Background

A QUANTITATIVE APPROACH TO FINDING VALUE

Mount Lucas Focused Large Cap Value's quantitative models remove human bias and may outperform the market over the long term.

BEHAVIORAL FINANCE

We believe that the path to outperformance is applied behavioral finance. Investor decisions are tainted by bias and fear.  Devoid of emotions and outside influence,  the strategy seeks to capitalize on these basic human tendencies to outperform the market.  Through a quantitative, rigorous selection process we buy stocks with a deep value profile, stocks that have been beaten down by the market, stocks that the typical investor can't bear to buy or to hold.

FINANCE VS PHYSICS

We do not confuse finance and physics.  Mount Lucas Focused Large Cap Value is straight forward, robust, and based upon an abundance of academic research using published fundamental data.  Our model is non-parametric, without specific thresholds on the variables used in the model, allowing it to adapt to differing market environments as general levels of equity valuation rise and fall.
  

ACTIVE AND DISCIPLINED

Our quantitative approach to stock selection allows us to be both active and disciplined.  Our objective is outperformance, not similarity to the index.  Our model is dispassionate about the underlying stories, newsflow, and noise that surrounds stock market investing, allowing it to stray from the safety of the crowd.  Our quantitative process maintains a disciplined adherence to selection criteria, trade dates, and holding periods.
  

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APPLIED BEHAVIORAL FINANCE

‘I think of behavioral finance as simply "open-minded finance".’
Richard Thaler (1993)

Conventional economic theories such as the Capital Asset Pricing Model and Efficient Market Hypothesis center around the idea that people are generally predictable and that they mostly act in a rational manner. However, these traditional theories do not explain or even acknowledge the irrationality that sometimes drives markets.

Behavioral finance, also known as behavioral economics, is a relatively new and expanding field of study into why people make seemingly irrational economic decisions. It combines economics and psychology to help us understand, if not explain, the irrational and illogical. In 2017, economist Richard Thaler was awarded the Nobel Memorial Prize in Economic Sciences for his pioneering work which establishes that people are predictably irrational and often behave in a manner which defies traditional economic theory.

The Mount Lucas Focused Large Cap Value strategy incorporates our understanding of behavioral finance and human irrationality to pick undervalued stocks. These stocks have strong fundamentals but are often unpopular and contrarian. Our quantitative approach enforces a strict discipline to selection criteria and holding periods in order to maximize investor alpha. 

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IT PAYS TO BE DIFFERENT, BUT DIFFERENT REQUIRES DISCIPLINE

The Mount Lucas Focused Large Cap Value portfolio is often a plaid suit in a room full of stripes. We do not actively try to be different, but we also don't try to be the same. We reach for our best jacket while everyone else is coordinating outfits. Our focus is earning the value premium, not the value benchmark. Many Large Cap Value managers gravitate around similar holdings. There is a perceived safety of the crowd, but the price of that safety is outperformance. Our quantitative stock picking algorithms, unaware of the crowd and deaf to market noise, are designed to look for unbiased value.

Regardless of current market sentiment, our algorthms do what the literature says works over time:

  • 'Value' equity outperforms
  • Momentum persists
  • Smaller beats larger
  • Over diversifying is dilutive

These things are simple, but it is not easy to step away from the crowd. Mount Lucas U.S. Large Cap Value's quantitative approach is systematized discipline. It adheres to a strict set of stock picking criteria, as well as a disciplined trading methodology which has shown an ability to outperform the benchmark over the long term.


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STRATEGY RESULTS

The results presented below are strategy composite results.

As of 5/31/2018
  1 mo 3 mo 6 mo YTD 1
Year
2
Year
3
Year
5
Year
7
Year
10
Year
Mount Lucas Focused LCV 1.67% 5.80% 10.98% 7.37% 26.12% 23.13% 11.18% 13.32% 12.98% 9.54%
S&P 500 Index 2.41% 0.19% 3.16% 2.02% 14.38% 15.92% 10.98% 12.98% 12.86% 9.14%
Russell 1000 Value Index 0.59% -0.85% -0.50% -1.93% 8.25% 11.41% 7.45% 10.09% 10.90% 7.38%
 
 
Past performance is not indicative of future results. This is not an offer to sell or a solicitation to buy any security. ACA Performance Services, LLC independently reviews the performance composite for the MLM Focused LCV strategy on a quarterly basis. Ashland Partners LLP independently reviewed the performance composite for the MLM Focused LCV strategy on a quarterly basis for periods prior to 2017. Gross returns will be reduced by management fees. For example, a portfolio that earned 15% per annum for five years would result in a cumulative return of 101.14% before fees and 94.66% after fees, assuming a 0.75% annual management fee.

For investment professional use only.

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WAYS TO INVEST

Mount Lucas Focused Large Cap Value is available through a number of investment vehicles.

DISCLAIMER

This commentary is intended for INFORMATIONAL PURPOSES ONLY. The information contained herein is not and should not be deemed as an offer or solicitation of any products or services of Mount Lucas Management LP (“Mount Lucas”). An investment in products or accounts managed by Mount Lucas can only be made on the basis of a Confidential Offering Memorandum or pursuant to an investment management agreement.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS and you should be aware of the risks involved with any type of investment. The effectiveness of any strategy will depend on each person’s situation and a number of complex factors. Mount Lucas does not give tax or accounting advice to clients. You should consult with your own advisor on the tax and accounting implications of any investment strategy.

Information used herein is obtained from publicly available sources which Mount Lucas believes to be reliable. Mount Lucas makes no warranties or representations as to the accuracy or completeness of the information contained in this commentary and shall not be liable for any errors or inaccuracies herein. Likewise, information contained on third party websites that Mount Lucas may link to is not reviewed in its entirety for accuracy and Mount Lucas assumes no liability for the information contained on these websites.

This commentary may not be copied or distributed without the express written consent of Mount Lucas.

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