Successfully reported this slideshow.

Overview & Investment Results

388 views

Published on

CastlePoint Composite Performance through December 31, 2011. Investment returns for both the composite (the “Composite”) and the indices presented above are gross of fees and include the reinvestment of interest and dividend income. Returns exclude investment advisory fees but include transaction costs and foreign withholding taxes. Composite portfolios are valued monthly and use time-weighted, geometrically-linked rates of return adjusted for daily-weighted cash flows. Results are based on fully-discretionary accounts under management. Although great care was taken in the preparation of this document, its completeness and accuracy cannot be guaranteed. Monthly statements that substantiate these investment returns are available for verification or auditing purposes. Past performance is no guarantee of future favorable results. The investment philosophy, process, and discipline used to generate these returns were continuously applied over all time periods.

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

Overview & Investment Results

  1. 1. LARGE CAP EQUITY PRODUCT Investment Group, LLCC A S T L E P O I N T CastlePoint Investment Group Profile Investment Philosophy, Process and Results January 31, 2012
  2. 2. INVESTMENT PERFORMANCE “CastlePoint’s enviable investment returns stem from a clearly-defined and consistently applied investment process that is analytically-rigorous, artfully-implemented, and based on a combination of proprietary research and sound financial theory.”
  3. 3. CASTLEPOINTLARGECAPEQUITYPERFORMANCE Investment Returns Snapshot through January 31, 2012 Annual CastlePoint and Index Returns 3 Year Inception (Sept. 2001) 5 Year1 YearYTD* $201.1 $151.7 $141.8 Frequency CastlePoint Outperforms Index Over Time Periods CastlePoint Large Cap S&P 500 Index Russell 1000 Value Cumulative returns reflect reinvestment of dividends and are presented gross of feesCastlePoint Large Cap Equity S&P 500 Index Total Return Russell 1000 Value Total Return Index Cumulative Investment Returns through January 31, 2012 5 Year3 Year1 Year calculations based on: 114 observations 90 observations 66 observations S&P 500 Index Russell 1000 Value Total Return 71% 29% 97% 3% 100% 0% 60% 40% 66% 34% 82% 18% (Unlike indices, surpassed prior peak in 4Q07) Rolling, overlapping periods based on month-end returns over track record 8.5% 4.2% 23.2% 3.3% 6.9% 4.5% 4.2% 19.2% 0.3% 3.4%3.8% 1.9% 17.6% -2.2% 4.1% Investment returns for both the composite (the “Composite”) and the indices presented above are gross of fees and include the reinvestment of interest and dividend income. Returns exclude investment advisory fees but include transaction costs and foreign withholding taxes. Composite portfolios are valued monthly and use time-weighted, geometrically-linked rates of return adjusted for daily-weighted cash flows. Results are based on fully-discretionary accounts under management. 50 75 100 125 150 175 200 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 *All results through period ending January 31, 2012 -40% -30% -20% -10% 0% 10% 20% 30% 40% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD CastlePoint Investment Returns Russell 1000 Value TR Index S&P 500 Index Total Return Periods CastlePoint Outperformed Indices
  4. 4. QUARTERLY/ANNUALINDEX-RELATIVERESULTS Quarterly Returns Relative to Russell 1000 Value and S&P 500 Total Return Indices through December 31, 2011 Annual Investment Performance Detail Investment returns for both the composite (the “Composite”) and the indices presented above are gross of fees and include the reinvestment of interest and dividend income. Returns exclude investment advisory fees but include transaction costs. Composite portfolios are valued monthly and use time-weighted, geometrically-linked rates of return adjusted for daily-weighted cash flows. Results are based on fully-discretionary accounts under management. Although great care was taken in the preparation of this document, its completeness and accuracy cannot be guaranteed. Monthly statements that substantiate these investment returns are available for verification or auditing purposes. Past performance is no guarantee of future favorable results. The investment philosophy, process, and discipline used to generate these returns were continuously applied over all time periods. Supplemental Information on Product Absolute Total Returns Index Relative CASTLE S&P 500 R1000 S&P 500 R1000 YEAR POINT INDEX VALUE INDEX VALUE YTD 8.5% 4.5% 3.8% 4.00% 4.70% 2011 -3.4% 2.1% 0.4% -5.52% -3.80% 2010 17.4% 15.1% 15.5% 2.34% 1.89% 2009 36.6% 26.5% 19.7% 10.14% 16.90% 2008 -35.8% -37.0% -36.9% 1.17% 1.02% 2007 10.2% 5.5% -0.2% 4.73% 10.39% 2006 13.8% 15.8% 22.2% -2.04% -8.46% 2005 7.6% 4.9% 7.0% 2.68% 0.55% 2004 12.1% 10.9% 16.5% 1.22% -4.39% 2003 31.4% 28.7% 30.0% 2.72% 1.38% 2002 -19.4% -22.1% -15.5% 2.68% -3.91% -10% -5% 0% 5% 10% 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Periods CastlePoint Outperformed Indices Russell 1000 Value Total Return Index S&P 500 Index Total Return Number of Stocks: 30 to 35 securities Investable Assets: Domestic equities, select ADR’s; long-only Benchmark: Russell 1000 Value (primary)/ S&P 500 Index (secondary) Portfolio Turnover: ~25% annually Best/Worst month: +16.8% (Nov. 02) / -17.3% (Oct. 08) Russell 1000 Value +10.1% (Apr. 09) / -17.3% (Oct. 08) S&P 500 Index +9.6% (Apr. 09) / -16.8% (Oct. 08) Tracking Error (3-Year): S&P Citi/Value Index 5.84% S&P 500 Index 5.63% Inception Date: September 2001; from inception to Aug. 2005 managed at prior firm; Sept. 2005 to present at CastlePoint Investment Group.
  5. 5. 3 Year 5 Year1 Year Investment returns for both the composite (the “Composite”) and the indices presented above are gross of fees and include the reinvestmentof interest and dividend income. Returns exclude investment advisory fees but include transaction costs. Composite portfolios are valued monthly and use time-weighted, geometrically- linked rates of return adjusted for daily-weighted cash flows. Results are based on fully-discretionaryaccounts under management. Although great care was taken in the preparation of this document, its completeness and accuracy cannot be guaranteed. Monthly statements that substantiate these investment returns are availablefor verification or auditing purposes. Past performanceis no guarantee of future favorable results. The investment philosophy, process, and discipline used to generate these returns were continuously applied over all time periods. Large Cap Value Peer Group Ranking through January 31, 2012 Index-Relative Analytics: Efficiency and Risk-Adjusted Returns source: eVestment Alliance Risk & Regression Analysis PEERGROUPRANKING,EFFICIENCY&RISKANALYTICS PercentileRankings LargeCapValueMutualFundUniverse 60% 90% 100% 0% 10% 20% 30% 50% 40% 70% 80% 25th 5.21% CastlePoint Large Cap Equity Russell 1000 Value Index Morningstar Large Value Avg Fund 1 Year 3 YearYTD 5 Year 10 Year 75th 3.37% source: Morningstar 37th 1.88% 291 funds 256 funds 190 funds276 funds314 funds 25th 3.66% 75th -1.45% 25th 18.87% 75th 15.77% 25th -0.15% 75th -2.68% 25th 4.87% 41st 4.36% S&P 500 Index 42nd 17.63% 63rd -2.16% 65th 3.78% 22nd 4.20% 1st 8.48% 4th 23.23% 2nd 3.26% 4th 6.20% 56th 3.87% 52nd -1.46% 50th 17.06% 47th 1.23% 48th 4.27% 22nd 4.21% 20th 19.24% 20th 0.33% 41st 4.48% 75th 3.15% 66th 3.52%
  6. 6. PORTFOLIOCHARACTERISTICS:RATIOS&SECTORALLOCATION Summary Portfolio Characteristics as of December 31, 2011 Portfolio Holdings: Sector Allocation Over/Underweight: Russell 1000 Value CastlePoint Large Cap Equity S&P 500 IndexRussell 1000 Value Index P/E (LTM) P/E (Next 4 Qtrs) Market Cap ($wtd) Price-to-Book (Latest Qtr) Dividend Yield3-Yr EPS Growth Price-to-Sales (LTM) Debt/Total Cap Industrials TelecomServices ConsumerStaples Utilities FinancialServices Energy Over/Underweight: S&P 500 Index Industrials TelecomServices ConsumerStaples Utilities Energy sources: Thomson Reuters, Standard & Poor's, Russell Investments Energy 7% Technology 29% Basic Materials 7% Healthcare 15% Telecom Services 2% Utilities 1% Consumer Discretionary 15% Industrials 6% Financials 11% Cash 8% 10% 4% 4% 3% -1% -3% -4% -5% -5% -11% -30% -20% -10% 0% 10% 20% 30% FinancialServices BasicMaterials ConsumerDiscretionary Healthcare Healthcare Technology Technology ConsumerDiscretionary BasicMaterials 20% 6% 4% 2% -3% -3% -5% -7% -8% -15% -30% -20% -10% 0% 10% 20% 30% 0.9x 1.2x 0.8x 0.5x 0.7x 0.9x 1.1x 1.3x 2.1% 2.1% 2.3% 1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5% 7.0% 10.0% 3.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 65.8 96.6 74.4 25.0 45.0 65.0 85.0 105.0 125.0 29.0% 31.0% 33.0% 25.0% 27.5% 30.0% 32.5% 35.0% 10.8x 12.6x 11.6x 8x 9x 10x 11x 12x 13x 14x 11.3x 12.9x 12.2x 8x 9x 10x 11x 12x 13x 14x 1.5x 2.1x 1.4x 0.0 0.5 1.0 1.5 2.0 2.5
  7. 7. INVESTMENT APPROACH “CastlePoint's approach to equity investing is based on the fundamental belief that markets are inefficient and mispriced securities can be systematically identified and opportunistically acquired using a time-tested, rigorous, and highly disciplined investment process.”
  8. 8. INVESTMENTAPPROACH CastlePoint's approach to equity investing is based on the fundamental belief that markets are inefficient and mispriced securities can be systematically identified and opportunistically acquired using a time-tested, rigorous, and highly disciplined investment process. CastlePoint's proprietary investment model, independent-minded portfolio management team, and partnership culture of investing alongside our clients, are each important and differentiating aspects of our proven and historically successful approach to investing. As a result of our exhaustive, proprietary research on each stock before reaching a purchase decision, the investment team is confident current portfolio holdings possess substantial capital appreciation potential and limited downside risk. Evidence of this is the investment team manages their personal assets alongside those of our clients. This approach succeeds because the team operates in an environment that takes a long-term view to investments, encourages an intense focus on securities research and analysis, and insures team members hold a substantial, financial interest in the success of the portfolio. In short, "we eat what we cook.“ "You cannot beat the benchmark, if you are the benchmark." CastlePoint takes a focused approach to investing, which affords the investment team the opportunity to better understand portfolio holdings and, equally important, the fortitude and conviction to stay the course when it's most difficult (and important) to do so. It's realistic and possible to achieve this level of confidence with a portfolio comprised of a more manageable level of 30 to 35 holdings. Our goal is to construct portfolios in which security selection is the largest contributor to index-relative outperformance. It's fair to characterize CastlePoint's approach as largely "style-agnostic," though historically portfolio characteristics tend to exhibit a value bias. It's also appropriate to view the approach as being predominately "benchmark agnostic" in the sense the presence or absence a security (or its weight in a benchmark) is irrelevant in the security selection process. This also holds true when looking at portfolio sector allocations relative to a benchmark. Finally, CastlePoint's investment approach reflects our belief we are simply not smart enough to pick the trough when buying or the peak when selling a stock; as such, we employ a "time diversification" approach to buying and selling securities. Practically speaking, this typically entails moving gradually into or out of portfolio positions at 50 bps to 150 bps per transaction. Investment Approach
  9. 9. INVESTMENT PHILOSOPHY “CastlePoint's investment philosophy is based on thoroughly researched and widely accepted financial concepts thoughtfully chosen and uniquely woven together. The end result is a well crafted, time tested process that systematically exploits enduring market anomalies.”
  10. 10. PHILOSOPHY–BEHAVIORALFINANCE Investment Philosophy CastlePoint's investment philosophy is based on thoroughly researched, well established, and widely accepted financial theories and concepts thoughtfully chosen and uniquely woven together. The result is a uniquely crafted, time tested investment process that systematically exploits enduring market anomalies - outperforming market indices over the most tumultuous and challenging market environment in recent history. Briefly, there are three elements of our investment philosophy:  Market Overreaction to Dramatic Unexpected News Events  Fallacies of Company and Market Forecasting  Patience and Long-term Investment Horizon Market Overreaction Based upon thoroughly documented and widely accepted academic research, equity market participants systematically “overreact” with knee-jerk responses to unexpected and dramatic news events, pushing stock prices to unsustainably high and low levels. The natural tendency for many investors is to overweight recent headline news, regardless of its actual relevance or significance for a particular company, and underweight prior data that is wider and deeper in scope. This includes the implications, if any, on the embedded characteristics of an individual company (e.g., pricing power, strength of brand name, presence of significant barriers to entry) that are slow to change. These information surges frequently lead less disciplined, short-term oriented investors into reacting to potentially irrelevant or largely immaterial headline news and subsequently making cognitive errors and emotion driven mistakes. The result is stock prices change more rapidly than the intrinsic value of the underlying companies, creating an exploitable dislocation or divergence between the price for and the value of a company's shares. Consequently, CastlePoint uses its proprietary Valuation, Screening & Investment Model (VSIM™), which evaluates and calculates intrinsic values based on growth rates using a company's historical financial record for each company in the investable universe. VSIM™ evaluates and relies upon a company's proven historical ability to generate cash flow; not on a forecast of what it may be able to generate. CastlePoint's investment team uses this critical tool to determine an overreaction from an appropriate one. Fallacies of Forecasting Long-term Investment Horizon
  11. 11. PHILOSOPHY–FORECASTING&LONG-TERMHORIZON Relying on the ability to make forecasts is a precarious basis for any investment process. The ability to accurately forecast market trends, economic variables, or the earnings of a company with any degree of consistency is extremely rare. The examples of expert forecasts being incorrect by orders of magnitude are too numerous to detail here. Furthermore for a forecast to hold value, it must overcome three, almost insurmountable hurdles:  Accurate: The most obvious quality a forecast must possess is that it must be accurate.  Timely: A forecast ultimately proves accurate must be made on a timely basis in order for it to have value and there to be sufficient time upon which to act.  Different from Consensus: Finally, in addition to being accurate and timely, a forecast must be different from the consensus. A forecast consistent with the consensus estimate is, in all likelihood, already reflected in a company's stock price and generally of limited value. Market Overreaction Fallacies of Forecasting Long-term Investment Horizon Market Overreaction Fallacies of Forecasting Long-term Investment Horizon Forecasting how long it will take for the market price of a stock to converge with its intrinsic value is extraordinarily difficult, if not impossible. As detailed previously, the field of forecasting is fraught with danger. As result, CastlePoint takes a long-term perspective when evaluating and acquiring securities for the portfolio and generally expects to hold them for at least a three- to five-year period. Aside from the obvious benefits of enhancing returns through lower transaction costs and more favorable tax treatment (when applicable), long-term investing does not create the compulsion to “do something” in periods of short term volatility.
  12. 12. INVESTMENT PROCESS “The guiding principles that serve as the cornerstone of CastlePoint’s investment strategy is based on thoroughly researched and well-established financial theory. The foundation of the philosophy and process is largely based on exploiting cognitive errors and emotional decisions of market participants.”
  13. 13. INVESTMENTPROCESSOVERVIEW  Quantitative Screen (1,000 stocks)  Investment Research & Analysis (200 stocks)  Evaluate & Refine Estimate of Intrinsic Value  Build & Manage Portfolio Holdings (30-35 Stocks)  Portfolio & Risk Management Management of Investment Portfolios: A Dynamic Process

×