Download March 2004 Slideshow - UConn School of Business

Interim Report
Student Managed Fund
MBA class of 2004
March 11, 2004
2
MBA Fund Managers
 Anjana Radhakrishnan
 Jessie LeBlanc
 Christopher Bodnar
 Michael Appell
 Ganesh Padmanabhan
 Saipriya Menon
 Geoffrey Munger
 Tanzhuo Liu
 Heather Utter
 Wiebke WannerBorchardt
3
Agenda
 Investment Philosophy & Approach
 Investment Criteria
 Portfolio Performance
 Attribution Analysis
 Retrospection and Self-Analysis
 Economic Outlook
4
Investment Philosophy
 Outperform the S&P500
 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
5
Investment Approach
Sector Allocation
Investment Criteria
Fundamental
Analysis
•Historical Growth
•Free Cash Flow
•Profit Margin
Valuation
•PEG and P/E
Models
•Discounted Cash
Flow
•Economic Profit
Constant Portfolio Performance Monitoring
6
Investment Criteria
Quantitative
Qualitative
ROA
Industry Growth
Quantitative
ROE
Company Market Share
& qualitative
ROIC
Corporate Governance
factors
Growth in EPS
Institutional Ownership
checked
Free Cash Flow/Net Income
Insider Trading
Gross Margin
Market Power
Product Differentiation
Low-cost Producer
Customer Relationship
Retention Ratio
Economic Profit
Debt/Equity
Beta
across
industries
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%
Medium
Low
Medium
High
High
High
Medium
Low
High
High
High
Medium
Market Power
 Product
Differentiation
 Low-cost Producer
 Customer
Relationship
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%
Our sector
ALV
4.21%
allocation closely
EBAY
6.12%
HOTT
5.85%
tracks the S&P500
with exceptions
MAT
5.86%
WSM
4.42%
YCC
5.00%
HEALTHCARE
29.28%
GILD
6.56%
HSIC
5.78%
OCR
5.27%
UNH
5.77%
ZMH
5.89%
based on
economic outlook
11
SMF Holdings – 12/26/03
Ticker
Equity Weight
Our sector
INFORMATION TECHNOLOGY 18.77%
allocation closely
COGN
3.36%
FDC
4.17%
tracks the S&P500
INTU
5.68%
with exceptions
MSFT
5.56%
INDUSTRIALS
based on
9.15%
economic outlook
CD
5.62%
JEC
3.53%
FINANCIALS
WFC
CONSUMER STAPLES
MO
5.38%
5.38%
5.97%
5.97%
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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
S&P 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 S&P 500 index
 Overall holding period returns of the S&P500
 Analysis Period: Dec 26, 2003 – Feb 17, 2004
 S&P 500 holding period return: 5.58%
 Portfolio holding period return: 3.27%
 Total value added: -2.31%
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Sector Allocation Effect
LEGEND
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%
Sectors
Sector
Allocation
Effect
-0.6328%
Wai -- MBA Wts As of
Dec 26 2003
Wpi -- S&P Wts as of
Dec 26 2003
Rpi -- S&P Sector
returns {12/26 to 2/17}
Rp -- S&P Overall
Return {12/26 to 2/17}
{(Wai - Wpi)* (Rpi - Rp)}
-- Sector Allocation
Effect
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Equity Selection Effect
LEGEND
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%
Wai -- MBA Wts As of
Dec 26 2003
Rai -- MBA SMF Sector
Returns {12/26 to 2/17}
Rpi -- S&P Sector
returns {12/26 to 2/17}
Rp -- S&P Overall
Return {12/26 to 2/17}
{(Wai - Wpi)* (Rpi - Rp)}
-- Sector Allocation
Effect
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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 S&P 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
22
Impact
 Overweight IT and Healthcare
 Be aware of interest rate sensitivity of
holdings
 Select stocks leveraged to the current
economic environment
23
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?