ASX Share Research What Drives Australian Share Out Performance.

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What Drives Company Stock Price Out Performance? What Fundamental Stock Investment Strategies Have Been
Working Consistently? What Ranked Metrics Have Historically Signalled Stock Prices Will Outperform?
Our Paid Monthly Research Service on the Australian (ASX) and Hong Kong Markets (HSE) Answers all these Questions
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Segments.
January 2015 Edge Australia Report is Enclosed. Learn More on our Website: www.lvxresearch.com
Analysis above and throughout the document do not include transaction costs or dividends. Returns are not actual they are based on mathematical calculations of the historical performance of applying different ranked investment strategies/metrics for stock selection. Each strategy
has the top five ranked shares re-weighted monthly or quarterly depending on the strategy. There are no guarantees that the strategies shown in this document will generate similar performance to what they have generated in the past. We just provide the facts for strategies that are
working historically over the medium term. Our analysis does not include transaction costs which could be substantial or the effect of dividends or taxes. Please note with how our analysis is conducted using the current indices, longer term performance statistics can be skewed by
survivorship bias and may enter the benchmark because of high share price momentum for example. We have not adjusted historically for that factor so shorter term factors are more accurate. We provide historical market and financial information for institutional, professional
investors and advisors. We do not provide general advice or specific advice. Past performance is no guarantee of future performance. This publication is general in nature and does not take your personal situation into consideration. You should seek financial advice specific to your
situation before making any financial decision. Please see our disclaimer on the main website www.lvxresearch.com for more information. AFSL 338118.
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copyright C 2015. www.lvxresearch.com
Edge Australia Executive Summary Our Methodology

We analyse a raft of different stock strategies to determine what has worked consistently over time to outperform the market. Here we only present what has worked after sifting , so
investors can focus in on the strategies that resonate with their investment style or generate ideas for further research. All of our analysis is historical and factual without opinion and
should be viewed as such.
We look at strategies for market positioning, industry tilts and at the top five companies ranked within the particular multiple or metric, and focus on the most liquid stocks in the
market. In the analysis we re weight the positions with the highest or lowest multiple/metric every quarter or month depending on the strategy.
The strategies we look at can be broken into the following buckets:
Fundamental Medium Term Strategies: adjusted quarterly looking the highest and lowest multiples and ranking the companies accordingly for the top five companies and then
seeing how they performed over the following quarter re weighting consistently each quarter to determine a return over one and two years.
Valuation Multiples: Enterprise Value(EV)( Equity Value +Net Debt)/EBITDA, EV/EBIT, EV/Free Unlevered Cash Flow, EV/Sales, EV/Invested Capital, PE Ratio, PE Est. CY, PE EST CY+1,
Price to Book, Dividend Yield
Operating Performance: EBIT Margin, Return on Assets, Return on Invested Capital, 5 Yr Growth in Operating Profit, 5 Yr Growth in Net Profit, Largest EPS Upgrades % over Q CY/CY+1
Balance Sheet Strength: Net Debt/EBIT
Market Performance: Volatility 360D, Momentum (1Q,2Q,4Q,20Q and monthly), Momentum volatility adjusted
We also analyse dispersions of the performance between the lowest and highest multiples for long/short investors.
Market Anomalies/Flow Based Strategies: adjusting monthly we analyse seasonal factors looking at which industries, stocks and when the market has historically outperformed
during different months of the year and historical patterns intra month which are consistent.
Dividend Stripping: Investing short term for dividends has historically been lucrative particularly for specific industries and companies. We analyse and present only the most lucrative
and consistent over recent history.
Market Specific Anomalies: e.g. Our Australian Bank strategy which relies on the fact that they dominate the index creating anomalies around their medium term performance.
Relative industry Trends: From a macro perspective we have developed a relative trend following methodology to focus on what industries are trending form a relative perspective
Characteristics of Top Performers: We analyse the top 20 performing shares every six months and see which characteristics they shared six months previously over a medium term
time horizon i.e. where they ranked in certain multiples and metrics; thus determining what has been the most influential metrics for historical performance.
Edge Australia January 2015 Executive Summary What Strategies Are Working Best?
As you can see over the next few pages the top value strategies on average did a little better over both time periods compared to the top growth strategies; which you can see
visually comparing the blue bars (growth) to the green bars (value) over the two time periods. Each of the fundamental/market strategies consist of five companies from the ASX
100 typically reweighted quarterly/monthly ranked by the highest or lowest metric. e.g for Lowest Return on Assets - every quarter the five stock portfolio consists of the
companies with the lowest return on assets from the ASX 100 at that date, and the portfolio is held for a quarter then rebalanced again etc. for the last two years producing
this return result.
As you can see within growth strategies over the two time periods following the highest 2Q momentum was the most lucrative over both periods (highest ranked for the
current quarter at as 31/12/2104 QAN,CTX,REC,ORA,AWC) . Following the highest percentage EPS revisions for the forward year from the trailing quarter was a consistent and
high returning strategy each year re weighting quarterly (highest ranked for the current quarter as at 31/3/2014 QAN, CSR, EGP, ALL, AWC). See the tables later for the full list
of companies that are highest ranked by strategy for the current quarter.
Edge Australia January 2015 - Executive Summary What Strategies Are Working Best?
As you can see within value strategies over the two time periods following the lowest return on assets ( highest ranked for the current quarter as at 31/12/2014 NCM, QAN, TPI,
BPT, STO) and lowest 20Q momentum were the most lucrative (highest ranked for the current quarter as at 31/12/2014 NCM,WOR,BSL,MTS,QBE).
Edge Australia January 2015 Executive Summary- What Strategies Are Working Best?
Shown below is the data behind the top performing strategies and the current portfolios for each strategy over the last two years and one year respectively.
Top Performing Strategies over the medium term - Last 2 Years - ASX 100 - Top Ranked Five Shares
Monthly Strategies
Seasonality
Highest MomentumVol. Adj.
Quarterly Strategies
Fundamentals/Market Based
Bank Reweighting Strategy
Lowest 20Q Momentum
Highest 2Q Momentum
Lowest Return on Assets
Highest EPS Est. Chg.CY Next Yr Q Grwth
Lowest Price to Book
Highest 4Q Momentum
Highest 20Q Momentum
Lowest EV/Invested Capital
Lowest 5yr Grwth Op Inc CAGR
Highest Return on Assets
ASX 100
ST Strategy
Dividend Exploitation
31/12/2014
L12M
L12-24M
L24M
Current Portfolio 31/12/2014
17.0%
41.0%
65.0% REA
DUE
FMG
12.2%
61.3%
81.0% ORA
CTX
QAN
8.4%
43.6%
30.9%
51.7%
52.0%
40.1%
12.6%
8.6%
46.0%
15.4%
15.4%
53.7%
59.8%
52.6%
27.1%
25.8%
31.2%
56.8%
58.6%
15.1%
42.5%
41.6%
66.6%
129.4%
99.7%
92.8%
91.3%
83.8%
76.6%
72.2%
68.0%
64.4%
63.4%
1.5%
42.5%
18.1%
CBA
WBC
NCM
QAN
NCM
QAN
BSL
QAN
RHC
BPT
WFD
REA
AGL
NAB
WOR
CTX
QAN
CSR
BPT
REC
REA
BSL
CPU
CAR
BSL
REC
TPI
EGP
TPI
CTX
TPM
TPI
TPI
SCG
HGG
AMC
IPL
REC
Investing Style
Industry Rotation
Growth
MTS
ORA
BPT
ALL
STO
ORA
CTX
FMG
TAH
CSL
QBE
AWC
STO
AWC
FMG
AWC
FDC
STO
GNC
COH
Contrarian
Value
Growth
Value
Growth
Value
Growth
Growth
Value
Value
Growth
Opportunistic
Top Performing Strategies over the medium term - Last 1 Year - ASX 100- Top Ranked Five Shares
Monthly Strategies
Seasonality
Highest Momentum Vol. Adj.
Fundamentals/Market Based
Bank Reweighting Strategy
Lowest 20Q Momentum
Lowest EBIT Margin
Highest 2Q Momentum
Highest PE Est. Next CY
Highest EV/L12M EBIT
Highest EV/L12MFree Cashflow
ASX 100
ST Strategy
Dividend Exploitation
31/12/2014
L12M
L12-24M L24M
17.0%
41.0%
65.0% REA
DUE
FMG
12.2%
61.3%
81.0% ORA
CTX
QAN
8.4%
52.0%
51.7%
46.0%
43.6%
40.1%
34.2%
30.9%
23.8%
23.2%
23.2%
53.7%
25.8%
27.1%
15.1%
59.8%
31.2%
19.5%
52.6%
11.7%
14.3%
16.3%
66.6%
91.3%
92.8%
68.0%
129.4%
83.8%
60.4%
99.7%
38.4%
40.8%
43.2%
1.5%
14.3%
18.1%
CBA
WBC
QAN
NCM
BPT
NCM
BSL
QAN
QAN
TCL
JHX
AGL
NAB
CSR
QAN
BSL
WOR
BPT
BSL
CTX
SYD
SGM
AIO
AGL
EGP
TPI
TPI
BSL
TPI
CIM
REC
DUE
TCL
SGP
HGG
AMC
IPL
REC
Investing Style
Industry Rotation
Growth
ALL
BPT
FMG
MTS
STO
SGM
ORA
SYD
TPI
QAN
AWC
STO
STO
QBE
FMG
CTX
AWC
COH
WFD
ORG
Contrarian
Value
Growth
Value
Value
Value
Value
Growth
Value
Value
Growth
Opportunistic
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Below are the recent stock charts by strategy for the companies that are in the top five strategies over one and two years.
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Below are the recent stock charts by strategy for the companies that are in the top strategies.
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Below are the key valuation multiples as at 31/12/2014 for all the companies that currently appear this month in the top five strategies over one and two years
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Below are the key valuation multiples as at 31/12/2014 for all the companies that currently appear this month in the top strategies over two years
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Summary of Best Performing Strategies
1)Price Momentum and Contrarian strategies were the best performing strategy over the last two years. Buying the five companies with the worst five year share price
performance and re weighting each quarter would have generated +129.4% over the last two years compared to the ASX 100 performance of +18.1 % ignoring dividends and
transaction costs for both. Buying the top five momentum stocks ( ie those with the largest price increases) in the ASX 100 over the last two quarters, four quarters and five
years respectively would have generated +99.7%, +76.6% and 72.2% over two years . Adjusting momentum searching for less volatile stocks and as such smooth upwards
trends for larger cap stocks has been a good approach with large cap stocks adjusting monthly this approach has generated +81.0% over the last two years.
Following these methodologies the top ranked five stocks this month would be
Lowest 20Q Momentum Q adj: Newcrest (NCM), Worley Parsons (WOR), Bluescope (BSL), Metcash ( MET), QBE Insurance (QBE).
Highest 20Q Momentum Q adj,: Ramsay Health Care (RHC), REA Group (REA), TPG Group (TPM), Caltex (CTX), Federated (FDC)
Highest 2Q Momentum Q adj: Qantas (QAN), Caltex (CTX), Recall (REC), Orora (ORA), Alumina (AWC)
Highest 4Q Momentum Q adj: Qantas (QAN), Recall (REC), Caltex (CTX), Orora (ORA), Alumina (AWC)
Highest 6Mth Momentum Mthly adj.: Orora (ORA), Caltex (CTX), Qantas (QAN), Amcor(AMC), Recall (REC).
2) Following the highest earnings upgrades a year forward adjusting quarterly has been a solid strategy to follow. Buying the five companies with the highest percentage
earnings upgrades during a quarter for the following year would have generated +91.3% over the last two years compared to the ASX 100 performance of +18.1 % Following
this methodology the top five stocks this quarter would be Qantas (QAN), CSR (CSR), Echo (EGP), Aristocrat Leisure(ALL), Alumina (AWC).
3) Contrarian Strategies - Investing in cyclicals and turn around/recovery potential has been lucrative over the past two years . The five companies in the ASX 100 with the
lowest return on assets, lowest price to book, lowest enterprise value / invested capital , lowest 5yr growth in operating income have generated respectively +92.8%, +83.8% ,
+68.0%, +64.4%.
Following this methodology the top five stocks this quarter would be :
Lowest return on assets: Newcrest (NCM), Qantas (QAN), Transpacific (TPI), Beach Petroleum (BPT), Santos (STO).
Lowest price to book: Bluescope(BSL), Beach Petroleum( BPT), Transpacific (TPI),Santos (STO), Fortescue (FMG)
Lowest enterprise value to invested capital: Beach Petroleum ( BPT), Bluescope (BSL), Transpacific (TPI), Fortescue (FMG), Santos (STO)
Lowest 5 year growth in operating income: Westfield (WFD), Computershare ( CPU), Transpacific ( TPI), Tabcorp (TAH), Graincorp (GNC)
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Edge Australia January 2015 - Executive Summary What Strategies Are Working Best?
4) Investing in the Top five companies in the ASX 100 with the highest return on assets ( L12m Net Income/Total Assets) would have generated +63.4% over the last two years
compared to the ASX 100 performance of +18.1 %Following this methodology the top five stocks this quarter would be: REA Group (REA), Car Sales (CRZ), Scentre (SCG),
CSL(CSL), Cochlear (COH). These four fundamental strategies and the companies that are currently represented as you can see are a mix of turnarounds from an industry &
company perspective, growth and recovery that have been performing well.
5) ASX 100 Seasonality goes into the anomaly bucket . Industries in particular exhibit seasonal performance effects that are consistent from year to year for a variety of reasons.
The reasons could be timing of earnings releases, major macro data, end of quarter or year end fund manager adjustments, and holiday activity periods for example; that all
affect liquidity and money flows and manager industry tilts. Looking forward, the next three months in the market are on average over the last ten years; the strongest three
months in the year. Buying the five top performers in a month historically over the last ten years, adjusting the portfolio monthly generated +65% over the last two years and
+17.0% over the last twelve months. Following this methodology the top five stocks this month would be REA Group (REA), Duet (DUE) Fortescue (FMG), Henderson (HGG) and
Incitec Pivot ( IPL).
6) Top Australian Bank Re weighting Strategy An extremely simple yet effective long term strategy involves re weighting by buying the [methodology for subscribers only] has
been a proven strategy for the last 10 years. Following this methodology the top two stocks this quarter would be Westpac WBC and National Australia Bank (NAB),this quarter.
L24M this strategy has delivered +66.6% over the last twelve months excluding dividends compared to the bank index of +39.2%. This strategy has outperformed in nine of the
last ten years.
7) Short Term Dividend exploitation in certain industries and stocks is a lucrative short term opportunity. January is a bad month for dividends but in February the best stocks are
AGL (avg +3.97%) and CBA (avg +2.83%) over the last five years buying a few days pre ex date and selling on the ex dividend date.
8) The overall seasonal patterns of when the market historically performs well and which industries do well in certain months has also been a consistent driver of excess returns.
As has the intra month timing effect for when to buy and sell historically or indeed increase of decrease exposures. All the back up figures are in our appendices.
9) Fundamental Characteristics of Top performers: We analyse the top 20 performers in the ASX 100 each half and the operating and financial multiples at the time, six months
previously, to see which metrics the companies shared. Over a three year period the four metrics that were most present consistently (29%+ of the time the outperforming
companies were ranked in the top 20 of the relevant metric) The most important metrics historically are the highest Price to Book, lowest Enterprise Value/Free Cash Flow,
highest return on assets, highest 360 day trailing Volatility and highest Enterprise Value to Invested Capital.
The highlighted strategies have worked well over the last 12 and 24 months to generate above average rates of return but there are no guarantees that past performance will be
repeated in the future. We just provide the facts for strategies that have worked historically over the medium term.
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Edge Australia January 2015 Monthly Seasonal Re Weighting Index*

What is the Strategy? Re weighting each month; buy the industries and stocks that have out performed in the relevant month historically over the last ten trailing years. Industries in
particular exhibit seasonal performance effects that are consistent from year to year for a variety of reasons The reasons could be timing of earnings releases, major macro data, end of quarters
or year end fund manager adjustments, and holiday activity periods for example that all affect liquidity and money flows and manager industry tilts.
Looking forward the next three months in the market are on average the strongest three month period in the year.
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Edge Australia January 2015 Monthly Seasonal Re Weighting - Industries

Top performing industries seasonally in January over the last ten years are Pharmaceuticals, Materials and Health Care; generating respectively +1.8%, +0.3% and +0.2% over the last ten
years; with making a positive return 70%, 50% and 60% respectively over the long term. The index on average is historically weak this month but over the last 5 years has generated a
positive return; over ten years generating a positive return 60% of the time and an average loss of -0.8%.
Poor performing sectors historically include retail and consumer discretionary which on average generate -3.5% and -2.2% in January over 10 years with positive returns 40% of the time
for both. Following this approach based on the last ten years of experience adjusting the portfolio monthly would have delivered +13.0% for the last twelve months investing in five of the
industry indices each month compared with a gain of +1.0% for the ASX200 index.
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Edge Australia January 2015 Monthly Seasonal Re weighting - Companies

Following this methodology the top five stocks this month would be: REA (+5.2%, 50% win ratio), DUE (+5.0%, 90% win ratio), Fortescue FMG (+4.1%, 60% win ratio), Henderson HGG
(+3.6% , 80% win ratio), Incitec Pivot IPL (2.70% 80% win ratio). Following this approach for the last twelve months would have delivered +17.0% compared to the ASX 100 return of 1.5%.
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Edge Australia January 2015 Monthly Re Weighting Momentum

What is the Strategy? For mid cap and small cap stocks in particular investing behind strong momentum trends has generated good returns particularly in the last few years in
industrials, retail concept/business roll outs, buy and build strategies and cyclical turnarounds, and prior to this resources and service providers were major momentum
beneficiaries. Using the ASX 200 as the universe, adjusting the portfolio monthly based on the best trends in the market. Pure six month share price momentum as a strategy
performs well over long periods of time. More recently momentum has performed acceptably with a concentrated portfolio. Following this methodology the top five stocks
this month would be Qantas (QAN), Sirtex (SRX), Caltex (CTX), Transfield (TSE), and Magellan Financial, (MFG). Following this pure price momentum approach for the last
twelve months would have delivered +9.8%% compared to the ASX 200 return of 1.1%
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Edge Australia January 2015 Monthly Re Weighting Momentum

In the ASX 100 adjusting the portfolio for volatility i.e. trying to find smooth upward trends generates good returns over the medium term ( we use 2 year daily volatility to rank the
highest momentum for a given unit of volatility). Following the volatility adjusted momentum methodology the top five stocks this month would be Orora (ORA), Caltex (CTX),
Qantas (QAN), Amcor (AMC), and Recall (REC). Following this approach for the last twelve months would have delivered +12.2% compared to the ASX 100 return of 1.5%
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Edge Australia January 2015 Quarterly Re Weighting Momentum *

What is the Strategy? As a part of our quarterly fundamental analysis we assessed different measures of quarterly price momentum and contrarian strategies re weighting the
portfolio quarterly; which all generated strong returns. Following the highest [strategy for subscribers only] Momentum the portfolio this quarter would be Qantas (QAN), Resmed
(RMD), Echo (EGP), Recall (REC), Orora (ORA). Following this approach for the last twelve months would have delivered +30.9% compared to the ASX 100 return of 9.9%.
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Edge Australia January 2015 Quarterly Re Weighting Momentum

What is the Strategy? As a part of our quarterly fundamental analysis we assessed different measures of quarterly price momentum and contrarian strategies re weighting the
portfolio quarterly; which all generated strong returns. Following the highest 4Q Momentum the portfolio this quarter would be Qantas (QAN), Resmed (RMD), Echo (EGP), Recall
(REC), Orora (ORA). Following this approach for the last twelve months would have delivered +12.6% compared to the ASX 100 return of 9.9%.
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Edge Australia January 2015 Quarterly Reweighting Momentum

Following the highest 20Q Momentum the portfolio this quarter would be : Ramsay Health Care (RHC), REA Group (REA), TPG Group (TPM), Federated (FDC), Caltex (CTX). Following
this approach for the last twelve months would have delivered +5.6% compared to the ASX 100 return of 9.9%.
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Edge Australia January 2015 Quarterly Re Weighting Momentum

Following the lowest 20 Q momentum the top five stocks this quarter would be : Bluescope (BSL), Metcash ( MET), Worley Parsons (WOR), Fortescue (FMG), Newcrest (NCM).
Following this approach for the last twelve months would have delivered +23.1% compared to the ASX 100 return of 9.9%.
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Edge Australia January 2015 Quarterly Bank Re Weighting Effect*

What is the Strategy? An extremely simple yet effective long term strategy involves [strategy for subscribers only] two of the top four Australian banks and adjusting each quarter;
has been a proven strategy for the last 10 years. Following this methodology the two stocks this quarter that [strategy for subscribers only] would be Commonwealth (CBA), and
ANZ Bank (ANZ). L12M this strategy has delivered +8.2% over the last twelve months excluding dividends compared to the bank index of +3.1%.
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Edge Australia January 2015 Fundamental Drivers Quarterly Re Weighting

What is the Strategy? We look at the fundamental multiples in the market at the end of each quarter and rank the companies with the highest and lowest metric and look at the
return results at the end of the next quarter continuing the process. Over the last year in the market, what has performed from a fundamental valuation perspective are
cyclical/contrarian strategies and hence companies with high multiples of EBITDA, EBIT and PE have outperformed when compared to low trailing and forward multiples. Non
mining companies that are turnaround candidates or expecting cyclical lows performed very well, with low price to book ratios , low return on assets, low EBIT margins, low
multiples of invested capital, low price to sales ratios driving extremely positive performance.
The other successful strategy was following quarterly earnings increases which produced good successive quarter gains; many of the companies being the cyclicals mentioned
previously.
Please note all of our analysis represents at the time data. When the relevant decision point was taken we use the data was present in the market at that date e.g. decision point 30
June 2013 would be based on L12M data to 31 December 2012 as the 30 June numbers would not have been released then; so they are a true reflection of a decision at a point in
time.
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Edge Australia January 2015 Fundamental Drivers - Quarterly Re Weighting
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Top 10 Fundamental/Market Strategies over the medium term - Last 2 Years ASX 100
Lowest 20Q Momentum
Highest 2Q Momentum
Highest 4Q Momentum
Highest 20Q Momentum
Lowest 5yr Grwth Op Inc CAGR
Highest Return on Assets
31/12/2014
LQ
L12M
17.7%
25.6%
21.6%
25.2%
9.1%
10.8%
0.1%
13.7%
1.5%
9.2%
43.6%
30.9%
51.7%
52.0%
40.1%
12.6%
8.6%
46.0%
15.4%
15.4%
L12-24M L24M
59.8% 129.4%
52.6%
99.7%
27.1%
92.8%
25.8%
91.3%
31.2%
83.8%
56.8%
76.6%
58.6%
72.2%
15.1%
68.0%
42.5%
64.4%
41.6%
63.4%

NCM
WOR
BSL
QAN
CTX
REC
NCM
QAN
TPI
QAN
CSR
EGP
BSL
BPT
TPI
QAN
REC
CTX
RHC
REA
TPM
BPT
BSL
TPI
WFD
CPU
TPI
REA
CAR
SCG
MTS
ORA
BPT
ALL
STO
ORA
CTX
FMG
TAH
CSL
QBE
AWC
STO
AWC
FMG
AWC
FDC
STO
GNC
COH
Investing Style
Value
Growth
Value
Growth
Value
Growth
Growth
Value
Value
Growth
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Edge Australia January 2015 Fundamental Drivers Quarterly Re Weighting*

Following the lowest Return on Assets, the top five stocks this quarter would be: Newcrest (NCM), Qantas (QAN), Transpacific (TPI), Beach Petroleum (BPT), and Santos (STO). Following this
approach for the last twelve months would have delivered +51.7% compared to the ASX 100 return of 9.9%.
Following the highest quarterly % increase in EPS estimates next year, the top five stocks this quarter would be Qantas (QAN), CSR (CSR), Echo (EGP), Aristocrat Leisure(ALL), Alumina
(AWC). Following this approach for the last twelve months would have delivered +52.0% compared to the ASX 100 return of 9.9%
35

Following the lowest Price to Book the top five stocks this quarter would be Bluescope (BSL), Beach Petroleum ( BPT), Transpacific (TPI), Santos (STO), Fortescue (FMG). Following this
approach for the last twelve months would have delivered +40.1% compared to the ASX 100 return of 9..9%
Following the lowest EV/Invested Capital, the top five stocks this quarter would be Beach Petroleum ( BPT), Bluescope (BSL), Transpacific (TPI), Fortescue (FMG ): Santos (STO).
Following this approach for the last twelve months would have delivered +46.0% compared to the ASX 100 return of 9.9%
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Edge Australia January 2015 Fundamental Drivers - Quarterly Re Weighting

Following the lowest 5 year operating income growth the top five stocks this quarter would be: Westfield (WFD), Computershare (CPU), Transpacific (TPI), Tabcorp (TAH), and
Graincorp(GNC). Following this approach for the last twelve months would have delivered +15.4% compared to the ASX 100 return of 9.9%.
Following the highest Return on Assets the top five stocks this quarter would be: REA Group (REA), Carsales (CAR), Scentre Group (SCG),CSL (CSL), Cochlear (COH) . Following this
approach for the last twelve months would have delivered +15.4% compared to the ASX 100 return of 9.9%.
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Edge Australia January 2015 Fundamental Drivers Quarterly Reweighting
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Edge Australia January 2015 Fundamental Characteristics of Top 20 Performing ASX 200 Companies
What is the Strategy? We analyse the top 20 performers each trailing six months measured monthly in the ASX 100 over the previous trailing three years and determine what ranking within operating and
fundamental metrics they shared six months previously. We then calculate the percentage of the time the top performing 20 companies in the period were also ranked in the top 20 of that metric. The highest
number shows what financial and operating multiples are most important in driving subsequent performance over the last three years over a broad portfolio.
The most important metrics historically are the highest Price to Book, lowest Enterprise Value/Free Cash Flow, highest return on assets, highest 360 day trailing Volatility and highest Enterprise Value to
Invested Capital.
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Edge Australia January 2015 Dividend Exploitation*

What is the Strategy? Buying stocks around the time of their dividend and selling them ex dividend can be a very lucrative strategy for certain stocks and sectors,
particularly in large and liquid names under certain market conditions . March was the large dividend month where most of the most lucrative historical trades have
occurred. Historically the most lucrative dividend strips for January and February from the ASX 100 as it is not prime dividend season are AGL & CBA with returns of
3.97% and 2.83% on average over the last five years ( ten dividends) over a [strategy for subscribers only] holding period with win ratios over the ten dividends
measured of 70% and 90% respectively.
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Edge Australia January 2015 Relative Trend Effect - Industries

What is the Strategy? Our analysis which compares the correlation of a perfect relative trend against the index versus its performance is historically very accurate in finding
medium term turning points and sector rotations - It is particularly effective relative when industries are assessed relative to the index rather than individual stocks. Yield
safety and USD exposure is what is currently driving medium term sector trends relative to the index. Key Trending Industries Upwards Trending: Banks, Consumer Staples,
Health Care, Industrials , Pharmaceuticals, REITS, Retail and Utilities, Downwards Trending: Consumer Discretionary, Diversified Financials, Energy, Materials, Telecom. As you
can see below using our trend analysis shows the evolution of relative trends during the year for the current best trending industries. i.e. when it is above zero versus the
index it is out performing and at 100 it is a very strong trend. Our analysis assumes buying as it heads north of 0 and selling below. Following relative trends has created solid
out performance
45
Edge Australia January 2015 Relative Trend Effect Industries

As you can see below using our trend analysis shows the evolution of relative trends during the year for the current best trending industries. i.e. when it is above zero versus
the index it is out performing and at 100 it is a very strong trend. Our analysis assumes buying as it heads north of 0 and selling below. Following relative trends we find
creates out performance against the index as you can see by the industry charts below
46
Edge Australia January 2015 Relative Trend Effect - Industries

Following relative trends we find creates out performance against the index as you can see by the industry charts below, and the average of the performance of all industries
in the right hand pane just buying the industries that have positive trending characteristics in equal weight and avoiding non trending industries all together.
47
Edge Australia January 2015 Intra Month Timing Effect - Index

What is the Strategy? Stock performance in Australia depending on the month in tilted towards the end of the month and a disproportionate amount of performance occurs in the
[strategy for subscribers only]
48
Edge Australia January 2015 Intra Month Timing Effect - Index

In Australia, a greater return was generated by just being exposed to the market using this strategy than buying and holding the market; similarly over five years see the charts
below.
49
Edge Australia January 2015 Intra Month Timing Effect - Industries

Industries that in particular outperform at the end of January are Materials (+3.2%, 80%win ratio), Banks ( +2.8%, 80% win ratio), Div. Financials (+2.4%, 70% win ratio), Real Estate
(+2.2%, 70% win ratio), Pharma (1.9% 60%). ). Following this approach for the last twelve months would have delivered +4.7% compared to the ASX 200 return of 1.7% over the same
time period
50
Edge Australia January 2015 Intra Month Timing Effect - Companies

The top five performing stocks from the ASX 100 on average over ten years: Leightons CIM (6.3%, 90%win) Rio Tinto RIO (+6.0%, 90% 10 yr win ratio), Fortescue FMG
(+6.0% return 100% 10 yr win ratio), BHP (+4.6%, 80% win ratio), Westfield WFD (+4.2% 90% win ratio). Following this approach for the last twelve months would have
delivered +5.0% compared to the ASX 100 return of 2.0% over the same time period.
51
Edge Australia January 2015 Market Review and Health Check

Long dated treasury bonds in the US act as a safe haven attracting capital when markets get nervous or when economic conditions are expected to turn down over the medium term. Looking at
simple trends of the 20 year bond price divided by the broad market index historically has given an early warning of a correction, comparing it to its moving average. This was the case in 2008,
in 2011, 2012.
Medium term increases in volatility have in the past signalled more difficult markets ahead, particularly as the moving average starts to accelerate upwards.
52

Job growth in the US has been a focus of central banks and a gauge of the health of the economy. Watching trends in its deterioration particularly through moving average increases has
been a good indicator for more difficult markets and a trend reversal in the US historically.
Industrial production and leading economic indicators when they breach their moving averages have historically shown difficult markets ahead. The fed credit officer survey
for small business as to whether banks are tightening credit is also a good indicator of the health of the economy because if banks aren't lending to the biggest job creators
in the economy (small business) historically has been a predictor of a correction in the markets
53

Watching the trend in earnings and the components of growth , have historically driven market performance and whilst there is a lag, focusing on the most economically sensitive areas has
historically been accurate. US earnings growth has out performed the rest of the world substantially since 2008, whereas Latin America and Russia have underperformed as has Australia.
Asia has performed well from an earnings perspective but not from a market perspective
54

The US has been the strongest performer against the MSCI all Country World index since the end of 2008
55

This chart shows the percentage of companies in the S&P 500 that are showing positive sales growth and those showing positive earnings growth for 2014. These charts line up
against the performance during 2007 going into 2008. The internals of the market look worse 2008 in terms of the percentage of companies showing positive growth.
The right hand chart shows the percentage of consumer goods companies in the S&P 500( the consumer makes up 70% of GDP) that are showing positive sales growth and those
showing positive earnings growth for 2014. These charts line up against 2007 going into 2008. The internals of the market are deteriorating in terms of companies showing positive
growth.
56

Historically when we have seen a large increase in dividend yield versus long bond yield in Australia, the market has improved as investors chases yield in the market.
In Australia watching the relationship between the bond and equity markets and the trends has historically been a good gauge of the health of the markets.
57

In Australia watching the relationship between the bond and equity markets and the trends has historically been a good gauge of the health of the markets. Right now there has been
substantial easing to stimulate the economy.
58

Looking at long term trend health care, pharmaceuticals, staples and banks have outperformed and industrials, retail and consumer discretionary. Energy and minerals at different
times outperformed. Defensives have been the out performer over many years and in particular pharmaceuticals and health care driven by several large underlying stocks.
59

Cyclicals however , have been poor performers over many years
60
Edge Australia January 2015 Disclaimer

The Analysis throughout the document do not include transaction costs or dividends. Returns are not actual they are based on mathematical calculations
of the historical performance of applying different ranked investment strategies/metrics for stock selection. Each strategy has the top five ranked shares
re-weighted monthly or quarterly depending on the strategy. There are no guarantees that the strategies shown in this document will generate similar
performance to what they have generated in the past. We just provide the facts for strategies that are working historically over the medium term. Our
analysis does not include transaction costs which could be substantial or the effect of dividends or taxes. Please note with how our analysis is conducted
using the current indices, longer term performance statistics can be skewed by survivorship bias and may enter the benchmark because of high share price
momentum for example. We have not adjusted historically for that factor so shorter term factors are more accurate. We provide historical market and
financial information for institutional, professional investors and advisors. We do not provide general advice or specific advice. Past performance is no
guarantee of future performance. This publication is general in nature and does not take your personal situation into consideration. You should seek
financial advice specific to your situation before making any financial decision. Please see our disclaimer on the main website www.lvxresearch.com for
more information. AFSL 338118.
12/06/2015
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ASX Share Research What Drives Australian Share Out Performance.

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Edge Australia Executive Summary Our Methodology

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Edge Australia January 2015 Monthly Seasonal Re Weighting Index*

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Edge Australia January 2015 Monthly Seasonal Re Weighting - Industries

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Edge Australia January 2015 Monthly Seasonal Re weighting - Companies

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Edge Australia January 2015 Monthly Re Weighting Momentum

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Edge Australia January 2015 Monthly Re Weighting Momentum

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Edge Australia January 2015 Quarterly Re Weighting Momentum *

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Edge Australia January 2015 Quarterly Re Weighting Momentum

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Edge Australia January 2015 Quarterly Reweighting Momentum

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Edge Australia January 2015 Quarterly Re Weighting Momentum

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Edge Australia January 2015 Quarterly Bank Re Weighting Effect*

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Edge Australia January 2015 Fundamental Drivers Quarterly Re Weighting

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Edge Australia January 2015 Fundamental Drivers Quarterly Re Weighting

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Edge Australia January 2015 Fundamental Drivers - Quarterly Re Weighting

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Edge Australia January 2015 Fundamental Drivers Quarterly Re Weighting

Current Portfolio 31/12/2014

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Edge Australia January 2015 Fundamental Drivers Quarterly Re Weighting*

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Edge Australia January 2015 Fundamental Drivers Quarterly Re Weighting

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Edge Australia January 2015 Fundamental Drivers - Quarterly Re Weighting

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Edge Australia January 2015 Fundamental Drivers Quarterly Reweighting

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