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Arnone–Lerer Student Managed Fund

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

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Arnone–Lerer Student Managed Fund

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  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%)

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