RM InvestmentsRM Investments

Investments- Fall 2005Investments- Fall 2005

Marshall BlakeMarshall Blake

Rachel SwartzbaughRachel Swartzbaugh

OutlineOutline

AllocationsAllocationsRM Index vs. S&P 500RM Index vs. S&P 500RatiosRatiosExpected Returns and BetasExpected Returns and BetasCorrelationsCorrelationsEfficient PortfolioEfficient PortfolioConclusionConclusion

DiversificationDiversification

1.1. Exxon Mobile (XOM)Exxon Mobile (XOM)2.2. Texas Utilities (TXU)Texas Utilities (TXU)3.3. United Health Group (UNH)United Health Group (UNH)4.4. AstraZeneca plc (AZN)AstraZeneca plc (AZN)5.5. Time Warner (TWTC)Time Warner (TWTC)6.6. AT& T (T)AT& T (T)7.7. Citigroup ( C)Citigroup ( C)8.8. Washington Mutual (WM)Washington Mutual (WM)9.9. Chicago Bridge & Iron (CBI)Chicago Bridge & Iron (CBI)10.10. Jacobs Engineering Group Inc. (JEC)Jacobs Engineering Group Inc. (JEC)11.11. Martha Stewart (MS0)Martha Stewart (MS0)12.12. TRX Inc (TRXI)TRX Inc (TRXI)

Sector AllocationsSector AllocationsCompany Allocation % September 30, 2005

Energy, 16.69%

Biotechnology, 17.02%

Financial, 10.98%

Manufacturing, 11.53%

Engineering, 10.10%

Media, 10.10%

Technology, 11.14%

Communications

11.47%

Asset AllocationAsset Allocation

Asset Allocation

50%

28%

10%

12%

Large Cap

Mid Cap

Small Cap

Micro

Market Trend (Sept-Nov)Market Trend (Sept-Nov)

Trend of S&P 500 vs. RM Index

$0.00

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

Date

$

S&P 500

RM Index

Note: Index Multiplier was 8E-04

RatiosRatios

  P/E Price/Book   Profit Dividend Qtrly Earnings

  Ratio Ratio Beta Margin Yield Growth Rate

XOM 11.14 3.42 1.08 10.67% 1.90% 74.60%

TXU 51.53 30.2 0.83 7.59% 1.60% -15.70%

UNH 26.13 6.88 0.90 7.23% 0.02% 20.60%

AZN 20.36 5.69 0.59 16.16% 2.20% 1.00%

TWTC N/A 3.98 1.77 -17.62% 0.00% -2.50%

T 21.80 1.99 0.77 10.13% 5.10% -1.70%

C 11.07 2.23 0.92 27.99% 3.60% 34.60%

WM 11.41 1.62 0.78 20.92% 4.50% 21.80%

CBI 31.22 5.01 1.09 4.03% 0.40% 327.00%

JEC 25.56 3.34 1.14 2.68% 0.00% 40.40%

MSO -11.88 6.69 0.94 -46.35% 0.00% 30.00%

TRXI -34.85 4.93 0.75 -10.40% 0.00% 29.70%

Using Historical Data (past 5 years)Using Historical Data (past 5 years)

S&P 500S&P 500 PortfolioPortfolio

(Oct.)(Oct.)

PortfolioPortfolio

(Dec.)(Dec.)

E (r )E (r ) 2.37%2.37% 1.30%1.30% 1.95%1.95%

BetaBeta 1.001.00 0.950.95 0.950.95

CAPMCAPM

Expected Returns

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Name

%

CAPMCAPM

Risk Free Rate= 4.02%Risk Free Rate= 4.02%

Return of Market= 2.37%Return of Market= 2.37%

Portfolio’s E ( r)=2.41%Portfolio’s E ( r)=2.41%

What was expected of portfolio is higher than market’s return.

CorrelationsCorrelations  XOM TXU UNH AZN TWTC T C WM CBI JEC MSO

XOM 1

TXU 0.24 1.00

UNH 0.06 -0.03 1.00

AZN 0.26 -0.13 0.21 1.00

TWTC 0.12 -0.07 -0.15 0.00 1.00

T 0.35 -0.19 0.07 0.48 0.07 1.00

C 0.28 -0.21 0.06 0.27 0.39 0.32 1.00

WM 0.00 0.00 0.01 0.25 -0.10 0.33 0.13 1.00

CBI 0.34 0.15 0.04 0.20 0.19 0.10 0.24 0.22 1.00

JEC 0.32 0.16 0.08 0.08 0.25 0.03 0.15 0.20 0.42 1.00

MSO 0.21 -0.02 0.03 -0.05 0.39 0.09 0.37 0.06 0.16 0.21 1

Efficient PortfolioEfficient Portfolio

Por tf ol i o Wei ghts i n an Opti mal (T angent) Por t.

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

1 2 3 4 5 6 7 8 9 10

Asset Number

RM InvestmentsRM InvestmentsConclusionConclusion

A low-risk portfolioA low-risk portfolioDiversifiedDiversifiedNot as efficient as could beNot as efficient as could beRelatively stable compared with S&P 500Relatively stable compared with S&P 500

Remember RM Investments!Remember RM Investments!