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Student Managed Fund

Student Managed Fund. Investment Process Presentation December 12, 2006. Arnone-Lerer Social Responsibility Fund Undergraduate Students. Overview. Business Cycle Analysis Social Responsibility Industry and Sector Analysis Security Analysis PMSP Portfolio Analysis

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Student Managed Fund

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  1. Student Managed Fund InvestmentProcessPresentation December 12, 2006

  2. Arnone-Lerer Social Responsibility Fund Undergraduate Students

  3. Overview Business Cycle Analysis Social Responsibility Industry and Sector Analysis Security Analysis PMSP Portfolio Analysis Technical Analysis and Exit Strategy Performance Reporting

  4. Business Cycle • Richard Greiner • Kate Washburn

  5. Business Cycle Analysis We use a Top -Down investment approach that begins with business cycle analysis Define stages of the Business Cycle Identify current stage Identify industries/sectors that historically perform well Security Analysis Monitor economy for change in stage

  6. Define Stages of Business Cycle 5-Stage Business Cycle Lacy Hunt QInsight Stages last an average of 6-18 months Determine stage based upon economic indicators Data signals cycle transition and investment direction “Not Market Timing”

  7. Five Stages of Business Cycle Ease-Off Slowing growth Plunge Negative growth Revival Recovery begins Acceleration Strong growth Maturation Growing too fast

  8. Identify Current Stage Identify the trends of individual indicators & compare to trends of other indicators Q-Insight conference calls Government statistics Ease-Off: Period where Fed is tightening to control inflationary pressures and slow economic growth Trends to observe: GDP growth rate Inflationary Expectations Labor Market

  9. Economic Summary Red Flag: GDP has been experiencing decline in growth quarter to quarter Low forecasts for non-farm payrolls continues Crude-oil prices decline The Fed holds rates steady Housing market continues to cool off Credit quality falls, defaults on the rise

  10. Monitor Economy Continue to track trends and changes in economic indicators in order to anticipate change in business cycle Monitor and Evaluate: Peak in Federal Funds Rate Increase in monetary base Observe any bias of Fed from tightening to stimulating Attend weekly Q-Insight conference calls Possible soft landing

  11. Social Responsibility • Erin Garrett • Gina Domenick

  12. Socially Responsible Investing What? Integrates social and environmental issues within the context of rigorous financial analysis As a University, continue the rich tradition of Catholic social teaching and values Why? Avoid companies detrimental to society Reward companies Comparable return

  13. Steps to SRI 1.) Read the Arnone-Lerer Investment Policy Statement (IPS) and Catholic Bishop’s Statement 2.) Reviewed screens from past years 3.) Ranked criteria 4.) IWFinancial for Social Responsibility Rankings

  14. USCCB Investment Importance Criteria

  15. Summary of Rankings

  16. Example – American Express (AXP)

  17. Industry and Sector Analysis • David Grimner

  18. Ease-Off Top Performers Biotechnology Tobacco Health Care Equip/ Supp Pharmaceuticals Airlines Food & Staples Retailing Software Commercial Banks Health Care Providers IT Services Electric Utilities Computer & Peripherals Aerospace & Defense Construction/Engineer Gas Utilities

  19. Analysis of Top Performers Eliminate industries that conflict with social responsibility profile Tobacco Research the top performing industries Valuation characteristics Ratios, recent performance, growth aspects, over/undervalued, out of favor, recent news and developments Find the best industries

  20. Arnone-Lerer’s Current Industries Banks Retail Consumer Finance Aerospace Media Insurance Healthcare Services • Healthcare Facilities • Healthcare Equipment • Utilities – Gas • Biotechnology • Environmental Services • Pharmaceuticals

  21. Cross-Stage Diversification

  22. Fundamental Analysis • Mark Wyand

  23. Fundamental Analysis Stocks assigned based on sector Modified templates from last year Significantly increased efficiency Balance sheets, income statements, cash flow statements from Market Insight Once inputted into template, company data yielded various performance and health indicators

  24. Output Summary

  25. Fundamental Analysis Securities were eliminated for various reasons: P/E ratios Low bond ratings DuPont ratios that demonstrated weakness Unhealthy Altman Z-scores* Example: Manufacturing – below 1.81 *Z-scores not applicable for all stocks

  26. The Final Decision Fundamentally sound stocks then discussed Qualitative analysis Current events, news Analyst reports Pipeline products/services New market penetration Once approved, PMSP

  27. PMSP Portfolio Analysis • Graham Holding

  28. PMSP Software Portfolio optimizer and portfolio heuristics Uses a Lower Partial Moment Heuristic to determine portfolio allocations Used industry returns as a basis for analysis Began with 65 companies Used the Nawrocki LPM Heuristic to find a set of recommended portfolios

  29. Optimal Portfolio

  30. Optimal Portfolio (cont.)

  31. Rebalancing for Residual Cash

  32. Investment by Sector Investment at inception: $126,805

  33. Technical Analysis and Exit Strategy • Adam Dekel • Ryan Gilligan

  34. Group Structure Tech Group advises class on technical strategies and execution Responsibilities include: Monitor analysis and progress Address and questions or issues Update class on new concepts

  35. Objectives “The Language of the Fundamentals” Discover profitable entry and exit points Find significant technical changes to current holdings Document and analyze past recommendations for accuracy to determine value of technical analysis

  36. Methodology Support and resistance discovery Trend analysis Risk/Reward ratio Adapt to price changes

  37. Entry and Exit Sell (ROST) Buy (PCP)

  38. Exit Strategy Utilization of stop losses; monitor profit targets Triple check Scenario analysis Ensure adherence to policy statement

  39. Fund Performance • Jacklyn Schutz

  40. Performance Reporting Process Weekly performance compared to benchmarks Criteria of stocks in portfolio Minimum market capitalization of over $1 billion Stock price above $10/share Weight of 7% or less of overall portfolio value Stay within social responsibility screen

  41. Performance Report 12/8/06

  42. Arnone-Lerer2005vs Arnone-Lerer2006 Overlapped Invitrogen Corp (IVGN)- bought 14 additional shares AGL Resources (ATG)- sold 8 shares Genentech (DNA)- sold 12 shares

  43. George Coleman Fund Student Managed Fund

  44. International ETFs • Chris Shields • Katie Martin

  45. Investment Vehicle – iShare’s Exchange Traded Funds Investment Policy Statement Liquidity Flexibility No-load Diversification iShare’s Greatest Flexibility Large Selection Historical Data

  46. Investment Selection Process First Screen Macro View of Country Political Unrest Currency Valuation SRI Screen Second Screen Macro Economic Economic Strength Industry Concentration Economic Forecast Mean – Variance Analysis

  47. International iShares Forty-five Possible Funds Exclude Global & Regional Funds Drop South Africa & Mexico Thirty-two Remaining Funds Hong Kong – Real Estate 34.4% France – Correlation to Germany Eight Remaining Funds Forecast Growth

  48. Current Holdings • Australia • Austria • Canada • Germany • South Korea • Spain • Sweden • Switzerland

  49. Individual Performance

  50. Domestic ETFs • Jon Greenwald • Ipek Kazan • Raegen Richard

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