BRC Best Picks
Methodology Overview
May 2016
STS Cross Asset Structuring, ZUSP 5
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BRC Best Picks
BRC Best Picks are a selection of stocks aiming to identify stocks with limited risk of large drawdowns over the medium term (e.g. 18 months)
The selection process which combines fundamental factors, technical indicators and volatility criteria has been described by Credit Suisse Research
This selection can be use to generate investment ideas for yield enhancement products such as Barrier Reverse Convertibles
The selection is updated on a monthly basis
The selection process is performed on a monthly basis, using end-of-month data:
Selection Process Overview
Universe: all US, EMU* and Swiss stocks (excluding banking and insurance stocks) included in Credit Suisse’s online structured products pricing tool (my Solutions) and
the Credit Suisse Research Universe
“Best pick” stock ideas Ca. 5-10 stocks per region
Top investment ideas:
1 product per region**
Selection Factors
Combination of fundamental, technical and volatility factors provided by Credit Suisse Research aiming to identify stocks with limited
downside risk over the medium term (e.g. 18 months)
Quantitative optimizer Selection of the 3 “best pick” stocks
which maximize the yield on a 18 month 60% barrier BRC
Bespoke investment ideas
Investors can configure bespoke investments
using my Solutions
Region US Europe Switzerland
Product Barrier Reverse Convertible
Currency USD EUR CHF
Maturity 18 months
Barrier 60%, continuous observation Underlying
stocks
The 3 “best picks” within the region which maximize the coupon
*EMU includes the following countries: Germany, France, Italy, Netherlands, Austria, Spain, Belgium, Finland, Ireland and Portugal
**no results shown for regions with less than 3 best picks
Selection Factors
Factor Measure Rationale
Fundamental
CS Rating* BUY/ Outperform* or HOLD /
Neutral* rated stocks Ignoring stocks where our fundamental outlook is negative.
Price to Book (P/BV)
12-month forward P/BV1 is less than 10% premium of its historical
average
Avoiding companies with high P/BV premium provides valuation cushion and lowers the risk of de-rating.
Expected Dividend
Growth
Expected dividend growth1 greater
than or equal to zero A flat to rising dividends is a good indication for cash flow improvement or financial flexibility.
Default
probability Default probability score2 less than 2 Companies with low default probability score have lower risks and accordingly suffer less than their cyclical counterparts.
Technical
indicator Momentum [9-day] Relative Strength Index1
(RSI) below 70 RSI readings above 70 are considered to be in overbought territory, hence increasing downside risk for the stock
Volatility
Implied
Volatility Implied 90 day volatility1 below 30% High implied volatility is an indication for higher risk for the stock Implied vs
Realized Volatility
Implied 90 Day Volatility1 minus Realized 30 Day Volatility1 between 0% and 5%
Implied volatility below realized volatility is an indication that risk is not being reflected sufficiently in the option market
Implied volatility considerably above realized volatility is an
indication that the market is pricing in increased risk on the stock
Source legend: 1 = Bloomberg, 2 = HOLT, * Please find disclosure information on Credit Suisse Investment Banking rated companies mentioned in this report under https://rave.credit-suisse.com/disclosures
The Selection Factors which aim to identify stocks with limited risk of large drawdowns over the medium term have been described in the Research Alert “A methodology to identify stocks with limited downside risk” (3 May 2016)
17%
41%
19%
9%
22%
39%
10%
36%
16%
6%
13%
23%
4%
8%
0% 0%
3%
11%
0%
10%
20%
30%
40%
50%
60%
2009 2010 2011 2012 2013 2014
coverage universe my Solutions universe selection
Coverage universe is Credit Suisse’s PB and IB covered stocks at that point of time and my Solutions universe is as of January 2016.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance.
*For 2014, calculated drawdown is for 14 months till February 2016
Backtesting results
Frequency of large drawdowns (≥ 40%) over an 18 month period* for the selection of stocks vs. universe (aggregate results for US, European and Swiss stocks)
The selection has been simulated annually from 2009 (the first date for which full coverage data is available) until 2014.
The criteria have been defined based on the 2013 simulation; the other simulations are out of sample.
Source: Research Alert “A methodology to identify stocks with limited downside risk” (3 May 2016)
Disclaimer
The information provided herein constitutes marketing material. It is not investment advice or otherwise based on a consideration of the personal circumstances of the addressee nor is it the result of objective or independent research. The information provided herein is not legally binding and it does not constitute an offer or invitation to enter into any type of financial transaction.
The information provided herein was produced by Credit Suisse AG and/or its affiliates (hereafter "CS") with the greatest of care and to the best of its knowledge and belief.
The information and views expressed herein are those of CS at the time of writing and are subject to change at any time without notice. They are derived from sources believed to be reliable.
CS provides no guarantee with regard to the content and completeness of the information and does not accept any liability for losses that might arise from making use of the information. If nothing is indicated to the contrary, all figures are unaudited. The information provided herein is for the exclusive use of the recipient.
Neither this information nor any copy thereof may be sent, taken into or distributed in the United States or to any U. S. person (within the meaning of Regulation S under the US Securities Act of 1933, as amended).
It may not be reproduced, neither in part nor in full, without the written permission of CS.
Structured derivatives are complex investment products and involve a high degree of risk. They are intended only for investors who understand and are capable of assuming all risks involved. The investment product's retention of value is dependent not only on the development of the value of the underlying asset(s), but also on the creditworthiness of the issuer (issuer risk), which may change over the term of the investment product. CS may be involved in other transactions related to any underlying of the investment product; such possible transactions are not disclosed herein. Product documentation (e.g., simplified prospectus) can be obtained free of charge from the issuer or any branch of CS in Switzerland.
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