MBA SIM Fund MBA Presentation – May 1,

James LyleNoel HillNic KostmanAishwarya Srinivasan Eugene LeeJeremy Mortensen Rob Bayless Tyler Blue 2

Agenda Dividend Premium Strategy Review Strategy Operations Operational Challenges Performance Strategy Accuracy Returns Attributions REITs Strategy Review Performance 3

Dividend Premium Strategy

SIM Fund Objectives Apply range of course principles to fund management Utilize resources to maximize learning Manage scope Portfolio Model 85% - Quantitative Strategy (core) 15% - REITs (diversification) 5

Dividend Stock Pricing Anomaly Why does it exist? Mutual fund demand to pass through dividends (Harris, Hartzmark, and Solomon 2014) Cash guarantee 6

Dividend Stock Pricing Anomaly “…Companies have positive abnormal returns in months when they are predicted to issue a dividend.” (Hartzmark & Solomon 2012) Div-Ex Div Declared Buy (Div Declared -1) Sell (Div-Ex) 7

Exclusionary Rules 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 8

Weekly trade schedule Old New 9

Investment Universe 10

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. 12

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 13

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 15

Returns vs. S&P500 Portfolio Total Return +4.02% Dividend Strategy Return +4.25% Tracking Error (Annualized) 4.59% Std. Deviation (Annualized) 11.13% Sharpe Ratio /17/14 - 4/17/15 S&P % 13.37%

Dividend Yield Dividend Yield Return Contribution: 5.16% 17

Attribution 18

Strategy Tapering Back to the Russell 3000 Dividend run-up period eventually falls outside of our time horizon Fiduciary Responsibility 19

REITs Strategy

REITs – Overall strategy Approximately 15% of total portfolio Primary purpose (for us) was diversification Focused on ETFs with low expense ratios, high trading volumes, and high assets under management Also filtered out REIT ETFs from non-reputable companies 21

REITs – Holdings 22 REIT Expense RatioHoldingsYieldAUMNAVVol. Inception Date Vanguard REIT ETF0.12% %28.03B M9/23/2004 SPDR Dow Jones REIT ETF 0.25%923.01%3.28B k4/23/2001 Vanguard Global ex-U.S. Real Estate Index Fund 0.24% % k11/1/2010

REIT Returns Total Portfolio: 8.52% Annualized: 20.73% Benchmarks: 23 Since InceptionTotal ReturnAnnualized REIT Portfolio8.52%20.73% Russell %9.79% S&P US REIT Index4.83%11.75%

Daily Correlation of Returns 24 REIT PortfolioRussell 3000 Vanguard High Yield Dividend (VYM) iShares Select Dividend ETF (DVY) REIT Portfolio1.000 Russell Vanguard High Yield Dividend (VYM) iShares Select Dividend ETF (DVY)

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 27

Dividend Premium Strategy 28

Distribution of projected dividend declaration dates 29 # of securities Trading week (week 1 = 11/20/2014)

Weighting strategy 30

Weighting strategy - traps 31

Anticipated attrition of Week 1 purchase over 14 weeks 32

Returns vs. Russell

Returns vs. Russell