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Undergraduate Student Investment Management Fund
Semi-Annual PresentationFriday, May 1, 2015
1
Meet The Fund:Student Investment Management Fund
IntroductionResearch Implementation
PerformanceDividend Month Premium
Performance
Momentum
Andrew Farber Rob McCoach Sam Wilson Andy Paulus Kean Thomas Carter Wendt Karina Rodriguez
Rachel Bradley Loris Llazani Kyle Anderson Ivan Tang Ryan Pitt Julian Aziz Ryan Berns
Iskandar Pashayev Alex Green
Stephen Bergauer
2
SIM Fund Goals
• Learn • Practical experience• Fiduciary responsibility• Quantitative portfolio based on academic research• Refine strategy throughout semester• Process improvements
IntroductionResearch Implementation
PerformanceDividend Month Premium
Performance
Momentum
3
IntroductionResearch Implementation
PerformanceDividend Month Premium
Performance
Momentum
AllocationDividend Premium Strategy (60%)
Weighting Justification:•Lower volatility compared to Momentum
US Momentum / Int’l Momentum (40%)Weighting Justification:•Aggregate portfolio weight of 40% allows for a 50/50 split between Int’l Momentum and US Momentum securities•Charter constraint: 25% Int’l exposure•Int’l exposure with ADRs•Expected upward drift in Momentum weights due to higher expected returns
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Dividend Month Premium
Implementation
PerformanceImprovements
MomentumIntroduction
Research
Dividend Month Premium
5
Dividend Month Premium – Theory/Overview
• Key finding: Abnormal returns exist in all three periods (A/D, Interim, X/D)• Cash demand creates upward pricing pressure• Arbitrageurs unable to offset increased demand
• Hartzmark & Solomon Dividend Timeline (2012)
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
6
Portfolio Schedule
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
7
Security Universe
• Security Type: Common Stock
• Minimum Market Cap: > $1.2 Billion
• 30 Day Avg. Volume: > 8,000
• Country of Incorporation: US
• Price: > $5.00
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
8
Spring Improvements
• Automated security selection process utilizing Python• Dividend announcement date forecasts for duration of current year’s SIM Fund• Investment Policy screens• Weekly Rebalancing• Purchase filters based on negative momentum & corporate events
• Refined A/D prediction
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
9
Change in A/D Prediction
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
10
Momentum
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
11
Momentum Theory
• “Stocks that have done well in the past continue to do well in the future”
• Support for theory has been found in both academia and practice
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
12
Portfolio Universe
• Country of Domicile: US• Security Type: Common Stock • Sector: Exclude Financials• Mkt Cap: >$1.2 Billion• Price 1 Day Ago: > $10.00• 30d Avg. Volume: > 10,000• Exclude IPOs Within 3 Years
• Security Type: ADR• Sector: Exclude Financials• Mkt Cap: >$1.2 Billion• Price 1 Day Ago: > $10.00• 30d Avg. Volume: > 10,000• Exclude IPOs Within 3 years• Country: Exclude Japan
US Equity Universe Int’l ADR Universe
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
13
Security Selection
• Choose top 15 from both US and ADR universes (for a total of 30 securities) based on (t-12) to (t-1) monthly returns
• Perform analysis to ensure that:• No selected securities have major threats to share value• No more than 20% exposure to a foreign country or industry
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
14
Portfolio Timing
• Minimum holding period of one month
• Rebalance monthly to incorporate new data
• Upon rebalance, repeating winners are kept until the cumulative value of the particular security reaches 2.25% of the total portfolio
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
15
Spring Improvements• Automation: Utilized Python to
write code that automatically outputs a list of the top 15 securities in both the ADR and US stock universes
IntroductionResearch Implementation
PerformanceDividend Month Premium
Improvements
Momentum
16
Performance
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
17
Total Portfolio Returns
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
18
Since Inception (%)Total Port. Custom
ReturnTotal Return 5.08 5.76
Dividend 1.70 3.55US Mom 2.18 1.11Int'l Mom 1.20 1.10
Mean Return (ann) 19.58 22.00Mean Excess Return (ann) -1.98 na
RiskStd Dev (ann) 13.69 12.72
Since Inception (%)Russell 3000 S&P 500
ReturnTotal Return 4.86 4.05Mean Return (ann) 18.6 15.56Mean Excess Return (ann) na -2.56
RiskStd Dev (ann) 12.92 12.94
Total Portfolio Market Cap Holdings
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
19
Contribution Analysis (%)Total Port. Custom
Market CapCash 0.00 0.00Large Cap 4.57 3.65Mid Cap 2.50 1.73Small Cap -1.99 0.38
Total 5.08 5.76
Dividend Premium Returns
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
20
Since Inception (%)Dividend Russell 3000
ReturnTotal Return 2.78 4.86Mean Return (ann) 10.68 18.6Mean Excess Return (ann) -6.68 na
RiskStd Dev (ann) 11.82 12.92
Dividend Premium Market Cap Holdings
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
21
Contribution Analysis (%)Dividend Russell 3000
Market CapLarge Cap 5.81 4.32Mid Cap -1.71 0.48Small Cap -1.30 0.06
Total 2.78 4.86
Dividend Premium Sector Holdings
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
22
US Momentum Returns
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
23
US MOM AQR-S MOM AQR-L MOMReturn
Total Return 11.38 8.63 5.21Mean Return (ann) 50.32 34.55 20.08Mean Excess Return (ann) 11.73 na na
RiskStd Dev (ann) 25.94 16.84 13.70
Since Inception (%)
US Momentum Market Cap Holdings
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
24
US MOM AQR-S MOM AQR-L MOM
Market CapLarge Cap 4.71 0.17 5.04Mid Cap 13.05 6.75 0.26Small Cap -6.38 1.71 -0.09
Total 11.38 8.63 5.21
Contribution Analysis (%)
US Momentum Sector Holdings
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
25
Int’l Momentum Returns
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
26
Int'l MOM AQR Int'l MOM MSCI ex USReturn
Total Return 6.26 5.07 4.49Mean Return (ann) 25.15 18.93 16.79Mean Excess Return (ann) 5.24 na na
RiskStd Dev (ann) 17.46 10.61 10.87
Since Inception (%)
Int’l Momentum Market Cap Holdings
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
27
Int’l Momentum Country Holdings
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
28
Overall Spring Improvements
• Implemented trade checklist• Three teams of two members• Follow guidelines to look for errors• Sign off and send trades
• Knowledge transfer• Shared python code• Switched duties
• Better communication• More involvement
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
29
Recap/Takeaways
Introduction
Research Implementation
PerformanceDividend Month Premium
Improvements
Momentum
• Cash management
• Implementation of strategies
• Process improvement
• Teamwork
• Communication
• Leadership
• Thoughts about dividend premium
30
Questions?
31