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Andrew Hudelson

Student Managed Fund Arnone-Lerer Fund Fall Presentation. Andrew Hudelson. Process Overview. Organizational Structure. Investment Funnel. Economic Team Analysis. Social Responsibility Filter. Investment Policy & Compliance Team. Security Analysis. Technical Analysis.

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Andrew Hudelson

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  1. Student Managed Fund Arnone-Lerer Fund Fall Presentation Andrew Hudelson

  2. Process Overview

  3. Organizational Structure

  4. Investment Funnel • Economic Team Analysis • Social Responsibility Filter • Investment Policy & Compliance Team • Security Analysis • Technical Analysis • Portfolio Analysis • Technical Analysis • Investment Policy Team • Execution Team Start Finish November 5, 2010 September 16, 2010 537 Stocks 30 (+1)Stocks

  5. Student Managed Fund Economic Analysis Team Kevin Bundschuh

  6. Overview Top Down Approach

  7. Phases of Economic Cycle * As of November 17, 2006 ** As of November 6, 2009

  8. Selected Indicators • Consumer & Producer Price Index • Unemployment Data • ISM Indexes • Industrial Production • Fed Funds Rate • Consumer Sentiment • Housing Data • GDP • Durable Goods Orders

  9. Early Revival

  10. Industrial Production

  11. ISM Indexes

  12. Late Revival * As of November 17, 2006 ** As of November 6, 2009

  13. Trapped in Revival 1 • Housing market is now reaching trough • Overall unemployment remains stagnant • Consumer Confidence fails to gain traction • Inflation at historically low levels

  14. Housing Starts

  15. Unemployment Rate

  16. Initial Unemployment Claims 4-Week Moving Average

  17. Consumer Confidence

  18. Consumer Price Index

  19. Initial Economic Filtering Process * As of November 17, 2006 ** As of November 6, 2009

  20. Second Round Filter • Worked closely with SR and Investment Policy team • Filter sub-industries by return/semi-variance • Added 10 more sub-industries

  21. Student Managed Fund Social Responsibility Team Bill Duplisea

  22. Developing SR Profile

  23. Social Responsibility Profile • Human Rights • Military • Adult Entertainment • Median Score: 77.5 • High sensitivity on issues such as: • Environment • Life/Choice • Tobacco • Passing Score: 75

  24. SR Elimination Breakdown

  25. Student Managed Fund Investment Policy & Compliance Team Martha Duke

  26. Roles & Responsibilities • Filter stocks from Social Responsibility Team • Thorough knowledge of the Investment Policy Statement • Ensure fund is in compliance with guidelines throughout the year • Acting as a resource for all other teams

  27. Investment Guidelines • Stock Price: • Must be > $10.00 • Volume: • Must be > 500,000 [20 day Average] • Market Cap: • Mid to Large Cap Companies; > $1 Billion • Cash Positions must not exceed 10% * As of November 17, 2006 ** As of November 6, 2009

  28. Allocation Guidelines • All portfolio transactions must be greater than or equal to 1.5% of total portfolio at transaction. • Replacement stocks will equal percentage allocated to predecessor

  29. Student Managed Fund Security Analysis Team Stefan Shrivastava

  30. Roles and Responsibilities • Receive Stock Universe from Investment Policy and Compliance Team • Coordinate effort to filter stocks using SMF Valuation Model • Filter stocks based on Security Analysis • Pass stock pool to Technical Analysis Team * As of November 17, 2006 ** As of November 6, 2009

  31. Analysis • Demonstrated to class how SMF Model is used • Market Insight • Value Line • Edgar Database • Bloomberg • Assigned stocks to small analyst groups based on sub-industry to run through model

  32. 1st Round Financial Health • Altman Z-Score • Forecast the probability a firm will go into bankruptcy within two years • Measures financial health • Balance Sheet Analysis • Leverage Ratio • Current Ratio • Quick Ratio

  33. Altman Z-Score • Manufacturing company • Healthy > 2.99 • Unhealthy < 1.81 • Non-Manufacturing company • Healthy > 2.60 • Unhealthy < 1.10

  34. Balance Sheet Analysis

  35. 2nd Round Financial Health • DuPont Ratio Analysis Profit Margin Asset Turnover Equity Multiplier ROE = X X Net Profit Sales Sales Assets Assets Equity ROE = X X

  36. DuPont Ratio Analysis • Profit Margin • Measurement of operating efficiency • Asset Turnover • Measurement of asset use efficiency • Equity Multiplier • Measurement of financial leverage

  37. DCF Valuation • 10 Year growth projections • Future growth rates based on analyst research • Invested Capital-ROIC Calculations • Capitalized Operating Leases • WACC – Component cost of capital • Enterprise Value • Analyst Input and Recommendation

  38. WACC

  39. Enterprise Value

  40. Aggregation • Developed stock ranking spreadsheet • Ranked stocks by industry based on analysts’ valuations • Additional factors taken into consideration • Sector and industry weightings • Allocation restrictions

  41. Allocations by Industry

  42. Stock Elimination Process

  43. Student Managed Fund Portfolio Analysis Team Andrew DeVizio

  44. Overview • Portfolio Optimization Process • PMSP • Iterative rebalancing with IP constraints • Arnone-Lerer • 43 stocks 31 stocks

  45. PMSP • Asset Allocation Optimization Software • Statistically driven • Risk Metrics • Can be modified depending on economic cycle • Allocation outputs need to be rebalanced • Iterative process in excel • Must meet IP constraints

  46. Learning Experience • Did not have enough stocks • IPS constraints not met • PMSP input limitations • Identified problem • Applied SR screen to limited pool of stocks • Did not monitor 2 and 8 digit GICs weights

  47. Learning Experience • Returned to economic analysis stage • Able to add 10 industries • Security Analysis Team • Re-filter more stocks w/ sector weightings • Technical Analysis Team • Moved after Portfolio Analysis • Final Result: Better allocations

  48. 2 Digit GICS Sector Allocations

  49. Student Managed Fund Technical Analysis Team Tim Decilveo

  50. Investment Process Duties • Eliminate stocks based on charts (after security analysis) • Unable to perform analysis • Recommend stocks to be bought on limit orders • Avoid good stocks at bad times

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