interim report student managed fund mba class of 2004 november 14, 2003
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Interim Report
Student Managed Fund MBA class of 2004
November 14, 2003
2
Agenda
Investment Philosophy & Approach
Investment Process
Sector Allocation
MBA Fund Holdings & Investment Criteria
Future Outlook
3
Investment Philosophy
Strive to outperform the S&P500 Selecting stocks with strong growth potential Closely monitoring the portfolio
Rely on fundamental analysis Historical performance Business models Economic outlook for the industry
Equal sector allocation Subject to re-evaluation due to economic
changes and the increased experience of the group
Long-term (5 year) investment horizon
4
Stock Market Universe
Sector Allocation and Industry
Selection
Traded Stocks
Business Model Analysis
Competitors and Market Share
Products and Customers
Industry Outlook
Economic Situations
Risk vs. Return
Investment Approach
5
Stock Selection Criteria
We look for:
Solid financials
Strong management
Earnings growth
Attractive valuation relative to the index
Higher return/risk relative to industry
6
Stock Selection Criteria (continued)
Buy Criteria:
Steady growth rates
Intrinsic value > market value
Above average yields
Upside-downside ratio of at least 2
Sell Criteria:
Stock reaches its price objective
Industry-sector weighting exceeds
predetermined limits
Risk/reward profile deteriorates
Earnings figures lower than estimates
7
Investment Process
Sector Allocation/Equity Identification Sector Assignments Filtering Equal Allocation
Fundamental Analysis Financial Statements Analysis Trend Analysis
8
Investment Process (continued)
Valuation Business Model Analysis Intrinsic Value PEG Ratio NAICS CAPM Risk Factors (Internal & External)
Performance Monitoring Stop Loss Measures (20%) Appreciation Reevaluation (30%) Continuous Monitoring & Dynamic Response
9
S&P 500 Sector Allocation
Big Four:
• Financials
• Information Technology
• Consumer Discretionary
• Health Care
10
SMF Sector Allocation
As of 11/12/03
Budget not yet
fully allocated
Materials, 15%
Financials, 23%
Consumer Discretionary
, 20%
Information Technology,
17%
Healthcare, 24%
11
SMF Holdings
Equal
weightings
of sectors
and initial
investments
($10,000 to
$15,000)
TickerDate of
PurchaseQuant
ityPurchase
PricePrice
(11/13/03)
Market Value
(11/12/03)
% Basic Gain
ALV 10/29/03 300 $32.43 $33.68 $10,104 3.54%
CD 11/12/03 700 $21.03 $21.40 $14,980 1.65%
COGN 10/31/03 300 $34.80 $35.58 $10,674 1.95%
GILD 11/12/03 300 $53.30 $55.04 $16,512 3.23%
FDC 11/04/03 280 $35.90 $37.08 $10,382.40 2.81%
HOTT 11/12/03 550 $27.43 $27.53 $15,141.50 0.09%
JEC 10/24/03 200 $47.86 $43.57 $8,714 -9.25%
OCR 11/05/03 350 $36.93 $38.36 $13,426 3.63%
TOL10/14/0311/04/03
100150
$34.96$38.01
$38.79 $9,697.50 4.75%
WFC 11/05/03 250 $55.23 $57.16 $14,290 3.27%
12
SMF Holdings
Amount Invested in Individual Equities = $121,537.8
Market Value = $123,921.40
% Basic Gain/Loss = 1.96%
Initial Holdings on 9/4/03 = $251,741.00
Market Value on 11/12/03 = $ 261,250.76*
Total % Basic Gain/Loss = 3.78%*
S&P 500 Return (9/4/03-11/13/03) = 2.96%
(*Market value of SMF holdings at close on 11/13/03)
13
Investment Criteria
Quantitative Qualitative
ROA Industry Growth
ROE Company Market Share
ROIC Corporate Governance
Growth in EPS Institutional Ownership
Free Cash Flow/Net Income Insider Trading
Gross Margin (%) Market PowerProduct Differentiation Low-cost ProducerCustomer Relationship
Retention Ratio
Economic Profit
Debt/Equity
Beta
Quantitative
& qualitative
factors
checked
across
industries
14
Qualitative Investment Criteria - PortfolioALV COGN FDC JEC OCR TOL WFC
Industry Growth
23.23% 6.80% 10.81% -5.0% 6.12% 20.34% 6.90%
Company Market Share
31% airbags33% sidebags15% steering wheel14% safety electronics
0.40%
75% money transfer40% merchant processing25% card-issuing services
12.58% 1.4% 4.78% 17.71%
Market Power
Product Differentiation
Low-cost Producer
Customer Relationship
High
High
High
High
High
High
High
High
High
Medium
Medium
High
Medium
High
High
High
High
High
Medium
Medium
High
Corporate Governance
8/11 7/8 5/9 6/9 6/12 7/11Data not available
Institutional Ownership
99.05% 66.60% 95% 77.80% 95.6% 60.30% 67%
Insider Trading
0.07% 0% 1.13% 2.70% 25% 5.5% 0.11%
15
ALV COGN FDC JEC OCR TOL WFC
ROA 3.72% 9.13% 5.00% 5.30% 3.50% 7.67% 1.41%
ROE 7.30% 15.80% 26.93% 13.67% 7.00% 20.83% 15.53%
ROIC 10.12% 16.93% 18.17% 23.93%19.93
%13.04% 10.54%
Cost of Capital 7.29% 8.94% 8.00% 7.87% 6.80% 7.02% 6.68%
Economic Profit 3.89M 40.4M 718M 73.05M 19.08M 90.29M 2.091B
EPS Growth 63.70% 6.96% 23.51% 34.53%44.77
%29.43% 16.29%
FCF/NI 68.30% 152% 129.46% 71.20% 46.3% -109% n/a
Gross Margin 17.91% n/a 42.17% 13.73%29.64
%8.95% n/a
Ret. Ratio 51% 100% 96% 100%90.67
%100% 61%
Debt/Equity 0.54 0 0.71 0 0.65 0.69 1.45
Beta 1 1.2 1.13 0.95 0.78 1.1 1.05
Quantitative Investment Criteria - Portfolio
16
Qualitative Investment Criteria - PortfolioALV COGN FDC JEC OCR TOL WFC
Industry Growth
23.23% 6.80% 10.81% -5.0% 6.12% 20.34% 6.90%
Company Market Share
31% airbags33% sidebags15% steering wheel14% safety electronics
0.40%
75% money transfer40% merchant processing25% card-issuing services
12.58% 1.4% 4.78% 17.71%
Market Power
Product Differentiation
Low-cost Producer
Customer Relationship
High
High
High
High
High
High
High
High
High
Medium
Medium
High
Medium
High
High
High
High
High
Medium
Medium
High
Corporate Governance
8/11 7/8 5/9 6/9 6/12 7/11Data not available
Institutional Ownership
99.05% 66.60% 95% 77.80% 95.6% 60.30% 67%
Insider Trading
0.07% 0% 1.13% 2.70% 25% 5.5% 0.11%
17
ALV COGN FDC JEC OCR TOL WFC
ROA 3.72% 9.13% 5.00% 5.30% 3.50% 7.67% 1.41%
ROE 7.30% 15.80% 26.93% 13.67% 7.00% 20.83% 15.53%
ROIC 10.12% 16.93% 18.17% 23.93%19.93
%13.04% 10.54%
Cost of Capital 7.29% 8.94% 8.00% 7.87% 6.80% 7.02% 6.68%
Economic Profit 3.89M 40.4M 718M 73.05M 19.08M 90.29M 2.091B
EPS Growth 63.70% 6.96% 23.51% 34.53%44.77
%29.43% 16.29%
FCF/NI 68.30% 152% 129.46% 71.20% 46.3% -109% n/a
Gross Margin 17.91% n/a 42.17% 13.73%29.64
%8.95% n/a
Ret. Ratio 51% 100% 96% 100%90.67
%100% 61%
Debt/Equity 0.54 0 0.71 0 0.65 0.69 1.45
Beta 1 1.2 1.13 0.95 0.78 1.1 1.05
Quantitative Investment Criteria - Portfolio
18
Outlook
Strong economic growth likely
Adjust sector allocation to economic outlook
Monitor portfolio to maximize value
Invest funds quickly, but wisely
Beat benchmark
Positive market returns expected
19
MBA Fund Managers
Michael Appell
Jessie LeBlanc
Tanzhuo Liu
Saipriya Menon
Geoffrey Munger
Ganesh Padmanabhan
Anjana Radhakrishnan
Heather Utter
Wiebke Wanner-Borchardt
20
Thank you
University of Connecticut Foundation Inc.
Investment Advisory Board
Steering Committee
Dr. Chinmoy Ghosh
21
Questions
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