Undergraduate Maroon amp Gold Value Fund SemiAnnual Meeting December 4 th 2009 INTRODUCTION 1 Todays Agenda Team introduction amp fund objectives Fund performance Economic outlook amp market overview ID: 1028181
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1. W. P. Carey School of Business Undergraduate Maroon & Gold Value FundSemi-Annual MeetingDecember 4th, 2009INTRODUCTION1
2. Today’s AgendaTeam introduction & fund objectivesFund performanceEconomic outlook & market overviewPortfolio structure decisionsInvestment Selection ProcessInvestments to highlight: American Express Inc (AXP)CVS Caremark (CVS)Attribution analysisLessons learned & conclusionINTRODUCTION2
3. FUND PERFORMANCEFund Performance3
4. FUND PERFORMANCEFund PerformanceTwo portfoliosPurchasesSalesEarnings4
5. FUND PERFORMANCESIM 7.21%IVV 5.39%5
6. FUND PERFORMANCESIM 7.21%IVV 5.39%BPS6
7. Economic OverviewECONOMICOVERVIEW7
8. Economic overviewWe expect slow-to-modest economic growth over next 1-year time frame. We expect large caps to outperform small-to-mid cap stocks as uncertainty and doubt still exists in the marketOur belief is the FED will not raise interest rates in the short term, will have a positive benefit for both Equity and Fixed Income marketsECONOMICOVERVIEW8
9. Economic overviewIndustrial ProductionISM ManufacturingDisposable IncomePersonal ConsumptionGDP GrowthHousing IndicesLabor/UnemploymentCurrent focus is on the consumerGoing forward we expect this trend to continueECONOMICOVERVIEWUp 2.0% since AugustUp 1.3% since AugustUp 0.9% since AugustUp 0.7% since AugustRevised 2.8% increaseCase Schiller, Existing Home Sales10.2%, still continues to lag9
10. Portfolio Structural DecisionsPORTFOLIOSTRUCTUREPortfolio | Allocation10
11. PORTFOLIOSTRUCTUREPortfolioDiversified, large-cap fundLarge-cap with market capitalization of $7bn+Global exposureFinancially strong & able to take advantage of opportunitiesMore information available11
12. PORTFOLIOSTRUCTUREAllocationDiversificationStrategy of beating benchmark9 sectors, 1 potential fixed income position$100,000 ($10,000 per position)Sector analyst recommended weighting12
13. PORTFOLIOSTRUCTURESector Allocation13
14. Investment Selection ProcessINVESTMENT SELECTIONSector reports | investment selection | due diligence | committee14
15. INVESTMENT SELECTIONSector ReportsTop-down analysis approachSub-sector focusDetermined view by examining: Economic reports, performance charts, industry publications, wall street research reports, etc.15
16. INVESTMENT SELECTIONInvestment ReportsIndustry overviewWhat is the current position of the sub-sectorFundamental analysisP/EPrice to BookRevenue GrowthBusiness MarginsReturn on EquityBuy/Sell recommendation16
17. INVESTMENT SELECTIONCommittee, MonitoringCommittee decisionVetting process/due diligenceMajority consensusMonitoringCompany briefings & industry updates17
18. Stocks to HighlightINVESTMENTHIGHLIGHTSAmerican Express (AXP) | CVS Caremark (CVS)18
19. American Express (AXP)Compared with competitors Visa and Discover Financial ServicesReasons for PurchaseStrong revenue generator Global business operationsAlso has world’s largest travel service businessClosed-loop business model – allows Amex to capitalize on efficiencies that competitors do not haveCredit markets weak, but Amex has high lending standards, which should mitigate delinquenciesRanked highest in 2009 in J.D. Power & Associates Credit Card Satisfaction Survey INVESTMENTHIGHLIGHTS19
20. American Express (AXP)INVESTMENTHIGHLIGHTS$32.76$40.84+22.9%20
21. CVS Caremark(CVS)Compared to Walgreens and Wal-Mart Reasons for PurchaseImplications of Health Care BillIncreased sales volume and store trafficPossible decreased in PBM margins Strong presence in sun belt statesMost successful customer loyalty program and created savings plus plan targeted at uninsured and underinsured customers Reasons for SaleUnexpected $4.8bn loss of contracts in 2010Investigation by SEC into 2007 mergerFederal Trade Commission investigating business practicesAppointed new CFOINVESTMENTHIGHLIGHTS21
22. CVS Caremark(CVS)Purchased KO (11/30) at $56.97 to replace CVS in Consumer Staples$30.15INVESTMENTHIGHLIGHTS(18.9%)22
23. Attribution AnalysisATTRIBUTIONANALYSIS23
24. Weighted Portfolio ReturnATTRIBUTIONANALYSISTo what do we attribute a manager’s performance?Investing in the right sector? Stock picking? A combination? Attribution Analysis as means of evaluating our investment thesisPortfolio Return - Benchmark Return = Total Return Difference 3.1% - 0.89% = 2.21%**Based on holding period of Fifth-Third report24
25. Performance AttributionATTRIBUTIONANALYSISAllocation Effect: Investing in the right sector? 2.07% Selection Effect: Stock picking? 0.59%Interaction Effect: Combination? - 0.45%Total Effect = 2.21%25
26. Allocation Effect & Selection EffectATTRIBUTIONANALYSIS- Allocation effect as the determining factor- Selection effect on the best and the worst performers- A global perspective contributes to stock selection
27. Lessons Learned & ConclusionCONCLUSION27
28. CONCLUSIONLessons LearnedUnexpected NewsDespite in-depth fundamental analysis, it is impossible to predict future eventsNews released Nov. 5 causing stock price of CVS to drop 20%Sell discipline Determine if company is still strong fundamentally Stop-Loss of 15% on all securities Position sold must be replaced to maintain minimal cash position 28
29. CONCLUSIONConclusionFund Structure Addressing groupthink Spring 2010 Semester Daniel Stone will be the new fund manager Fund will be investing in a mutual fund specializing in fixed income Accepted five new analysts 29
30. AppendicesAPPENDICESFund Holdings |Transaction History | Resumes 30
31. APPENDICESFund HoldingsInternational Business Machines (IBM)American Express (AXP)Coach (COH)Teva Pharmaceuticals (TEVA)BHP Billiton (BHP)Exxon (XOM)Verizon Wireless (VZ)Danaher (DHR)Coca-Cola (KO)31
32. APPENDICESTransaction HistoryBuys:IBM (10/26): 110 shares @ $120.36, return:AXP (10/26): 320 shares @ $34.58, return:COH (10/26): 200 shares @ $50.30, return:TEVA (10/26): 110 shares @ $120.36, return:BHP (10/26): 100 shares @ $73.66, return:XOM (10/26): 110 shares @ $73.81, return:VZ (10/26): 290 shares @ $29.00, return:DHR (10/26): 120 shares @ $70.00, return:CVS (10/26): 250 shares @ $37.16, return:KO (11/30): 175 shares @ $56.97, return:Sells:CVS (11/10): 250 shares @ $30.15, return: -18.9%32
33. APPENDICES33