1 / 45

UNDERGRADUATE STUDENT MANAGED FUND

UNDERGRADUATE STUDENT MANAGED FUND . Interim Report December 4, 2009. Undergraduate Team. Officers Michael Bokoff – Lead Manager Jeffrey Annello – Portfolio Manager Simone Hill – Treasurer . Managers Connor Antisdale Gregory Autuori Michael Baldi Ethan Beschler Juan Casanova

annabella
Download Presentation

UNDERGRADUATE STUDENT MANAGED FUND

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. UNDERGRADUATE STUDENT MANAGED FUND Interim Report December 4, 2009

  2. Undergraduate Team Officers Michael Bokoff – Lead Manager Jeffrey Annello – Portfolio Manager Simone Hill – Treasurer Managers Connor Antisdale Gregory Autuori Michael Baldi Ethan Beschler Juan Casanova Ameya Gokarn Steven Reiman Jennifer Sataline

  3. Investment Objective & Philosophy Objective: We aim to outperform the S&P 500 Index Philosophy:What would a prudent business person do? • Buy the entire business • Good businesses and talented managers • Focus on companies that are trading well below their intrinsic value • Long-term orientation: 5-10 year holding period • Bottom-up , with a top-down look in current environment

  4. Investment Strategy Goal: Own 15-20 well-chosen businesses selling at advantageous prices What we look for in a business • Recurring free cash flow • Sound capital allocation • Enduring competitive advantage • Sound and ethical management • Transparency • Looking at Risk • Aggregation risks • Business model risks • Balance sheet risks • Valuation risks • Management risks

  5. Investment Process • Ten sectors, each covered by two or three managers • Research is focused on, but not limited to, assigned sectors • Stock is brought to a meeting for presentation and peer evaluation • The manager recommending a stock will lead the discussion • 70% vote in favor of a position, price limit, and quantity is required for approval • Positions not approved may be reintroduced at a later meeting • To date, 9 of 20 recommended stocks chosen

  6. Portfolio Breakdown & Approach • Seek to take positions anywhere from 2.5% to 15% of our assets at cost • 2.5% position • Generally has a higher upside • Relatively higher risk • 10%-15% position • Core companies • Possess AAA style balance sheets • Trading below their intrinsic value • When fully allocated, the portfolio will be composed of 15-20 businesses • Diversified activities • Minimally correlated risk exposure • We evaluate each position as if we owned the entire business

  7. Allocation

  8. Portfolio Snapshot

  9. Sector Allocation As of November 20, 2009

  10. Economic Summary • Bank failures • Credit markets tightened • Government bailouts • Weakening of the dollar • Incredibly Volatile • S&P 500 • March 2008 to March 2009: (48%) • Low: 676.53 • March 2009 to present: 64% • 12/2/09 close: 1109.24 S&P 500 2-Year Chart (48%) 64%

  11. Economic Indicators • 3Q 09 • Real GDP increased by 3.2% • Productivity increased by 8.1% • Freight: Rail cars in storage decreased by over 11,000 in October • Capacity utilization increased to 70.7% in November • Factory orders increased 0.9% • Initial and continuing jobless claims decreased during November • Business inventories decreased during November • New home sales increased by 25,000 during November • Causes for concern • Unemployment rate still at 10.2% • Crude Inventories have increased along with price • Expansion of the Fed’s balance sheet

  12. Federal Reserve Balance Sheet

  13. Economic Outlook • Short Term • Unemployment (10.2%) • Overconfidence • Long-Term • Inflation • Consistency with the Fed’s outlook: • “My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely. However, some important headwinds--in particular, constrained bank lending and a weak job market--likely will prevent the expansion from being as robust as we would hope.” - Ben Bernanke

  14. Economic Outlook: How does this affect our strategy? • International exposure • MCD • Looking to invest in energy due to inflation concern • Asset inflation? • XOM, RDS • Pricing power/dominant position • MDT • Strong balance sheets • JNJ, BRK

  15. Risk Management • We seek to manage risk in a variety of ways, including: • Detailed research • Extensive group discussion • Diversification among industries • Active avoidance of business model risk, valuation risk, management risk, and others • Formal risk management • Stop-loss orders at levels approximately 30% below our cost basis • Constantly evaluate holdings • Automatic downside review at 10%, 20% below our cost basis • In the event of a triggered stop-loss, we will thoroughly review the position and evaluate its future investment prospects

  16. Portfolio Timeline

  17. Position Performance (as of 12/1/09 close)

  18. Sector Performance As of November 20, 2009

  19. Portfolio Performance Holding period: October 27, 2009—December 1, 2009 As of December 1, 2009, the Undergraduate SMF Portfolio has underperformedthe S&P 500 index by 1.20%

  20. Future Considerations • Looking to invest in Utilities, Energy & Transportation sectors • Increase our stake in the Materials sector • Researching both small and large-sized companies • Closely monitoring economic trends that will affect our current and future positions

  21. Lessons Learned • Cannot be overly price sensitive • Going forward, we must continue to: • Research and evaluate the economy, sectors, and individual securities • Have conviction in our evaluations of individual securities • Purchase securities at reasonable valuations with attractive return potential, while avoiding being overly price sensitive • Deploy capital in an appropriate asset allocation in a timely manner

  22. Research Sources • Yahoo! Finance • Google Finance • Bloomberg • Reuters • Wall Street Journal • BusinessWeek • Vcall • Association of American Railroads • Seekingalpha.com • S&P Net Advantage • Morningstar • Valueline • Thomson Research • EDGAR Filings • Mergent Online • Earnings Calls • Annual Reports • Federal Reserve Site

  23. Acknowledgements • Pat Terrion • Dr. ChinmoyGhosh • Shikha Sharma • Steering Committee • Investment Advisory Board • Mentors • UConn Foundation

  24. AppendixSector Overviews Position Profiles

  25. Sector Overviews

  26. Capital Goods Industrials • 14.7% expected decline in manufacturing for 2009 • Optimistic for 2010 through global stimulus spending programs with an emphasis on infrastructure • Increased liquidity and easing credit should help Aerospace & Defense • Commercial Airlines had a tough 2009; outlook is uncertain but optimistic • 2010 Defense budget calls for 4.2% increase in base budget but is expected to shrink down the line • Consolidation of the industry is expected as a result of the focused budget cuts

  27. Consumer Discretionary & Services • The sector has returned 32.65% versus the S&P 500’s 22.87% return YTD • Positive Trends • Equity market increases have restored some of the wealth lost since 2008 • Consumer confidence is improving • Consumer savings rates are normalizing • Consumers’ discretionary incomes are low, however they are steadily increasing • Why we will be cautious • The unemployment rate is currently 10.2%, however additional job loss expected • Banks and other depository institutions are holding unprecedented amounts of reserves; credit markets have remained tight • Many stocks are trading at historically high earnings multiples, making the outlook for this sector mixed

  28. Consumer Staples • Subsectors: • Food and beverage retail and distribution • Household and personal products • Demand for consumer staples remains relatively constant regardless of the economy • Trade-down effect: • However, we have noticed a pattern in consumers purchasing less expensive, generic goods as opposed to name brand goods • We’re seeking companies that are prepared regardless of the direction of the economy • Low-priced products to protect against a downturn • Loyal customer base to prevent a drop off should the economy pick up

  29. Energy • Economic rebound supports a positive outlook • Number of operational oil rigs and natural gas rigs is crawling back up • Oil prices increased dramatically from previous year’s lows • Demand for oil and natural gas will increase with growing world markets (China, India) and rising populations • Forecasted colder-than-average winter should increase demand from heating needs

  30. Financials • US and global economies starting to see relief from financial market stress • Detrimental factors affecting financial companies: • Volatility in global financial markets • Credit tightening • Falling home prices • Increasing delinquencies, both commercial and residential • Rising unemployment  • Why we are hesitant to invest in financial company equities: • Uncertainty surrounding financial sector • Limited ability to understand full exposure to risky assets and uncertain values • Government bail-out money…end results of programs such as TARP? • Imminent financial reform • Legislation that might break up large financial institutions • Dodd’s call to establish a council of financial regulators that could require such companies to divest holdings

  31. Healthcare • Largest sector, with $2.4 trillion spent in the U.S. in 2008 • Spending expected to rise 5.5% in 2009 • Worldwide pharmaceutical sales expected to increase 2.5% to 3.5% in 2009. • Pharmaceuticals traditionally seen as recession-resistant • High volume of M&A activity among large pharmaceuticals • Relatively weak R&D productivity and impending patent expirations • Aging populations are likely to create a robust future for the healthcare industry • Strong growth in emerging markets throughout the next 5 years • Medical products & supplies industry remains favorable • Uncertainty surrounding Obama’s healthcare reform agenda

  32. Materials • Majority of materials companies have rebounded sharply since March • Investors continuing to move into commodities as inflation hedge • Price of gold has moved to over $1200 an oz • Gold futures up about 37% this year • Steel sub-sector has begun to consolidate  potentially higher pricing power • Worldwide shortage of usable fresh water • Water transportation, desalinization, treatment, and infrastructure companies should benefit

  33. Technology • Technology expenditures down YTY • Should rebound in 2010 • Emerging markets forecast to lead IT demand • Trends • Data Storage/management demand increasing • Move toward virtualization, non-hardware based technology

  34. Transportation • Conditions are challenging, some signs of recovery • Freight rail traffic down 15.3% in carloads, and 11.2% intermodal YOY • Excess capacity in trucking industry downward pressure on freight rates • High fuel prices • “Flight to quality” • Decline in rail freight cars in storage • Outlook • Outsized returns unlikely • Warren Buffett --acquisition of Burlington Northern Santa Fe (BNI)--betting on the long-term future growth of the industry • Possible that holiday season will serve as a further stimulus. • Transportation stocks often lead economic recovery

  35. Utilities • Price performance vs. S&P 500 YTD • Positives • Many issues are trading at historically low multiples and have attractive dividend yields • Negatives • The industry is highly regulated, including firms’ pricing power and return on equity • Competition is monitored and it is difficult to find businesses with distinct competitive advantages

  36. Position overviews

  37. AutoZone (AZO) • Specialty Retailer – 4,417 stores • Auto replacement parts, discretionary items • Serves the DIY market • ALLDATA diagnostic software • Best in class ROC and margins • 9.5% free cash flow yield • Bought back 2/3 of company in a decade • 40% owned by ESL Partners

  38. Berkshire Hathaway (BRK.B) • Warren Buffett’s holding company. • Equity stakes in KO, WPO, KFT, WFC, COP among others. • High quality operations in: • Insurance and reinsurance • Utilities • Railroad (BNSF) • Retail/Services • Lender of first resort, Buyer of first resort • Bought at 75% of true business value.

  39. ITT Corporation (ITT) • 3 Business Segments • Fluid Technologies (33%)- Pumps and fluid systems • Defense Electronics and Services (54%)- Advanced electronic systems • Motion and Flow Control (13%)- provides integral components for aerospace, industrial, transport, medical, and consumer markets • Fluid Tech. should benefit from infrastructure projects • DES has contracts with every branch of the armed forces • Motion and Flow is highly globalized (63% of its rev. from abroad) • Each branch provides a diversified product mix industry leaders • Generated a 21% increase in FCF in 2009 YTD • Improved Receivables collections • 40 bps improvement in working capital as % of sales

  40. Johnson & Johnson (JNJ) • One of the largest and most diversified healthcare firms with both pharmaceutical and medical device products. The company also produces many consumer products. • Diversified sales stream throughout segments • Decentralized business model • Very active in the M&A market

  41. Lockheed Martin Corporation (LMT) • One of the top U.S. defense contractors • Services, Researches, Designs, and Manufactures a wide range of products in the field of Aerospace and Defense • F-35 aircraft looks to be the future of defense aeronautics • Company is well positioned within U.S. war strategy • Consistently high Cash Flow numbers, and 2008 saw an all time high in sales over $42B

  42. McDonald’s Corporation (MCD) • Purchased 1,150 shares of McDonald’s Corporation at a price of $62.75 • Company Strengths • Exceptional ability to adapt to changing consumer preferences • Large international exposure • Strong, growing presence in Europe • Growth plans in emerging markets • Stellar management, evidenced by the success of their “Plan to Win” • As of November 20th, 2009, we have realized a 1.9% return on our position in McDonald’s

  43. Medtronic (MDT) • World’s largest medical technology company • Main operating segments include Cardiac Rhythm Management, Spinal, Cardiovascular, Diabetes and Surgical Technologies • Recently announced earnings of $0.77 per share in Q2, beating analyst predictions by $0.03 • Consistently allocates a significant portion of its sales towards R&D • Planning on releasing new products in virtually all of its operating segments • Generates consistently high free cash flow, with a free cash flow yield of 7% in 2009

  44. Sanofi-Aventis (SNY) • A pharmaceutical group engaged in the research, development, manufacture and marketing of healthcare products • Broad product portfolio • Strong R&D Focus • Market leadership in vaccines • Global presence

  45. Sysco Corporation (SYY) • We purchased 1,800 shares of Sysco Corporation at a price of $26.79 per share on October 30, 2009 • Company Strengths • Diversified customer and supplier base • Dominant market share provides bargaining power • Consistent history of dividends • Distribute both name-brand and generic products • Current emphasis on cutting costs and improving efficiency • As of November 20th, 2009, we have realized a return of 0.9% on our position in Sysco

More Related