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Student Managed Investment Fund Annual Report 2008-2009.

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Presentation on theme: "Student Managed Investment Fund Annual Report 2008-2009."— Presentation transcript:

1 Student Managed Investment Fund Annual Report 2008-2009

2 Presentation Overview Background & Guidelines Top-Down Approach Allocation Triggers Capital Markets Outlook Asset Allocation Fixed-Income Analysis Equity Analysis Portfolio Performance Fund Expansion Networking & Outreach Learning Experiences Presenters Brooks Zimmer Tien Do Wayne Brown Kristin Tran Casey Hughes Greg Strand Reuben Conceicao

3 Student Managed Investment Fund Brooks Zimmer

4 Background of SMIF Honors-level program administered by the College of Business Administration’s Department of Finance Established August 1995 Program Goals “Real dollar” experience in portfolio management Apply this knowledge toward career advancement

5 Class Structure Sixteen senior-level undergraduate students and second-year MBA students majoring in Finance/Investments Sixteen students divided into four teams Rigorous selection process & boot camp Diversity within the ranks Background, Academics, Philosophy Students spend an average of 20 hours per week on SMIF

6 Portfolio Guidelines Growth of Income objective Equity Allocation 50-75% Fixed Income Allocation 25-50% Diversification No more than 15% in each industry No more than 5% in one company Trailing 10% Stop-Loss

7 Top-Down Approach Economy Consensus of professional forecasters Economic reports Sector/Industry Cyclical & Structural effects Outside sources Securities In-depth analysis, debate and discussion Potential risks and expected returns

8 Student Managed Investment Fund Tien Do

9 Allocation Triggers Triggers for entry into equity positions Government Interventions Effectiveness of TARP & TALF Volatility Index (VIX) 30 day SMA fall under 30 Credit Spreads Narrowing of credit spreads

10 Government Interventions TARP (Troubled Asset Relief Program) Goal: Resume lending among banks TALF (Term Asset-Backed Securities Loan Facility) Goal: Resume consumer lending

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12 Student Managed Investment Fund Wayne Brown

13 Fixed-Income Outlook Treasury Yields In September 2008, rates were forecast to increase in first half of 2009 Credit Spreads Expectations of a weak economic environment in 2009 suggest continuation of historically wide credit spreads Anticipation of spreads narrowing as the economy begins to recover

14 Fixed-Income Outlook Based on our fixed-income outlook, short- term instruments would be more suitable to alleviate interest rate risk Appropriate instruments CDs MMMFs Short-term Investment Grade Bonds

15 Equity Outlook CBOE Volatility Index (VIX) S&P 500 volatility reached four times the historical norm Likelihood of triggering a stop-loss order increased dramatically Market became a trader’s market Buy-and-hold strategy questioned Uncertainty rendered any point forecast of the S&P 500 almost meaningless

16 2009 S&P 500 Earnings Standard and Poor’s operating earnings estimates for 2009 were very uncertain S&P 500 Earnings EstimatesNovember 2008April 2009 Top-down$62.98$44.41 Bottom-up$91.85$60.26

17 Asset Allocation Based on our capital markets outlook SMIF allocated 100% of the portfolio to Guaranteed Cash Equivalents Our primary concern was to mitigate the risk of capital losses Uncertainty in the market was too high for equity investments Volatility would have stopped-out any equity investments

18 Asset Allocation Fixed-Income Benchmark NBBITR - NASD Bloomberg Active Investment Grade US Corporate Bond Total Return Index Equity Benchmark S&P 500 Index Fixed-Income Benchmark NBBITR - NASD Bloomberg Active Investment Grade US Corporate Bond Total Return Index Equity Benchmark S&P 500 Index

19 Sector Analysis Forecast Outperform Consumer Staples Healthcare Information Technology Telecommunications Underperform Financials Consumer Discretionary Energy Materials GICS Sector Ranked Returns + SectorReturn Telecommunications-14.42% Information Technology-18.01% Consumer Discretionary-21.05% Consumer Staples-23.10% Health Care-23.44% Utilities-27.04% S&P 500 -28.36% Materials-31.35% Energy-32.19% Industrials-32.93% Financials-46.78% + 9/25/2008 to 4/24/2009

20 Student Managed Investment Fund Kristin Tran

21 Fixed-Income Selection SMIF preferred Money Market Mutual Funds and CDs Portfolio was protected against market dislocations Had the flexibility to change with market conditions Preservation of capital Chose not to invest in the Bond Market Credit markets were frozen in the 2 nd half of 2008 In this market environment, bonds embodied far greater risk than historical levels

22 Equity Selection Several equities were analyzed throughout the year None were selected for inclusion in the portfolio Equities analyzed included Apple Inc. (AAPL) Burlington Northern Santa Fe Corp. (BNI) Cal-Maine Foods (CALM) Apollo Group (APOL) Johnson & Johnson (JNJ)

23 Each of the four groups screen for equities independently Equity Selection Process Team 4 used a screening process based on: Favored Sectors Low Implied Volatility Low Market Correlation Team 4 used a screening process based on: Favored Sectors Low Implied Volatility Low Market Correlation

24 Introduce security of interest Full presentation of analysis Equity Selection Process Team 4 analyzed Johnson & Johnson (JNJ), a diverse health care company that has product segments in pharmaceuticals, medical devices and consumer staples JNJ’s equity presentation consisted of a fundamental analysis, technical analysis, competitive analysis, multiple valuation models, and qualitative risk factors

25 Debate and discussion Professors ask critical-thinking questions Class vigorously critique the presentations Equity Selection Process JNJ was analyzed at great length Three consecutive weeks of rigorous discussions Re-evaluation of information JNJ was analyzed at great length Three consecutive weeks of rigorous discussions Re-evaluation of information

26 Equity Selection Process Voting process Supermajority of 75-percent required for placement into portfolio JNJ did not pass the vetting process, therefore there was no vote Due to further significant declines in the stock market, the team decided to abandon their original thesis JNJ did not pass the vetting process, therefore there was no vote Due to further significant declines in the stock market, the team decided to abandon their original thesis

27 JNJ Technical Analysis Source: Bloomberg (02/10/09)

28 JNJ Residual Income Valuation JNJ stock price at time of analysis: $ 56.73

29 JNJ Price Graph 03/03/09: Suspended JNJ Analysis Price: $47.64 Decline of 16% 2/10/09: Initial JNJ Presentation Price: $56.73 03/09/09: Intraday low Price: $46.25 05/05/09: JNJ Close Price: $54.21 Hypothetical Loss of 4.4%

30 Student Managed Investment Fund Casey Hughes

31 Transaction History DateItem Amount 9/1/08Beginning balance $100,000.00 Interest/mm div - Sept $18.84 9/30/08Ending balance $100,018.84 Interest/mm div - Oct-Dec $383.27 12/31/08Ending balance $100,402.11 Interest/mm div - Jan-Mar $403.51 3/31/09Ending balance $100,805.62 Estimated Interest/mm div - Apr $134.50 4/30/09Estimated Ending balance $100,940.12 Date PurchasedSecurityAmount Maturity 11/7/08CD 3.5%$25,0008/19/09 11/14/08CD 3.25%$10,0008/26/09

32 Fund Performance Performance  SMIF: 0.94% gain  Benchmark: 23.16% loss Performance  SMIF: 0.94% gain  Benchmark: 23.16% loss

33 CFA Society of Orange County Foundation Annual RFP Competition Request For Proposals Competition Process through which CFAOCF Portfolio is awarded Chapman University Argyros School of Business Board Room Professional environment with panel of CFA’s Competition between rivals CSU, Fullerton and UC Irvine CSULB SMIF’s competitive edge Portfolio winners six consecutive years

34 Forty-Niner Shops Inc. Forty-Niner Shops Inc. Board Member Alvaro Castillo approached SMIF Student managers met with Board of Directors Synergy between mission, vision, and values for both organizations Forty-Niner Shops Inc. engaged SMIF to manage a portion of their portfolio

35 Associated Students, Inc. Introduced to ASI Representative through Forty-Niner’s meetings Relationship purely student-driven Portfolio management for students, by students ASI Senate Chambers Meeting Unanimous decision to pursue working relationship with SMIF

36 Client Relationships ASISMIF Forty- Niner Shops CFAOCF

37 Student Managed Investment Fund Gregory Strand

38 Networking CFALA Forecasting Dinner CFALA Career Expo Career Search Techniques/Resume workshop Networking opportunities with industry professionals CFAOCF Host-A-Student Program Offers students a first-hand view of the investment profession R edefining I nvestment S trategy E ducation Forum Brings leading students, faculty, government, and Wall Street together in an interactive learning environment

39 Outreach Business Cards SMIF Information Night A gathering of prospective SMIF members to learn more about the program Website Development Created a website for students who are interested in SMIF

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41 Student Managed Investment Fund Reuben Conceicao

42 Analytical Skills Real-World Considerations Critical Thinking Presentation Skills Bloomberg Certification CFA Charter Grading Components  Quality of Analysis  Teamwork  Networking The program is about learning, not performance

43 Organizational Skills Teamwork Leveraging on each other’s strengths Leadership & Ownership Rotating CEOs Client Management Securing clients and meeting their needs Networking

44 Hard Work In-Class Meetings 3 hours per student per week for 30 weeks 1,440 hours Outside of Class Preparations 20 to 35 hours per student per week 9,600 hours Summer Boot Camps and Winter Break 5 hours in Winter, 15 hours in Summer for Boot Camps 320 hours Total Time Commitment to SMIF 11,360 hours 22 hours per student per week

45 Dedication Extra 20% per student per week dedicated to special projects

46 Learning Experiences Working with Uncertainty Acting on incomplete information Resilience and Patience The worst investing environment The best learning experience

47 As we embark on our careers, we extend our gratitude to the newly- formed SMIF Advisory Board for its dedication to the SMIF program.

48 Student Managed Investment Fund Annual Report 2008-2009


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