Returns to Styleusing Style Research’s

Markets Analyzer

Taiwan

End April 2011

International Experience

• Style Investing works• Value and Small Cap works long term• Best Value Markets– China, Japan and Korea

• Most markets have small cap premium• High beta stocks do not generally perform well

Taiwan• Quality and Value works consistently and in long term

– Quality more important unlike in other markets– Quality factors 5/10, Value 3/10 in last 5 years– Quality factors 4/10, Value 3/10 in last 10 years

• Market cap does not work well – no small cap premium– unlike other markets

• High Beta does not work– like other markets

• Returns can be better than sector bets• Nothing works consistently

– Top 10 inconsistent over different time periods

Approach

• Use Style Research’s Market Analyzer• Benchmark = market– All stocks with market cap of USD 100 million

• Analysis after sector adjustment– Factor screen within sectors– Eliminates sector bias

• Rebalanced every 6 months– Repriced every month– Includes dividends

Sector Returns - Positive

Sector Returns - negative

Value – last 5 years

Book to Price

Book to Price

Last 10 Years - SA Last 5 Years - SA

Dividend Yield

Dividend Yield

Last 10 Years - SA Last 5 Years - SA

Earnings Yield

Earnings Yield

Last 10 Years - SA Last 5 Years - SA

Cashflow Yield

Cashflow Yield

Last 10 Years - SA Last 5 Years - SA

Sales to Price

Sales to Price

Last 10 Years - SA Last 5 Years - SA

EBITDA to Price

EBITDA to Price

Last 10 Years - SA Last 5 Years - SA

Growth

Return on Equity

Last 10 Years - SA Last 5 Years - SA

Growth in Earnings per Share

Last 10 Years - SA Last 5 Years - SA

Income to Sales

Last 10 Years - SA Last 5 Years - SA

Sales Growth

Last 10 Years - SA Last 5 Years - SA

Forecast Earnings

Last 10 Years - SA Last 5 Years - SA

Forecast Earnings Revisions

Last 10 Years - SA Last 5 Years - SA

Other

Market Cap

Last 10 Years Last 5 Years - SA

Beta

Last 10 Years - SA Last 5 Years - SA

Price Momentum – 6 months

Last 10 Years - SA Last 5 Years - SA

Price Momentum – 12 months

Last 10 Years - SA Last 5 Years - SA

Quality

Low Accrual

Last 10 Years - SA Last 5 Years - SA

Debt to Equity

Last 10 Years - SA Last 5 Years - SA

Stability of Earnings Growth

Last 10 Years - SA Last 5 Years - SA

Sustainable Growth Rate

Last 10 Years SA Last 5 Years - SA

Stability of Sales Growth

Last 10 Years - SA Last 5 Years - SA

Stability of Forecast Earnings

Last 10 Years - SA Last 5 Years - SA

Returns to Style – last 5 yearsValue and Quality works!

SA, annualised

Returns to Style – last 10 yearsQuality and Value works!

10 Years SA 5 Years - SA

SA, annualised

Returns to StyleQuality & Value works in long term

10 Years SA 5 Years - SA

SA, annualised

Common factors in 5 and 10 years are:1. Quality - Stable IBES Earnings Growth top qtr 2. Value – Earnings Yield 3rd qtr3. Quality - Sustainable Growth bottom qtr4. Value - Dividend Yield 3rd qtr5. Growth - IBES Growth Revisions top qtr

5 year XS returns

10 year XS returns

Value

10 Year - SA 5 Year - SA

Growth

10 Year - SA 5 Year - SA

Other

10 Year - SA 5 Year - SA

Quality

10 Year - SA 5 Year - SA

Market Cap Weight, 6 mth Rebal

XS Return 4.3 % pa

T/over 41 % pa

Market Cap Weight, 3 mth Rebal

XS Return 3.3 % pa

T/over 57 % pa

Total Earnings Weight, 6 mth Rebal

XS Return 5.6 % pa

T/over 71 % pa

Comparison

XS Monthly Return

XS 3 Monthly Return

XS 12 Month Return

Moves Inversely To Market Generally Positive

Stability of Forecast Earnings XS Return12 month Forecast

Shows normal distribution with forecast lower returns

Book to Price Analysis

Shows Alphahas consistentlyexisted

Latest Portfolio against benchmark

Style performs well – last 5 years

High Info ratios in last 5 years Much less risk

Summary• Quality and Value works consistently and in long term

– Quality more important unlike in other markets– Quality factors 5/10, Value 3/10 in last 5 years– Quality factors 4/10, Value 3/10 in last 10 years

• Market cap does not work well – no small cap premium– unlike other markets

• High Beta does not work– like other markets

• Returns can be better than Sector bets• Nothing works consistently

– Top 10 inconsistent over different time periods