1. How is the global currency impact integrated in the forecast of our stock selection model?

As central governments across the world implement various quantitative easing programs and global economic growth disparity widens, currencies become more sensitive to changes and therefore should be taken into consideration when buying and selling securities, individual stocks and ETFs alike. It should be noted that some companies are currency hedged or oil hedged while others are not, despite the fact that these companies might be in the same industry and exposed to the same risks.
 
Thus, our stock selection model incorporates several sources of information to capture currency impact and how it would translate at the company level:
 

Technical information and price patterns

Sentiment information - Specifically hedge fund positioning which incorporates several data points, one of which being the current theme of currency impacts

Analyst estimates who anticipate more specifically the impact of currency on the top line and bottom line

Firm financial guidance – which has started to anticipate this trend

 

2. How is the growing disparity across global currencies (specifically the weakening of these currencies against the dollar) affecting position performance in CAN SLIM®?

By using the current holdings in the portfolio (as of 2/17/2015), we’ve computed the sensitivities to four major currencies (Japanese Yen, Eurozone Euro, Swiss Franc, and Canadian Dollar)
 

 

JPY (Yen)

EUR (Euro)

CHF (Franc)

CAD (Canadian Dollar)

CAN SLIM®

(0.35)

(0.16)

(0.15)

+0.33

S&P 500

(0.35)

(0.14)

(0.09)

0.44

Net Exposure

(0.00)

(0.02)

(0.06)

(0.12)

Volatility

8.2%

7.0%

18.5%

6.8%

Net Exposure x Volatility

0.0%

-0.2%

-1.1%

-0.8%

 

Overall, our gross exposure is negative versus JPY, EUR, CHF and positive to CAD, and the net exposure is slightly negative. Therefore, we have a slight “dollar appreciation” overweight expressed in our portfolio. This is a consequence of our stock selection models capturing some of the information on U.S. dollar (USD) appreciation potentially impacting some companies more than others. *Note: The magnitude of the volatility associated with the currency action is a small portion of our risk budget nonetheless.

 

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