Student Managed Funds 1 December 7, 2010. Overview Introduction Economic Analysis QInsight Process...

Student Managed FundsStudent Managed Funds

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December 7, 2010December 7, 2010

OverviewOverview• Introduction • Economic Analysis• QInsight Process• Compliance• Social Responsibility• Security Analysis• Portfolio Optimization• Portfolio Management• Exit Strategy• Funds Performance• Marketing 2

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IntroductionIntroduction

Alexandra Malanina

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Organizational StructureOrganizational StructureAdvisory GroupAdvisory Group Sector CaptainsSector Captains Regional

CaptainsRegional Captains

Portfolio ManagersPortfolio Managers

Portfolio Optimization

Portfolio Optimization

Portfolio Performance

Portfolio Performance

Marketing Team

Marketing Team

SRI/ComplianceSRI/Compliance Economic Analysis/QInsight

Economic Analysis/QInsight

Security AnalysisSecurity Analysis

ETF AnalysisETF Analysis

Exit TeamExit Team

EconomicEconomic AnalysisAnalysis

Dan Hall

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Top Down Investment Approach

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• Business Cycle Analysis

• Sectors picked off of current analysis

• Industries based off of selected sectors

• Best of breed individual securities selected

• Continual monitoring to economic indicators in order to track ongoing economic cycle

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Economic Data Resources• Lacy Hunt, “A Time to Be Rich”

• Bill Carter – Weekly conference calls

• John Mauldin – Newsletters

• Jeremy Siegel – Newsletters

• David Rosenberg – Newsletters

• Bloomberg

• Q Insight

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NBER Indicators • Leading:

– Average Weekly Hours Worked– Mfg. New Orders– Building Permits– Monetary Base– S & P 500– U.S. 10 Yr. Treasury vs. Fed Funds Rate

• Coincident:– Employee Non-Farm Payrolls– Personal Income– ISM Mfg. Index– Unemployment Rate

• Lagging:– Inventories-to-Sales Ratio– Labor Costs per Unit of Output– Consumer Price Index– Case-Schiller Home Price Index

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EconomicEconomic OutlookOutlook

Patrick Wilson

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Five-stage Economic Cycle

Maturation

Ease-off

PlungeAcceleration

Revival

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Early Revival• Industrial Production ↑

• Initial Unemployment ↓

• Weekly Hours Worked ↑

• Non-Farm Payrolls ↑

• Money Supply ↑

Late Revival• Continued Improvement

- Industrial Production ↑

- Employment ↑

• Corporate Profits ↑

• DJIA, S & P 500, Nasdaq ↑

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Acceleration

• Interest Rates ↑

• Corporate Profits ↑

• Asset Prices ↑

• Inflation ↑

Ease-off

• Real GDP Spending

Peaks

• Unemployment ↑

• New Housing Starts ↓

• Yield Curve Flattens

• Inventories ↑13

Plunge

•Initial Jobless Claims ↑

•Real GDP ↓

•Industrial Production ↓

•Interest Rates ↓14

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NBER Indicators • Leading:

– Average Weekly Hours Worked (Employment)– Mfg. New Orders (Industrial Production)– Building Permits (Housing)– Monetary Base– S & P 500 (Market Expectation)– U.S. 10 Yr. Treasury vs. Fed Funds Rate (Market Expectation)

• Coincident:– Employee Non-Farm Payrolls (Employment)– Personal Income (Employment)– ISM Mfg Index (Industrial Production)– Unemployment Rate (Employment)

• Lagging:– Inventories-to-Sales Ratio (Industrial Production)– Labor Costs per Unit of Output (Industrial Production)– Consumer Price Index (Inflation)– Case-Schiller Home Price Index (Housing)

QInsight Process

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QInsightQInsight ProcessProcess

Jason Colenda

Q-Insight Process• Current Economic Stage: Revival 2

• Industry selection for our portfolio is essential in capitalizing on potential returns during the current economic stage

• Q-Insight is used to help decipher which are the best industries for investment 17

Q-Rank Name Annual Return R/SV1 Semiconductors 19.570 0.4022 IT Consulting & Other Services 15.940 0.3373 Alternative Carriers 14.070 0.3334 Systems Software 13.090 0.4145 Oil & Gas Drilling 12.960 0.2716 Communications Equipment 12.620 0.2717 Internet Retail 11.660 0.2248 Computer Hardware 11.210 0.3459 Electric Utilities 9.890 0.31210 Networking Equipment 9.510 0.23811 Electronic Equipment Manufacturers 9.490 0.20912 Broadcasting & Cable TV 9.110 0.32413 Distributors 9.060 0.30014 Consumer Electronics 9.010 0.23415 Office Electronics 8.910 0.334 18

Top Ranked Industries

Q-Rank Name Annual Return R/SV

83 Real Estate Investment Trusts 3.210 0.01084 General Merchandise Stores 3.160 0.00685 Health Care Supplies 3.150 0.00886 Multi-Utilities & Unregulated Power 3.120 0.00987 Food Distributors 3.060 0.00488 Health Care Equipment 3.030 0.00189 Industrial Gases 2.860 -.00690 Specialty Stores 2.850 -.00691 Household Appliances 2.830 -.00792 Airlines 2.760 -.00993 Apparel Retail 2.750 -.00894 Agricultural Products 2.710 -.01395 Commodity Chemicals 2.690 -.01796 Railroads 2.670 -.01797 S&P 500 Index 2.660 -.025 19

Industries to Avoid

Bottom Industries

ComplianceCompliance

Aram Kevorkian

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• $3 Billion in Market Capitalization

• General Guidelines $10 Minimum Share

Value*

• 250,000 Average Volume (Trailing 20

Days)*

• Highly Liquid 21

Haley Large Cap

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Haley Large Cap Fund

Max Initial Investment Rebalance

Sector 25% 35%

Industry 12.50% 17.50%

Security 5% 7%

• Highly Liquid Funds

• 50% International, 50% Domestic

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Coleman ETF Fund

InternationalMax Initial Investment

Rebalance

Country 25% 35%

DomesticMax Initial Investment

Rebalance

Sector 20% 25%

SocialSocial ResponsibilityResponsibility

Nate Raduns

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Socially Responsible Investing• Avoid companies that are not Socially

Responsible

• Incorporate companies that are in accordance with the USCCB (United States Conference of Catholic Bishops)

• Socially responsible criteria will reflect responsible Catholic stewardship in accordance with Villanova University’s Augustinian principles 25

Steps1. Evaluate Catholic Bishop’s Statement

- protect human life- promote human dignity- reduce arms production- pursue economic justice- protect environment- encourage corporate responsibility

2. Rank our criteria based on recent issues and past profiles

3. Run our rankings through IWFinancial 26

IWFinancial and SRI Profile• IWFinancial rates companies in a “Comparative Universe”

• Highly sensitive issues:

•Bioethics

•Life/Choice

•Environment

•Tobacco

•Firearms

•Human Rights

•Adult Entertainment

• Passing score: 75 /10027

SecuritySecurity AnalysisAnalysisHaley Large Cap FundHaley Large Cap Fund

Daniel Potts

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• Analyst assigned to select sector specific securities

• Analyst presents recommendations to Investment Committee– Majority vote required to invest

• After optimization, individual security weights are voted on

Security Selection Process

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• Financial Health and Performance Metrics

• Valuation

• Analyst Recommendation

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Financial Health and Performance Metrics• Altman Z-Score– Risk of Bankruptcy

• Balance Sheet Ratios– Current Ratio, Quick Ratio, LTD/Equity, Coverage

Ratio– Suggested Credit Rating

• DuPont Ratio Analysis– Profit Margin, Asset Turnover, Equity Multiplier,

ROA, ROE 31

Valuation• DCF Valuation

– 10 year, 2 stage growth projections

– Projections based on analysts’ research

• Invested Capital – ROIC calculation

• WACC Calculation

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Analyst Recommendation• Results of Financial Health and Analysis– Altman Z-Score & Credit Rating

• Enterprise Value– Upside return potential

• Research Reports– Market Insight, Morningstar, Value Line– Other independent research

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SecuritySecurity AnalysisAnalysisColeman FundColeman Fund

Michael Zarrella

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ETF Analysis

• The George Coleman Fund

– 50% U.S. Sector ETFs

– 50% International ETFs

• ETF Selection Process

– Top-down forecasting approach

– SPDRs, Proshares, iShares, Vanguard

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ETF Analysis

• U.S. Sector ETFs- Sector analysis

- Materials, technology, utilities

• International ETFs- Economist Intelligence Unit (EIU)

- Macro and fiscal factors

- Brazil, China, India 36

ETF Analysis

• Morningstar Investment Research

- Historical performance- Top holdings- Expense ratios- Morningstar rating- Trading volume

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PortfolioPortfolio OptimizationOptimization

Michael Mack

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Correlation among S&P 500

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Optimization Process• PMSP

• Stein Estimators– Reduce Estimation Error– Links portfolio to economic cycle

• Rank by R/SV

• Allocate according to constraints40

Coleman Optimization• Rank by UPM to LPM

–Measures upside deviations versus downside deviations

• Allocate according to constraints

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PortfolioPortfolio ManagementManagementHaley Large Cap FundHaley Large Cap Fund

Jeffrey Bajorek

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Example Order• Investment Committee votes a 5% allocation in

Verizon Communication (NYSE:VZ)

• Calculation of Shares

– VZ market on 11/23/2010 $32.40/share– Weight 5%– Portfolio Value $108,589.04– Maximum Investable Fund $107,000 [$1,589.04 in cash]– 5% x $107,000 $5,350 to be invested in VZ– $5,350/$32.40 Purchase 165 shares of VZ

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Ticker Company Stock Price Shares

JEC JACOBS ENGI $39.03 61

AAPL APPLE INC $308.05 5

UPS UNITED PARC $68.14 77

WSM WILLIAMS SO $32.83 56

CYN CITY NATION $54.08 87

PTEN PATTERSON U $19.43 89

Haley Group Large Cap Fund

• Invested on: November 24, 2010

• 2010 Initial Value: $108,589.04

• 2009 Initial Value: $102,482.82

• Realized gain: 5.96% ($6, 106.22)

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PortfolioPortfolio ManagementManagementColeman ETF FundColeman ETF Fund

Christian Capozzoli

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Coleman Facts• Invested on: November 24, 2010

• 2010 Initial Value: $78,871.97

• 2010 Initial Value: $88,878.86

– Realized loss: 11.26% ($10,006.89)

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Domestic ETFs by Industry

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ExitExit StrategyStrategy

Trevor Bacon

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• Monitor portfolios while away on Christmas vacation

• Synthetic puts and stop losses

• Inverse ETFs

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Exit Strategy

FundsFunds PerformancePerformance

Vincent Pagano

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• Largest Gains Since Investment (11/24/2010)

Coleman Fund

LeadersETF Cost Basis Close

(12/3/10)%

Gain/LossiShares South

Korea 53.50 57.31 7.12%iShares US Basic

Materials 69.84 74.35 6.46%

iShares Taiwan 13.89 14.78 6.41%

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• Lowest Gains Since Investment (11/24/2010)

Coleman Fund

Laggards ETF Cost

BasisClose

(12/3/10)%

Gain/LossMarket Vectors

Indonesia 89.12 89.81 0.77%Utilities Select Sector SPDR 30.88 31.27 1.26%

iShares Malaysia 13.73 13.96 1.68%

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Coleman Year to Date Returns

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Haley Large Cap Fund• Largest Gains Since Investment (11/24/2010)

LeadersCompany Cost Basis Close

(12/3/10)%

Gain/Loss

Patterson-UTI Energy

19.43 21.90 12.71%

Fedex Corp. 86.26 95.00 10.13%

Oil States Intl. 57.12 62.34 9.14%

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Haley Large Cap Fund• Lowest Gains Since Investment (11/24/2010)

LaggardsCompany Cost

BasisClose

(12/3/10)%

Gain/Loss

eBay Inc. 30.07 29.61 -1.53%

Cisco Systems 19.29 19.07 -1.14%

Community Health Systems

32.21 32.16 -0.16%

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Haley Large Cap Year to Date Returns

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MarketingMarketing

John Hyland

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• Value Investing Seminars

• Warren Buffett Trip to Omaha, NE

Website Content

• Fund Performance

• Analyst biographies for MSF and

Undergraduates students

• Villanova Equity Society

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G.A.M.E. Forum

• March 31 – April 2, 2011

• Keynote Speakers– Joseph Battipaglia, Stifel Nicolaus & Co.– Dr. John E. Silvia, Wells Fargo Securities, LLC– Pat Dorsey, CFA, Morningstar

• Breakout panels and workshops

• Exploring career opportunities

• Portfolio Competition 72

Q&AQ&A

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Thank youThank you

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MSF Class 2011MSF Class 2011

References

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• Hunt, Lacy. “Time To Be Rich”

• Barclays Capital Website, www.barcap.com

• “Modern Portfolio Theory and Investment Analysis”, 8 edition

• “Wall Street Journal”

• Bloomberg

• Value Line

• Morningstar

• EIU

• QInsight