student managed fund mba performance report december 1, 2006
TRANSCRIPT
Student Managed Fund
MBA Performance ReportDecember 1, 2006
MBA Managers
• Mike Amodeo• Devika
Chirayilparambu• Matt Cordeiro• Vasilios Diakogeorgiou• Samara Hollander
• Daniela Ionescu• Adam Macko• Puru Patnekar• John Salemi• Amanda Wallace
Agenda
• Investment Philosophy• Investment Process • Economic Outlook• Portfolio Strategy• Portfolio Summary • Portfolio Performance• Future Considerations• Q & A
Investment Philosophy
• Fundamental bottom-up approach• Companies with a market cap of at least $1
Billion• Invest across a diversified group of sectors• Trade at a minimum 15% perceived discount to
intrinsic value• Exhibit strong growth potential within industry• Benchmark – outperform the S&P 500 index by
5% annualized
Investing Process
Stock SelectionStock Selection
Fundamental Fundamental AnalysisAnalysis
Valuation Valuation
Sell Discipline Sell Discipline
Stock Selection
Screeners:• Yahoo! Finance• MSN Money• Reuters• MagicFormulaInvesting.com
Screen inputs:• High Sales/Earnings Growth• High Gross/Operating/Net Margins• High ROE, ROA, ROIC• Low P/E, PEG
Fundamental Analysis
Goal: To identify high quality firms
Value drivers• Gross and operating margins• Revenue and earnings ramp-up• Capital spending efficiency• R&D intensity• Free cash flow growth
Industry metrics• Retailers – same store sales• Banks – net interest margin
Valuation Analysis
• Projecting future free cash flow– Method A – use analyst estimates (S&P, Value
Line or Yahoo! Finance)– Method B – historic growth rate of cash flows
• Discount Rate – WACC– Cost of Debt – Weighted average yield to
maturity– Cost of Equity – CAPM
• Risk free rate – 10 year treasury bond• Average Return – 10.4% (Ibbotson’s Yearbook 2005)• Beta – based on analyst estimates or regression
models (or both)
Sell Discipline
• Stop loss– 15% stop loss on all positions– Prevent market volatility from stopping out
positions– Protect down-side risk
• Re-evaluation of positions– More than 15% gain– More than 10% loss– Change in business model or expectations
Macroeconomic Overview
NEUTRAL
Component SMF Outlook• Monetary Policy
– Discount Rate stable at 5.25%
• Fiscal Policy– Likely tax rate increases– Increased possibility of trade barriers
• Economic Growth– Slowing GDP
• Corporate Earnings– Decelerating into 2007
• Inflation– Unemployment increasing slightly– Core CPI at 2.5% over next 6-12 months
• Market Valuation– Current S&P 500 P/E of approximately 17
________________________________________________________________________________________________________________________________________________________________________
Overall SMF Macroeconomic Outlook
NEUTRAL
NEUTRAL
NEGATIVE
POSITIVE
NEUTRAL/NEGATIVE
NEGATIVE
Asset Allocation Strategy
Top-Down Sector Analysis(25%)
SMF Portfolio
(75%)Bottom-Up Fundamental Analysis
Sector Overview• Consumer – Staples
– Pepsi (PEP)– Altria Group (MO)– Hormel Foods (HRL)
• Consumer – Discretionary– American Eagle Outfitters
(AEOS)
• Energy– Occidental Petroleum
(OXY)– Peabody Energy (BTU)
• Financials– Bank of America (BAC)
• Healthcare– Laboratory Holdings (LH)
• Industrials– General Dynamics (GD)
• Information Technology– Oracle Corp (ORCL)
• Materials– Sherwin-Williams
(SHW)
• Telecommunications– Harris Corp (HRS)
• Utilities
SMF Current Allocation
Holdings
Allocation & Management
Total Invested in Equities
$556,706 52.05%
Cash $62,553 5.85%
Spyder $450,242 42.10%
Value of Portfolio* As of 11/25/2006
$1,069,503
Portfolio Statistics
Positions – 12Average Holding – $46,392
S&P 500MBA
Portfolio
September 25, 2006 1,326.37 $ 998,634
November 11, 2006 1,400.95 1,069,503
Portfolio Beta 1.00 0.92
Holding Period Return (HPR) 5.62% 7.10%
Standard Deviation (weekly) 2.07%
Sharpe Ratio .3647
Jensen Alpha .66%
M-Squared 1.84%
Portfolio Performance
0%1%2%3%4%5%6%7%8%
9/26
10/3
10/10
10/17
10/24
10/31 11
/711
/1411
/21
Student Managed Fund S&P 500 Index
Sector Performance
Return
S&P 500 5.62%
MBA SMF 7.10%
Excess Return
1.48%
Sector Performance
Return
Consumer Discretionary
4.58%
Consumer Staples 2.68%
Energy 2.97%
Financials 2.54%
Healthcare 1.72%
Industrials 2.97%
Materials 5.95%
Technology 8.05%
Telecom 1.48%
4.58%
2.68% 2.97%2.54%
1.72%
2.97%
5.95%
8.05%
1.48%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Cons Disc
Cons Sta
ples
Energy
Finan
cials
Health
care
Indus
trial
s
Mat
erials IT
Telec
om
Individual Holding Performance
Holdings Total Return SectorBTU 3.22% EnergyOXY 2.72% EnergyBAC 2.54% FinancialsLH 1.72% HealthcareGD 2.97% IndustrialsSHW 5.95% MaterialsHRS 1.48% TelecomORCL 8.05% ITAEOS 4.58% Cons DiscHRL 6.12% Cons StMO 6.47% Cons StPEP -4.37% Cons St
(prices as of 11/25/2006)
Future Considerations
• Consumer staples sector will be reexamined due to its current weight in our portfolio
• Energy prices are volatile and will move upwards based on OPEC’s production cuts; current investments will be reevaluated in 2007
• Current investments in Telecommunications and Industrials are well-positioned to take advantage of industry trends
Future Considerations
• Investment in Utilities
• Portfolio beta to approach 1.00
• Investment in CT based companies
Acknowledgements
• The University of Connecticut Foundation, Inc.
• Investment Advisory Board
• Dr. Chinmoy Ghosh
Questions