MBA SIM Fund Board Presentation December 4, 2009 2009-2010 Student - - PowerPoint PPT Presentation

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MBA SIM Fund Board Presentation December 4, 2009 2009-2010 Student - - PowerPoint PPT Presentation

Oct 31, 2022 105 likes •593 views

MBA SIM Fund Board Presentation December 4, 2009 2009-2010 Student Managers Spencer Rands Himanshu Gupta W.P. Carey MBA W.P. Carey MBA Supply Chain Finance Finance & Real Estate Class of 2010 Class of 2010 Andrew Harbut Perrin Gayle

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MBA SIM Fund

Board Presentation December 4, 2009

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2009-2010 Student Managers

Spencer Rands W.P. Carey MBA Finance & Real Estate Class of 2010 Eric Dalbom W.P. Carey MBA Finance & Real Estate Class of 2010 Himanshu Gupta W.P. Carey MBA Supply Chain Finance Class of 2010 Andrew Harbut W.P. Carey MBA Finance Class of 2010 Matt Pendleton W.P. Carey MBA Finance Class of 2010 Perrin Gayle W.P. Carey MBA Finance Class of 2010

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Agenda

  • Overview
  • Charter Update
  • Fund Objectives
  • Economic Climate & Outlook
  • Portfolio Holdings
  • Selection Process
  • Top Performers
  • Underperformers
  • Portfolio Performance
  • Attribution Analysis
  • Takeaways
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Overview

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Charter Update

  • First update since 1997
  • Clarified responsibilities & procedures
  • Updated asset guidelines
  • Requirements, foreign securities, ETFs
  • Fund to be fully managed at all times
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Fund Objectives

  • Long-term investment strategy
  • Minimum 75% equities
  • Maximum 20% fixed income
  • Maximum 10% cash
  • $500MM minimum market cap
  • No short selling
  • Limits on derivatives
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Style Selection

  • Style: Midcap Growth
  • Market Cap: $2b - $10b
  • Benchmark
  • Russell Midcap Growth Index (IWP)
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Executive Summary

Returns: Oct 5 – Nov 19

SIM Fund IWP

  • 2.75%

3.45%

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Economic Climate & Outlook

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Economic Climate, Sept. 2009

  • 4 consecutive quarters of negative real GDP

growth

  • Bull market
  • Low inflation
  • CPI
  • PPI
  • $70 Oil
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Pre-Investment Economic Outlook

  • Unemployment slow to improve from 9.8%
  • GDP growth between 2-4%
  • Continued rise in capacity utilization
  • No major shocks until 2011 (CMBS)
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Selection Process

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Decision Process

  • Balance of value and capital growth potential
  • Identify industries poised to outperform market
  • Strong fundamentals
  • Best in industry

Stock Selection

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Decision Process

Example: APOLLO GROUP

  • Attractive industry
  • Strong revenue growth
  • Improving margins
  • Underpriced relative to its peers
  • Underpriced relative to its historical P/E
  • Strong, consistent ROE
  • International growth
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  • Strong Revenue Growth

Decision Process

Example: APOLLO GROUP

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Apollo (APOL)

  • Oct. 27, 2009:

After the market closed, Apollo announced that the SEC’s enforcement division had launched an informal inquiry into its revenue-recognition practices. APOL shares opened 18% lower the next day

  • Nov. 13, 2009:

Apollo announced that in the long term, it expects revenue to grow in the low double-digits and

  • perating income growth

in the mid

  • teens. (Reuters)
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Apollo (APOL)

Reasons to Hold

  • Market overreaction
  • Probability of falsifying revenues appears low
  • Long-term investment
  • Fundamentals still strong

Source: Google Finance

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Top Performers

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Dril-Quip, Inc. (DRQ)

  • ROA, ROE, net margin
  • Vertically integrated, low cost manufacturer
  • Expanding multiple facilities
  • 25% of equity owned by company officers

Reasons for Purchase

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Dril-Quip, Inc. (DRQ)

Source: Google Finance

  • Q3 earnings beat estimates
  • 5th plant being constructed in Singapore
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  • Strong quarterly growth in revenue
  • Healthy contributions from recent

acquisitions

  • Expansion through acquisitions expected
  • Wider operating margins

Catalyst Health Solutions, Inc. (CHSI)

Reasons for Purchase

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Source: Google Finance

  • Selected for Michigan’s Public School Employees

Retirement System

  • Q3 earnings above estimates, profit up 37%

Catalyst Health Solutions, Inc. (CHSI)

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Underperformers

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  • Alternative energy exposure
  • Copenhagen Summit likely to increase demand
  • Favorable U.S. political/regulatory environment
  • Vertically integrated
  • Not dependent on German feed-in tariffs
  • 70% institutional ownership
  • Strong technology base

SunPower (SPWRA)

Reasons for Purchase

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SunPower (SPWRA)

Source: Google Finance

  • 10/23 - Beat earnings, revenues up 56%
  • Lowered 2009 revenue guidance
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  • 10/27 - Introduces T20 Tracker
  • 11/5 - Upgraded to Buy from Hold, $31

target, at Deutsche Bank

  • Fundamentals still strong

SunPower (SPWRA)

Hold Decision

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  • 11/16 – Announced accounting irregularities
  • Unwilling to accept risk of uncertainty
  • Possibility of systemic errors

SunPower (SPWRA)

Sell Decision

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  • Low P/E, relative to industry
  • Continued sector exposure
  • Industry leader in revenue and costs
  • Diversifying outside of Germany & Spain
  • Vertically integrating

First Solar (FSLR)

Reasons for Purchase

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Portfolio Analysis

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Fund Characteristics

SIM Fund IWP Market Cap ($B) 4,496.88 5,954.00 Dividend Yield 1.01 1.15 Price/ Earnings 17.10 22.24 Forward PE 15.15 19.88 ROE 24.07 13.43 Price/Cash Flow 14.66 12.51 5 Year Beta vs S&P 500 0.98 1.16

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Performance

Since the April Presentation

5/4 Portfolio Value $283,915 10/5 Portfolio Value $325,858 11/19 Portfolio Value $316,902

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Performance

Oct 5 – Nov 19

10/4 Portfolio Value $325,858 11/19 Portfolio Value $316,902 (-2.75%) 11/19 Index Value $337,108 (3.45%)

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Asset Allocation

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Equity Sector Allocation

Note: Equities only

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Total Allocation

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Performance

Holding Period Returns by Security

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Performance

Holding Period Returns on 10/5 Buys

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Performance

Holding Period Returns on 10/9 Buys

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Performance

Holding Period Returns on 10/16 Buys

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Performance

Holding Period Returns on 10/26 Buys

*CSJ was purchased 11/4. Return for IWP over the same period was 4.1%

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Performance Attribution

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Performance Attribution

  • 5.38%
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Allocation Effect

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Selection Effect

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Takeaways

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Learning Points

  • Unexpected events can overshadow any

amount of research/analysis

  • Buying just before earnings increases risk;

even seemingly good results can disappoint

  • Importance of diversification & maintaining

long-term focus

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Looking Forward

  • Continuing recovery
  • Unemployment to remain high
  • Increasing consumer confidence
  • Stabilization of housing prices