Babson College Fund Quant Semester Report December 2013

2 0 1 3 S E C T O R R E P O R T

1 2 / 1 6 / 2 0 1 3

Quant Team

Lundun McCall-Mazza & Bilal Ranjha

Market Discussion

U.S. federal government shutdown

Interest rates up

Consumer spending also up

Consumer confidence flat

Oil prices down almost 12%

Jobless claims fall, unemployment down

Overall Performance (May 1, 2013

to Dec 06, 2013)

BCF S&P 500 SPY IVV

Return 16.69% 15.61% 15.79% 15.60%

Alpha - 1.08% 0.09% 1.09%

Sector Weightings

Sectors Total

Returns Sector Value

Active Fund Value

Active Sector

Weightings

Total Sector

Weightings

S&P 500 Weightings

Consumer 42.65 % $569,489 $889, 586 17.06% 29.59% 22.58%

Tech 18.33 256, 559 889, 586 4.42 14.64 17.99

Healthcare 19.31 213,279 889, 586 4.54 11.88 13.21

Industrials 18.11 203, 490 889, 586 5.02 11.04 10.83

Materials/Energy 28.68 236, 316 889, 586 5.39 13.01 13.73

Telecom/Utilities -7.73 78, 949 889, 586 1.33 4.47 5.35

Financials 16.31 269, 463 889, 586 2.02 14.92 16.19

Attribution Analysis

Total Attribution Allocation Selection

BCF 12-13 1.13 0.38 0.76

Consumer Staples 0.90 -0.02 0.92

Consumer Discretionary 1.24 0.19 1.05

Healthcare -0.11 -0.16 0.05

Industrials -0.51 0.26 -0.77

Tech -0.19 -0.10 -0.09

Materials 0.30 0.26 0.04

Energy -0.63 0 -0.64

Telecom 0.17 0.17 0

Utilities 0.04 0.03 0.01

Financials -0.08 -0.02 -0.07

Peer Fund Long-term Comparison

Fund Name 1 Yr Return 3 Yr Return 5 Yr Return 7 Yr Return

Babson College Fund 24.1% 15.5% 9.4% 6.7%

Janus Research Fund (JAMRX US)

23.06 14.94 11.83 9.00

Eaton Vance Research Fund (EAERX US)

19.28 14.375 8.83 8.36

MFS Research Fund (MFRFX US)

20.36 16.13 10.17 8.65

T Rowe Price Capital Opportunity (PRCOX US)

19.46 16.04 10.02 7.70

Putnam Research Fund (PNRAX US)

20.77 15.43 10.46 6.47

iShares S&P 500 ETF (IVV Benchmark)

19.28 16.17 9.96 7.50

BCF Rank 1 4 6 6

Peer Fund Short-term Comparison

Fund Name Return 05/01- 3 Mth Return 6 Mth Return YTD Return

Babson College Fund 16.69% 8.58% 13.04% 30.68%

Janus Research Fund (JAMRX US)

19.94 10.48 16.29 31.59

Eaton Vance Research Fund (EAERX US)

17.10 10.15 13.82 30.32

MFS Research Fund (MFRFX US)

16.48 8.52 12.64 29.17

T Rowe Price Capital Opportunity (PRCOX US)

16.13 9.82 13.09 29.94

Putnam Research Fund (PNRAX US)

16.83 9.02 13.51 29.61

iShares S&P 500 ETF (IVV Benchmark)

15.60 9.62 12.42 29.06

BCF Rank 4 6 5 2

Investment Style

Risk Analysis

0

0.5

1

1.5

2

2.5

Market Style Industry Country Currency Non Factor

Total Risk

BCF

Tracking Error 2.08%

Factor Risk 1.14%

Non-factor Risk 1.74%

Factor Risk

Style 2.18%

Industry 0.49%

Market 0.05%

Investment Style

0

0.2

0.4

0.6

0.8

1

1.2

Style (Active)

Value-at-Risk (VaR) Analysis

0 50,000 100,000 150,000 200,000 250,000

Consumer Discretionary

Health Care

Telecom

Consumer Staples

Materials

Industrials

Information Tech

Financials

Funds

Utilities

VaR (in USD)

95% 97.5% 99%

Monte Carlo Simulation $74,009 $92,245 $113,783

Historical 1 year Simulation 72,002 82,789 92,402



Parametric 73,066 87,063 103,338

Quant Stock Coverage

TripAdvisor (TRIP) 42% realized return since May 1

Negative alpha due to early exit of position (S&P still holds stock, which has increased 12.5% since sale)

Made over 95% on stock lifetime

Contributed 51 bps to Port return

Synaptics (SYNA) New purchase, long position

Increase of 20 bps since purchase

Semester Project - Bilal

Inputs: o S&P Sector Indexes

o Weekly Gold prices

1989 to 2013 1989 to 2007 T-Test Result 2008 to 2013 T-Test Result

Industrials 0.0014 0.00001 52% 0.0037 59%

Health Care 0.0001 0.00226 69% 0.0001 74%

Financials 0.0014 0.00411 64% 0.0007 42%

Energy 0.0641 0.07535 90% 0.0647 58%

Tech 0.0011 0.00059 80% 0.0062 69%

Consumer Disc 0.0002 0.00069 34% 0.0001 80%

Consumer Staples 0.0019 0.00835 41% 0.0001 65%

Materials 0.0426 0.02715 30% 0.0571 52%

Telecom 0.0017 0.00008 19% 0.0102 48%

Utilities 0.0000 0.00230 21% 0.0005 47%

Tests: o Regression Analysis

o Student T-tests

Semester Project - Lundun

Four economic events studied: 1. GDP Annualized QoQ Growth Rate

2. U.S. Monthly Unemployment Rate

3. U.S. Monthly Existing Home Sales

4. U.S. Durable Goods New Orders MoM Change

Goal: To see how BCF portfolio reacted (pos./neg.) on days of economic indicator announcements, as compared to the S&P 500 index

Tests used: Simple Response Test

Multiple Regression

Two sample T-tests

Results:

Semester Project – Lundun (continued)

= Positive Surprise

= Negative Surprise

= No Surprise

Simple Response Test

% Surprise Intraday S&P Return Intraday BCF Return Market Response BCF Response

0.1% 1.91% 2.18% 1 1

0.2% -0.07% -0.28% 0 0

-1.2% -0.39% -0.36% 1 1

-0.5% -0.18% -0.21% 1 1

0.7% -0.01% 0.12% 0 1

0.8% -1.32% -1.33% 0 0

6 6 COUNT

GDP Growth Rate

• GDP Growth Rate

• Unemployment Rate

• Existing Home Sales

• Durable Goods

%

Normal Market Response 50.0%

Normal BCF Response 66.7%

Abnormal Market Response 50.0%

Abnormal BCF Response 33.3%

%





%





%





Semester Project – Lundun (continued)

Multiple Regression • Dummy variables used for Positive/Negative/No Surprise • All models showed no predictive capabilities (low R

2s, insignificant p-values)

The regression equation is

S&P Return = - 0.00940 + 0.0148 Pos. Surprise + 0.0114 Neg. Surprise

Predictor Coef SE Coef T P

Constant -0.009400 0.007477 -1.26 0.227

Pos. Surprise 0.014800 0.008633 1.71 0.106

Neg. Surprise 0.011409 0.008128 1.40 0.180

S = 0.0105736 R-Sq = 15.5% R-Sq(adj) = 5.0%

Two-sample T-tests

Best model: Predicting S&P return from Unemployment rate surprise

• T-tests proved that mean returns for S&P 500 and BCF on economic announcement days are statistically indifferent from one another

Tests done: • S&P vs. BCF mean returns

for each announcement type

• S&P vs. BCF on “Positive” vs. “Negative” announcement

• S&P good day vs. bad day • BCF good day vs. bad day

Two-sample T for S&P Return vs BCF Return

N Mean StDev SE Mean

S&P Return 19 0.0019 0.0108 0.0025

BCF Return 19 0.0024 0.0114 0.0026

Difference = mu (S&P Return) - mu (BCF Return)

Estimate for difference: -0.00048

95% CI for difference: (-0.00779, 0.00683)

T-Test of difference = 0 (vs not =): T-Value = -0.13 P-Value = 0.895 DF = 36

Both use Pooled StDev = 0.0111

Babson College Fund Quant Semester Report December 2013

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