Selector US Large Cap CoreGrowth Fundamental Analysis by mikeholy


									    Selector US Large Cap Core/Growth
0       Managed by Smith Asset Management
The Case for Smith

         100% employee owned
         Based in Dallas (Texas) – managing 5,8 bn USD (as of June ’08)
         Investment professionals average 20 years industry experience

     Robust Investment Approach
        Consistent methodology and portfolio characteristics since 1987
        Disciplined, low-risk investment process
        Return pattern has participated in the market’s upside while offering downside protection

     Pioneered Earnings Surprise investing
         25 year history investing in positive earnings surprise stocks
         Six investment professionals focused on single stock selection discipline

Investment Philosophy

“Straight-forward philosophy that has been
     consistently applied for over 25 years”

                    We apply an engineering approach…

                      Leveraging technology and fundamental research

                      To identify companies with undiscovered growth

                      Creating risk-controlled portfolios

                      That produce attractive return patterns

Portfolio Management Process

  “We believe superior returns can be
achieved without subjecting the portfolio
         to unnecessary risk. ”



      Quantitative Screens

Quantitative Screens

“The purpose of quantitative screening                                    Risk Reduction
 is to identify candidates for potential                                  Investable Universe      Risk Control
           portfolio inclusion.”                                           Market Capitalization    Volatility
                                                                           Minimum Liquidity        Valuation
                                                                           Minimum Price            Corporate Governance
                                           Portfolio                      Improving Business Fundamentals
                                                                          Earnings Quality         Earnings Outlook
                                                                           Accruals                 Rising Growth Expectations
                          Analysis                                         Asset Utilization           Estimate Revisions
                    ►                                                      Cash Flow                   Analyst Accuracy
     Quantitative                                                          Non Operating Items      Normalized v. Expected
                                                                                                    High Forward Growth

Fundamental Analysis

“We identify high quality growth companies                                Validate Quantitative Screens    Fundamental Analysis

    while avoiding stocks with inferior
                                                                          Valuation                        Management
   fundamentals and unattractive risk                                      Operating Earnings/             Products
              characteristics.”                                              Enterprise Value               Competition
                                                                           Earnings Cyclicality            Profitability
                                                                Sell       Price Earnings/Growth & Yield   Historical Growth Rates
                                                                          Corporate Governance             Historical Valuation
                                                                           Management Entrenchment         Earnings Life Cycle
                                                                           Board Structure
                                      ►                                    Compensation Policies
                                                                           Qualitative Factors
                          Analysis                                        Earnings Quality
                    ►                                                      Dynamic Look into Financials
     Quantitative                                                          Conservative Accounting
                                                                           Improving Asset Turnover
                                                                           Free Cash Flow Growth
                                                                          Growth Outlook
                                                                           Understand Growth Drivers

Portfolio Construction

“Ensures alignment to fundamental factors
and risk control measures responsible for an                              Diversification
         attractive return pattern”                                        Sector/Industry
                                                                           Position Weights

                                                                Sell      Factor Alignment
                                                             Discipline    Growth Outlook
                                                                           Quality Measures
                                           Portfolio                       Relative Valuation
                                                                          Risk Model
                          Analysis                                         Pre-Trade Risk Analysis
                                                                           Relative Risk Exposures

Sell Discipline

“A well-defined sell discipline prevents two                                   Negative Earnings Surprise
  common mistakes: 1) rationalizing bad                                         Predicted by the Process
 investment decisions; and 2) holding onto                                        Deteriorating Business Fundamentals
            winners too long.”                                                    Deteriorating Growth Outlook
                                                                                Management Guidance
                                                             Sell Discipline    Actually Reported

                                                                               Corporate Buyout
                                          Construction                          Buyout Announcement
                        Fundamental                                            Over-Valuation
                                                                                Valuation Level Too High

Components of Governance Evaluation

Incorporates both quantitative tools                                                     APPENDIX
     and fundamental analysis

           Board of Directors Analysis           Compensation Policies
            Board Structure/Size                 Cost of Option Plans
            Board Independence/Supermajority     Shareholder Approval of Options Plan
            Response to Shareholder Proposals    Director Compensation
            Governance/Compensation Committee    Option Re-pricing Plans
            Stock Ownership Guidelines           Low Option Burn Rate
            Mandatory Retirement for Directors   Management Stock Ownership Guidelines

           Management Entrenchment               Qualitative Factors
            Unequal Voting Rights                Chairman/CEO Separation
            Golden/Silver/Pension Parachutes     Board Reviews
            Director Indemnification Rules       Audit Policies
            Classified/Staggered Boards          CEO Succession Plan
            Blank Check/Poison Pill Policies     Cumulative Voting

Components of Earnings Quality Analysis

Incorporates both quantitative tools                                                 APPENDIX

     and fundamental analysis
            Valuation Quality                      Management Effectiveness
            Operating Income/Enterprise Value      Inventories
            Free Cash Flow/Price                   Receivables
            Cash/Price                             Payables
            Price-Fwd. 12M EPS /L-T growth/Yield   Margin Stability
            Earnings Cyclicality (multi-factor)    Net operating assets (accruals)

            Earnings Quality                       Balance Sheet Evaluation
            Cash earnings/Net Income               Cash/share
            Change in non-current assets           L-T Debt/share
            Change in working capital              Capital expenditures
            Return on total capital                Depreciation
            Exclusions                             Debt Retirement
            S&P Equity Rating                      Share Repurchase

Portfolio Managers

       Stephen S. Smith, CFA                                John D. Brim,
       CEO and Chief Investment Officer                     CFA
                                                            Portfolio Manager
       Stephen Smith founded Smith Group Asset
       Management in 1995. Since then, he has served as     John Brim is a partner and senior portfolio manager.
       both chief executive officer and chief investment    Prior to joining Smith Group in 1998, he was a
       officer.                                             manager in the institutional investment consulting
                                                            group of Deloitte & Touche, LLP. He also held
       Mr. Smith began his investment management            several positions with NationsBank Asset
       career as a portfolio manager at Wachovia Bank in    Management in Dallas, including senior client
       1976. In 1983, he joined the predecessor to Bank     manager.
       of America where he held senior investment
       management positions. He also was an aerospace       Mr. Brim received a bachelor of science degree in
       engineer with NASA.                                  economics from Texas A&M University and is a
                                                            CFA charter holder. He is a member of the CFA
       Mr. Smith earned a master’s degree in business       Institute and the Dallas Society of Financial
       administration and a bachelor of science degree      Analysts.
       with honors in industrial engineering from the
       University of Alabama. A CFA charter holder, he is
       a member of the CFA Institute and the Dallas
       Society of Financial Analysts where he is a member
       of the strategic advisory board. Mr. Smith is a
       trustee of the Dallas Lighthouse for the Blind.

                                                                                                                                                                                            As of December 31, 2008
                                                                                                                                                                                                Smit h Large Cap
                                                                                                Annualized Returns                                                                              S&P 500
                                                                                                                                                                                                Russell 1000 Growt h
                                                                                                                   3 .6
                                                                                                                          2 .4   1.4
                                                                                                                                       -0 .3                                                                 0 .4

                                                                                                -1.7 -2 .2                                     -1.5         -1.5                    -0 .7                           -1.4
                                                                                                           -3 .4                                  -3 .4            -2 .9                    -3 .6
                                                                             -5.0   -5.2-5.7                                                                           -5.7                                                -4 .3
                                                             -8 .4                                                                                                                                  -7.7
                                                     -9 .8           -9 .1

                             -17.7 -18 .5   -17.0

               -3 7.0
                   -3 8 .4
     -4 0 .2

          1 Year                2 Years               3 Years                 4 Years            5 Years            6 Years             7 Years                 8 Years              9 Years                     10 Years

                                                                                                               Excess Returns



                                                                                                                                             3.1                              2.9
                                                                                                           1.7                                                                                  1.7
                                                                                                                     1.3               1.2                1.4
                                             0.7                                          0.7
                                                                                    0.2              0.4

                                                    -0.7           -0.7

                             1 Year         2 Years             3 Years             4 Years         5 Years         6 Years            7 Years            8 Years         9 Years              10 Years

Peer Group Comparison

Important Legal Information

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