Undergraduate Student Investment Management Fund Semi-Annual Presentation Friday, May 1, 2015 1

Undergraduate Student Investment Management Fund

Semi-Annual PresentationFriday, May 1, 2015

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Meet The Fund:Student Investment Management Fund

IntroductionResearch Implementation

PerformanceDividend Month Premium

Performance

Momentum

Andrew Farber Rob McCoach Sam Wilson Andy Paulus Kean Thomas Carter Wendt Karina Rodriguez

Rachel Bradley Loris Llazani Kyle Anderson Ivan Tang Ryan Pitt Julian Aziz Ryan Berns

Iskandar Pashayev Alex Green

Stephen Bergauer

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SIM Fund Goals

• Learn • Practical experience• Fiduciary responsibility• Quantitative portfolio based on academic research• Refine strategy throughout semester• Process improvements



Performance

Momentum

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Performance

Momentum

AllocationDividend Premium Strategy (60%)

Weighting Justification:•Lower volatility compared to Momentum

US Momentum / Int’l Momentum (40%)Weighting Justification:•Aggregate portfolio weight of 40% allows for a 50/50 split between Int’l Momentum and US Momentum securities•Charter constraint: 25% Int’l exposure•Int’l exposure with ADRs•Expected upward drift in Momentum weights due to higher expected returns

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Dividend Month Premium

Implementation

PerformanceImprovements

MomentumIntroduction

Research

Dividend Month Premium

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Dividend Month Premium – Theory/Overview

• Key finding: Abnormal returns exist in all three periods (A/D, Interim, X/D)• Cash demand creates upward pricing pressure• Arbitrageurs unable to offset increased demand

• Hartzmark & Solomon Dividend Timeline (2012)



Improvements

Momentum

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Portfolio Schedule



Improvements

Momentum

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Security Universe

• Security Type: Common Stock

• Minimum Market Cap: > $1.2 Billion

• 30 Day Avg. Volume: > 8,000

• Country of Incorporation: US

• Price: > $5.00



Improvements

Momentum

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Spring Improvements

• Automated security selection process utilizing Python• Dividend announcement date forecasts for duration of current year’s SIM Fund• Investment Policy screens• Weekly Rebalancing• Purchase filters based on negative momentum & corporate events

• Refined A/D prediction



Improvements

Momentum

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Change in A/D Prediction



Improvements

Momentum

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Momentum



Improvements

Momentum

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Momentum Theory

• “Stocks that have done well in the past continue to do well in the future”

• Support for theory has been found in both academia and practice



Improvements

Momentum

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Portfolio Universe

• Country of Domicile: US• Security Type: Common Stock • Sector: Exclude Financials• Mkt Cap: >$1.2 Billion• Price 1 Day Ago: > $10.00• 30d Avg. Volume: > 10,000• Exclude IPOs Within 3 Years

• Security Type: ADR• Sector: Exclude Financials• Mkt Cap: >$1.2 Billion• Price 1 Day Ago: > $10.00• 30d Avg. Volume: > 10,000• Exclude IPOs Within 3 years• Country: Exclude Japan

US Equity Universe Int’l ADR Universe



Improvements

Momentum

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Security Selection

• Choose top 15 from both US and ADR universes (for a total of 30 securities) based on (t-12) to (t-1) monthly returns

• Perform analysis to ensure that:• No selected securities have major threats to share value• No more than 20% exposure to a foreign country or industry



Improvements

Momentum

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Portfolio Timing

• Minimum holding period of one month

• Rebalance monthly to incorporate new data

• Upon rebalance, repeating winners are kept until the cumulative value of the particular security reaches 2.25% of the total portfolio



Improvements

Momentum

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Spring Improvements• Automation: Utilized Python to

write code that automatically outputs a list of the top 15 securities in both the ADR and US stock universes



Improvements

Momentum

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Performance

Introduction

Research Implementation


Improvements

Momentum

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Total Portfolio Returns

Introduction



Improvements

Momentum

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Since Inception (%)Total Port. Custom

ReturnTotal Return 5.08 5.76

Dividend 1.70 3.55US Mom 2.18 1.11Int'l Mom 1.20 1.10

Mean Return (ann) 19.58 22.00Mean Excess Return (ann) -1.98 na

RiskStd Dev (ann) 13.69 12.72

Since Inception (%)Russell 3000 S&P 500

ReturnTotal Return 4.86 4.05Mean Return (ann) 18.6 15.56Mean Excess Return (ann) na -2.56


Total Portfolio Market Cap Holdings

Introduction



Improvements

Momentum

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Contribution Analysis (%)Total Port. Custom

Market CapCash 0.00 0.00Large Cap 4.57 3.65Mid Cap 2.50 1.73Small Cap -1.99 0.38

Total 5.08 5.76

Dividend Premium Returns

Introduction



Improvements

Momentum

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Since Inception (%)Dividend Russell 3000

ReturnTotal Return 2.78 4.86Mean Return (ann) 10.68 18.6Mean Excess Return (ann) -6.68 na


Dividend Premium Market Cap Holdings

Introduction



Improvements

Momentum

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Contribution Analysis (%)Dividend Russell 3000

Market CapLarge Cap 5.81 4.32Mid Cap -1.71 0.48Small Cap -1.30 0.06

Total 2.78 4.86

Dividend Premium Sector Holdings

Introduction



Improvements

Momentum

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US Momentum Returns

Introduction



Improvements

Momentum

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US MOM AQR-S MOM AQR-L MOMReturn

Total Return 11.38 8.63 5.21Mean Return (ann) 50.32 34.55 20.08Mean Excess Return (ann) 11.73 na na

RiskStd Dev (ann) 25.94 16.84 13.70

Since Inception (%)

US Momentum Market Cap Holdings

Introduction



Improvements

Momentum

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US MOM AQR-S MOM AQR-L MOM

Market CapLarge Cap 4.71 0.17 5.04Mid Cap 13.05 6.75 0.26Small Cap -6.38 1.71 -0.09

Total 11.38 8.63 5.21

Contribution Analysis (%)

US Momentum Sector Holdings

Introduction



Improvements

Momentum

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Int’l Momentum Returns

Introduction



Improvements

Momentum

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Int'l MOM AQR Int'l MOM MSCI ex USReturn

Total Return 6.26 5.07 4.49Mean Return (ann) 25.15 18.93 16.79Mean Excess Return (ann) 5.24 na na

RiskStd Dev (ann) 17.46 10.61 10.87

Since Inception (%)

Int’l Momentum Market Cap Holdings

Introduction



Improvements

Momentum

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Int’l Momentum Country Holdings

Introduction



Improvements

Momentum

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Overall Spring Improvements

• Implemented trade checklist• Three teams of two members• Follow guidelines to look for errors• Sign off and send trades

• Knowledge transfer• Shared python code• Switched duties

• Better communication• More involvement

Introduction



Improvements

Momentum

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Recap/Takeaways

Introduction



Improvements

Momentum

• Cash management

• Implementation of strategies

• Process improvement

• Teamwork

• Communication

• Leadership

• Thoughts about dividend premium

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Questions?

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Documents

Undergraduate Student Investment Management Fund Semi-Annual Presentation Friday, May 1, 2015 1