Annual update presented to members of the Investment Office by the officers of the club. I created this presentation in collaboration with my fellow officer and other club members.

1. MBA Investment Club
2009 Update

2. MBA Investment Club - 2009 Update
Summary
Organizational Structure
Investment Process
Portfolio Risks
Conclusion
Performance Appendix

3. Summary
Index 3 Years 5 Years 3 Years Std Dev 5 Years Std Dev 3 Year Sharpe 5 Year Sharpe
MBA Inv. Club -13.08% -5.53% 18.42% 15.46% -0.90 -0.58
S&P 500 -13.06% -4.76% 17.42% 14.57% -0.95 -0.57
Russell 2000 -16.80% -5.24% 21.42% 19.68% -0.95 -0.44
Russell 1000 -13.24% -4.54% 17.73% 14.88% -0.94 -0.54
Dow Jones -9.52% -3.61% 16.56% 13.89% -0.79 -0.51
Treasury Note 10yr 10.20% 5.89% 8.50% 7.89% 0.79 0.30
In line with the S&P 500 on a risk adjusted basis

Low portfolio turnover

Overweight vs. S&P

Financials

Healthcare

Concentrated portfolio


4. MBA Investment Club - 2009 Update
Summary
Organizational Structure
Investment Process
Portfolio Risks
Conclusion
Performance Appendix

5. Organizational Structure
Co VP’s
Financials Tech Healthcare Industrials Consumer Manufacturing Energy
Seven sector teams based on S&P 500 Industries

3 – 5 members per team

Previously organized as stock pitch teams

New structure encourages idea generation


6. Structure of Peer Programs
Cornell Darden Wharton
• 2 Semester • Darden Capital • Weekly
Class, 2nd yrs Management meetings, 6-8
• Seven sector • 4 investment pitches per
meeting
teams funds, varying
• Market Analysts
• Market Neutral strategies
• 2nd years monitor
hedge
PM’s, 1st years portfolio, update
fund, stocks
members
only analysts
• Value Investing
• No 1st year • $6m AUM
• $700k AUM
participation
• $14.4m AUM

7. Organizational Structure - Proposed
Portfolio
Analysts
Manager
Portfolio
Analysts
Manager
Chief
Investment
Officer Portfolio
Analysts
Manager
Portfolio
Analysts
Manager
Quantitative
Chief Risk
Investment
Officer
Group

8. Governance
Faculty Advisor

Professor Langley

Joint leadership

Two elected Vice Presidents

Governed by Finance and Investment Club Constitution

Create an Advisory Board

Past VP’s, professors

Receive Quarterly Updates


9. MBA Investment Club - 2009 Update
Summary
Organizational Structure
Investment Process
Portfolio Risks
Conclusion
Performance Appendix

10. Investment Process
Sector Level Analysis
Review Current Holdings Screen New Investment Ideas
Stock Valuation
Discounted Cash Flow Relative Value Qualitative Factors
Recommendation
Decision by majority vote of members
End of semester rebalancing

11. Current Investment Guidelines
Invest in only domestic US equities

Target ten holdings

Constraint due to having the resources to monitor the

stocks and evaluate new ideas
Target a full position of 10% for each holding

Hold only enough cash to cover fees


12. Portfolio Rebalancing
Utilize modern portfolio theory to map current

holdings into risk return space
10% “full position” may not be optimal

Holding Current ORP vs Current ORP - 15% vs Current
AAPL 14.17% 0.00% -14.17% 0.00% -14.17%
AMGN 7.27% 38.15% 30.88% 15.00% 7.73%
BAC 5.71% 5.42% -0.29% 15.00% 9.29%
HI 13.76% 10.79% -2.97% 15.00% 1.24%
HRC 1.78% 15.34% 13.56% 15.00% 13.22%
MS 7.19% 0.00% -7.19% 0.00% -7.19%
STT 14.14% 0.00% -14.14% 0.00% -14.14%
TWC 2.61% 6.64% 4.03% 15.00% 12.39%
TWX 8.49% 0.00% -8.49% 0.00% -8.49%
UNH 15.02% 23.65% 8.63% 15.00% -0.02%
XOM 8.95% 0.00% -8.95% 10.00% 1.05%

13. Risk Adjusted Returns
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
0.00 0.07 0.15 0.22 0.29 0.37 0.44 0.51 0.59 0.66 0.73

14. Risk Adjusted Returns – 15% Max
1.4
1.2
1
0.8
0.6
0.4
0.2
0
0.00 0.07 0.15 0.22 0.29 0.37 0.44 0.51 0.59 0.66 0.73

15. Investment Process Enhancements
Goal: To better utilize the risk adjusted perspective in

portfolio management
Create a Quantitative Research Group

Manage Portfolio Level Risk

Build and Maintain Models

Invest across capital structure

Bonds may better compensate for risks

Develop stock screeners to facilitate idea generation


16. MBA Investment Club - 2009 Update
Summary
Organizational Structure
Investment Process
Portfolio Risks
Conclusion
Performance Appendix

17. Macroeconomic Environment
Near term severe recession

Outperform – Time Warner Cable, United

Health, Amgen
Underperform – Apple, ExxonMobil, Financials

9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
GDP Unemployment

18. Monetary Policy and Inflation
Dramatic rise in inflation may occur over next 2-3

years
Outperform – Apple, ExxonMobil, Hillenbrand

Underperform – State Street, Morgan Stanley, BofA

100% 5%
80% 4%
60% 3%
40% 2%
20% 1%
0% 0%
-20% -1%
-40% -2%
CPI % Change, 1 yr MA M1 % Change, 1 yr MA

19. Industry Specific Risk
MBA Portfolio S & P 500
3.90%
4.11% Energy
12.87%
13.37%
Materials
3.22%
27.91%
Financials Industrials
10.28% 18.11%
Health Care Consumer Discretionary
10.04%
Consumer Consumer Staples
Energy Health Care
9.16%
12.16%
Financials
Information Technology
24.69%
23.76%
Information Technology
12.26%
14.17%
Telecommunications Services
Big bet on Financials and Healthcare

Financials appear significantly undervalued

Secular trend in increased healthcare spending


20. Firm Specific Risk
Holding AAPL AMGN BAC HI HRC MS STT TWC TWX UNH XOM
AAPL 100% 33% 34% 31% 24% 56% 53% 37% 48% 53% 52%
AMGN 33% 100% 28% 34% 21% 46% 46% 33% 53% 54% 66%
BAC 34% 28% 100% 34% 25% 61% 66% 27% 52% 41% 44%
HI 31% 34% 34% 100% 18% 37% 33% 30% 41% 36% 40%
HRC 17% 16% 24% 18% 100% 28% 23% 26% 30% 31% 28%
MS 38% 35% 61% 37% 28% 100% 58% 45% 60% 65% 59%
STT 38% 35% 65% 33% 23% 58% 100% 37% 54% 47% 45%
TWC 32% 29% 27% 30% 26% 45% 37% 100% 50% 36% 36%
TWX 34% 42% 50% 41% 30% 60% 54% 50% 100% 54% 64%
UNH 32% 38% 36% 36% 31% 65% 47% 36% 54% 100% 56%
XOM 38% 47% 40% 40% 28% 59% 45% 36% 64% 56% 100%
With so few holdings, it is optimal to choose holdings

that are relatively uncorrelated with each other

21. Risk Mitigation
Hedge Downside Risk

Short ETF’s

Index Options

Periodic rebalancing

Team responsible for monitoring and recommending

changes
Consult with additional faculty with expertise in hedging


22. MBA Investment Club - 2009 Update
Summary
Organizational Structure
Investment Process
Portfolio Risks
Conclusion
Performance Appendix

23. Conclusion
Give members the experience of working in an

investment fund
Practical skills

Networking

Enhance ties with investment management

community
Investment Management Symposium

Support the University by being professional

custodians of endowment funds

24. MBA Investment Club - 2009 Update
Summary
Organizational Structure
Investment Process
Portfolio Risks
Conclusion
Performance Appendix

25. Performance Since Inception
500 1800
450 1600
400 1400
350 1200
300
1000
250
800
200
600
150
400
100
200
50
0 0
MBA S&P

26. Historical Returns vs. Benchmarks
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
1 Month 3 Month 1 Year 3 Years 5 Years
Russell 2000 DJ
IA S 500
&P Investment Club

27. Financial Sector vs. Benchmark
MBA S&P
0% 5% 10% 15% 20% 25% 30%
0%
-10%
-20%
Return
-30%
-40%
-50%
-60%
-70%
W eight

28. Healthcare Sector vs. Benchmark
MBA S&P
0% 5% 10% 15% 20% 25%
0%
-5%
-10%
Return
-15%
-20%
-25%
W eight

29. Consumer Sector vs. Benchmark
MBA S&P
0% 2% 4% 6% 8% 10% 12% 14% 16%
0%
-5%
-10%
-15%
Return
-20%
-25%
-30%
-35%
-40%
W eight

30. Technology Sector vs. Benchmark
MBA S&P
0% 5% 10% 15% 20%
0%
-5%
-10%
Return
-15%
-20%
-25%
-30%
-35%
W eight