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Final CAFE Powerpoint
- 1. Roger Williams University Center for Advanced Financial Education December 4, 2015
- 2. STUDENT FUND MANAGERS Ms. Meghan Albee, Mr. David Balise, Ms. Rachel Battista, Mr. Robert Blier, Mr. Ryan Corry, Ms. Kelly Fitzpatrick, Mr. Brian Flanagan, Mr. Nicholas Fontaine, Mr. Jonah Schwartz, Ms. Shannon Squier & Mr. Jake Wazorko ASSOCIATE DIRECTORS Mr. Eric Guilmette Mr. Zachary Gehring UNDER THE SUPERVISION OF: Michael Melton Ph.D. Director, Center for Advanced Financial Education Professor of Finance *All numbers reflect close on December 1, 2015 Center for Advanced Financial Education
- 3. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 4. CAFE Objectives Large Cap Value Domestic Large Cap Blend Domestic Gabelli Value Fund Student Investment Management Fund (SIMF)
- 5. Center for Advanced Financial Education • “State-of-The-Art” Facility • 24 Hour Coverage of Markets • 6 Bloomberg Terminals & QUODD Equity+ • Free Flow of Information • Real-World Environment
- 6. “Industry” Top-Down Analysis • Portfolio Objective • Foreign & Domestic Economic Analysis • Portfolio Construction • Company Selection Becoming an Analyst
- 7. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 8. Investment Approach Global Analysis Sector Analysis Industry Analysis Company Analysis Sector Analysis Company Analysis Industry Analysis Global Analysis
- 9. Main Indicators • Real GDP • Stock Market Returns • Interest Rates • Inflation • Unemployment • Main Importers/Exporters • Manufacturing/Production • Money Supply Global Economic Analysis
- 10. • Largest Economy After U.S. • GDP Growth Rate: 7% • Leader in Imports/Exports • No Debt – Increasing Credit Bullish Indicators • Decreasing GDP Rate Since 2010 • Yuan Devaluation • Weakening Imports/Exports • Corruption Bearish Indicators China Global Economic Analysis
- 11. • Quantitative Easing • Lifting Economy/Market • Boosting Exports • Strong Nikkei Return • Healthcare and Financial Opportunities Bullish Indicators • Recession • Decreasing GDP YoY • Weak Inflation • Natural Disasters • Weakening Industrial Production Bearish Indicators Japan Global Economic Analysis
- 12. • European Central Bank • Monetary Policy • Downward Trending Unemployment • Upward Trending Consumer Confidence Bullish Indicators • Greek Default • Unemployment Remains High • Consumer Confidence Below Pre-2008 • Influx of Refugees Bearish Indicators European Union Global Economic Analysis
- 13. • Strong Unemployment • Strong Dollar • Promise to Raise Rates in September • Weaker CPI and Industrial Production First Analysis: Bullish September 2, 2015 Bearish Indicators United States of America • Unemployment • Discouraged Workers • Labor Force Participation • Low Headline CPI Second Analysis: Neutral October 2, 2015 Domestic Economic Analysis
- 14. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 15. Top-Down Approach Sector Analysis Company Analysis Industry Analysis Economic Analysis
- 16. Portfolio Objective Large Medium Small Value Blend Growth CAFE Growth Fund • Domestic • Large Cap • Blend
- 17. Previous vs. Current Sector Weights 12.77% 4.18% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% Previous Current Percentage Held in Disney Previous Current Technology Financials Consumer Discretionary Healthcare Industrials Consumer Staples Telecommunications Utilities Energy Basic Materials 24.23% 9.66% 12.38% 17.81% 10.97% 3.60% 3.92% 22.24% 19.95% 14.53% 13.23% 10.37% 7.15% 3.00% 2.22% 4.48% 2.65% 17.24%
- 18. Sector/Industry Analysis 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% Energy Consumer Staples Health Care Utilities Basic Materials Industrials Telecom Consumer Discretionary Technology Financials SIMF Sector Weightings vs. S&P 500 S&P 500 SIMF Fund Overweight • Financials (3.35%) • Technology (1.34%) • Discretionary (1.43%) Market Weight • Telecom (0.71%) • Industrials (0.26%) • Basic Materials (-0.25%) • Utilities (-0.68%) Underweight • Healthcare (-1.37%) • Staples (-2.45%) • Energy (-2.62) S&P 500 on October 14, 2015
- 19. Sector Analysis 0.00% 2.00% 4.00% 6.00% 8.00% Energy SIMF Energy vs. S&P 500 S&P 500 SIMF Fund • Decreasing Oil Prices • Hedge on Down Days • Political Risk in OPEC Countries • Weak Demand and Global Oversupply Energy • Performance in Rising Interest Rate Environment • Strong Financial Services Industry Financials 0.00% 5.00% 10.00% 15.00% Health Care SIMF Health Care vs. S&P 500 S&P 500 SIMF Fund • Volatility • Political Influence • Underweight by 1.53% • Bullish Bearish Outlook Health Care
- 21. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 22. • Reasonably Priced • Room for Long-term Organic Growth • Efficient Management of Cash Flows • Minimal Systematic Risk • Profitability • Favorable Risk to Reward Ratio SIMF Growth Fund ● P/E Ratio= ● P/E Growth (G*)= ● PEG= Key Metrics Price Earnings per Share P/E Trailing P/E Forward -1 P/E Growth Rate Company Analysis: Fundamental Analysis
- 23. • Increasing EPS • YoY • QoQ • EPS Expanding at a Rate in Ordinance With Revenue Trend EPS and Revenue Trends Ticker: CTSH Sector: Information Technology Industry: IT Services Purchase Price: $64.97 (10/07/15) Current Price: $65.00 Holding Period Yield: 0.35% Company Analysis: Fundamental Analysis
- 24. Ticker: CAH Sector: Health Care Industry: Healthcare Supply Chain Current Price: $88.91 Purchase Price: 77.65 (10/07/15) Holding Period Yield: 14.51% Cardinal Health (CAH) Henry Schein, Inc (HSIC) Industry Average Trailing P/E 20.88 27.18 29.47 Forward P/E 16.78 26.81 25.50 P/E Growth (G*) 24.43% 1.38% 15.57% PEG 1.36 2.49 1.89 Beta 0.89 0.93 0.96 P/E 20.88 984.14 Company Analysis: Fundamental Analysis
- 25. Ticker: IFF Sector: Basic Materials Industry: Specialty Chemicals Current Price: $122.00 Purchase Price: $109.45 (10/07/15) Holding Period Yield: 11.47% International Flavors & Fragrances (IFF) DuPont (DD) Industry Average Beta 0.90 1.01 1.23 Return on Assets 11.65% 6.55% 5.98% Return on Equity 26.63% 21.76% 13.75% Current Ratio 2.38 2.04 2.47 Net Profit Margin 14.04% 9.62% 2.41% • Strong Cash Management • Maintains Liquidity • Fiscal Assurance • One of the Best in Specialty Chemicals Industry Company Analysis: Fundamental Analysis
- 26. • Cash Flows from Operations: • Day to Day Business Success • Cash Flows from Investing: • Buying or Selling Capital Assets • Cash Flows from Financing: • Funding the Business Cash Flow Analysis Cash Flows Equifax (EFX) Company Analysis: Fundamental Analysis
- 27. Ticker: EFX Sector: Financials Industry: Information Services Current Price: $112.52 Purchase Price: $102.56 (10/7/15) Holding Period Yield: 9.71% • Increasing Cash from Operating Activities Since 2010 • Consistency • Effective in Debt Management Cash Flows from Operating Activities Company Analysis: Fundamental Analysis
- 28. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 29. • Insider Buying/Selling • Analyst Upgrades/Downgrades • Earnings Release • Mergers and Acquisitions • Statements From Upper Management • Business Segments Performing Well/Poorly • Lawsuits • Political Influence • Change in Oil Prices Behavioral Drivers Company Analysis: Behavioral Analysis
- 30. Ticker: DIS Sector: Consumer Discretionary Industry: Entertainment Content Purchase Price: $98.91 (8/24/15) Current Price: $115.39 Holding Period Yield: 16.66% Company Analysis: Behavioral Analysis
- 31. Ticker: V Sector: Financials Industry: Consumer Finance Purchase Price: $70.37 (8/24/15) Current Price: $79.91 Holding Period Yield: 13.54% • November 2, 2015 • Acquisition of VisaEurope • $23.4B Cash & Stocks • To be Approved in April 2016 Visa 3-Month Chart Buy Company Analysis: Behavioral Analysis
- 32. Ticker: AAPL Sector: Information Technology Industry: Electronic Equipment Purchase Price: $112.85 (08/27/15) Current Price: $117.19 Holding Period Yield: 3.98% AAPL 1-Month Insider Trading Chart • Apple CEO, Tim Cook, Purchased 447,311 Shares of the Company Worth $46M Company Analysis: Behavioral Analysis
- 33. Sector: Information Technology Industry: Infrastructure Software Purchase Price: 83.46 (11/06/15) Current Price: $86.50 Holding Period Yield: 3.64% • Upgraded to “Outperform” on 11/12/2015 by Oppenheimer & Co. • The Stock Moved 0.50% Higher Despite the S&P 500 Dropping -1.40% Company Analysis: Behavioral Analysis
- 34. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 37. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 38. Portfolio Construction Stock Valuation Portfolio Correlation Weighting Strategy
- 39. Weighted Portfolio Statistics CAFE Growth Fund S&P 500 YTD Beta 0.86 1.00 Trailing P/E 22.06 18.58 Forward P/E 16.86 17.54 G* 30.84% 5.93% P/CF 14.67 10.81 PEG 1.75 -- YTD Alpha -1.62% --
- 42. Markowitz Portfolio Theory Minimum Variance Portfolio • 20-25 Assets • At Least 18 Industries • 8-10 Sectors 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0.50% 0.70% 0.90% 1.10% 1.30% 1.50% 1.70% PortfolioReturn Portfolio Standard Deviation Markowitz Efficiency Frontier Optimal Range Efficiency Frontier Markowitz Efficiency Frontier
- 43. Sector Diversification 12.38% 3.60% 24.23% 17.81% 17.24% 10.97% 3.92% 9.66% Previous Weightings Current Weightings 13.23% 3.01% 14.53% 19.95% 22.24% 4.48% 7.15% 2.65% 10.37% 2.22% Healthcare Telecom Discretionary Financials Technology Energy Staples Basic Mats Industrials UtilitiesBefore Reallocation After Reallocation
- 44. Effects of Reallocation 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80% FundStandardDeviation Date Weekly Fund Standard Deviation -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% Daily%Change Date Daily Portfolio Price Change
- 45. Portfolio Weightings Healthcare, 13.23% Telecom, 3.01% Discretionary, 14.53% Financials, 19.95% Technology, 22.24% Energy, 4.48% Staples, 7.15% Basic Materials, 2.65% Industrials, 10.37% Utilities, 2.22%
- 46. Current Holdings Sector Company Name Ticker Weight Industrials Nielsen Holdings plc NLSN 2.65% Raytheon Company RTN 4.25% The Toro Company TTC 3.46% Consumer Staples CVS Health Corp. CVS 4.25% The Estée Lauder Companies, Inc. EL 2.90% Basic Materials International Flavors & Fragrances, Inc. IFF 2.65% Utilities WEC Energy Group, Inc. WEC 2.22%
- 47. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 48. Performance January 1, 2015 October 7, 2015 December 1, 2015 Holding Period Year-to-Date Raw Return vs. Risk Adjusted Return
- 49. 1,850 1,900 1,950 2,000 2,050 . Aug. 20 Aug. 21 Aug. 24 Aug. 25 Aug. 26 Aug. 27 (10%) Stop Out 4.68% 6.91% S&P Intraday: August 20 - 27
- 51. YTD Performance vs. S&P 500 -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% SIMF S&P 500 0.23% Year-to-Date
- 54. Portfolio Performance SIMF S&P 500 YTD Return 0.23% 2.12% Holding Period Return 5.50% 5.35% YTD α -1.62% -- Holding Period α 0.80% -- Holding Period β 0.88 1.00
- 55. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 56. Technical Analysis PlatformsTechnical Analysis • Historical Price Movements • Trends • Moving Averages • Pricing Patterns Support Resistance
- 57. Ticker: GPS Purchase Price: $28.14 (9/30/15) Sell Price: $29.04 (10/05/15) Current Price: $26.68 Holding Period Yield: 3.2% Technical Analysis GPS 1-Week Price Chart Buy Sell
- 58. Ticker: SKX Sector: Consumer Discretionary Industry: Consumer Durables & Apparel Purchase Price: $44.39 (10/5/15) Selling Price: $43.74 (10/15/15) Current Price: $31.66 Holding Period Yield: -1.46% SKX 1-Month Price Chart Technical Analysis SellBuy Overbought
- 59. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 60. Lessons Learned Follow the top-down approach. Stick to your process. It is impossible to time the market consistently. Time management is essential. There is no excuse to miss a deadline. Cut your losses.Follow your objective. Be careful with earnings plays. Assert yourself. Stay accountable. Get your own job done. There’s always a bear case. Don’t trust yourself too much. Never go over your boss’ head. Proper communication. Sleep is for the weak. Willingness to adapt.
- 61. Sector: Consumer Discretionary Industry: Apparel, Footwear & Accessories Design Purchase Price: $114.16 (9/24/15) Sell Price: $122.95 (9/25/15) Repurchase Price: $123.24 (11/16/15) Current Price: $133.31 Earnings Play Gain: 8.89% Buy Sell Nike, Inc. 8.89% NKE Intra-day Price Chart Lessons Learned: Nike’s Earnings
- 62. Lessons Learned • Have Not Missed Earnings Since Q3 2011 • Up 18.37% YTD Before Earnings Call • Strong Cash Flows • Estimated to Beat Earnings Again (and They Did) • Fundamentally and Technically Stronger Than Competitors Ticker: NXPI Sector: Information Technology Industry: Semiconductors Current Price: $94.09 Purchase Price (10/28): $90.39 Sell Price: $75.01 Holding Period Return: -17.02% NXP Semiconductors: October 26 - 30 65 70 75 80 85 90 95 100 10/27/15 10/28/15 10/29/15 10/30/15 Trailing P/E 25.27 Forward P/E 14.43 EPS 3.10 PEG 0.63 Buy Sell
- 63. Lessons Learned: Comfort Systems Ticker: FIX Sector: Industrials Industry: Heating & Ventilation Desired Purchase Date: 10/7/15 • Timing is Everything • Always Have Other Options Buy Sell FIX 6-Month Price Chart Desired Buy-In Period
- 64. Industry vs. Classroom • Workplace Demands • Deadlines • Teamwork • Interpersonal Skills • CAFE is Not a Class, It is a Job • Managing Real Money Brings Responsibility CAFE Program
- 65. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 66. Bearish Market Bullish Market • Pricing Pressure From a Bubble • Terrorism and Oil Supply Shock • Continued Trend • Interest Rate Hike Indicating Strong Economy Difficult to Predict Forecasted Performance
- 67. Current Holdings Sector Company Name Ticker Weight Healthcare Cardinal Health, Inc. CAH 4.23% Quest Diagnostics, Inc. DGX 4.22% Teva Pharmaceutical Industries Ltd. TEVA 4.78% Industrials Nielsen Holdings plc NLSN 2.65% Raytheon Company RTN 4.25% The Toro Company TTC 3.46% Consumer Staples CVS Health Corp. CVS 4.25% The Estée Lauder Companies, Inc. EL 2.90% Energy BP plc BP 2.20% HollyFrontier Corp. HFC 2.29% Telecommunications j2 Global, Inc. JCOM 3.01% Basic Materials International Flavors & Fragrances, Inc. IFF 2.65% Utilities WEC Energy Group, Inc. WEC 2.22%
- 68. Current Holdings Sector Company Name Ticker Weight Information Technology Apple, Inc. AAPL 5.46% Check Point Software Technologies Ltd. CHKP 4.57% Cognizant Technology Solutions Corp. CTSH 4.66% Harris Corp. HRS 3.22% Jabil Circuit, Inc. JBL 4.33% Financials Equifax, Inc. EFX 4.08% Berkshire Hathaway, Inc. BRK.B 3.95% Intercontinental Exchange, Inc. ICE 4.05% Verisk Analytics, Inc. VRSK 4.73% Visa, Inc. V 3.14% Consumer Discretionary The Walt Disney Company DIS 4.18% Home Depot, Inc. HD 3.20% Nike, Inc. NKE 3.73% Starbucks Corp. SBUX 3.43%
- 69. Summary I. Introduction II. Economic Analysis III. Sector & Industry Analysis IV. Fundamental Analysis V. Behavioral Analysis VI. Modeling VII. Portfolio Construction VIII. Performance IX. Technical Analysis X. Lessons Learned XI. Forecasted Performance XII. Conclusion
- 70. Special Thanks • Members of the Center for Advanced Financial Education would like to extend their sincerest gratitude to Hans L. Christensen and MJX Asset Management for sponsoring their 2016 trip to the United Kingdom and Scotland. • While in London, SFMs will attend seminars at the Baltic Exchange, Lloyds of London, London Metals Exchange, and the Bank of London. • While in Scotland, the SFMs will have the opportunity to present their portfolio methodology to faculty and graduate finance students at the University of Edinburgh.
- 71. Thank You!
Editor's Notes
- Economic Analysis Bold sector…..
- *New colors *Add graphic highlighting Discretionary – for Disney
- ***UPDATE Add… G*
- Two pie graphs… before/after with sectors--because of our new reallocation/diversification, less risk
- Weights, performance YTD, color coded
- Were going to discuss performance in two frameworks. First from the standpoint of time, meaning ytd and when we constructed our new portfolio. Secondly, on both a raw and risk adjusted basis. Two things. Frame it out.
- Ytd performance is S&P ytp perf in box
- Replace PIMCO with GAMECp
- Add names and gamco
- No retail spending… or 2014-2015(DONE) New graph.. ASAP… use quodd and use Bollinger bands (DONE)
- This slide goes woosh and then these 4 bullet points come up. -Willingness to adapt. -Follow your objective. -Cut your losses. -Time management is essential.
- Dec 4th presentation– stretch graph to support buy in date
- Add all company stuff…
- Pictures of us on BB’s
- Weights, performance YTD, color coded
- Weights, performance YTD, color coded