Student Managed Investment Fund Presentation for the CSULB
Student Managed Investment Fund Presentation for the CSULB Foundation’s Investment & Finance Committee Annual Report 2008 -2009
Presentation Overview Presenters Tien Do Christian Gimenez Derek Baldwin Lam Tran Ruben Valverde Peter Chou Reuben Conceicao Background & Guidelines Top-Down Approach Equity Allocation Triggers Capital Markets Outlook Asset Allocation Fixed-Income Analysis Equity Analysis Portfolio Performance Fund Expansion Networking & Outreach Learning Experiences
Student Managed Investment Fund Background & Guidelines Tien Do
Background of SMIF Honors-level program administered by the College of Business Administration’s Department of Finance Established August 1995 Program Goals “Real dollar” experience in portfolio management Apply this knowledge toward career advancement
Class Structure Sixteen senior-level undergraduate students and second-year MBA students majoring in Finance/Investments Sixteen students divided into four teams Rigorous selection process & boot camp Diversity within the ranks Background, Academics, Philosophy Students spend an average of 20 hours per week on SMIF
Portfolio Guidelines Equity Allocation 50 -75% Fixed Income Allocation 25 -50% Diversification No more than 15% in each industry No more than 5% in one company 10% Stop-Loss
Portfolio Guidelines Large Company Stocks Intermediate-term Government Bonds T-bills Growth of Income Long-term Bonds Inflation Stability Income Risk Capital Appreciation Expected Return Small Company Stocks
Top-Down Approach Economy • Consensus of professional forecasters • Economic reports Sector/Industry • Cyclical & Structural effects • Outside sources Securities • In-depth analysis, debate and discussion • Potential risks and expected returns
Student Managed Investment Fund Equity Allocation Triggers Christian Gimenez
Equity Allocation Triggers for timing entry into equity positions Government / Current Events Credit Spreads Volatility Index (VIX)
Government / Current Events TARP (Troubled Asset Relief Program) Purpose • Purchase $700 billion of toxic assets from banks and other financial institutions Goal • Resume lending among banks TARP cash not being used to provide loans
Government / Current Events TALF (Term Asset-Backed Securities Loan Facility) Purpose: support the issuance of Asset-Backed Securities backed by consumer and small business loans Goal • Resume consumer lending TALF issuance is not very effective
Government / Current Events Based in part on these government / current events SMIF decided not to invest in any equities at this time • TARP and TALF effects inconclusive • No signs of recovery in lending anytime soon
Student Managed Investment Fund Capital Markets Outlook & Asset Allocation Derek Baldwin
Fixed-Income Outlook Treasury Yields In September 2008, rates were forecast to increase in first half of 2009 Credit Spreads Expectations of a weak economic environment in 2009 suggest continuation of historically wide credit spreads Anticipation of spreads narrowing as the economy begins to recover
Fixed-Income Outlook Based on our fixed-income outlook, shortterm instruments would be more suitable to alleviate interest rate risk Appropriate instruments • CDs • MMMFs • Short-term Investment Grade Bonds
Equity Outlook VIX measures implied volatility on S&P 500 Volatility was at four times the historical norm Likelihood of triggering a stop-loss increased dramatically Market became a trader’s market Market conditions were diametrically opposed to longterm investments Volatility and uncertainty rendered any point forecast of the S&P 500 almost meaningless
2009 S&P 500 Earnings According to Standard and Poor’s, operating earnings estimates for 2009 were very uncertain as well S&P 500 Earnings Estimates November 2008 April 2009 Top-down $62. 98 $44. 41 Bottom-up $91. 85 $60. 26
Asset Allocation Based on our capital markets outlook SMIF allocated 100% of the portfolio to Guaranteed Cash Equivalents • Our primary concern was to mitigate the risk of capital losses • Uncertainty in the market was too high for equity investments • Volatility would have stopped-out any equity investments
Asset Allocation Composite Benchmark Fixed-Income 30% SMIF Portfolio Equities 70% MMMFs 65% Fixed-Income Benchmark NBBITR - NASD Bloomberg Active Investment Grade US Corporate Bond Total Return Index Equity Benchmark S&P 500 Index CDs 35%
Student Managed Investment Fund Fixed-Income & Equity Analysis Lam Tran
Fixed-Income Selection SMIF preferred Money Market Mutual Funds and CDs Portfolio was protected against market dislocations Had the flexibility to change with market conditions Preservation of capital Chose not to invest in the Bond Market Credit markets were frozen in the 2 nd half of 2008 • Lehman Brothers’ bankruptcy caused severe dislocation in the credit markets • Asset values were in question and markets were impaired In this market environment, bonds involved a greater level of risk than historical levels
Equity Selection Several equities were analyzed throughout the year None were selected for inclusion in the portfolio Equities analyzed included Apple Inc. (AAPL) Burlington Northern Santa Fe Corp. (BNI) Cal-Maine Foods (CALM) Apollo Group (APOL) Johnson & Johnson (JNJ)
Equity Selection Process Each of the four groups screen for equities independently Team 4 used a screening process that was based on year-to-date price performance Focused on equities that were in defensive sectors and had low volatility
Equity Selection Process Introduce security of interest Team 4 analyzed Johnson & Johnson (JNJ), a diverse health care company that has product segments in pharmaceuticals, medical devices and consumer staples Full presentation of analysis JNJ’s equity presentation consisted of a fundamental analysis, technical analysis, competitive analysis, multiple valuation models, and qualitative risk factors
Equity Selection Process Thorough debates and discussions Professors ask critical-thinking questions Class vigorously critiques the presentations JNJ was debated and discussed passionately for 3 weeks Concurrently, the market was undergoing extreme negative investor sentiment due to concerns over the nation’s banking system
Equity Selection Process Voting process Supermajority of 75 percent required for placement into portfolio JNJ did not pass the vetting process, therefore there was no vote Due to the significant decline in the stock market, the team decided to abandon their original thesis
JNJ Price Graph 2/10/09: Initial JNJ Presentation Price: $56. 73 03/03/09: JNJ removed from consideration Price: $47. 64 Decline of 16%
Student Managed Investment Fund Portfolio Performance & Fund Expansion Ruben Valverde
Transaction History Date Item 9/1/08 Beginning balance Amount $100, 000. 00 Interest/mm div - Sept 9/30/08 $18. 84 Ending balance $100, 018. 84 Interest/mm div - Oct-Dec 12/31/08 $383. 27 Ending balance $100, 402. 11 Interest/mm div - Jan-Mar 3/31/09 $403. 51 Ending balance $100, 805. 62 Estimated Interest/mm div - Apr 4/30/09 $134. 50 Estimated Ending balance Date Purchased Security $100, 940. 12 Amount Maturity 11/7/08 CD 3. 5% $25, 000 8/19/09 11/14/08 CD 3. 25% $10, 000 8/26/09
Fund Performance Only one mutual fund manager out of 8, 200 posted a gain for 2008+ 5% 0% -5% -10% SMIF § Forester Value: 0. 4% gain § Average: 39% loss Benchmark -15% -20% Our Performance § SMIF: 0. 94% gain -25% § Benchmark: 23. 16% loss 4. 1. 20 09 09 20 1. 3. 2. 1. 20 09 09 1. 20 8 1. . 2. 1 00 12 . 2. 1 00 8 8 00 11 . 2. 1 10 9. 1. 20 08 -30% +Source: WSJ, February 27, 2009
CFA Society of Orange County Foundation Annual RFP Competition Request For Proposals Competition Process through which CFAOCF Portfolio is awarded Chapman University Argyros School of Business Board Room Professional environment with panel of CFA’s Competition between rivals CSU, Fullerton and UC Irvine CSULB SMIF’s competitive edge Portfolio winners six consecutive years
Forty-Niner Shops Inc. Board Member Alvaro Castillo approached SMIF Student managers met with Board of Directors Synergy between mission, vision, and values for both organizations Forty-Niner Shops Inc. engaged SMIF to manage a portion of their portfolio
Associated Students, Inc. Introduced to ASI Representative through Forty-Niner’s meetings Relationship purely student-driven Portfolio management for students, by students ASI Senate Chambers Meeting Unanimous decision to pursue working relationship with SMIF
Client Relationships ASI Forty. Niner Shops SMIF CFAOCF
Student Managed Investment Fund Networking & Outreach Peter Chou
Networking CFALA Forecasting Dinner CFALA Career Expo Career Search Techniques/Resume workshop Networking opportunities with industry professionals CFAOCF Host-A-Student Program Offers students a first-hand view of the investment profession Redefining Investment Strategy Education Forum Brings leading students, faculty, government, and Wall Street together in an interactive learning environment
Outreach SMIF Information Night A gathering of prospective SMIF members to learn more about the program Website Development Created a website for students who are interested in SMIF
www. csulbsmif. org
Student Managed Investment Fund Learning Experiences Reuben Conceicao
Analytical Skills Real-World Considerations Critical Thinking Presentation Skills Bloomberg Certification CFA Charter Grading Components § Quality of Analysis § Teamwork § Networking The program is about learning, not performance
Organizational Skills Teamwork Leveraging on each other’s strengths Leadership & Ownership Rotating CEOs Client Management Securing clients and meeting their needs Networking
Hard Work In-Class Meetings • 3 hours per student per week for 30 weeks • 1, 440 hours Outside of Class Preparations • 20 to 35 hours per student per week • 9, 600 hours Summer Boot Camps and Winter Break • 5 hours in Winter, 15 hours in Summer for Boot Camps • 320 hours Total Time Commitment from SMIF • 11, 360 hours • 22 hours per student per week
Dedication Special Projects IRA 16 CFALA/CFAOCF events 45 Marketing SMIF 48 CFAOCF Annual Report 60 ASI Forty-Niner Host-A-Student CEO Meetings CFAOCF Quarterly Meeting R. I. S. E. SMIF Annual Report CFAOCF RFP Extra 20% per student per week dedicated to special projects 90 150 165 256 283 360 580 896
Learning Experiences Working with Uncertainty Acting on incomplete information Resilience and Patience The worst investing environment The best learning experience
As we embark on our careers, we extend our gratitude to the CSULB Investment and Finance Committee for its continued support of the SMIF program.
Student Managed Investment Fund Question and Answer Session Annual Report 2008 -2009
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