LONG BEACHC A L I F O R N I A S TAT E U N I V E R S I T Y

2009 First Quarter Performance Review

Presented April 17, 2009

To:The Chartered Financial Analysts Society of Orange County Foundation

On Behalf Of:The Student Managed Investment Fund of California State University Long Beach

Presenting on behalf of The Student Managed Investment Fund:

Introductions

Wayne Brown Tien Do Gregory Strand

Presentation Outline

• Summarize 2008 Annual Report Contents• Review SMIF Intentions as Outlined in 2009 RFP• Analysis of First Quarter Market Environment• Transaction Record & Current Holdings• Portfolio Performance

– Performance vs. 100% Fixed Income Benchmark– Performance vs. IPS Benchmark

• Review of Analysis Performed in the First Quarter• SMIF Expectations for the Second and Subsequent

Quarters

2008 Asset Allocation

Fixed Income BenchmarkNBBITR - NASD Bloomberg Active Investment Grade US Corporate Bond Total Return Index

Equity BenchmarkS&P 500 Index

Fixed In-

come73%

Equity27%

CFAOCF-CSULB Portfolio

Fixed In-

come30%

Equity70%

IPS Total Return Benchmark

2008 CSULB Portfolio Performance

Portfolio Benchmark Portfolio Benchmark Portfolio BenchmarkFixed Income Equity Total Return

-45.00%

-35.00%

-25.00%

-15.00%

-5.00%

5.00%

15.00%

3.67% 0.58%

-15.05%

-36.91%

-1.33%

-25.66%

SMIF Intentions Under RFP

Maintain 0% Equity Allocation Until:

• Analysis of Macroeconomic Triggers Suggests

Improvement in Capital Market Environment

• Government Interventions are Substantially

Implemented and Market Reaction can be Better

Anticipated

• CBOE Volatility Index (VIX) 30-Day Simple Moving

Average Falls Below 30

Macroeconomic Analysis

Key Factors Considered:

• GDP – Business Cycle Bearings• Unemployment – Rampant and Distressing• Energy – Stagnant Demand• Housing Prices – Inventory & Price Momentum• Inflation – Pending Acceleration of Inflation• Consumer Confidence – Historic Lows

Government Interventions

• TARP & Eligibility• Geithner’s Focus on Banks• Bernanke & The Depression• Limping Auto Manufacturers

Our analysis continues to be heavily influenced by market perception and reaction to developments.

Volatility Index (VIX)

S&P 500 First Quarter Performance

NBBITR First Quarter Performance

Transaction Record & Current Holdings

$65,770.66 65.81%

$34,163.34 34.19%

Current Holdings Allocation

Fidelity Cash Reserves (FDRXX)

Fidelity Select Money Market (FSLXX)

Q1 Transactions Date FDRXX FSLXX FCASH WACH CD Total

Beginning Balances 1/1/2009 $ - $ 34,056.69 $ 17,609.81 $ 53,000.00 $ 104,666.50

Cd Maturity 1/16/2009 $ - $ - $ 54,317.74 $ (53,000.00) $ -

Interest 1/27/2009 $ - $ - $ 1.82 $ - $ -

Purchased FDRXX 1/27/2009 $ 71,929.37 $ - $ (71,929.37) $ - $ -

Dividend 1/30/2009 $ 10.86 $ 47.24 $ - $ - $ -

Cash Withdrawal 2/6/2009 $ (6,280.00) $ - $ - $ - $ -

Dividend 2/27/2009 $ 57.54 $ 29.88 $ - $ - $ -

Dividend 3/31/2009 $ 52.89 $ 29.53 $ - $ - $ -

Q1 Ending Balance 3/31/2009 $ 65,770.66 $ 34,163.34 $ - $ - $ 99,934.00

CSULB Performance v. Fixed Income Benchmark

First Quarter ReturnCFAOCF-CSULB Portfolio: 0.30%Fixed Income Benchmark: -2.30%

1/1/

2009

1/8/

2009

1/15

/200

9

1/22

/200

9

1/29

/200

9

2/5/

2009

2/12

/200

9

2/19

/200

9

2/26

/200

9

3/5/

2009

3/12

/200

9

3/19

/200

9

3/26

/200

9

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

CFAOCF-CSULB Portfolio Fixed Income Benchmark

CSULB Performance v. IPS Benchmark

First Quarter ReturnCFAOCF-CSULB Portfolio: 0.30%Total Return Benchmark: -8.86%

1/1/

2009

1/8/

2009

1/15

/200

9

1/22

/200

9

1/29

/200

9

2/5/

2009

2/12

/200

9

2/19

/200

9

2/26

/200

9

3/5/

2009

3/12

/200

9

3/19

/200

9

3/26

/200

9

-20%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

CFAOCF-CSULB Portfolio Total Return Benchmark

Topics covered during the First Quarter:

• Macroeconomic Market Triggers

• Yield Curve (Credit Spread) Analysis

• Fixed Income Security Analysis

• Individual Equity Security Analysis

• Equity Screening Procedures

• Equity Valuation Models and Practices

First Quarter Analytical Work

First Quarter Analytical Work

Yield Curve Analysis (Credit Spreads)

• A Wall Street Journal Survey of top economists reported that credit spreads are the primary predictor of recovery being monitored by economists.

• As such, SMIF spent significant time and effort analyzing the credit spreads for their power to predict the sustainability of equity market rallies.

• Flattening or widening credit spreads were observed during false (unsustained) equity market rallies.

• Rallies accompanied by significant narrowing of credit spreads showed much greater sustainability.

Class analysis correctly predicted the fleeting nature of the January rally, and sees the current market rally as unsustainable as well.

Several equities were analyzed in the first quarter. None were selected for inclusion in the portfolio.

Among the equities analyzed:• Apollo Group (APOL) • Cal-Maine Foods (CALM)• Johnson & Johnson (JNJ)

See attached handouts for detailed analyses of these securities.

First Quarter Analytical Work

Example: Johnson & Johnson

Fixed Income

Several Alternatives Were Considered:

Certificates of DepositMoney Market Mutual Funds

Bond Index Exchange Traded Funds

Ultimately, Money Market Mutual Funds were most attractive vehicle. Currently they provide the best

liquidity-adjusted rate of return.

First Quarter Analytical Work

• Federal Reserve Actions– Now committing an additional $750 billion to agency MBS (Total = $1.25

Trillion)– Additional $100 billion for agency debt (Total = $200 billion)– $300 billion to purchase long-term Treasuries

• Rationale– Federal Reserve actions will place an implicit ceiling on interest rates– Provide a better return than treasuries with only minimal risk

• Risk– Interest-rate risk– Liquidity risk– Political risk

• Conclusion– ETF transaction costs will offset the potential rewards– ETF has 20% exposure to long end of yield curve increasing interest rate risk

Example: iShares Barclay’s Agency Bond ETF (AGZ)

Equity Market Expectations

Observations and Expectations:

• Volatility showing signs of abatement• Current rally feels more substantive• Macroeconomic factors becoming “less bad”• However, sector performance relationships are

inconsistent with typical early bull markets• Expectations of another potential correction

prior to a sustainable rally beginning mid to late second quarter

Anticipated Future Actions

Moving Forward:

• Continue to monitor market developments– Volatility– Macroeconomic Data– Credit Spreads– Government Policy

• Search for securities with potential for inclusion in the CFAOCF Portfolio

• Perform due diligence, gaining experience and insight into professional security analysis

Presentation Summary

• 2008 Performance• RFP Investment Criteria• First Quarter Market Environment• First Quarter Performance• First Quarter Analysis• Anticipated Future Actions

Our Sincerest Appreciation

On behalf of the students of the CSULB Student Managed Investment Fund, please accept our sincere

appreciation for your valuable time and input.

Thank You!