1. The Out-of-Sample Alpha of Just Stocks
Creating Shareholder Value from Just Business Behavior
Hernando Cortina, CFA
@cortinah
2018 R/Finance Conference
June 2018

2. Who is JUST Capital?
JUST Capital uses the power of markets to drive positive change on the issues Americans care the most about
“We believe that business, and capitalism, can and must be a positive force for change. We believe that if they have the right information, people will buy from, invest in, work for, and otherwise support companies that align with their values. And we believe that business leaders are searching to win back the trust of the public in ways that go beyond money. By shifting the immense resources and ingenuity of the $15 trillion private sector onto a more balanced – and more just – course, we can help build a better future for everyone.”
Corporation: 501(c)3
Date: 2013
Founders Include: Paul Tudor Jones II
Deepak Chopra
Rinaldo Brutoco
Arianna Huffington
Paul Scialla
JUST CAPITAL CORE ACTIVITIES
Poll the American public to identify which business behaviors are most important, e.g. worker pay and wellbeing, job creation, customer treatment, healthy communities, a clean environment, and more
Track and analyze data on the largest publicly-traded U.S. companies on those issues and publish the annual rankings of America’s Most JUST Companies in collaboration with Forbes Magazine
Create products and tools to guide corporate behavior change. JUST Capital packages and delivers data, insights, and rankings to different audiences (corporations, investors, policymakers, general public) in accessible ways
Source: JUST Capital

3. Who AM I? Started using S-Plus in 2001
I work at the intersection of environmental, social, and governance (ESG) research, data science, and capital markets
Started using S-Plus in 2001
Previously, equity strategist and index swap/ETF trader at Morgan Stanley
Macro hedge fund experience
Rediscovered R in 2014
Joined JUST Capital in 2016, Director of Indexes and Analytics
Most ranking and financial analytics at JUST Capital are performed in R
Looking to contribute to the R Community
Special thanks to the developers of the following R packages:
quantmod, PerformanceAnalytics, xts, Rblpapi, texreg, xtable, knitr, and many more

4. SUSTAINABLE AND ESG INVESTING IS GROWING rapidly
Investor Require a Better Understanding of the Return and Risks of Such Strategies in Public Equities
As of 2016 there were $23 trillion globally managed under responsible investment guidelines, a 25% rise since 2014
In the U.S. the share of sustainable investments relative to total managed assets has grown to 22% from 18%
While investor appetite is growing, there are skeptics of the link between social responsibility and returns
Recent research supporting ESG (environmental, social, and governance) factor investing:
AQR: Dunn, Fitzgibbons, & Pomorski “Assessing Risk Through Environmental, Social and Governance Exposures.”
De & Clayman “The Benefits of Socially Responsible Investing: An Active Manager’s Perspective.” Journal of Investing.
Merrill Lynch: Subramanian, Dec “ESG: good companies can make good stocks. Equity Strategy Focus Point.”
This deck is based on “The Out-of-Sample Alpha of Just Stocks” available at

5. JUST CAPITAL’s RANKING Methodology Overview
Define Drivers, identify Metrics, evaluate companies, produce rankings
STARTING UNIVERSE: Russell 1000 Index
STEP 1
STEP 2
STEP 3
STEP 4
Survey representative sample of Americans to identify which issues are most important regarding just business behavior
Collect and analyze data across a diverse range of sources on how each company actually performs on the key issues
Score companies based on data weighted by the relative importance of key issues to the American public, and rank companies on how they perform
Select the top 50% of names by score rank in each Russell 1000 industry and weight them by market cap
Management & Shareholders Jobs | Communities | Environment | Products | Customers | Workers ❯ ❯ ❯
Customer reviews
Regulatory fines
GHG emissions
Company’s JUST Score
Top 50% of JUST companies by industry
Taking top ½ of names in each Russell 1000 industry
Weighting the selected names by market-cap 7
DRIVERS
METRICS 85
JUST U.S. LARGE CAP DIVERSIFIED INDEX

6. Step 1: Identify the Issues that Matter Most to the American Public
JUST conducts annual surveys to define and prioritize just business behaviors. The results determine Drivers, Components, and their respective weights in scoring
7 DRIVERS
Americans see workers at the heart of just business practices
Customer treatment and privacy are essential to just business behavior
Products and services should benefit the environment, health, and society
Americans agree corporations play a role in protecting our planet
At home and abroad, Americans care how companies support communities
Just companies should both create and maintain U.S. jobs
Ethical leadership and investor return are priorities for Americans

7. Step 2: Collect Company Data
Collect measurable data on how each company performs within each Driver and Component
The data points compute 85 unique metrics which are categorized within the 7 drivers and 39 components determined by survey results
 Workers
Customers
Products
Environment
Communities
Jobs
Management & Shareholders
7 Drivers 39
components
Paid days off
Benefits Quality
Worker Safety Fines
Product Fines
Anti-competitive Practices
Product Recalls
Charitable Giving Ratio
Commitment to Conflict-Free Sourcing
Community Engagement and Giving
Related Party Transactions
Board Governance
Debt Score 85
Metrics
(examples)
Customer Satisfaction
Misleading Communication
Advertising Fines and Violations
Waste Management
GHG Emissions
Fuel Use
% Change in U.S Workforce
Total U.S. Headcount
Over 120,000 data points are gathered from third party vendors, company filings, media sources, etc.
120,000
Data Points

8. Steps 3 and 4: Score, Rank and Weight Companies
JUST compares companies within the Russell 1000 by the values that matter most by the American public
SCORE
RANK
WEIGHT
Companies are scored within each component using the collected data metrics
Companies are ranked by their overall scores within each sector
The top 50% of names ranked by score within each industry of the Russell Index are selected and weighted by market cap
Company A Score Card
Workers
Score
Pays a living wage 85
Pays a fair wage 66 …
Workers Score 75
Customers
Does not discriminate 91
Protects customer privacy 94
Customers Score… 93
Products
Makes quality products 76
Provides fair pricing 65
Products Score 67
Overall Score 81
Industrials
InfoTech
Company A
Company B .
Company AA
Company BB .
JUST U.S. LARGE CAP DIVERSIFIED INDEX

9. DISTRIBUTION OF 2017 SCORES BY DRIVER
Individual Driver Scores Are Not Normally Distributed

10. The OUT-OF-SAMPLE ALPHA OF JUST STOCKS
Key points of May 2018 JUST Capital paper
In first year of live trading following the release of JUST Capital’s inaugural rankings of just business behavior, highly-ranked corporations showed significantly higher return and lower risk than low-ranked ones.
Top JUST score-quintile stocks exhibited 14% higher annualized return over the period, 7% lower volatility, and 11% lower betas than bottom-quintile stocks.
Controlling for Fama-French factor exposures, top JUST score-quintile stocks generated 3.5% annual out-of-sample alpha, while bottom-quintile stocks experienced 7.1% underperformance.
Strong worker pay & benefits and worker treatment scores significantly reduce stock volatility and drawdowns. Leadership and ethics and lower environmental impact are associated with higher ROE and stock market return.
The market performance of companies with top JUST scores is consistent with meaningful shareholder value creation from just business behavior. JUST Capital’s JULCD index captures these alpha attributes with low tracking error versus the Russell index (258 bp annualized outperformance with 3.1 information ratio).

11. JUST SCORES AND WITHIN-QUINTILE MEANS OF FINANCIAL METRICS
Quintile 5 companies exhibit the lowest risk and highest return in live trading, while quintile 1 companies exhibit the converse

12. RISK AND RETURN BY QUINTILE OF JUST SCORE
All six financial metrics show significant differences between Q5 stocks and Q1 stocks at the 1% level, based on t- tests.

13. FAMA-FRENCH REGRESSION ALPHAS: +3.5% for Q5 and -7.1% for Q1 PER YEAR
All 3 F-F factors are significant across the 5 quintiles, with positive loadings for the Small minus Big (SML) and High minus Low (HML) value factors. Q5 shows a significant positive intercept (alpha) term while the Q1 shows a significant negative alpha term

14. Out-of-Sample Impact of Driver Performance on Market Metrics
Strong worker pay & benefits and worker treatment scores significantly reduce stock volatility and drawdowns. Leadership and ethics and lower environmental impact are associated with higher ROE and stock market return.

15. Measuring THE Performance of Investing in JUST Companies
JULCD index has produced measurable impact without sacrificing investment return; Bloomberg: JULCD <INDEX>
MEASURABLE IMPACT...
Compared with Russell 1000 companies excluded from the Index, JUST Index constituents on average:
...WITHOUT SACRIFICING PERFORMANCE
Growth of $1,000
Paid 71% less in fines for consumer sales-terms violations
Include twice as many companies that pay nearly every worker a living wage
Give 2.3x more to charity    
Create U.S. jobs at a 20% greater rate    
Paid 94% less in Equal Employment Opportunity Commission Fines    
Employ twice as many workers in the U.S.
Have a 7% higher Return on Equity (ROE)
Produce 45% lower greenhouse gas emissions per dollar of revenue    
Annualized outperformance Since Inception: 2.4%
Source: JUST Capital as of 3/29/18. Past performance does not guarantee future results, which may vary. JULCD Index Inception: 11/30/16. GROWTH OF $1,000: A graphical measurement of a portfolio's gross return that simulates the performance of an initial investment of $1,000 over the given time period. Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices.

16. Measuring THE Performance of Investing in JUST Companies
JULCD live Performance, Tracking Error, and Risk-Adjusted Ratios (%) Bloomberg: JULCD <INDEX>
Period: Nov 30, 2016 – Dec (First year of live JULCD performance).

17. DISCLOSURES
This material is provided at your request for informational purposes only. It is not an offer or solicitation to buy or sell, or a promotion or recommendation of, any financial product, security or trading strategy.
Although certain information has been obtained from sources believed to be reliable, neither JUST Capital nor any of its affiliates (collectively, the “JUST Parties”) guarantee its accuracy, completeness or fairness. The JUST Parties have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.
This material, and the JULCD, is provided "as is" and the user of this material or the JULCD assumes the entire risk of any use it may make or permit to be made of this material and the JULCD. This material may not be used to verify or correct other data, to create indexes, risk models, or analytics, or in connection with issuing, offering, sponsoring, managing or marketing any securities, portfolios, financial products or other investment vehicles. Historical data and analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by the JUST Parties to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.
The JUST Parties do not in any way sell, sponsor, support, promote, or endorse any securities based on the JULCD, or have any involvement in their operations or distribution. The JUST Parties and any other person or entity involved in or related to compiling, computing, or creating the JULCD expressly disclaim all implied representations, warranties, and liabilities relating to or in connection with any investment vehicle that seeks to provide an investment return based on the performance of any index (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non- infringement, merchantability, and fitness for a particular purpose).
No JUST Party makes any claim, prediction, warranty, or representation whatsoever, expressly or impliedly, either as to (i) the results to be obtained from the use of the JULCD or any of the data included in the JULCD, (ii) the level at which the JULCD is said to stand at any particular time on any particular day or otherwise, (iii) the suitability of the JULCD for the purpose to which it is being put in connection with any investment vehicle seeking to provide an investment return based on the JULCD, or (iv) the advisability of investing in securities generally or in any index or other investment product.
No JUST Party has provided, nor will any provide, any financial or investment advice or recommendation in relation to the JULCD. None of this material, nor the JULCD is intended to constitute any financial or investment advice and may not be relied on as such. No JUST Party shall be (i) liable (whether in negligence or otherwise) to any person for any error in the JULCD or (ii) under any obligation to advise any person of any error therein. Without limiting any of the foregoing, in no event shall any JUST Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including without limitation lost profits), or any other damages in connection with the JULCD.
Index Benchmarks
The JULCD Index is calculated and maintained by FTSE Russell using the Russell 1000 Index and the rankings of companies provided by JUST Capital. FTSE Russell does not sponsor, endorse, sell, or promote any investment vehicle that is offered by any third party that seeks to provide an investment return based on the performance of any index. It is not possible to invest directly in an index.
Confidentiality
This document and the information included herein are proprietary to JUST Capital and are protected by copyright and other intellectual property laws. JUST Capital has registered the “JUST Index” and “JUST Capital Index” trademark. No part of this material may, without JUST Capital’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.
© The Just Capital Foundation, Inc. All rights reserved.

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