mba sim fund - w. p. carey school of business · 12/5/2008 · mba sim fund board presentation...
TRANSCRIPT
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MBA SIM Fund
Board Presentation December 5, 2008
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22
2008-2009 Student Managers
Colin Nelson W.P. Carey MBA Finance Class of 2009
Jay Krumme W.P. Carey MBA Finance Class of 2009
Jeremy Kelstrom W.P. Carey MBA Finance & Real Estate Class of 2009
Bill Pappa W.P. Carey MBA Real Estate Class of 2009
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3
Agenda
Overview•
Fund Objectives
•
Economic Climate
Selections
•
Decision Criteria•
Sample Holdings
Performance•
Portfolio
•
Attribution
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4
Executive Summary
Returns, Sept 29 to Nov 20
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
SIM Fund
S&P 500
(27.2%)
(33.2%)
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Overview
Board Presentation December 5, 2008
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Fund Objectives
Long-term investment strategy
Minimum 70% equity
Low cash reserve
No short selling
$750MM market cap
Limits on derivatives
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Pre-Investment Economic Overview
Low/Negative growth in real GDP
Unemployment increased almost 140bps
Declining dollar
Increasing commodity prices
Inflationary pressures
Upcoming election
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DJIA 4/25-11/20
May 30th – Bear
Stearns bought for $10/share
by JP Morgan;
Two banks fail
July
– Three banks
fail
Oil peaks at $147
per barrel
August – Three banks fail
Sept. 4th – B of A to buy Merrill Lynch
Sept. 7th – U.S. Government takes over Fannie and Freddie
Sept. 15th – Lehman files Chapter 11
Sept. 16th – AIG receives $85 billion bailout
Sept 21st – 22nd – Goldman and Morgan
Stanley become commercial banksSept 29th – First bailout rejected Three banks fail
October 3rd
–
Bailout plan
approved, TARP created
Four banks fail
Nov. 10th – American Express becomes a
commercial bank Nov. 12th - $290 of the
first $350 billion of TARP allocated
Nov. 20th – Big three auto
companies not bailed out
Five banks fail
Source: Google Finance
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Selections
Board Presentation December 5, 2008
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10
Decision Process
Defensive and recession-proof plays
Underweight certain sectors
Large cap stocks
What We Thought
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Decision Process
Low Beta
Dividend Yield
Industry Leader
Depressed Stock
Large Cash on Books
Cash for Investing
Int’l Exposure
Value Line
Specifically
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Benchmark Selection
S&P 500
Primary
Russell 1000 Value
Secondary
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Sept 29th - Purchased:
Research in Motion Alcon
Lockheed Chesapeake
General Electric Travelers
Oct. 3rd - Purchased:
Wal-Mart PepsiCo
General Electric du Pont
Oct. 9th - Purchased:
Diageo (ADR) Johnson & Johnson
General Dynamics LQD Bond Fund
Nov. 3rd
– Purchased:
McDonald’s
Purchase Dates
Source: Google Finance
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Johnson & Johnson (JNJ)
Traditionally defensive stock
Bond rating
Dividend yield
Stock price
Reasons for Purchase
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Johnson & Johnson (JNJ)
Source: Google Finance
Fundamentally still sound
Long-term investment
Cash on books
Acquisitions (HealthMedia, Mentor, Omrix
Biopharma)
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Travelers (TRV)
Defensive play in financial sector
Non-discretionary products
Attractive valuations
Minimal subprime exposure
Reasons for Purchase
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Travelers (TRV)
Source: Google Finance
No fundamental changes at Travelers
Passed on applying for Federal assistance
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Healthcare industry exposure
Change of ownership to synergistic partner
Novartis
Low beta
Alcon (ACL)Reasons for Purchase
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Alcon (ACL)
Source: Google Finance
3rd quarter earnings below estimates
Foreign currency exposure
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Strong operating margins
Strong ROE
International exposure
Market share improvement potential
Alcon (ACL)Hold Decision
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Largest independent producer of natural gas
Natural gas is the cleanest fossil fuel
T. Boone Pickens push towards natural gas
CEO owns high number of shares
About 5.5%
Chesapeake (CHK)Reasons for Purchase
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Chesapeake (CHK)
Source: Google Finance
Price of natural gas dropped
CEO margin call
Still largest independent producer
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Halliburton
Pros
•
Increasing EBIT•
Strong earnings per share growth
Cons
•
Decreasing cash from operations
Halliburton is down 60% for the period
Non-Purchase Example
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Portfolio Analysis
Board Presentation December 5, 2008
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PerformanceSince the April Presentation
$0
$100,000
$200,000
$300,000
$400,000
$500,000
Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08
5/9 $17K ASU Foundation Distribution
4/25 Portfolio Value
$454,8969/2 Portfolio Value
$404,604 (-7.7%)
9/29 Portfolio Value
$353,254 (-19.4%)
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PerformanceSept 29 to Nov 20
$0
$100,000
$200,000
$300,000
$400,000
Sep-08 Oct-08
9/29 Portfolio Value
$353,254
11/20 Portfolio Value
$257,072 (-27.2%)
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Performance
Portfolio value declined from $353K to $257K
The S&P 500 lost 33.2%
Russell 1000 Value lost 32.0%
Continued investment in SPY would have resulted in a $239K value
Dollar Value Returns
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PerformanceReturns by Individual Security
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PerformanceReturns on 9/29 Buys
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PerformanceReturns on 10/3 Buys
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PerformanceReturns on 10/9 Buys
*MCD was purchased 11/3. Returns for SPY over the same period were (22.3%)
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Asset Allocation
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Sector Allocation
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Performance Attribution
8.56%
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Allocation Effect
0.09%
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Selection Effect
10.62%
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Spring 2009
Board Presentation December 5, 2008
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Looking Forward
New administration
Government intervention
•
i.e. Lockheed forecast change
Continued economic weakness
High unemployment
Low consumer confidence
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Learning Points
In hindsight, some criteria were u not
Less Useful
•
52 week low•
Value Line
Price movements can be driven b
As a long-term investor, rely on fun
Even “defensive”
companies don protection in this bear market
In hindsight, some criteria were useful, some were not
Useful
•
Low beta•
Lots of cash on books•
Consumer staple brands
Price movements can be driven by emotions
As a long-term investor, rely on fundamentals
Even “defensive”
companies don’t provide much protection in this bear market
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Questions
Board Presentation December 5, 2008