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Student Managed FundsStudent Managed Funds
1
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
34
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
35
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
75
• 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