Student and Foundation Fund

Second Quarter 2009 & Third Quarter 2009

Outline

2

• Introduction• Economic Forecast• Sector Allocation• Portfolio Detail• Equity• Fixed Income• Future of SAFF• CFA Challenge • Newsletter / Pamphlet• Website

Class Objectives

3

• Investment Mission• Grow Foundation Assets• Attract New Donors

• Educational Goal• Gain “Real World” Experience• Interact with Business Professionals

Class Construction Process

4

• Application/Interview• Selection• 10-15 members per semester• Assign Positions• Portfolio Managers• Equity Managers• Fixed Income Managers• Newsletter Editor• Webmaster• Special Projects Managers• Assign Securities/Sectors• Investment Process

Fund Managers

Portfolio Managers Micah Lile, Katie Young

Equity Managers Jay Fells, Nate Wills

Fixed Income Managers Michael Mrozek, Brandon Luther

Webmaster Tim Haverkate

Newsletter Editor Lizette Salazar

Special Projects Managers Josh Daugherty, Robert Clark

CIS ProjectVinnie Fallico, Ashley Malsam, Erica Ferge, Tim Haverkate

5

Investment Process• Six month• One year• Three year

Economic Forecast

• Equity• Fixed Income• Cash

Asset Allocation

• Market Capitalization• Growth/Value/Income/Int’lEquity

Allocation

• Underweight or overweight relative to benchmarks• S&P 500 • Barclays US Aggregate Bond Index

Sector Weightings

Individual Sector Selection

Class Resources

7

• Charles Schwab

•Research Insight

•Bloomberg

•Morningstar

Individual Security Selection

8

Analyze overall position of portfolio

Research potential buy/sells

Create and submit proposal for class to review

Debate proposal

Vote on proposal• 9

to buy

• 7 to sell

Portfolio Guidelines

9

Portfolio• At least 30% in Fixed Income• At least 5% in Cash

Equity

• No more than 25% in any one sector• No more than 15% in a single industry• No more than 5% in a single security• No more than 10% in foreign securities

Fixed Income

• At least 85% of Fixed Income must have a credit rating of “BBB”

• No more than 10% in any one corporate issuer• Duration should fall within a 25% range of

benchmark index

Portfolio Benchmarks

10

• 60% S&P 500• 40% Barclays US Aggregate Bond Index

• Equity• S&P 500• Fixed Income• Barclays US Aggregate Bond Index

Economic Forecast

Economic Forecast

Energy Prices

12

The Money Supply

Value of the Dollar

Individual Taxes

Corporate Taxes

Economic Forecast Fall 2009

13

 Current as of

Sept 8th6-month 12-month 36-month

GDP -1.0% -1.0%  -2.0% 0.0%

Unemployment 9.7% 10.0%  10.3%  9.9% 

Inflation 0.0%  0.0% 1.0%  4.5%

90-day T-Bill 0.1% 0. 1%  1.1% 5.0%

10-Year T-Note  3.2%  3.0% 4.2% 6.8% 

30-Year T-bond 4.6%   4.5%  5.9% 8.1% 

DJIA 9,497  8,500 7,500  10,500 

S&P 1,025 930  850  1,150 

Portfolio Details

Portfolio Allocation

15

Equity Distributions

30%

50%

20%

Target Allocation

GrowthValueIncome

17%

61%

23%

Current Allocation

GrowthValueIncome

• Income stocks provide stability through dividends• Minimum at 20%

• Growth stocks may have difficulty expanding in predicted economy• Minimum at 30%

• Value stocks have potential to increase from depressed values• Maximum at 50%

Portfolio Allocation

16

Asset Distributions

55%40%

5%

Target Allocation

EquityFixed Cash 53%

31%

17%

Current Allocation

EquityFixed Cash

• Fixed Income has stability of payments and less risk• Maximum at 40%

• Cash is maximized to provide safety and liquidity• Maximum at 5%

• Equity holds residual amount to still hedge predicted inflation• Minimum at 40%

Second Quarter 2009 Returns

17

SAFF Benchmark

Equity* 14.85% 15.22%

Fixed Income†

6.63% 1.78%

Overall 11.56% 9.84%

* Benchmark for Equity is the S&P 500 Index† Benchmark for Fixed Income is the Barclays US Aggregate Bond Index

Third Quarter 2009 Returns

18

* Benchmark for Equity is the S&P 500 Index† Benchmark for Fixed Income is the Barclays US Aggregate Bond Index

SAFF Benchmark

Equity* 14.10% 14.98%

Fixed Income†

4.31% 3.74%

Overall 10.18% 10.48%

Second and Third Quarter Returns

19

Quarter 2 Quarter 38.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%11.6%

10.2%

9.8%

10.5%

Overall Performance Comparison

SAFFBenchmark

Equity

Sector Managers

Sector Managers Financials Lizette Salazar & Jay Fells

Health Care Nate Wills & Brandon Luther

Technology Micah Lile & Josh Daugherty & Ashley Malsam

Utilities Vinnie Fallico

Industrials Erica Ferge

Energy Tim Haverkate & Michael Mrozek

Cyclicals Katie Young

Telecommunications Jay Fells

Consumer Staples Josh Daugherty & Robert Clark

Basic Materials Timothy Haverkate

5 Largest HoldingsCompany Ticker Sector Market Cap % of Equity

Caterpillar CAT Industrial Large 5.32%

Apple Inc. AAPL Technology Large 4.09%

AstraZeneca AZN Healthcare Large 3.70%

JP Morgan JPMFinancial Services

Large 3.56%

Qualcomm QCOM Technology Large 3.58%

Company Ticker Sector Class% of

EquityYTD Return

1) Cognizant Tech-A CTSH Technology Growth 2.66% 136.88%

2) Network Appliance Inc. NTAP Technology Growth 0% 104.80%

3) Reliance Steel RS Materials Value 1.84% 95.94%

4) Transocean RIG Energy Value 2.41% 81.65%

5) Texas Instruments TXN Technology Value 2.53% 55.80%

5 Best Performers

5 Worst Performing Stocks

Company Ticker Sector Class % of Equity YTD Return

1) Kimco Realty KIM Financials Income 0% -27.02%

2) Lowe’s LOW Cyclicals Value 2.12% -22.28%

3) Valero Energy Company

VLO Energy Value 1.05% -18.11%

4) General Electric GE Industrial Value 1.75% -10.93%

5) AT&T T Telecom Income 1.06% -8.98%

Sector WeightingsSAFF* S&P 500* Target

Financials – Under 9.74% 13.60% 12.00%

Healthcare – Over 12.85% 14.00% 15.00%

Technology – Equal 17.43% 18.30% 18.30%

Utilities – Over 5.48% 4.10% 4.50%

Industrials – Under 10.06% 9.90% 9.20%

Energy – Equal 17.02% 12.40% 12.40%

Cyclicals – Under 5.80% 9.00% 8.00%

Telecommunications – Equal 2.60% 3.50% 3.50%

Consumer Staples – Over 15.12% 12.00% 13.90%

Basic Materials - Equal 3.91% 3.20% 3.20%

* Current weights, as of 11/10/09

International Exposure

American Depository Receipts• AZN, DEO, HNP, TOT

Total International Exposure (Revenue)• 41.11% of sales

Holdings with Highest Int’l Exposure• Phillip Morris, Huaneng Power, Total, Qualcomm,

Agrium

International Sales

86.16%

12.41%1.43%

US & CanadaEuropeAsia & AustraliaOther

Equity Performance

Quarter 2 Quarter 3 YTD0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

14.9% 14.1%

18.9%

15.0% 15.0%

21.0%

SAFF S&P

Q2 Sector Returns

Financial Services

Health Care

Technology

Utilities

Industrials

Energy

Cyclicals

Telecom

Staples

Materials

0% 5% 10%

15%

20%

25%

30%

35%

40%

S&P

SAFF

Q3 Sector Returns

Financial Services

Health Care

Technology

Utilities

Industrials

Energy

Cyclicals

Telecom

Staples

Materials

0% 5% 10% 15% 20% 25% 30%

S&P

SAFF

YTD Sector Returns

Financial Services

Health Care

Technology

Utilities

Industrials

Energy

Cyclicals

Telecom

Staples

Materials

-20% 0% 20% 40% 60% 80%

S&P

SAFF

Style Classification

61%15%

23%

Current Weights

ValueGrowthIncome

45%

30%

25%

Target Weights

ValueGrowthIncome

Fixed Income

Fixed Income Snapshot

CurrentSAFF

BC US Aggregate

Duration 3.62 4.48

YTM 3.22% 7.05%

Average Maturity 4.40 6.56

Average Coupon 4.60% 4.81%

Average Quality AA- AA

Fixed Income Management

0-2 Years 2-4 Years 4-6 Years 6-8 Years 8-10 Years $-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

Current Standing Ladder Strategy

CurrentProposedTarget Allocation

Maturity

Am

oun

t

Fixed Income Returns

SAFF BC US Aggregate

Second Quarter 6.638% 1.78%

Third Quarter 4.308% 3.74%

YTD (11/05/09) 14.60% 5.71%

Spread Analysis

MBS/ABS

Government

Corporate

Spread Analysis

Government – 3.4

Mortgage Backed – 3.81

Mortgage Backed – 3.81

Corporate AAA – 5.13

Corporate AAA – 5.13

Government – 3.4

0.67

0.66

1.32

ChangeNeeded

0.41

1.32

1.73

Current

0.26

0.66

0.41

0.26

0.66

0.41

5 Year Average

+0.38

+0.63

-0.03

MBS/ABS4.44%

AAA5.10%

10 Yr Treas.3.78%

Target Sector WeightingSector SAFF Target

MBS/ABS 33.5% 33.5%

Government 23.2% 23.2%

Corporate 43.3% 43.3%

34%

23%

43%

TARGET DISTRI-BUTION

MBS/ABSGovernmentCorporate

34%

23%

43%

CURRENT DIS-TRIBUTION

MBS/ABSGovernmentCorporate

Current Sector WeightsSector SAFF BC US AGG

MBS/ABS 33.5% 40%

Government 23.2% 35%

Corporate 43.3% 25%

34%

23%

43%

CURRENT DIS-TRIBUTION

MBS/ABSGovernmentCorporate

40%

35%

25%

BS US AGG BOND INDEX

MBS/ABSGovernmentCorporate

Fixed Income Strategy Ladder Strategy

◦Suitable for Inactive Periods Winter Break Summer Break

◦Protection in Volatile Markets Not locked into specific bonds for a long duration

◦Steadily Maturing Bonds Relatively Liquid Money

◦Economic Forecast Expectations Interest rates will not significantly increase in the near

future

Future of SAFF

Returning SAFF Members

Joshua Daugherty

Ashley Malsam

Returning SAFF Members

Jay Fells

Erica Ferge

CFA ChallengeConsists of students, investment industry

professionals, publicly traded companies and corporate sponsors

Nearly 300 of the top schools compete to form an analysis of a company chosen for them

Each school has a team consisting of 3-5 business students

Each team is assigned one CFA advisor

CFA Challenge In Relation to SAFF

UNC’s Challenge team: Micah Lile, Ashley Malsam, Jay Fells, Josh Daugherty, Erica Ferge

CFA volunteer in conjunction with Challenge is Matthew Blair

Company chosen by CFA Institute: Chipotle (CMG)

First competition: final report is submitted for grading on January 29th

CIS ProjectWorking with the CIS class to make a more

accurate portfolio database for SAFF

• Real time valuation

• Integrate fixed income with equity in spreadsheet

• Instantaneous graphs to compare/evaluate evidence

• Indicator for unstable stocks

Newsletter and Pamphlet

Fall 2009 Newsletter to be mailed during the final week of the semester

UNC SAFF Pamphlet◦In the works◦Provide history and information regarding SAFF◦To be used as a marketing tool

SAFF Websitehttp://www.mcb.unco.edu/Clubs/SAFF/

Mission StatementMembersAdvisorMeeting MinutesRésumésContact InformationFormer MembersPortfolio

SAFF in ProgressNear Target on Equity and Fixed Income

◦Currently working on buy proposals to decrease cash

Equity Strategy in Place◦Working towards target equity distribution and

sector allocation