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Comprehensive Overview of Student Managed Fund Operations and Team Responsibilities**

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This presentation outlines the organizational structure and investment processes of the Student Managed Fund (SMF), highlighting the various teams involved, including Economic Analysis, Social Responsibility, Investment Policy & Compliance, Security Analysis, Technical Analysis, and Portfolio Analysis. Key components covered include the economic indicators used for investment decisions, the social responsibility criteria for stock selection, and adherence to investment guidelines. Detailed insights into financial health assessments and portfolio optimization strategies are also provided, showcasing a collaborative approach to managing the fund effectively.

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Comprehensive Overview of Student Managed Fund Operations and Team Responsibilities**

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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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