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Student Investment Management Fund
Background Construction Implementation
Undergraduate Student Investment Management Fund
Fall 2017 Presentation
1
Student Investment Management Fund
Background Construction Implementation
2
Fund Managers
Fund Analysts
Ernest Dela Cruz
Jeremy Liu Joshua Harter
Brian Stewart Kyle McCall Andrew Kudlinski
Thomas Henning
Gage Schrantz
Kevin Bergauer
Student Investment Management Fund
Background Construction Implementation
Background
3
Student Investment Management Fund
\
Student Investment Management Fund
Student Investment Management Fund
ConstructionBackground Implementation
4
Momentum
1927 - 2014
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
P1 P2 P3 P4 P5 P6 P7 P8 P9 P10
Ave
rag
e M
on
thly
Re
turn
s
Deciles
Momentum Premium
Student Investment Management Fund
\
Student Investment Management Fund
Student Investment Management Fund
ConstructionBackground Implementation
5
Premia By Size
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
Small Large
Mo
nth
ly E
xce
ss
Re
turn
s
Profitability Excess Returns
1963 - 2014 1926 - 2014
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Small Large
Ye
arly E
xce
ss
Re
turn
s
Value Excess Returns
1965 - 1989
Momentum: High Returns – Low Returns
Profitability: Profitable - Unprofitable
Value: Value - Growth
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
Small Large
Mo
nth
ly E
xce
ss
Re
turn
s
Momentum Excess Returns
Student Investment Management Fund
Background Construction Implementation
Construction
6
Student Investment Management Fund
Background Construction Implementation
7
Russell 3000
Under $1 Billion
Market Cap
Over $10 Billion
Market Cap
Average Daily Shares
Traded Under 50k
Regulated Utilities
Small - Mid
Cap
Universe
Student Investment Management Fund
Background Construction Implementation
8
Above Median in
Profitability
Above Median in
Momentum
Above Median in
Value
Target
Universe
Small - Mid
Cap
Universe
Student Investment Management Fund
Background Construction Implementation
9
Profitability
Value
Momentum
Normalized
Profitability
Normalized
Value
Normalized
Momentum
Investable
Universe
Target
Universe
Student Investment Management Fund
Background Construction Implementation
10
Profitability
Momentum
Value(1-x)^2 + (1-y)^2 + (1-z)^2
Distance Formula
(1,1,1)
Student Investment Management Fund
Background Construction Implementation
11
Distance
Portfolio
1
10
33%
2
15
33%
3
25
33%
Tier:
Securities:
Portfolio Weight:
Cash
-
1%
Student Investment Management Fund
Background Construction Implementation
Implementation
12
Student Investment Management Fund
Background ImplementationConstruction
13
Factor Tilts
-60%
-40%
-20%
0%
20%
40%
60%
80%
Russell 3000 Portfolio
Pre
miu
m M
ea
su
re
Momentum
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
Russell 3000 Portfolio
Pre
miu
m M
ea
su
re
Value
-20%
-10%
0%
10%
20%
30%
40%
50%
Russell 3000 Portfolio
Pre
miu
m M
ea
su
re
Profitability
Student Investment Management Fund
Background ImplementationConstruction
0%
20%
40%
60%
80%
Tier 1 Tier 2 Tier 3
Pre
miu
m M
easure
Average Value
14
13%
14%
15%
16%
17%
18%
19%
Tier 1 Tier 2 Tier 3
Pre
miu
m M
easure
Average Profitability
0%
10%
20%
30%
40%
50%
Tier 1 Tier 2 Tier 3
Pre
miu
m M
easure
Average Momentum
Average Exposure By Tier
Student Investment Management Fund
Background ImplementationConstruction
15
Portfolio By Sector
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Se
cto
r W
eig
ht
Sectors
Portfolio By Sector
Portfolio Russell 3000
Student Investment Management Fund
Background ImplementationConstruction
16
ReturnsOur Portfolio: 1.56%
Russell 3000: 1.77%
Student Investment Management Fund
Background Construction Implementation
Thank you. We will now welcome questions.
17
Student Investment Management Fund
Background Construction Implementation
Appendix
18
Student Investment Management Fund
Background Construction Implementation
19
Value
Calculation used for premium measure: 𝐵𝑜𝑜𝑘 𝐸𝑞𝑢𝑖𝑡𝑦
𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛
Paper used:Fact, Fiction, and Value Investing
Asness, Frazzini, Israel and Moskowitz (2015)
Student Investment Management Fund
Background Construction Implementation
20
Profitability
Calculation used for premium measure: 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 𝐹𝑟𝑜𝑚 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑠 − 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Paper used:Accruals, Cash Flows, and Operating Profitability in the Cross Section of Stock Returns
Ball, Gerakos, Linnainmaa and Nikolaev (2015)
Student Investment Management Fund
Background Construction Implementation
21
Momentum
Calculation used for premium measure: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒
𝑃𝑟𝑖𝑜𝑟 6 𝑀𝑜𝑛𝑡ℎ𝑠 𝑉𝑎𝑙𝑢𝑒− 1
Paper used:Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
Jegadeesh and Titman (1993)
UNDERGRADUATESIM FUND
Undergraduate Student Investment Management Fund
1
2017 Fall PresentationFriday, December 1st
UNDERGRADUATESIM FUND
ChrisNuccio
Team Overview
2
Fund Manager
Fund Analysts
Michael Barger
Elena Pham
PeterHurtado
DrezdenPlotkin
CalebSkogen
Steven Urry
JerryZhang
PaigeWeisman
UNDERGRADUATESIM FUNDSystematic Drivers of Expected Returns
3
Equities
Value
Profitability
Momentum
Volatility
Size
Investment
Value vs Growth Companies
Profitable vs Less-Profitable Companies
Appreciating vs Non-Appreciating Companies
Low Volatility vs High Volatility Companies
Small vs Large Companies (by market capitalization)
Low Investment vs High Investment Companies
UNDERGRADUATESIM FUNDMonthly Historical Returns
4
Return: 108 Bps
Return: 62 Bps
Value(1963-2010)
Profitability(1963-2010)
Value & Profitability(1963-2010)
Return: 80 Bps
Return: 43 BpsMarket(1963-2016)
UNDERGRADUATESIM FUND
Implementation
5
UNDERGRADUATESIM FUNDCharter Constraints
6
Investable Universe
U.S. Domiciled Securities
Greater than $1B Market Cap
Minimum Average Trade Volume of 50K
UNDERGRADUATESIM FUNDMeasuring Profitability
7
Revenue
Cost of Sales
Gross Profit
Selling, General & Administrative
Operating Income
Operating Income
Net Change in Accruals and other Non-Cash Activities
Cash Operating Income
MinusAdd
UNDERGRADUATESIM FUNDMonthly Returns Historical Profitability
8
Cash Operating Profitability (1963-2014)
Operating Profitability (1963-2014)
Return: 64 Bps
Return: 54 Bps
UNDERGRADUATESIM FUND
9
Composite Value Score
UNDERGRADUATESIM FUND
10
Security Selection Matrix
UNDERGRADUATESIM FUNDRussell 3000 Financials Distributions
11
Mean Median
0 .25 .50 .75-.25 0 .25 .50-.25
UNDERGRADUATESIM FUND
Portfolio Construction
12
UNDERGRADUATESIM FUNDSector Weighting
13
Russell 3000Target
Portfolio
UNDERGRADUATESIM FUNDSector Weighting
14
Russell 3000Target
PortfolioTarget
PortfolioRussell 3000
UNDERGRADUATESIM FUNDSector Weighting
15
Russell 3000Target
PortfolioTarget
PortfolioRussell 3000
UNDERGRADUATESIM FUNDSecurity Selection Example: Financials
16
Security Market Cap (B) Profitability Measure
Value Measure Value Rank
A 24.60 0.132 0.469 2
B 17.27 0.138 0.450 3
C 30.23 0.144 0.808 1
D 11.27 0.141 0.442 4
UNDERGRADUATESIM FUNDSecurity Selection Example: Financials
17
Security Market Cap (B) Profitability Measure
Value Measure Value Rank
A 24.60 0.132 0.469 2
B 17.27 0.138 0.450 3
C 30.23 0.144 0.808 1
D 11.27 0.141 0.442 4
UNDERGRADUATESIM FUNDSecurity Selection Example: Financials
18
Security Market Cap (B) Profitability Measure
Value Measure Value Rank
A 24.60 0.132 0.469 2
B 17.27 0.138 0.450 3
C 30.23 0.144 0.808 1
D 11.27 0.141 0.442 4
UNDERGRADUATESIM FUNDSecurity Selection Example: Financials
19
Security Market Cap (B) Profitability Measure
Value Measure Value Rank
A 24.60 0.132 0.469 2
B 17.27 0.138 0.450 3
C 30.23 0.144 0.808 1
D 11.27 0.141 0.442 4
UNDERGRADUATESIM FUNDSecurity Selection Example: Financials
20
Security Market Cap (B) Profitability Measure
Value Measure Value Rank
A 24.60 0.132 0.469 2
B 17.27 0.138 0.450 3
C 30.23 0.144 0.808 1
D 11.27 0.141 0.442 4
UNDERGRADUATESIM FUNDSecurity Selection Example: Financials
21
Security Market Cap (B) Profitability Measure
Value Measure Value Rank
A 24.60 0.132 0.469 2
B 17.27 0.138 0.450 3
C 30.23 0.144 0.808 1
D 11.27 0.141 0.442 4
UNDERGRADUATESIM FUNDPortfolio Characteristics
22
54 Securities
$424B Market Cap
0.99% Cash
0.5% Floor
5.0% Ceiling
UNDERGRADUATESIM FUNDSector Weight Comparison
23
Russell 3000 Portfolio
UNDERGRADUATESIM FUND
24
Market Capitalization Comparison
Russell 3000 Portfolio
UNDERGRADUATESIM FUNDPerformance at Market Close 11/29/2017
25
ReturnsOur Portfolio 2.84%Russell 3000 1.78%
UNDERGRADUATESIM FUND
Thank you, we now welcome questions!
26
UNDERGRADUATESIM FUND
APPENDIX
27
UNDERGRADUATESIM FUNDAlaska Air Group Inc.
28
Returns ALK 3.96%Our Portfolio 2.84%Russell 3000 1.78%
ALK Portfolio WeightSeeding Weight 1.70%Portfolio Weight 1.72%
UNDERGRADUATESIM FUNDBreak Points
29
Profitability Measure Value Measure
Sector Portfolio Average Median Portfolio Average Median
Consumer Discretionary 0.231 0.156 0.139 0.244 0.194 0.177
Consumer Staples 0.147 0.171 0.150 0.276 0.168 0.141
Energy 0.146 0.079 0.092 0.560 0.291 0.255
Financials 0.068 0.054 0.024 0.554 0.265 0.259
Health Care 0.234 -0.135 0.040 0.315 0.058 0.047
Industrials 0.196 0.125 0.124 0.304 0.183 0.159
Information Technology 0.212 0.128 0.127 0.205 0.113 0.101
Materials 0.138 0.091 0.124 0.215 0.186 0.160
Real Estate 0.196 0.110 0.096 0.237 0.187 0.181
Telecommunication Services 0.125 0.068 0.127 0.450 0.273 0.181
Utilities 0.147 0.108 0.102 0.366 0.204 0.200
UNDERGRADUATESIM FUNDDistributions - Breakpoint & Sector Averages
30
UNDERGRADUATESIM FUNDDistributions - Breakpoint & Sector Averages
31
UNDERGRADUATESIM FUNDValue Sharpe Ratios (1951-2014)
32
UNDERGRADUATESIM FUNDRebalancing
33
Prof
itabi
lity
Ran
k
Value Rank
Mean
Mea
n
Sell
Buy
Hold
Med
ian
Median
UNDERGRADUATESIM FUND
34
R3000 Consumer Discretionary Distributions
Mean Factor Captured (Portfolio Weighting)Median
-.25 0 .25 .75.50 < -.20 0 .20 >.50
UNDERGRADUATESIM FUNDR3000 Consumer Staples Distributions
35
Mean Factor Captured (Portfolio Weighting)Median
< .0 .15 .25 .45 >.5.35
-.10 0 .25 .40 > . 45
UNDERGRADUATESIM FUNDR3000 Energy Distributions
35
Mean Factor Captured (Portfolio Weighting)Median
< -.50 0 .25 .75 1.0.50 1.4 < -.2 0 .20 >.50
UNDERGRADUATESIM FUNDR3000 Financials Distributions
37
Mean Factor Captured (Portfolio Weighting)Median
0 .25 .50 .75-.25 0 .25 .50-.25
UNDERGRADUATESIM FUNDR3000 Health Care Distributions
38
Mean Factor Captured (Portfolio Weighting)Median
0 .25 .50-.25-.50 0-.50-1.0 .50-1.5
UNDERGRADUATESIM FUNDR3000 Industrials Distributions
39
Mean Factor Captured (Portfolio Weighting)Median
0 .25 .50 .70-.2 0 .20 .40-.20
UNDERGRADUATESIM FUNDR3000 Information Technology Distributions
40
Mean Factor Captured (Portfolio Weighting)Median
0 .25 .50-.25-.50 .25 .50 .750-.25
UNDERGRADUATESIM FUNDR3000 Materials Distributions
41
Mean Factor Captured (Portfolio Weighting)Median
0 .25 .50 .70-.25 0 .20 .40-.20
UNDERGRADUATESIM FUNDR3000 Real Estate Distributions
42
Mean Factor Captured (Portfolio Weighting)Median
-.05 0 .20 .40 .60 -.15 0 .15 .30 .60.45
UNDERGRADUATESIM FUNDR3000 Telecommunication Distributions
43
Mean Factor Captured (Portfolio Weighting)Median
-.2 -.10 0.0 .10 > . 2-1.5 -.50 0.0 .50 2.51.0 2.0
UNDERGRADUATESIM FUNDR3000 Utilities Distributions
44
Mean Factor Captured (Portfolio Weighting)Median
< -.1 0 .25 .35.15 .45 -.2 0 .10 .15 > . 2
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