undergraduate student investment management fund · undergraduate break points sim fund 29...

Student Investment Management Fund

Background Construction Implementation

Undergraduate Student Investment Management Fund

Fall 2017 Presentation

1



2

Fund Managers

Fund Analysts

Ernest Dela Cruz

Jeremy Liu Joshua Harter

Brian Stewart Kyle McCall Andrew Kudlinski

Thomas Henning

Gage Schrantz

Kevin Bergauer



Background

3


\



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


\



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



Construction

6



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



8

Above Median in

Profitability

Above Median in

Momentum

Above Median in

Value

Target

Universe

Small - Mid

Cap

Universe



9

Profitability

Value

Momentum

Normalized

Profitability

Normalized

Value

Normalized

Momentum

Investable

Universe

Target

Universe



10

Profitability

Momentum

Value(1-x)^2 + (1-y)^2 + (1-z)^2

Distance Formula

(1,1,1)



11

Distance

Portfolio

1

10

33%

2

15

33%

3

25

33%

Tier:

Securities:

Portfolio Weight:

Cash

-

1%



Implementation

12


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%


Pre

miu

m M

ea

su

re

Value

-20%

-10%

0%

10%

20%

30%

40%

50%


Pre

miu

m M

ea

su

re

Profitability



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%


Pre

miu

m M

easure

Average Profitability

0%

10%

20%

30%

40%

50%


Pre

miu

m M

easure

Average Momentum

Average Exposure By Tier



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



16

ReturnsOur Portfolio: 1.56%

Russell 3000: 1.77%



Thank you. We will now welcome questions.

17



Appendix

18



19

Value

Calculation used for premium measure: 𝐵𝑜𝑜𝑘 𝐸𝑞𝑢𝑖𝑡𝑦

𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛

Paper used:Fact, Fiction, and Value Investing

Asness, Frazzini, Israel and Moskowitz (2015)



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)



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


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)


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


9

Composite Value Score


10

Security Selection Matrix

UNDERGRADUATESIM FUNDRussell 3000 Financials Distributions

11

Mean Median

0 .25 .50 .75-.25 0 .25 .50-.25


Portfolio Construction

12

UNDERGRADUATESIM FUNDSector Weighting

13

Russell 3000Target

Portfolio


14

Russell 3000Target

PortfolioTarget

PortfolioRussell 3000


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


17



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


18



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


19



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


20



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


21



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



24

Market Capitalization Comparison


UNDERGRADUATESIM FUNDPerformance at Market Close 11/29/2017

25

ReturnsOur Portfolio 2.84%Russell 3000 1.78%


Thank you, we now welcome questions!

26


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


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


< .0 .15 .25 .45 >.5.35

-.10 0 .25 .40 > . 45

UNDERGRADUATESIM FUNDR3000 Energy Distributions

35


< -.50 0 .25 .75 1.0.50 1.4 < -.2 0 .20 >.50

UNDERGRADUATESIM FUNDR3000 Financials Distributions

37


0 .25 .50 .75-.25 0 .25 .50-.25

UNDERGRADUATESIM FUNDR3000 Health Care Distributions

38


0 .25 .50-.25-.50 0-.50-1.0 .50-1.5

UNDERGRADUATESIM FUNDR3000 Industrials Distributions

39


0 .25 .50 .70-.2 0 .20 .40-.20

UNDERGRADUATESIM FUNDR3000 Information Technology Distributions

40


0 .25 .50-.25-.50 .25 .50 .750-.25

UNDERGRADUATESIM FUNDR3000 Materials Distributions

41


0 .25 .50 .70-.25 0 .20 .40-.20

UNDERGRADUATESIM FUNDR3000 Real Estate Distributions

42


-.05 0 .20 .40 .60 -.15 0 .15 .30 .60.45

UNDERGRADUATESIM FUNDR3000 Telecommunication Distributions

43


-.2 -.10 0.0 .10 > . 2-1.5 -.50 0.0 .50 2.51.0 2.0

UNDERGRADUATESIM FUNDR3000 Utilities Distributions

44


< -.1 0 .25 .35.15 .45 -.2 0 .10 .15 > . 2

undergraduate student investment management fund · undergraduate break points sim fund 29...

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