J&J InvestorsEquity Index Fund

Tyson and Jake

J&J Investors – Equity Index Fund

An stock fund seeking long-term capital appreciation through investments in

ethical medium-sized growth companies, as well as common stock.

Equity Index

• An index is a group of securities whose overall performance is used as measurement of a specified market. Index funds create a return equal to that of the index that it represents. This mutual fund is based on our own Equity Index.

Methodology

• Our main focus was to pick medium sized growth stocks of companies that were either Christian based or held values that didn’t contradict Christian beliefs. Using www.timothyplan.com we were able to find exactly this. Our equity index is composed of nineteen stocks.

Stocks

• Petco (PETC)

• Rockwell Collins (COL)

• Macromedia (MACR)Monster Worldwide (MNST)

• Ross Stores (ROST)

• Urban Outfitters (URBN)

• Comverse Technology (CMVT)

• Peabody Energy (BTU)

• Nextel Partners (NXTP)

• Southwest Airlines (LUV)

• Halliburton (HAL)

• CVS Corp. (CVS)

• eBay (EBAY)

• United Steel (X)

• Estee Lauder (EL)

• T Rowe Price (TROW)

• American Eagle Outfitter (AEOS)

• Harley Davidson (HDI)

• Dell (DELL)

Performance

• How did our mutual fund perform?

Description of the Market Trend

• Over the duration of our portfolio the market trend was very unpredictable. Price changes were random, and to actively manage this portfolio would be a nightmare. Thankfully, we were using passive management in our mutual fund. Creating our own index we were able to measure the performance of J&J mutual fund. By benchmarking J&J mutual fund to the S&P 500 we were able to compare our mutual fund to the overall market as a whole

Problems and Trends

• Using a passive investment strategy we did not experience many of the problems that an active investment strategy would face. We did experience some though. Our goal in creating this mutual fund was to choose a diversified number of stocks that we thought would grow in the near future. Our stocks grew considerably as seen by the index. Our stocks weren’t however as diversified as we would have liked them to be.

Ratio Analysis

• See Excel

Ratios for ALL stocks

• See Excel

Beta and Percentage Change

• To find the beta of this portfolio we gathered the weekly prices for each of our stocks. We then multiplied the number of shares outstanding by the weekly price to get the Market Capitalization. We then added the total of the market capitalization amounts each week. We then went and found the weekly prices for the benchmark market, in this case the S&P 500.

• We then ran a regression analysis as outlined on page 335 in our investments textbook

• See Excel

Beta and Percentage Change

• From the results we can see that the beta of our portfolio for the time period in which we held our stocks, is 0.90, and that 66.33% of the variances in returns can be explained by the returns on the S&P 500.

• We then went ahead and calculated the relative percentage change in our portfolio and the market index over the past week.

Expected Returns of Each Stock

• The current risk free rate on the T-Bill is 3.9%, found at Yahoo! Finance, and the current market return is 9% found by calculating the return using historical prices of the S&P 500

• See Excel

Why diversification works

• From our data we can see that the various returns on each of the securities varies quite significantly. Therefore, by diversifying the portfolio we can not only spread out the total return thereby allowing us to receive a much more steady return on our investments. But we can also diversify the risk of the portfolio thereby greatly decreasing the chance for loss.

Returns, Std. Dev., Correlations

• See Excel

Index

J & J Index vs. S&P 500

1120

1140

1160

1180

1200

1220

1240

1260

1280

1300

9/22/05 9/29/05 10/6/05 10/13/05 10/20/05 10/27/05 11/3/05 11/10/05 11/17/05 11/24/05

J & J Index S&P 5--

Efficient Portfolio

• See ExcelEfficient Frontier and Efficient

Trade Line

-30

-20

-10

0

10

20

30

0.0% 10.0% 20.0% 30.0%

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What we learned

• From this assignment we learned that Investing is often not something that can randomly be done. It takes a lot of time and effort to analyze trends, to see what stocks may do and to determine what stocks to buy. And even after all of that work there may still be times when we do not return profit on our investments. The stock market can be very unforgiving. However, if you go into your investments with a strong strategy and with the patience to stick to that strategy often times you can come out on top.