Post on 14-Jan-2016
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 – US Catholic Bishop’s Statement on Socially
Responsible Investing
• Student-Managed Fund (SMF) – Based on the donors’ commitment to experiential
learning
The Staff• Dr. David Nawrocki • Professor James Jablonski• MBA Students• Undergraduate Students• In conjunction with MSF and equity society
teams
How We Invest• Top-Down Investment approach• Students teams working around a specific
function• Classroom discussion• Teams are cross-functional and fund
specific
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
Results Thus Far• Initial Investment (Fully Invested)• Re-assessment and re-run process• Re-Investment
Marketing and Public Relations
Jennifer Coppolino
The Marketing Team
The MarketingTeam
WebsiteDesign
Organize Team
EventsPublications
PublicRelations
• A liaison between the fund and the outside world• Ongoing Process
How We Do It• Maintain Team Relationships• VSB PR and Marketing Group• Update Website
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
Investment Policy & Compliance
Joshua Coleman
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
Restrictions on InvestmentGeneral 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
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.
Business Cycle and Economic Analysis
Alex Zozos and Clarissa Sereda
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
The Cycle• 5-Stage Business
Cycle– Ease-off– Plunge– Revival 1– Acceleration– Maturation
• Phase: 6-18 months• “Not Market Timing”
– Data signals cycle transition
Ease-Off
Acceleration
Maturation
Revival
Plunge
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
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
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
Socially Responsible Investing
Michael Brandao
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
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
IWFinancial
Security Analysis
Patrick Murray
• 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
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
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
Security Analysis
Security Analysis
Security Analysis
Security Analysis
Portfolio Analysis
Yulia Barnakova
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
Optimization Process• Correlation Matrix
• Efficient Frontier
• Optimization: Nawrocki LPM
Consumer Discretionary 25%
Consumer Staples 5.0%
Financials 9.2%
Health Care 22.7%
Industrials 11.0%
Information Technology 25%Materials 2.1%
Portfolio Allocation by Sector
Stocks in Optimized PortfolioConsumer Discretionary
ANNTAYLOR STORES CORP
DOLLAR TREE STORES INC
HARMAN INTERNATIONAL
KOHLS CORP
LIMITED BRANDS INC
RYLAND GROUP INC
SHERWIN-WILLIAMS CO/THE
Financials
CITIGROUP INC
FANNIE MAE
FREDDIE MAC
HealthcareAMGEN INC
AMERICAN MEDICAL SYS HLDGS
CELGENE CORP
GENZYME CORP
HOLOGIC INC
LIFECELL CORPORATION
MEDTRONIC INC
MENTOR CORP
STRYKER CORP
Information Technology APPLIED MATERIALS INC
ARROW ELECTRONICS INC
COGNIZANT TECH SOLUTIONS-A
KLA-TENCOR CORPORATION
PAYCHEX INC
QUALCOMM INC
TEXAS INSTRUMENTS INC
IndustrialsCINTAS
RYDER SYSTEM INC
TELETECH HLDGS
Consumer Staples
NBTY INC
MaterialsVULCAN MATERIALS
Risk Comparison
0
0.1
0.2
0.3
0.4
0.5
0.6
%
Risk Reward/Risk
Risk Comparison
Arnone-Lerer
KLD
9.5
10
10.5
11
11.5
12
12.5
13
An
nu
al R
etu
rn (
%)
Arnone-Lerer KLD
Annual Return Comparison
0.21
0.215
0.22
Ske
wne
ss
Arnone-Lerer KLD
Skewness Comparison
Technical Analysis
Kevin Okolie
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
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
RPrice - $47.12 Stop Loss - $41.75 Target - $55.60
CAKEPrice - $23.08 Stop Loss - $20.50 Target - $26.00 Shouldn’t Buy, not enough growth potential.
Stop Losses- Determine support and resistance levels - Is risk to return ratio is reasonable?- Set stop loss and profit target accordingly
Performance Reporting
Joseph Negri
General Fund PerformanceReturns• Week: 3.33%• Month: 3.33%• Quarterly: 0.32%• Year to Date:
13.14%• Investment: 0.86%• Inception:
47.90%
Performance Since Investment
-7%-6%-5%-4%-3%-2%-1%0%1%2%
Arnone
Comparison to BenchmarkReturns for Domini• Week: 1.38%• Month: 1.38%• Quarterly: -.95%• Year to Date: 4.84%• Investment: -.65%• Inception:
30.47%
Fund Comparisons
-7.00%-6.00%-5.00%-4.00%-3.00%
-2.00%-1.00%0.00%1.00%2.00%
11/9/07 11/16/07 11/23/07 11/30/07 12/7/07
Arnone S&P Domini
Biggest Gainers/LosersGainers• 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%
Individual Sector Performance
-3.3%
0.7%1.8%
3.2%
5.7%
7.8%
18.4%
-0.05
0.00
0.05
0.10
0.15
0.20
Re
turn
(%
)
ConsumerStaples
Industrials InformationTechnology
Health Care ConsumerDiscretionary
Materials Financials
Sector
Return By Sector
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%)