UNDERGRADUATE

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UNDERGRADUATE STUDENT MANAGED FUND
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Undergraduate Managers

• Officers
• Dan Innamorato
• Leora Zach
• Frank Burrelsman

• Managers
• Josh Rockwell
• Alex Boscarino
• Kyle McLaughlin
• Kate Seabaugh
• Josh Lebel
• Meng Jin
• Joe Skrokov

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Overview

• Investment Objective and Philosophy
• Investment Strategy and Process
• Economic Outlook
• Navigating a Volatile Market
• Portfolio Summary
• Portfolio Performance
• Q A

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Investment Objective Philosophy

• Objective Outperform the SP 500 Index
• Bottom-up approach
• Identify companies with strong business models
  that will generate consistent earnings and cash
  for shareholders
• Valuation to determine if investments are
  attractively priced
• Security analysis does not seek to determine
  exactly what is the intrinsic value of a given
  security. It needs only establish either that
  the value is considerably higher or considerably
  lower than the market price. -Benjamin Graham-

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Investment Strategy

• Business Factors Evaluate investments
• Strategic Positioning with a 5-10 year horizon
• Competitive Advantage
• Management Quality
• Financial Factors
• Return on Capital/Equity
• Free Cash Flow
• Price to Earnings
• Dividend Yield
• Debt to Equity Ratio
• Growth Potential

Only buy something that youd be perfectly happy
to hold if the market shut down for 10
years. - Warren Buffett
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Investment Process

• Divided into 6 teams
• Each team covers one or two sectors of SP 500
• Each manager assigned to two teams
• Each team consists of 3 or 4 managers
• Managers research their sectors scanning for key
  business and financial indicators
• Managers discuss potential stocks within their
  team
• Team prepares a one-page report to present to all
  managers
• SMF managers conduct further research on the
  stock
• Team fields questions and concerns on potential
  investment
• All SMF managers vote on whether or not to buy
  the stock

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Current Economic Outlook

• Unprecedented volatility
• Fallout from securitized financial
  products/asset-backed securities, failure of
  financial institutions, and freezing of credit
  markets
• Recession
• Real GDP and corporate earnings may decline
• Unemployment has increased to 6.5
• Cost of capital has increased
• Widespread fear has caused risk premiums to
  increase
• Commodity prices have fallen from their highs
• Dollar has rebounded
• Accommodative monetary and fiscal policy

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Current Economic Snapshot
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Tipping Point

• Lehman and AIG
• Federal government has been selective in
  providing assistance to struggling financial
  institutions
• Uncertainty and confusion over stability of some
  financial institutions has caused market
  volatility
• Elements of the federal bailout plan have changed
• Banks are still reluctant to lend, even with
  injection of liquidity into the system

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Forward Economic Expectations

• Continued volatility and worsening economic
  conditions
• Monetary and fiscal policy should remain
  accommodative
• Short-term volatility in commodities with
  long-term trend upwards
• Inflation should remain in check during the
  short-term

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Navigating a Volatile Market

• Identify companies with
• Monopolistic qualities
• High barriers to entry
• Ex Burlington Northern infrastructure
• Low buyer and supplier power
• Sustained competitive advantages
• Ex Coca-Colas distribution system
• High Brand loyalty
• Ex Walt Disney

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Navigating a Volatile Market

• Identify companies with
• Low Debt Levels
• Debt no more than 5 times free cash flow
• Predictable Earnings
• Free Cash Flow Yields with a premium above the
  risk-free rate.
• Consistent dividend and stock buyback programs
• Use limit orders to acquire companies at
  attractive prices

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Portfolio Snapshot
Portfolio Value as of 11/7/08 791,799.67
Sector Stock
Consumer Staples Coca-Cola Diageo
Consumer Discretionary Walgreens
Energy Conoco Philips
Technology Microsoft
Industrials United Technologies Burlington Northern
Healthcare Johnson Johnson Medtronic Walgreens
Weighted Portfolio Beta 0.8 Treynor
Ratio -26.96
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Fund Allocation
Equities 405,458 SP 500 309,738 Cash 76,603.67
Equity Allocation
Portfolio Allocation
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Sector Allocation
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Portfolio Performance

• Holding period October 1 November 7 2008
• SP 500 Return (22.31)
• Total Portfolio Return (17.95)
• SMF Portfolio outperformed SP 500 by 4.36
• SP 500 SMF
• Beginning Value 1164.74 965,037.57
• Ending Value 904.88 791,799.67
• Return (22.31) (17.95)

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Portfolio Timeline

• Date Symbol Company Investment
• 10/3 KO Coca-Cola 49,770.05
• 10/3 MSFT Microsoft 50,160.00
• 10/6 XOM Exxon Mobil 48,815.00
• 10/16 UTX United Technologies 49,955.00
• 10/30 JNJ Johnson Johnson 52,912.00
• 11/3 WAG Walgreens 55,500.00
• 11/5 DEO Diageo 52,635.00
• 11/5 MDT Medtronic 39,518.20
• 11/6 COP Conoco Philips 34,290.00
• 11/6 BNI Burlington Northern 40,125.00

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Equity Performance

• Return on equity positions (6.47)

Conoco Philips
Coke
Microsoft
Exxon
J J
Medtronic
Burlington Northern
UTC
Walgreens
Diageo
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Sector Performance
Consumer Staples
Consumer Discretionary
Technology
Energy
Healthcare
Industrials
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Portfolio Update

• Results previously reported were as of Nov. 7
• Since then, we have purchased
• The Walt Disney Company (DIS)
• Current portfolio performance vs. SP 500 with
  holding period of October 1 November 19
• SP 500 Return (30.75)
• SMF Portfolio Return (26.26)
• SMF Portfolio has outperformed SP 500 by 4.49

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Lessons Learned

• Stop-loss Orders
• Stopped out of Exxon Mobil on 10/10
• Lesson learned
• Increased future stop-loss orders to 25-30 due
  to market volatility
• Down-side review at 15
• Up-side review (if necessary) at 15
• Invest with Conviction
• Didnt repurchase Exxon after getting stopped out
  and the stock has rebounded back to the price we
  purchased it at
• Lesson learned
• We cannot control market volatility, but we can
  invest where the underlying company will perform
  well even if its stock price has short-term
  volatility
• We repurchased Microsoft after recently getting
  stopped out

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Future Considerations

• Monitor Financials, Utilities, and Materials
  sectors for potential investments
• Consider small and mid-cap stocks
• Continue to monitor macroeconomic trends

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Acknowledgements

• Pat Terrion
• Dr. Ghosh
• Steering Committee
• Investment Advisory Board
• UConn Foundation

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Questions?