MBA SIM Fund 2014-2015 MBA Presentation – May 1, 2015

1. MBA SIM Fund 2014-2015 MBA Presentation – May 1, 2015

2. James Lyle Aishwarya Srinivasan Nic Kostman Noel Hill Eugene Lee Jeremy Mortensen Tyler Blue Rob Bayless

3. Agenda • Dividend Premium Strategy Review • Strategy Operations • Operational Challenges • Performance • Strategy Accuracy • Returns • Attributions • REITs • Strategy Review • Performance

4. Dividend Premium Strategy

5. SIM Fund Objectives • Apply range of course principles to fund management • Utilize resources to maximize learning • Manage scope • Portfolio Model • 85% - Quantitative Strategy (core) • 15% - REITs (diversification)

6. Dividend Stock Pricing Anomaly • Why does it exist? • Mutual fund demand to pass through dividends (Harris, Hartzmark, and Solomon 2014) • Cash guarantee

7. Dividend Stock Pricing Anomaly • “…Companies have positive abnormal returns in months when they are predicted to issue a dividend.” • (Hartzmark & Solomon 2012) Div Declared Div-Ex Sell (Div-Ex) Buy (Div Declared -1)

8. Exclusionary Rules • Traded in the Russell 1000 Index • Domiciled in the US • Market Cap over $10 billion • Excluded sectors: Insurance, Banks, Utilities, REIT • Quarterly Dividends over the past year • Universe: 191 securities • Cap holdings at a maximum of 80

9. Weekly trade schedule Old New

10. Investment Universe

11. Strategy Operations

12. Operational Challenges • Reconciliation • Sensibility Checks • Solutions • Weekly process rotating reconciliation responsibilities. • Differences in opinion of what is “sensible,” • Established foundation rules such as industry momentum, insider trading, negligent operations, but some decision making was on a case-by-case basis.

13. Cash Management • Solutions • Overweighting • Initial purchase • Post–purchase overweighting prioritized based on closest forecasted declaration date. • Indexing • Insufficient Cash • Prioritized purchases based on closest forecasted ex-date

14. Performance

15. Strategy Accuracy • 19.6 days of average lead time in purchasing vs. actual announcement date • 0.4% of planned purchases missed announcement date (1 of 226) • 25% of Sell transactions on Ex-date vs. post-Ex. • Average Holding Period: 34.5 Days • Std Dev = 16 days • Range: 7 to 99 days • Actual vs. Hartzmark and Solomon

16. Returns vs. S&P500 11/17/14 - 4/17/15 • Portfolio • Total Return +4.02% • Dividend Strategy Return +4.25% • Tracking Error (Annualized) 4.59% • Std. Deviation (Annualized) 11.13% • Sharpe Ratio 0.52 • S&P500 • +2.59% • 13.37% • 0.56

17. Dividend Yield • Dividend Yield Return Contribution: • 5.16%

18. Attribution

19. Strategy Tapering • Back to the Russell 3000 • Dividend run-up period eventually falls outside of our time horizon • Fiduciary Responsibility

20. REITs Strategy

21. REITs – Overall strategy • Approximately 15% of total portfolio • Primary purpose (for us) was diversification • Focused on ETFs with low expense ratios, high trading volumes, and high assets under management • Also filtered out REIT ETFs from non-reputable companies

22. REITs – Holdings

23. REIT Returns • Total Portfolio: 8.52% • Annualized: 20.73% • Benchmarks:

24. Daily Correlation of Returns

25. SIM Fund Learning Points • Implementation is easier said than done • Cash management is an everyday task • Effective reconciliation requires a solid process design • Dividends yields have surprising magnitudes that look great at first

26. Thank you Questions?

27. Appendix

28. Dividend Premium Strategy

29. Distribution of projected dividend declaration dates # of securities Trading week (week 1 = 11/20/2014)

30. Weighting strategy

31. Weighting strategy - traps

32. Anticipated attrition of Week 1 purchase over 14 weeks

33. Returns vs. Russell 3000

34. Returns vs. Russell 1000