BCA Indicators/Model

Highlights UK GDP is on track to overtake pre-pandemic levels. This will strengthen the case for the BoE to tighten monetary policy. That said, markets are aggressively pricing in a hawkish BoE. This creates room for near-term disappointment. The post-Brexit environment still remains volatile, especially vis-à-vis Northern Ireland. This opens a window to tactically go long EUR/GBP. Ultimately, the pound is undervalued on a longer-term basis. GBP/USD should touch 1.45 over the next 12 months. Feature Chart I-1A Robust Recovery In UK Growth The UK recovery has been progressing smartly (Chart I-1). GDP growth is on track to increase by 7.25% this year, and 6% next year, according to the Bank of England (BoE). This is well above potential, and will eclipse growth in other developed economies. Markets have reacted accordingly. The pound is marginally higher versus the dollar this year, despite broad-based USD strength. Gilt yields have risen versus most developed market long rates. The OIS curve is already discounting at least 3 rate hikes by the BoE next year, much higher than most other developed market central banks (Chart I-2). The risk is that it creates downside risks for sterling in the near-term, even if the longer-term outlook remains bullish. Chart I-2A Violent Repricing In Interest Rate Expectations Robust Domestic Conditions Most measures of domestic demand in the UK remain robust. The employment rate is higher than in the US, with unemployment fast approaching NAIRU (Chart I-3). Projections from the BoE no longer forecast an acute impact from the expiration of the furlough scheme. Unemployment should hit 4.25% in 2022, pinning it close to the lows of the last several decades. Chart I-3The UK Versus US Jobs Recovery An Employment Boom Robust labor market conditions are beginning to shift bargaining power to workers. Vacancy rates are closing in on fresh highs relative to unemployed workers and wages have inflected noticeably higher (Chart I-4). The BoE has noted that compositional effects could have exarcerbated the pace of wage increases, with most job losses aggregated in sectors with lower pay. As the economy progresses towards full employment, wage growth will moderate from current levels, but will still be very robust by historical standards. Inflation has been the wild card in the UK. The headline inflation print is currently 3.2%, while core CPI sits at 3.1%, well above the MPC’s 2% target. Meanwhile, the 10-year CPI swap rate has shot up to 4.2%, brewing expectations that higher inflation could become entrenched (Chart I-5). This has pushed up bets that the central bank could turn even more hawkish. Chart I-4Employees Are Gaining Bargaining Power Chart I-5Will UK Inflation Be Transitory? From a big picture perspective, the acute increase in money supply growth stemming from aggressive easing by the BoE has stimulated economic activity. As such, the velocity of money is rising sharply in the UK (Chart I-6). To prevent a potential overheating of the economy, the BoE will need to raise rates. This is bullish for cable. Finally, house price inflation in the UK remains robust. While this has been a global phenomenon, surveys suggest that the pace of house price increases will accelerate in the coming months (Chart I-7). With the most negative interest rates in the G10, this will be cause for concern for the BoE Chart I-6Money Velocity In The UK Chart I-7Will The Housing Boom Be Sustained? The Policy Response Chart I-8The BoE Will Withdraw Emergency Monetary Settings On the monetary policy front, the BoE is acting accordingly. Asset purchases are slated to end soon, with the central bank having bought £869bn of its £895bn target (Chart I-8). In fact, two members of the MPC voted at the last policy meeting to reduce this target by £35bn, which would have effectively ended QE. Meanwhile, markets are priced for at least three interest rate hikes over the next 12 months. We agree that tighter monetary policy is warranted over the longer term. However, our bias is that market expectations for interest rate increases may have overshot, a potential setup for disappointment in the very near term. Offsetting Factors Inflation in the UK could prove transitory, and fall much faster than the market expects. According to BoE forecasts, inflation should settle closer to 2% by the end of next year. Yet the market is still pricing in very sticky inflation in the UK. The 5-year inflation swap currently sits at 4.4%, while the 10-year sits at 4.2%. These are very high numbers which are susceptible to downside surprises in the coming months. A firm trade-weighted pound will be the first catalyst for lower inflation. Historically, a strong GBP has dampened inflationary pressures through lower input costs (Chart I-9). It is remarkable that there has been a strong divergence between the currency and inflation expectations in the current regime. This can be partly attributed to a pandemic-related surge in restaurant and hotel costs, high transportation costs, and a surge in housing utilities, all amidst an electricity shortage (Chart I-10). Global supply chains are also under siege. Chart I-9The Inflation Overshoot Will Not Persist Chart I-10Transport And Utility Inflation Could Prove Transitory However, energy costs in Europe could modestly subside in the coming months. The opening of the Nord Stream 2 pipeline, connecting Russia with Europe, will help alleviate the euro zone energy crisis. For the UK in particular, the opening of the 1,400 MW undersea cable with Norway this month should assuage the electricity shortage. The pace of house price appreciation may also temper going forward. The UK holiday stamp duty, introduced in July 2020, expired last month. Under the scheme, taxes paid on property purchases were exempt to a ceiling of initially £500,000 until March 2021, and eventually £250,000. Housing in the UK has been supported by low interest rates and higher savings, factors pushing up global real estate demand, but the pickup in housing transactions ahead of the expiry of the rebate should ebb.  The post-Brexit environment also remains volatile, especially vis-à-vis Northern Ireland. Significant checks exists on goods from the UK to Northern Ireland, even if they are slated for final consumption. This is leading to delays, and hampering UK businesses. The UK has been pushing back strongly against this, asking for an adjustment to the Brexit agreement. So far, the UK trade balance with the EU has been recovering, but overall, balance of payments dynamics remain a negative (Chart I-11). As we go to press, Europe’s Brexit negotiator, Maros Sefcovic, is being pressed by member states to draw up retaliatory measures, should the UK default on its agreement. Chart I-11The UK Trade Balance With The EU Is At Risk Finally, the pound is also being held hostage to global macro dynamics. The UK runs a basic balance deficit. This means portfolio inflows, both in equities and bonds are needed to finance the trade deficit. These portfolio flows accelerated this year, but are now relapsing (Chart I-12). The risk is that a correction in global equity markets could exarcebate this trend (Chart I-13). Chart I-12Portfolio Flows Into The UK Have ##br##Slowed Chart I-13The Pound Is Susceptible To A Market Correction   Trading Opportunities The pound is likely to fare well over a cyclical horizon. Our 12-month target is 1.45 with a best-case scenario above 1.50. This target is based on mean reversion towards fair value. On a real effective exchange rate basis, the pound is about 15% below the mean. This is lower than where it was after the UK exited the Exchange Rate Mechanism in 1992 (Chart I-14). Over time, the pound will converge towards the mid-point of this historical range, pushing it near 1.50. Our in-house PPP models suggest the pound is undervalued by 12%. Our models on average revert to the mean over three years, suggesting the pound could revert to fair value in the next 12-to-18 months (Chart I-15).1  Our intermediate-term timing model suggests the pound is 0.5 standard deviations below fair value, and will also gravitate towards 1.50 over the next year or two. This model incorporates risk variables such as corporate spreads and commodity prices that drive fluctuations in the pound (Chart I-16). Chart I-14The Trade-Weighted Pound Is Cheap Chart I-15GBP/USD Is Cheap On A PPP Basis Chart I-16GBP/USD Is Cheap On A Competitive Basis However, in the near term, the pound could relapse versus other G10 currencies. EUR/GBP: Interest rate expectations are bombed out in the euro area, relative to the UK. This is occurring at a time when PMI data remain relatively upbeat in the eurozone (though rolling over, Chart I-17). A modest reset in relative rate expectations could ignite EUR/GBP. We are initiating a long position at 0.846, with a stop loss at 0.835. GBP/JPY: The pound has rallied hard against the yen this year. Yet, real interest rates in the UK have cratered relative to Japan, as inflation has overshot in the former. The trade balance with Japan is also deteriorating, one year after a free-trade agreement was signed (Chart I-18). This divergence cannot last as relative trade surpluses/deficits have driven the exchange rate over the last three decades. We expect the yen to modestly outperform the pound in the next 3-to-6 months. AUD/GBP: The Aussie should outperform the pound. First, the cross has tremendously lagged levels implied by relative terms of trade. Even if commodity prices relapse, the margin of safety will remain very wide. Second, investors are massively short the Aussie relative to cable. From a contrarian perspective, this will pull AUD/GBP higher (Chart I-19). Chart I-17Buy EUR/GBP For A Trade Chart I-18GBP/JPY Is Vulnerable In The Short Term Chart I-19AUD/GBP Still Has Upside Overall, sentiment on the pound remains ebullient, and our intermediate-term technical indicator has yet to hit capitulation lows (Chart I-20). This is modestly negative in the short term. That said, should the dollar experience broad-based weakness, as we expect, the pound might underperform the crosses, but will fare well against the dollar. Chart I-20Cable Will Hit Capitulation Lows Soon   Chester Ntonifor Foreign Exchange Strategist chestern@bcaresearch.com Footnotes 1 Please see Foreign Exchange Strategy Strategy Report, "Updating Our PPP Models," dated November 13, 2020. Trades & Forecasts Strategic View Cyclical Holdings (6-18 months) Tactical Holdings (0-6 months) Limit Orders Forecast Summary

Weekly Performance Update For the week ending Thu Oct 07, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Total Weekly Return BCA US Portfolio S&P500 TRI 1.95% 2.18% Top Contributors   EPD:US SHW:US AMN:US DECK:US WMG:US Weekly Return 21 bps 15 bps 14 bps 13 bps 13 bps Top Detractors   KOF:US WAT:US BRKR:US SIM:US SC:US Weekly Return -10 bps -9 bps -1 bps -1 bps -0 bps Top Prospects   ESGR:US WAT:US IT:US ANAT:US GOOG.L:US BCA Score 95.90% 93.71% 93.36% 93.04% 92.73% BCA Canada Portfolio Total Weekly Return BCA Canada Portfolio S&P/TSX TRI 1.57% 1.81% Top Contributors   NVEI:CA BTE:CA RUS:CA SMU.UN:CA IMO:CA Weekly Return 55 bps 26 bps 19 bps 14 bps 13 bps Top Detractors   ELF:CA CSH.UN:CA AND:CA DSG:CA EMP.A:CA Weekly Return -11 bps -10 bps -7 bps -5 bps -4 bps Top Prospects   ELF:CA TOU:CA WIR.UN:CA IMO:CA CS:CA BCA Score 97.05% 95.90% 95.26% 93.82% 93.69% BCA UK Portfolio Total Weekly Return BCA UK Portfolio FTSE 100 TRI -1.16% -0.10% Top Contributors   AGRO:GB ROSN:GB DEC:GB SVST:GB JHD:GB Weekly Return 20 bps 17 bps 14 bps 12 bps 8 bps Top Detractors   TUNE:GB KETL:GB YOU:GB FXPO:GB FDM:GB Weekly Return -47 bps -27 bps -16 bps -16 bps -14 bps Top Prospects   VVO:GB ROSN:GB EMIS:GB NFC:GB AGRO:GB BCA Score 99.55% 97.59% 97.09% 96.88% 96.87% BCA Eurozone Portfolio Total Weekly Return BCA EMU Portfolio MSCI EMU TRI -0.26% 0.80% Top Contributors   JMT:PT VRLA:FR TTE:FR SES:IT EDNR:IT Weekly Return 21 bps 11 bps 10 bps 10 bps 9 bps Top Detractors   SRT:DE ARG:FR MVV1:DE IPS:FR VID:ES Weekly Return -29 bps -16 bps -15 bps -13 bps -13 bps Top Prospects   094124453:BE FSKRS:FI HLAG:DE STR:AT ROTH:FR BCA Score 99.50% 99.19% 99.01% 98.79% 98.78% BCA Japan Portfolio Total Weekly Return BCA Japan Portfolio TOPIX TRI -1.86% -4.46% Top Contributors   5019:JP 7327:JP 4928:JP 9509:JP 7958:JP Weekly Return 9 bps 8 bps 7 bps 6 bps 5 bps Top Detractors   8739:JP 3003:JP 4544:JP 9882:JP 1417:JP Weekly Return -34 bps -30 bps -18 bps -15 bps -13 bps Top Prospects   9882:JP 6960:JP 9436:JP 9422:JP 4966:JP BCA Score 99.88% 99.85% 99.43% 99.42% 99.20% BCA Hong Kong Portfolio Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI 1.11% 0.51% Top Contributors   43:HK 855:HK 857:HK 329:HK 323:HK Weekly Return 51 bps 30 bps 29 bps 23 bps 13 bps Top Detractors   316:HK 3306:HK 1193:HK 811:HK 2768:HK Weekly Return -19 bps -19 bps -17 bps -13 bps -10 bps Top Prospects   1277:HK 746:HK 857:HK 3306:HK 6868:HK BCA Score 100.00% 99.81% 98.24% 97.19% 96.99% BCA Australia Portfolio Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 0.50% -1.02% Top Contributors   CDD:AU CVW:AU ERA:AU NHC:AU SXY:AU Weekly Return 42 bps 31 bps 22 bps 21 bps 14 bps Top Detractors   SFR:AU PWH:AU 360:AU AUB:AU ZIM:AU Weekly Return -24 bps -16 bps -16 bps -13 bps -10 bps Top Prospects   MHJ:AU RIC:AU AVN:AU GOZ:AU PL8:AU BCA Score 99.31% 98.40% 98.30% 98.04% 97.86%

Weekly Performance Update For the week ending Thu Sep 30, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Total Weekly Return BCA US Portfolio S&P500 TRI -1.89% -3.15% Top Contributors   EOG:US NFG:US CBRE:US CQP:US ESGR:US Weekly Return 15 bps 10 bps 4 bps 3 bps 3 bps Top Detractors   MRNA:US GOLF:US IT:US TGT:US GOOG.L:US Weekly Return -53 bps -23 bps -20 bps -17 bps -16 bps Top Prospects   ANAT:US ESGR:US TX:US GOOG.L:US WAT:US BCA Score 94.97% 94.96% 94.82% 94.25% 93.48% BCA Canada Portfolio Total Weekly Return BCA Canada Portfolio S&P/TSX TRI -1.35% -1.80% Top Contributors   PXT:CA IMO:CA TOU:CA WN:CA L:CA Weekly Return 24 bps 22 bps 20 bps 10 bps 6 bps Top Detractors   GIB.A:CA NVEI:CA CSU:CA CRON:CA TOY:CA Weekly Return -23 bps -22 bps -17 bps -17 bps -15 bps Top Prospects   ELF:CA LNF:CA CS:CA RUS:CA IGM:CA BCA Score 98.19% 95.55% 95.03% 94.95% 94.00% BCA UK Portfolio Total Weekly Return BCA UK Portfolio FTSE 100 TRI -2.22% 0.20% Top Contributors   GLTR:GB TEP:GB ROSN:GB CNE:GB NVTK:GB Weekly Return 19 bps 15 bps 15 bps 14 bps 5 bps Top Detractors   MXCT:GB BBOX:GB SGRO:GB KLR:GB TRMR:GB Weekly Return -40 bps -24 bps -23 bps -21 bps -17 bps Top Prospects   VVO:GB AGRO:GB SVST:GB BPCR:GB N91:GB BCA Score 99.60% 99.07% 98.78% 97.49% 97.49% BCA Eurozone Portfolio Total Weekly Return BCA EMU Portfolio MSCI EMU TRI -2.61% -3.15% Top Contributors   RDSA:NL EDNR:IT MVV1:DE BFF:IT FLUX:BE Weekly Return 26 bps 14 bps 13 bps 8 bps 2 bps Top Detractors   HLAG:DE MELE:BE IPS:FR BSL:DE ALTA:FR Weekly Return -71 bps -26 bps -25 bps -24 bps -23 bps Top Prospects   094124453:BE FSKRS:FI SOL:IT STR:AT HLAG:DE BCA Score 99.87% 99.77% 99.75% 99.22% 98.95% BCA Japan Portfolio Total Weekly Return BCA Japan Portfolio TOPIX TRI -0.41% 0.12% Top Contributors   5021:JP 8334:JP 9436:JP 9543:JP 3468:JP Weekly Return 20 bps 14 bps 14 bps 12 bps 9 bps Top Detractors   6960:JP 4928:JP 3132:JP 4544:JP 4966:JP Weekly Return -22 bps -21 bps -11 bps -9 bps -8 bps Top Prospects   6960:JP 9882:JP 9728:JP 4928:JP 9436:JP BCA Score 99.93% 99.66% 99.51% 99.28% 99.05% BCA Hong Kong Portfolio Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI -0.70% 0.32% Top Contributors   2686:HK 1735:HK 182:HK 1277:HK 6118:HK Weekly Return 105 bps 80 bps 62 bps 22 bps 10 bps Top Detractors   1967:HK 710:HK 316:HK 323:HK 329:HK Weekly Return -102 bps -63 bps -39 bps -32 bps -24 bps Top Prospects   1277:HK 746:HK 857:HK 323:HK 3306:HK BCA Score 100.00% 99.80% 98.86% 98.38% 98.07% BCA Australia Portfolio Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 0.31% -0.65% Top Contributors   MMS:AU YAL:AU SGF:AU GRR:AU SXY:AU Weekly Return 35 bps 21 bps 16 bps 15 bps 15 bps Top Detractors   UWL:AU AVN:AU AST:AU AGL:AU BXB:AU Weekly Return -27 bps -10 bps -9 bps -9 bps -8 bps Top Prospects   MHJ:AU ZIM:AU AVN:AU ADI:AU PL8:AU BCA Score 99.44% 99.21% 98.90% 98.75% 98.71%

El modelo de factores BCA Score, el pilar cuantitativo de la plataforma Equity Analyzer, se basa en un núcleo de factores que buscan optimizar los rendimientos ajustados por riesgo en carteras reequilibradas sistemáticamente. En particular, los factores de baja volatilidad y bajo beta, que tienden a reducir la desviación estándar agregada de las carteras, son cruciales para disminuir el denominador (y así aumentar el valor) de nuestra medida principal ajustada por riesgo, la ratio de Sharpe. Sin embargo, durante fuertes mercados alcistas de renta variable, una inclinación hacia baja volatilidad puede ir en detrimento de los rendimientos en exceso respecto al índice de referencia, especialmente en un universo de acciones de gran capitalización. En este análisis, exploramos cómo un uso sencillo de las Beta puede mejorar el rendimiento de las estrategias de puntuación BCA durante estas fases. Comprendiendo la ratio de Sharpe Aunque conveniente, la ratio de Sharpe simple representa solo un tipo de función de utilidad para los inversores. Si bien mide simultáneamente la recompensa histórica frente al riesgo en una única métrica, no necesariamente diferencia entre una cartera segura y defensiva y una cartera más arriesgada y de alto beta. En consecuencia, una estrategia de bajo riesgo con una ratio de Sharpe mayor o igual a la de un índice de referencia aún puede experimentar períodos de rendimientos en exceso negativos, especialmente durante mercados alcistas de renta variable. En lo que respecta al modelo BCA Score, hemos encontrado que esto puede ser un problema dentro del universo global de gran capitalización (primer 25% por capitalización de mercado), donde la prima de rendimiento del factor BCA Score es menor en comparación con los segmentos de pequeña y mediana capitalización.1 En este segmento por tamaño, las carteras construidas en torno a la puntuación BCA tienden a tener una excelente protección a la baja en relación con los índices de mercado ponderados por capitalización, pero sufren cuando los mercados se calientan. Esto se refleja en algunas estadísticas clave de cartera que típicamente surgen durante las pruebas históricas en gran capitalización, a saber, una fuerte ratio de Sharpe, bajo beta (menos de 1.0), pero una ratio de captura al alza respecto al índice inferior al 50%.2 Para mejorar esta situación, podemos orientar el Beta factor en sí al configurar los parámetros de nuestras pruebas históricas. Orientando la puntuación Beta Desde el punto de vista matemático, si podemos aumentar el beta agregado de nuestra cartera respecto al índice de referencia, deberíamos poder mejorar el rendimiento al alza de la cartera (aunque probablemente a costa de cierta protección a la baja). Afortunadamente, dado que las estrategias BCA Score ya sobresalen cuando el índice de referencia está en dificultades, podemos sacrificar parte de esta protección a la baja seleccionando acciones con mayor exposición al mercado amplio. Dado que el factor Beta clasifica la sensibilidad de una acción a nuestro índice de mercado ponderado por capitalización global, es un objetivo obvio para aumentar el beta agregado de cualquier estrategia respecto a un índice ponderado por capitalización. Recordemos que dentro del sistema de clasificación BCA Score, a las acciones con menor beta se les asigna una puntuación más alta. Por lo tanto, si filtramos las acciones que obtienen puntuaciones altas en beta como parte de nuestro proceso de selección, podemos aumentar nuestra exposición global al mercado amplio. Como evidencia empírica adicional de que orientar el factor Beta podría ser beneficioso para las empresas de gran tamaño, observamos que, posterior a la GFC (2009-03-31 hasta la actualidad), el decil superior de acciones de bajo beta tuvo un rendimiento inferior al del índice MSCI World en promedio (Gráfico 1). Esto es característico de un mercado alcista prolongado donde la protección a la baja que ofrece el Beta no entra en juego con tanta frecuencia. A pesar de ello, en el mismo periodo la ratio de Sharpe del decil superior de Beta superó a la del índice MSCI World debido a un crecimiento constante y sostenido (Gráfico 2). Gráfico 1 Beta a través de los ciclos Análisis de estrategia: Ampliando su cartera con Beta Análisis de estrategia: Ampliando su cartera con Beta Gráfico 2 Rendimiento reciente de Beta Análisis de estrategia: Ampliando su cartera con Beta Análisis de estrategia: Ampliando su cartera con Beta Implementación de carteras con mayor Beta Como se mencionó arriba, nuestro objetivo es aumentar el beta agregado de nuestras estrategias BCA Score para capturar más alza en el mercado amplio. Para lograr esto al probar estrategias EA con backtests, podemos añadir un filtro de entrada de puntuación Beta en “Paso 3 – Estrategia de selección” de la configuración de backtest (Figura 1). El filtro mostrado en Figura 1 garantizará que las acciones en el 30% superior por puntuación de Beta (clasificadas globalmente) no entren en la cartera. Figura 1 Filtrado por puntuación Beta Análisis estratégico: Potenciando su cartera con beta Análisis estratégico: Potenciando su cartera con beta Para probar la eficacia de este filtro, creamos una estrategia de muestra de gran capitalización usando el módulo EA Backtest, y exploramos diferentes valores de la condición de entrada de Beta que van del 50% al 100%. La estrategia base tiene ponderación igual, se reequilibra mensualmente y selecciona las 100 mejores por BCA Score de un universo de las 500 principales acciones globales por capitalización de mercado. La cartera pretende ser representativa de una estrategia general que elige un subconjunto de las acciones mejor clasificadas de un conjunto de empresas de gran capitalización. Las estadísticas clave de las simulaciones de cartera se presentan en la Tabla 1. Podemos interpretar los resultados de la siguiente manera: Agregar un filtro de entrada de puntuación de Beta con un umbral decreciente aumenta el beta agregado de la cartera respecto al índice de referencia. Las carteras con mayor beta tienen ratios de Sharpe más bajos pero un rendimiento superior más consistente cuando el índice sube (Captura al alza). Las carteras con menor beta tienen ratios de Sharpe más altos pero un rendimiento superior más consistente cuando el índice baja (Captura a la baja). El rendimiento acumulado (CAGR) de la cartera base (sin restricciones de beta) sigue siendo el más alto en toda la muestra; sin embargo, las carteras con alto beta han tenido rendimientos más fuertes durante el último ciclo de mercado. Tabla 1 Desglose de Beta* Análisis de estrategia: Ampliando su cartera con beta Análisis de estrategia: Ampliando su cartera con beta   En general, podemos concluir que permitir la entrada de acciones con un beta más alto en la cartera ha sido beneficioso para las carteras de gran capitalización durante los últimos diez años. Los inversores en este ámbito que deseen lograr un mejor seguimiento respecto a los índices ponderados por capitalización pueden considerar inclinar sus carteras en esta dirección usando un filtro de Beta al seleccionar o construir estrategias. En apoyo de esto, la perspectiva a 12 meses de BCA Research sobre los mercados de renta variable es alcista, ya que la política monetaria se mantiene acomodaticia, los confinamientos siguen relajándose y la inflación muestra señales de estar tocando techo. Por otro lado, advertimos que alejarse en exceso de la naturaleza defensiva del modelo aumenta el riesgo de grandes caídas durante las correcciones del mercado. Los riesgos actuales para el mercado de renta variable incluyen valoraciones estiradas en el S&P500, el colapso de Evergrande en China y el riesgo de que la inflación no disminuya como se espera. Considerando estos dos lados, por tanto, es sensato adoptar un enfoque intermedio al usar el Beta para asumir más exposición al mercado en un filtrado o estrategia de acciones. Notas al pie 1    El efecto del tamaño de la empresa en los rendimientos de los factores se demuestra en el Gráfico 1 de la sección de Documentación: https://ea.bcaresearch.com/#/docs/performance  2    Las ratios de captura de referencia pueden consultarse a través de la pestaña “Performance” al ver los resultados del backtest.    

Weekly Performance Update For the week ending Thu Sep 16, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Total Weekly Return BCA US Portfolio S&P500 TRI -0.24% -0.40% Top Contributors   AN:US EOG:US GOLF:US KOF:US SAFM:US Weekly Return 34 bps 30 bps 8 bps 5 bps 2 bps Top Detractors   CQP:US MRNA:US UGI:US PFE:US DUK:US Weekly Return -14 bps -11 bps -11 bps -10 bps -9 bps Top Prospects   BRK.A:US SC:US MPLX:US ESGR:US PFE:US BCA Score 96.34% 95.76% 95.14% 94.82% 94.64% BCA Canada Portfolio Total Weekly Return BCA Canada Portfolio S&P/TSX TRI 0.02% -0.43% Top Contributors   TOU:CA PXT:CA AND:CA ECN:CA IMO:CA Weekly Return 45 bps 21 bps 20 bps 15 bps 13 bps Top Detractors   CFP:CA CRON:CA LNR:CA TOY:CA L:CA Weekly Return -24 bps -13 bps -12 bps -12 bps -12 bps Top Prospects   LNF:CA ELF:CA WIR.UN:CA CFP:CA RUS:CA BCA Score 97.84% 96.35% 96.27% 95.53% 94.44% BCA UK Portfolio Total Weekly Return BCA UK Portfolio FTSE 100 TRI -1.75% 0.05% Top Contributors   ROSN:GB EMIS:GB IMB:GB SVT:GB KLR:GB Weekly Return 18 bps 15 bps 5 bps 4 bps 4 bps Top Detractors   MXCT:GB FXPO:GB CNE:GB TRMR:GB AAL:GB Weekly Return -48 bps -37 bps -27 bps -22 bps -21 bps Top Prospects   SVST:GB GLTR:GB BPCR:GB FDM:GB VVO:GB BCA Score 99.58% 98.43% 98.11% 97.85% 97.70% BCA Eurozone Portfolio Total Weekly Return BCA EMU Portfolio MSCI EMU TRI -0.84% -0.39% Top Contributors   HLAG:DE OMV:AT RDSA:NL MELE:BE IRE:IT Weekly Return 32 bps 18 bps 11 bps 10 bps 2 bps Top Detractors   TTALO:FI BSL:DE CDI:FR TL5:ES FSKRS:FI Weekly Return -33 bps -20 bps -18 bps -13 bps -13 bps Top Prospects   FSKRS:FI STR:AT LOG:ES BFF:IT EDNR:IT BCA Score 99.53% 99.47% 98.58% 96.15% 96.08% BCA Japan Portfolio Total Weekly Return BCA Japan Portfolio TOPIX TRI 0.33% 1.23% Top Contributors   5021:JP 4966:JP 5020:JP 8334:JP 3132:JP Weekly Return 16 bps 15 bps 11 bps 11 bps 11 bps Top Detractors   7244:JP 3290:JP 4326:JP 8117:JP 9543:JP Weekly Return -26 bps -13 bps -11 bps -9 bps -8 bps Top Prospects   6960:JP 9882:JP 9436:JP 4544:JP 2208:JP BCA Score 99.93% 99.33% 99.11% 98.49% 98.22% BCA Hong Kong Portfolio Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI -3.36% -4.01% Top Contributors   857:HK 1735:HK 2686:HK 6118:HK 506:HK Weekly Return 42 bps 21 bps 14 bps 8 bps 5 bps Top Detractors   710:HK 836:HK 991:HK 1277:HK 323:HK Weekly Return -80 bps -37 bps -34 bps -32 bps -23 bps Top Prospects   1277:HK 98:HK 316:HK 6868:HK 323:HK BCA Score 100.00% 99.50% 98.59% 98.35% 98.31% BCA Australia Portfolio Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 1.24% 1.36% Top Contributors   YAL:AU BFG:AU MMS:AU SXY:AU SGF:AU Weekly Return 32 bps 27 bps 25 bps 16 bps 15 bps Top Detractors   BXB:AU SDG:AU AGL:AU SGLLV:AU CDA:AU Weekly Return -27 bps -17 bps -11 bps -10 bps -7 bps Top Prospects   SDG:AU GRR:AU PIC:AU PL8:AU RIC:AU BCA Score 99.91% 99.55% 99.38% 98.89% 98.59%

Highlights The odds of a stronger recovery in EM oil demand next year are rising, as vaccines using mRNA technology are manufactured locally and become widely available.1 This will reduce local lock-down risks in economies relying on less efficacious COVID-19 vaccines – or lacking them altogether – thereby increasing mobility, economic activity and oil demand. Our global crude oil balances estimates are little changed to the end of 2023, which leaves our price expectations mostly unchanged: 4Q21 Brent prices are expected to average $70.50/bbl, while 2022 and 2023 prices average $75 and $80/bbl, respectively (Chart of the Week). The balance of risks to the crude oil market remain to the upside in our estimation. In addition to a higher likelihood of better-than-expected EM demand growth, we expect OPEC 2.0 production discipline to hold, and for the price-taking cohort outside the coalition to continue prioritizing investors' interests. We remain long commodity index exposure – S&P GSCI and COMT – and, at tonight's close, will be getting long the DFA Dimensional Emerging Core Equity Market ETF (DFAE) on the back of increasing local mRNA vaccine production in EM economies. Feature As local production of COVID-19 vaccines employing mRNA technology spreads throughout EM economies, the odds of a stronger-than-expected recovery in oil demand next year will increase. The buildout of production and distribution facilities for this technology is progressing quickly in Asia – e.g., Chinese mRNA tech joint ventures are expected to be in production mode in 4Q21 – Latin America, Africa, and the Middle East.2 Accelerated availability of more efficacious vaccines globally will address the "fault lines" identified by the IMF in its July 2021 update. In that report, the Fund notes a major downside risk to its global GDP growth expectation of 6% this year remains slower-than-expected vaccine rollouts to emerging and developing economies.3 The other major risk identified by the Fund is too-rapid a winddown of policy support in DM economies, which would lead to tighter financial conditions globally. Our global demand expectation is driven by GDP estimates from the IMF and World Bank. The implication of that assumption is the powerful recovery in DM oil demand seen this year will slow while EM demand picks up next year (Chart 2). We proxy DM oil demand with OECD oil consumption and EM demand with non-OECD consumption. We continue to expect overall oil demand to recover by just over 5.0mm b/d this year and 4.4mm b/d next year (Table 1). Chart of the WeekOil Forecasts Hold Steady Chart 2Higher EM Oil Demand Expected in 2022 Table 1BCA Global Oil Supply - Demand Balances (MMb/d, Base Case Balances) To Dec23 Global Oil Supply To Remain Steady Hurricane Ida will have removed ~ 30mm barrels of US offshore oil output by the time losses are fully tallied, based on IEA estimates. Even so, in line with the US EIA, we expect offshore US oil production will recover from the damage caused by the storm in 4Q21 and be back at ~ 1.7mm b/d on average over the quarter. This will allow oil prices to ease slightly from current elevated levels over the balance of the year. Inland, US shale-oil output remains on track to average ~ 9.06mm b/d this year, 9.55mmb/d in 2022 and 9.85mmb/d in 2023, in our modeling (Chart 3). We expect production in the Lower 48 states of the US to remain mostly steady going forward. Production from finishing drilled-but-uncompleted (DUCs) shale-oil wells is the lowest it's been since 2013.  Output from these wells will remain relatively low for the rest of the year. This supply was developed during the COVID-19 pandemic, as it was cheaper to bring on than new drilling. For 2022 and 2023 overall, our model points to a slow build-up in US shale-oil output as drilling increases. Going into 2022, we expect continued production discipline from OPEC 2.0, and for the coalition to continue to manage output in line with actual demand it sees from its customers. The 400k b/d being returned monthly to the market over August 2021 to mid-2022 will accommodate demand increases. However, it will be monitored closely in the event demand fails to materialize, as has been OPEC 2.0's wont over the course of the pandemic. Chart 3US Shale-Oil Output Mostly Stable Oil Markets To Remain Balanced We see markets remaining balanced to the end of 2023, with OPEC 2.0 maintaining its production-management strategy – keeping the level of supply just below the level of demand – and the price-taking cohort led by US shale-oil producers remaining focused on maintaining margins so as to provide competitive returns to investors. On the demand side, EM growth will pick up as DM growth slows. Given our fundamental view, global crude oil balances estimates are little changed to the end of 2023 (Chart 4). This allows inventories to continue to draw this year and next, then to slowly rebuild as production increases toward the end of 2023 (Chart 5). Falling inventories will keep the Brent forward curve backwardated – i.e., prompt-delivery oil will trade higher than deferred-delivery oil. Chart 4Markets Remain Balanced... Chart 5...And Oil Inventory Continues To Draw The backwardated forward curve means OPEC 2.0 producers will continue to realize higher delivered prices on their crude oil than the marginal shale-oil producer, which hedges its production 1-2 years forward to stabilize revenue. This is the primary benefit to the member states in the producer coalition: a backwardated curve pricing closer to marginal cost limits the amount of revenue available to shale-oil producers, and thus restrains output to that which is profitable at the margin. Investment Implications Our supply-demand outlook keeps our price expectations mostly unchanged from last month's forecast. We expect 4Q21 Brent prices to average $70.50/bbl, while 2022 and 2023 prices average $75 and $80/bbl, respectively, as can be seen in the Chart of the Week. WTI prices will continue to trade $2-$4/bbl below Brent over this interval. With fundamentals continuing to support a backwardated forward curve in Brent and WTI, we continue to favor long commodity-index exposure, which benefits from this structure.4 Therefore, we remain long the S&P GSCI and the COMT ETF, which is an optimized version of the GSCI that concentrates on positioning in backwardated futures contracts. The upside risk to oil prices resulting from increasing local production of mRNA vaccines in EM economies that had relied on less efficacious vaccines undoubtedly will increase mobility and raise oil demand, if, as appears likely, the impact of this localization is realized in the near term. This also could boost commodity demand generally, if it allows trade and GDP growth to accelerate in EM economies, which supports our long commodity-index view. The rollout of mRNA technology into EM economies also suggests EM GDP growth could increase at the margin with locally produced mRNA vaccines becoming more available. This would redound to the benefit of trade and economic activity generally.5 It also could help unsnarl the movement of goods globally. The wider implications of a successful expansion of locally produced mRNA vaccines leads us to recommend EM equity exposure on a tactical basis. At tonight's close, we will be getting long the DFA Dimensional Emerging Core Equity Market ETF (DFAE). As this is tactical, we will use a tight stop (10%) for this recommendation.   Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Commodities Round-Up Energy: Bullish Natural gas demand is surging globally. Record-breaking heat waves in the US are driving demand for gas-fired generation required to meet space-cooling demand. In addition, in the June-August period, the US saw record LNG exports. Europe and Asia are competing for the fuel as both prepare for winter. Brazil also has been a strong bid for LNG, as drought there has reduced hydropower supplies. In Europe, natural gas inventories were drawn hard this past winter as LNG supplies were bid away to Asia to meet space-heating demand. This is keeping Europe well bid now as winter approaches (Chart 6). The US Climate Prediction Center last week gave 70-80% odds of a second La Niña for the Northern Hemisphere winter. Should it materialize, it could again drive cold artic air into their markets, as it did last winter, and push natgas demand higher. Our recommendation to get long 1Q22 $5.00/MMBtu calls vs short 1Q22 $5.50/MMBtu calls last week was up 17% as of Tuesday's close. We remain long. Base Metals: Bullish The slide in iron ore prices from its ~ $230/MT peak earlier this year can be attributed to weak Chinese demand, and the possibility of its persistence through the winter and into next year (Chart 7). The world’s largest steel-producing nation is aiming to limit steel output to no higher than 2020 levels, in a bid to reduce industrial pollution. According to mining.com, provincial governments have directly asked local steel mills to curb output. Regulation in this sector in China will continue to reduce prices of iron ore, a key raw material in steel production. Precious Metals: Bullish The lower-than-expected reading on the US core CPI earlier this week weighed on the USD, and propelled gold prices above the $1,800/oz mark. While markets expected lower consumer prices for August to diminish the Fed’s resolve to taper asset purchases by year-end, we do not think the lower month-on-month CPI number will delay tapering. The timing of the Fed's initial rate hike – expected by markets to occur after the tapering of the central bank's asset-purchase program – will depend on the US labor force reaching "maximum employment." According to BCA Research's US Bond Strategy, this criterion will be met in late-2022 or early-2023. Low-interest rates, coupled with persistent inflation until then, will be bullish for gold prices. Chart 6 Chart 7   Footnotes 1     Please see Everest to bring Canadian biotech's potential Covid shots to China, other markets published on September 13, 2021 by indiatimes.com. 2     Examples of this include Brazil's Eurofarma to make Pfizer COVID-19 shots for Latin America, published by reuters.com; Biovac Institute to be first African company to produce mRNA vaccines, published be devex.com; and mRNA Vaccines Mark a New Era in Medicine, posted by supertrends.com. The latter report also discusses the application of mRNA technology to other diseases like malaria. 3    Please see Fault Lines Widen in the Global Recovery published 27 July 2021 by the Fund. 4    Backwardation is the source of roll yield for long-index exposure.  This is due to the design of these index products, which buy forward then – in backwardated markets – roll out of futures contract as they approach physical delivery at a higher level and re-establish their exposure in a deferred contract. 5    The lower realized efficacy of Sinopharm and Sinovac COVID-19 vaccines and high reinfection rates in economies using these vaccines are one of the key risks to our overall bullish commodity view.  Please see Assessing Risks To Our Commodity Views, which we published on July 8, 2021. It is available at ces.bcaresearch.com.   Investment Views and Themes Recommendations Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades

Weekly Performance Update For the week ending Thu Sep 09, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Total Weekly Return BCA US Portfolio S&P500 TRI -0.82% -0.95% Top Contributors   MRNA:US ESGR:US GOLF:US IT:US CQP:US Weekly Return 43 bps 9 bps 8 bps 4 bps 2 bps Top Detractors   CLH:US MMM:US SCCO:US SAFM:US UGI:US Weekly Return -14 bps -14 bps -11 bps -11 bps -10 bps Top Prospects   BRK.A:US ESGR:US PFE:US TX:US SC:US BCA Score 96.87% 96.51% 96.24% 95.65% 95.55% BCA Canada Portfolio Total Weekly Return BCA Canada Portfolio S&P/TSX TRI -0.56% -0.39% Top Contributors   TOU:CA ELF:CA AND:CA CFP:CA L:CA Weekly Return 23 bps 19 bps 12 bps 12 bps 6 bps Top Detractors   CS:CA PXT:CA TOY:CA CRON:CA LNF:CA Weekly Return -25 bps -17 bps -16 bps -15 bps -12 bps Top Prospects   RUS:CA LNF:CA WIR.UN:CA CS:CA PXT:CA BCA Score 99.13% 98.53% 96.83% 95.17% 94.04% BCA UK Portfolio Total Weekly Return BCA UK Portfolio FTSE 100 TRI -0.73% -1.93% Top Contributors   NFC:GB VTC:GB AGRO:GB MXCT:GB NVTK:GB Weekly Return 18 bps 13 bps 12 bps 10 bps 9 bps Top Detractors   INCH:GB CCH:GB SVST:GB GLTR:GB KETL:GB Weekly Return -19 bps -17 bps -13 bps -9 bps -9 bps Top Prospects   SVST:GB BPCR:GB VVO:GB FDM:GB CKN:GB BCA Score 99.26% 97.45% 96.94% 96.41% 96.39% BCA Eurozone Portfolio Total Weekly Return BCA EMU Portfolio MSCI EMU TRI -0.08% -1.23% Top Contributors   BSL:DE HLAG:DE VETO:FR ALTA:FR SOLV:BE Weekly Return 37 bps 18 bps 10 bps 8 bps 4 bps Top Detractors   SON:PT TUB:BE BEKB:BE CAF:FR ALB:ES Weekly Return -12 bps -11 bps -10 bps -10 bps -9 bps Top Prospects   STR:AT LOG:ES HLAG:DE IPS:FR EDNR:IT BCA Score 99.25% 98.98% 97.88% 95.40% 94.66% BCA Japan Portfolio Total Weekly Return BCA Japan Portfolio TOPIX TRI 2.19% 4.10% Top Contributors   9432:JP 4326:JP 4471:JP 7244:JP 9543:JP Weekly Return 20 bps 19 bps 15 bps 15 bps 15 bps Top Detractors   3290:JP 6960:JP 3468:JP 4966:JP 3459:JP Weekly Return -9 bps -4 bps -4 bps -3 bps -2 bps Top Prospects   6960:JP 4694:JP 9436:JP 4544:JP 9882:JP BCA Score 99.86% 99.00% 98.58% 98.48% 98.44% BCA Hong Kong Portfolio Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI 2.75% -1.33% Top Contributors   710:HK 2686:HK 6118:HK 1277:HK 836:HK Weekly Return 81 bps 70 bps 29 bps 25 bps 24 bps Top Detractors   1735:HK 2232:HK 590:HK 98:HK 182:HK Weekly Return -25 bps -16 bps -16 bps -12 bps -7 bps Top Prospects   1277:HK 98:HK 691:HK 6868:HK 435:HK BCA Score 100.00% 99.44% 99.15% 98.19% 97.91% BCA Australia Portfolio Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI -1.88% -1.22% Top Contributors   CAJ:AU SOL:AU BSE:AU YAL:AU AST:AU Weekly Return 26 bps 19 bps 16 bps 7 bps 6 bps Top Detractors   SWM:AU OCL:AU HSN:AU SGF:AU CDA:AU Weekly Return -30 bps -28 bps -27 bps -25 bps -21 bps Top Prospects   GRR:AU SDG:AU PIC:AU PL8:AU BHP:AU BCA Score 99.73% 99.69% 99.57% 99.42% 99.03%

Weekly Performance Update For the week ending Thu Sep 02, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Total Weekly Return BCA US Portfolio S&P500 TRI 1.49% 1.54% Top Contributors   AMN:US MPLX:US CQP:US PSA:US CBRE:US Weekly Return 21 bps 17 bps 17 bps 14 bps 14 bps Top Detractors   GOLF:US ESGR:US NUE:US AN:US TGT:US Weekly Return -9 bps -8 bps -7 bps -7 bps -4 bps Top Prospects   ESGR:US TX:US SC:US BRK.A:US PFE:US BCA Score 98.20% 97.97% 97.36% 96.72% 96.04% BCA Canada Portfolio Total Weekly Return BCA Canada Portfolio S&P/TSX TRI 1.76% 1.48% Top Contributors   CTS:CA PXT:CA CS:CA GIB.A:CA TOU:CA Weekly Return 44 bps 41 bps 22 bps 20 bps 19 bps Top Detractors   RUS:CA AND:CA TOY:CA NWC:CA WIR.UN:CA Weekly Return -17 bps -13 bps -9 bps -8 bps -4 bps Top Prospects   RUS:CA WIR.UN:CA LNF:CA HCG:CA PXT:CA BCA Score 99.37% 96.68% 95.39% 94.62% 94.14% BCA UK Portfolio Total Weekly Return BCA UK Portfolio FTSE 100 TRI 3.18% 0.74% Top Contributors   MXCT:GB NVTK:GB NFC:GB INDV:GB ROSN:GB Weekly Return 59 bps 36 bps 23 bps 19 bps 18 bps Top Detractors   VTC:GB EMIS:GB BPCR:GB AAF:GB POLR:GB Weekly Return -10 bps -2 bps -1 bps -1 bps 1 bps Top Prospects   SVST:GB CKN:GB FXPO:GB ROSN:GB VVO:GB BCA Score 99.31% 98.34% 96.50% 96.41% 96.39% BCA Eurozone Portfolio Total Weekly Return BCA EMU Portfolio MSCI EMU TRI 1.18% 1.30% Top Contributors   ALTA:FR FSKRS:FI BSL:DE FDJ:FR CDI:FR Weekly Return 25 bps 21 bps 18 bps 17 bps 15 bps Top Detractors   STO3:DE FLUX:BE LEG:DE TL5:ES SOLV:BE Weekly Return -23 bps -11 bps -8 bps -7 bps -6 bps Top Prospects   HLAG:DE LOG:ES STR:AT ALB:ES SOLV:BE BCA Score 99.13% 98.84% 97.66% 96.37% 95.01% BCA Japan Portfolio Total Weekly Return BCA Japan Portfolio TOPIX TRI 1.22% 2.52% Top Contributors   1417:JP 8117:JP 4047:JP 9432:JP 4326:JP Weekly Return 19 bps 18 bps 15 bps 15 bps 14 bps Top Detractors   4694:JP 6960:JP 6676:JP 7994:JP 3290:JP Weekly Return -11 bps -10 bps -7 bps -6 bps -4 bps Top Prospects   6960:JP 4694:JP 4544:JP 7994:JP 6676:JP BCA Score 99.76% 98.74% 98.47% 98.44% 98.28% BCA Hong Kong Portfolio Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI 4.57% 2.78% Top Contributors   2686:HK 1967:HK 710:HK 316:HK 1277:HK Weekly Return 92 bps 75 bps 59 bps 40 bps 35 bps Top Detractors   329:HK 2232:HK 1735:HK 289:HK 98:HK Weekly Return -31 bps -17 bps -12 bps -10 bps -5 bps Top Prospects   1277:HK 98:HK 1606:HK 691:HK 323:HK BCA Score 100.00% 99.77% 98.52% 98.31% 98.01% BCA Australia Portfolio Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 0.80% 0.68% Top Contributors   YAL:AU NHC:AU SWM:AU MMS:AU SDG:AU Weekly Return 34 bps 29 bps 20 bps 16 bps 16 bps Top Detractors   VRT:AU GRR:AU BLX:AU AGL:AU CAJ:AU Weekly Return -21 bps -17 bps -15 bps -14 bps -11 bps Top Prospects   GRR:AU PIC:AU SDG:AU PL8:AU CAJ:AU BCA Score 99.66% 99.53% 99.45% 99.11% 99.04%

Weekly Performance Update For the week ending Thu Aug 19, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Total Weekly Return BCA US Portfolio S&P500 TRI -2.33% -1.20% Top Contributors   IQV:US PSA:US BMY:US HSY:US JNJ:US Weekly Return 12 bps 7 bps 7 bps 6 bps 6 bps Top Detractors   TX:US R:US SCCO:US EOG:US LEVI:US Weekly Return -25 bps -23 bps -23 bps -22 bps -20 bps Top Prospects   TX:US MPLX:US ESGR:US SC:US IT:US BCA Score 97.96% 97.40% 96.19% 95.65% 94.49% BCA Canada Portfolio Total Weekly Return BCA Canada Portfolio S&P/TSX TRI -1.54% -1.44% Top Contributors   DCBO:CA QBR.A:CA CSU:CA L:CA WIR.UN:CA Weekly Return 48 bps 9 bps 8 bps 7 bps 7 bps Top Detractors   CS:CA POU:CA SPB:CA TOU:CA LNR:CA Weekly Return -40 bps -39 bps -26 bps -21 bps -20 bps Top Prospects   CS:CA RUS:CA PXT:CA TOU:CA ELF:CA BCA Score 98.30% 97.75% 97.45% 96.31% 95.95% BCA UK Portfolio Total Weekly Return BCA UK Portfolio FTSE 100 TRI -0.93% -1.64% Top Contributors   TUNE:GB SRE:GB EMIS:GB SSE:GB DOTD:GB Weekly Return 20 bps 13 bps 10 bps 10 bps 8 bps Top Detractors   MXCT:GB RIO:GB ROSN:GB NLMK:GB SVST:GB Weekly Return -42 bps -22 bps -20 bps -15 bps -15 bps Top Prospects   SVST:GB VVO:GB NLMK:GB POLR:GB RIO:GB BCA Score 99.34% 98.26% 97.83% 96.14% 96.00% BCA Eurozone Portfolio Total Weekly Return BCA EMU Portfolio MSCI EMU TRI -0.88% -2.09% Top Contributors   ROVI:ES VGP:BE ERF:FR JMT:PT ARTO:FR Weekly Return 20 bps 14 bps 13 bps 9 bps 8 bps Top Detractors   HLAG:DE SOLV:BE CEM:IT TRI:FR OMV:AT Weekly Return -26 bps -17 bps -17 bps -16 bps -16 bps Top Prospects   STR:AT FDJ:FR IPS:FR HLAG:DE SOLV:BE BCA Score 98.77% 98.19% 97.09% 97.02% 96.69% BCA Japan Portfolio Total Weekly Return BCA Japan Portfolio TOPIX TRI -2.15% -2.88% Top Contributors   6960:JP 7164:JP 1835:JP 8977:JP 2296:JP Weekly Return 13 bps 11 bps 7 bps 5 bps 4 bps Top Detractors   5021:JP 3132:JP 7958:JP 8097:JP 3291:JP Weekly Return -49 bps -29 bps -19 bps -18 bps -17 bps Top Prospects   6960:JP 5930:JP 9436:JP 2208:JP 4966:JP BCA Score 99.80% 99.49% 99.45% 99.33% 99.16% BCA Hong Kong Portfolio Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI -0.35% -4.43% Top Contributors   6118:HK 1866:HK 1277:HK 1083:HK 2232:HK Weekly Return 38 bps 35 bps 30 bps 13 bps 8 bps Top Detractors   857:HK 1432:HK 2877:HK 3799:HK 148:HK Weekly Return -31 bps -19 bps -19 bps -15 bps -14 bps Top Prospects   1277:HK 691:HK 435:HK 98:HK 1866:HK BCA Score 99.99% 98.59% 97.43% 96.92% 95.63% BCA Australia Portfolio Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI -0.69% -1.36% Top Contributors   OCL:AU BLX:AU AVN:AU ARF:AU REA:AU Weekly Return 35 bps 31 bps 15 bps 14 bps 10 bps Top Detractors   AX1:AU MGX:AU GRR:AU NHC:AU BFG:AU Weekly Return -44 bps -23 bps -23 bps -19 bps -17 bps Top Prospects   MGX:AU GRR:AU BFG:AU PIC:AU ARF:AU BCA Score 99.78% 99.58% 97.31% 96.83% 95.75%

Dear client, FX will be taking a summer break next week. We will resume our regular publication the subsequent week. Kind regards, Chester Ntonifor, Vice President Foreign Exchange Strategy Highlights Our broad finding is that buying a currency when it is cheap and selling it when it is expensive generates excess returns over time. Even if you rebalance monthly, a 5% valuation gap is sufficient to allow outperformance both tactically and cyclically. We investigated this rule with our in-house PPP models, and as we argue in this report, it certainly holds true for our intermediate-term timing models (ITTM). That said, there is no silver bullet for all currencies: some mean-revert to their PPP fair value much faster than to other fundamental fair values, like our ITTM. The recommendations today are a barbell strategy: to be long procyclical currencies (especially the NOK and the Japanese yen). Feature Chart I-1The ITTM Model Works With A Trading Rule In April 2020 last year, we decided to simplify our FX framework into a trading model. The idea was to see whether the pillars of our framework were sitting on solid bedrock. These three pillars were the macroeconomic environment (rising or falling interest rates), valuation, and sentiment. Once armed with the conclusion that these pillars were indeed robust, we have been constantly evaluating ways to make them more deterministic. Back then, we used purchasing power parity (PPP) as our valuation tool of choice, but we had to overhaul the model from industry standards, to allow for positive results using a trading rule. And like most models, performance was not uniform across currencies. This week, we are both updating and testing our intermediate-term timing models (ITTM), another valuation tool we use for currencies. The models use two key variables, real interest rate differentials and a risk factor, to determine when a currency should mean-revert. The trading results add value over time, but two important conclusions arise from this work (Chart I-1): Valuation can indeed be used as timing tool for currencies. Even if you rebalance monthly, a 5% valuation gap is sufficient to allow for outperformance. Even a 1% valuation gap can add value both tactically and cyclically, used in conjunction with a momentum rule. Chart I-2Model Versus Qualitative Trades Combining a few models together does indeed increase the Sharpe ratio. Since the 2000s, both valuation models have outperformed a buy-and-hold currency strategy with much lower volatility. There are three important considerations. First, the trading rules are generated monthly, which might be too frequent for certain investors. Second, we do not include carry considerations, which might be negligible near term, but will matter over time. Finally, the model does not account for sizing. We intend to incorporate these in future iterations. The ITTM (and PPP) models have variables that are highly statistically significant and of the expected signs. These models thus confirm that paying attention to valuation can help investors with currency strategy both in the short term and in the longer term. These models are especially useful as timing indicators on a three-to-nine month basis, as their error terms revert to zero quickly. Finally, what these models help us do in our role as strategists is stop for a sanity check. As such, since we rolled out our initial model, we have tracked the returns relative to our more qualitative recommendations (Chart I-2) and a simple long DXY strategy. The US Dollar   According to our ITTM model, the dollar is overvalued by 4.3%, or less than 1 standard deviation from its fair value. Our ITTM valuation tool has in general performed worse than our PPP models, but has also provided much lower volatility (Chart I-3). Chart I-3USD Is Overvalued By 4.3% The key driver in this model is real interest rates, and this week’s CPI release suggests that inflation could continue to remain much higher in the US relative to other countries. Headline CPI remained very strong at 5.4% in July, while the core measure came in at 4.3%, bigger numbers than most G10 countries. Unless the Federal Reserve increases interest rates sometime soon, this will keep real rates very depressed in the US. As such, the model recommends that investors short the dollar, once the near-term uptrend in the DXY reverses, which we believe will occur closer to the 94 level. The Euro   The ITTM model has worked relatively well for the euro, even more so than for the US dollar. With the euro about 6.7% cheaper versus the dollar, a buy signal is awaiting a bottom in EUR/USD over a month or two (Chart I-4). It is especially impressive that the ITTM approach has delivered similar results to PPP, but with less volatility. Chart I-4EUR/USD Is Undervalued By 6.7% Both the Sentix investor confidence index and the ZEW economic sentiment index rolled over significantly in August. This suggests it might be better to wait before bottom fishing the euro. Structurally, however, we continue to favor the euro as the risk of a breakup, specifically emanating from the southern periphery, remains muted for now. The Yen   The yen is about 4.9% cheaper versus the dollar, according to this model. The ITTM model has been somewhat successful in trading the yen, with very few drawdown periods (Chart I-5). This is important as the yen has been a difficult currency to model, based on the 3-factor approach we described at the beginning of this report. Chart I-5USD/JPY Is Overvalued By 4.9% One guess is that yen spends most of the time in the “belly” of most indicators, and so timing extremely potent turns in the currency are rare. Another guess is that the yen’s safe-haven nature probably reduces its correlation with the independent variables in the model. It is important to note that during normal environments (falling corporate spreads, and rising commodity prices), the yen tends to be negatively correlated to the dollar (like other currencies). During risk-off periods, the yen tends to become positively correlated to the dollar (unlike other currencies). This makes the yen a perfect hedge for a currency portfolio and underpins our current long position. The British Pound   Cable is undervalued by around 5.1%. The ITTM model has worked well for the pound especially since the cable spot has been essentially flat for two decades (Chart I-6). Chart I-6GBP/USD Is Undervalued By 5.1% Going forward, the model should continue to favor the pound. This week’s GDP release for the UK was very positive. In fact, UK real GDP has been outperforming both the US and the euro area in Q2. This will allow real interest rates to rise in the UK, as the BoE embarks on a normalization plan. Given valuation has been important for gauging shifts in the pound, the falling productivity in the UK (which could lead to structural inflation and lower real rates) would be a worry over the longer term. The Canadian Dollar   The Canadian dollar is undervalued by about 3.3% (Chart I-7). The model has generated poor returns in CAD, but with lower volatility. However, the PPP model has successfully added value over time, highlighting the benefit of a balanced approach. Chart I-7USD/CAD Is Overvalued By 3.3% The CAD might be caught in a tug of war between improving real rates, and a drop in commodity prices in the near term. Meanwhile, recent economic data have been below expectations. Employment in July came in at 94K, below expectations of a 176K increase. The PMIs in Canada are also rolling over. As such, the model is correct in being more cautious on CAD.  The Swiss Franc   The ITTM model suggests the franc is undervalued by 3.6%. But unlike for the JPY, the ITTM has a more mundane track record for the CHF (Chart I-8). In general, the franc has been a more difficult currency to model, with our PPP model just barely matching the structural increase in the franc since 2002. Chart I-8USD/CHF Is Overvalued By 3.6% Structural improvement in the franc is likely to continue, as any inflation in Switzerland will be much muted, compared to the US.  The Australian Dollar   The Aussie is undervalued by 9% versus the dollar. The ITTM model has an excellent record of adding value, compared to our PPP model (Chart I-9). This is particularly the case in avoiding losses, with very little drawdowns. This increases our confidence in listening to this model when making calls on AUD/USD. Chart I-9AUD/USD Is Undervalued By 9% The Australian economy has been under strain lately and is like to continue in a stop-and-go fashion until the population gets vaccinated. That said, the Aussie is cheap, even versus the kiwi and we are long AUD/NZD as a hedged trade. The New Zealand Dollar The kiwi is undervalued by 5.6% but unlike the Aussie, our ITTM model has had a poor track record of adding value, compared to the PPP models (Chart I-10). That gives us more confidence in our long AUD/NZD position. Chart I-10NZD/USD Is Undervalued By 5.6% The New Zealand economy is certainly benefitting from having put COVID-19 mostly behind it. However, the bottlenecks in the economy, especially on the labor front, are becoming acute as migrant labor is nonexistent. Meanwhile, the RBNZ is intent on raising rates. The combination will boost real rates but nudge the economy closer to vulnerability. For now, the kiwi remains insulated, as rising real rates will lift its fair value.   The Norwegian Krone Our ITTM model for the Norwegian krone shows it as squarely undervalued (by 9.8%), but also has a poor record of adding value. Since 2002, the model has been roughly in line with a flat krone (Chart I-11). Chart I-11USD/NOK Is Overvalued By 9.8% Our bias is that the krone could see another mini cycle upwards. First, the Norges bank will raise rates sooner than many central banks, especially with inflation near 3%. This will begin to lift Norwegian real rates. Second, if oil prices stay well bid, as our commodity strategists expect, this will put a floor under Norwegian exports and the krone. The Swedish Krona Like its Scandinavian counterpart, the Swedish krona is also quite cheap (by 10.2%) and is one of our favorite longs (Chart I-12). Our ITTM model however has not markedly outperformed over time. Chart I-12USD/SEK Is Overvalued By 10.2% Swedish industrial orders and industrial production continue to boom, according to data this week, with growth admittedly slowing from high levels. If the CPI data coming out shortly surprises to the upside, that could mark the beginning of SEK’s outperformance. We are long the SEK both against the EUR and USD. Chester Ntonifor Foreign Exchange Strategist chestern@bcaresearch.com Trades & Forecasts Forecast Summary Core Portfolio Tactical Trades Limit Orders Closed Trades