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MBA Student Managed FUND

MBA Student Managed FUND. Investment Advisory Board Presentation – Nov. ‘08. Acknowledgements. The University of Connecticut Foundation, Inc. Investment Advisory Board Bradley, Foster & Sargent Christopher Wilkos Dr. Chinmoy Ghosh. MBA Managers. Katherine Avery Chirag Bansal

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MBA Student Managed FUND

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  1. MBA Student Managed FUND Investment Advisory Board Presentation – Nov. ‘08

  2. Acknowledgements • The University of Connecticut Foundation, Inc. • Investment Advisory Board • Bradley, Foster & Sargent • Christopher Wilkos • Dr. Chinmoy Ghosh

  3. MBA Managers • Katherine Avery • Chirag Bansal • Jason Codespoti • Merim Djumalieva • Steven Ferrigno • Nicholas Ferron • Linkun Li • Manoj Mahadevan • Philip McDonald • Hsin-Yi Tai

  4. Agenda • Investment Philosophy & Approach • Portfolio Characteristics & Performance • Forward Expectations • Q & A

  5. Investment Philosophy • Value focused approach • Mid to large market cap companies • Priced at a discount to their intrinsic value • Strive to outperform the S&P 500 Index • Through individual security selection • Strictly long-equity positions

  6. Investment Approach • Top Down Strategy • Each fund manager assigned two industry sectors • Managers vote on sector weighting decisions • Key Considerations: • Portfolio Stability in Volatile Market • Downturn in Economy • Presidential Election

  7. Stock Selection • Information Sources: • S&P NetAdvantage • Value Line • ThomsonOne Financial • Evaluate individual stocks based on: • Size & Market Share • ROE, ROA, ROI • P/E, PEG • Fundamental analysis of individual Securities

  8. Fundamental Analysis • Focus on the following value drivers • Business Model • Operating Margins • Revenue & Earnings Growth • Capital Expenditure • R&D Investment • Free Cash Flow Growth • Discounted FCFF / DDM Analysis • Real Return Value

  9. Sell Discipline • Stop loss • 17.5% stop loss on all positions • Protect down-side risk • Re-evaluation of positions • Achievement of intrinsic value • More than a 10% loss • Material news

  10. Portfolio Composition • Select Pillar Holdings • Diversify Across Sectors • Manage Volatility

  11. Portfolio Performance

  12. Size and Timing of Trades

  13. History of Stopping Out

  14. Individual Holding Performance

  15. Performance by Sector

  16. Comparison with S&P 500

  17. Comparison with S&P 500

  18. Sector Allocation

  19. Portfolio Efficiency Statistics • Beta: 0.70 (equity) 0.82 (total portfolio) • Sharpe Ratio: -0.487 • Treynor Ratio: -0.049 • Standard Deviation: 8.31% (vs. 8.21% S&P)

  20. Performance as of 11/19

  21. Looking Forward • Portfolio Holdings • Economic Outlook • Expectations

  22. Holdings PILLAR HOLDINGS: • Johnson & Johnson (JNJ) • Procter & Gamble (PG) • International Business Machines (IBM) • Exxon Mobil (XOM) VOLITILITY PLAYS: • Microsoft (MSFT) • Wal-Mart (WMT)

  23. Holdings DIVERSIFIED PRODUCTS/SERVICES: St. Jude Medical (STJ) United Technologies (UTX) Waste Management Incorporated (WMI) Consumer Value Store (CVS) SPECIALIZED SERVICES: Schlumberger (SLB) American Telephone & Telegraph (T) NEGATIVE PORTFOLIO CORRELATION: FTI Consulting (FCN)

  24. Economic Outlook • Political Overview • Recession & The Financial System • Fiscal Policy • Market Expectations • Portfolio Strategies

  25. Political Overview Democratic Majority House of Representatives: Senate:

  26. Economic Policy Fiscal Policy • New Tax Reforms May Pressure Corporate Profits • Bush Administration’s Tax Cuts end in 2009 • Deficit Approaching 6% of GDP (Post-War Record) • Health Care Agenda close to $1.6 trillion

  27. Recession & The Financial System • How Long Will Banks & Lenders Not Assume Risk? • Home Prices, Loan Losses, Ability to Raise Capital • Varying Recessionary Forecasts: • Mild (1990 – 1991): Mid 2009 – Unemployment: 7% • Severe (1981 – 1982): Late 2009 - Unemployment 9%

  28. One Year Forward Expectations • Macroeconomic Phenomena • High Unemployment • Minimal Growth • Low Interest Rates • Inflationary Pressure • Microeconomic Phenomena • Low Capital Investment • Minimal Discretionary Spending • Tightening Credit Availability • General Adverseness to Risk • Global Implications • Worldwide Growth Reduction – IMF Global Growth: 3% • Greater Dependence on Asian Economies • Stalled Capital Flows

  29. Market Expectations Earnings growth will slow due to weakening economy Aggressive corporate budget cuts and planning revisions Extreme volatility Returns for 2008 to be minimal to zero Returns for 2009 to start to rebound based on recession characteristics and depth

  30. Portfolio Management • Portfolio Strategies: • Continue to invest in firms with adequate liquidity • Avoid firms that rely on financing for operating activity • Look for firms with recession resilient portfolios • Avoid firms that represent capital investment • Invest in firms with low volatility exposure

  31. Lessons We Can’t Learn in Class: • Respect for market conditions • Understanding risk • The importance of dexterous research • Value of fundamental analytics • Logical prudence over emotional attachment

  32. QUESTIONS?

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