Undergraduate Student Managed Fund Spring 2018 Portfolio Report Team Gilson SMF Team Gilson UConn Student Managed Fund Team Gilson 1
Agenda Investment Strategy Investment Process Portfolio Overview Individual Holding Case Studies Lessons Learned SMF Team Gilson UConn Student Managed Fund Team Gilson 2
Introduction Co-Lead Managers: Josh Weist & Anthony Mottolese Portfolio Manager: Ana Walas Communications Manager: Bartosz Walas Digital Media Manager: Jack Leyland Dustin Fowler Michael Pehota Jonathan Stryjek Alex Barriga Shawn McAuley Undergraduate Supervisor: Paul Gilson Fund Director: Chinmoy Ghosh SMF Team Gilson UConn Student Managed Fund Team Gilson 3
Investment Strategy Objective Our objective is to construct a portfolio that will deliver the foundation returns in excess of the S&P 500 Index over a 10-year investment horizon, while maintaining a conservative risk profile. Philosophy As value investors, we seek to identify securities priced at a discount to their intrinsic value in the market. We pay special attention to taking our position at a cost basis that provides us with the most favorable margin of safety. Approach Our managers employ a bottom-up style approach to identifying investment opportunities, with a focus on rigorous fundamental analysis of company financials, industry trends, macroeconomic conditions and risk factors. We make use of a variety of valuation methodologies in our process, including the DCF, DDM, and market multiples approaches, among others. SMF Team Gilson UConn Student Managed Fund Team Gilson 4
What do we look for? Characteristics In addition to those characteristics, our most critical evaluation factors are meaningful competitive advantages such as: Return on Invested Capital ❖ Portfolio Average: 12.6% High Barriers to Entry Innovation Benchmark: 7.39% Free Cash Flow Yield ❖ Portfolio Average: 5.4% Benchmark: 4.26% Dividend Yield ❖ Portfolio Average: 2.1% Benchmark: 1.96% Brand Leadership Market Share Strength Margin of Safety ❖ Portfolio Average: 20% Responsible Debt Levels ❖ Debt/EBITDA: 1.9x Benchmark: 1.48x SMF Team Gilson UConn Student Managed Fund Team Gilson 5
Investment Process Highlights & Risk Management Allocation Strategy Downside Protection We decide on allocations for each position based on the We decide on the level of a stop loss based on the following factors: following factors: • Potential Upside • Volatility • Team Consensus • Group voting system, similar to position size Our allocations range from 4% to 7% Our stop losses range from 15% to 20% Risk Management Strategy Diversification Purchasing Strategy Invest across the major sectors. Market orders or limit orders. Due Diligence Margin of Safety Perform rigorous analysis of all proposed Pay close attention to cost basis, and invest investments. only in positions with a margin of safety. SMF Team Gilson UConn Student Managed Fund Team Gilson 6
Portfolio Overview Allocation Performance vs S&P 500 Average Position: 6.27% The portfolio is outperforming the benchmark by 171 bps with a 5.11% return vs a 3.40% S&P 500 return. SMF Team Gilson UConn Student Managed Fund Team Gilson 7
Total Portfolio Unrealized Gains Leader Valero Laggard Hasbro SMF Team Gilson UConn Student Managed Fund Team Gilson 8
Sector Allocation & Portfolio Metrics Portfolio Metrics 0.49 Sharpe Ratio 1.13 Information Ratio SMF Team Gilson UConn Student Managed Fund Team Gilson 9
Performance By Sector SMF Team Gilson UConn Student Managed Fund Team Gilson 10
Valero Energy (NYSE: VLO) Basic Metrics VLO vs SPY Return 125 11/29/17 Purchase Date 120 115 $83.47 Purchase Price 110 105 $95.88 Current Price 100 VLO 95 SPY 90 14.87% Return 85 80 $36.084 B Market Capitalization 3.34% Dividend Yield SMF Team Gilson UConn Student Managed Fund Team Gilson 11
Valero Energy – Thesis & Risks Thesis Risks • Financial Strength : Valero’s strong • Changing government regulations liquidity position provides significant (environmental regulations) to reduce protection against a severe industry emissions and global warming. downturn or other financial shock. • Narrowing spread between Brent, the • Demand for petroleum products global benchmark of crude oil, and its should continue to expand as the overall US counterpart, West Texas global economy improves, and industrial Intermediate (WTI) in the future. activity picks up. • Demand for gasoline and other fuels • Complex refineries and concentration will fall as automobiles become in the Gulf Coast allow it to process light increasingly more fuel efficient. or heavy crude, depending on which offers the greatest discount. SMF Team Gilson UConn Student Managed Fund Team Gilson 12
Amgen (NASDAQ: AMGN) Basic Metrics AMGN vs SPY Return 110 1/24/18 Purchase Date 105 $190.33 100 Purchase Price 95 $172.00 Current Price 90 AMGN 85 SPY -9.58% Return 80 75 $121.21 B Market Capitalization 3.00% Dividend Yield SMF Team Gilson UConn Student Managed Fund Team Gilson 13
Amgen – Thesis & Risks Thesis Risks • Strong Industry Position: Amgen is the • Regulation: Increased regulation largest independent biotech firm and is whether through U.S. healthcare reform or through the phase trial positioned well against entrants and has processes. long-term patents for important drugs to • Reliance on Third Parties : Sales protect against competition. depend on 3 rd party materials, • Innovation: Amgen’s ability to develop innovative products to substantially growth reimbursements, drug delivery mechanisms, and other medical revenues, including the introduction of devices. biosimilars. • Financial Strength: Attractive operating margins and cash flows. SMF Team Gilson UConn Student Managed Fund Team Gilson 14
Lesson Learned Investing Discipline Identifying Investment Opportunities The Importance of Team Dynamics Identifying and Analyzing Investment Risks Consistent Involvement with Market and Investments Higher Level Thinking SMF Team Gilson UConn Student Managed Fund Team Gilson 15
Thank You! UConn School of Business Dean………………………………... John Elliott SMF Director & Finance Department Head…………………….. Chinmoy Ghosh Undergraduate Supervisor………………………………………... Paul Gilson Administrative Coordinator……………………………………….. Laurel Grisamer UConn Foundation Investment Advisory Board SMF Team Gilson UConn Student Managed Fund Team Gilson 16
Questions SMF Team Gilson UConn Student Managed Fund Team Gilson 17
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