sif newsletter - business.utulsa.edu

A Message from the SEO

Fall 2012 Class

Chris DuVall

Arthur Loyd

Cory Bloodgood

Lindsay Walton

Annette Luther

Bobbie Bearden

Nick Miranda

Chuxin, Ai

Effie Zhang

Gavin Pearson

Xiaohui Jin

Moon Eng

Beat Meier

Claire Zhang

Luyuan Fan

Zhou Hang

Jeff Jenneman

Sujun Ji

Taylor Murphy

Lifei Xue

Craig Eubank

Zach Krahulik

Faculty

Tally Ferguson

Message from the SEO 1

Portfolio, Accounting and Risk

Committee Report 2

Current Holdings 3

Transactions 4

Rebalancing Strategy 5

Winners and Losers 6

Macroeconomics 7

Guest Speakers 8

Organizational Chart 9

Contents

I would like to begin by expressing how blessed I

feel to have been chosen as the Student Executive

Officer (SEO) by my colleagues. It has been a great

honor to lead this group over the past semester, and

we have all definitely learned a tremendous amount.

The Student Investment Fund has allowed each of us

to gain a multitude of hands-on experience that I

know will be very useful in years to come.

For the last several years, the economic climate of

the United States, and the rest of the world, has been

uncertain. This year, we have faced a European debt

crisis, new federal policies, a slight slowing of the

Chinese economy, and even a Presidential election.

The Marco Committee has done an excellent job of

watching the overall state of not only the U.S. econo-

my, but the global economy, and unfortunately the

Macro Committee has not seen any indicators that

point to a strong recovery yet. However, eventually

a recovery will occur. As a result of our slightly bear-

ish attitude, we have implemented a defensive in-

vesting strategy. We have done this by increasing

positions in sectors which we view as favorable

along with decreasing holdings in sectors that were

viewed as less favorable. At this point, the SIF holds

positions in a large amount of firms which could

make it more difficult to outperform the benchmark

in the future. Of course, we continued to focus on

the fundamentals of individual firms knowing that

such a strategy should allow for significant gains in

the long term.

At the onset of the semester, we were very fortunate

to have a large cash position left to us through some

very generous donations. However, we soon came to

the realization that holding large amounts of cash

hampered the overall performance of the portfolio.

As a result, we implemented a new cash manage-

ment strategy designed at slowing taking the fund

toward being fully invested in the market, along

with having a maximum cash balance of only one

percent of the total value of the fund. Over the

course of several months, we purchased shares in

the SPY index fund as well as new and old securities,

all the while keeping our overall defensive strategy

in mind.

Given the uncertainty facing the financial sector, the

membership decided to become significantly under-

weight in this sector. However, our holdings were

split between only two financial companies, U.S.

Bancorp, and J.P. Morgan. As a result, extra new se-

curity reports in this sector have been implemented

so the SIF had the option to become more diversi-

fied within this sector. We decided to decrease the

amount of direct international exposure by selling

holdings in the international ETFs. However, we

have kept a large amount of indirect international

exposure by maintaining positions in firms which

gain revenue worldwide.

Based on the recommendations of the Macro Com-

mittee, the Portfolio, Accounting and Risk (PAR)

Committee thought it would be prudent to look into

expanding the investment menu for future SIF clas-

ses including bonds, commodity ETFs, and options.

These new investment classifications would be used

to further the defensive strategy that we have set

forth this semester pending approval of the advisory

board, and provided that such a defensive strategy is

needed going forward.

Once again, it has been a great honor to serve as the

SEO and work alongside such a brilliant collection of

individuals this semester. This course has truly been

a fantastic learning experience, and I look forward

to watching the fund prosper into the future.

Chris DuVall

Student Executive Officer, Fall Semester 2012

SIF Newsletter

1

Asset Allocation

The goal of the Student Investment Fund is to add value to the portfolio. After thoroughly analyzing existing

and potential securities, the SIF analysts provided buy, sell, or hold recommendations for each security. Addi-

tionally, the analysts considered the current and anticipated macroeconomic environment and the impact that

it could have on each security’s performance. This allowed the SIF analysts to allocate portfolio weight to sec-

tors we feel are likely to outperform the market. Individual stock recommendations were considered along

with desired sector weights to create a portfolio that seeks to beat the market, minimize risk, and comply with

the guidelines set forth in the SIF Investment Policy Statement. The listed securities are sorted by total expo-

sure (which includes indirect S&P 500 exposure).

Performance Attribution

The table below demonstrates how the SIF portfolio has outperformed the market based on year-to-date and 3-

year annualized returns. The leftmost column shows the return on the market for the respective time period.

The second column shows how deviations from the S&P 500 sector weights have contributed to portfolio re-

turn. The next column shows the return attributable to individual stock selection (within each sector) and mar-

ket timing. The "Cash Drain" column shows how holding cash has reduced portfolio return. Finally, the last

column shows actual performance of the fund.

SIF Newsletter—Fall 2012

Performance Attribution

S&P 500 Return

Return Attributable to Sector Weighting

Return Attributable to Timing and Security Se-

lection

Cash Drain

SIF Re-turn

YTD 13.27% -0.59% 2.78% -0.46% 15.00%

3-Year Annualized 10.65% 0.45% 2.61% -0.36% 13.35%

Portfolio, Accounting and Risk Committee Report

Health care14%

Cons staples12%

Info tech20%

Cons disc12%

Industrials10%

Materials3%

Financials11%

Telecomm3%

Utilities4%

Energy11%

SIF Portfolio Sector Weighting

Sector weighting was carefully considered this semester. The SIF follows the GICS structure, which consists of

ten sectors. The following weightings include the indirect sector weights of the S&P 500 ETF:

2

Name Ticker Sector Shares Price Investment Nov 30 Gain/Lose

Apple Inc AAPL Info Tech 193 $99.05 $19,117.32 $585.28 $93,841.72

Agrium Inc AGU Materials 60 $100.98 $6,058.80 $102.02 $62.40

Caterpillar Inc CAT Industrials 771 $49.63 $38,261.17 $85.24 $27,458.87

Coca Cola Enterprises Inc CCE Cons. Staples 615 $30.99 $19,057.85 $31.18 $117.85

Canadian National Railway Comp. CNI Industrials 1,181 $62.84 $74,209.33 $89.83 $31,879.90

Cleco Corp CNL Utilities 1,267 $40.05 $50,743.35 $40.29 $304.08

Cognizant Tech Solutions CTSH Info Tech 650 $51.34 $33,370.55 $67.23 $10,328.95

Diageo ADR DEO Cons. Staples 630 $69.68 $43,899.80 $119.57 $31,429.30

EOG Resources EOG Energy 300 $117.60 $35,279.49 $117.62 $6.51

Freeport-McMoran FCX Materials 165 $38.40 $6,336.00 $39.01 $100.65

FactSet ResearchSystems FDS Info Tech 734 $66.36 $48,709.66 $92.39 $19,104.60

Gilead Sciences GILD Health Care 1,393 $33.66 $46,890.77 $75.00 $57,584.23

General Mills GIS Cons. Staples 2,127 $35.61 $75,740.08 $40.99 $11,445.65

International Flavors & Fragrances IFF Materials 764 $51.61 $39,429.86 $65.03 $10,253.06

Intuitive Surgical ISRG Health Care 196 $355.31 $69,641.24 $529.00 $34,042.76

Illinois Tool Works ITW Industrials 311 $57.45 $17,866.92 $61.57 $1,281.35

Johnson and Johnson JNJ Health Care 430 $69.63 $29,938.75 $69.73 $45.15

JPMorgan Chase & Co JPM Financials 1,428 $42.41 $60,563.06 $41.08 ($1,900.82)

Kimberly Clark Corp KMB Cons. Staples 544 $55.59 $30,241.29 $85.72 $16,390.39

Lululemon Athletica inc LULU Cons. Discret. 750 $50.51 $37,883.09 $71.78 $15,951.91

Mastercard MA Info Tech 192 $271.36 $52,100.94 $488.68 $41,725.62

McDonald's Corporation MCD Cons. Discret. 280 $91.18 $25,529.00 $87.04 ($1,157.80)

Nike NKE Cons. Discret. 531 $53.92 $28,633.21 $97.48 $23,128.67

Neustar Inc NSR Info Tech 546 $36.96 $20,181.86 $40.20 $1,767.34

Occidental Petroleum Corporation OXY Energy 618 $80.14 $49,529.43 $75.21 ($3,049.65)

Priceline.com Inc PCLN Cons. Discret. 83 $141.65 $11,756.95 $663.19 $43,287.82

QUALCOMM, Inc QCOM Info Tech 746 $64.23 $47,913.72 $63.62 ($453.20)

Spectra Energy Corp SE Energy 977 $29.67 $28,986.29 $27.95 ($1,679.14)

Schlumberger Limited. SLB Energy 499 $61.84 $30,857.60 $71.62 $4,880.78

The Southern Company SO Utilities 470 $42.71 $20,071.70 $43.55 $396.80

SPDR S&P 500 ETF SPY ETF 6,637 $117.73 $781,375.43 $142.16 $162,107.31

AT&T Inc. T Telecom 795 $29.16 $23,182.03 $34.13 $3,951.32

Tim Hortons Inc. THI Cons. Discret. 1,143 $48.16 $55,046.88 $46.32 ($2,103.12)

U.S. Bancorp USB Financials 3,050 $28.30 $86,299.81 $32.26 $12,093.19

Varian Medical Systems, Inc. VAR Health Care 517 $67.56 $34,926.64 $69.16 $829.08

Verizon Communications Inc. VZ Telecom 460 $43.78 $20,136.50 $44.12 $158.70

Exxon Mobil Corporation XOM Energy 693 $58.10 $40,263.10 $88.14 $20,817.92


Current Holdings of the SIF as of November 30, 2012

3


Transactions in the Fall Semester 2012

Date Description Symbol Quantity Price ($) Amount ($)

10/16/2012 Exxon Mobil Corporation XOM 25 91.78 -2,296.75

10/16/2012 AT&T Inc. T 42 36.7 -1,545.18

10/16/2012 Mastercard Inc MA 21 471.49 -9,903.18

10/16/2012 International Flavors & Fragrances Inc IFF 64 60.73 -3,892.48

10/16/2012 Gilead Sciences, Inc. GILD 43 68.64 -2,955.39

10/16/2012 FactSet Research Systems Inc. FDS 39 94.49 -3,688.62

10/16/2012 Cleco Corporation CNL 87 41.89 -3,652.26

10/16/2012 Canadian National Railway (USA) CNI 113 89.15 -10,084.12

10/16/2012 Varian Medical Systems, Inc. VAR 49 59.22 -2,906.08

10/16/2012 Southwestern Energy Company SWN 65 36.71 -2,392.00

10/16/2012 Schlumberger Limited. SLB 32 72.7 -2,329.28

10/16/2012 Spectra Energy Corp. SE 77 29.68 -2,292.29

10/16/2012 Occidental Petroleum Corporation OXY 27 83.68 -2,261.79

10/16/2012 Kimberly Clark Corp KMB 76 86.25 -6,561.84

10/16/2012 Intuitive Surgical, Inc. ISRG 12 496.94 -5,964.36

10/16/2012 General Mills, Inc. GIS 166 39.69 -6,603.46

pending JPMorgan Chase & Co. JPM 475

pending US Bancorp USB 950

pending Chubb CB 650

pending Costco COST 200

pending DSW, Inc. DSW 300

pending SPDR S&P 500 ETF Trust SPY 110

4


Rebalancing Strategy

Date Description Symbol Quantity Price ($) Amount ($)

10/16/2012 Exxon Mobil Corporation XOM 25 91.78 -2,296.75

10/16/2012 AT&T Inc. T 42 36.7 -1,545.18

10/16/2012 Mastercard Inc MA 21 471.49 -9,903.18

10/16/2012 International Flavors & Fragrances Inc IFF 64 60.73 -3,892.48

10/16/2012 Gilead Sciences, Inc. GILD 43 68.64 -2,955.39

10/16/2012 FactSet Research Systems Inc. FDS 39 94.49 -3,688.62

10/16/2012 Cleco Corporation CNL 87 41.89 -3,652.26

10/16/2012 Canadian National Railway (USA) CNI 113 89.15 -10,084.12

10/16/2012 Varian Medical Systems, Inc. VAR 49 59.22 -2,906.08

10/16/2012 Southwestern Energy Company SWN 65 36.71 -2,392.00

10/16/2012 Schlumberger Limited. SLB 32 72.7 -2,329.28

10/16/2012 Spectra Energy Corp. SE 77 29.68 -2,292.29

10/16/2012 Occidental Petroleum Corporation OXY 27 83.68 -2,261.79

10/16/2012 Kimberly Clark Corp KMB 76 86.25 -6,561.84

10/16/2012 Intuitive Surgical, Inc. ISRG 12 496.94 -5,964.36

10/16/2012 General Mills, Inc. GIS 166 39.69 -6,603.46

The Portfolio, Accounting, & Risk (PAR) Committee created an objective to minimize the amount of cash held by the

fund. One way to achieve this was through a portfolio re-balancing technique.

First, a theoretical mean-variance optimized portfolio was created using only the current holding of the portfolio. Con-

straints were included in the model to limit deviations from the required sector weights, limit the total amount invested

in a single security, and to limit the minimum investment in a single security. Several variables were stressed and multi-

ple hypothetical portfolios were created for comparison. The final output of this model was a set of security weights that

provided the optimal amount of expected risk and return.

The PAR Committee then used the model output along with buy/sell/hold recommendations from student analysts to

decided how to best allocate a portion of the excess cash among the existing securities. A strict reliance on the model or

analyst recommendations was not considered prudent, so the PAR Committee led the SIF class discussion with this in

mind. The ultimate result of our re-balancing efforts can be seen in the table below.

5

Company Ticker Sector SIF Shares Market Value

(As of Nov 30, 2012) % Return

Gilead Sciences Inc GILD Health Care 1,393 $ 104,475.00 83.24%

lululemon Athletica Inc LULU Cons Disc 750 $ 53,835.00 53.84%

Apple Inc AAPL Info Tech 193 $ 112,959.04 44.51%

Priceline.com Inc PCLN Cons Disc 83 $ 55,044.77 41.80%

Diageo Adr (4:1) DEO Cons Staples 630 $ 75,329.10 36.78%

Illinois Tool Works Inc ITW Industrials 311 $ 19,148.27 31.81%

MasterCard Inc MA Info Tech 192 $ 93,826.56 31.08%

International Flavors & Fragrances Inc IFF Materials 764 $ 49,682.92 24.06%

JPMorgan Chase & Co JPM Financials 698 $ 28,673.84 23.55%

U.S. Bancorp USB Financials 2,750 $ 88,715.00 19.26%

NeuStar Inc NSR Info Tech 546 $ 21,949.20 17.65%

Kimberly-Clark Corp KMB Cons Staples 544 $ 46,631.68 16.53%

Qualcomm Inc QCOM Info Tech 746 $ 47,460.52 16.31%

Canadian National Railway Co CNI Industrials 1,181 $ 106,089.23 14.35%

Intuitive Surgical Inc ISRG Health Care 196 $ 103,684.00 14.25%

SPDR S&P 500 SPY Index 6,527 $ 927,845.69 13.27%

AT&T Inc T Telecom 795 $ 27,133.35 12.86%

Southwestern Energy Co SWN Energy 1,017 $ 35,300.07 8.67%

Freeport McMoRan Copper & Gold Inc FCX Materials 660 $ 25,746.60 6.03%

Factset Research Systems Inc FDS Info Tech 734 $ 67,814.26 5.85%

PepsiCo Inc PEP Cons Staples 275 $ 19,307.75 5.82%

Cleco Corp CNL Utilities 1,647 $ 66,357.63 5.75%

Schlumberger NV SLB Energy 499 $ 35,738.38 4.85%

Cognizant Technology Solutions Corp CTSH Info Tech 650 $ 43,699.50 4.54%

Exxon Mobil Corp XOM Energy 693 $ 61,081.02 3.99%

Varian Medical Systems Inc VAR Health Care 517 $ 35,755.72 3.02%

General Mills Inc GIS Cons Staples 2,127 $ 87,185.73 1.44%

Nike Inc NKE Cons Disc 531 $ 51,761.88 1.15%

Tim Hortons Inc THI Cons Disc 1,143 $ 52,943.76 -4.34%

Caterpillar Inc CAT Industrials 771 $ 65,720.04 -5.92%

Annaly Capital Management Inc NLY Financials 3,839 $ 56,510.08 -7.77%

Spectra Energy Corp SE Energy 977 $ 27,307.15 -9.11%

McDonald's Corp MCD Cons Disc 280 $ 24,371.20 -13.25%

Occidental Petroleum Corp OXY Energy 618 $ 46,479.78 -19.73%

Cash Cash n/a $ 86,889.75

$ 2,852,453.47 14.30%


Winners and Losers in the SIF Portfolio as of November 30, 2012

6

The Fall Semester 2012 proved to be another challenging environment for the student investment fund. Uncer-

tainty about the economic development in the USA, in China and in Europe lead to interesting discussions dur-

ing the semester.

The United State saw slightly decreasing unemployment rates and growth in GDP. Consumer and producer

price indices did not change by much. Interest rates remain on a very low level and are likely to continue to do

so.

The SIF decided to leave the financial sector underweight because of the uncertainties in the market. The in-

dustry faces the introduction of new regulations. The main concerns are the Dodd-Frank-Act, the Volcker Rule

and Basel III. These could affect securities in this sector quite severely.

The elections were observed closely in the class. We concentrated discussions on individual pieces of legisla-

tion and thought about the effect they could have on certain sectors or individual securities held by the SIF.

Although the outlook on Europe is not too good, we left our direct exposure unchanged. It is very small with

only one ADR held (Diageo plc., DEO). Furthermore, the company is in the consumer staples sector and has a

very large international exposure.

The manufacturing index showed increases, whereas the non-manufacturing index lost a couple of points.

Compared to the S&P500, the industrial sector underperformed over the last 6 months.

The Consumer discretionary sector outperformed the S&P500. This was supported by rising consumer confi-

dence and a higher consumer spending over the last months. From our holdings in the consumer staples sec-

tor, Diageo (DEO) performed quite well considering it being a staple.

In the energy sector, we observed a strong increase in natural gas supply. All our holdings in the sector outper-

formed the S&P500.

We foresee a positive outlook in the telecom sector. Traffic of mobile data has exploded over the last couple of

years and the introduction of LTE will shape the further development of the mobile network providers and the

equipment manufacturers in the next months and years. This is not only true for the USA, but also for Europe

and as well for developing countries.

As pointed out before, the economic environment was challenging during the past months and is likely to con-

tinue in a similar way. Furthermore, the re-election of Barack Obama as the President of the United States had

an influence on the stock market. It will be interesting to further follow the market and to observe whether the

decisions made upon our analysis will benefit the SIF portfolio.

Macroeconomic Environment


7

Chris Shannon, Wealth Management Advisor at Merrill Lynch, was our first guest speaker

for the Fall 2012 semester. Mr. Shannon spoke to the class about his personal career path,

leading into a discussion about knowing when to buy or sell a particular holding. Mr.

Shannon provided insightful information from his experience at Merrill Lynch to support

his lecture. Following the lecture, an exciting and engaging question and answer session

was held regarding both personal student holdings and SIF holdings.

David Dunham, VP Trading and Corporate Planning at Unit

Corp, was our second guest speaker for the Fall 2012 semes-

ter. Mr. Dunham first spoke to us about his background, in-

cluding his education and career progression. This led into an

interesting discussion of his trading disciplines, including tech-

nical analysis, limiting losses, adjusting positions, etc. Mr. Dun-

ham also spoke on some derivative tools for risk management

such as puts, calls, delta hedging, etc. Finally, Mr. Dunham con-

cluded with insightful information and expectations for the SIF

class.

Steve Wyett, SVP at Bank of Oklahoma,

was our third and last guest speaker

this semester. Mr. Wyett spoke in an

inspiring way about how macroeco-

nomic events can overwhelm the best

fundamental analysis and about the in-

fluences that the macroeconomic envi-

ronment can have on a company.

We were proud to welcome Hans

Helmerich, CEO and President of Helmerich

& Payne, at our new securities presentation

about his company.

The Student Invest-

ment Fund would

like to thank its

guest speakers this

semester for the

outstanding insights

they gave in their

talks.


Guest Speakers

8

The Fall 2012 Student Investment Fund would like to give special thanks to all of our supporters and contribu-

tors who make the Fund possible.

Newsletter pub-

lished by the Fall

2012 SIF class

Content Revision and Layout:

Beat Meier

Contact

Information

If you have questions or

are interested in learning

more about the SIF, please

contact

Tally Ferguson:

[email protected]


SIF Organizational Structure

Student Executive Of-

ficer (SEO)

Chris DuVall

Faculty Advisor

Tally Ferguson

Secretary

Claire Zhang

Portfolio, Accounting,

and Risk Committee

Macroeconomic Com-

mittee

Operations / MIS Com-

mittee Chair

Membership / PR Com-

mittee Chair

Portfolio, Accounting,

and Risk

Macroeconomic Com-

mittee Operations / MIS

Cory Bloodgood Arthur Loyd Annette Luther

Bobby Bearden

Lindsay Walton

Beat Meier

Membership / PR

Annette Luther

Bobbie Bearden

Chris DuVall

Claire Zhang

Craig Eubank

Jeff Jenneman

Lifei Xue

Luyuan Fan

Moon Eng

Sujun Ji

Taylor Murphy

Zach Krahulik

Zhou Hang

Beat Meier

Chuxin, Ai

Effie Zhang

Gavin Pearson

Lindsay Walton

Nick Miranda

Xiaohui Jin

Nick Miranda

Chuxin, Ai

Gavin Pearson

Luyuan Fan

Jeff Jenneman

Taylor Murphy

Lifei Xue

Craig Eubank

Zach Krahulik

Claire Zhang

Moon Eng

Sujun Ji

Zhou Hang

9

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