Final Draft 2016 Annual Report

SMIF Investment report

2016 Spring Semester Report

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The UCM Foundation Investment Fund Over the semester, the UCM Foundation Investment Fund has returned 11.61 percent.

The portfolio has seen strong returns starting in the month of April, beating the Russell Midcap

by 3.02 percent.

Table of Contents

Fund History 2

Welcome Letter from the CEO 3

Performance Summary 5

Economic Commentary 6

Portfolio Report 8

Investment Fund Coordinators 10

Schedule of Investments 11

Executive Team 14

Committees 15

The UCM Foundation Investment Fund Semester-End Report, Spring 2016

1

Fund History

On February 11, 2013, the UCM Foundation approved $500,000 for

a new Student Managed Investment Fund at the University of

Central Missouri within the Harmon College of Business and

Professional Studies. This marked one of the most significant

investments which the Foundation has made toward any single

program and demonstrates the Foundation’s commitment to creating

greater learning opportunities for UCM students.------------------------

Foundation executive director Jason Drummond stated that the

purpose of the fund is to: “Give students real-world exposure in

performing detailed analysis of potential investments, security

selection and performance. It also will give them an opportunity to

develop the communication skills needed to successfully discuss their

recommendations and performance with the Foundation Board

Investment Committee.”

The state-of-the-art digital technology was made possible through a

gift from Forbes to the UCM Foundation. Donn G. Forbes graduated

from University of Central Missouri in 1952 with a Bachelor of

Science degree in Business Administration. Forbes wanted to make

an investment into a facility that thousands of students can use for

years to come. In addition, he believed in providing students with the

opportunity to learn about making decisions with integrity.--------==-

In the Fall of 2013, the department of Finance dedicated a separate

course to manage the fund, and the UCM Foundation Student

Managed Investment Fund was born. Under the guidance of Dr.

James Cicon, students enroll in the course and gain realistic

experience by performing detailed investment analyses with the

Bloomberg Terminals. Students then have to present their

recommendations with their management teams to the class.

=========

Management Team

Hassaan Kidwai

Chief Executive Officer

Jacob Bertram

Lead Portfolio Manager

Rachel Williams

Lead Economist

Nick Howerton

Executive Committee

Nathan Smith

Executive Committee

Robert Bickel

Portfolio Committee

Andrea Phillips

Portfolio Committee

Eric Siebenshuh

Portfolio Committee

Jesse Ismert

Economics Committee

Calab Benhardt

Economics Committee

Alina Kryshchendyuk

Economics Committee

Fund Coordinators

Jason Drummond, UCM

Foundation Executive Director

Dr. Roger Best, Dean

Dr. Jose Mercado, Department

Chair

Dr. James Cicon, Professor


2

Welcome Letter from the CEO

“Know what you own, and know why you own it." - Peter Lynch

This quote from one of the greatest investor’s Peter Lynch is, perhaps,

the reason why the SMIF students are well versed and committed to

internal and external growth. The SMIF program provides an in-

class setting for students to use what they have learned in other

classes by actively investing in the stock market. It has been my

privilege to serve as CEO of the fund this semester, and I am honored

to provide an update on our performance and recent developments.

The Spring 2016 saw a good mix of new talent and excitement among

the students. All students are held at the highest level and the

quality of work is expected to be nothing less than that of a

professional analyst. As someone who participated in the Program

last semester, it was a great opportunity to watch the new analysts

implement new strategies, and new outlooks on portfolio

management should be managed. Offering of this course at an

undergraduate level is a once in a lifetime opportunity that allows us

to gain hands-on experience in the investment industry. The SMIF

provides a unique perspective change from students learning about

theory into analysts implementing practices.

Description

The Student Managed Investment Fund is a student-run class that

functions as the management and analyst team for an equity

investment portfolio. Students are assigned to three teams,

consisting of the executive team, portfolio management team, and the

economics team. The Student Analysts carefully implement the

investment strategy by employing the top down philosophy. Students

monitor trends in macroeconomics factors such as interest rates,

Federal Reserve policy, inflation, and the state of the overall economy.

This research culminates in a report and a presentation to the class

that serves as the analyst’s investment recommendation. This

process not only requires in depth research, but also detailed Excel

modeling. In addition, students are encouraged to write and speak

concisely and persuasively. A great investment idea is nothing if the

students cannot sell it and this where the presentation skills come in

to play. Being able to present the idea effectively and answer difficult

questions during the Q&A session are some of the most important

skills learned within the course.

Hassaan Kidwai

CEO


3

Strategy/Performance

The primary goal for all the committees within the SMIF was to fight

the drop in the market which occurred in January of 2016, as well as,

the presidential elections that will be taking place this year. The

UCM investment policy entails the SMIF Fund will invest exclusively

in US equities, and fixed income securities. The Fund may invest in

large-cap stocks ($10 billion to $100 billion market cap), and mid-cap

stocks ($2 to $10 billion market cap). The other strategic goal for the

semester is to grow the number of securities to 35, which by the end

of the semester we should be able to attain.

To monitor the risk of the portfolio, attribution analysis and standard

portfolio risk measures were utilized. No more than 5% of the fair

market value of the fund shall be invested in any security at the time

of purchase. No more than 20% shall be invested in any industry

sector at the time of purchase. At no time will any security comprise

more than 10% of the fair market value of the fund. And if a security

falls below 15% of purchase price, then it will be determined if the

current position of the security is consistent with the portfolio risk

and return objectives

Closing Remarks

While inexperience relative to professionals within the investment

industry, each of the students in this class took the responsibility of

managing this fund seriously. The nature of the markets is such

that each action will not result in a positive outcome, but I assure

you that we exercised diligence and care in making our decisions.

I would also like to take this opportunity to thank Professor Cicon

for the investment of his time and effort in instructing this class.

The role of the instructor in this class treads a fine line between

providing enough guidance and allowing students to figure things

out on their own. I think that I speak for the class when I say

Professor Cicon struck that balance very well.

With that, I would like to thank my classmates for a great semester

and wish everyone a fantastic summer!

Best Regards,

Hassaan Kidwai


4

Performance Summary Returns as of March 31st 2016

Inception (11/30/13) One Year (3/31/2016) Semester (12/31/15)

SMIF 21.28% -5.47% 11.61%

Russell Mid 15.98% -5.70% 16.28%

Top 10 Performers % of Portfolio Bottom 10 Performers % of Portfolio USG Corp 4.50% Perrigo Co PLC 3.82%

Mead Johnson Nutrition 1.75% Cerner Corp 4.35%

McCormick & Co. Inc. 2.74% Casey’s General Stores Inc. 1.87%

Bank of Hawaii 5.25% Valero Energy Corp 1.06%

Materials Select Sector 1.79% Under Armour Inc. 5.88%

Church & Dwight 2.74% Activision Blizzard 7.40%

SLM Corp 3.15% Raymond James Financial 4.20%

Industrial Select Sector 1.94% Chipotle Mexican Grill Inc. 3.26%

Home Depot Inc. 2.64% Jetblue Airways Corp 2.09%

NXP Semiconductors 5.35% Snap-on Inc. 6.56%

The University of Central Missouri’s Investment Fund Semester-End Report, Spring 2016

Industry Sector Allocation


Finance (15.29)

Transportation (2.09)

Consumer Services (8.00)

Retail Trade (10.69)

Consumer Durables (13.96)Consumer Non-Durables (11.85)

Health Technology (3.82)

Health Services (5.82)

Eletronic Technology (5.35)

Energy (1.06)

Industrial Services (1.94)

Technology Services (11.23)

Non-Energy Minerals (6.29) Cash (2.59)

5

Economic Commentary Although the United States experienced continued growth and robust

job creation, the global economy in 2015 had unexpectedly low growth

across many regions relative to expectations and even relative to the

more subdued growth in recent years. The downward shift in growth

has both a broader, longer-term aspect, as it has applied to both many

advanced economies and emerging markets continuously over the

last five years, and a more acute presentation over the last year and

into the beginning of 2016 arising in large part from developments in

emerging markets.

The economy continued to strengthen during 2015, especially in the

labor market with robust employment gains and continued declines

in unemployment. Job growth continued to exceed 200,000 a month

for the year as a whole, extending the longest streak of uninterrupted

private-sector job growth on record and contributing to an American

recovery that has outpaced most other advanced economies. Demand

is strong is the United States, especially in the household sector, and

will continue to support solid growth in 2016.

Over the course of the year, developments in U.S. financial markets

largely reflected diminished prospects for global growth, particularly

in China and other emerging markets, and expected tightening of

monetary policy. At the same time, consensus forecasts of long-run

U.S. interest rates have fallen, following the long downward trend

that reflects a variety of factors ranging from demographics to

changing term premiums.

U.S. Economy

The U.S. economy continued to grow in 2015, as the recovery

extended into its seventh year with widespread growth in domestic

demand, strong gains in labor markets and real wages, and low

inflation. Real gross domestic product (GDP) increased 1.8 percent

during the four quarters of the year, down from 2.5-percent growth

during 2013 and 2014. In 2015, residential investment led the growth

in demand, while consumer spending again rose solidly. Weak growth

among our foreign trading partners restrained exports, and

government purchases increased modestly after falling for most of

the preceding five years. The unemployment rate fell 0.6 percentage

points during the 12 months through December, after falling a

percentage point a year, on average, during the three preceding years.

Challenges remain for 2016, including uncertain prospects for global

growth, constraints posed by slowing trend growth in the labor force

due to demographic shifts, and the yet incomplete labor market

recovery.

Hassaan Kidwai, Jacob

Bertram, Rachel William

Executive Team

Note: Shading denotes recession

Source: Bureau of Labor Statistics, Current

Population Survey.


6

Oil Industry

The price of oil, as measured by the spot price of European light crude

oil from the North Sea (known as Brent), is up to $45.50 per barrel at

the end of March 2016, about the highest level it has been since

August of 2015. The oil-price decline from the mid-2014 to the end of

2015 reflected both increased global supply of oil, including rising

production in the United States, Saudi Arabia, and Iraq, and slower

global economic growth. Non-energy commodity prices also declined

over this period, a sign of a weakening global demand. But the non-

energy commodity prices decline of about 25 percent was

considerably less than the about 65 percent decline in oil prices,

pointing to the role of oil supply in lowering prices. The lower oil

prices directly boosted real GDP growth by 0.2 percentage point

during 2015. In addition, the decline in oil prices noticeably held

down price inflation and supported real income growth in 2015. Oil

and commodity prices continued to fall sharply in early 2016 and are

likely to continue to affect consumers and energy producers.

U.S. Interest Rates

In December, 2015, the Federal Open Market Committee (FOMC)

increased the target range for the federal funds rate by 0.25

percentage point, ending seven years at its effective lower bound. The

FOMC’s decision to tighten monetary policy was based on its

judgement that labor markets had improved considerably and that it

was reasonably confident that inflation would move up over the

medium term to its 2 percent objective.

Best Regards,

Hassaan Kidwai

Source: Energy Information Administration;

Financial Times; Standard & Poor’s

Source: Bloomberg Professional Service


7

Portfolio Report

The Student Managed Investment Fund’s year-to-date return is

11.61 percent, 467 basis points below from the Russell Midcap Index’s

performance of 16.28 percent over the same period. With the large

influx of excited new students this semester, we adopted a bearish

investment strategy. Aggressive strategies were put on hold in order

to give a new generation of students a hands-on understanding of the

Bloomberg system and the SMIF Investment Policy. An in-depth

analysis of all current holdings was conducted to measure the

portfolio’s risk exposure and its correlation with the Russell Midcap

Index. After analytics were completed, committee leaders developed

a strategic allocation strategy, which ultimately lead to the removal

of two prior holdings and plans for a major weight redistribution in

both individual securities and GICS Sectors.

Portfolio Strategy & Outlook

Oil Prices

Oil prices for the year continued to collapse into early February

hitting record lows as oil producing countries struggled to cope. Prices

have recovered slightly, finishing at $38.34 a barrel on March 31st,

in part to OPEC’s production freeze. As a result of such recent

volatility, we paid close attention to the fund’s exposure to energy

markets and holdings whose performance directly correlate to crude

prices.

First Quarter

Equity markets fell behind early on in 2016 dropping 6% in the first

week of trading. Global concerns with the collapse of oil commodities

fueled instability within markets during the first half of the quarter.

(As seen on the VIX index pg.9) As these concerns faded toward the

end of the quarter, stock markets rallied aggressively allowing the

portfolio to recover. Further geo-political crises and economic

weakness may cause a revival of volatility in the second quarter.

Recent Actions & Valuation Methods

During our analysis of current holdings, students found that three

names violated the SMIF Investment policy; Chipotle Mexican Grill

(CMG), Perrigo (PRGO), and SLM Corp (SLM). Should any security

fall below 15% of purchase price, it must be reevaluated on its current

position and consistency with the portfolio risk and return objectives.

Jacob Bertram

Portfolio Manager

SMIF YTD Return of 9.414%

*Till March 31, 2016

RMC YTD Return of 14.18%

*Till March 31, 2016

The University of Central Missouri’s Investment Fund Semester-End Report, Spring 2016 The UCM Foundation Investment Fund Semester-End Report, Spring 2016

8

Quantitative and qualitative data was then gathered in order to

This determines whether to hold or sell each security. Quantitative

data consisted of; a review of financial statements, ratio analysis,

Value Line calculations, implementation of the Gordon-Growth

Model and the Dividend Discount Model (FCFE) to determine the

present value of the stock. Qualitative data focused on researching

company business practices, investigating news articles, and even

following social media. All data is assembled and presented to the

class and students vote on the best course of action.

Best Regards,

Jacob Bertram

VIX Index 12/31/2015-3/31/16

Stock Decision

CMG Sell PRGO Sell SLM Hold *Sales made April 14th 2016


9

Investment Fund Coordinators

Jason Drummond Roger Best Jose Mercado James Cicon UCM Foundation Executive Harmon College of Business Professor of Finance and Professor of Finance and

Director and Professional Studies Dean Chair, Dept. of Finance Faculty Advisor for SMIF

William Westhoff Foundation Investment Committee Chair

Wade Carpenter Investment Committee Chair

10


Schedule of Investments

As of March 31st, 2016 Shares Value ($) % of net assets Finance – 15.29% Bank of Hawaii Corp 466 $31,818.48 5.25%

Financial Select Sector SPDR Fund 725 $16,312.50 2.69%

Raymond James Financial Inc. 534 $25,423.74 4.20%

SLM Corp 3,000 $19,080.00 3.15%

$92,634.72 15.29%

Transportation – 2.09% Jetblue Airways Corp 600 $12,672.00 2.09%

$12,672.00 2.09%

Consumer Services – 8.00% Chipotle Mexican Grill Inc. 42 $19,780.74 3.26%

Consumer Discretionary Select SPDR Fund 175 $13,842.50 2.28%

Starbucks Corp 250 $14,925.00 2.46%

$48,548.24 8.00%

Retail Trade - 10.69% Autozone Inc. 47 $37,444.43 6.18%

Caseys General Stores Inc. 100 $11,332.00 1.87%

Home Depot Inc. 120 $16,011.60 2.64%

$64,788.03 10.69%

Consume Durables – 13.96% Activision Blizzard Inc. 1325 $44,838.00 7.40%

Snap On Inc. 253 $39,718.47 6.56%

$84,556.47 13.96%

11


Consumer Non-Durables - 11.85% Church & Dwight Co. Inc. 180 $16,592.40 2.74%

McCormick & Co Inc. 90 $8,953.20 1.48%

Mead Johnson Nutrition Company 125 $10,621.25 1.75%

Under Armour Inc. 420 $35,628.60 5.88%

$71,795.45 11.85%

Health Technology - 3.82% Perrigo Company PLC 181 $23,155.33 3.82%

$23,155.33 3.82%

Health Services - 5.82% Cerner Corp 498 $26,374.08 4.35%

Laboratory Corp of Amer Hldgs 3,000 $8,901.88 1.47%

$35,275.96 5.82%

Electronic Technology - 5.35% NXP Semiconductors NV 400 $32,428.00 5.35%

$32,428.00 5.35%

Energy- 1.06% Valero Energy Corp 100 $6,414.00 1.06%

$6,414.00 1.06%

Industrial Services - 1.94% Industrial Select Sector SPDR Fund 212 $11,759.64 1.94%

$11,759.64 1.94%

Technology Services - 11.23% Dst Sys Inc. 318 $35,860.86 5.92%

Technology Select Sector SPDR Fund 725 $32161.00 5.31%

$68,021.86 11.23%


12

Non-Energy Minerals – 6.29% Materials Select Sector SPDR Trust 242 $10,844.02 1.79%

USG Corp 1,100 $27,291.00 4.50%

$38,135.02 6.29%

Cash – 2.59% US Dollar $15,693.98 2.59%

$15,693.98 2.59%

Net Asset Value $605,878.70 100.00%


13

2

Executive Team

Hassaan Kidwai is a senior in the Harmon College of Business

and Professional Studies, graduating in Spring 2016. He is

currently working towards a Bachelor of Science in Business

Administration with an emphasis in Finance. Currently, Mr.

Kidwai works for NYS Collections in Saint Louis, MO serving as

the Assistant Account Manager. He is also sitting for the CFA

Level 1 Exam, June 2016. Upon graduation, he will be starting

his career with State Street, as a financial analyst.

Jacob Bertram is a senior in the Harmon College of Business

and Professional Studies, graduating Fall of 2016. He is

striving to obtain a Bachelor of Science in Business

Administration with an emphasis in Finance. Mr. Bertram

accepted an internship with the CFA Institute’s Future of

Finance Department. He is also sitting for the CFA Level 1

Exam, December 2016 and is leading the Harmon College of

Business CFA Institute Research Challenge Team in the 2016-

2017 season.

Rachel Williams is a junior in the Harmon College of Business

and Professional Studies, graduating in May of 2017. She is

currently working towards a Bachelor of Science in Business

Administration with an emphasis in Finance and Economics. Ms.

Williams is currently the Head Economist of the Student

Management Investment Fund and she is applying her skills

daily, at an internship with the Federal Government.


14

Executive Committee

Nick Howerton is a junior in the Harmon College of Business

at the University of Central Missouri, graduating in May of 2017.

Mr. Howerton is currently working towards a Bachelor of

Science in Business Administration with an emphasis in

Finance. Currently, he is interning at Summit Bank of Kansas

City. Upon graduation, he plans on continuing his education in

the MBA program at the University of Central Missouri while

also pursuing his CFA certification.

Nathan Smith is a senior in the Harmon College of Business

and Professional Studies at the University of Central Missouri,

graduating in May of 2017. He is currently working toward a

major in Finance with a minor in Political Science. Mr. Smith

is currently in the process of preparing to take the CFA Level 1

Exam in June 2017.


15

Portfolio Committee

Andrea Phillips is a junior in the Harmon College of

Business, graduating in May of 2017. She is currently working

to obtain a Bachelor of Science in Business Administration

with an emphasis in Finance. Ms. Phillips has been offered

multiple internship opportunities for the upcoming summer,

one of which she plans to accept. She is a candidate for the

CFA Level 1 Exam in June of 2017 and will be a member of the

Harmon College of Business CFA Institute Research

Challenge Team in the 2016-2017 season. Subsequent to

graduation, she hopes to acquire a full time position within

Corporate Finance.

Robert Bickel is a Harmon College of Business underg-

raduate with an emphasis in Finance. Currently, Robert is the

Treasurer of the Student Finance Association and a Finance

Intern with Murdock Banner Financial Group located in

Warrensburg, Missouri. Mr. Bickel is a candidate for the CFA

Level 1 Exam in December 2016 and recently joined a team for

the CFA Institute Research Challenge. Upon graduation in

December 2016, he hopes to find a full time position working

within banking, Whiteman AFB, or an internal finance

department in a large industrial company.

Eric Siebenshuh is a senior in the Harmon College of

Business and Professional Studies, graduating in December

of 2016. He is currently working toward a Bachelor of Science

in Business Administration with an emphasis in Finance. He

is part of the football team at the University of Central

Missouri. He is currently searching for a position in the

within the financial management field.


16

Economics Committee

Calab Benhardt is a senior in the Harmon College of

Business and Professional Studies, graduating in May 2016.

He is currently working towards a Bachelor of Science in

Business Administration with a double emphasis in Finance

and Accounting. Currently, Mr. Benhardt works for a small

company in Warrensburg, MO serving as the Finance

Manager. Upon graduation, he will be starting his career

with Cerner, as a business consultant.

Jesse Ismert is a senior at the University of Central

Missouri, graduating in May of this year. He is looking to

finish up his Bachelor of Science in Business Admini-

stration with an emphasis in Finance. Mr. Ismert is poised

to begin working in real estate investing in the Kansas City

area.

Alina Kryshchendyuk is a senior in the Harmon College

of Business, graduating in December of 2016. She is

currently working towards a Bachelor of Science in

Business Administration with an emphasis in Finance. Ms.

Kryshchendyuk is working on research on the effect of price

precision on the willingness to purchase.


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Documents

Final Draft 2016 Annual Report