S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Annual Report 2008-2009
Presentation for the SMIF Advisory Board
Presentation Overview
Background & GuidelinesTop-Down ApproachAllocation TriggersCapital Markets Outlook Asset AllocationFixed-Income AnalysisEquity AnalysisPortfolio PerformanceFund ExpansionNetworking & OutreachLearning Experiences
PresentersBrooks ZimmerTien DoWayne BrownKristin TranCasey HughesGreg StrandReuben Conceicao
S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Brooks Zimmer
Background & Guidelines
Background of SMIF
Honors-level program administered by the College of Business Administration’s Department of FinanceEstablished August 1995Program Goals
“Real dollar” experience in portfolio managementApply this knowledge toward career advancement
Class Structure
Sixteen senior-level undergraduate students and second-year MBA students majoring in Finance/InvestmentsSixteen students divided into four teamsRigorous selection process & boot campDiversity within the ranks
Background, Academics, Philosophy
Students spend an average of 20 hours per week on SMIF
Portfolio Guidelines
Growth of Income objectiveEquity Allocation
50-75%
Fixed Income Allocation25-50%
DiversificationNo more than 15% in each industryNo more than 5% in one company
Trailing 10% Stop-Loss
Top-Down Approach
Economy•Consensus of professional forecasters•Economic reports
Sector/Industry•Cyclical & Structural effects•Outside sources
Securities•In-depth analysis, debate and discussion•Potential risks and expected returns
S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Tien Do
Allocation Triggers
Allocation Triggers
Triggers for entry into equity positionsGovernment Interventions
Effectiveness of TARP & TALF
Volatility Index (VIX)30 day SMA fall under 30
Credit SpreadsNarrowing of credit spreads
Government Interventions
TARP (Troubled Asset Relief Program)Goal: Resume lending among banks
TALF (Term Asset-Backed Securities Loan Facility)
Goal: Resume consumer lending
S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Wayne Brown
Capital Markets Outlook & Asset Allocation
Fixed-Income Outlook
Treasury YieldsIn September 2008, rates were forecast to increase in first half of 2009
Credit SpreadsExpectations of a weak economic environment in 2009 suggest continuation of historically wide credit spreadsAnticipation of spreads narrowing as the economy begins to recover
Fixed-Income Outlook
Based on our fixed-income outlook, short-term instruments would be more suitable to alleviate interest rate risk
Appropriate instruments• CDs• MMMFs• Short-term Investment Grade Bonds
Equity Outlook
CBOE Volatility Index (VIX) S&P 500 volatility reached four times the historical normLikelihood of triggering a stop-loss order increased dramatically
Market became a trader’s marketBuy-and-hold strategy questioned
Uncertainty rendered any point forecast of the S&P 500 almost meaningless
2009 S&P 500 Earnings
Standard and Poor’s operating earnings estimates for 2009 were very uncertain
S&P 500 Earnings Estimates November 2008 April 2009
Top-down $62.98 $44.41
Bottom-up $91.85 $60.26
Asset Allocation
Based on our capital markets outlookSMIF allocated 100% of the portfolio to Guaranteed Cash Equivalents
• Our primary concern was to mitigate the risk of capital losses
• Uncertainty in the market was too high for equity investments
• Volatility would have stopped-out any equity investments
Asset Allocation
Fixed-Income BenchmarkNBBITR - NASD Bloomberg Active Investment Grade US Corporate Bond Total Return Index
Equity BenchmarkS&P 500 Index
CDs35%
MMMFs65%
SMIF Portfolio
Fixed-In-
come30%
Equi-ties70%
Composite Benchmark
Sector Analysis
ForecastOutperform
Consumer StaplesHealthcareInformation TechnologyTelecommunicationsUnderperform
FinancialsConsumer DiscretionaryEnergyMaterials
GICS Sector Ranked Returns+
Sector Return
Telecommunications -14.42%
Information Technology -18.01%
Consumer Discretionary -21.05%
Consumer Staples -23.10%
Health Care -23.44%
Utilities -27.04%
S&P 500 -28.36%Materials -31.35%
Energy -32.19%
Industrials -32.93%
Financials -46.78%+9/25/2008 to 4/24/2009
S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Kristin Tran
Fixed-Income & Equity Analysis
Fixed-Income Selection
SMIF preferred Money Market Mutual Funds and CDsPortfolio was protected against market dislocationsHad the flexibility to change with market conditionsPreservation of capital
Chose not to invest in the Bond MarketCredit markets were frozen in the 2nd half of 2008In this market environment, bonds embodied far greater risk than historical levels
Equity Selection
Several equities were analyzed throughout the yearNone were selected for inclusion in the portfolio
Equities analyzed includedApple Inc. (AAPL)Burlington Northern Santa Fe Corp. (BNI)Cal-Maine Foods (CALM)Apollo Group (APOL) Johnson & Johnson (JNJ)
Each of the four groups screen for equities independently
Equity Selection Process
Team 4 used a screening process based on:• Favored Sectors• Low Implied Volatility• Low Market Correlation
Introduce security of interest
Full presentation of analysis
Equity Selection Process
Team 4 analyzed Johnson & Johnson (JNJ), a diverse health care company that has product segments in pharmaceuticals, medical devices and consumer staples
JNJ’s equity presentation consisted of a fundamental analysis, technical analysis, competitive analysis, multiple valuation models, and qualitative risk factors
Debate and discussionProfessors ask critical-thinking questionsClass vigorously critique the presentations
Equity Selection Process
JNJ was analyzed at great length• Three consecutive weeks of rigorous discussions• Re-evaluation of information
Equity Selection Process
Voting processSupermajority of 75-percent required for placement into portfolio
JNJ did not pass the vetting process, therefore there was no vote• Due to further significant declines in the stock market,
the team decided to abandon their original thesis
JNJ Technical Analysis
Source: Bloomberg (02/10/09)
JNJ Residual Income Valuation
JNJ stock price at time of analysis: $ 56.73
JNJ Price Graph
03/03/09: Suspended JNJ Analysis
Price: $47.64Decline of
16%
2/10/09: Initial JNJ
PresentationPrice:
$56.73 03/09/09: Intraday low Price: $46.25
05/05/09: JNJ Close
Price: $54.21Hypothetical Loss of 4.4%
S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Casey Hughes
Portfolio Performance & Fund Expansion
Transaction History
Date Item Amount 9/1/08 Beginning balance $100,000.00
Interest/mm div - Sept $18.84
9/30/08 Ending balance $100,018.84
Interest/mm div - Oct-Dec $383.27
12/31/08 Ending balance $100,402.11
Interest/mm div - Jan-Mar $403.51
3/31/09 Ending balance $100,805.62
Estimated Interest/mm div - Apr $134.50
4/30/09 Estimated Ending balance $100,940.12
Date Purchased Security Amount Maturity
11/7/08 CD 3.5% $25,000 8/19/09
11/14/08 CD 3.25% $10,000 8/26/09
Fund Performance
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
SMIF Benchmark
Performance SMIF: 0.94% gain Benchmark: 23.16% loss
CFA Society of Orange County Foundation Annual RFP Competition
Request For Proposals CompetitionProcess through which CFAOCF Portfolio is awarded
Chapman UniversityArgyros School of Business Board Room
Professional environment with panel of CFA’sCompetition between rivals CSU, Fullerton and UC IrvineCSULB SMIF’s competitive edge
Portfolio winners six consecutive years
Forty-Niner Shops Inc.
Forty-Niner Shops Inc. Board Member Alvaro Castillo approached SMIFStudent managers met with Board of DirectorsSynergy between mission, vision, and values for both organizations Forty-Niner Shops Inc. engaged SMIF to manage a portion of their portfolio
Associated Students, Inc.
Introduced to ASI Representative through Forty-Niner’s meetingsRelationship purely student-driven
Portfolio management for students, by students
ASI Senate Chambers MeetingUnanimous decision to pursue working relationship with SMIF
Client Relationships
ASI
SMIF
Forty- Niner Shops
CFAOCF
S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Gregory Strand
Networking & Outreach
Networking
CFALA Forecasting DinnerCFALA Career Expo
Career Search Techniques/Resume workshopNetworking opportunities with industry professionals
CFAOCF Host-A-Student ProgramOffers students a first-hand view of the investment profession
Redefining Investment Strategy Education ForumBrings leading students, faculty, government, and Wall Street together in an interactive learning environment
Outreach
Business CardsSMIF Information Night
A gathering of prospective SMIF members to learn more about the program
Website DevelopmentCreated a website for students who are interested in SMIF
www.csulbsmif.org
S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Reuben Conceicao
Learning Experiences
Analytical Skills
Real-World ConsiderationsCritical ThinkingPresentation SkillsBloomberg CertificationCFA Charter
Grading Components Quality of Analysis Teamwork Networking
The program is about learning, not performance
Organizational Skills
TeamworkLeveraging on each other’s strengths
Leadership & OwnershipRotating CEOs
Client ManagementSecuring clients and meeting their needs
Networking
Hard Work
In-Class Meetings•3 hours per student per week for 30 weeks•1,440 hours
Outside of Class Preparations•20 to 35 hours per student per week•9,600 hours
Summer Boot Camps and Winter Break•5 hours in Winter, 15 hours in Summer for Boot Camps•320 hours
Total Time Commitment to SMIF• 11,360 hours• 22 hours per student per week
CFAOCF RFP
SMIF Annual Report
R.I.S.E.
CFAOCF Quarterly Meeting
CEO Meetings
Host-A-Student
Forty-Niner
ASI
CFAOCF Annual Report
Marketing SMIF
CFALA/CFAOCF events
IRA
896
580
360
283
256
165
150
90
60
48
45
16
Special Projects
Dedication
Extra 20% per student per week dedicated to special projects
Learning Experiences
Working with UncertaintyActing on incomplete information
Resilience and PatienceThe worst investing environmentThe best learning experience
As we embark on our careers, we extend our gratitude to the newly-formed SMIF Advisory Board for its
dedication to the SMIF program.
S t u d e n t M a n a g e d I n v e s t m e n t F u n d
Annual Report 2008-2009
Question and Answer Session
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