Backtest Disclosures

IMPORTANT: The backtested performance data and validation studies presented by ERS are subject to the limitations and disclosures described below.

Nature of Backtested Performance

Backtested performance is hypothetical and does not reflect actual trading. The performance figures presented in our validation studies, including the 25-year FSN™ study and other rating validations, represent what would have occurred if specific strategies had been implemented during the historical period examined.

Backtested results have inherent limitations:

• They are prepared with the benefit of hindsight
• They do not reflect actual trading or the impact of actual market conditions during the period
• They may not reflect the impact of all material economic and market factors
• They do not reflect actual client experience

Key Study Parameters

FSN™ 25-Year Benchmark Study (2000-2025)

• Sample Size: 433,500 individual ratings
• Period: December 31, 2000 through December 31, 2025
• Universe: U.S.-listed equities meeting minimum liquidity and market capitalization thresholds
• Methodology: Stocks rated at the beginning of each annual period; returns measured over the subsequent 12 months
• Survivorship Bias: Study includes delisted companies and does not suffer from survivorship bias

Loss Indicator™ Bankruptcy Study

• Sample Size: 200 companies that filed for bankruptcy or were delisted
• Methodology: Loss Indicator™ ratings examined 2 years prior to bankruptcy/delisting
• Finding: 91% of eventual bankruptcies were rated "Distressed" or "Condemned" two years before failure

4D™ 2022 Bear Market Study

• Sample Size: 2,619 largest U.S. companies by market capitalization
• Period: December 31, 2021 through December 31, 2022
• Methodology: 4D™ ratings assigned at period start; returns measured over 12 months

Enduring Portfolio™ (1999-2024)

• Period: December 31, 1999 through December 31, 2024 (25 years)
• Strategy: Systematic rebalancing based on proprietary rating criteria
• Benchmark: S&P 500 Total Return Index
• Reported Return: 21.4% annualized vs. 7.7% for S&P 500
• Note: This is backtested performance, not actual trading results

Limitations of Backtested Data

Past performance, whether actual or backtested, is not indicative of future results. The following limitations apply to all backtested performance data:

Trading Costs and Fees

Backtested returns generally do not reflect the deduction of transaction costs, management fees, or other expenses that would reduce actual returns. Actual trading would incur brokerage commissions, bid-ask spreads, market impact costs, and other expenses.

Market Conditions

Backtested strategies are evaluated using historical market conditions that may not recur. Future market conditions, including volatility, liquidity, and correlation patterns, may differ materially from historical periods.

Look-Ahead Bias

While we have taken steps to eliminate look-ahead bias, certain aspects of our methodology were developed with knowledge of historical data. The strategies were not implemented in real-time during the backtested periods.

Data Quality

Historical financial data may contain errors, omissions, or subsequent revisions that were not available at the time of the original reporting. We rely on third-party data providers for historical financial statements and pricing data.

Strategy Evolution

Our rating methodologies have been refined over time. The backtested results assume consistent application of current methodology across historical periods, which may differ from how decisions would have been made in real-time.

Live Performance Verification

Our model portfolios have been tracked live since their inception dates. Live performance is verified by independent third parties including BX Partners and IndexOne. Live performance reflects actual implementation and is subject to different considerations than backtested data.

Audit Invitation

ERS welcomes independent verification of our validation studies. We invite interested parties to submit any 2 of our 9 proprietary ratings to McKinsey, PwC, Deloitte, or another qualified firm for independent audit. Contact us for more information about our audit process.

Forward-Looking Statements

References to expected future performance or the potential benefits of our ratings constitute forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially. We make no guarantees regarding future performance.

Contact for Additional Information

For additional information about our backtested studies, methodology, or performance data, please contact:

Equity Risk Sciences, Inc.
10 Dorrance Street, Suite 700
Providence, RI 02903
Email: ray@ers.ai
Phone: (203) 254-0000