**How the Model Works**

- Each year Haugen Equity Signals creates a universe of stocks in each of the four markets that we track (i.e. US, European, Japanese and emerging markets) and determines the top stocks in each group based on market capitalization and liquidity.
- At the end of each month the stocks are put through advanced statistical modeling algorithms, producing a projected “payoff” or “score” for over 60 different factors for each stock. For example, if in a given month the payoff for the book-to-price factor is negative, this means that in that month the model is favoring companies with low book-to-price values over stocks with high book-to-price values. Payoffs for all factors are estimated simultaneously.
- To calculate the expected returns, we get the latest data in order to look at each stock’s
current exposure level to each factor, multiply by that month’s projected payoffs for each factor, and then add
these 60 numbers up. This is done using the following formula:

Projected payoff for

factor #1 for all stocks

for the coming month**X**Each stock's current exposure

to factor #1**=**#1's contribution

to expected return for

each stock for the

coming month - The model computes this formula for all factors and then sums all factor components for each stock.
- Finally we rank each stock based on its expected return for the coming month.