Investment Process
Presentation
December 8, 2009
Overview
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Economic Analysis
Compliance, The Delphi Process
Social Responsibility
Security Analysis
Portfolio Optimization
Portfolio Management
Marketing, Exit Strategy
EAFE Inverse
Fund Performance
Our Funds
• Haley Large Cap
– Domestic
• Coleman ETF
– Domestic and International
Top Down Investment Process
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Economic Analysis
Compliance Screen
Social Responsibility Screen
Security Analysis
Portfolio Optimization
Organizational Chart
Faculty Advisor
Investment
Committee
Advisory
Group
Economic
Team
Social
Responsibility
Team
Optimization
Team
Marketing
Team
Sector
Captains
Security
Analysts
Regional
Captains
Security
Analysts
Portfolio
Managers
Exit Strategy
Team
Performance
Reporting
Team
Anthony DeAngelis
ECONOMIC ANALYSIS
• Top Down Approach
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Business Cycle Analysis
Industry picked off of current analysis
Sectors based off of selected industries
Best of breed individual securities selected
Continual monitoring to economic indicators in
order to track ongoing economic cycle
5 Phases of Economic Cycle
Ease Off
Acceleration
Late Revival
Plunge
Early Revival
• Early Revival
• The revitalization of business and consumer activity that
follows a recessionary phase
• GNP turns positive after falling sharply in the preceding
recession
• Businesses continue to clear unwanted inventory
• Late Revival
• GNP increases significantly
• Growth puts upward pressure on credit demands and prices
• Interest rates and inflation begin to rise (irregularly)
• Housing activity picks up speed
• Businesses build inventories and spend more on plant and
equipment
•
Acceleration Stage
– Consumers put off purchases, spend less
– Interest rates and inflation begin to rise
– Housing and auto sales decline
– Businesses continue to build inventories and spend
• Ease-off Stage
– Business continue to remain optimistic
– Economic indicators turn pessimistic
– GNP turns negative
– Inflation and interest rates may continue to rise
– Housing and big-ticket item sales decline severely
• Plunge
– Businesses liquidate inventories
– Employment drops sharply
– Corporate profits plummet
– Interest rates peak
• Final Analysis: Early Revival
– GNP – Turning positive
– Improving employment picture
Selected Indicators
• Money Supply
– M1
– M2
– M3 (Shadow Statistics)
• Employment Data
– Initial Unemployment
– Continuing Claims
• Productivity Figures
– Hours Worked
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ISM Data
Fed Funds
Monetary Base
Manufacturing Work Week
GNP
Case Schiller
One Year Fed Funds Rate
0.6
Fed Funds Rate
0.5
0.4
0.3
0.2
0.1
0
0.13
Two Year ISM Data
60
50
40
30
20
10
0
* Above 50 Indicates Expansion
Unemployment (Seasonally Adjusted)
12
10.2%
10
10%
% Unemployed
8
6
4
2
0
M2 Money Supply
9000
8000
Officially in a Recession
(Billions of Dollars )
7000
6000
5000
4000
3000
2000
1000
0
GDP (Quarterly)
12.0
10.0
8.0
6.0
4.0
+2.8
2.0
0.0
-2.0
-0.7
-4.0
-6.0
-4.6
-5.4
-8.0
2009
Resources
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Bill Carter (Qinsight) Conference Call
Lacy Hunt
Jeremy Siegel weekly newsletter
St. Louis Fed
Bloomberg
Wall Street Journal
The Economist
Morningstar
Industry Specific News
Brendan Kearney
THE DELPHI PROCESS
Overview
• Maintains objectivity
• Increases accuracy of industry forecasts
• Process
– 2 rounds
– Analysts conduct industry research and rank
top 10 choices
– Re-evaluation after 1st round results
Results
• Round 1
– Started with 40 industries
– Eliminated 8
• Round 2
– Analysts re-evaluated industries
– Top 20 industries selected
Final Cut
Internet Software and Services
Food and Staples Retailing
Internet and Catalog Retail
Road and Rail
Oil, Gas, and Consumable Fuels
Metals and Mining
Software
Communications Equipment
Personal Products
Construction and Engineering
Semiconductors
Energy Equipment and Services
Household Products
REITs
Water Utilities
Food Products
IT Services
Household Durables
Containers & Packaging
Media
COMPLIANCE
George Coleman ETF
• 50% International
• 50% Domestic
Max Initial
Investment
Rebalance
Country
25%
30%
Industry
20%
25%
Haley Group Large Cap
• Market Cap: $5 billion and greater
• Minimum average daily volume of 250,000
shares
• Minimum share price of $10.00
Max Initial
Investment
Rebalance
Sector
25%
35%
Industry
12.5%
17.5%
Security
5%
7%
Sumedha Verma
SOCIAL RESPONSIBILITY
Socially Responsible Investing
•
As an Augustinian University, continue the rich
tradition of Catholic Social Teaching and the guidance
it provides
•
Avoid companies that ignore social responsibility
•
Recognize and incorporate companies that reflect
Catholic stewardship
•
Lecture on social responsibility by Dr. Doh
Steps
1.) Evaluate the Catholic Bishop’s Statement
2.) Choose and rank our criteria based on past
evaluations and our own additions
3.) Run IWFinancial for Social Responsibility
rankings
IW Financial
• Proprietary research and leading independent third
party services
• Specific data sources vary by product and data
element
• A company’s rating based on “Comparative Universe”
• Ratings based on hard data
SRI Profile
• High sensitivity on issues such as:
– Bioethics
– Environment
– Life/Choice
– Tobacco
– Human Rights
– Military
– Adult Entertainment
• Passing score: 66
Michael Feron
SECURITY ANALYSIS
Haley Large-Cap
• Financial Health
• DCF Valuation
• Analyst Input and Recommendation
Financial Health
• Altman Z-Score
– Bankruptcy Risk
• DuPont Ratios
– ROE, ROA, Profit Margin, Asset Turnover, Equity
Multiplier
– Profitability
• Balance Sheet Analysis
– Current Ratio, Long Term Debt/Equity
– Credit Rating
Altman Z-Score
Test 1 - Altman Z-Score
Latest Q
Oct08
Oct07
Multiplier
Approximate stock price at above date
$35.72
$27.62
$34.94
Operating Working Capital / Total Assets
0.218
0.182
0.167
0.717
Retained Earnings / Total Assets
0.586
0.553
0.553
0.847
EBIT / Total Assets
0.140
0.141
0.141
3.107
Equity / Liabilities
3.174
2.309
3.142
0.42
Sales / Assets
1.828
1.868
1.825
0.998
Altman Z-Score
Status (normal)
Status (non-manufacturing)
S&P Long-Term Issuer Credit Rating: A
S&P Short-Term Issuer Credit Rating:
4.24
3.87
4.17
PASS
PASS
If Z-Score is below cut-off, then the credit rating must be BBB or greater to pass.
Balance Sheet Analysis
Asset Protection
Net tangible assets / Long Term Debt
Long Term Debt / Equity
Ratio
3.68
0.07
Range
A
AAA
Score
3
5
Financial Resources
Current Ratio
Cash / Current Assets
Cash / Current Liabilities
Quick Ratio
2.18
0.20
0.43
1.08
Good
Neutral
Good
Neutral
5
3
5
3
28.76
0.34
AAA
BBB
A
5
2
Coverage
Earnings / Fixed Charges
CF from Operations / Long Term Debt
Suggested Credit Rating
3.875
DCF Valuation
• 10 Year Growth Projections
– Future growth rates based on analyst
research
• Invested Capital-ROIC Calculations
• WACC
– Cost of Debt
– Operating Lease Commitments
WACC
Comps Average Unleveraged Beta
Beta Leveraged to The Company
Blume Beta
Risk Free Rate
Market Risk Premium
Beta
Debt
Preferred Equity
Equity
WACC
0.4312
0.5063
0.6742
3.19%
5.50%
0.67
Cost % Weight%
2.96%
6.49%
0.00%
0.00%
6.90%
93.51%
6.65% 100.00%
Enterprise Valuation
DCF Valuation
Perpetuity Growth
Enterprise Value (in millions)
Value of Equity (in dollars)
Shares outstanding
5.00%
$6,559.34
$6,310,038,446
134,209,000
Equity fair value per share
$47.02
Price at time of analysis
Upside return potential
$37.55
25.21%
Analyst Input and Recommendation
• Results of Financial Health Analysis
– Altman Z Score & Credit Rating
• Enterprise Value
– Upside Return Potential
• S&P Market Insight Reports
• Other Independent Research
Coleman ETF Analysis
• Domestic
– Industries similar to Haley
– S&P Market Insight
• International
– Economist Intelligence Unit (EIU)
• Powershares, iShares, Vanguard and
Morningstar
Vincent Fea
PORTFOLIO OPTIMIZATION
Portfolio Optimization
• PMSP Software
• Stein Estimators
• Allocation constraints
– Iterative scaling and re-optimizing process
• Haley Fund – 48
35 stocks
• Coleman Fund – 26
25 ETFs
Haley Fund GICS Sector Allocations
Materials,
11.83%
Utilities
6.00%
Consumer
Discretionary,
19.33%
Consumer
Staples,
15.68%
Information
Technology,
25.00%
Industrials,
11.10%
Energy,
11.07%
Coleman Fund Domestic Allocations
Semiconductors, Internet Software
and Services
5.00%
5.00%
Food Products,
3.00%
Information Tech,
3.98%
Water Utilities
2.50%
Communications
Equipment, 5.00%
Oil and Gas, 2.50%
Road and Rail,
2.50%
Consumer
Staples, 5.00%
Metals and
Mining, 4.00%
Energy and
Equipment
2.50%
Software, 5.00%
Coleman Fund International Allocations
Germany,
2.79%
South
Korea
Taiwan, 4.00%
4.00%
China, 5.00%
Australia,
2.95%
Brazil,
4.81%
Chile, 2.50%
Sweden,
2.50%
Singapore,
5.50%
Malaysia,
5.45%
South India,
Africa 5.00%
3.00%
Turkey,
2.50%
Paul Iezzi
PORTFOLIO MANAGEMENT
Process of Selecting a Security
• Analyst does research
• Analyst presents research to Investment
Committee with a recommendation
• Investment Committee votes on each
security
• A majority vote is required to invest
• After optimization, the weights of each
security are voted on
Orders
• Example: Investment Committee votes a 5%
allocation of IBM
• Calculate number of shares
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•
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Current Price of $125
Weight of 5%
Portfolio Value of $100,000
5% * $100,000 = $5,000
$5,000 / $125 = 40 Shares
Orders Sheet Example
Thursday, November 12, 2009
To: Dr. Nawrocki
From: Paul Iezzi and Bob Goslin
Re: Coleman ETF Orders
Buy
132 shares of
PHO
PowerShares Water Resource
Last Price
$ 16.16
Buy
38 shares of
VDC
Vanguard Consumer Staples
Last Price
$ 66.64
Buy
98 shares of
IGW
iShares S&P GSTI Semiconductor
Last Price
$ 43.61
Buy
107 shares of
EWG
iShares MSCI Germany
Last Price
$ 22.25
Buy
42 shares of
TUR
iShares MSCI Turkey
Last Price
$ 50.77
Buy
84 shares of
EWD
iShares MSCI Sweden
Last Price
$ 25.25
The Haley Group Large Cap Fund
Invested on November 6, 2009
$102,482.82
Haley Allocations as of 12/7/2009
Materials,
11.83%
Utilities
6.00%
Consumer
Discretionary
, 19.33%
Industrials,
11.04%
Consumer
Staples,
15.68%
Information
Technology,
25.00%
Industrials,
11.10%
Energy,
11.07%
Energy,
10.08%
Information
Technology
, 25.60%
Materials,
12.28%
Consumer
Discretionary
, 19.35%
Consumer
Staples,
15.32%
Utilities,
6.19%
The George Coleman Fund
Invested on November 13, 2009
$88,878.86
45.88% Domestic / 48.29% International
Coleman Allocations as of 12/7/2009
Cash
5.83%
International
48.05%
Domestic
46.12%
Foreign Allocations as of 12/7/2009
Taiwan,
4.00%
South
Korea
4.00%
Germany
, 2.79%
TURKEY CHILE
2.42% 2.39%
Turkey,
2.50%
INDIA
4.86%
Sweden,
2.50%
China,
5.00%
Australia
, 2.95%
Malaysia
, 5.45%
SWEDEN
2.41%
GERMANY
2.70%
CHINA
4.84%
MALAYSIA
5.27%
SOUTH
AFRICA
2.90%
BRAZIL
4.61%
Brazil,
4.81%
Chile,
2.50%
Singapore,
5.50%
AUSTRALIA,
2.83%
South
Africa
3.00%
India,
5.00%
SOUTH
KOREA TAIWAN
3.85% 3.85%
SINGAPORE
5.29%
Domestic Allocations as of 12/7/2009
NETWORKING
TECHNOLOGY
4.83%
INFORMATION
TECHNOLOGY
3.78%
ENERGY
2.36%
CONSUMER
STAPLES
2.87%
SOFTWARE
4.84%
INTERNET
4.81%
SEMICONDUCTOR
S 4.82%
TRANSPORTATION
2.39%
WATER
UTILITIES
2.42%
MEDICAL DEVICES
1.76%
CONSUMER
SERVICES
4.80%
Michael Cavanaugh
MARKETING
SMF Website
www.students.villanova.edu/smf
Example student Bio:
Bob Goslin
Bob graduated from Rowan University with a Bachelors of Science in Finance. Within the SMF he is a
portfolio manager and a sector captain. In the infancy of his career in finance, he would like to be in a
position that would enable him to travel and experience various cultures and industries to expand his
horizons. Bob would also like to obtain his M.B.A. at Villanova within 5 years of graduation from the
MSF program. Ultimately, his objective is to become a valuable and indispensable asset to a firm that
he can grow with, while building professional and familiar relationships with those that surround him in
his life.
Information Provided by Website:
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Fund Performance Results
Student Bios for Undergraduate and MSF
Equity Society Overview
Link to Catholic Bishops Statement
R.I.S.E. X Global Investment Forum
Marketing team is responsible for organizing this 3 day trip to Dayton, Ohio
R.I.S.E. Highlights:
Redefining Investment Strategy Education
• Keynote Presentations by a Group of
Internationally Renowned Industry Leaders
• Specialized Breakout Sessions
• Workshops
• Career Strategies Forum
• Portfolio Competition
EXIT STRATEGY
Exit Strategy
• Stop losses set for each security in range
of 5%-10% based on implied volatility
• Target prices set for each security based
on analysis and projections
• Technical Analysis may be used for
strategic buying and selling price points
Richard Goetze
EAFE INVERSE
The EAFE Inverse
• Designed as a short of the MSCI EAFE Index
• Implemented to minimize downside risk in case of
market downturn
• Key Statistic from Holding Period:
• Actual Correlation with the MSCI EAFE: -.1533
• Key Questions: Did the inclusion of the EAFE Inverse
accomplish our goals? Can we statistically prove this?
Coleman Fund Portfolio Metrics
Fund/
Annualized
Benchmark
Return
Standard
Deviation
Semivariance
Reward to
Variance
Reward to
Semivariance
Coleman
Fund
27.9%
1.8591%
1.0232%
.2347
.4624
Coleman
Fund without
the EFZ
35.63%
2.9554%
1.6542%
.1860
.3323
50/50
S&P 500 and
EAFE Mix
31.06%
3.4929%
2.2965%
.1384
.2105
EFZ – Single
Inverse EAFE
-35.1%
3.9357%
3.1327%
-.2200
-.2764
Coleman Fund vs. 50/50 S&P 500 and EAFE
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%
-20.00%
-30.00%
1/09
2/09
3/09
4/09
5/09
6/09
Coleman YTD Returns
7/09
8/09
9/09
50/50 YTD Returns
10/09
11/09
12/4/09
Colin Waring
PERFORMANCE REPORTING
Coleman Fund – Since Investment Date
BIGGEST WINNERS
ETF
Price Filled
Current Price
Percentage Returns
S&P N.A. Tech Semiconductors Index Fund
43.75
47.10
7.66%
MSCI South Korea Index
45.01
47.10
4.64%
MSCI Brazil Index
74.49
77.77
4.40%
BIGGEST LOSERS
ETF
Price Filled
Current Price
Percentage Returns
SPDR S&P Oil & Gas Equipment
28.40
26.94
-5.14%
MSCI Australia Index
23.98
23.13
-3.54%
MSCI Sweden Index
25.46
24.62
-3.30%
Latest Weekly Performance Report
As of Friday, December 4
Week
Month Quarter
SMF Coleman
2.63%
2.63%
5.12%
25.37%
-10.58%
1.02%
S&P 500
1.36%
1.36%
6.34%
25.27%
3.42%
1.29%
EAFE
3.07%
3.07%
4.10%
34.02%
18.98%
0.91%
50/50 EAFE/S&P
2.21%
2.21%
5.22%
29.65%
11.20%
1.10%
Haley Large Cap Fund
2.95%
2.95%
3.95%
15.96%
7.23%
4.47%
Russell 1000
1.51%
1.51%
6.11%
26.80%
-13.76%
3.64%
*Jan. 2005
YTD
Since Inception* Since Investment**
**Nov. 13, 2009
*Nov. 2006 **Nov. 6, 2009
Haley Large Cap Portfolio Metrics
Year To Date
Fund/
Benchmark
Annualized
Return
Standard
Deviation
Semivariance
Reward to
Reward to
Variance Semivariance
Haley Large
Cap Fund
13.48%
1.995%
1.2083%
.1027
.1699
Russell
1000
29.32%
3.6715%
2.2743%
.1246
.2012
Haley Large Cap Year to Date Returns
30.00%
20.00%
10.00%
0.00%
Haley
Large Cap
YTD
Returns
-10.00%
Russell
1000 YTD
Returns
-20.00%
-30.00%
1/09
2/09
3/09
4/09
5/09
6/09
7/09
8/09
9/09
10/09
11/09
12/4/09
Haley Large Cap –
Since Investment Date (11/6)
WINNERS
Stock Ticker
Price Filled
Current Price
Percentage Returns
Packaging Corp
$19.0117
$22.32
17.40%
American Water Wrks
$19.6259
$21.76
10.87%
McGraw Hill Cos Inc.
$29.38
$32.56
10.82%
LOSERS
Stock Ticker
Price Filled
Current Price
Percentage Returns
CVR Energy
$8.675
$7.59
-12.51%
Green Mtn Coffee Roasters
$67.17
$60.39
-10.09%
Patterson-UTI Energy
$16.2194
$14.72
-9.24%
Questions?
Economic Analysis Eliminations
Paper and Forest Products
Healthcare Providers, Services
Computers, Peripherals
Trading Companies and
Distributors
Healthcare Technology
Office Electronics
Airlines
Biotechnology
Wireless Telecom Services
Auto Components
Pharmaceuticals
Electric Utilities
Textiles, Apparel, Luxury Goods
Life Science Tools, Services
Gas Utilities
Hotels, Restaurants, Leisure
Commercial Banks
Multi-Utilities
Diversified Consumer Services
Thrifts, Mortgage Finance
Independent Power Producers
Beverages
Consumer Finance
Diversified Financial Services
Tobacco
Capital Markets
Healthcare Equipment, Supplies
Insurance
Delphi Round 1 Eliminations
Professional Services
Leisure and Equipment Products
Distributors
Air Freight and Logistics
Industrial Conglomerates
Electrical Equipment
Marine
Specialty Retail
Villanova Equity Society
Whipkey Large Cap Fund Patrick O’Connell- CIO
Haley Mid Cap Fund
Brad Thoresen- CIO
Objectives
•
•
•
•
•
•
Organizational overview
Growth and development
Current initiatives
Investment process
Performance
Questions
Organizational overview
Operating Committee
Co-Presidents, Treasurer, Secretary, Marketing Director
Large-Cap Investment Committee
Chief Investment Officer, Portfolio
Manager
Mid-Cap Investment Committee
Chief Investment Officer, Portfolio
Manager
Support Team
Economic
Analysis
Sector Teams
Sector Captain, Analysts
Sector Teams
Sector Captain, Analysts
Growth and development
• Began in the fall of 2005 with simulated funds
• Ascertained funding in late 2006 and early
2007 for a large cap and mid cap fund
• In late 2007 another donation was made and
MSF class began management of the Haley
Large Cap fund
• Participation and awareness has been
growing by leaps and bounds
Current initiatives
•
•
•
•
•
•
•
Training the Street, valuation seminar
Interviewing on Wall Street panel
Following up with spring competitions
Sponsor recruiting events
Evaluate prospective new members
Mentorship program
Summer connection event
Fall 2009
INVESTMENT PROCESS
Stage
1:
Stage
2:
Stage
3:
Stage
4:
Stage
5:
Stage
6:
Investment cycle
Compliance screening
Social responsibility screen
Economic analysis
Sector analysis
Investment committee review
Portfolio optimization, approval, and
investment
Compliance
• Similar criteria to the Haley Large Cap Fund
Fund
Whipkey Large Cap
Haley Mid Cap
Market Cap
Greater than 5 billion
Between 1 and 7 billion
• Minimum average daily volume of 250,000
shares
• Minimum price of $10.00
• Initial weightings below 5% for a single
position and 25% for a sector
Social Responsibility Screen
Whipkey Large Cap
• 395 stocks met the
initial compliance
requirement
Haley Mid Cap
• 841 stocks met the
initial compliance
requirement
• 268 were eligible
after running the
SRI test
• 636 were eligible
after running the
SRI test
Economic analysis
•
•
•
•
Similar conclusions, Early Revival
Primarily a top-down strategy
Manpower is divided equally into all sectors
Looked at each sector to find the most
important economic data and used that as a
basis for sector concentration and security
analysis
Security Analysis
Two part process, qualitative and quantitative
Qualitative
• Base on the firm’s core competitive
advantage and attractiveness of the subindustry
Quantitative
• Financial statement analysis and comparative
ratios
Bloomberg tear-sheet
Investment committee review
• Analysts submit their conclusions and
supporting evidence to their sector captains
• Once initially screened, the better picks are
sent to the other members of the sector and
CIOs
• Discussion within an industry between the
large and mid cap analysts
Optimization
Whipkey Large Cap
• 41 stocks passed
all human tests
Haley Mid Cap
• 35 stocks passed
all human tests
• 33 stocks were
entered into the
optimal portfolio
• 30 stocks were
entered into the
optimal portfolio
Investment!
• The optimized portfolios were put to an up or
down vote before the entire MSF class,
including Dr. Nawrocki
• Once approved we entered market buy
orders
• Analysts are charged with following their
stock, and stop losses will be put in place
before the Christmas holiday
Fall 2009
PERFORMANCE
Results
Fund Weekly and Total Returns
5%
Whipkey Fund
S&P 500
Domini 400
Whipkey Total Return
S&P Total Return
Total % Return
Weekly % Return
0%
-5%
-10%
-15%
-20%
11/06/09
11/13/09
11/20/09
11/27/09
12/04/09
Whipkey large Cap winners and losers
Winners
Stock
Price Filled
Current Price
Returns
Monsanto
69.58
83.44
16.6%
HealthCare REIT
42.17
46.09
8.5%
Nucor
39.63
43.13
8.1%
Losers
Stock
Price Filled
Current Price
Returns
TJ Maxx
38.22
36.43
-4.9%
Kohl's
56.00
53.70
-4.3%
McKesson
63.00
60.94
-3.4%
Whipkey large Cap performance YTD
Fund
Annualized
Return
Standard
Deviation
Semivariance
Reward to Reward to
Variance
Semivariance
Whipkey 19.61%
Large
Cap
2.77
1.78
.1026
.1599
S&P
500
3.67
2.31
.1048
.1627
25.76
Current Cash
sector weights
4%
Tech
24%
Healthcare
19%
Consumer
24%
Energy
18%
Financial
11%
Current sector weights
Utilities
11%
Energy
1% Materials
6%
Cash
Industrials
4%
2%
Consumer Discr
10%
Info Tech
22%
Consumer Staples
14%
Financials
11%
Health Care
19%
Thank you
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