SIM Fund 2014 MBA Presentation - December 5, 2014

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

Agenda Team Intro Objectives Quantitative Strategy Intro Approach Today’s Portfolio REITs Intro Today’s Portfolio 3

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) 4

Dividend Premium Strategy 5

Dividend Stock Pricing Anomaly “…Companies have positive abnormal returns in months when they are predicted to issue a dividend” (Hartzmark & Solomon 2012) 6 Div-Ex Div Declared Buy (Div Declared -1) Sell (Div-Ex)

Dividend Stock Pricing Anomaly Why does it exist? Mutual fund demand to pass through dividends (Harris, Hartzmark, and Solomon 2014) Cash guarantee 7

Constraints Limited Human Capital Solution: Cap holdings Trading Rules Solution: Weekly trades on schedule Uneven distribution of declared dividends Solution: Adjust weights 8

Exclusionary Rules Traded in the Russell 1000 Index Domiciled in the US Market Cap over $10 billion Exclude the sectors: Insurance, Banks, Utilities, REIT Had Quarterly Dividends over the past year Universe: 191 securities Team plans to cap holdings with a maximum of 80 9

Div-Ex B Div Declared A Buy A, B Weekly trade schedule Div Declared BDiv Declared C Div-Ex C Div-Ex A Buy C Sell A, B Sell C 10

Strategy comparison Day trading Weekly trading Closer to the true dividend model: Less holding period prior to undeclared Capture the pure declared-to-ex holding period Cash drag with scalability As number of holdings increase, timing differences between stocks cause cash drag Scheduled activities Timed buy and sell handoff on a weekly basis; less cash drag Easier to manage scale Less “efficient” Longer holding period outside of declaration alpha (up to 6 days), and holding period is only 22 days on average. Missed ex-date alpha 11

Investment Universe 12 Gantt Chart

Initial Selection – Pure Strategy 13

Initial Selection – Pure + Lead Time 14

Initial Selection – Pure + Lead Time, Weekly 15

Distribution of projected dividend declaration dates 16 # of securities Trading week (week 1 = 11/20/2014)

Weighting strategy 17

Issues going forward Need to maintain diverse holdings (>30) Limited human resources Cap total holdings to ensure oversight and adequate trade volume Securities assigned to individual team members for monitoring Avoid Closet Indexing 18

Portfolio Today – Seeding Initial seeding on November Securities 3 securities eliminated due to deviation from forecast Approximately $18,000 per position 19

Portfolio Today – Industry Mix 20

REITs Strategy 22

REITs – Overall strategy Approximately 15% of total portfolio Primary purpose (for us) is 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 22

REITs – Holdings 23 REIT Expense Ratio YTD Ret3Y Ret5Y RetYieldHoldings Std Dev AUM (Mil)Vol. Age (Years) Vanguard REIT ETF 0.10%14.11%16.54%15.92%3.51% % mil SPDR Dow Jones REIT ETF 0.25%14.52%15.85%15.50%3.22%925.47% k13.62 Vanguard Global ex-U.S. Real Estate Index Fund 0.27%4.09%14.33%n/a4.28% % k4.08

REITs – ETFs: Why we chose them Pros: Strong performance across most REIT sectors Highly liquid Diversification Not correlated with rest of strategy Can hedge against inflation Cons: Sensitive to increases in interest rates Falling occupancy rates hurt profitability Differentiation 24

Thank you Questions? 27

Appendix 26

Weighting strategy - traps 27

Anticipated attrition of Week 1 purchase over 14 weeks 28