W. P. Carey School of Business · · 2017-07-18Defensive strategy amidst tough economic climate...
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IM Fund IM Fund Investment Management Fund Investment Management Fund INTRODUCTION ECONOMIC OVERVIEW PERFORMANCE PFF vs. LQD ADDITONAL FUNDS STRATEGY DISCUSSION APPENDICES PORTFOLIO W. P. Carey School of Business Undergraduate Maroon & Gold Value Fund Semi‐Annual Meeting December 5, 2008 INTRODUCTION INTRODUCTION
Transcript of W. P. Carey School of Business · · 2017-07-18Defensive strategy amidst tough economic climate...
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIOW. P. Carey School of Business
Undergraduate Maroon & Gold Value FundSemi‐Annual Meeting
December 5, 2008
INTRODUCTIONINTRODUCTION
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
Today’s Agenda
•
Team introduction and fund objectives
•
Economic outlook and market overview
•
Portfolio style, criteria, and composition
•
Performance vs. benchmarks
•
Asset allocation: PFF vs. LQD
•
Strategy for additional funds
•
Lessons learned and discussion
INTRODUCTIONINTRODUCTION
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
ECONOMIC OVERVIEW INITIAL ECONOMIC OVERVIEW
Daniel Mcauley
& Jazmin
Medina
Presenter
Presentation Notes
and the fact the inflation has been kept in check due to the economy and the recent decline in oil prices With the sole mandate of keeping inflation in check we don't believe rates will come down and will only exasperate the financial trouble the region faces.
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
ECONOMIC OVERVIEW
INITIAL ECONOMIC OVERVIEW
Central Bank Policy: •
U.S. – See no short‐term change in interest rates due to
economic slow‐down. Unemployment and consumer spending
still large issues facing economy
•
Europe – We predict long‐term entrenchment due to tight
monetary policy and over‐regulation of the market
•
China – With the large concern over exports, currency exchange
rate low. Growing pressure to fairly value the currency could
start to hurt exports from the country.
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
ECONOMIC OVERVIEW
INITIAL ECONOMIC OVERVIEW
•
Election will affect healthcare and defense spending
•
Support general sectors independent of consumer
discretionary income•
Dividend stocks become attractive if interest rates
remain flat•
We ignored the warnings that interest rates were
going down. Although there was a chance rates
would come down in the U.S. we didn’t believe it was
likely. Accordingly, we did not believe rates would
come down in the UK as well
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIOPORTFOLIOPORTFOLIO
Adam Michelow
and Luke Millikin
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIOPORTFOLIO
PORTFOLIO•
Diversified, large‐cap value fund–
Defensive strategy amidst tough economic climate–
Bargain hunting opportunities –
Information widely available, help with learning process•
Investment selection criteria–
Market cap: 8+ billion, Price to Book: < 3, Price to earnings:
< 20
•
Seven stocks, three sectors excluded–
Materials–
Consumer Discretionary–
Information Technology
Presenter
Presentation Notes
Materials: as businesses cut, demand decrease Consumer Discretionary: weak outlook could spread from business to consumers
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIOPORTFOLIO
Benchmark AnalysisMost recent•
S&P 500 large‐cap value (IVE)–
P/E: 15.31–
P/B: 2.23–
Beta: 0.98•
Our Fund–
P/E : 10.02–
P/B: 2.67–
Beta: 0.90 How well are we correlated to the benchmark?
Presenter
Presentation Notes
Current numbers, RIG current P.E=3.92
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
PERFORMANCE
PERFORMANCEOur portfolio vs. S&P 500 Value
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
9/29/2
008
10/1/
2008
10/3/
2008
10/5/
2008
10/7/
2008
10/9/
2008
10/11
/2008
10/13
/2008
10/15
/2008
10/17
/2008
10/19
/2008
10/21
/2008
10/23
/2008
10/25
/2008
10/27
/2008
10/29
/2008
10/31
/2008
11/2/
2008
11/4/
2008
11/6/
2008
11/8/
2008
11/10
/2008
11/12
/2008
11/14
/2008
11/16
/2008
11/18
/2008
11/20
/2008
11/22
/2008
11/24
/2008
11/26
/2008
Dates
Balance
Our portfolio IVE
` IVE:
-23.47%
Our Fund:
-19.10%
Presenter
Presentation Notes
Started at ~$170K
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
PERFORMANCE
PERFORMANCE
•
Selected stocks–
TSCDY: Tesco PLC ADR
–
VZ: Verizon Communications Inc
–
NOC: Northrop Grumman Corp.
–
PFE: Pfizer Inc
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
PERFORMANCE
Tesco PLC (TSCDY)
Why we chose Tesco:
•
Core U.K. exposure and international
growth in India, China, and
Continental Europe
•
Consumers can shop down in a bad
economy
How did it fit into our portfolio?
•
Consumer Staples: grocery stores
Tim
Tesco LondTesco ADR
Holding period highlights:
•
Day after our purchase, stock increased because
of strong 1H08 results
•
December 2nd: beat estimates for 3Q08 due to
increased sales of lower price‐range goods
Comparison relative to competition:
•
Between Wm. Morrison Supermarkets Plc and J
Sainsbury Plc
London shares: ‐13%, Pound depreciation 17%, Tesco ADR: ‐30%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
9/2
9/0
8
10
/6/0
8
10
/13
/08
10
/20
/08
10
/27
/08
11
/3/0
8
11
/10
/08
11
/17
/08
11
/24
/08
12
/1/0
8
SBRY.LMRW.LTSCO.L
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
PERFORMANCE
Tesco PLC (TSCDY)
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
9/2
9/0
8
10
/6/0
8
10
/13
/08
10
/20
/08
10
/27
/08
11
/3/0
8
11
/10
/08
11
/17
/08
11
/24
/08
TSCDYWMTCOST
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
PERFORMANCE
Verizon (VZ)
-80%
-60%
-40%
-20%
0%
20%
9/29/0
810/6
/08
10/13/0
810/2
0/08
10/27/0
811/3
/08
11/10/0
811/1
7/08
11/24/0
8
VZNOKT
Why we chose Verizon:•
Business Model: Network Quality & Customer
Service•
Strong Performance on Wireless•
Scale, Alltel Acquisition
High ROE in comparison to peers (12.45%)•
High dividend yieldHow did it fit into our portfolio?•
Telecom: Inelasticity demand for services
Holding period highlights:•
Stock increased due to strong 3rd
Qtr. Results•
Stock decreased due to further divestment
required for acquiring AlltelComparison relative to competition:•
Why not AT&T or Vodafone?•
Slow growth in Europe•
“The Future is Mobile”
Presenter
Presentation Notes
How did it fit in the portfolio?
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
PERFORMANCE
Northrop Grumman (NOC)
-50%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
9/29/0
810/9
/08
10/19/0
810/2
9/08
11/8/0
811/1
8/08
11/28/0
8
NOCGDLMT
Why we chose Northrop Grumman:•
Substantial contracts from base budget•
Income exclusively from defense contracts•
Largest ship builder for US Navy•
Low debt‐to‐equity (19.5%)How did it fit in the portfolio?•
“Defensive”
play in weakening economy
funding derived from government contracts
Holding period event highlights:•
2009 defense budget signed into law
(7.5% increase from 2008 budget)
Comparison relative to competition:•
Why not General Dynamics?•
26% of operating profits from private jet
business, which we felt as a risk with our
economic outlook
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
PERFORMANCE
Pfizer (PFE)Why we chose Pfizer:•
Low Beta of 0.6•
High Operating Margins of 31%•
Strong Cash Flow High EBITDA of $20bn•
No Debt – excess cash on hand for M&AHow did it fit in the portfolio?•
Healthcare: Saw opportunity with baby
boomer population
Holding period highlights:•
2nd
best performing stock•
Changes to cost structure; Left heart research
and shifted focus to cancer and obesity
Comparison relative to competition:•
Why not Merck or Sanofi?•
Believed it was a safer bet with PFE, strategic
opportunity with Lipitor patent expiring
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
9/2
9/0
8
10
/13
/08
10
/27
/08
11
/10
/08
11
/24
/08
PFEMRKLLY
Presenter
Presentation Notes
Strong Cash Flow High EBITDA of $20bn [Negative Industry] High Operating Margins of 31% [11% Industry]
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
PFF vs. LQD
PFF vs. LQDLQD is an investment grade corporate bond index; PFF is a preferred
shares index
•
Contacted iShares
to obtain historical spreadsheet price data•
The yield spread between the two was at an all time high•
We determined this was due to the high concentration of financial
firms that issue preferred equity
•
We believed that the risk of was overestimated by the market and
that a unusually high yield could be obtained
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
ADDITIONALFUNDS STRATEGY
ADDITIONAL FUNDS STRATEGY
Don Bowen
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
ADDITIONALFUNDS STRATEGY
ADDITIONAL FUNDS STRATEGY
•
Initial weighting
•
Rebalancing funds to
take advantage of new
opportunities•
Use of new funds–
Market impact–
Rebalance–
Diversify and add–
Cash position
•
Timing
Initial FinalEXC 10% 14%NOC 13% 11%PFE 13% 15%
TSCDY 13% 11%RIG 13% 8%
USB 12% 12%VZ 11% 15%
SPY 7% 0%Cash 7% 15%
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
DISCUSSION
LESSONS LEARNED AND DISCUSSION
Luke Millikin
and Daniel Mcauley
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
DISCUSSION
LESSONS LEARNED AND DISCUSSION
•
Foreign exchange risk in ADR’s, impact of recession on commodities and
energy stocks
•
Fixed income analysis
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
DISCUSSION
LESSONS LEARNED AND DISCUSSION
•
Barra
analysis of our holdings from 9/30/08•
Showed our breakdown by sector, industry, market cap, and rating•
Our beta was 0.7•
Attribution analysis confirmed what we had set out to accomplish–
The heavier allocation of financials affected our return significantly as did our
weighting of the energy play RIG in our portfolio
–
A notable selection effect was found from our consumer staples pick, Tesco•
An analysis of sector weighting adjustments told us that less weighting in energy
and financials and higher weightings in utilities and healthcare
would optimize
our return to risk
•
Having the report explained to us gave us good insight into what
kind of
information an asset manager deals with
•
We also talked about some of the challenges that managers face when dealing
with clients that don’t understand exactly what the role of an asset manager is
IM FundIM FundInvestment Management FundInvestment Management Fund
INTRODUCTION
ECONOMIC OVERVIEW
PERFORMANCE
PFF vs. LQD
ADDITONAL FUNDS STRATEGY
DISCUSSION
APPENDICES
PORTFOLIO
Thank you!
