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1 Transforming Education into Opportunity 2013 Annual Report
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Transforming Education into
Opportunity
2013 Annual Report
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Giving students a competitive edge through real investment experience.
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From the President
From the Portfolio Manager
Performance Review
Alpha Fund Holdings
Faculty Advisor
Objectives & Guidelines
Alumni Involvement
Economic Outlook
Looking Forward
Executive Board
Giving students a competitive edge through real investment experience.
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Eight years since our founding, the Tufts Financial Group contin-ues to focus on our three-fold mission: actively managing the Alpha Fund, educating students about financial techniques, and building a finance community at Tufts that encourages students to enter the industry. This year TFG has and will continue to make great strides in each of these categories.
First, in terms of our portfolio, we have realized steady returns and increased the size of our portfolio to $122,000. We are current-ly seeking additional capital infusions so that our portfolio is on par with investment clubs at similar schools. That being said, the Alpha Fund has come so far since its founding and this growth is a result of effective portfolio management as well as generous alumni.
Second, on the education front, we have adopted a more struc-tured and comprehensive curriculum for the analysts to comple-ment our introductory workshops. We also split the consumer sector into consumer staples and cyclical and we also added a real
estate sector to acknowledge its importance for the alpha fund and student interest. To keep students up to date on financial news, we now begin each meeting with a brief weekly market update.
Third, TFG has made outstanding progress this year promoting a Jumbo finance community. Many alumni very generously donated their time to participate in the TFG Speaker Series. This fall brought four alumni to the Hill from various areas of finance and we plan to host seven more in the spring. Countless other alumni have supported TFG more informally by serving as mentors to our members. The impact of both TFG and the Jumbo financial community is evident in the quality of the internships and full- time job placements that TFG members have secured.
We recognize and appreciate the dedication that Tufts alumni have demonstrated to strengthening the finance community at Tufts. This fall we hosted the fourth annual Finance Career Forum (formerly the Wall Street Crash Course), a day-long symposium that featured nearly 40 alumni from all areas of the fi-nancial services industry.
TFG owes a big thank you not only to the alumni, but also to the Tufts Administration. Professor McHugh, our faculty advisor, has provided valuable guidance to the group, encouraging us to be forward thinking and to seek out ways to improve TFG. Chris Di Fronzo, the new Director of the Tufts Finance Initiative and Associate Director of Tuft Career Center, is passionately dedicated to helping Tufts students progress towards their career goals. Mr. Winey, from University Advancement, has been instrumental in helping the group grow its network of alumni.
Sincerely,
Matthew Freedman, President Tufts Financial Group
From the Tufts Financial Group President
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From the Tufts Financial Group President
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From thePortfolio Manager
Tufts Financial Group (“TFG”) and the Alpha Fund had another great year in 2013 as we were presented with numer-ous learning opportunities from our friend, Mr. Market. The continuation of the Federal Reserve Bank’s third round of quantitative easing as well as the market turbulence that surrounded the anticipation of its end proved to be both a challenging and rewarding investment environment. Towards the end of the year with the announced slowing of tapering we also saw two unanticipated reactions: market support of this policy and the breakdown of the traditional cyclical relationship between commodities and announced interest rates. We at TFG are always excited and interested by the opportunity to invest in new conditions and with fresh strategic considerations.
I am happy to report that the Alpha Fund was up a record 23.0% in 2013, benefitting from a bull year for equities through strategic investment planning on the part of all of our contributing members. For most of the year the Fund was invested only in equities because of the underperformance of the bond market in 2013, linked to Federal Reserve Bank policy. We moved into several high-dividend bearing positions, primarily in the Energy sector, in order to main-tain to regular payments from investments. In the near future we will be looking to move into fixed income positions as we expect that short-term interest rates will stay low and long-term interest rates will begin to rise. We had two high-performing equity positions that recovered from investor skepticism at their Great Recession performance and need for government bailout, American International Group (AIG) and General Motors. In addition our exposure to the Technology, Media, and Telecommunications industry through positions in Apple, Baidu, Google, and others were rewarding in a year of enthusiasm around consolidation and innovation in this industry.
We are grateful at TFG for the ability to learn about finance and investing from managing a real brokerage account, an opportunity that is made possible by our generous donors and patient faculty. We continue to focus on entering long-term investments at what we deem to be attractive prices, which is made possible by our executive board and group members who are both passionate about investing and committed to our mission of growing the Alpha Fund, educating students, and creating employment opportunities in industry. It is my pleasure to work with all the dedi-cated members of our TFG team, and I hope that we can continue to fill our mission and come back to Tufts one day as helpful and inspiring as our current alumni are.
Sincerely,
Darcy Covert, Portfolio ManagerTufts Financial Group
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From thePortfolio Manager
The Tufts Financial Group Alpha Fund was successful in 2013; we achieved continued progress towards our over-arching goal of maximizing total return. Our analysts found companies that they felt were intrinsically under-valued through research of the given sector, sub-sector, and target company.
Financial markets had an extremely strong year in 2013 and our portfolio was well positioned to take advantage of the strong equity bull market. The United States econ-omy grew through all of 2013, and real Gross Domestic Product grew by 1.9% over the year. Interest rates re-mained at historic lows, however the Federal Reserve did begin to taper the Quantitative Easing program, thereby signaling an end to the aggressive, expansionary mone-tary policy since the financial crisis of 2008. That being said, the Fed upgraded its assessment of the economy and remained committed to maintaining an extremely accommodative monetary policy. The slight slowdown in GDP growth over 2013 as compared to 2012 was driven by a variety of factors including a slowdown in business investment, a decline in federal government spending, and a decline in consumer spending on services. Final-ly, job growth remained steady in the fourth quarter and the unemployment rate decreased through most of 2013. The year-end unemployment rate was 6.7%, another positive sign for the United States economy.
US Equity indices rallied to end 2013 at record highs amid optimism about the economy, the S&P 500 reached an all-time high and closed the year at 1,848.36, up 2.4% for the month of December and up 29.6% for the year. Fixed income markets weakened with the yield on the 10-year US Treasury bonds rising from 2.7% to 3.0% and the yield curve flattened slightly. On the other hand, emerging market performance in 2013 was fairly weak.
Our analysts were concerned with the drop in growth in the large emerging markets, most noticeably in Bra-zil, India and China, whose overall growth continued to slow throughout the year. The MSCI Emerging Markets index gained a mere 1.5% in December 2013 and was down 4.4% for the year. However, more developed econ-omies such as the European Union and Japan continued to outperform. During 2013, we continued to reevaluate our current hold-ings and worked to prudently construct a portfolio that was geared to outperform throughout the year and beyond. We liquidated a number of positions that had reached their price targets or had undue downside risk, including JP Morgan Chase & Co. and YUM! Brands Inc. In terms of sector performance for this year, consumer discretionary gained the most, 43% in 2013, followed by health care; with telecommunications and utilities performing most poorly. The NASDAQ posted a yearly advance of 38.2%, its best year since 2009. As equities continued to outperform, in-vestors poured billions into stock-based mutual funds and exchange-traded funds. In 2013, a total of $348.63 billion flowed into these funds, the largest ever annual inflow on record. With a well-diversified portfolio, the Alpha Fund was able to take advantage of the high-performing sectors, especially consumer cyclicals, with holdings in Starbucks Co. and Barnes and Noble, Inc.
As is evident in the following pages, 2013 was most definitely a successful year for the Alpha Fund. A num-ber of large successes have been added to the portfolio over the last few semesters including AIG and BIDU. Although there is some uncertainty surrounding the economic outlook for 2014, we feel confident that we will adapt to market volatility and continue to per-form well.
2013 Performance Review
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2013 Performance vs. Benchmark and S&P 500
Alpha Fund2013 YTD Return
Blended Benchmark* 2013 YTD Return
S&P 500 Total Return**2013 YTD Return
* Blended Benchmark is comprised of 85% performance of the S&P 500 and 15% performance of the Barclays Global Aggre-gate Bond Index** S&P 500 Total Return accounts for dividend distributions during period.
2013 Year to Date Returns
Equity Sleeve
Industrials
Canadian National Railway (USA)Pall Corporation
Toll Brothers Inc.
Energy
Halliburton Co.Kinder Morgan Management
Exxon Mobil Corp.National Oilwell Varco Inc.
Technology, Media & Telecommunications
Apple Inc.Baidu Inc. (ADR)
Google Inc.Vodafone Group Plc. (ADR)
International Business Machines Corp.The Walt Disney Company
Broad Market
iShares S&P 500 Index (ETF)
Alpha Fund
3.2%4.0%5.8%8.4%10.8%6.1%11.3%9.1%13.2%18.3%22.6%23.0%
Blended Benchmark*
4.3%5.6%9.0%10.9%12.8%11.3%16.1%13.2%16.3%21.0%24.1%26.7%
S&P 500Total Return**
5.2%6.6%10.6%12.7%15.4%13.8%19.6%16.2%19.8%25.3%29.1%32.4%
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MarchAprilMay
JuneJuly
AugustSeptember
OctoberNovemberDecember
Alpha Fund Blended Benchmark* S&P 500 Total Return**
Full Year 2013 23.0% 26.7% 32.4%
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Equity Sleeve
Consumer Cyclicals
Walt Disney Co.Starbucks Co.Barnes & Noble Inc.
Consumer Staples
Coca Cola Co.General Motors Co.
Basic Materials
CF Industries Holdings, Inc.Syngenta AG. (ADR)BHP Billiton Limited (ADR)
Financials
American International GroupBlackstone Group L.P.M&T Bank Corp.
Real Estate
American Tower Corporation
Ticker
DISSBUX
BKS
KOGM
CFSYTBHP
AIGBX
MTB
AMT
Equity Sleeve
Industrials
Canadian National Railway (USA)Pall Corporation
Toll Brothers Inc.
Energy
Halliburton Co.Kinder Morgan Management
Exxon Mobil Corp.National Oilwell Varco Inc.
Technology, Media & Telecommunications
Apple Inc.Baidu Inc. (ADR)
Google Inc.Vodafone Group Plc. (ADR)
International Business Machines Corp.The Walt Disney Company
Broad Market
iShares S&P 500 Index (ETF)
Ticker
CNIPLLTOL
HALKMRXOMNOV
AAPLBIDUGOOGVODIBMDIS
IVV
Alpha Fund Holdings (as of December 31, 2013)
2013 was another successful and growing year for the Tufts Financial Group and the Alpha Fund. The Fund ended the year with just over $114,000 in assets. Performance for the year, at about 23%, was a cut below that of the S&P 500, at over 32%, but when I review the Fund portfolio each month, I always feel comfortable with the holdings, the number of holdings, the diversification and the level of cash. This year the Fund saw losses in a few of its positions where the Group’s value thesis did not play out, but overall its investments saw healthy appreciation.
Each year I report on changes and refinements in both the operations and the investing philosophy of the Alpha Fund. Of course, since the Fund has been managed so well year after year, no major aspect of managing money has been left unattended. I am happy to report a year of continuation of best practices and steady improvement. One item, the monthly flash report, has been spiffed up and now is a detailed, but succinct, full-page summary of Fund activities, resembling what a small hedge fund or family office might publish.
Fund principals have also been re-assessing the role of fixed income in the Fund and how to handle the very timely issue of what to do when interest rates go up. Fund analysts are closely watching the interest rate environment and they are also very savvy to consider multiple possible scenarios, demonstrating that they are well-versed in monetary policy and macroeconomics. Members continue to use a discerning eye when considering investment opportunities and do not conclude that a lower-than-historical price means that an asset will necessarily appreciate in price.
The graduating Fund students obtained jobs at all of the usual big names in finance and investing, including Blackrock, Fidelity and Wellington. In addition, one of the Fund leaders went to work at the Boston office of the U.S. Federal Reserve and another went to Deloitte. Juniors in TFG this year will have summer internships at Credit Suisse, Goldman Sachs, J.P Morgan and Morgan Stanley in the Hong Kong and New York offices. The Group continues to do an efficient job of moving underclassmen to relatively senior roles to assure depth of the team. Another achievement of the Fund and the Group is that neither has become top-heavy with titles and senior roles – they have always had a realistic proportion of Executive Board members to analysts. I look forward to seeing how the many challenges of 2014 are handled.
Sincerely,
Christopher McHugh, Faculty AdvisorTufts Financial Group
From the Faculty AdvisorChristopher McHugh
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FUND STRATEGYThe Alpha Fund seeks to invest in companies that have proven management teams, strong competitive advantages, healthy balance sheets, and reliable business models. The Fund invests in companies based both in the United States and abroad (through ADR shares) and is not limited by any geographical allocation requirements. TFG Alpha Fund plans to maximize return within reasonable and prudent levels of risk. Investment of Fund assets shall be diversified as to minimize the risk of significant losses. Analysts, split among seven sector groups, perform rigorous fundamental analyses on the company, examine its viability under the current sector, and economic environment and then pitch the investment to the Group at a Tuesday night meeting. Group members then vote on the pitch. Pitches that receive a majority of “buy” votes may be added to the fund. All holdings are bought with a long term investment horizon but can be sold more quickly if, in the view of the Portfolio Manager, the investment thesis is no longer valid or the long term fundamentals of the company become less compelling.
FUND OBJECTIVEThe investment objective of the Fund is to maximize total return by investing in a diversified portfolio of equity and fixed-income securities. The explicit investment objective of the Alpha Fund is to consistently outperform its blended benchmark as measured at the end of each fiscal quarter. The Fund aims to achieve this objective under the supervision of our advisors and the executive board, who will ensure compliance with our risk and investment philosophy. It will provide a challenging and highly relevant educational experience for students who participate in managing the Alpha Fund Portfolio.
PERMITTED SECURITIESThe Alpha Fund is permitted to purchase US stocks, American Depository Receipts, bonds, mutual fund shares, and shares of Exchange Traded Funds.
TARGET ALLOCATION OF ASSETS80% Equities15% Fixed Income 5% Cash
BLENDED BENCHMARKIn light of the aforementioned target allocation, the performance of the Alpha fund will be measured against the following “Blended Benchmark”85%: Performance of the S&P 50015%: Performance of the Barclays Global Aggregate Bond Index
Fund Objectives and Guidelines
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One of the main objectives of the Tufts Financial Group is to help students interested in Finance break into the industry. We are grateful to the TFN alumni who have gone out of their way to help Tufts students join their ranks.
2013 Summer Networking Lunches: TFN alumni hosted two informal summer lunches and a breakfast with students. The lunches were held in Boston and NYC. They were perfect opportunities for more seasoned Jumbos to share candid advice with current students. Alumni participants: Laleh Bashirrad (J94), Jason Bonanca (A94), Lex Leeming (A96), Lawrence Kwon (A99), Kevin Magid (A85), Lindsey Tannenbaum (A08), David Chang (A01), Abigail Ingalls (A09), Bryan Krause (A97), Doris Lo (A11), Matthew Sabel (A97), Adam Winn (A06).
Finance Career Forum: Over 35 alumni from all areas of finance attended the day-long event with 150 students.
We look forward to welcoming Michael Lutz (PricewaterhouseCoo-pers), Scott Urdang (Urdang Capital Management), Dave Fielding (Stew-ard Health Care), John Collins (Aspiriant Wealth Management), Michael Haynes (Beach Point Capital) and Mohit Assomull (Morgan Stanley) to speak to TFG later in the spring semester.
Trips: In March, 25 TFG members will visit Fidelity Investments in Boston, MA to listen to a portfolio manager/analyst panel and receive tours of the trading floor and chart room. In February, the Executive Board will attend a PE Conference and MBA workshop at Tuck School of Business at Dartmouth.
Jay Joshi (10/8/2013) 3K Limited Partnership A recent Tufts alumnus and past Portfolio Manager and President of TFG, Mr. Joshi spoke to group members about finance careers as well as the fundamentals of value investing.
David Leach (10/14/2013) Goldman SachsMr. Leach advised TFG members and especially rising seniors on ap-plications and interviewing during their internship search process.
Michael Chang (10/29/13)Angelo GordonMr. Chang spoke about his expe-rience in real estate investing and some of the market trends within this asset class.
Adam Winn (11/12/13) Goldman SachsMr. Winn discussed opportunities in sales and trading as well as his own career path since graduating from Tufts University.
Bruce Steinberg (1/22/14)Bridgewater AssociatesMr. Steinberg visited campus as a formal beginning to Bridgewater Associates’ recruitment of Tufts students and spoke about which global macroeconomic trends are currently shaping investment op-portunities.
Scott Urdang (2/20/14) Urdang Capital ManagementMr. Urdang discussed his experi-ence moving from the academic to the professional world, building his business, and his eventual decision to sell CenterSquare Investment Management to BNY Mellon.
Career Guidance from Alumni
Speaker Series
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Looking forward to 2014 we are expecting a solid year for the equity markets and the beginning of a recovery in fixed income markets. After a bull market in 2013 where the S&P 500 (TR) had a 32.4% return with reinvested dividends, our out-look is that 2014 will be volatile but also provide steady growth. While the market experienced strong 2013 returns, we anticipate a 5-7% market correction in early 2014 as investors question in-creasing, but still relatively low compared with 2008, stock valuations. Other sources of expected volatility are concerns about the Federal Reserve Bank’s quantitative easing and tapering policies, speculation around and reaction to data from emerging market economies, and questions sur-rounding a European economic recovery.
Fixed income markets suffered in 2013 with the Federal Reserve Bank’s continued $85 billion per month treasury buying activities, but the an-nouncement of tapering, while conditional on positive US economic data, suggests a light at the end of that tunnel. Former Chairman Ben Bernan-ke and newly elected Chairwoman Janet Yellen have committed to keep short-term interest rates low, but long-term interest rates are already begin-ning to rise. Further, investors are seeing Europe-an debt as increasingly attractive, and so we may see opportunities in foreign debt markets.
For this coming year we are excited about the healthcare space, an industry we believe will see
increased merger activity and medical advance-ments. We will also be looking for positions in upstream and midstream oil and gas compa-nies, as these are less vulnerable to changes in commodity prices than downstream firms but benefit from increased exploration and drilling, which we anticipate will arise from technologi-cal bounds and increased global demand. Addi-tionally we are expecting further progress in the housing recovery and the return of consumer spending with more confidence in government and Federal Reserve policies, leading us to look for investments in the consumer discretionary sector. We are looking to government regula-tions such as the Volcker Rule to create oppor-tunities in financials, both at the regional and national levels. Globally we expect that rising interest rates in the US and in other developed countries will increasingly result in the outflow of capital from emerging market economies.
Overall, we are positioning the portfolio to ben-efit from these growth trends but remain com-mitted to our thinking as a primarily value-driv-en fund. We seek mainly to find companies that we believe are undervalued as well as quality long-term investments because of their products, business philosophy, management team, and an economic moat. We do our best to seek a margin of safety in the companies we research. Market volatility and investor skepticism can be oppor-tunities for investment for the Alpha Fund.
EconomicOutlook
ALUMNI ADVISORS
As the group has grown over the last several years, so has the alumni base. Members of the execu-tive board keep in touch with several past TFG Presidents and Alpha Fund Portfolio Managers. We plan to continue these connections and hope to grow the network of alumni who we may look to help analysts informally learn about markets and industries, provide feedback on stock pitch-es, discuss research methods, and offer career advice on a semi-regular basis. We welcome any alumna or alumnus interested in being an advisor or mentor to reach out to us.
RESEARCH
The Tufts Financial Group has limited access to professional research materials. While mem-bers have the ability to conduct research on the Bloomberg Terminal in Ginn Library, it would benefit our members tremendously to have ac-cess to professional research reports. Not only would high quality research allow us to better manage our portfolio but it would also provide a stronger means of education for students inter-ested in careers in finance.
Going Forward
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GUEST SPEAKERS
The Tufts Financial Group is very grateful to the alumni who have come to speak. All of our speakers this year have given excellent presenta-tions and great career advice. Next year, we look to continue a robust Speaker Series and welcome interested alumni to approach us.
“We are grateful at TFG for the ability to learn about finance and investing from managing a real brokerage account (…)”Darcy Covert,Portfolio Manager
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MATTHEW FREEDMAN, PRESIDENT
Matt Freedman is currently a senior at Tufts Univer-sity majoring in Economics. Matt has been a member of TFG since he was a sophomore and is the presi-dent of the group. This past summer he interned in at Credit Suisse in the Equity Research group, and he will be returning full time upon graduation. He is a member of Zeta Psi and ran the Boston Marathon in the spring.
DARCY COVERT, PORTFOLIO MANAGER
Darcy is currently a junior majoring in Quantitative Economics and Mathematics. Last summer she was a business development intern at inSegment, inc., and in the past she has been a policy intern at HIV Law Project in New York and a research assistant for Low-ell Schwartz of the RAND Corporation through the Institute for Global Leadership at Tufts. This summer she will be in the investment banking department at Goldman Sachs. Darcy is also an active member of the Tufts Debate Society, fluent in French, and a weekend tennis player.
WYLAN SIMPSON, VICE PRESIDENT
Wylan is a junior from Arcata, CA studying Quan-titative Economics and minoring in Computer Sci-ence. At Tufts, Wylan is on the men’s rugby team and spent two years running sprints for track & field. He interned last summer with Fidelity Investments in equity research. This summer he will join the in-vestment banking department at Oppenheimer & Co. Inc.
AKSHAY SAVLANI, SENIOR ANALYST
Akshay is currently a junior majoring in Economics and Philosophy and he has been a member of the Tufts Financial Group since his freshman year at Tufts. Last summer he worked at BNP Paribas Corporate and In-vestment Bank as an equity research summer intern, and in the past he has interned at Credit Suisse. This summer he will be in the Global Capital Markets group at Morgan Stanley. Akshay also serves as the Chief Executive Officer of Tufts Student Resources, a stu-dent-run business organization, and is a member of the Delta Tau Delta fraternity.
ExecutiveBoard
The executive board is responsible for the day-to-day operations of the group and the development of new ini-tiatives. This year’s executive board was very passionate about the group and regularly met with students out- side of meetings to offer valuation workshops, career workshops (IBD, S&T, AM), resumes critiques, and mock interviews.
Other members of the executive board include: Michael Lesser (A14), Seungki Kim (A14), Tyler Epstein (A15), Tiffani Lau (A16), and Christian Barker (A16)
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Thank you for your Support
We sincerely thank you for your continued interest and support of the Tufts Financial Group and the Alpha Fund.
Please contact the Portfolio Manager, Darcy Covert ([email protected]) with all investor inquiries.
Please contact the President, Matthew Freedman ([email protected]) if you are in-terested in becoming more involved in the Tufts Financial Group, including the speaker series, Finance Career Forum, or through other means.
If you are interested in donating to the Alpha Fund please contact Jeff Winey ([email protected]), Director of Principal & Leadership Gifts, Tufts University Advancement Office.
Prepared by Tyler Epstein (A15), TFG Chief Compliance Officer.Design by Ben Kurland (A15)
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