Capital Markets Capital Markets Overview; BCF Overview; BCF IntroductionIntroduction

Rick Spillane, CFARick Spillane, CFAJune 2, 2014June 2, 2014

Presentation OutlinePresentation Outline1. My Background1. My Background

2. Observations about 2014 Capital Markets2. Observations about 2014 Capital Markets

3. Introduction to the Babson College Fund3. Introduction to the Babson College Fund

4. BCF recruiting information4. BCF recruiting information

5. Q+A5. Q+A

My backgroundMy background

RPI, Chemical Engineer; Harvard MBARPI, Chemical Engineer; Harvard MBA

Eaton Vance Management, 1977-1987Eaton Vance Management, 1977-1987Analyst and Portfolio ManagerAnalyst and Portfolio Manager

Fidelity Investments, 1988-2007Fidelity Investments, 1988-2007Analyst and Portfolio ManagerAnalyst and Portfolio ManagerDirector of ResearchDirector of ResearchChief Investment Officer (US and Europe)Chief Investment Officer (US and Europe)Head of Strategic Advisers (FidelityHead of Strategic Advisers (Fidelity’’s RIA)s RIA)

BABSON FACULTY 2007-PRESENTBABSON FACULTY 2007-PRESENT

Stock and Bond returns 1925-2012

Rick Spillane, CFA

Data from Ibbotson Associates

Real Returns, 1925-2012US Assets

Bonds, Real Returns 1925-2012

Bond returns have been good, T bills have only kept up with inflation.Note the dip in 1983 for bonds

“Certificates of Confiscation” 1981

Large Stocks (Equities) and Fixed Income Returns 1925-

2012

1999

1973

2012

1975

Equities have crushed inflation and fixed income over the long term.

The Death of Equities 1975

Dot-Com boom 1999

All Assets, Real Return 1925-2012

Small stocks have been even better than large stocks; but a lot more volatile

Don’t Invest like this!

ConclusionsIn the long run, it IS about risk and return

BUT this is NOT science, human behavior influences returns A LOT!

What is the market forecasting for inflation?

10 year rate for US Treasury Inflation Protected (TIPS) Bonds : 0.35%

10 year rate for US Treasury Bond: 2.54%

Inflation rate forecast: TIPS-10 year UST: 2.19%

NOTE: market rates 5/15/14

Short Term Rates: US Market

Item Rate Spread to Tbill, basis points

Spread to inflation, basis points

Fed Funds 0.00%

3 month Tbill 0.03% -216

3 month CD 0.23% 20 -196

Long Term Interest Rates, US Market

Item Rate Spread to Tbill, basis points

Spread to Inflation, basis points

10 year US Treasury

2.54% 251 35

10 year Corporate

2.90% 287 68

10 Year High Yield

5.62% 559 340

Equity Market Valuation US Market 5/15/14

Price/Earnings (P/E) 2014E 15.7X

Dividend Yield 1.92%

52 week high 1902

52 week low 1560

Current 1897

P/E Ratios across the globe

US 16.1

Japan 16.1

Germany 13.5

Hong Kong 10.6

Taiwan 14.9

China 7.9

India 15.4

What is BCF?What is BCF?

BCF runs a portion of the Babson EndowmentBCF runs a portion of the Babson Endowment

23 Students (undergrads and MBA23 Students (undergrads and MBA’’s)s)

The objective is to beat the S+P500The objective is to beat the S+P500 Long/ short portfolio of EquitiesLong/ short portfolio of Equities Fully invested (market timing not allowed)Fully invested (market timing not allowed) Heavy Focus on investment analysis (stock picking)Heavy Focus on investment analysis (stock picking)

MEETINGS ARE MONDAY NIGHTS 6:30 TO 9:00 PM MEETINGS ARE MONDAY NIGHTS 6:30 TO 9:00 PM 6:30-7:30 Coaching session with Exec in Residence6:30-7:30 Coaching session with Exec in Residence 7:30-9:00 Portfolio overview and Stock Pitches7:30-9:00 Portfolio overview and Stock Pitches

One Friday seminar per semesterOne Friday seminar per semester

Executives in ResidenceExecutives in ResidenceWarren Johnson, CFAWarren Johnson, CFA

Hugh CrowtherHugh Crowther

Jim Spencer, CFAJim Spencer, CFA

Rick Mace Rick Mace

Charles Mangum Charles Mangum

Chris StixChris Stix

Mike DunnMike Dunn

Pratima AbichandaniPratima Abichandani

Steve Petersen Steve Petersen

Bill EbsworthBill Ebsworth

HighHigh

LowLow

LowLowProbability Of SuccessProbability Of Success

Impa

ct O

n R

etur

nIm

pact

On

Ret

urn

HighHigh

Investment PhilosphyInvestment Philosphy

Stock SelectionStock Selection

Market TimingMarket Timing

Style TimingStyle Timing

Size Timing Size Timing

Sector SelectionSector Selection

SectorsSectorsExecutive Portfolio ManagersExecutive Portfolio Managers

ConsumerConsumer

FinancialsFinancials

Basic Materials/EnergyBasic Materials/Energy

IndustrialsIndustrials

Healthcare Healthcare

Utilities/TelecomUtilities/Telecom

TechnologyTechnology

Quantitative/Risk Management Quantitative/Risk Management

What do you do?Follow your sector closely

Buy and sell stocks in your sector

Work in a team of 1-3 other managers

Write 3 research reports per semester

Write a Semester Report/Sector Overview

Why you should do thisWhy you should do thisYou will learn a lot about fund management and stock You will learn a lot about fund management and stock

analysisanalysis

You are investing REAL MONEYYou are investing REAL MONEY

You will work hard, but learn a lotYou will work hard, but learn a lot

This is as close to real world investment management as This is as close to real world investment management as possiblepossible

You earn class credits for two semestersYou earn class credits for two semesters

Enhanced Job Prospects in the Finance IndustryEnhanced Job Prospects in the Finance Industry

Recruiting Approach

Fall: recruit 2 year MBA’s, Junior Undergrads with a December graduation date, Evening MBA’s

Spring: Junior Undergrads with a May graduation date and Evening MBA’s

Summer: One Year MBA’s

Key datesSummer

Info session TODAY!Applications due Friday, July 11Interviews Monday, July 14

Application ProcessApplication ProcessApplication on BCF WebsiteApplication on BCF Website

http://cutler.babson.edu/babsoncollegefund/http://cutler.babson.edu/babsoncollegefund/BCFApply.aspxBCFApply.aspx

Send to Karl Honerlow by Friday July 11 at noon.Send to Karl Honerlow by Friday July 11 at noon.

Interviews on Monday July 14Interviews on Monday July 14

You start immediatelyYou start immediately

NOTE: You must take or have taken FIN 7503 NOTE: You must take or have taken FIN 7503 (Equities) if you are an MBA student!! (Equities) if you are an MBA student!!

Questions???Questions???La

st years stu

dents!!!!