MBA Student Managed FUND

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MBA Student Managed FUND

• Investment Advisory Board Presentation Nov. 08

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Acknowledgements

• The University of Connecticut Foundation, Inc.
• Investment Advisory Board
• Bradley, Foster Sargent
• Christopher Wilkos
• Dr. Chinmoy Ghosh

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MBA Managers

• Katherine Avery
• Chirag Bansal
• Jason Codespoti
• Merim Djumalieva
• Steven Ferrigno

• Nicholas Ferron
• Linkun Li
• Manoj Mahadevan
• Philip McDonald
• Hsin-Yi Tai

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Agenda

• Investment Philosophy Approach
• Portfolio Characteristics Performance
• Forward Expectations
• Q A

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Investment Philosophy

• Value focused approach
• Mid to large market cap companies
• Priced at a discount to their intrinsic value
• Strive to outperform the SP 500 Index
• Through individual security selection
• Strictly long-equity positions

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Investment Approach

• Top Down Strategy
• Each fund manager assigned two industry sectors
• Managers vote on sector weighting decisions
• Key Considerations
• Portfolio Stability in Volatile Market
• Downturn in Economy
• Presidential Election

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Stock Selection

• Fundamental analysis of individual Securities

• Information Sources
• SP NetAdvantage
• Value Line
• ThomsonOne Financial

• Evaluate individual stocks based on
• Size Market Share
• ROE, ROA, ROI
• P/E, PEG

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Fundamental Analysis

• Focus on the following value drivers
• Business Model
• Operating Margins
• Revenue Earnings Growth
• Capital Expenditure
• RD Investment
• Free Cash Flow Growth
• Discounted FCFF / DDM Analysis
• Real Return Value

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Sell Discipline

• Stop loss
• 17.5 stop loss on all positions
• Protect down-side risk
• Re-evaluation of positions
• Achievement of intrinsic value
• More than a 10 loss
• Material news

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Portfolio Composition

• Select Pillar Holdings
• Diversify Across Sectors
• Manage Volatility

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Portfolio Performance
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Size and Timing of Trades
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History of Stopping Out
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Individual Holding Performance
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Performance by Sector
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Comparison with SP 500
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Comparison with SP 500
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Sector Allocation
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SMF vs. SP 500 Allocations

• We have not invested in Financials, Materials,
  Utilities or Consumer Discretionary
• We are overweight Consumer Staples, Industrials,
  Energy, Healthcare, and Telecommunications

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Portfolio Efficiency Statistics

• Beta 0.70 (equity) 0.82 (total portfolio)
• Sharpe Ratio -0.487
• Treynor Ratio -0.049
• Standard Deviation 8.31 (vs. 8.21 SP)

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Performance as of 11/19
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Looking Forward

• Portfolio Holdings
• Economic Outlook
• Expectations

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Holdings

• PILLAR HOLDINGS
• Johnson Johnson (JNJ)
• Procter Gamble (PG)
• International Business Machines (IBM)
• Exxon Mobil (XOM)
• VOLITILITY PLAYS
• Microsoft (MSFT)
• Wal-Mart (WMT)

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Holdings

• DIVERSIFIED PRODUCTS/SERVICES
• St. Jude Medical (STJ)
• United Technologies (UTX)
• Waste Management Incorporated (WMI)
• Consumer Value Store (CVS)
• SPECIALIZED SERVICES
• Schlumberger (SLB)
• American Telephone Telegraph (T)
• NEGATIVE PORTFOLIO CORRELATION
• FTI Consulting (FCN)

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Economic Outlook

• Political Overview
• Recession The Financial System
• Fiscal Policy
• Market Expectations
• Portfolio Strategies

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Political Overview
Democratic Majority
House of Representatives
Senate
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Economic Policy

• Fiscal Policy
• New Tax Reforms May Pressure Corporate Profits
• Bush Administrations Tax Cuts end in 2009
• Deficit Approaching 6 of GDP (Post-War Record)
• Health Care Agenda close to 1.6 trillion

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Recession The Financial System

• How Long Will Banks Lenders Not Assume Risk?
• Home Prices, Loan Losses,
• Ability to Raise Capital

• Varying Recessionary Forecasts
• Mild (1990 1991) Mid 2009 Unemployment 7
• Severe (1981 1982) Late 2009 - Unemployment 9

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One Year Forward Expectations

• Macroeconomic Phenomena
• High Unemployment
• Minimal Growth
• Low Interest Rates
• Inflationary Pressure
• Microeconomic Phenomena
• Low Capital Investment
• Minimal Discretionary Spending
• Tightening Credit Availability
• General Adverseness to Risk
• Global Implications
• Worldwide Growth Reduction IMF Global Growth
  3
• Greater Dependence on Asian Economies
• Stalled Capital Flows

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Market Expectations

• Earnings growth will slow due to weakening
  economy
• Aggressive corporate budget cuts and planning
  revisions
• Extreme volatility
• Returns for 2008 to be minimal to zero
• Returns for 2009 to start to rebound based on
  recession characteristics and depth

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Portfolio Management

• Portfolio Strategies
• Continue to invest in firms with adequate
  liquidity
• Avoid firms that rely on financing for operating
  activity
• Look for firms with recession resilient
  portfolios
• Avoid firms that represent capital investment
• Invest in firms with low volatility exposure

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Lessons We Cant Learn in Class

• Respect for market conditions
• Understanding risk
• The importance of dexterous research
• Value of fundamental analytics
• Logical prudence over emotional attachment

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QUESTIONS?