University of Connecticut MBA SMF Presentation Dec-5-2013 George Cerwinski, Lead Manager Pornpong Lueang-A-Papong, Portfolio Manager Robert Shedrawy, Treasurer/Secretary Xin Wang, Technology Manager Jonathan Coombes Murali Kuchipudi Yan Zhu Agenda Investment Philosophy and Style Strategy Investment Process Processes and Procedures Portfolio Analysis Recap & Looking Ahead Interesting Holdings Investment Philosophy and Style Value Investing Hybrid: Top-down / Bottom-up Mid to Large Cap Companies Corporate Social Responsibility 3 – 5 years Investment Time Horizon Both Short-term and Long-term Upside Potential Strategy At least 4 stock pitches per manager 25-30 stocks when fully invested 10 Sectors Diversified 100% Equity Investment Investment Process I Macro-Economic Analysis • GDP Growth Rate • Unemployment Rate / Labor Participation Rate • Interest Rates • Geopolitical Events Investment Process II Sector and Industry Analysis • Corporate Earnings and Reports • Consumer Confidence • Credit Availability • Government Regulation Investment Process III: Individual Stock Analysis Strong and sustainable business model Outstanding among its peers •Well-balanced/diversified business units •Strong and predictable earnings - ROA and ROE - P/E and PEG ratios - Operating margins - Leverage ratios Intrinsic value higher than market value Corporate social responsibility - Human Rights - Business Ethics Policy - ESG Disclosure - Equal Opportunity - Emission Reduction - Environmental Disclosure Score Processes and Procedures Training and Development Channels of Communications Stock Pitches Portfolio Analysis I Benchmark and Portfolio Asset Allocation Sector Consumer Discretionary Consumer Staples Energy Financials Health care Industrials IT Materials Telecom Utilities Total Current % S&P 500 Weight 7.5% 15.5% 8.5% 17.1% 15.2% 13.5% 7.7% 2.3% 5.5% 7.1% 100.0% 12.4% 10.2% 10.5% 16.1% 13.0% 10.9% 17.9% 3.5% 2.4% 3.1% 100.0% Portfolio Analysis II Benchmark and Portfolio Asset Allocation Portfolio Analysis III Holding Period Performance Review Portfolio Growth 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 6.89% 5.76% Port Return S&P return Portfolio Analysis IV Performance Analysis Mean Weekly Return Geometric Weekly Return S.D Beta Sharpe Ratio Treynor Ratio Jensons Alpha MBA SMF S&P 500 0.513% 0.611% 0.510% 0.608% 0.763% 0.896% 1.010 1.000 0.603 0.623 0.005 0.006 0.40% n/a Portfolio Analysis V Portfolio Snapshot as of 11/29/2013 Security Sector Consumer Discretionary PepsiCo Inc Consumer Staples CVS Caremark Corp Consumer Staples Halliburton Company Energy JPMorgan Chase & Financials Co Wells Fargo Financials UnitedHealth Group Health care Inc Amgen Health care General Electric Co Industrials United Parcel Service Industrials Altera Technology Alcoa Material American Electric Utilities Verizon Telecom Ford Motor Co Price/Share Shares Position Total Weight Div. Yield Cost/Share Gain/Loss $17.08 3,232 $55,203 3.3% 2.35% $18.00 -5.11% $84.46 $66.96 $52.68 680 870 1,116 $57,433 $58,255 $58,791 3.4% 3.5% 3.5% 2.81% 1.50% 0.99% $83.36 $65.60 $50.85 1.32% 2.07% 3.60% $57.22 990 $56,648 3.4% 2.93% $52.82 8.33% $44.02 1,650 $72,633 4.3% 2.51% $43.56 1.06% $74.48 830 $61,818 3.7% 1.50% $68.02 9.50% $52,477 $57,319 $41,976 $56,438 $17,855 $51,201 $39,994 $738,040 $102,005 $846,175 $1,686,220 3.1% 3.4% 2.5% 3.3% 1.1% 3.0% 2.4% 43.8% 6.0% 50.2% 100.0% 1.60% 2.91% 2.40% 1.60% 1.22% 4.30% 4.20% $116.50 $26.57 $100.62 $32.52 $9.05 $48.21 $50.35 -2.08% 0.34% 1.75%% -0.83% 6.19% -2.39% -1.45% $114.08 460 $26.66 2,150 $102.38 410 $32.25 1,750 $9.61 1,858 $47.06 1,088 $49.62 806 Total Equity Value Total Cash SPY ETF Total Account Value Recap & Looking Ahead I Recap of Our First Three Months • Affordable Care Act and The Debt Crisis • Volatility in Market • Emerging Markets • Bubble Implication • One position in: • Consumer Discretionary, Energy, Technology, Materials, Telecommunication, and Utilities sectors Recap & Looking Ahead II Looking Ahead • In the Winter Break Continue to monitor our positions • In the Spring Semester Focus on the following attributes Strong and fit business model Steady revenue and earnings Diversified and balanced operations Great growth and value prospects Seeking out growth stocks Most Interesting Holdings I Alcoa Inc. (AA) Investment Thesis Poised to be lowest cost fully integrated Aluminum Producer Strengths in downstream business insulates business from volatile Aluminum prices Improving economic climate indexes in Asia, EU, and NA bode well for metals demand Factors Affecting Price Growth Upgrade from JP Morgan, among others, to overweight/overperform citing predicted upswing in Aluminum prices Cost cutting initiatives and closing of burdensome smelting facilities Worldwide economic improvement is leading to increasing demand for Aluminum Domestically Auto and Airline manufacturers Sector: Materials Industry: Mining/Aluminum Market Cap: $12.61B Price @ 2/20/2014: $11.75 Purchase Price: $9.05 52 Week Range: $7.63 - $12.32 Intrinsic Value: $16.27 Market Cap at Intrinsic Value: $17.43B Unrealized Gain: 29.83% Most Interesting Holdings II Ford Motor Co. (F) Investment Thesis Only U.S automaker not to declare bankruptcy or accept a government bailout One Ford plan has allowed Ford to fix balance sheet, sell unprofitable brands, and improve the quality of vehicles Highest ROE 28.5% in the industry Strong sales and profits support our high intrinsic value Possible Factors Affecting Price Decline Speculation and concern over CEO Alan Mulally’s possible departure Cyclical nature of industry and concern over a stalling recovery Some quality issues with SYNC product and Escape recall Sector: Consumer Disc Industry: Auto Makers Market Cap: $68.3B Price @ 11/29/2013: $17.08 Purchase Price: $18.00 52 Week Range: $9.71 - $18.02 Intrinsic Value: $26.89 Market Cap at Intrinsic Value: $102.6B Unrealized Loss: (5.11%) Acknowledgments • Dr. Chinmoy Ghosh • Dr. Michel Rakotomavo • Patrick Terrion • Cengiz Searfoss • Peter Larson • Keith LaRose • Laurel Grisamer • Investment Advisory Board • UConn Foundation Q&A Appendix: Individual Stock Performance I AA AEP ALTR AMGN Appendix: Individual Stock Performance II CVS F ALTR AMGN Appendix: Individual Stock Performance III UNH UPS JPM PEP Appendix: Individual Stock Performance IV VZ WFC Appendix: Portfolio Beta Beta Halliburton Company Altera Corp. JPMorgan Chase & Co Alcoa Ford Wells Fargo General Electric Co UPS UnitedHealth Group Inc Portfolio Beta = 1.01 CVS Amgen Verizon PepsiCo Inc AEP 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Appendix: Best Performing Holding United Health Group(UNH) • Our Plan for United Health Group: We continue to believe UNH is undervalued as a whole. The forward P/E ratio is 12.85 with outstanding reward to shareholders via dividends and share buyback supports the increase in stock price We believe that UNH will generate decent profit from Obamacare. The company’s membership grew by 24% in the first nine months of 2013 We will continue to monitor UNH as its stock price approaches our calculated intrinsic value Sector: Health Care Industry: Managed Care Market Cap: $75.75B Price @ 11/29/2013: $74.48 Purchase Price: $68.02 52 Week Range: $51.09-$75.88 Intrinsic Value: $114.42 Market Cap at Intrinsic Value: $116.36B Unrealized Gain: 9.50%