craigmillar partners l.p. investment strategy 4 th quarter, 2003 this presentation is only to be...
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Craigmillar Partners L.P.Investment Strategy
4th Quarter, 2003
This presentation is only to be used in conjunction
with the Private Placement Memorandum
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Partnership Objectives
• Outperform the S&P 500 over business cycle
• Provide a low correlated portfolio to the S&P as a hedge against market volatility
• Responsive Reporting to Partners
• Exceed Industry Service Standards
• Reasonable Growth in Assets
Craigmillar Partners L.P.
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Investment Philosophy
• Active Asset/Geographic/Sector Allocation adds value while controlling risk
• Stock Selection based on Fundamental Analysis Identifies Strong Companies, Primarily in Small Cap. Growth
• Market Sentiment creates Buy/Sell Opportunities
Craigmillar Partners L.P.
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Craigmillar Investment Process
• Stock Ideas
• Sector Allocation Analysis
• Relative Asset Allocation Analysis
• Relative Geographic Allocation Analysis
Craigmillar Partners L.P.
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Decision-Making
• Bottom-up Stock Selection - Look For strong underlying growth potential and counter market sentiment bias
• Analysis Focuses on: Revenue/Earnings Growth, P/E, P/CF & P/B.
• Business Strategy
• Management Team
• Competition
Craigmillar Investment Process
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Decision-Making
• MARKET SENTIMENT:– money flows– institutional buying/selling– insider activity– street research
Craigmillar Investment Process
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Security SelectionAstropower Inc.*
Craigmillar Investment Process
Morningstar*Please Click View/Comments in the Toolbar
Astropower:
The stock was bought as the company entered a growth phase selling,
mostly overseas, an advanced photovoltaic
panel in 1999. The stock tripled in two
months so it was sold as news of its success was highly reported. Then the stock was bought back when it reached fundamental value and sold again after another triple in
price.
Astropower:
The stock was bought as the company entered a growth phase selling,
mostly overseas, an advanced photovoltaic
panel in 1999. The stock tripled in two
months so it was sold as news of its success was highly reported. Then the stock was bought back when it reached fundamental value and sold again after another triple in
price.
Bought 1/14/00
Sold 3/8/00 Sold 9/20/00
Bought 5/23/00 Bought
11/7/02
Sold (1/2) 5/5/03
Bought (1/2) 6/10/03
Sold 7/24/03
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Security SelectionCorning Inc.*
Craigmillar Investment Process
Morningstar*Please Click View/Comments in the Toolbar
Corning:
This company had been identified in the
early nineties as having potential in the
pollution control business and was also
under negative publicity with high profile law suits. In May 2000, the stock
reached a value level that was fundamentally unsupportable relative to treasury yields and was sold. The stock was recently bought
back as its stock fundamentals
improved significantly and during a time of
external strain on the overall market.
Corning:
This company had been identified in the
early nineties as having potential in the
pollution control business and was also
under negative publicity with high profile law suits. In May 2000, the stock
reached a value level that was fundamentally unsupportable relative to treasury yields and was sold. The stock was recently bought
back as its stock fundamentals
improved significantly and during a time of
external strain on the overall market.
Bought 7/27/95
Sold 5/23/00Sold 20% 7/08/03
Doubled position 12/04/02
Bought 11/12/01
Security SelectionLynx Therapeutics
Craigmillar Investment Process
Bought 4/02
Bought 9/02 Bought 4/03
Sold (1/2/) 9/03
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Decision-Making
Research Sectors: Review of current economics and business cycles
Determine Sector Targets: Portfolio biased to most promising sectors and industries
Review: Ongoing review ensures portfolio is dynamic
Craigmillar Investment Process
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Sector Allocation
Craigmillar (Equity only) S&P 500
Financial
Healthcare
Industrial
Consumer Goods
Hardware
Consumer Services
Energy
Software
Telecomunication
Business Services
Media
Utilities/other
Cash
12% 13% 20%
15 16 15
15 16 11
7 7 9
11 11 10
6 6 9
6 6 6
1 1 5
3
4 44
3 4
Morningstar classification 10/08/03
Craigmillar Investment Process
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2 2 4
14 15 3
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Decision-Making• Research Geographic Value: Look at the
relative attractiveness of US equities vs. foreign markets.
Craigmillar Investment Process
1996 1997 1998 1999 2000 2001 2002 2003
CRAIGMILLAR PARTNERS L.P.
US Allocation
Non-US Allocation
Historical US vs non-US Allocation
86%75%
90%100%
0%
72%
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Country SelectionJapan ETF
Craigmillar Investment Process
Nasdaq.com*Please Click View/Comments in the Toolbar
Established position
Japan ETF:
In May, 2001 the liquidity in global
markets relative to global equity prices suggested a higher equity allocation.
Japan’s equity market was receiving negative press and was selling near all time lows for the last ten years. We have been too early in
this market but still believe in the
fundamental relative value in Japan.
Japan ETF:
In May, 2001 the liquidity in global
markets relative to global equity prices suggested a higher equity allocation.
Japan’s equity market was receiving negative press and was selling near all time lows for the last ten years. We have been too early in
this market but still believe in the
fundamental relative value in Japan.
Bought 5/15/01
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Decision-Making• Research Asset Value: We consider relative
attractiveness of current 10-year treasury yields vs. forecasted earnings growth of equities. Allocation to Treasury issues only.
Craigmillar Investment Process
1996 1997 1998 1999 2000 2001 2002 2003
CRAIGMILLAR PARTNERS L.P.
Equity Allocation
Fixed Income Allocation83%
75%
47%
100%
0%
Historical Equity VS Fixed-Income Allocation
96%
50%
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Security Selection30-Year U.S. Treasury
Craigmillar Investment Process
Economy.com*Please Click View/Comments in the Toolbar
30-Year Treasury:
In early 2000, the S&P 500 reached a
level where reasonable earnings expectations were
unfavorable compared to 30-year US
Treasury yields. 30% percent of the portfolio
was moved at that time out of equities
into 10-Year and 30-Year maturities.
Recently the 30-Year US Treasury dropped
below 5% during a time of better stock fundamentals and favourable fixed-
income sentiment so it was sold.
30-Year Treasury:
In early 2000, the S&P 500 reached a
level where reasonable earnings expectations were
unfavorable compared to 30-year US
Treasury yields. 30% percent of the portfolio
was moved at that time out of equities
into 10-Year and 30-Year maturities.
Recently the 30-Year US Treasury dropped
below 5% during a time of better stock fundamentals and favourable fixed-
income sentiment so it was sold.
Bought 30-year bond March 17, 2000
Sold 30-year bond Nov 2, 2001
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Investment Characteristics• Allocation to Fixed Income and Non-US
Stocks when attractive relative to US stocks
• Low Turnover
• Diversified Holdings Biased to Growth
• Sector /Industry Concentration
• Small Capitalization Bias
• Sharpe Ratio = 1.86 for five years
Craigmillar Portfolio
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Performance*9/30/03
-20
-10
0
10
20
30
40
50
1 YEAR 3 YEARS 5 YEARS
Craigmillar
S&P 500
(3 & 5 Years Annualized)
Craigmillar Portfolio
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Performance DisclosuresSeptember 30, 2003
Craigmillar Portfolio
* Craigmillar LLC is a limited liability company registered in the State of Delaware. The investment performance represents the performance of Craigmillar LLC, acting as General Partner to Craigmillar Partners L.P. (Fund). The investment performance is audited through December 2002. Performance prior to the Fund’s opening on January 2, 2002 represents a non fee-paying account and, including the Fund, is 100% of all assets managed with the approach outlined in the Craigmillar Partners LP Private Placement Memorandum. The monthly values, redemptions & contributions and monthly performance are audited beginning January 1997. Mah & Associates, LLP, a certified public accountant, has performed the audit for the annual periods 1997, 1998, 1999, 2000 & 2001. Year 2002 was audited by Arthur F. Bell, Jr. & Associates, LLC a certified public accountant. Annualized returns are not audited. Returns are time-weighted, total returns based on trade date accounting. Returns are net of withholding tax, custodial fees, transaction fees, management fees and reflects re-investment of dividends and interest on an accrual basis as well as realized and unrealized gains and/or losses. Returns are calculated using monthly valuations and monthly cash flows with period returns geometrically linked. Actual client account results will vary depending upon their subscription date. For 2002, the returns are net of an expense ratio of 2.42%. For prior years the expense ratio was effectively 0.05%. The performance benchmark is the Standard and Poors 500 index. This index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock's weight in the Index proportionate to its market value. The "500" is one of the most widely used benchmarks of U.S. equity performance. The index is calculated in US$s on a total return basis, which includes re-investment of gross dividends. Specific sectors may be over/under-weighted in comparison to the S&P 500 index based upon the view of Craigmillar LLC. The index does not take into account charges, fees and other expenses. The manager universe data is from a third party industry-standard published data bank covering over 1000 equity managers. Craigmillar makes no representation of the accuracy of third party information. Past investment returns are no guarantee of future investment returns or trends.
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Summary
• Let us help you achieve superior investment returns relative to the US equity market.
Bob Preston