News Feature on Applied Portfolio Management from KTKA-TV, Topeka.
The portfolio’s current positions and performance through December 7, 2009 are shown in the table below.
Since its inception in July 2007, the Washburn Student Investment Fund has outperformed its VTI benchmark by 4.2%. The outperformance of the SIF can be explained by comparing the sector weightings of the overall stock market to those of the SIF (shown in the 2 graphs below). Notice how, compared to the market capitalization weightings of the S&P 500, the SIF is overweight industrials, energy, health care and material stocks (which have held up better during the economic downturn) and underweight financial stocks (which performed poorly during the downturn), utilities, telecom and consumer staples. Students in Fall 2009 have been researching opportunities in these underweight sectors.
A focus on stocks paying above-average dividends has also contributed to the outperformance of the Student Investment Fund. The table below shows the capitalization-weighted average current dividend yield of the SIF’s actively-managed positions. As of November 30, 2009, the average current dividend yield of 2.9% is 1.0% greater than the yield of the average stock in the S&P 500 (1.9%).
We also calculate the capitalization-weighted average dividend yield of the SIF stocks relative to the price at which they were acquired. Based on this metric the SIF’s actively-managed positions are yielding 3.3%.
Correlation coefficients of the weekly returns of the stocks in the portfolio are shown below from 2004-2009. Correlations greater than 0.50 are shown in bold (exclusive of the VTI and SPX indices). The energy stocks (CVX, ECA and SLB) are strongly correlated, as are DE, LOW, UTX and INTC. CVX and ECA are also strongly correlated with NUE.
We estimated our portfolio’s alpha and beta vs. the S&P 500, using weekly portfolio returns over the life of the fund, July 2007 through November 2009. During these turbulent times in financial markets, Washburn students have earned an annualized alpha of 3.1% with less volatility than the overall market (beta = 0.88).
We also estimated a feasible efficient frontier from our 14-stock portfolio, strictly based on historical data, to examine the risk and expected return of the current portfolio vs. what might have been possible 2007-2009. The results suggest that the Student Investment Fund is positioned slightly better than an equally weighted combination of our 14 securities, although a portfolio of JNJ, SLB, NUE, ECA and CVX, weighted as shown below, represents an even more efficient portfolio. It’s important to bear in mind that an analysis such as the one below is based on historical returns, volatilities and correlations -- to be truly-forward looking, we would have to have plausible forecasts of these variables.
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