Agnost ic FundamentalMBA Student Investment Management FundApril 26, 2019

MBA SIM Fund Member s

Martin Manku Allison Richer Aashish Sharma Robert Yap

Madeline Doherty Megan Dolle Spencer Elliott Yuejiang Fan

Agenda

◉ Strategy Review◉ Implementation◉ Rebalancing◉ Returns◉ Attributions◉ Lessons Learned

Agnost ic Fundamental Analysis

◉ Statistician’s approach to Fundamental Analysis

◉ Uses least- squared regression to estimate the fair value of firms

Backgr ound Resear ch

◉ Predicted fair value of firms as a function of 28 widely reported accounting variables

◉ Back- tested over 310 months; fed data from investible universe into a cross- sectional regression

◉ Line of best fit represented peer- implied market values which were used to calculate mispricing signals

◉ Ranked firms ordinally by mispricing signal into quintiles

Bartramm, Sohnke and Mark Grinblatt. “Agnostic Fundamental Analysis Works.” 2014

Back- test ing Retur ns

◉ Size tilt, smaller beta, higher B/ M ratio

Implementat ion

◉ Accounting information obtained from WRDS

◉ Market caps obtained from Bloomberg Terminals

◉ Regression estimated using Python

◉ Securities ranked by mispricing signal and sorted into deciles

◉ Sector neutral portfolio composition

Monthly Rebalancing

◉ Each month, new accounting data may have been released and market caps changed

Buy range: Decile 10

Hold range: Deciles 9 & 10

Sell Range: Deciles 1 to 8

Size Ti l t

13

4447

16

8

1

500M - 1B 1B - 2B 2B - 5B 5B - 10B 10B - 50B 50B - 100B

Num

ber o

f Sto

cks

Market Capitalization

Size Distribution of Holdings

Por t fol io Retur ns

-20%

-15%

-10%

-5%

0%

5%

10%

15%19-Nov-18 19-Dec-18 19-Jan-19 19-Feb-19 19-Mar-19 19-Apr-19

MBA

IWV

VRTIX

Total Return

6.61%

8.91%

4.94%

Volatility

5.94%

5.22%

5.46%

Sector Weights

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

Communication Services

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Utilities MBA

IWV

Sector Weights

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

Communication Services

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Utilities MBA

VRTIX

At t r ibut ions

-4% -3% -2% -1% 0% 1% 2% 3%

Communication Services

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Contribution to ReturnAllocation

Selection

At t r ibut ions

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

TROX

CORE

CDAY

TTMI

MTG

MD

TUSK

CVS

X

UNFI

Top 5 Winners/Losers

At t r ibut ions

30

35

40

45

50

55

4/26/18 5/26/18 6/26/18 7/26/18 8/26/18 9/26/18 10/26/18 11/26/18 12/26/18 1/26/19 2/26/19 3/26/19

CDAY Stock Price

◉ Grew so much we had to trim position

At t r ibut ions

0

5

10

15

20

25

30

35

40

45

50

4/16/18 5/16/18 6/16/18 7/16/18 8/16/18 9/16/18 10/16/18 11/16/18 12/16/18 1/16/19 2/16/19 3/16/19 4/16/19

UNFI Stock Price

◉ Sold in January but still remains in decile 10

Lessons Lear ned

◉ Don’t blindly follow the model

◉ Efficient rebalancing

◉ Lag time/ cash reconciliation

Thank You!

Appendix - Const r aint s

◉ Long only, no shorting

◉ 90% of firms must have a market cap greater than $1B

◉ Investment in each sector must be 25% or less

◉ Investment in each firm must be 4% or less

AppendixM BA IWV

P/ E Rat ios: 12.47 20.25 Communicat ion Services 12.85 20.33Consumer Discret ionary 9.40 23.29Consumer Staples 21.01 20.10Energy 39.88 17.53Financials 7.99 13.42Health Care 14.51 26.46Industr ials 12.21 18.20Informat ion Technology 14.73 24.33Mater ials 7.91 14.03Real Estate 15.02 44.92

Appendix

Appendix