History of ValuEngineHistory of ValuEngine

Founded in 1995 by Professors Zhiwu Chen and Chiayu Chang.

Development of Models Takes a Team of a Dozen PhDs 4 Years and @ 4 Million Dollars.

Chen and Chang’s Company becomes ValuEngine in 1999.

Company Restructured in early 2001 under Leadership of Current CEO Paul Henneman.

““11:15am, Restate My Assumptions…11:15am, Restate My Assumptions…

One: Mathematics is the Language of Nature. One: Mathematics is the Language of Nature.

Two: Everything around us can be Represented and Understood through Numbers. Two: Everything around us can be Represented and Understood through Numbers.

Three: If you Graph the Numbers of any System, Patterns Emerge. Three: If you Graph the Numbers of any System, Patterns Emerge.

Therefore, there are Patterns Everywhere in Nature.Therefore, there are Patterns Everywhere in Nature.

So, what about the Stock Market?So, what about the Stock Market? “ “

Maximillian Cohen, “Pi,” 1998Maximillian Cohen, “Pi,” 1998

The Fair Valuation ModelThe Fair Valuation ModelThe Fair Valuation Model Provides a Complex Price Calculation for a Given The Fair Valuation Model Provides a Complex Price Calculation for a Given

Stock, Sector, Industry, or Market in a Perfectly Efficient Market. Stock, Sector, Industry, or Market in a Perfectly Efficient Market. It is Derived from Fundamental Data but is Calculated with a Quant-Based ApproachIt is Derived from Fundamental Data but is Calculated with a Quant-Based Approach The overall structure is based on a Dividend Discount Model in which certain variables are The overall structure is based on a Dividend Discount Model in which certain variables are

replaced with highly complex and proprietary stochastic calculus calculations. replaced with highly complex and proprietary stochastic calculus calculations.

Firm-specific variables:Firm-specific variables: Long-run EPS growth rate Long-run EPS growth rate Duration of Business-growth-cycle Duration of Business-growth-cycle Volatility of EPS growth rate Volatility of EPS growth rate Systematic or beta risk of the firm Systematic or beta risk of the firm Correlation between the firm's EPS and the interest rate environment Correlation between the firm's EPS and the interest rate environment EPS growth volatility EPS growth volatility Dividend payout ratio Dividend payout ratio Buffer earnings Buffer earnings

Interest rate related criteria:Interest rate related criteria: Interest rate (30 year yield) long-run level Interest rate (30 year yield) long-run level Duration of interest rate cycle Duration of interest rate cycle Interest rate volatility Interest rate volatility The VE Fair Market Valuation uses 12-month historic and forecasted EPS values and the current The VE Fair Market Valuation uses 12-month historic and forecasted EPS values and the current

30-year treasury yield as primary determinants. When calculating risk/return values such as the 30-year treasury yield as primary determinants. When calculating risk/return values such as the Sharpe ratio, the historic periods used are five years. Sharpe ratio, the historic periods used are five years.

Currently, VE Provides Valuation Data on @4500 Stocks in Real Time with an Currently, VE Provides Valuation Data on @4500 Stocks in Real Time with an additional 5000 or so Companies under Coverage.additional 5000 or so Companies under Coverage.

The Forecast ModelThe Forecast Model

The Forecast Model is Based on the Fair Valuation The Forecast Model is Based on the Fair Valuation Model with additional Variable Calculations in an Model with additional Variable Calculations in an effort to Predict at what Price a Stock will actually effort to Predict at what Price a Stock will actually Trade. Trade.

ValuEngine uses a distinct forecasting model for 6 time horizons and each ValuEngine uses a distinct forecasting model for 6 time horizons and each of the 11 sectors that ValuEngine covers. of the 11 sectors that ValuEngine covers.

Additional Variables Utilized by the VE Forecast Model:Additional Variables Utilized by the VE Forecast Model:

Short-term price reversals. Short-term price reversals. Intermediate-term momentum continuation. Intermediate-term momentum continuation. Long-term price reversals. Long-term price reversals. Short and long-term historic factors in the VE valuation model's Short and long-term historic factors in the VE valuation model's

calculation include past-valuation levels of the stock and its recent price-calculation include past-valuation levels of the stock and its recent price-momentum factor relative to other stocks. These considerations, applied momentum factor relative to other stocks. These considerations, applied with the firm-specific variables, allow the model to differentiate a stock with the firm-specific variables, allow the model to differentiate a stock across sectors and within the company's own business-growth stages.across sectors and within the company's own business-growth stages.

Implementation of the VE Research ProgramImplementation of the VE Research Program

ValuEngine Provides a Variety of Products and Services that ValuEngine Provides a Variety of Products and Services that

Implement ModelsImplement Models Independent Research Provider for Major Banks and Research DistributorsIndependent Research Provider for Major Banks and Research Distributors

Clients include Deustche Bank, Thomson Financial, Bank of New York, UBSClients include Deustche Bank, Thomson Financial, Bank of New York, UBS

ValuEngine.com Retail Website for Individual InvestorsValuEngine.com Retail Website for Individual InvestorsStreamlined Model Implementation, Portfolio Creation and Tracking ServicesStreamlined Model Implementation, Portfolio Creation and Tracking ServicesDaily and Weekly Newsletters for InvestorsDaily and Weekly Newsletters for InvestorsValuEngine View Newsletter Portfolio—Managed by Eric StokesValuEngine View Newsletter Portfolio—Managed by Eric StokesBasic and Detailed VE Reports for Individual Companies and Industry Basic and Detailed VE Reports for Individual Companies and Industry

GroupingsGroupings

ValuEngine Institutional Research Services (VEIRS) for Institutional ClientsValuEngine Institutional Research Services (VEIRS) for Institutional ClientsVEI Software Package Provides Total Access to VE Stock Universe and ModelsVEI Software Package Provides Total Access to VE Stock Universe and Models

Custom Hedgefund Strategy Development Custom Hedgefund Strategy Development Ongoing R&D has Successfully Ported VE Models to Tokyo MarketsOngoing R&D has Successfully Ported VE Models to Tokyo MarketsEurope is Next Major Project with Goal of Total EU Market CoverageEurope is Next Major Project with Goal of Total EU Market Coverage

VE Standard MNS Strategy PerformanceVE Standard MNS Strategy Performance

VE Standard 100 -- Market Neutral Strategy (MNS)VE Standard 100 -- Market Neutral Strategy (MNS) portfolio consists portfolio consists of long holdings with 100 stocks and short holdings with 100 stocks. of long holdings with 100 stocks and short holdings with 100 stocks. This strategy has NEVER posted a negative annual return.This strategy has NEVER posted a negative annual return.

VE Forecast MNS Strategy PerformanceVE Forecast MNS Strategy Performance

VE Forecast 100 -- Market Neutral Strategy (MNS)VE Forecast 100 -- Market Neutral Strategy (MNS) portfolio consists portfolio consists of long holdings with 100 stocks and short holdings with 100 stocks. This of long holdings with 100 stocks and short holdings with 100 stocks. This strategy has NEVER posted a negative annual return.strategy has NEVER posted a negative annual return.

How Did VE Perform During Volatile Markets of 2007?How Did VE Perform During Volatile Markets of 2007?

2007 ValuEngine Sector and Universe Overvaluation % vs. S&P 500 Index

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Five Years of Monthly DataFive Years of Monthly Data