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W. P. Carey School of Business

INTRODUCTION. W. P. Carey School of Business. Undergraduate Maroon & Gold Value Fund Semi-Annual Meeting December 4 th , 2009. Today’s Agenda. INTRODUCTION. Team introduction & fund objectives Fund performance Economic outlook & market overview Portfolio structure decisions

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W. P. Carey School of Business

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  1. INTRODUCTION W. P. Carey School of Business Undergraduate Maroon & Gold Value Fund Semi-Annual Meeting December 4th, 2009

  2. Today’s Agenda INTRODUCTION • Team introduction & fund objectives • Fund performance • Economic outlook & market overview • Portfolio structure decisions • Investment Selection Process • Investments to highlight: • American Express Inc (AXP) • CVS Caremark (CVS) • Attribution analysis • Lessons learned & conclusion

  3. Fund Performance FUND PERFORMANCE

  4. Fund Performance • Two portfolios • Purchases • Sales • Earnings FUND PERFORMANCE

  5. SIM 7.21% IVV 5.39% FUND PERFORMANCE

  6. SIM 7.21% IVV 5.39% FUND PERFORMANCE BPS

  7. Economic Overview ECONOMIC OVERVIEW

  8. Economic overview • We expect slow-to-modest economic growth over next 1-year time frame. • We expect large caps to outperform small-to-mid cap stocks as uncertainty and doubt still exists in the market • Our belief is the FED will not raise interest rates in the short term, will have a positive benefit for both Equity and Fixed Income markets ECONOMIC OVERVIEW

  9. Economic overview • Industrial Production • ISM Manufacturing • Disposable Income • Personal Consumption • GDP Growth • Housing Indices • Labor/Unemployment • Current focus is on the consumer • Going forward we expect this trend to continue Up 2.0% since August Up 1.3% since August ECONOMIC OVERVIEW Up 0.9% since August Up 0.7% since August Revised 2.8% increase Case Schiller, Existing Home Sales 10.2%, still continues to lag

  10. Portfolio Structural Decisions PORTFOLIO STRUCTURE • Portfolio | Allocation

  11. Portfolio • Diversified, large-cap fund • Large-cap with market capitalization of $7bn+ • Global exposure • Financially strong & able to take advantage of opportunities • More information available PORTFOLIO STRUCTURE

  12. Allocation • Diversification • Strategy of beating benchmark • 9 sectors, 1 potential fixed income position • $100,000 ($10,000 per position) • Sector analyst recommended weighting PORTFOLIO STRUCTURE

  13. Sector Allocation PORTFOLIO STRUCTURE

  14. Investment Selection Process • Sector reports | investment selection | • due diligence | committee INVESTMENT SELECTION

  15. Sector Reports • Top-down analysis approach • Sub-sector focus • Determined view by examining: • Economic reports, performance charts, industry publications, wall street research reports, etc. INVESTMENT SELECTION

  16. Investment Reports • Industry overview • What is the current position of the sub-sector • Fundamental analysis • P/E • Price to Book • Revenue Growth • Business Margins • Return on Equity • Buy/Sell recommendation INVESTMENT SELECTION

  17. Committee, Monitoring • Committee decision • Vetting process/due diligence • Majority consensus • Monitoring • Company briefings & industry updates INVESTMENT SELECTION

  18. Stocks to Highlight • American Express (AXP) | CVS Caremark (CVS) INVESTMENT HIGHLIGHTS

  19. American Express (AXP) • Compared with competitors Visa and Discover Financial Services • Reasons for Purchase • Strong revenue generator • Global business operations • Also has world’s largest travel service business • Closed-loop business model – allows Amex to capitalize on efficiencies that competitors do not have • Credit markets weak, but Amex has high lending standards, which should mitigate delinquencies • Ranked highest in 2009 in J.D. Power & Associates Credit Card Satisfaction Survey INVESTMENT HIGHLIGHTS

  20. American Express (AXP) $40.84 +22.9% $32.76 INVESTMENT HIGHLIGHTS

  21. CVS Caremark(CVS) • Compared to Walgreens and Wal-Mart • Reasons for Purchase • Implications of Health Care Bill • Increased sales volume and store traffic • Possible decreased in PBM margins • Strong presence in sun belt states • Most successful customer loyalty program and created • savings plus plan targeted at uninsured and underinsured • customers • Reasons for Sale • Unexpected $4.8bn loss of contracts in 2010 • Investigation by SEC into 2007 merger • Federal Trade Commission investigating business practices • Appointed new CFO INVESTMENT HIGHLIGHTS

  22. CVS Caremark(CVS) • Purchased KO (11/30) at $56.97 to replace CVS in Consumer Staples $30.15 INVESTMENT HIGHLIGHTS (18.9%)

  23. Attribution Analysis ATTRIBUTION ANALYSIS

  24. To what do we attribute a manager’s performance? • Investing in the right sector? • Stock picking? • A combination? Weighted Portfolio Return Attribution Analysis as means of evaluating our investment thesis ATTRIBUTION ANALYSIS Portfolio Return - Benchmark Return = Total Return Difference 3.1% - 0.89% = 2.21% **Based on holding period of Fifth-Third report

  25. Performance Attribution Total Effect = 2.21% ATTRIBUTION ANALYSIS • Allocation Effect: Investing in the right sector? 2.07% • Selection Effect: Stock picking? 0.59% • Interaction Effect: Combination? - 0.45%

  26. Allocation Effect & Selection Effect ATTRIBUTION ANALYSIS - Allocation effect as the determining factor - Selection effect on the best and the worst performers - A global perspective contributes to stock selection

  27. Lessons Learned & Conclusion CONCLUSION

  28. Lessons Learned • Unexpected News • Despite in-depth fundamental analysis, it is impossible to predict future events • News released Nov. 5 causing stock price of CVS to drop 20% • Sell discipline • Determine if company is still strong fundamentally • Stop-Loss of 15% on all securities • Position sold must be replaced to maintain minimal cash position CONCLUSION

  29. Conclusion • Fund Structure • Addressing groupthink • Spring 2010 Semester • Daniel Stone will be the new fund manager • Fund will be investing in a mutual fund specializing in fixed income • Accepted five new analysts CONCLUSION

  30. Appendices • Fund Holdings |Transaction History | Resumes APPENDICES

  31. Fund Holdings • International Business Machines (IBM) • American Express (AXP) • Coach (COH) • Teva Pharmaceuticals (TEVA) • BHP Billiton (BHP) • Exxon (XOM) • Verizon Wireless (VZ) • Danaher (DHR) • Coca-Cola (KO) APPENDICES

  32. Transaction History • Buys: • IBM (10/26): 110 shares @ $120.36, return: • AXP (10/26): 320 shares @ $34.58, return: • COH (10/26): 200 shares @ $50.30, return: • TEVA (10/26): 110 shares @ $120.36, return: • BHP (10/26): 100 shares @ $73.66, return: • XOM (10/26): 110 shares @ $73.81, return: • VZ (10/26): 290 shares @ $29.00, return: • DHR (10/26): 120 shares @ $70.00, return: • CVS (10/26): 250 shares @ $37.16, return: • KO (11/30): 175 shares @ $56.97, return: • Sells: • CVS (11/10): 250 shares @ $30.15, return: -18.9% APPENDICES

  33. APPENDICES

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