Transcript MBA SIM Fund 2014-2015 MBA Presentation – May 1, 2015 James Lyle Aishwarya Srinivasan Nic Kostman Noel Hill Eugene Lee Jeremy Mortensen Rob Bayless Tyler Blue.

MBA SIM Fund 2014-2015
MBA Presentation – May 1, 2015
1
James Lyle
Aishwarya Srinivasan
Nic Kostman
Noel Hill
Eugene Lee
Jeremy Mortensen
Rob Bayless
Tyler Blue
2
Agenda


Dividend Premium Strategy Review
Strategy Operations

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Performance
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
Strategy Accuracy
Returns
Attributions
REITs
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
3
Operational Challenges
Strategy Review
Performance
Dividend Premium
Strategy
SIM Fund Objectives



5
Apply range of course principles to fund
management
Utilize resources to maximize learning
 Manage scope
Portfolio Model
 85% - Quantitative Strategy (core)
 15% - REITs (diversification)
Dividend Stock Pricing Anomaly

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Why does it exist?

Mutual fund demand to pass through dividends
(Harris, Hartzmark, and Solomon 2014)

Cash guarantee
Dividend Stock Pricing Anomaly
“…Companies have
positive abnormal returns
in months when they are
predicted to issue a
dividend.”
(Hartzmark & Solomon 2012)

Div Declared
Buy
(Div Declared -1)
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Div-Ex
Sell
(Div-Ex)
Exclusionary Rules

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
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Traded in the Russell 1000 Index
Domiciled in the US
Market Cap over $10 billion
Excluded sectors: Insurance, Banks, Utilities, REIT
Quarterly Dividends over the past year
Universe: 191 securities
 Cap holdings at a maximum of 80
Weekly trade schedule
Old
New
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Investment Universe
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Strategy Operations
Operational Challenges


Reconciliation
Sensibility Checks
Solutions
- Weekly process rotating reconciliation responsibilities.
- Differences in opinion of what is “sensible,”
- Established foundation rules such as industry momentum, insider
trading, negligent operations, but some decision making was on a
case-by-case basis.
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Cash Management
Solutions
 Overweighting
 Initial purchase
 Post–purchase overweighting prioritized based on closest forecasted
declaration date.
 Indexing
 Insufficient Cash
 Prioritized purchases based on closest forecasted ex-date
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Performance
Strategy Accuracy

19.6 days of average lead time in purchasing vs. actual
announcement date

0.4% of planned purchases missed announcement date (1 of 226)

25% of Sell transactions on Ex-date vs. post-Ex.

Average Holding Period: 34.5 Days
 Std Dev = 16 days
 Range: 7 to 99 days
 Actual vs. Hartzmark and Solomon
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Returns vs. S&P500
11/17/14 - 4/17/15
Total Return
Dividend Strategy Return
Tracking Error (Annualized)
Std. Deviation (Annualized)
Sharpe Ratio
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Portfolio
+4.02%
+4.25%
4.59%
11.13%
0.52
S&P500
+2.59%
13.37%
0.56
Dividend Yield
Dividend Yield
Return Contribution:
5.16%
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Attribution
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Strategy Tapering

Back to the Russell 3000
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Dividend run-up period eventually falls outside of our time horizon
Fiduciary Responsibility
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REITs
Strategy
REITs – Overall strategy

Approximately 15% of total portfolio
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Primary purpose (for us) was diversification

Focused on ETFs with low expense ratios, high trading volumes,
and high assets under management
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Also filtered out REIT ETFs from non-reputable companies
REITs – Holdings
Expense
Ratio
Holdings
Yield
AUM
NAV
Vol.
Inception
Date
Vanguard REIT ETF
0.12%
141
3.62%
28.03B
82.57
3.99M
9/23/2004
SPDR Dow Jones REIT
ETF
0.25%
92
3.01%
3.28B
92.63
325k
4/23/2001
Vanguard Global ex-U.S.
Real Estate Index Fund
0.24%
632
3.72%
2156.4
59.02
442k
11/1/2010
REIT
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REIT Returns
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Total Portfolio: 8.52%
Annualized: 20.73%
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Benchmarks:

Since Inception
Total Return
Annualized
REIT Portfolio
8.52%
20.73%
Russell 3000
4.03%
9.79%
S&P US REIT Index
4.83%
11.75%
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Daily Correlation of Returns
REIT Portfolio
Russell 3000
Vanguard High Yield
Dividend (VYM)
REIT Portfolio
1.000
Russell 3000
0.611
1.000
Vanguard High Yield
Dividend (VYM)
0.597
0.966
1.000
iShares Select
Dividend ETF (DVY)
0.719
0.899
0.907
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iShares Select Dividend
ETF (DVY)
1.000
SIM Fund Learning Points
1.
Implementation is easier said than done
2.
Cash management is an everyday task
3.
Effective reconciliation requires a solid process design
4.
Dividends yields have surprising magnitudes that look great at
first
25
Thank you
Questions?
Appendix
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Dividend Premium Strategy
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Distribution of projected dividend declaration dates
# of
securities
Trading week
(week 1 = 11/20/2014)
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Weighting strategy
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Weighting strategy - traps
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Anticipated attrition of Week 1 purchase over 14 weeks
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Returns vs. Russell 3000
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Returns vs. Russell 1000
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