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HEDGEHOGS

HEDGEHOGS. Stefan Lange Kate McPherson Zach Sheltra Allison Wicks DECEMBER 8, 2010. STRATEGY. Beta Neutral Dollar Neutral $100,000 Initial Investment Hedged Asset Class Diversification. PORTFOLIO CONSTRUCTION. HEDGED PAIRS BY ASSET CLASS. MARKET

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HEDGEHOGS

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  1. HEDGEHOGS Stefan Lange Kate McPherson Zach Sheltra Allison Wicks DECEMBER 8, 2010

  2. STRATEGY Beta Neutral Dollar Neutral $100,000 Initial Investment Hedged Asset Class Diversification

  3. PORTFOLIO CONSTRUCTION HEDGED PAIRS BY ASSET CLASS MARKET Long EEM (iShares MSCI Emerging Markets Index) Short SPY (SPDR S&P 500) FINANCIAL SECTOR Long BRK-B (Berkshire Hathaway, Inc.) Short XLF (Financial Select SPDR) RETAIL SECTOR Long AMZN (Amazon, Inc.) Long NFLX (Netflix, Inc.) Short XLY (Consumer Discreet Select Sector SPDR) BONDS Long TLT(iShares Barclays 20+ Year Treasury Bond) Short IEF(iShares Lehman 7-10 Year Treasury Bond) CURRENCY Long FXE (Euro Currency) Short FXY (Yen Currency) REAL ESTATE Long IYR (iShares Dow Jones U.S. Real Estate) Short XHB (SPDR S&P Homebuilders) COMMODITY Long GLD (SPDR Gold Trust)

  4. INVESTMENTS $50,212.80 Long $49,119.00 Short $99,331.80 Total Investment $1,094 Net Exposure

  5. PORTFOLIO BETA LONG WEIGHTED BETA 1.42 SHORT WEIGHTED BETA 1.3662

  6. PORTFOLIO

  7. CORRELATIONS

  8. CORRELATIONS Ideally, investments within pairs will be highly correlated while investments between pairs will have low correlation.

  9. PORTFOLIO PERFORMANCE

  10. ETF EXPENSE REPORT

  11. PORTFOLIO EXPENSE REPORT

  12. PERFORMANCE GRAPH

  13. PERFORMANCE GRAPH

  14. CONCLUSION AVOID CONFIRMATION BIAS AND AFFECT AND AVAILABILITY HEURISTICS • Research multiple sites for all information, favorable and unfavorable • Rely on information instead of emotion • Keep searching CALCULATE OUR OWN BETAS • To ensure: • Accuracy • Appropriate weighting • Correct beta neutrality

  15. CONCLUSION MEASURE ETF LIQUIDITY THROUGH FIVE FACTORS • Determine market efficiency CALCULATE ACTUAL RETURN • Avoid reliance on returns given on finance websites

  16. CONCLUSION DON’T LOOK AT “HOT” STOCKS NO“CHARTISM” USE A STOCK SCREENER

  17. Conclusion USE A PORTFOLIO INSTANT X-RAY EXPLORE SECURITIES OUTSIDE THE U.S. UTILIZE VALUE LINE’S TIMELINESS & SAFETY RANKS

  18. QUESTIONS

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