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Agnost ic FundamentalMBA Student Investment Management FundApril 26, 2019
MBA SIM Fund Member s
Martin Manku Allison Richer Aashish Sharma Robert Yap
Madeline Doherty Megan Dolle Spencer Elliott Yuejiang Fan
Agenda
◉ Strategy Review◉ Implementation◉ Rebalancing◉ Returns◉ Attributions◉ Lessons Learned
Agnost ic Fundamental Analysis
◉ Statistician’s approach to Fundamental Analysis
◉ Uses least- squared regression to estimate the fair value of firms
Backgr ound Resear ch
◉ Predicted fair value of firms as a function of 28 widely reported accounting variables
◉ Back- tested over 310 months; fed data from investible universe into a cross- sectional regression
◉ Line of best fit represented peer- implied market values which were used to calculate mispricing signals
◉ Ranked firms ordinally by mispricing signal into quintiles
Bartramm, Sohnke and Mark Grinblatt. “Agnostic Fundamental Analysis Works.” 2014
Back- test ing Retur ns
◉ Size tilt, smaller beta, higher B/ M ratio
Implementat ion
◉ Accounting information obtained from WRDS
◉ Market caps obtained from Bloomberg Terminals
◉ Regression estimated using Python
◉ Securities ranked by mispricing signal and sorted into deciles
◉ Sector neutral portfolio composition
Monthly Rebalancing
◉ Each month, new accounting data may have been released and market caps changed
Buy range: Decile 10
Hold range: Deciles 9 & 10
Sell Range: Deciles 1 to 8
Size Ti l t
13
4447
16
8
1
500M - 1B 1B - 2B 2B - 5B 5B - 10B 10B - 50B 50B - 100B
Num
ber o
f Sto
cks
Market Capitalization
Size Distribution of Holdings
Por t fol io Retur ns
-20%
-15%
-10%
-5%
0%
5%
10%
15%19-Nov-18 19-Dec-18 19-Jan-19 19-Feb-19 19-Mar-19 19-Apr-19
MBA
IWV
VRTIX
Total Return
6.61%
8.91%
4.94%
Volatility
5.94%
5.22%
5.46%
Sector Weights
0% 5% 10% 15% 20% 25%
Communication Services
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Utilities MBA
IWV
Sector Weights
0% 5% 10% 15% 20% 25%
Communication Services
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Utilities MBA
VRTIX
At t r ibut ions
-4% -3% -2% -1% 0% 1% 2% 3%
Communication Services
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Contribution to ReturnAllocation
Selection
At t r ibut ions
-60% -40% -20% 0% 20% 40% 60% 80%
TROX
CORE
CDAY
TTMI
MTG
MD
TUSK
CVS
X
UNFI
Top 5 Winners/Losers
At t r ibut ions
30
35
40
45
50
55
4/26/18 5/26/18 6/26/18 7/26/18 8/26/18 9/26/18 10/26/18 11/26/18 12/26/18 1/26/19 2/26/19 3/26/19
CDAY Stock Price
◉ Grew so much we had to trim position
At t r ibut ions
0
5
10
15
20
25
30
35
40
45
50
4/16/18 5/16/18 6/16/18 7/16/18 8/16/18 9/16/18 10/16/18 11/16/18 12/16/18 1/16/19 2/16/19 3/16/19 4/16/19
UNFI Stock Price
◉ Sold in January but still remains in decile 10
Lessons Lear ned
◉ Don’t blindly follow the model
◉ Efficient rebalancing
◉ Lag time/ cash reconciliation
Thank You!
Appendix - Const r aint s
◉ Long only, no shorting
◉ 90% of firms must have a market cap greater than $1B
◉ Investment in each sector must be 25% or less
◉ Investment in each firm must be 4% or less
AppendixM BA IWV
P/ E Rat ios: 12.47 20.25 Communicat ion Services 12.85 20.33Consumer Discret ionary 9.40 23.29Consumer Staples 21.01 20.10Energy 39.88 17.53Financials 7.99 13.42Health Care 14.51 26.46Industr ials 12.21 18.20Informat ion Technology 14.73 24.33Mater ials 7.91 14.03Real Estate 15.02 44.92
Appendix
Appendix