Arnone–Lerer Student Managed Fund Performance Review Fall, 2007

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  • ArnoneLerer Student Managed FundPerformance ReviewFall, 2007

  • Arnone - Lerer Fund Overview Founding of the FundIn memory of Eugene Arnone & Lawrence LererMaria A. Stumpf and Stephen A. Stumpf

    Socially Responsible FundVillanovas Augustinian principles US Catholic Bishops Statement on Socially Responsible Investing

    Student-Managed Fund (SMF) Based on the donors commitment to experiential learning

  • The StaffDr. David Nawrocki Professor James JablonskiMBA StudentsUndergraduate StudentsIn conjunction with MSF and equity society teams

  • How We InvestTop-Down Investment approachStudents teams working around a specific functionClassroom discussionTeams are cross-functional and fund specific

  • The Investment ProcessMarketing and Public RelationsInvestment Policy & ComplianceBusiness CycleEconomic AnalysisSocially Responsible Investing (SRI)Security AnalysisPortfolio AnalysisTechnical AnalysisPerformance Reporting

  • Results Thus FarInitial Investment (Fully Invested)Re-assessment and re-run processRe-Investment

  • Marketing and Public RelationsJennifer Coppolino

  • The Marketing Team

    A liaison between the fund and the outside world Ongoing Process

  • How We Do ItMaintain Team RelationshipsVSB PR and Marketing GroupUpdate Website

  • Future InitiativesIncrease AwarenessRecruitMaintain Websitehttp://www.students.villanova.edu/smfStudent-run investment funds are taking off as a teaching tool. The Wall Street Journal article featuring Villanova

  • Investment Policy & ComplianceJoshua Coleman

  • Investment Policy StatementSetsFund objectivesInvestment objectives and guidelinesReporting and performance requirements

    Reviewed thoroughly

    Approved by Investment CommitteeComprised of members of the class and facultyApproved by the University Investment Committee

  • Restrictions on InvestmentGeneral RestrictionsDaily volume: >500,000 shares in 20-day windowPrice: >$10Minimum market capitalization: $1.0 billion

    Position-Based Restrictions Max initial investment (one security): 5%Security increase 40% in value: Rebalance Portfolio (5%)Securities of the same industry: 12.5% portfolio total valueCash positions must not exceed: 10% of the total portfolio

  • Continuous ProcessConstant re-assessmentShifts in economic life cycleLiquidated or re-balancedEmerging issues of social responsibilityPerformance consistent with goals/benchmarks

    All decisions regarding the portfolio are proposed and voted on by the Investment Committee.

  • Business Cycle and Economic AnalysisAlex Zozos and Clarissa Sereda

  • The ProcessSources A Time to be Rich Dr. Lacey H. HuntQ-Insight Conference CallPeripheral materialsFederal Reserve Bank, WSJ, Periodicals

    Reviewed all available indicatorsUse specific factors to determine current phase

    Evidence brought to class for discussion

  • The Cycle5-Stage Business CycleEase-offPlungeRevival 1AccelerationMaturation

    Phase: 6-18 monthsNot Market TimingData signals cycle transition

  • First Assessment - 9/18/2007Plunge Phase Red Flag Indicator: Interest Rate Peak

    Negative Trends in Major IndicatorsGovernment SpendingHousing StartsNon-Farm Payroll

    Class discussion & Investment Committee vote

  • Revised Assessment - 10/11/2007Reevaluation of phaseA number of factors indicate RevivalInvestment Committee disagrees via class vote

    Outcome: Remain in Plunge phaseCurrent market volatilitySpeed of informationForward-looking Federal Reserve

  • Economic SummaryRed Flag: Interest Rate PeakCrude-oil prices riseThe Fed continues to lower interest ratesHousing market continues to struggleCredit quality falls, defaults on the rise

  • Socially Responsible InvestingMichael Brandao

  • Socially Responsible InvestingEmbodying our core valuesThe Mission of the Funds FoundersVillanova University Catholic Bishops Statement

    Reward socially responsible companies

    In conjunction with economic analysis

    Suitable returns are possible

  • How to Assess SRIVote social responsibilityAdjust and analyze each stock differentlyOpen minded and socially conscious

    IWFinancial SRI online toolInitial cut-off: 60Cut off of 55 (0-100 scale)Lowest Stock: 56 (Vulcan Materials, KLATencor)

    Some firms not socially responsible despite passing threshold criteria

  • IWFinancial

  • Security AnalysisPatrick Murray

    We evaluated companies within given sectors- Seek undervalued stocks

    Evaluation of models to find areas for improvement while increasing understanding of outputs

    Utilized Villanovas resources through Market Insight, Bloomberg, and ReutersSecurity Analysis

    First Assessment (2+ weeks)- Valuation models from previous years- Did not return enough companies to pass on - Some stocks did not meet IPS

    Updates made to model, process re-runSecurity Analysis

    Second Assessment (24 hours)- Modifications of evaluation model gave us increased efficiency and quality of results- All stocks were found to meet IPS- More diversification by inclusion of different sectors

    Results- 75 companies believe to be undervalued at their current price to pass on to Technical Analysis Team

    Security Analysis

    Security Analysis

    Security Analysis

    Security Analysis

  • Portfolio AnalysisYulia Barnakova

  • PMSP SoftwarePortfolio optimizerCorrelation of securitiesEfficient FrontierNawrocki Lower Partial Moment Heuristic

    Industry returns Historic Plunge performanceOverride of individual returns

    Constrained optimizationCRSP DataSecurity/Industry/Sector

  • Optimization ProcessCorrelation Matrix

    Efficient Frontier

    Optimization: Nawrocki LPM

  • Portfolio Allocation by SectorConsumer Discretionary 25%Consumer Staples 5.0%Financials 9.2%Health Care 22.7%Industrials 11.0%Information Technology 25%Materials 2.1%

  • Stocks in Optimized Portfolio

    IndustrialsCINTASRYDER SYSTEM INCTELETECH HLDGS

    Consumer StaplesNBTY INC

    MaterialsVULCAN MATERIALS

  • Risk Comparison

    Chart3

    0.59760.3982

    0.06040.0728

    Arnone-Lerer

    KLD

    %

    Risk Comparison

    Sheet1

    Arnone-LererKLD

    Risk0.59760.3982

    Reward/Risk0.06040.0728

    Arnone-LererKLD

    Annual Return12.7110.74

    Skewness0.21880.2141

    Sheet1

    Arnone-Lerer

    KLD

    %

    Risk Comparison

    Sheet2

    Annual Return

    Annual Return (%)

    Annual Return Comparison

    Sheet3

    Chart2

    12.71

    10.74

    Annual Return

    Annual Return (%)

    Annual Return Comparison

    Sheet1

    Arnone-LererKLD

    Risk0.59760.3982

    Reward/Risk0.06040.0728

    Arnone-LererKLD

    Annual Return12.7110.74

    Skewness0.21880.2141

    Sheet1

    Arnone-Lerer

    KLD

    %

    Risk Comparison

    Sheet2

    Annual Return

    Annual Return (%)

    Annual Return Comparison

    Sheet3

    Chart4

    0.2188

    0.2141

    Skewness

    Skewness

    Skewness Comparison

    Sheet1

    Arnone-LererKLD

    Risk0.59760.3982

    Reward/Risk0.06040.0728

    Arnone-LererKLD

    Annual Return12.7110.74

    Skewness0.21880.2141

    Sheet1

    Arnone-Lerer

    KLD

    %

    Risk Comparison

    Sheet2

    Annual Return

    Annual Return (%)

    Annual Return Comparison

    Sheet3

    Skewness

    Skewness

    Skewness Comparison

  • Technical AnalysisKevin Okolie

  • Technical AnalysisDetermine best time to enter and exit positionsAnalyze both short and long term trends

    The ProcessDivide securities amongst the analysts.Using common toolsRSI, Trend Lines, and Moving Averages Advice of ProfessorsIn-Class discussions

  • Technical AnalysisWhat we foundSome securities were fundamentally but not technically sound not enough profit potential to invest

    Dropped 12 stocks from portfolio Will monitor for potential future entry

  • RPrice - $47.12Stop Loss - $41.75Target - $55.60

  • CAKEPrice - $23.08Stop Loss - $20.50Target - $26.00 Shouldnt Buy, not enough growth potential.

  • Stop LossesDetermine support and resistance levels Is risk to return ratio is reasonable?Set stop loss and profit target accordingly

  • Performance ReportingJoseph Negri

  • General Fund PerformanceReturnsWeek: 3.33%Month: 3.33%Quarterly: 0.32%Year to Date: 13.14%Investment: 0.86%Inception:47.90%

    Chart4

    -0.0297817102

    -0.0357488247

    -0.0583946936

    -0.0239164897

    0.0085783214

    Arnone

    Performance Since Investment

    Weekly Values since inception

    4/15/06coleman new investment date11/24/06mid cap as of Monday's close (4/9)

    Security3/24/043/27/044/3/044/10/044/17/044/24/045/1/045/8/045/15/045/22/045/29/046/5/046/12/046/19/046/26/047/3/047/10/047/17/047/24/047/31/048/7/048/14/048/21/048/28/049/4/049/11/049/18/049/25/0410/2/0410/9/0410/16/0410/23/0410/30/0411/6/0411/13/0411/20/0411/27/0412/4/0412/11/0412/18/0412/25/041/1/051/8/051/15/051/22/051/29/052/5/052/12/052/19/052/26/053/5/053/12/053/19/053/26/054/2/054/9/054/16/054/23/054/30/055/7/055/14/055/21/055/28/056/4/056/11/056/18/056/25/057/2/057/9/057/16/057/23/057/30/058/6/058/13/058/20/058/27/059/3/059/10/059/17/059/24/0510/1/0510/8/0510/15/0510/22/0510/29/0511/5/0511/12/0511/19/0511/26/0512/3/0512/10/0512/17/0512/24/0512/31/051/7/061/14/061/21/061/28/061/31/062/4/062/11/062/18/062/25/062/28/063/4/063/11/063/18/063/25/064/1/064/8/064/15/064/22/064/29/065/5/065/12/065/19/065/26/065/31/066/2/066/9/066/16/066/23/066/30/067/7/067/14/06