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SIM Fund 2014 MBA Presentation - December 5, 2014

This presentation discusses the objectives, quantitative strategy, and today's portfolio of the SIM Fund, along with the inclusion of REITs and a dividend premium strategy. The team also addresses the dividend stock pricing anomaly and the challenges and solutions they face in managing the portfolio. The presentation concludes with the industry mix and holdings of REITs in the portfolio.

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SIM Fund 2014 MBA Presentation - December 5, 2014

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  1. SIM Fund 2014 MBA Presentation - December 5, 2014

  2. James Lyle Aishwarya Srinivasan Nic Kostman Noel Hill Eugene Lee Jeremy Mortensen Tyler Blue Rob Bayless

  3. Agenda • Team Intro • Objectives • Quantitative Strategy • Intro • Approach • Today’s Portfolio • REITs • Intro • Today’s Portfolio

  4. SIM Fund Objectives • Apply range of course principles to fund management • Utilize resources to maximize learning • Manage scope • Portfolio Model • 85% - Quantitative Strategy (core) • 15% - REITs (diversification)

  5. Dividend Premium Strategy 5

  6. Dividend Stock Pricing Anomaly • “…Companies have positive abnormal returns in months when they are predicted to issue a dividend” • (Hartzmark & Solomon 2012) Div Declared Div-Ex Sell (Div-Ex) Buy (Div Declared -1)

  7. Dividend Stock Pricing Anomaly • Why does it exist? • Mutual fund demand to pass through dividends (Harris, Hartzmark, and Solomon 2014) • Cash guarantee

  8. Constraints • Limited Human Capital • Solution: Cap holdings • Trading Rules • Solution: Weekly trades on schedule • Uneven distribution of declared dividends • Solution: Adjust weights

  9. Exclusionary Rules • Traded in the Russell 1000 Index • Domiciled in the US • Market Cap over $10 billion • Exclude the sectors: Insurance, Banks, Utilities, REIT • Had Quarterly Dividends over the past year • Universe: 191 securities • Team plans to cap holdings with a maximum of 80

  10. Weekly trade schedule Div Declared A Div Declared B Div Declared C Div-Ex A Div-Ex B Div-Ex C Buy A, B Buy C Sell A, B Sell C

  11. Strategy comparison Weekly trading Day trading • Closer to the true dividend model: • Less holding period prior to undeclared • Capture the pure declared-to-ex holding period • Cash drag with scalability • As number of holdings increase, timing differences between stocks cause cash drag • Scheduled activities • Timed buy and sell handoff on a weekly basis; less cash drag • Easier to manage scale • Less “efficient” • Longer holding period outside of declaration alpha (up to 6 days), and holding period is only 22 days on average. • Missed ex-date alpha

  12. Gantt Chart Investment Universe

  13. Initial Selection – Pure Strategy

  14. Initial Selection – Pure + Lead Time

  15. Initial Selection – Pure + Lead Time, Weekly

  16. Distribution of projected dividend declaration dates # of securities Trading week (week 1 = 11/20/2014)

  17. Weighting strategy

  18. Issues going forward • Need to maintain diverse holdings (>30) • Limited human resources • Cap total holdings to ensure oversight and adequate trade volume • Securities assigned to individual team members for monitoring • Avoid Closet Indexing

  19. Portfolio Today –Seeding • Initial seeding on November 20 • 32 Securities • 3 securities eliminated due to deviation from forecast • Approximately $18,000 per position

  20. Portfolio Today –Industry Mix

  21. REITs Strategy 22

  22. REITs – Overall strategy • Approximately 15% of total portfolio • Primary purpose (for us) is diversification • Focused on ETFs with low expense ratios, high trading volumes, and high assets under management • Also filtered out REIT ETFs from non-reputable companies

  23. REITs – Holdings

  24. REITs – ETFs: Why we chose them • Cons: • Sensitive to increases in interest rates • Falling occupancy rates hurt profitability • Differentiation • Pros: • Strong performance across most REIT sectors • Highly liquid • Diversification • Not correlated with rest of strategy • Can hedge against inflation

  25. Thank you Questions? 27

  26. Appendix

  27. Weighting strategy - traps

  28. Anticipated attrition of Week 1 purchase over 14 weeks

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