Table of Contents

42An ERI Scientific Beta Publication — The Dimensions of Quality Investing: High Profitability and Low Investment Smart Factor Indices — July 2015Copyright © 2015 ERI Scientific Beta. All rights reserved. Please refer to the disclaimer at the end of this document.4. Comparison of Industry OfferingsIn developed markets also, both the MSCI World Quality Index and the FTSE Developed QualityIndex show strong dependence on market conditions. The Scientific Beta custom multi-factor (EW)index once again produces outperformance in both bull and bear markets.Exhibit 23: Conditional Performance Analysis of Scientific Beta and its Competitors (Panel A: US, Pane B: Developed)All statistics are annualised. The yield on Secondary US Treasury Bills (3M) is used as a proxy for the risk-free rate. The analysis is based on daily totalreturn data from 31 December 2004 to 31 December 2014 (10 years). Calendar quarters with positive market returns are bull quarters and the restare bear quarters.Panel A: The S&P 500 index is used as the broad cap-weighted benchmark. The EW customised index is an equal-weighted combination of theScientific Beta US Low Investment Multi-Strategy and Scientific Beta USA High Profitability Diversified Multi-Strategy indices, rebalanced quarterly.The Scientific Beta US universe consists of 500 stocks.Dec 2004 – Dec 2014(10 Years)Low InvestmentMulti-StrategyScientific Beta USAHigh ProfitabilityMulti-StrategyCustom EWCombinationMSCI USAQuality IndexCompetitors USARussell 1000Quality (HEFI)S&P 500 HighQuality RankingsBull MarketsAnn. Rel. Returns 1.85% 1.63% 1.75% -1.74% 0.80% -0.95%Tracking Error 2.77% 3.39% 2.74% 3.41% 2.28% 3.43%Information Ratio 0.67 0.48 0.64 -0.51 0.35 -0.28Bear MarketsAnn. Rel. Returns 4.54% 4.36% 4.46% 5.39% 2.87% 1.91%Tracking Error 5.46% 6.50% 5.56% 6.94% 4.68% 7.31%Information Ratio 0.83 0.67 0.80 0.78 0.61 0.26Panel B: The MSCI World index is used as the broad cap-weighted benchmark. The EW customised index is an equal-weighted combination ofthe Scientific Beta Developed Low Investment Multi-Strategy and Scientific Beta Developed High Profitability Diversified Multi-Strategy indices,rebalanced quarterly. The Scientific Beta Developed universe consists of 2,000 stocks.Dec 2004 – Dec 2014(10 Years)Low InvestmentMulti-StrategyScientific Beta DevelopedHigh ProfitabilityMulti-StrategyCustom EWCombinationMSCI WorldQuality IndexCompetitors DevelopedRussell DevQuality (HEFI)FTSE DevelopedQualityBull MarketsAnn. Rel. Returns 1.94% 1.49% 1.72% -1.94% 1.32% -1.07%Tracking Error 2.46% 2.65% 2.35% 3.48% 1.94% 2.10%Information Ratio 0.79 0.56 0.73 -0.56 0.68 -0.51Bear MarketsAnn. Rel. Returns 3.81% 5.23% 4.53% 8.02% 2.79% 5.11%Tracking Error 5.26% 5.03% 4.93% 5.77% 3.84% 4.28%Information Ratio 0.72 1.04 0.92 1.39 0.73 1.19