Interim Report

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Interim Report
Student Managed Fund MBA class of 2004 March
11, 2004
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MBA Fund Managers

• Anjana Radhakrishnan
• Christopher Bodnar
• Ganesh Padmanabhan
• Geoffrey Munger
• Heather Utter

• Jessie LeBlanc
• Michael Appell
• Saipriya Menon
• Tanzhuo Liu
• Wiebke Wanner- Borchardt

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Agenda

• Investment Philosophy Approach
• Investment Criteria
• Portfolio Performance
• Attribution Analysis
• Retrospection and Self-Analysis
• Economic Outlook

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Investment Philosophy

• Outperform the SP500
• Strategic sector allocation
• Selection of stocks with strong growth potential
• Close monitoring of the portfolio
• Fundamental analysis
• Historical performance
• Business models
• Economic outlook for the industry
• Valuation
• Undervalued stocks
• Long-term (3-5 year) investment horizon

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Investment Approach
Sector Allocation
Investment Criteria

• Valuation
• PEG and P/E Models
• Discounted Cash Flow
• Economic Profit

• Fundamental Analysis
• Historical Growth
• Free Cash Flow
• Profit Margin

Constant Portfolio Performance Monitoring
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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 Power Product Differentiation Low-cost Producer Customer Relationship
Retention Ratio Market Power Product Differentiation Low-cost Producer Customer Relationship
Economic Profit Market Power Product Differentiation Low-cost Producer Customer Relationship
Debt/Equity Market Power Product Differentiation Low-cost Producer Customer Relationship
Beta Market Power Product Differentiation Low-cost Producer Customer Relationship
Quantitative qualitative factors checked across
industries
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Qualitative Investment Criteria - Portfolio
OCR EBAY JEC INTU
Industry Growth 19.42 27.20 12.7 18.5
Company Market Share 2.29 17.62 12.00 3.38
Market Power Product Differentiation Low-cost Producer Customer Relationship Medium High High Low High High Medium Medium High High Low Medium
Corporate Governance 6/12 6/13 6/9 5/8
Institutional Ownership 95 67.44 65.50 83.38
Insider Trading 7.70 -0.5 0.01 -0.30
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Quantitative Investment Criteria - Portfolio
  OCR EBAY JEC INTU
ROA 6.18 9.10 7.86 10.27
ROE 13.12 10.50 16.35 14.70
ROIC 7.37 10.18 13.10 14.55
Cost of Capital 6.80 8.74 8.12 7.81
Economic Profit 15M 62M 49M 159M
EPS Growth 28.30 84.6 34.53 96.86
FCF/NI 1.30 1.03 0.73 1.56
Debt/Equity 0.68 0.02 0 0.01
Beta 0.85 1.55 0.95 1.20
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Portfolio Monitoring - Sell Criteria

• Stock reaches its price objective
• Industry-sector weighting exceeds predetermined
  limits
• Risk/reward profile deteriorates
• Earnings figures lower than estimates
• Stop loss on all positions

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SMF Holdings 12/26/03
Ticker Equity Weight
CONSUMER DISCRETIONARY 31.46 CONSUMER DISCRETIONARY 31.46
ALV 4.21
EBAY 6.12
HOTT 5.85
MAT 5.86
WSM 4.42
YCC 5.00
HEALTHCARE 29.28 HEALTHCARE 29.28
GILD 6.56
HSIC 5.78
OCR 5.27
UNH 5.77
ZMH 5.89
Our sector allocation closely tracks the SP500
with exceptions based on economic outlook
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SMF Holdings 12/26/03
Ticker Equity Weight
INFORMATION TECHNOLOGY 18.77 INFORMATION TECHNOLOGY 18.77
COGN 3.36
FDC 4.17
INTU 5.68
MSFT 5.56
INDUSTRIALS 9.15 INDUSTRIALS 9.15
CD 5.62
JEC 3.53
FINANCIALS 5.38 FINANCIALS 5.38
WFC 5.38
CONSUMER STAPLES 5.97 CONSUMER STAPLES 5.97
MO 5.97
Our sector allocation closely tracks the SP500
with exceptions based on economic outlook
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SMF Holdings - Adjustments

• Sold COGN and ALV
• Initiated positions in
• Materials Newmont Mining (NEM)
• IT Intel (INTC)
• Reviewing positions in JEC, INTU, WSM, EBAY,
  and OCR
• Seeking positions in Energy and Telecom Sectors

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SMF Holdings 02/17/04
Ticker Quantity Purchase Price Market Value (02/17/04) HPR
ALV 300 32.43 11,337 16.53
CD 700 21.05 16,051 8.92
COGN 300 34.80 9,042 -13.39
EBAY 260 56.49 17,997 22.55
FDC 280 35.96 11,312 12.35
GILD 300 53.32 17,412 8.85
HOTT 550 27.43 16,159 6.82
HSIC 230 66.06 16,505 8.63
INTC 420 30.75 12,949 0.26
INTU 290 51.87 14,370 -4.48
JEC 200 47.86 8,712 -9.27
SOLD
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SMF Holdings 02/17/04
Ticker Quantity Purchase Price Market Value (02/17/04) HPR
MAT 830 19.19 15,770 -0.97
MO 300 51.87 16,518 6.15
MSFT 550 26.56 14,900 1.98
NEM 215 42.41 9,729 6.7
OCR 350 36.93 16,328 26.03
UNH 275 54.63 16,657 10.88
WFC 250 55.23 14,480 4.64
WSM 350 33.84 14,403 -3.9
YCC 500 27.71 14,180 2.35
ZMH 230 69.74 17,848 11.27
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SMF Holdings Performance
Period Sep 4, 2003 Feb 17, 2004
SMF SP 500
Return 11.28 11.96
Annualized Return 23.47 24.97
Beta 1.014 1.00
Annualized Standard Deviation 7.67 7.46
Sharpe Ratio 2.67 2.93
Treynor Index 20.19 21.87
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Attribution Analysis

• Analyze determinants of portfolio performance
• Sector allocation decisions
• Equity selection decisions
• Sector Allocation and Equity Selection Effect
  Determinants
• Sector-wise weights and returns of the Portfolio
• Sector-wise weights and returns of the SP 500
  index
• Overall holding period returns of the SP500
• Analysis Period Dec 26, 2003 Feb 17, 2004
• SP 500 holding period return 5.58
• Portfolio holding period return 3.27
• Total value added -2.31

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Sector Allocation Effect
Sectors Wai - Wpi Rpi - Rp (Wai - Wpi) (Rpi - Rp)
Consumer Disc. 20.17 -2.1386 -0.4314
Consumer Staples -5.03 -0.4047 0.0203
Energy -5.79 0.8799 -0.0510
Financials -15.25 2.2509 -0.3433
Health Care 15.97 1.1151 0.1780
Industrials -1.82 -2.4278 0.0441
IT 1.04 -0.8548 -0.0089
Materials -3.05 -5.1317 0.1565
Telecomm Services -3.38 7.6488 -0.2587
Utilities -2.85 -2.1540 0.0615
    Sector Allocation Effect -0.6328
LEGEND Wai -- MBA Wts As of Dec 26 2003 Wpi
-- SP Wts as of Dec 26 2003 Rpi -- SP Sector
returns 12/26 to 2/17 Rp -- SP Overall Return
12/26 to 2/17 (Wai - Wpi) (Rpi - Rp) --
Sector Allocation Effect
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Equity Selection Effect
LEGEND Wai -- MBA Wts As of Dec 26 2003 Rai
-- MBA SMF Sector Returns 12/26 to 2/17 Rpi
-- SP Sector returns 12/26 to 2/17 Rp -- SP
Overall Return 12/26 to 2/17 (Wai - Wpi)
(Rpi - Rp) -- Sector Allocation Effect
Sectors Wai Rai - Rpi Wai Rai - Rpi
Consumer Disc. 31.46 0.873 0.27
Consumer Staples 5.97 -2.375 -0.14
Energy 0.00 -6.455 0.00
Financials 5.38 -8.724 -0.47
Health Care 29.28 0.757 0.22
Industrials 9.15 -2.932 -0.27
IT 18.77 -7.833 -1.47
Materials 0.00 6.726 0.00
Telecomm Services 0.00 -13.224 0.00
Utilities 0.00 -3.421 0.00
    Selection Effect -1.85
Total Value Added Sector Allocation Effect
Equity Selection Effect - 2.48
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Attribution Analysis

• Observations from Analysis
• Impact of allocation effect more favorable than
  that of the selection effect
• Review both allocation selection strategies
• Benefit from future investments in un-invested
  sectors
• Over-weighted Sectors
• Consumer Discretionary, Health Care, IT
• Under-weighted Sectors
• Consumer Staples, Financials, Industrials,
  Materials
• Un-invested Sectors
• Utilities, Energy, Telecom

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Retrospection and Self-Analysis

• Sector Allocation
• Use SP 500 Sector Allocation as a guide
• Make adjustments based on Industry Research
• Stock Selection
• Growth vs. Value Stocks
• Cyclical vs. Non-Cyclical Stocks
• Benchmark Risk
• Underperforming Stocks
• Sound Fundamentals vs. Poor Price Momentum
• Hold, Add, or Sell

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Outlook

• Continued economic strength
• Growth at a more moderate pace
• Continued stock market strength
• Modest interest rate increase

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Impact

• Overweight IT and Healthcare
• Be aware of interest rate sensitivity of
  holdings
• Select stocks leveraged to the current
  economic environment

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Activity Update As of Mar 05, 2004

• Received additional 150,000 from the
  Foundation
• Initiated positions in WAG, NXTL, CTSH
• Stock selection process underway

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Thank you

• University of Connecticut Foundation Inc.
• Investment Advisory Board
• Dr. Chinmoy Ghosh

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• Questions?