GS - Quantamentals - The Quality Factor

(1)

Quantamentals:

The Quality Factor

Equity Research

Time to Step into Integrated

Consistent Outperformance … but not 2016

Our Integrated (aka Quality) Factor – a composite of Growth, Returns and Value – has delivered the best risk adjusted returns vs. our broader factor suite over the last decade. This has been driven by strong performance as well as lower volatility. Furthermore, we see a compelling entry point as Integrated now trades at one of the most attractive valuation levels vs. the past five years. See inside for the stocks currently in the top / bottom quintile relative to their sectors.

Valuation Disconnect: Quality on Sale?

Our long-short Integrated factor is trading 2.1 standard deviations below its historical average, the largest disconnects of any of the factors that we track and near the largest discounts compared to the past five years. Drilling down into the tails, we find stocks with low scores (the short leg of the trade) is trading at a largest premium vs. history (21.5%) while stocks with high scores (long leg) are at a more modest premium (5.5%).

Factor Diversification: The Academic View

Academic literature supports that combining multiple factors can improve risk-adjusted returns. In addition, there are benefits of implementing on an individual security level vs. aggregating individual factor portfolios. We find Integrated has better performance and risk-adjusted returns than a simple average of its constituent pieces (Growth, Value, Returns).

Integrated has had the best risk-adjusted performance across our factors all metrics since Inception (Sept 2006-March 2017)

Source: Goldman Sachs Global Investment Research.

Jessica Binder Graham, CFA

(212) 902-7693 [email protected] Goldman, Sachs & Co.

Ronny Scardino

Deep Mehta

Ujjwal Kumar

(646) 446-8697 [email protected] Goldman Sachs India SPL

HOW INTEGRATED IS CALCULATED

The Goldman Sachs Investment Profile (IP) provides investment context for a security and leverages our analysts’ forward-looking estimates.

Integrated is a composite metric that is a simple average of Growth, Returns and Value scores. We bucket companies into the highest quintile (Q1 or top 20%) and lowest quintile (Q5/lowest 20%) within each coverage sector.

Growth, Valuation and Returns are based on the following: • Growth: an average of sales, EBITDA and EPS growth (Financials: only sales and EPS growth are included). • Valuation: an average of P/E, P/B, dividend yield, EV/FCF, EV/EBITDA and EV/DACF (Financials: only P/E, P/B and dividend yield are included).

• Returns: an average of a company’s Return on Equity (ROE), Return on Capital Employed (ROCE) and Cash Return on Cash Invested (Financials: only ROE is included). For further details on methodology see page 10.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Perf (Annual.) 8% 6% 2% 1% 1% -5% -4% Vol (Annual.) 5% 6% 6% 7% 9% 16% 11% 1.6 1.0 0.3 _0.2 0.1 -0.3 -0.4 -0.5 0.0 0.5 1.0 1.5 2.0 Integrated (High vs Low) Valuation (Cheap vs Rich) Growth (High vs Low) Balance Sheet (Strong vs Weak) Returns (High vs Low) Volatility (Low vs High) Size (Large vs Small) In fo rm at io n R a ti o

(2)

The Quality Factor

The Integrated (aka Quality) Factor, which is a composite of Growth, Returns and Value, has delivered the best cumulative performance across our GS

Investment Profile (IP) factor suite since 2006 with significantly lower volatility. We see an attractive entry point for investors seeking quality, as the factor now trades at one of the most attractive valuation levels vs. the past five years. It’s been over a year since Factormageddon1_{galvanized fundamental investors to increase} their factor awareness. Since that time, it is clear that many have expanded their

sophistication when it comes to monitoring factors as well as using factors for risk management purposes and/or taking tactical view. As investors continue to expand their toolbox we highlight our Integrated Strategy as a proxy for “quality,” given it strong performance track record at lower volatility. As a reminder, we take a simple average of three dimensions: Valuation, Growth and Returns. In our view, it is the diversification benefit of this multi-factor approach that contributes to this attractive risk profile.

Consistent Performance at the Lowest Volatility. Integrated has delivered the strongest

performance since inception and has posted positive returns in 9 of the last 10 years. It has also exhibited the lowest annualized volatility. Consequently, it has the best Information Ratio (IR) across our factor suite (Exhibit 1). On a rolling 12M basis, it has shown a positive Information Ratio over 98% of the time and a level above 1 just over 50% of the time.

1_See_{Quantamental 101- Factor Investing: The Rise of the Machines II, March 14, 2016.}

Exhibit 1: Consistent Performance + Low Volatility = Best Risk Adjusted Alpha

Information Ratio, Performance (Total Return) and Volatility (Standard Deviation) for GS Investment Profile (IP) Factors

Note: (1) * since inception has been annualized and is through March 14, 2017, (2) All performance figures are based on our proprietary Investment Profile framework, which ranks and normalizes our analyst estimates into specific style buckets. Companies are grouped into highest quintile (Q1 or top 20%) as Buys and lowest quintiles (Q5 or bottom 20%) as Sells in each coverage sector and performance is equal-weighted. The performance of the combined market neutral strategies will not necessarily equal the difference between their two component tails because of the effects of rebalancing. The combined strategies are reweighted on a weekly basis to maintain a market-neutral position. (3) We calculate perf and std deviation on an annualized basis, with the latter based on daily total returns over a trailing 12-m period, (4) In the case of our market-neutral factor model, the short leg acts as the benchmark when calculating the IR.

Since Inception (Sept '06)*

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Information Ratio Shading denotes Information Ratio >1

Integrated (High vs Low) 1.6 3.1 0.4 1.4 0.7 1.1 0.8 0.0 2.7 1.8 0.1

Valuation (Cheap vs Rich) 1.0 -1.2 0.4 2.7 0.3 0.1 0.6 1.4 2.4 0.7 1.6

Growth (High vs Low) 0.3 1.7 -1.9 2.5 1.7 -0.7 0.4 0.0 -0.9 0.3 0.1

Returns (High vs Low) 0.1 3.6 0.7 -1.5 -1.1 0.7 -0.6 -0.7 1.6 2.2 -1.3

Balance Sheet (Strong vs Weak) 0.2 3.0 1.0 -1.6 1.9 0.8 -1.2 -0.7 0.5 1.9 -0.9

Size (Large vs Small) -0.4 1.9 0.3 -1.9 -1.7 0.0 -1.0 -1.4 1.8 1.5 -1.4

Volatility (Low vs High) -0.3 0.1 0.8 -1.8 -1.2 0.5 -0.6 -1.0 1.0 1.7 -0.9

Performance (Total Return) Shading denotes best and worst performing fundamental factor

Integrated (High vs Low) 8% 12% 4% 9% 3% 4% 4% 0% 11% 8% 1%

Valuation (Cheap vs Rich) 6% -7% 4% 21% 1% 0% 3% 6% 14% 3% 9%

Growth (High vs Low) 2% 9% -15% 19% 8% -4% 2% 0% -6% 1% 1%

Returns (High vs Low) 1% 17% 10% -22% -7% 5% -3% -3% 8% 16% -14%

Balance Sheet (Strong vs Weak) 1% 12% 13% -20% 7% 4% -5% -3% 2% 12% -8%

Size (Large vs Small) -4% 13% 4% -33% -15% 0% -7% -8% 15% 14% -21%

Volatility (Low vs High) -5% 0% 20% -50% -16% 8% -7% -7% 10% 18% -18%

Volatility (Standard Deviation) Shading denotes fundamental factor with the lowest/highest vol in any given year

Integrated (High vs Low) 5% 4% 9% 7% 4% 4% 5% 3% 4% 4% 5%

Valuation (Cheap vs Rich) 6% 6% 11% 8% 5% 6% 6% 4% 6% 5% 5%

Growth (High vs Low) 6% 5% 8% 8% 5% 5% 6% 4% 6% 4% 6%

Returns (High vs Low) 9% 5% 14% 15% 6% 7% 6% 4% 5% 7% 11%

Balance Sheet (Strong vs Weak) 7% 4% 13% 12% 4% 4% 4% 4% 4% 6% 9%

Size (Large vs Small) 11% 7% 15% 17% 9% 11% 7% 6% 8% 10% 16%

Volatility (Low vs High) 16% 7% 27% 27% 13% 16% 10% 7% 10% 11% 20%

Our analysis of quantitative and fundamental strategies from a factor, technical and style perspective. Visit our portal to explore the full series.

FactorReview and Outlook: The Value Trade, Momentum & Crowding, Jan 4, 2017 Quantamental Theory: The Seasons & Reasons of Factor Performance, July 13, 2016 Quantamental 101- Factor Investing: The Rise of the Machines II, March 14, 2016 ETFs: The Rise of the Machines, April 10, 2015

(3)

Digging into 2016 Performance

Aside from Value, few factors generated positive alpha in 2016 and factor volatility was elevated for a good part of the year. This resulted in low/negative information ratios for most factors we track. Integrated did finish in positive territory (+1%) though performance paled vs. recent history (11% and 8% in 2014 and 2015, respectively) and was the second worst year in the last decade. We highlight the following explanations:

 While Integrated is an equally weighted average of Growth, Value and Returns metrics, we find that over time it has been consistently the most correlated with Returns (as Growth / Value scores tend to provide opposite signals). In addition, there is outsized overlap between the two. See Exhibit 2 and 3. Given the dramatic pullback in Returns in 2016 (down 14% for the year), it is perhaps unsurprising Integrated did not fare that well.

 From a sector perceptive, Industrials, Health Care and Financials detracted from the headline performance. See Exhibit 4. We note that in years when Integrated fares well, it tends to be consistent across the majority of sectors (78% in 2011, 2012 and 2014; 56% in 2015). See Exhibit 5.

Exhibit 2: Performance has been most correlated w/ Returns 3m rolling correlation based on daily price changes

Exhibit 3: and there is significant overlap between names % of names also in Q1/Q5 Growth, Returns, Value

Source: Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research. As of 3/13/2017.

Exhibit 4: Energy and Industrials drove 2016 performance

2016 attribution weighted by GICS Sector; sorted by Q1 vs. Q5

Exhibit 5: Integrated Performance by GICS sector

Sorted by 2016

Note: Telecom and Real Estate have been excluded given small sector size (by

number of names) and limited history, respectively. _{Note: * 2011 begins on March 28, 2011.}

Source: Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.

Note: because our factor model is based on GS-defined conviction sectors and not GICS, the number of companies in each GICS sector will vary by quintile whereas there are equal numbers in Q1/Q5 in our model. Therefore, GICS level attribution

-80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 3 m ont h C orrelat ion

Integrated Correl with Growth Integrated Correl with Returns Integrated Correl with Valuation

25% 30% 35% 40% 45% 50% 55% 60% 65% F a ct or C ons tit uent O ver lap (% )

Integrated & Growth (Q1) Integrated & Growth (Q5) Integrated & Valuation (Q1) Integrated & Valuation (Q5) Integrated & Returns (Q1) Integrated & Returns (Q5)

-1% 0% 1% 2% 3% 4% 5% 6% 7%

Energy Cons Disc Materials Info Tech Cons

Staples Utilities Financials HealthCare Industrials Q1 Integrated (High Scores) Q5 Integrated (Low Scores)

Low Integrated outperformed High High Integrated outperformed Low GICS Sector 2011* 2012 2013 2014 2015 2016 Materials 11% 9% 2% 0% 1% 30% Energy 9% 37% 8% 34% 21% 18% Cons Disc. 0% -15% 6% 9% -7% 6% Info Tech 9% 7% -3% 19% 13% 0% Cons Staples 1% 27% -29% 0% -7% -1% Financials 1% 4% -1% -3% -3% -5% Utilities -10% 5% -4% 2% -8% -12% Industrials -11% -3% 7% 14% 18% -14% Health Care 8% 9% -7% 8% 12% -16%

(4)

Quality on Sale?

In our view, factor valuation is a useful gauge of investor sentiment and crowdedness. See Factor Review and Outlook, The Value Trade, Momentum and Crowding, Jan 4, 2017 for more details.

With the market trading at near all-time highs, it is not surprising that most factor tails (the individual Q1s and Q5s) are trading above their historical averages.

However, what is notable is that (1) High Integrated is one of the least expensive factors (trading at just a 5.5% premium to its 5yr median) while Low Integrated is one of the most expensive (21.5% premium) when compared against other factors and (2) as a result, the ratio between the two is at one of the lowest points over the last five years and is the biggest disconnects of any of the market-neutral factors that we track. See Exhibit 6-7.

Exhibit 6: Integrated is near the cheapest levels since 2012 Ratio of Forward P/E (Q1 / Q5)

Exhibit 7: … and is more than 2 std deviations below average Long / Short Factor Valuation

Source: I/B/E/S, Goldman Sachs Global Investment Research. Source: I/B/E/S, Goldman Sachs Global Investment Research

Exhibit 8: Integrated Q5 (low scores) is trading at a large valuation premium vs. history. The Q1 premium is more modest

Forward P/E Valuation Factors, sorted by difference between current and 5yr median P/E

Source: I/B/E/S, Goldman Sachs Global Investment Research.

0.6 0.7 0.8 0.9 1.0 2012 2013 2014 2015 2016 2017 R a tio of Q 1/Q 5 F o rw ar d P/ E Integrated Valuation Factor Forward P/E (Long/ Short Ratio) 5yr Avg. Current vs 5yr Avg. # of St Dev Above/ Below Avg.

Valuation (Cheapest vs. Richest) 0.6 0.5 16% 2.1

Volatility (Low vs. High) 1.2 0.9 23% 1.9

Size (Large vs. Small) 1.0 0.9 12% 1.4

Short Interest (Low vs. High) 0.9 0.9 9% 1.0

Growth (High vs. Low) 1.6 1.5 1% 0.1

Balance Sheet (Strong vs. Weak) 1.1 1.1 0% 0.0

Returns (High vs. Low) 0.8 0.9 -9% -1.1

Momentum (Leaders vs. Laggards) 1.0 1.2 -16% -1.3

Integrated (High vs. Low) 0.7 0.8 -14% -2.1

C hea p Va lu a tio n C hea p EV /D AC F Lo w V ola tili ty Per for m anc e La ggar ds ( 6m ) L o w In te g rat ed Lo w Shor t I nter es t Lo w RO E R ic h EV/F C F Ch e ap E V /F CF H igh G ro w th Lo w Re tu rn s H igh EPS Gr ow th La rg e Si ze C heap EV/EB IT D A H igh C R O C I Lo w RO CE H igh Sa le s G row th C he ap P /B Low S al e s G ro w th Low G row th Low EB IT D A G row th C he ap P /E L ow D iv idend Yi el d H igh D iv idend Y iel d Str ong Bal anc e Shee ts L ow EPS G row th H igh Shor t In ter e st Ri ch P /E W eak Ba la n ce Sheets H igh EBIT D A Gr o w th Hi gh Re tu rn s Ri ch V al u at io n Ri ch E V /DA C F Ri ch P /B Hi gh RO E Sm al l S iz e Low C R O C I H ig h In te g rat ed Hi gh R O CE R ich EV/ EBIT D A Per for manc e L eader s (6 m ) H igh V ol a til ity 5 101 52 02 5 303 5 For wa rd P /E 5-year Range Least Expensive vs. History Expensive vs. History 5-year Median Current

(5)

Case Study: Integrated During Factormaggedon

Factor Volatility and Market Drawdowns: Weathering the Storm

While Integrated performance was muted in 2016, it did continue to post below-average volatility. As a case study we turn to the most recent episode of significant factor rotation in early 2016 (e.g. “Factormageddon”). The 2 week period starting February 23, 2016 saw a 5+ standard deviation move1_{for a number of our factors. However, over this time frame,} Integrated moved less than 1 standard deviation.

One of the reasons for this is the Value input limits the potential to “overpay” for one of the other two metrics and therefore is less at risk for a reversal. In addition, we find

Integrated tends to have less macro sensitivity than many of the other factors that we track. Below we revisit the interplay between our IP factors and macro variables (e.g.

US/European/China Growth, US/Euro FCI, Oil Price and Inflation Expectations) and find that only about 5% of Integrated performance can be explained by changes in the macro. For more details see Quantamental Theory: Seasons and Reasons, July 13, 2016.

Exhibit 9: Factor performance and volatility during “Factormageddon”

# of std deviations based on 2 week performance as of 3/8/16 vs. past 5 yrs; factor performance over 2 weeks ending 3/8/16

Exhibit 10: Integrated has the least macro sensitivity among factors

% of performance explained by changes in macro variables

-20% -15% -10% -5% 0% 5% 10% 15% 0 sd 1 sd 2 sd 3 sd 4 sd 5 sd 6 sd 7 sd 8 sd 9 sd Fa ct or P e rf orm a nc e ( % ) # of Standard Deviations P/B CROCI ROCE Returns ROE Leverage Sales Growth EV/DACF P/E Growth Valuation Integrated Momentum Volatility Short Interest 0% 10% 20% 30% 40% 50% 60% Fa c tor v s Ma cr o V a ri a b le R -s qua re d ...which compares to just 5% for our Integrated Strategy At least 35% of

our technical factor perf can be

explained by macro variables...

(6)

There are numerous academic papers espousing the benefits of factor diversification which typically drive improved risk-adjusted returns. Much of this benefit stems from the fact that correlations between factors are less than one, and in some cases, such as Momentum and Value, are negative2_.

However, recent industry debate has been around whether a diversified factor approach is best implemented by combining individual factor portfolios or by combining factors at the single-security level (similar to our Integrated factor discussed in this report) which has been shown to generate stronger performance with lower volatility than combining multiple factor strategies.3,4

By comparing Integrated to a simple weighted average of its three constituent factors (Returns, Growth and Value), we find that the multi-factor approach produces significantly stronger returns since inception (84% vs. 31%) and

consistently outperforms in all but one year (2013). In addition, Integrated produces a better risk-adjusted return (as gauged by the information ratio) despite the average of Growth, Value and Returns showing lower volatility. This is due to the dampening effect of the consistently negative correlation between Value and Growth (see Exhibit 12).

Exhibit 11: Integrated has outperformed Fundamental

Factors by 53% since inception in 2006…

Performance of Fundamental Factors vs Integrated Factor

Exhibit 12: …and has had stronger performance and

risk-adjusted returns despite slightly higher volatility Annual. Information Ratio, Perf & Vol Since Inception

2_{Asness, C.S., Moskowitz, T.J. and Pedersen, L.H. (2013), Value and Momentum Everywhere. The Journal of}

Finance, 68: 929–985. DOI:10.1111/jofi.12021. https://eorder.sheridan.com/3_0/app/orders/4482/files/assets/basic-html/page-929.html#

3_{Bender, Jennifer and Wang, Taie, Can the Whole Be More Than the Sum of the Parts? Bottom-Up versus}

Top-Down Multifactor Portfolio Construction. The Journal of Portfolio Management, Vol 42, No. 5 (May 2016).

4_{Clarke, Roger G and de Silva, Harindra and Thorley, Steven, Fundamentals of Efficient Factor Investing (October 11,}

2016). Financial Analysts Journal, Vol. 72, No. 6 (2016). http://www.cfapubs.org/doi/pdf/10.2469/faj.v72.n6.3

1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 P er for m anc e (I nde x: S ept 20 06)

Fundamental Factors (Avg of Returns, Growth, Value) Integrated Factor +84% +31% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Perf (Ann.) Volatility (Ann.) Integrated

Growth, Value, Returns Avg

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 Information Ratio (RHS)

(7)

Integrated Factor Constituents

Below we highlight the Q1 and Q5 constituents as of March 14, 2017.

Exhibit 13: Companies in the Top Quintile (Q1)

Ticker Company Name Rating Ticker Company Name Rating Ticker Company Name Rating

A Agilent Technologies Inc. Buy* FDS FactSet Research Systems Inc. Sell NEP NextEra Energy Partners Buy

AAPL Apple Inc. Buy FFIV F5 Networks Inc. Neutral NFX Newfield Exploration Co. Neutral

ABBV AbbVie Inc. Buy* FLEX Flex Buy NICE NICE Ltd. Neutral

ACIA Acacia Communications Inc. Neutral FLIR FLIR Systems Inc. Buy NOC Northrop Grumman Corp. Buy*

ACN Accenture Plc Neutral FLR Fluor Corp. Neutral NOW ServiceNow Inc. Neutral

ACOR Acorda Therapeutics Inc. Neutral FMSA Fairmount Santrol Holdings Neutral NYLD__A NRG Yield Inc. Buy

ADS Alliance Data Systems Corp. Neutral FNSR Finisar Corp. Buy OHI Omega Healthcare Investors Inc. Neutral

ALDW Alon USA Partners Neutral FTI TechnipFMC Plc Buy ON ON Semiconductor Corp. Buy

AMCX AMC Networks Inc. Buy GILD Gilead Sciences Inc. Neutral ORCL Oracle Corp. Buy*

APLP Archrock Partners Buy GLBL TerraForm Global Inc. Neutral OXY Occidental Petroleum Corp. Neutral

APO Apollo Global Management LLC Buy GOOGL Alphabet Inc. Buy* PBPB Potbelly Corp. Neutral

AR Antero Resources Corp. Neutral GPK Graphic Packaging Holding Buy PCAR Paccar Inc. Neutral

ARES Ares Management LP Neutral GPOR Gulfport Energy Corp. Buy PCLN Priceline.com Inc. Neutral

ARRS ARRIS International Plc Buy GT Goodyear Tire & Rubber Co. Buy PM Philip Morris International Inc. Buy

AVGO Broadcom Ltd. Buy GWPH GW Pharmaceuticals Plc Buy PMTS CPI Card Group Neutral

BG Bunge Buy HAL Halliburton Co. Buy POR Portland General Electric Co. Sell

BIIB Biogen Inc. Neutral HD Home Depot Inc. Neutral PRTY Party City Holdco Inc. Neutral

BIVV Bioverativ Inc. Neutral HEP Holly Energy Partners Neutral PRXL Parexel International Corp. Sell

BKU BankUnited Inc. Sell HF HFF Inc. Neutral PSXP Phillips 66 Partners Sell

BX Blackstone Group Buy HP Helmerich & Payne Inc. Neutral PYPL PayPal Holdings Buy*

CAR Avis Budget Group Neutral HRS Harris Corp. Buy QSR.TO Restaurant Brands Intl Inc. Neutral

CBG CBRE Group Buy ICLR ICON Plc Buy RCL Royal Caribbean Cruises Ltd. Sell

CBI Chicago Bridge & Iron Neutral INCR INC Research Holdings Buy REVG REV Group Neutral

CC Chemours Buy INCY Incyte Corp. Buy RLGY Realogy Holdings Neutral

CCL Carnival Corp. Neutral INTU Intuit Inc. Buy* ROK Rockwell Automation Inc. Neutral

CCOI Cogent Communications Holdings Neutral IP International Paper Co. Neutral ROST Ross Stores Inc. Neutral

CCP Care Capital Properties Inc. Neutral IPG Interpublic Group of Co. Neutral SABR Sabre Corp. Buy

CE Celanese Corp. Buy ITT ITT Inc. Buy SAFM Sanderson Farms Inc. Sell

CG Carlyle Group Neutral JAG Jagged Peak Energy Inc. Buy SBUX Starbucks Corp. Buy*

CL Colgate-Palmolive Co. Neutral JCI Johnson Controls International Plc Neutral SEE Sealed Air Corp. Buy*

CLH Clean Harbors Inc. Neutral JELD JELD-WEN Holding Neutral SF Stifel Financial Corp. Buy

CMCSA Comcast Corp. Buy JLL Jones Lang LaSalle Inc. Buy SGRY Surgery Partners Inc. Neutral

CNK Cinemark Holdings Buy* JNJ Johnson & Johnson Neutral SIRI Sirius XM Holdings Neutral

COLM Columbia Sportswear Co. Buy* JNPR Juniper Networks Inc. Buy* SMLP Summit Midstream Partners Neutral

COTV Cotiviti Holdings Neutral KAR KAR Auction Services Inc. Neutral SPR Spirit AeroSystems Holdings Sell

CPN Calpine Corp. Buy KATE Kate Spade & Co. Neutral SPWH Sportsman's Warehouse Holdings Buy

CPS Cooper-Standard Holdings Buy KMB Kimberly-Clark Corp. Buy STE Steris Plc Neutral

CQH Cheniere Energy Partners Holdings Neutral KMT Kennametal Inc. Buy STOR STORE Capital Buy*

CQP Cheniere Energy Partners Neutral KORS Michael Kors Holdings Neutral STX Seagate Technology Neutral

CRTO Criteo SA Buy LB L Brands Inc. Buy SWK Stanley Black & Decker Inc. Neutral

CRZO Carrizo Oil & Gas Inc. Neutral LH Laboratory Corp. of America Holdings Neutral SWKS Skyworks Solutions Inc. Neutral

CSTM Constellium Neutral LLY Eli Lilly & Co. Buy* SWN Southwestern Energy Co. Neutral

CTSH Cognizant Technology Solutions Neutral LOW Lowe's Cos. Buy SYF Synchrony Financial Buy*

CVRR CVR Refining LP Neutral LPLA LPL Financial Holdings Neutral TCP TC PipeLines LP Neutral

CYBR CyberArk Neutral LRCX Lam Research Corp. Buy* TMUS T-Mobile US Inc. Buy

DF Dean Foods Co. Neutral LYB LyondellBasell Industries Neutral TSE Trinseo SA Neutral

DFS Discover Financial Services Buy MAR Marriott International Buy* TXRH Texas Roadhouse Inc. Neutral

DGC.TO Detour Gold Corp. Buy MAS Masco Corp. Buy UAN CVR Partners Neutral

DGX Quest Diagnostics Inc. Buy* MCK McKesson Corp. Neutral ULTA Ulta Beauty Inc. Neutral

DISCA Discovery Communications Inc. Sell MMI Marcus & Millichap Inc. Neutral ULTI Ultimate Software Group Neutral

DKS Dick's Sporting Goods Buy MNST Monster Beverage Corp. Buy* V Visa Inc. Buy*

DNB Dun & Bradstreet Corp. Neutral MPC Marathon Petroleum Corp. Buy VEEV Veeva Systems Inc. Neutral

DYN Dynegy Inc. Neutral MPLX MPLX LP Buy VIRT Virtu Financial Inc. Buy

EAT Brinker International Neutral MPW Medical Properties Trust Inc. Neutral VLO Valero Energy Corp. Buy

EBAY eBay Inc. Buy MS Morgan Stanley & Co. Neutral VVV Valvoline Inc. Neutral

EL Estee Lauder Co. Neutral MSFT Microsoft Corp. Buy WHR Whirlpool Corp. Neutral

EVA Enviva Partners LP Neutral MTCH Match Group Sell WSM Williams-Sonoma Inc. Buy

EXP Eagle Materials Inc. Neutral MWA Mueller Water Products Inc. Buy WYN Wyndham Worldwide Corp. Neutral

(8)

Exhibit 14: Companies in the Bottom Quintile (Q5)

Ticker Company Name Rating Ticker Company Name Rating Ticker Company Name Rating

AB AllianceBernstein Holding Neutral FHB First Hawaiian Inc. Neutral PLD Prologis Inc. Sell

ACC American Campus Communities Inc. Sell FIS Fidelity National Information Services Buy POT Potash Corp. of Saskatchewan Inc. Neutral

ADI Analog Devices Inc. Neutral FLS Flowserve Corp. Neutral PSTG Pure Storage Inc. Neutral

ADM Archer-Daniels-Midland Neutral FMI Foundation Medicine Inc. Neutral PTLA Portola Pharmaceuticals Inc. Neutral

ADSK Autodesk Inc. Buy FNV.TO Franco-Nevada Corp. Neutral RAD Rite Aid Corp. Neutral

ADTN ADTRAN Inc. Sell FSLR First Solar Inc. Neutral RDC Rowan Cos. Neutral

AEM.TO Agnico Eagle Mines Ltd. Neutral FTR Frontier Communications Corp. Neutral RIG Transocean Ltd. Sell

AIV Apartment Investment & Management Neutral GD General Dynamics Corp. Neutral ROLL RBC Bearings Inc. Neutral

ALB Albemarle Corp. Buy* GGP GGP Inc. Neutral ROP Roper Technologies Inc. Neutral

AMC AMC Entertainment Holdings Neutral GHL Greenhill & Co. Sell RSG Republic Services Inc. Neutral

AN AutoNation Inc. Neutral GNC GNC Holdings Sell RSPP RSP Permian Inc. Neutral

APH Amphenol Corp. Buy GNRC Generac Holdings Neutral RUN Sunrun Inc. Buy

APTI Apptio Inc. Neutral GPI Group 1 Automotive Inc. Sell RXN Rexnord Corp. Sell

ARNC Arconic Inc. Sell GPN Global Payments Inc. Buy SAM Boston Beer Co. Neutral

ASNA Ascena Retail Group Neutral GPRO GoPro Inc. Sell SCWX SecureWorks Corp. Buy

ATO Atmos Energy Corp. Neutral H Hyatt Hotels Corp. Neutral SJM J. M. Smucker Co. Sell

AWK American Water Works Neutral HIVE Aerohive Networks Inc. Neutral SLG SL Green Realty Corp. Neutral

BBD__B.TO Bombardier Inc. Neutral HLI Houlihan Lokey Inc. Neutral SQ Square Inc. Buy

BBRY BlackBerry Ltd. Sell HMHC Houghton Mifflin Harcourt Corp. Buy SRCL Stericycle Inc. Neutral

BBT BB&T Corp. Neutral HRI Herc Holdings Neutral SRE Sempra Energy Neutral

BEN Franklin Resources Inc. Sell HSE.TO Husky Energy Inc. Buy SWC Stillwater Mining Co. Neutral

BMS Bemis Co. Neutral HST Host Hotels & Resorts Inc. Sell TAP Molson Coors Brewing Co. Buy

BNFT Benefitfocus Inc. Neutral HUBS HubSpot Inc. Neutral TCS Container Store Group Neutral

BPMC Blueprint Medicines Corp. Buy ICE IntercontinentalExchange Inc. Buy* TEL TE Connectivity Ltd. Sell

BURL Burlington Stores Inc. Buy IMAX IMAX Corp. Neutral TEX Terex Corp. Buy

CCI Crown Castle International Corp. Buy* INFN Infinera Corp. Neutral TIF Tiffany & Co. Neutral

CEQP Crestwood Equity Partners Buy INGR Ingredion Inc. Sell TRI Thomson Reuters Corp. Neutral

CFX Colfax Corp. Neutral IONS Ionis Pharmaceuticals Inc. Sell TRP.TO TransCanada Corp. Buy

CLMT Calumet Specialty Products Partners Neutral IRWD Ironwood Pharmaceuticals Inc. Neutral TRS TriMas Corp. Neutral

CLVS Clovis Oncology Inc. Neutral JACK Jack in the Box Inc. Sell TRUE TrueCar Neutral

CME CME Group Neutral JUNO Juno Therapeutics Inc. Neutral TSLA Tesla Inc. Sell

CRC California Resources Corp. Sell KHC Kraft Heinz Co. Buy* TTOO T2 Biosystems Inc. Neutral

CREE Cree Inc. Sell KLAC KLA-Tencor Corp. Buy TWLO Twilio Neutral

CSLT Castlight Health Inc. Neutral KMI Kinder Morgan Inc. Buy TWOU 2U Inc. Buy

CVE Cenovus Energy Inc. Sell KO Coca-Cola Co. Sell TXMD TherapeuticsMD Inc. Buy

DDR DDR Corp. Neutral LAMR Lamar Advertising Co. Buy TXN Texas Instruments Inc. Sell

DHR Danaher Corp. Neutral LC LendingClub Corp. Neutral UAA Under Armour Inc. Neutral

DISH DISH Network Corp. Buy LGF__A Lions Gate Entertainment Corp. Neutral UFS Domtar Corp. Neutral

DK Delek US Holdings Neutral LL Lumber Liquidators Holdings Sell UNIT Uniti Group Inc. Neutral

DMTX Dimension Therapeutics Neutral LQ La Quinta Holdings Sell UNVR Univar Inc. Buy

DNKN Dunkin' Brands Group Neutral MAC Macerich Co. Neutral URBN Urban Outfitters Inc. Sell

DNR Denbury Resources Inc. Sell MCD McDonald's Corp. Neutral UTX United Technologies Corp. Neutral

DO Diamond Offshore Drilling Sell MCRB Seres Therapeutics Inc. Neutral VSI Vitamin Shoppe Inc. Sell

DVA DaVita Inc. Sell MIK Michaels Cos. Neutral W Wayfair Inc. Neutral

DVN Devon Energy Corp. Neutral MOBL MobileIron Inc. Neutral WAB Wabtec Corp. Neutral

ECL Ecolab Inc. Sell MRVL Marvell Technology Group Neutral WEC WEC Energy Group Neutral

EIGI Endurance International Group Sell MTB M&T Bank Corp. Neutral WEN The Wendy's Co. Neutral

EPC Edgewell Personal Care Neutral MTW Manitowoc Co. Neutral WEX WEX Inc. Neutral

EQGP EQT GP Holdings Neutral MUR Murphy Oil Corp. Sell WFC Wells Fargo & Co. Buy

EQR Equity Residential Sell MYCC ClubCorp Holdings Neutral WFM Whole Foods Market Inc. Sell

EQT EQT Corp. Neutral NAV Navistar International Corp. Neutral WLK Westlake Chemical Corp. Neutral

ERJ Embraer Buy NDAQ Nasdaq Inc. Neutral WM Waste Management Inc. Sell

ES Eversource Energy Neutral NE Noble Corp. Sell WMB Williams Cos. Buy*

ESV Ensco Plc Neutral NI NiSource Inc. Neutral WSTC West Corp. Sell

ETE Energy Transfer Equity Neutral ODP Office Depot Neutral XEC Cimarex Energy Co. Buy

ETN Eaton Corp. Neutral P Pandora Media Inc. Buy* XRAY DENTSPLY Sirona Inc. Neutral

EVER EverBank Financial Corp. Sell PAGP Plains GP Holdings Neutral YUM Yum! Brands Inc. Sell

EVH Evolent Health Inc. Buy* PF Pinnacle Foods Inc. Buy ZEN Zendesk Inc. Buy

(9)

Appendix 1: Other Factor Exposures

Given the construct of Integrated, the top(bottom) 20% of companies are naturally skewed towards high(low) growth, high(low) returns and low(high) multiple. Further, the long-short pair tends to be a bias towards low leverage, large companies and lower volatility.

Exhibit 15: Factor Exposures for the Integrated Strategy

Factor decomposition for Integrated Quintiles 1 and 5

0% 10% 20% 30% 40% Q1 Q2 Q3 Q4 Q5 Q1 Q5 High

Growth GrowthLow

0% 10% 20% 30% 40% 50% Q1 Q2 Q3 Q4 Q5 Q1 Q5 High Returns Low Returns 0% 10% 20% 30% 40% Q1 Q2 Q3 Q4 Q5 Q1 Q5 Low Multiple High Multiple 0% 10% 20% 30% 40% Q1 Q2 Q3 Q4 Q5 Q1 Q5 Low

Leverage LeverageHigh

0% 10% 20% 30% 40% Q1 Q2 Q3 Q4 Q5 Q1 Q5 Large

Size SmallSize

0% 10% 20% 30% Q1 Q2 Q3 Q4 Q5 Q1 Q5 Low

Vol HighVol

Growth

Size Balance Sheet

Returns Multiple

(10)

Appendix 2: IP Factor Methodology

Calculation methodology for the GS Investment Profile (IP) scores:

 The Goldman Sachs Investment Profile (IP Scores) is a tool we use to better understand the investment context for a security by comparing key attributes of that security to the market (i.e., our coverage universe) and sector peers. We leverage our in-house analyst models and estimates, which we believe provide a more forward looking/accurate measurement of company expectations/performance.

 Returns and Valuation use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters away. Growth uses the value for the fiscal year at least seven quarters away compared with the year at least three quarters away (on a per-share basis for all metrics).

 These metrics are normalized by assigning a Z-score based on the company’s position within the overall distribution of all IP scores (assuming a normal distribution). The average of these normalized metrics is taken (or average of the applicable metrics in case of financials) and is then used to generate a percentile score from 1 to 100 for each factor.  We bucket these company scores into highest quintile (Q1 or top 20%) and lowest

quintiles (20%) within each coverage sector, and construct portfolios with an equal number of stocks under Q1 and Q5. The performance of these top and bottom quintile tails, as well as a sector-neutral portfolio (Buy Q1, Sell Q5) of the two, is tracked and rebalanced on a weekly basis.

Measures used in each factor:

 Integrated: calculated as an aggregate score based on Returns, Growth and Valuation. Q1: stocks with the highest integrated score within their sectors; Q5: stocks with the lowest Integrated score.

 Returns: calculated using an average of return on equity (ROE), return on capital employed (ROCE), and cash return on cash invested (CROCI) for each stock. Only ROE is considered for financial stocks. Q1: stocks with the highest 20% returns within their coverage sector; Q5: stocks with the lowest 20% returns.

 Growth: calculated using an average of a company’s sales, EBITDA and EPS growth. For financials, we use only EPS and sales growth. Q1: stocks with the highest sector relative growth; Q5: stocks with the lowest growth.

 Valuation: calculated using an average of price/earnings, price/book, dividend yield, enterprise value/EBITDA, enterprise value/free cash flow and enterprise value/debt adjusted cash flow. Only P/E, P/B and dividend yield are used for Financials. Q1: stocks with the lowest multiples within their sector; Q5: stocks with the highest multiples.  Volatility: calculated as the standard deviation of daily total returns over a trailing

12-month period. Q1: stocks with the lowest volatility on a sector relative basis; Q5: stocks with the highest volatility.

 Balance sheet: calculated using net debt/EBITDA (leverage). This is used only for nonfinancial stocks. Q1: stocks with the lowest leverage within their sectors; Q5: stocks with the highest leverage.

 Size: calculated using market capitalization. Q1: Largest 20% stocks on a sector relative basis; Q5: Smallest 20% stocks.

 Momentum: based on stock performance over a 6 month lookback period (Q1-Q5). Q1: Sector leaders (top 20% performers); Q5: Sector laggards (bottom 20%).

 Short Interest: based on Short Interest Days (SI / ADTV). Q1: Lowest Days-to-Cover; Q5: Highest Days-to-Cover. Based on exchange data which is released with a lag.