Student Managed Fund - 2009 1

November 16, 2009

Investment Group

1. Economic Overview

2. Investment Objective

3. Investment Process

4. Investment Performance

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GDP, Employment & Leading Indicators

Consumption and Housing

Q3 GDP came in at 3.5% beating estimates. It received a temporary boost from Cash for Clunkers program where 1.66% of the growth came from Motor Vehicles.

The index of leading economic indicators rose 1% in September. It has risen 5.7% over past 6 months, fastest since 1983.

The national unemployment rate rose to 10.2%. Broader unemployment reached 17.5%.

According to the Case Shiller Index, housing prices have surged up by about 5% based on the 20 City Composite average.

Retail sales fell 1.5% last month after increasing 2.7% in August. Ignoring Cash for Clunkers data for August, retail sales have shown strength with the exception of autos.

Deflation Watch: Wages Show Biggest Drop Since 1950's. Producer Price Index drops.

61% of US workers live paycheck to paycheck to make ends meet. That is up from 49% in 2008. Consumer credit is still in freefall. Consumer confidence has also been falling.

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Educational Environment: We foster an environment of education and empowerment that attracts and motivates dedicated students.

Talented Teams: Our team leaders are among the most highly knowledgeable and professional students on campus.

Focused Strategy: Our multi-sector strategy allows small teams to focus and better understand the companies in a specific sector.

Our Edge

Our Philosophy

All members of the group add value to our team. Small, focused teams conduct research efficiently. Specialization in a particular industry eliminates any distractions from other

sectors of the market.

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The UMB Investment Group is a student run asset management team at the University of Massachusetts Boston. Our primary objective is to further educate students on financial markets by providing them with an opportunity to apply practical knowledge in making real world investment decisions. Our secondary objective is to compete with other University of Massachusetts campuses in creating the highest possible return for our client.

Our Objective

Our Structure Our investment universe is limited to long positions in domestic equities and

U.S. Treasury bonds. We use a top-down investing strategy to allocate funds according to the most profitable sectors of the market. The group is divided into small research teams specializing in specific sectors. We also have one member economist, who reports to the entire group weekly. Potential investment opportunities are presented to the entire group on a weekly basis. Investment decisions are made at the group level and are approved by a faculty advisor.

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Top-Down Analysis

Understand principle drivers

of relative performance

between sectors

Apply quantitative research to

identify market opportunities

Identify Opportunity

Allocate Risk Capital

Manage and Rebalance

Incorporate fundamental analysis to determine

asset allocation

Initiate positions,

monitor, and await signals to

reverse

SMF uses a four step investment process to identify and exploit market dislocations.

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Top-Down Analysis

Understand principle drivers

of relative performance

between sectors

Apply quantitative research to

identify market opportunities

Identify Opportunity

Allocate Risk Capital

Manage and Rebalance

Incorporate fundamental analysis to determine

asset allocation

Initiate positions,

monitor, and await signals to

reverse

Step one is a top-down analysis of macroeconomic and microeconomic conditions affecting the domestic equity market. We consider a vast array of inputs, including GDP growth, currency valuations, inflation measures, dividend yields, credit availability, unemployment rates and volatility trends. Our goal is to isolate the drivers of relative performance between market sectors.

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Top-Down Analysis

Understand principle drivers

of relative performance

between sectors

Apply quantitative research to

identify market opportunities

Identify Opportunity

Allocate Risk Capital

Manage and Rebalance

Incorporate fundamental analysis to determine

asset allocation

Initiate positions,

monitor, and await signals to

reverse

Step two synthesizes economic data into a measure of equilibrium. We define equilibrium and seek out pockets of disequilibrium between sectors. Our analysis looks at relative value from various angles. We consider valuation, performance, regulatory environment and trends in establishing our equilibrium.

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Top-Down Analysis

Understand principle drivers

of relative performance

between sectors

Apply quantitative research to

identify market opportunities

Identify Opportunity

Allocate Risk Capital

Manage and Rebalance

Incorporate fundamental analysis to determine

asset allocation

Initiate positions,

monitor, and await signals to

reverse

Step three determines portfolio allocations. The allocations are driven by quantitative analysis and augmented with fundamental research. For example, our quantitative analysis determines the sector, while the fundamental research assists with targeting the industry. Additionally, the fundamental research may determine equity style allocation.

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Top-Down Analysis

Understand principle drivers

of relative performance

between sectors

Apply quantitative research to

identify market opportunities

Identify Opportunity

Allocate Risk Capital

Manage and Rebalance

Incorporate fundamental analysis to determine

asset allocation

Initiate positions,

monitor, and await signals to

re-allocate

Step four involves selecting investment vehicles, such as bonds, equities, and exchange-traded funds. This step also includes continually monitoring risk, rebalancing positions when necessary, and observing signals to re-allocate capital. A defining feature of SMF is its ability to shift allocation to the best performing sectors of the domestic economy.

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    1 Month 3 Month 6 Month 1 Year 2 Years

SMF Returns          

    1.37% 1.372% 3.17% -6.12% -12.40%

             

S&P 500 Returns 1.98% 7.80% 15.20% 20.20% -25.99%

             

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