi-factor model. Our process uses a dynamic shifting tool that determines the appropriate mix of our quantitative factors based on market conditions, including valuations spread across the broad stock universe.

From the universe of U.S. equities, we identify stocks with:

• Market capitalizations among the largest 1,000 U.S. stocks by market capitalization
• Low P/E or P/B ratios with specific valuation limits determined by our dynamic shifting tool

Within this large-cap value universe, we apply our quantitative-ranking model.

Quantitative Focus

We select stocks from our large-cap value universe based on three major factor categories, each grounded in persistent investor behavioral biases:

• Valuation: Traditional measures of worth, such as P/E and P/B, to capture the value anomaly
• Sentiment: Key signals, such as stock price momentum, to validate purchase timing
• Quality: Indicators of financial health that reduce performance volatility associated with valuation and sentiment factors alone

Each fundamental category separately offers the potential for outperformance. By including multiple factors from these three groups, weighted according to our dynamic shifting tool, the portfolio seeks to generate more consistent excess returns.

We test our factors and models in numerous historical market cycles over the last 50 years to limit underperformance in unfavorable markets and improve performance consistency.

Portfolio Management

We combine a stock’s ranking on our valuation, sentiment, and quality factors to create a single quantitative multifactor score for each stock. We purchase the stocks with the highest rankings on a capitalization-weighted basis. The portfolio sells a stock when either 1) both its P/E and P/B ratio no longer meet our value criteria, or 2) its multifactor score falls below our sell limit.

Portfolio Results

Our disciplined strategy has produced not only strong excess return versus the Russell 1000® Value Index, but also a high information ratio and outperformance on average in both up and down markets.