Interim Report
Student Managed Fund MBA class of 2004
March 11, 2004
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MBA Fund Managers
Anjana Radhakrishnan
Christopher Bodnar
Ganesh Padmanabhan
Geoffrey Munger
Heather Utter
Jessie LeBlanc
Michael Appell
Saipriya Menon
Tanzhuo Liu
Wiebke Wanner- Borchardt
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Agenda
Investment Philosophy & Approach
Investment Criteria
Portfolio Performance
Attribution Analysis
Retrospection and Self-Analysis
Economic Outlook
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Investment Philosophy
Outperform the S&P500 Strategic sector allocation Selection of stocks with strong growth potential Close monitoring of the portfolio
Fundamental analysis Historical performance Business models Economic outlook for the industry
Valuation Undervalued stocks
Long-term (3-5 year) investment horizon
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Investment Approach
Sector Allocation
Constant Portfolio Performance Monitoring
Valuation•PEG and P/E Models•Discounted Cash Flow•Economic Profit
Fundamental Analysis•Historical Growth•Free Cash Flow•Profit Margin
Investment Criteria
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Investment Criteria
Quantitative Qualitative
ROA Industry Growth
ROE Company Market Share
ROIC Corporate Governance
Growth in EPS Institutional Ownership
Free Cash Flow/Net Income Insider Trading
Gross Margin Market PowerProduct Differentiation Low-cost ProducerCustomer Relationship
Retention Ratio
Economic Profit
Debt/Equity
Beta
Quantitative
& qualitative
factors
checked
across
industries
Qualitative Investment Criteria - Portfolio
OCR EBAY JEC INTU
Industry Growth 19.42% 27.20% 12.7% 18.5%
Company Market Share
2.29% 17.62% 12.00% 3.38%
Market Power
Product Differentiation
Low-cost Producer
Customer Relationship
Medium
High
High
Low
High
High
Medium
Medium
High
High
Low
Medium
Corporate Governance
6/12 6/13 6/9 5/8
Institutional Ownership
95% 67.44% 65.50% 83.38%
Insider Trading 7.70% -0.5% 0.01% -0.30%
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OCR EBAY JEC INTU
ROA 6.18% 9.10% 7.86% 10.27%
ROE 13.12% 10.50% 16.35% 14.70%
ROIC 7.37% 10.18% 13.10% 14.55%
Cost of Capital 6.80% 8.74% 8.12% 7.81%
Economic Profit 15M 62M 49M 159M
EPS Growth 28.30% 84.6% 34.53% 96.86%
FCF/NI 1.30 1.03 0.73 1.56
Debt/Equity 0.68 0.02 0 0.01
Beta 0.85 1.55 0.95 1.20
Quantitative Investment Criteria - Portfolio
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Portfolio Monitoring - Sell Criteria
Stock reaches its price objective
Industry-sector weighting exceeds predetermined limits
Risk/reward profile deteriorates
Earnings figures lower than estimates
Stop loss on all positions
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SMF Holdings – 12/26/03
Our sector
allocation closely
tracks the S&P500
with exceptions
based on
economic outlook
Ticker Equity Weight
CONSUMER DISCRETIONARY 31.46%
ALV 4.21%
EBAY 6.12%
HOTT 5.85%
MAT 5.86%
WSM 4.42%
YCC 5.00%
HEALTHCARE 29.28%
GILD 6.56%
HSIC 5.78%
OCR 5.27%
UNH 5.77%
ZMH 5.89%
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SMF Holdings – 12/26/03
Ticker Equity Weight
INFORMATION TECHNOLOGY 18.77%
COGN 3.36%
FDC 4.17%
INTU 5.68%
MSFT 5.56%
INDUSTRIALS 9.15%
CD 5.62%
JEC 3.53%
FINANCIALS 5.38%
WFC 5.38%
CONSUMER STAPLES 5.97%
MO 5.97%
Our sector
allocation closely
tracks the S&P500
with exceptions
based on
economic outlook
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SMF Holdings - Adjustments
Sold COGN and ALV
Initiated positions in:
Materials: Newmont Mining (NEM)
IT: Intel (INTC)
Reviewing positions in: JEC, INTU, WSM, EBAY, and OCR
Seeking positions in Energy and Telecom Sectors
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SMF Holdings – 02/17/04
Ticker Quantity Purchase PriceMarket Value
(02/17/04)HPR
ALV* 300 $32.43 $11,337 16.53%
CD 700 $21.05 $16,051 8.92%
COGN* 300 $34.80 $9,042 -13.39%
EBAY 260 $56.49 $17,997 22.55%
FDC 280 $35.96 $11,312 12.35%
GILD 300 $53.32 $17,412 8.85%
HOTT 550 $27.43 $16,159 6.82%
HSIC 230 $66.06 $16,505 8.63%
INTC 420 $30.75 $12,949 0.26%
INTU 290 $51.87 $14,370 -4.48%
JEC 200 $47.86 $8,712 -9.27%
* SOLD
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SMF Holdings – 02/17/04
Ticker Quantity Purchase PriceMarket Value
(02/17/04)HPR
MAT 830 $19.19 $15,770 -0.97%
MO 300 $51.87 $16,518 6.15%
MSFT 550 $26.56 $14,900 1.98%
NEM 215 $42.41 $9,729 6.7%
OCR 350 $36.93 $16,328 26.03%
UNH 275 $54.63 $16,657 10.88%
WFC 250 $55.23 $14,480 4.64%
WSM 350 $33.84 $14,403 -3.9%
YCC 500 $27.71 $14,180 2.35%
ZMH 230 $69.74 $17,848 11.27%
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SMF Holdings – Performance
SMF S&P 500
Return 11.28% 11.96%
Annualized Return 23.47% 24.97%
Beta 1.014 1.00
Annualized Standard Deviation
7.67% 7.46%
Sharpe Ratio 2.67 2.93
Treynor Index 20.19% 21.87%
Period: Sep 4, 2003 – Feb 17, 2004
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Attribution Analysis
Analyze determinants of portfolio performance
Sector allocation decisions
Equity selection decisions
Sector Allocation and Equity Selection Effect Determinants
Sector-wise weights and returns of the Portfolio
Sector-wise weights and returns of the S&P 500 index
Overall holding period returns of the S&P500
Analysis Period: Dec 26, 2003 – Feb 17, 2004
S&P 500 holding period return: 5.58%
Portfolio holding period return: 3.27%
Total value added: -2.31%
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Sector Allocation Effect
Sectors Wai - Wpi Rpi - Rp{(Wai - Wpi)* (Rpi
- Rp)}
Consumer Disc. 20.17% -2.1386% -0.4314%
Consumer Staples -5.03% -0.4047% 0.0203%
Energy -5.79% 0.8799% -0.0510%
Financials -15.25% 2.2509% -0.3433%
Health Care 15.97% 1.1151% 0.1780%
Industrials -1.82% -2.4278% 0.0441%
IT 1.04% -0.8548% -0.0089%
Materials -3.05% -5.1317% 0.1565%
Telecomm Services -3.38% 7.6488% -0.2587%
Utilities -2.85% -2.1540% 0.0615%
Sector Allocation Effect -0.6328%
LEGEND
Wai -- MBA Wts As of Dec 26 2003
Wpi -- S&P Wts as of Dec 26 2003
Rpi -- S&P Sector returns {12/26 to 2/17}
Rp -- S&P Overall Return {12/26 to 2/17}
{(Wai - Wpi)* (Rpi - Rp)} -- Sector Allocation Effect
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Equity Selection Effect
Sectors Wai Rai - Rpi Wai * Rai - Rpi
Consumer Disc. 31.46% 0.873% 0.27%
Consumer Staples 5.97% -2.375% -0.14%
Energy 0.00% -6.455% 0.00%
Financials 5.38% -8.724% -0.47%
Health Care 29.28% 0.757% 0.22%
Industrials 9.15% -2.932% -0.27%
IT 18.77% -7.833% -1.47%
Materials 0.00% 6.726% 0.00%
Telecomm Services 0.00% -13.224% 0.00%
Utilities 0.00% -3.421% 0.00%
Selection Effect -1.85%
LEGEND
Wai -- MBA Wts As of Dec 26 2003
Rai -- MBA SMF Sector Returns {12/26 to 2/17}
Rpi -- S&P Sector returns {12/26 to 2/17}
Rp -- S&P Overall Return {12/26 to 2/17}
{(Wai - Wpi)* (Rpi - Rp)} -- Sector Allocation Effect
Total Value Added = Sector Allocation Effect + Equity Selection Effect = - 2.48%
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Attribution Analysis
Observations from Analysis
Impact of allocation effect more favorable than that of the selection effect
Review both allocation & selection strategies
Benefit from future investments in un-invested sectors
Over-weighted Sectors
Consumer Discretionary, Health Care, IT
Under-weighted Sectors
Consumer Staples, Financials, Industrials, Materials
Un-invested Sectors
Utilities, Energy, Telecom
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Retrospection and Self-Analysis
Sector Allocation
Use S&P 500 Sector Allocation as a guide
Make adjustments based on Industry Research
Stock Selection
Growth vs. Value Stocks
Cyclical vs. Non-Cyclical Stocks
Benchmark Risk
Underperforming Stocks
Sound Fundamentals vs. Poor Price Momentum
Hold, Add, or Sell
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Outlook
Continued economic strength
Growth at a more moderate pace
Continued stock market strength
Modest interest rate increase
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Impact
Overweight IT and Healthcare
Be aware of interest rate sensitivity of holdings
Select stocks leveraged to the current economic environment
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Activity Update As of Mar 05, 2004
Received additional $150,000 from the Foundation
Initiated positions in: WAG, NXTL, CTSH
Stock selection process underway
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Thank you
University of Connecticut Foundation Inc.
Investment Advisory Board
Dr. Chinmoy Ghosh
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Questions?