Case Studies

The following case studies are actual recommendations made to R&I members.
Additionally they represent actual trades.

Northern Star Resources (NST) is an Australian listed gold producer with mines in Western Australia and the Northern
Territory. As a gold producer NST is heavily influenced by the gold price.

After a 5 year bear market in gold, the metal bottomed at $1050 in December 2015 after the US Federal Reserve increased interest rates for the first time in near a decade. In the first half of 2016 gold was one of the best performing assets
increasing in price by near 30%.

In February 2016 our models identified NST as a portfolio candidate due to elevated price momentum and it was added to the portfolio. In the previous 12 month period NST had risen over 60%.

Important to note is that the R&I model identified strong momentum in a number of gold companies at that time, such as Regis Resources (RRL.AX) , St Barbara (SBM. AX) and Evolution Mining (EVN.AX). Both the sector and underlying stocks were displaying robust pricing structure.

Below is a chart of the gold price when NST was identified. The gold price had found support at $1050, broke out of a
consolidation pattern, then moved into an established positive trend in early 2016.

Gold Price October 2015 – March 2016

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NST. ASX Buy 3rd – February 2016

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Over the following 5 months gold continued to make higher highs and higher lows within a positive trend and hit a peak in July 2016 of $1370. Despite Britain’s surprise exit from the EU and uncertainty around the US Presidential elections gold started
to form lower highs.

On the 22 August NST announced a 65% increase in profit and a 40% increase in dividends. The stock peaked at $5.80 in July along with the peak in the gold price and started its decline.

Gold price peak and decline – July to December 2016

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NST Sell 15th September 2016 at $4.18

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In September our models identified NST as a sell candidate and the position was liquidated for a profit of 40%

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Pacific Brands is an Australian consumer products company that sells underwear, bedding and flooring primarily in Australia and Asia. The company has origins dating back to 1893 and was taken over by Hanes Brands in 2016.

The company was within the Consumer Discretionary sector which was in a positive trend from 2012 to 2013 until the sector traded in a range over the course of 2014.

Consumer Discretionary Sector – July 2012 to January 2016

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In January 2016 our models identified PBG as a portfolio candidate due to elevated price momentum and it was added to the portfolio on the 15th January 2016 at an average price of 68c. In the previous 6 month period PBG had risen over 100%.

Pacific Brands Buy – 15th January 2016 at 68c

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On the 28th April 2016, the Board of Pacific Brands recommended shareholders accept a takeover offer from Hanes Brands for $1.056 per share cash and a special dividend was to be paid of $0.094 per share.

Due to the recommendation of the board and no competing offers, the stock was sold on the 9th May at $1.13.

Due to its systematic nature, the model does not look at fundamental variables as a means to forecast future returns. There are no inputs or factors with regards to screening for potential takeover candidates. The model examines market participants affect on price and identifies those companies exhibiting strong relative price momentum as was the case with PBG. Our research has shown that stocks displaying strong price momentum have a tendency to outperform in the future.

Pacific Brands (PBG.ASX) sell – 19th May $1.13

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Credit Corp Group (CCP) is an Australian listed company offering debt collection and debt financing solutions.

CCP is in the Financials sector and the sector had been consolidating after sustained negative price action
since April 2015.

ASX200 Financials (ex REITS) – April 2015 to November 2016

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CCP had been displaying strong price momentum over the 6 months rising from $12.00 to over $20 a rise of over 60%.

In November 2016 our models identified CCP as a portfolio candidate due to elevated price momentum and it was added to the portfolio on the 9th November 2016 at an average price of $17.62. In the previous 6 month period CCP had risen over
60% from $12.00 to over $20.00.

Credit Corp Buy – 9th November 2016 $17.62

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Over the course of the next month CCP consolidated within a range and in December our models identified CCP as a sell
candidate and the position was liquidated for a loss of 2.2%.

Credit Corp Sell – 6th December 2016 $17.23

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CCP traded back into a consolidation pattern and its momentum score dropped relative to other stocks within the ASX200.
As strong positive momentum didn’t eventuate, it was therefore sold at a loss on the 6th December and capital was then placed with a stock with stronger relative price momentum.

This is a good example of how a systematic process works its discipline to manage risk by systematically removing
losing trades from the portfolio.

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