Transforming Education into Opportunity

2013 Annual Report
Transforming
Education into
Opportunity
1
Giving students
a competitive
edge through
real investment
experience.
2
1 From the President
3 From the Portfolio Manager
4 Performance Review
6 Alpha Fund Holdings
7 Faculty Advisor
10 Objectives & Guidelines
11 Alumni Involvement
13 Economic Outlook
14 Looking Forward
15 Executive Board
From the Tufts Financial
Group President
Eight years since our founding, the Tufts Financial Group continues to focus on our three-fold mission: actively managing the Alpha
Fund, educating students about financial techniques, and building
a finance community at Tufts that encourages students to enter the
industry. This year TFG has and will continue to make great strides
in each of these categories.
First, in terms of our portfolio, we have realized steady returns
and increased the size of our portfolio to $122,000. We are currently seeking additional capital infusions so that our portfolio is on par
with investment clubs at similar schools. That being said, the Alpha
Fund has come so far since its founding and this growth is a result
of effective portfolio management as well as generous alumni.
Second, on the education front, we have adopted a more structured and comprehensive curriculum for the analysts to complement our introductory workshops. We also split the consumer
sector into consumer staples and cyclical and we also added a real
estate sector to acknowledge its importance for the alpha fund and student interest. To keep students up
to date on financial news, we now begin each meeting with a brief weekly market update.
Third, TFG has made outstanding progress this year promoting a Jumbo finance community. Many
alumni very generously donated their time to participate in the TFG Speaker Series. This fall brought four
alumni to the Hill from various areas of finance and we plan to host seven more in the spring. Countless
other alumni have supported TFG more informally by serving as mentors to our members. The impact of
both TFG and the Jumbo financial community is evident in the quality of the internships and full- time job
placements that TFG members have secured.
We recognize and appreciate the dedication that Tufts alumni have demonstrated to strengthening the
finance community at Tufts. This fall we hosted the fourth annual Finance Career Forum (formerly the
Wall Street Crash Course), a day-long symposium that featured nearly 40 alumni from all areas of the financial services industry.
TFG owes a big thank you not only to the alumni, but also to the Tufts Administration. Professor McHugh,
our faculty advisor, has provided valuable guidance to the group, encouraging us to be forward thinking
and to seek out ways to improve TFG. Chris Di Fronzo, the new Director of the Tufts Finance Initiative
and Associate Director of Tuft Career Center, is passionately dedicated to helping Tufts students progress
towards their career goals. Mr. Winey, from University Advancement, has been instrumental in helping
the group grow its network of alumni.
Sincerely,
Matthew Freedman, President
Tufts Financial Group
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From the
Portfolio Manager
Tufts Financial Group (“TFG”) and the Alpha Fund had another great year in 2013 as we were presented with numerous learning opportunities from our friend, Mr. Market. The continuation of the Federal Reserve Bank’s third round
of quantitative easing as well as the market turbulence that surrounded the anticipation of its end proved to be both
a challenging and rewarding investment environment. Towards the end of the year with the announced slowing of
tapering we also saw two unanticipated reactions: market support of this policy and the breakdown of the traditional
cyclical relationship between commodities and announced interest rates. We at TFG are always excited and interested
by the opportunity to invest in new conditions and with fresh strategic considerations.
I am happy to report that the Alpha Fund was up a record 23.0% in 2013, benefitting from a bull year for equities
through strategic investment planning on the part of all of our contributing members. For most of the year the Fund
was invested only in equities because of the underperformance of the bond market in 2013, linked to Federal Reserve
Bank policy. We moved into several high-dividend bearing positions, primarily in the Energy sector, in order to maintain to regular payments from investments. In the near future we will be looking to move into fixed income positions
as we expect that short-term interest rates will stay low and long-term interest rates will begin to rise. We had two
high-performing equity positions that recovered from investor skepticism at their Great Recession performance and
need for government bailout, American International Group (AIG) and General Motors. In addition our exposure to
the Technology, Media, and Telecommunications industry through positions in Apple, Baidu, Google, and others were
rewarding in a year of enthusiasm around consolidation and innovation in this industry.
We are grateful at TFG for the ability to learn about finance and investing from managing a real brokerage account,
an opportunity that is made possible by our generous donors and patient faculty. We continue to focus on entering
long-term investments at what we deem to be attractive prices, which is made possible by our executive board and
group members who are both passionate about investing and committed to our mission of growing the Alpha Fund,
educating students, and creating employment opportunities in industry. It is my pleasure to work with all the dedicated members of our TFG team, and I hope that we can continue to fill our mission and come back to Tufts one day
as helpful and inspiring as our current alumni are.
Sincerely,
Darcy Covert, Portfolio Manager
Tufts Financial Group
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2013 Performance Review
The Tufts Financial Group Alpha Fund was successful in
2013; we achieved continued progress towards our overarching goal of maximizing total return. Our analysts
found companies that they felt were intrinsically undervalued through research of the given sector, sub-sector,
and target company.
Financial markets had an extremely strong year in 2013
and our portfolio was well positioned to take advantage
of the strong equity bull market. The United States economy grew through all of 2013, and real Gross Domestic
Product grew by 1.9% over the year. Interest rates remained at historic lows, however the Federal Reserve did
begin to taper the Quantitative Easing program, thereby
signaling an end to the aggressive, expansionary monetary policy since the financial crisis of 2008. That being
said, the Fed upgraded its assessment of the economy
and remained committed to maintaining an extremely
accommodative monetary policy. The slight slowdown
in GDP growth over 2013 as compared to 2012 was driven
by a variety of factors including a slowdown in business
investment, a decline in federal government spending,
and a decline in consumer spending on services. Finally, job growth remained steady in the fourth quarter and
the unemployment rate decreased through most of 2013.
The year-end unemployment rate was 6.7%, another
positive sign for the United States economy.
US Equity indices rallied to end 2013 at record highs
amid optimism about the economy, the S&P 500 reached
an all-time high and closed the year at 1,848.36, up 2.4%
for the month of December and up 29.6% for the year.
Fixed income markets weakened with the yield on the
10-year US Treasury bonds rising from 2.7% to 3.0% and
the yield curve flattened slightly. On the other hand,
emerging market performance in 2013 was fairly weak.
Our analysts were concerned with the drop in growth
in the large emerging markets, most noticeably in Brazil, India and China, whose overall growth continued to
slow throughout the year. The MSCI Emerging Markets
index gained a mere 1.5% in December 2013 and was
down 4.4% for the year. However, more developed economies such as the European Union and Japan continued
to outperform.
During 2013, we continued to reevaluate our current holdings and worked to prudently construct a portfolio that was
geared to outperform throughout the year and beyond. We
liquidated a number of positions that had reached their
price targets or had undue downside risk, including JP
Morgan Chase & Co. and YUM! Brands Inc. In terms of
sector performance for this year, consumer discretionary
gained the most, 43% in 2013, followed by health care; with
telecommunications and utilities performing most poorly.
The NASDAQ posted a yearly advance of 38.2%, its best
year since 2009. As equities continued to outperform, investors poured billions into stock-based mutual funds and
exchange-traded funds. In 2013, a total of $348.63 billion
flowed into these funds, the largest ever annual inflow on
record. With a well-diversified portfolio, the Alpha Fund
was able to take advantage of the high-performing sectors,
especially consumer cyclicals, with holdings in Starbucks
Co. and Barnes and Noble, Inc.
As is evident in the following pages, 2013 was most
definitely a successful year for the Alpha Fund. A number of large successes have been added to the portfolio
over the last few semesters including AIG and BIDU.
Although there is some uncertainty surrounding the
economic outlook for 2014, we feel confident that we
will adapt to market volatility and continue to perform well.
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2013 Performance vs.
Benchmark and S&P 500
Full Year 2013
Alpha Fund
Blended Benchmark*
S&P 500 Total Return**
23.0%
26.7%
32.4%
35%
30%
Alpha Fund
2013 YTD Return
25%
Blended Benchmark*
2013 YTD Return
20%
15%
S&P 500
Total Return**
2013 YTD Return
10%
5%
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2013 Year to Date Returns
January
February
March
April
May
June
July
August
September
October
November
December
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Alpha
Fund
Blended
Benchmark*
S&P 500
Total Return**
3.2%
4.0%
5.8%
8.4%
10.8%
6.1%
11.3%
9.1%
13.2%
18.3%
22.6%
23.0%
4.3%
5.6%
9.0%
10.9%
12.8%
11.3%
16.1%
13.2%
16.3%
21.0%
24.1%
26.7%
5.2%
6.6%
10.6%
12.7%
15.4%
13.8%
19.6%
16.2%
19.8%
25.3%
29.1%
32.4%
* Blended Benchmark is comprised of 85% performance of the S&P 500 and 15% performance of the Barclays Global Aggregate Bond Index
** S&P 500 Total Return accounts for dividend distributions during period.
Alpha Fund Holdings
(as of December 31, 2013)
Equity Sleeve
Ticker
Ticker
Industrials
Canadian National Railway (USA)
Pall Corporation
Toll Brothers Inc.
Consumer Cyclicals
CNI
PLL
TOL
DIS
SBUX
BKS
Energy
Halliburton Co.
Kinder Morgan Management
Exxon Mobil Corp.
National Oilwell Varco Inc.
HAL
KMR
XOM
NOV
AAPL
BIDU
GOOG
VOD
IBM
DIS
KO
GM
Coca Cola Co.
General Motors Co.
Basic Materials
CF
SYT
BHP
CF Industries Holdings, Inc.
Syngenta AG. (ADR)
BHP Billiton Limited (ADR)
Financials
AIG
BX
MTB
Broad Market
iShares S&P 500 Index (ETF)
Walt Disney Co.
Starbucks Co.
Barnes & Noble Inc.
Consumer Staples
Technology, Media &
Telecommunications
Apple Inc.
Baidu Inc. (ADR)
Google Inc.
Vodafone Group Plc. (ADR)
International Business Machines Corp.
The Walt Disney Company
Equity Sleeve
American International Group
Blackstone Group L.P.
M&T Bank Corp.
Real Estate
IVV
AMT
American Tower Corporation
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From the Faculty Advisor
Christopher McHugh
2013 was another successful and growing year for the Tufts Financial Group and the Alpha Fund.
The Fund ended the year with just over $114,000 in assets. Performance for the year, at about
23%, was a cut below that of the S&P 500, at over 32%, but when I review the Fund portfolio each
month, I always feel comfortable with the holdings, the number of holdings, the diversification
and the level of cash. This year the Fund saw losses in a few of its positions where the Group’s
value thesis did not play out, but overall its investments saw healthy appreciation.
Each year I report on changes and refinements in both the operations and the investing philosophy
of the Alpha Fund. Of course, since the Fund has been managed so well year after year, no major
aspect of managing money has been left unattended. I am happy to report a year of continuation
of best practices and steady improvement. One item, the monthly flash report, has been spiffed
up and now is a detailed, but succinct, full-page summary of Fund activities, resembling what a
small hedge fund or family office might publish.
Fund principals have also been re-assessing the role of fixed income in the Fund and how to handle
the very timely issue of what to do when interest rates go up. Fund analysts are closely watching
the interest rate environment and they are also very savvy to consider multiple possible scenarios,
demonstrating that they are well-versed in monetary policy and macroeconomics. Members continue
to use a discerning eye when considering investment opportunities and do not conclude that a lowerthan-historical price means that an asset will necessarily appreciate in price.
The graduating Fund students obtained jobs at all of the usual big names in finance and investing,
including Blackrock, Fidelity and Wellington. In addition, one of the Fund leaders went to work
at the Boston office of the U.S. Federal Reserve and another went to Deloitte. Juniors in TFG this
year will have summer internships at Credit Suisse, Goldman Sachs, J.P Morgan and Morgan
Stanley in the Hong Kong and New York offices. The Group continues to do an efficient job of
moving underclassmen to relatively senior roles to assure depth of the team. Another achievement
of the Fund and the Group is that neither has become top-heavy with titles and senior roles – they
have always had a realistic proportion of Executive Board members to analysts. I look forward to
seeing how the many challenges of 2014 are handled.
Sincerely,
Christopher McHugh, Faculty Advisor
Tufts Financial Group
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9
Fund Objectives
and Guidelines
FUND STRATEGY
The Alpha Fund seeks to invest in companies that have proven management teams, strong
competitive advantages, healthy balance sheets, and reliable business models. The Fund invests
in companies based both in the United States and abroad (through ADR shares) and is not
limited by any geographical allocation requirements. TFG Alpha Fund plans to maximize return
within reasonable and prudent levels of risk. Investment of Fund assets shall be diversified as
to minimize the risk of significant losses. Analysts, split among seven sector groups, perform
rigorous fundamental analyses on the company, examine its viability under the current sector, and
economic environment and then pitch the investment to the Group at a Tuesday night meeting.
Group members then vote on the pitch. Pitches that receive a majority of “buy” votes may be
added to the fund. All holdings are bought with a long term investment horizon but can be sold
more quickly if, in the view of the Portfolio Manager, the investment thesis is no longer valid or
the long term fundamentals of the company become less compelling.
FUND OBJECTIVE
The investment objective of the Fund is to maximize total return by investing in a diversified
portfolio of equity and fixed-income securities. The explicit investment objective of the Alpha
Fund is to consistently outperform its blended benchmark as measured at the end of each fiscal
quarter. The Fund aims to achieve this objective under the supervision of our advisors and the
executive board, who will ensure compliance with our risk and investment philosophy. It will
provide a challenging and highly relevant educational experience for students who participate in
managing the Alpha Fund Portfolio.
PERMITTED SECURITIES
The Alpha Fund is permitted to purchase US stocks, American Depository Receipts, bonds,
mutual fund shares, and shares of Exchange Traded Funds.
TARGET ALLOCATION OF ASSETS
80% Equities
15% Fixed Income
5% Cash
BLENDED BENCHMARK
In light of the aforementioned target allocation, the performance of the Alpha fund will be
measured against the following “Blended Benchmark”
85%: Performance of the S&P 500
15%: Performance of the Barclays Global Aggregate Bond Index
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Speaker Series
Jay Joshi (10/8/2013)
3K Limited Partnership
A recent Tufts alumnus and past
Portfolio Manager and President
of TFG, Mr. Joshi spoke to group
members about finance careers as
well as the fundamentals of value
investing.
Career Guidance
from Alumni
One of the main objectives of the Tufts Financial Group is to help students
interested in Finance break into the industry. We are grateful to the TFN
alumni who have gone out of their way to help Tufts students join their
ranks.
2013 Summer Networking Lunches: TFN alumni hosted two informal
summer lunches and a breakfast with students. The lunches were held
in Boston and NYC. They were perfect opportunities for more seasoned
Jumbos to share candid advice with current students. Alumni participants:
Laleh Bashirrad (J94), Jason Bonanca (A94), Lex Leeming (A96), Lawrence
Kwon (A99), Kevin Magid (A85), Lindsey Tannenbaum (A08), David Chang
(A01), Abigail Ingalls (A09), Bryan Krause (A97), Doris Lo (A11), Matthew
Sabel (A97), Adam Winn (A06).
Finance Career Forum: Over 35 alumni from all areas of finance attended
the day-long event with 150 students.
We look forward to welcoming Michael Lutz (PricewaterhouseCoopers), Scott Urdang (Urdang Capital Management), Dave Fielding (Steward Health Care), John Collins (Aspiriant Wealth Management), Michael
Haynes (Beach Point Capital) and Mohit Assomull (Morgan Stanley) to
speak to TFG later in the spring semester.
Trips:
In March, 25 TFG members will visit Fidelity Investments in Boston, MA to
listen to a portfolio manager/analyst panel and receive tours of the trading
floor and chart room.
In February, the Executive Board will attend a PE Conference and MBA
workshop at Tuck School of Business at Dartmouth.
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David Leach (10/14/2013)
Goldman Sachs
Mr. Leach advised TFG members
and especially rising seniors on applications and interviewing during
their internship search process.
Michael Chang (10/29/13)
Angelo Gordon
Mr. Chang spoke about his experience in real estate investing and
some of the market trends within
this asset class.
Adam Winn (11/12/13)
Goldman Sachs
Mr. Winn discussed opportunities
in sales and trading as well as his
own career path since graduating
from Tufts University.
Bruce Steinberg (1/22/14)
Bridgewater Associates
Mr. Steinberg visited campus as a
formal beginning to Bridgewater
Associates’ recruitment of Tufts
students and spoke about which
global macroeconomic trends are
currently shaping investment opportunities.
Scott Urdang (2/20/14)
Urdang Capital Management
Mr. Urdang discussed his experience moving from the academic to
the professional world, building his
business, and his eventual decision
to sell CenterSquare Investment
Management to BNY Mellon.
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Economic
Outlook
Looking forward to 2014 we are expecting a solid
year for the equity markets and the beginning of
a recovery in fixed income markets. After a bull
market in 2013 where the S&P 500 (TR) had a
32.4% return with reinvested dividends, our outlook is that 2014 will be volatile but also provide
steady growth. While the market experienced
strong 2013 returns, we anticipate a 5-7% market
correction in early 2014 as investors question increasing, but still relatively low compared with
2008, stock valuations. Other sources of expected
volatility are concerns about the Federal Reserve
Bank’s quantitative easing and tapering policies,
speculation around and reaction to data from
emerging market economies, and questions surrounding a European economic recovery.
Fixed income markets suffered in 2013 with the
Federal Reserve Bank’s continued $85 billion
per month treasury buying activities, but the announcement of tapering, while conditional on
positive US economic data, suggests a light at the
end of that tunnel. Former Chairman Ben Bernanke and newly elected Chairwoman Janet Yellen
have committed to keep short-term interest rates
low, but long-term interest rates are already beginning to rise. Further, investors are seeing European debt as increasingly attractive, and so we may
see opportunities in foreign debt markets.
For this coming year we are excited about the
healthcare space, an industry we believe will see
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increased merger activity and medical advancements. We will also be looking for positions in
upstream and midstream oil and gas companies, as these are less vulnerable to changes in
commodity prices than downstream firms but
benefit from increased exploration and drilling,
which we anticipate will arise from technological bounds and increased global demand. Additionally we are expecting further progress in the
housing recovery and the return of consumer
spending with more confidence in government
and Federal Reserve policies, leading us to look
for investments in the consumer discretionary
sector. We are looking to government regulations such as the Volcker Rule to create opportunities in financials, both at the regional and
national levels. Globally we expect that rising
interest rates in the US and in other developed
countries will increasingly result in the outflow
of capital from emerging market economies.
Overall, we are positioning the portfolio to benefit from these growth trends but remain committed to our thinking as a primarily value-driven fund. We seek mainly to find companies that
we believe are undervalued as well as quality
long-term investments because of their products,
business philosophy, management team, and an
economic moat. We do our best to seek a margin
of safety in the companies we research. Market
volatility and investor skepticism can be opportunities for investment for the Alpha Fund.
Going
Forward
ALUMNI ADVISORS
As the group has grown over the last several years,
so has the alumni base. Members of the executive board keep in touch with several past TFG
Presidents and Alpha Fund Portfolio Managers.
We plan to continue these connections and hope
to grow the network of alumni who we may look
to help analysts informally learn about markets
and industries, provide feedback on stock pitches, discuss research methods, and offer career
advice on a semi-regular basis. We welcome any
alumna or alumnus interested in being an advisor
or mentor to reach out to us.
RESEARCH
The Tufts Financial Group has limited access
to professional research materials. While members have the ability to conduct research on the
Bloomberg Terminal in Ginn Library, it would
benefit our members tremendously to have access to professional research reports. Not only
would high quality research allow us to better
manage our portfolio but it would also provide a
stronger means of education for students interested in careers in finance.
GUEST SPEAKERS
The Tufts Financial Group is very grateful to
the alumni who have come to speak. All of our
speakers this year have given excellent presentations and great career advice. Next year, we look
to continue a robust Speaker Series and welcome
interested alumni to approach us.
“We are grateful
at TFG for the
ability to learn
about finance
and investing
from managing
a real brokerage
account (…)”
Darcy Covert,
Portfolio Manager
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Executive
Board
The executive board is responsible for the day-to-day operations of the group and the development of new initiatives. This year’s executive board was very passionate about the group and regularly met with students outside of meetings to offer valuation workshops, career workshops (IBD, S&T, AM), resumes critiques, and mock
interviews.
MATTHEW FREEDMAN, PRESIDENT
WYLAN SIMPSON, VICE PRESIDENT
Matt Freedman is currently a senior at Tufts University majoring in Economics. Matt has been a member
of TFG since he was a sophomore and is the president of the group. This past summer he interned in
at Credit Suisse in the Equity Research group, and he
will be returning full time upon graduation. He is a
member of Zeta Psi and ran the Boston Marathon in
the spring.
Wylan is a junior from Arcata, CA studying Quantitative Economics and minoring in Computer Science. At Tufts, Wylan is on the men’s rugby team and
spent two years running sprints for track & field. He
interned last summer with Fidelity Investments in
equity research. This summer he will join the investment banking department at Oppenheimer &
Co. Inc.
DARCY COVERT, PORTFOLIO MANAGER
AKSHAY SAVLANI, SENIOR ANALYST
Darcy is currently a junior majoring in Quantitative
Economics and Mathematics. Last summer she was a
business development intern at inSegment, inc., and
in the past she has been a policy intern at HIV Law
Project in New York and a research assistant for Lowell Schwartz of the RAND Corporation through the
Institute for Global Leadership at Tufts. This summer
she will be in the investment banking department at
Goldman Sachs. Darcy is also an active member of the
Tufts Debate Society, fluent in French, and a weekend
tennis player.
Akshay is currently a junior majoring in Economics
and Philosophy and he has been a member of the Tufts
Financial Group since his freshman year at Tufts. Last
summer he worked at BNP Paribas Corporate and Investment Bank as an equity research summer intern,
and in the past he has interned at Credit Suisse. This
summer he will be in the Global Capital Markets group
at Morgan Stanley. Akshay also serves as the Chief
Executive Officer of Tufts Student Resources, a student-run business organization, and is a member of the
Delta Tau Delta fraternity.
Other members of the executive board include: Michael Lesser (A14), Seungki Kim (A14),
Tyler Epstein (A15), Tiffani Lau (A16), and Christian Barker (A16)
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Thank you
for your Support
We sincerely thank you for your continued interest and support of the Tufts Financial Group
and the Alpha Fund.
Please contact the Portfolio Manager, Darcy Covert ([email protected]) with all investor
inquiries.
Please contact the President, Matthew Freedman ([email protected]) if you are interested in becoming more involved in the Tufts Financial Group, including the speaker series,
Finance Career Forum, or through other means.
If you are interested in donating to the Alpha Fund please contact Jeff Winey (Jeff.Winey@tufts.
edu), Director of Principal & Leadership Gifts, Tufts University Advancement Office.
Prepared by Tyler Epstein (A15), TFG Chief Compliance Officer.
Design by Ben Kurland (A15)
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