Undergraduate SIM Fund Student Investment Management Fund INTRODUCTION INTRODUCTION Undergraduate Student Investment ASSET ALLOCATION Management Fund REBALANCING PERFORMANCE Semi-Annual Presentation OPPORTUNITY COSTS Friday, April 20, 2012 SUCCESSION QUESTIONS 1
Undergraduate SIM Fund Student Investment Management Fund Fund Members Fund Managers INTRODUCTION INTRODUCTION Rima Reddy Michael Cohn ASSET ALLOCATION REBALANCING Jenna Hoppe Steven Kutos PERFORMANCE Fund Analysts Ajay Gnanasambanthan OPPORTUNITY COSTS Michael Ham SUCCESSION Jonathan Lozano QUESTIONS Aaron Baker Kenneth Qian 2
Undergraduate SIM Fund Student Investment Management Fund Investment Goals • Diversification INTRODUCTION ASSET ALLOCATION ASSET ALLOCATION • Humility in incorporating views REBALANCING • Reduce sensitivity to input data PERFORMANCE – Resampling vs. static MVO OPPORTUNITY COSTS – Increasing Correlations SUCCESSION – Different methods to estimate volatility QUESTIONS 3
Undergraduate SIM Fund Student Investment Management Fund Asset Allocation Structure INTRODUCTION High-Level MVO ASSET ALLOCATION ASSET ALLOCATION REBALANCING PERFORMANCE US Equity Fixed Income Ex-US Equity REITs Commodities OPPORTUNITY COSTS SUCCESSION QUESTIONS Low-Level Constructed B-L MVO Basket 4
Undergraduate SIM Fund Student Investment Management Fund Return .51 .51 .51 .05 .05 .05 .19 .19 .19 .05 .05 .05 .2 .2 .2 INTRODUCTION .507 .032 .19 .507 .032 .19 .05 .05 .22 .22 ASSET ALLOCATION ASSET ALLOCATION .49 .049 .19 .05 .22 REBALANCING Risk PERFORMANCE MVO MVO MVO OPPORTUNITY COSTS SUCCESSION QUESTIONS 5 Ex-US Equity Commodities Fixed Income US Real Estate US Equity
Undergraduate SIM Fund Student Investment Management Fund Selected Asset Classes • Equity (Black-Litterman Model) INTRODUCTION — Ability to incorporate our own sector views ASSET ALLOCATION ASSET ALLOCATION — Lessen the historical returns bias • Commodities REBALANCING ― Low correlation, diversification PERFORMANCE ― Basket of stocks with high commodity exposure • Fixed Income OPPORTUNITY COSTS ― Selected a intermediate Government/Credit ETF SUCCESSION • REITs ― Additional diversification, attractive investment QUESTIONS • International Equity 6
Undergraduate SIM Fund Student Investment Management Fund Broad Allocation International Allocation INTRODUCTION 1% 1% 1% Commodities 3% 5% REIT ASSET ALLOCATION ASSET ALLOCATION EU 5% 9% EM REBALANCING Canada 38% 9% Fixed Income PERFORMANCE 19% Japan US Equity Australia 9% OPPORTUNITY 50% COSTS Israel Int. Equity SUCCESSION 21% NZ 29% HK QUESTIONS Singapore 7
Undergraduate SIM Fund Student Investment Management Fund Reasons for Rebalancing • Accumulated cash dividends of $8,000 INTRODUCTION ASSET ALLOCATION • Fixed Income weight below optimal REBALANCING REBALANCING – Down to 17.4% from 20% PERFORMANCE • Updated view on consumer discretionary OPPORTUNITY COSTS SUCCESSION QUESTIONS 8
Undergraduate SIM Fund Student Investment Management Fund Consumer Discretionary • Consumer confidence increasing INTRODUCTION ASSET ALLOCATION • Unemployment declining REBALANCING REBALANCING • Positive environment for cyclical sectors PERFORMANCE • No longer saw a reason to underweight OPPORTUNITY COSTS removed view SUCCESSION QUESTIONS 9
Undergraduate SIM Fund Student Investment Management Fund Case Study – Hecla Mining • Base and precious metal business lines INTRODUCTION – Discovery/Exploration ASSET ALLOCATION – Development/Production REBALANCING REBALANCING • Two operational mines PERFORMANCE – Greens Creek (Alaska) OPPORTUNITY COSTS – Lucky Friday (Idaho) SUCCESSION • Market Capitalization (mm): $1,193 QUESTIONS • Average Volume (mm): 6.34 10
Undergraduate SIM Fund Student Investment Management Fund Case Study – Hecla Mining • Two deaths occurred at Hecla’s Lucky Friday INTRODUCTION mine in 2011 ASSET ALLOCATION – One of deepest mines in US REBALANCING REBALANCING – Safety failures blamed for deaths PERFORMANCE • Mine Safety & Health Administration shut OPPORTUNITY COSTS down Lucky Friday for one year SUCCESSION – 2012 silver production estimates reduced QUESTIONS by 20% 11
Undergraduate SIM Fund Student Investment Management Fund Case Study – Hecla Mining • Mine closure news release (Jan. 11th): INTRODUCTION – Stock price plunged 21% ASSET ALLOCATION – Trading volume spiked 885% Hecla Mining Co. (NYSE: HL) Price and Volume 8.00 100 Millions REBALANCING REBALANCING 90 7.00 80 6.00 PERFORMANCE 70 5.00 60 OPPORTUNITY 4.00 50 COSTS 40 3.00 30 SUCCESSION 2.00 20 1.00 10 QUESTIONS 0.00 0 10/17/11 10/24/11 10/31/11 11/07/11 11/14/11 11/21/11 11/28/11 12/05/11 12/12/11 12/19/11 12/26/11 01/02/12 01/09/12 01/16/12 01/23/12 01/30/12 02/06/12 02/13/12 02/20/12 02/27/12 03/05/12 03/12/12 03/19/12 03/26/12 04/02/12 04/09/12 04/16/12 12
Undergraduate SIM Fund Student Investment Management Fund Case Study – Hecla Mining • Correlation to gold index remained favorable INTRODUCTION post mine closure ASSET ALLOCATION – Commodity exposure maintained REBALANCING REBALANCING • Investment horizon: 3-5 years PERFORMANCE – Passive strategy OPPORTUNITY COSTS • P/E of 8.16 vs. industry P/E 13.50 ~ SUCCESSION QUESTIONS Do not sell Hecla Mining 13
Undergraduate SIM Fund Student Investment Management Fund Performance metrics INTRODUCTION Holding Period Annualized Volatility Sharpe Ratio ASSET ALLOCATION Return Return Undergraduates 6.29% 14.38% 16.35% 0.825 REBALANCING Constrained BM 7.31% 17.27% 12.50% 1.31 PERFORMANCE PERFORMANCE Russell 3000 10.48% 23.07% 17.46% 1.31 OPPORTUNITY COSTS World Equity 5.90% 13.28% 16.01% 0.77 SUCCESSION Non-Rebalanced 6.50% 14.84% 16.37% 0.85 QUESTIONS 14
Undergraduate SIM Fund Student Investment Management Fund Fund Performance INTRODUCTION 0.15 ASSET ALLOCATION 0.1 REBALANCING 0.05 PERFORMANCE PERFORMANCE 0 OPPORTUNITY -0.05 COSTS -0.1 SUCCESSION -0.15 QUESTIONS 11/3/2011 12/3/2011 1/3/2012 2/3/2012 3/3/2012 4/3/2012 MSCI World Russell 3000 Portfolio Custom Benchmark Benchmark 15
Undergraduate SIM Fund Student Investment Management Fund Fund Performance 20.00% INTRODUCTION ASSET ALLOCATION 15.00% REBALANCING 10.00% Commodities International PERFORMANCE PERFORMANCE US Equity 5.00% Fixed Income OPPORTUNITY REIT COSTS 0.00% Portfolio SUCCESSION -5.00% QUESTIONS -10.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 16
Undergraduate SIM Fund Student Investment Management Fund Opportunity Costs Views expressed on U.S. sectors INTRODUCTION ASSET ALLOCATION 12.50% 12.40% REBALANCING 12.30% 12.20% PERFORMANCE 12.10% 12.00% OPPORTUNITY OPPORTUNITY COSTS COSTS 11.90% 11.80% SUCCESSION 11.70% 11.60% QUESTIONS 11.50% Our Portfolio No Views 17
Undergraduate SIM Fund Student Investment Management Fund Views Expressed on U.S. sectors INTRODUCTION Sector Ticker Return Weight Utilities VPU US 0.38% Neutral ASSET ALLOCATION Telecom VOX US 3.21% Neutral REBALANCING Industrials VIS US 9.04% Overweight Healthcare VHT US 12.10% Neutral PERFORMANCE Information Tech VGT US 14.15% Overweight OPPORTUNITY OPPORTUNITY COSTS COSTS Financials VFH US 13.18% Underweight Energy VDE US -0.74% Overweight SUCCESSION Consumer Staples VDC US 8.95% Neutral QUESTIONS Consumer Disc. VCR US 13.97% Underweight - Neutral Materials VAW US 5.21% Neutral 18
Undergraduate SIM Fund Student Investment Management Fund Succession Planning • Training for new members INTRODUCTION ASSET ALLOCATION – Bloomberg, Portfolio Theory, Asset Pricing REBALANCING • Problems we encountered PERFORMANCE • Hand-over portfolio OPPORTUNITY COSTS SUCCESSION SUCCESSION QUESTIONS 19
Undergraduate SIM Fund Student Investment Management Fund New Members INTRODUCTION Aaron Baker Troy Hebert Kenneth Qian Clayton Jenners ASSET ALLOCATION Dakota Boyd Dylan King REBALANCING Shane Carlin Kai (Edwin) Lam Charlotte DeMocker Jaesung Lee PERFORMANCE Andrew Farber Leo Panopoulos OPPORTUNITY Lorne Forcum Adrian Reiter COSTS Sean Gormley Brian Wright SUCCESSION SUCCESSION John Happe Yili Yu QUESTIONS 20
Undergraduate SIM Fund Student Investment Management Fund INTRODUCTION Questions? ASSET ALLOCATION REBALANCING PERFORMANCE OPPORTUNITY COSTS SUCCESSION QUESTIONS QUESTIONS 21
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