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Performance Tests of Volume, Insight, and ESG Activity Signals Global Backtest Results for Truvalue Data, SASB Codified Standard, 2008-2019. OCT 2019 Agenda Intro to TVL Scores Backtest Summary Performance by Region Portfolio


  1. Performance Tests of Volume, Insight, and ESG Activity Signals Global Backtest Results for Truvalue Data, SASB Codified Standard, 2008-2019. OCT 2019

  2. Agenda • Intro to TVL Scores • Backtest Summary • Performance by Region • Portfolio Analytics 2

  3. Intro to TVL Scores

  4. It’s not what companies say, it’s what they do Company Disclosed Information To truly evaluate a company and eliminate ESG “blind spots” requires a comprehensive Truvalue Labs approach. News, NGOs, Watchdogs, Social Media, Trade Journals, Independent Reports 4

  5. Scores on 26 Material SASB categories that impact company value UNIVERSE OF 26 SUSTAINABILITY ISSUES ACROSS 5 AREAS Business Ethics Product Design & Lifecycle Management Competitive Behavior Business Model Resilience Management of the Legal & Supply Chain Management Regulatory Environment Materials Sourcing & Efficiency Critical Incident Risk Management Physical Impacts of Climate Change Accident and Safety Management Human Rights & Community Relations GHG Emissions Customer Privacy Air Quality Data Security Energy Management Access & Affordability Water & Wastewater Management Product Quality & Safety Waste & Hazardous Materials Management Customer Welfare Ecological Impacts Selling Practices & Product Labeling Employee Engagement, Diversity & Inclusion Employee Health & Safety Labor Practices 5

  6. Truvalue Labs creates quantitative signals based on ESG information from unstructured text AGGREGATE EXTRACT ANALYZE GENERATE DELIVER 100,000+ 1 million+ 300,000+ 4 x 26 12 years Multi-language Data points Signals generated 4 key scores and Of history on 16,000+ sources processed monthly monthly 26 ESG metrics monitored companies • Local, National, and • Entity Detection • Event Detection • Company Scorecards • Truvalue Platform International News and Trends • Industry Specific Signal • Spotlight Events • Truvalue Data • NGO Sources, Watchdogs Detection • Portfolio Monitoring • Materiality • Truvalue Index • Trade Journals, Industry • Signal Sentiment Scoring • Investment Opportunities • Truvalue Cloud Specific Publications, • Alpha Twitter ESG Articles 6

  7. Truvalue Labs produces four main scores PULSE SCORE (0-100) INSIGHT SCORE (0-100) TTM VOLUME SCORE MOMENTUM SCORE Captures day-to-day variation, Applies EWMA to Pulse Score, # of articles tagged to SASB Slope of Insight Score over TTM responds to news as it happens provides rating equivalents categories in past 12 months, Identifies companies with for longer-term investors measure of information flow improving or deteriorating ESG Trailing 12 Months 2 Years 7

  8. Now with SASB Codified Edition, Additional Languages, New Signals SASB UPDATED 11 NEW LANGUAGES NEW ESG SIGNALS 16,000+ COMPANIES Updated SASB framework German, Japanese, French, Pipeline 2 performs more Expanded coverage universe to align with codified Italian, Spanish, Portuguese, fine-grained sentiment now covering 29 different standards Dutch, Danish, Finnish, analysis ETFs around the world Norwegian, Swedish 8

  9. Backtest Summary

  10. Insight scores sort global stocks reasonably well on a standalone basis Annualized Active Returns 3 2 1.8 1.61 1.32 0.9 1 0.71 0 Insight 5-Bucket Bucket 1 Bucket 2 Bucket 3 Bucket 4 Bucket 5 10 10

  11. Volume ranks stocks well within each tier of market cap, and the impact of volume is negatively correlated to size Quintiles of Volume within Market Cap Groups 6 5.48 5.5 5 4.5 4 Annualized Active Returns 3.45 3.18 3.5 3 2.67 2.57 2.28 2.5 2.05 2 1.5 1.01 1 0.6 0.5 0.05 0 -0.03 -0.11 -0.5 -1 -0.99 -1.5 -2 -1.77 -1.86 Largest Third of Market Cap Middle Third of Market Cap Smallest Third of Market Cap 1 2 3 4 5 11 11

  12. We construct an Activity Ratio by taking TTM ESG Data Volume and dividing by TTM $ Trading Volume and then rank within countries Annualized Active Returns Activity Ratio = TTM Data Volume / TTM $ Trading Volume 3.5 3.04 3.0 2.58 Activity Rank = Rank of Activity Ratio within each country 2.5 to normalize for differences in trading activity across 2.0 1.35 countries 1.5 1.0 0.49 0.5 Using $ trading volume because it’s a good proxy for typical 0.0 attention a company receives -0.5 -1.0 Not using $ Market Cap directly to avoid building in a -1.07 -1.5 common size factor and introducing valuation tilts Activity Rank Bucket 1 Bucket 2 Bucket 3 Bucket 4 Bucket 5 12 12

  13. Combining Insight with Activity yields a stronger signal that incorporates both ESG polarity and investor attention to ESG topics Annualized Active Returns % 4 3.51 3.04 3 2.58 1.89 1.8 2 1.61 1.35 1.32 0.94 0.9 1 0.71 0.68 0.49 0 -0.58 -1 -1.07 -2 Insight Rank Activity Rank ESG Activity Signal (Insight Rank + Activity Rank) Bucket 1 Bucket 2 Bucket 3 Bucket 4 Bucket 5 13 13

  14. ESG Activity Signal is based on adding (or averaging) Insight rank + Activity rank + 2.57% + 0.95% Insight 0% – 0.26% – 1.52% Activity 14 14

  15. Performance by Region

  16. Performance by global geographic regions Quintile Spread for ESG Activity Signal by Region 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% Global 4.09% North America 4.39% Developed Europe 3.23% Develeoped Asia 3.18% Emerging Markets 4.69% Quintile Spread for ESG Activity Signal by Region 16 16

  17. Global backtest for ESG Insight + Activity Signal 350 Top Quintile Bottom Quintile Benchmark 300 250 200 150 100 50 0 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 17 17

  18. North America 400 Top Quintile Bottom Quintile 350 Benchmark 300 250 200 150 100 50 0 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 18 18

  19. Developed Europe 250 Bottom Quintile Benchmark Top Quintile 200 150 100 50 0 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 19 19

  20. Developed Asia 300 Top Quintile Bottom Quintile Benchmark 250 200 150 100 50 0 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 20 20

  21. Emerging Markets 350 Top Quintile Bottom Quintile Benchmark 300 250 200 150 100 50 0 1/02/2008 11/02/2009 9/01/2011 7/01/2013 5/01/2015 3/01/2017 1/02/2019 21 21

  22. Portfolio Analytics

  23. Factor exposures over time: equal weighted 23 23

  24. Factor exposures over time: cap weighted 24 24

  25. Equal weighted vs. market cap weighted Annualized Active Returns 4.0 3.51 3.5 3.0 2.5 2.26 1.89 2.0 1.5 0.94 1.0 0.68 0.5 0.5 0.0 -0.02 -0.08 -0.25 -0.5 -0.58 -1.0 Insight + Activity Equal-Weighted Insight + Activity Cap-Weighted 1 2 3 4 5 25 25

  26. Sector exposures over time: equal weighted 26 26

  27. Sector exposures over time: cap weighted 27 27

  28. Global sector-neutral performance is similar (and slightly better than country neutral in some regions) Annualized Active Returns 4 3.51 3.38 3.5 3 2.5 1.89 2 1.51 1.5 1.11 0.94 0.85 1 0.68 0.5 0 -0.5 -0.45 -0.58 -1 -1.5 -2 Insight + Activity Country Neutral Insight + Activity Sector Neutral 1 2 3 4 5 28 28

  29. ESG Activity Factor is additive Five-factor Smart Beta includes size, value, price momentum, quality, and minimum volatility. to Smart Beta strategies Annualized Active Returns 4 3.51 3.5 3.2 3 2.39 2.32 2.5 1.89 1.79 2 1.75 1.71 1.5 1.01 0.94 1 0.68 0.68 0.5 0 -0.5 -0.58 -1 -1.5 -1.3 -2 -1.7 Insight + Activity Country Neutral 5-Factor Smart Beta CN Insight + Activity + Smart Beta CN 1 2 3 4 5 29 29

  30. Quarterly rebalancing also works well Annualized Active Returns 4.0 3.76 3.51 3.5 3.0 2.38 2.5 1.89 2.0 1.5 1.27 0.94 1.0 0.68 0.66 0.5 0.0 -0.5 -0.28 -0.58 -1.0 Monthly Quarterly Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 30 30

  31. Global risk-return profile I*A Country Neutral Quintile Universe Return Standard Deviation Return Return / StdDev Benchmark 7.75 21.17 0.37 1 9.40 21.89 0.43 2 9.19 21.39 0.43 3 7.40 20.80 0.36 4 7.29 21.72 0.34 5 5.50 20.79 0.26 31 31

  32. Thank you sales@truvaluelabs.com

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