Arnone–Lerer Student Managed Fund

1. Arnone–Lerer Student Managed Fund Performance Review Fall, 2007

2. Arnone - Lerer Fund Overview • Founding of the Fund • In memory of Eugene Arnone & Lawrence Lerer • Maria A. Stumpf and Stephen A. Stumpf • Socially Responsible Fund • Villanova’s Augustinian principles • US Catholic Bishop’s Statement on Socially Responsible Investing • Student-Managed Fund (SMF) • Based on the donors’ commitment to experiential learning

3. The Staff • Dr. David Nawrocki • Professor James Jablonski • MBA Students • Undergraduate Students • In conjunction with MSF and equity society teams

4. How We Invest • Top-Down Investment approach • Students teams working around a specific function • Classroom discussion • Teams are cross-functional and fund specific

5. The Investment Process • Marketing and Public Relations • Investment Policy & Compliance • Business Cycle • Economic Analysis • Socially Responsible Investing (SRI) • Security Analysis • Portfolio Analysis • Technical Analysis • Performance Reporting

6. Results Thus Far • Initial Investment (Fully Invested) • Re-assessment and re-run process • Re-Investment

7. Marketing and Public Relations Jennifer Coppolino

8. The Marketing Team • A liaison between the fund and the outside world • Ongoing Process

9. How We Do It • Maintain Team Relationships • VSB PR and Marketing Group • Update Website

10. Future Initiatives • Increase Awareness • Recruit • Maintain Website • http://www.students.villanova.edu/smf “Student-run investment funds are taking off as a teaching tool.”The Wall Street Journal article featuring Villanova

11. Investment Policy & Compliance Joshua Coleman

12. Investment Policy Statement • Sets • Fund objectives • Investment objectives and guidelines • Reporting and performance requirements • Reviewed thoroughly • Approved by Investment Committee • Comprised of members of the class and faculty • Approved by the University Investment Committee

13. Restrictions on Investment General Restrictions • Daily volume: >500,000 shares in 20-day window • Price: >$10 • Minimum market capitalization: $1.0 billion Position-Based Restrictions • Max initial investment (one security): 5% • Security increase 40% in value: Rebalance Portfolio (5%) • Securities of the same industry: 12.5% portfolio total value • Cash positions must not exceed: 10% of the total portfolio

14. Continuous Process • Constant re-assessment • Shifts in economic life cycle • Liquidated or re-balanced • Emerging issues of social responsibility • Performance consistent with goals/benchmarks • All decisions regarding the portfolio are proposed and voted on by the Investment Committee.

15. Business Cycle and Economic Analysis Alex Zozos and Clarissa Sereda

16. The Process • Sources • A Time to be Rich – Dr. Lacey H. Hunt • Q-Insight Conference Call • Peripheral materials • Federal Reserve Bank, WSJ, Periodicals • Reviewed all available indicators • Use specific factors to determine current phase • Evidence brought to class for discussion

17. The Cycle • 5-Stage Business Cycle • Ease-off • Plunge • Revival 1 • Acceleration • Maturation • Phase: 6-18 months • “Not Market Timing” • Data signals cycle transition

18. First Assessment - 9/18/2007 • Plunge Phase • Red Flag Indicator: Interest Rate Peak • Negative Trends in Major Indicators • Government Spending • Housing Starts • Non-Farm Payroll • Class discussion & Investment Committee vote

19. Revised Assessment - 10/11/2007 • Reevaluation of phase • A number of factors indicate Revival • Investment Committee disagrees via class vote • Outcome: Remain in Plunge phase • Current market volatility • Speed of information • Forward-looking Federal Reserve

20. Economic Summary • Red Flag: Interest Rate Peak • Crude-oil prices rise • The Fed continues to lower interest rates • Housing market continues to struggle • Credit quality falls, defaults on the rise

21. Socially Responsible Investing Michael Brandao

22. Socially Responsible Investing • Embodying our core values • The Mission of the Fund’s Founders • Villanova University • Catholic Bishop’s Statement • Reward socially responsible companies • In conjunction with economic analysis • Suitable returns are possible

23. How to Assess SRI • Vote social responsibility • Adjust and analyze each stock differently • Open minded and socially conscious • IWFinancial – SRI online tool • Initial cut-off: 60 • Cut off of 55 (0-100 scale) • Lowest Stock: 56 (Vulcan Materials, KLA–Tencor) • Some firms not socially responsible despite passing threshold criteria

24. IWFinancial

25. Security Analysis Patrick Murray

26. Security Analysis • We evaluated companies within given sectors • - Seek undervalued stocks • Evaluation of models to find areas for improvement while increasing understanding of outputs • Utilized Villanova’s resources through Market Insight, Bloomberg, and Reuters

27. Security Analysis • First Assessment (2+ weeks) • - Valuation models from previous years • - Did not return enough companies to pass on • - Some stocks did not meet IPS • Updates made to model, process re-run

28. Security Analysis • Second Assessment (24 hours) • - Modifications of evaluation model gave us increased efficiency and quality of results • - All stocks were found to meet IPS • - More diversification by inclusion of different sectors • Results • - 75 companies believe to be undervalued at their current price to pass on to Technical Analysis Team

29. Security Analysis

30. Security Analysis

31. Security Analysis

32. Portfolio Analysis Yulia Barnakova

33. PMSP Software • Portfolio optimizer • Correlation of securities • Efficient Frontier • Nawrocki Lower Partial Moment Heuristic • Industry returns • Historic Plunge performance • Override of individual returns • Constrained optimization • CRSP Data • Security/Industry/Sector

34. Optimization Process • Correlation Matrix • Efficient Frontier • Optimization: Nawrocki LPM

35. Portfolio Allocation by Sector Materials 2.1% Consumer Discretionary 25% Information Technology 25% Consumer Staples 5.0% Industrials 11.0% Financials9.2% Health Care 22.7%

36. Stocks in Optimized Portfolio

37. Risk Comparison

38. Technical Analysis Kevin Okolie

39. Technical Analysis Determine best time to enter and exit positions Analyze both short and long term trends The Process Divide securities amongst the analysts. Using common tools RSI, Trend Lines, and Moving Averages Advice of Professors In-Class discussions

40. Technical Analysis What we found Some securities were fundamentally but not technically sound not enough profit potential to invest Dropped 12 stocks from portfolio Will monitor for potential future entry

41. RPrice - $47.12 Stop Loss - $41.75 Target - $55.60

42. CAKEPrice - $23.08 Stop Loss - $20.50 Target - $26.00 Shouldn’t Buy, not enough growth potential.

43. Stop Losses • Determine support and resistance levels • Is risk to return ratio is reasonable? • Set stop loss and profit target accordingly

44. Performance Reporting Joseph Negri

45. General Fund Performance Returns • Week: 3.33% • Month: 3.33% • Quarterly: 0.32% • Year to Date: 13.14% • Investment: 0.86% • Inception: 47.90%

46. Comparison to Benchmark Returns for Domini • Week: 1.38% • Month: 1.38% • Quarterly: -.95% • Year to Date: 4.84% • Investment: -.65% • Inception: 30.47%

47. Biggest Gainers/Losers Gainers • Fannie Mae: 36.53% • Freddie Mac: 25.52% • Ryder Systems: 21.20% Losers • NBTY Inc: -5.85% • Amgen Inc: -2.21% • Qualcomm Inc: -1.88%

48. Individual Sector Performance

49. First Semester Performance • High market volatility led to a complete restructuring • The first investment phase: loss (-9%) • Market volatility • Short timelines for improvement/changes • The second investment phase: growth (+7%)