MBA Student Investment Management Fund Final Presentation April

MBA Student Investment Management Fund Final Presentation April 2021 MBA Student Investment Management Fund Arizona State University 1

MBA SIM Fund Team Farrukh Solhail Festus Olatunde Makayla Ragnone MBA Student Investment Management Fund Arizona State University Aleksey Kim Abraham Levy 2

Table of Contents I. Investment Thesis and Methods II. Exposures III.Performance and Attribution IV. Unusual Security Specific Exceptions V. Key Takeaways MBA Student Investment Management Fund Arizona State University 3

Investment Thesis and Methods MBA Student Investment Management Fund Arizona State University 4

Investment Thesis Equity of a firm with debt in its capital structure is analogous to a call option written on the assets of the firm Traditional Valuation (e.g. DCF) Valuation with Default Option High Default Option Low Default Option Misvalued Appropriate Valuation Appropriate Valuation Appropriate Valuation Eisdorfer, Goyal, and Alexei Zhdanov, 2019, “Equity Misvaluation and Default Options”, The Journal of Finance 74, 845–898. MBA Student Investment Management Fund Arizona State University 5

Portfolio Construction: Inputs & Assumptions Model Inputs Current liabilities Long-term liabilities Revenue Fixed Costs Volatility Risk-free rate COGS WAAC CAPEX Depreciation Leverage SIC Code SG&A Model Equity Value MBA Student Investment Management Fund Arizona State University 6 Proxy for fixed costs SIC Codes Used to calculate industry averages for Depreciation & CAPEX Return on Assets Equals WACC

Exposures MBA Student Investment Management Fund Arizona State University 7

Sector Weighting Comparison - April 2021 MBA Student Investment Management Fund Arizona State University 8

Sector Weighting Comparison - April 2021 Russell 3000 Portfolio Number of Stocks Allocation per equity Average Market Cap Basic Materials Consumer Cyclical Financial Services Consumer Defensive Healthcare 2.44% 12.05% 12.47% 6.76% 14.45% 2.31% 11.62% 12.03% 6.51% 13.92% 3 12 11 7 6 0.8% 1.0% 1.1% 0.9% 2.3% 2.7B 2.7B 2.5B 2.6B 2.1B Communication Services 10.51% 10.13% 5 2.0% 2.9B Energy Industrials Technology 1.91% 9.15% 23.70% 1.81% 8.82% 22.84% 3 9 13 0.6% 1.0% 1.9% 1.7B 3.3B 2.4B Asset MBA Student Investment Management Fund Arizona State University 9

Performance and Attribution MBA Student Investment Management Fund Arizona State University 10

Performance MBA Student Investment Management Fund Arizona State University 11

Market Cap Attribution - Russell 3000 MBA Student Investment Management Fund Arizona State University 12

Market Cap Attribution - Russell 2000 MBA Student Investment Management Fund Arizona State University 13

Market Cap Attribution - AVUV MBA Student Investment Management Fund Arizona State University 14

Sector Attribution - Russell 3000 MBA Student Investment Management Fund Arizona State University 15

Sector Attribution - Russell 2000 MBA Student Investment Management Fund Arizona State University 16

Sector Attribution - AVUV MBA Student Investment Management Fund Arizona State University 17

Unusual Security Specific Exceptions MBA Student Investment Management Fund Arizona State University 18

Unusual Activity/Security Specific Exceptions Archegos Capital Management/Viacom Held Both VIACA and VIAC Sold Off in Droves - Recoup a Fraction of the Losses Heavily Affected our Communications Allocations We Decided to Hold Results to Date MBA Student Investment Management Fund Arizona State University 19

Key Takeaways MBA Student Investment Management Fund Arizona State University 20

Key Takeaways Investment Management Process Tested Out the Investment Hypothesis Implementation of Investment Model Understanding of Limitations Address Challenges in Investment Management MBA Student Investment Management Fund Arizona State University 21

Thank You! Questions? MBA Student Investment Management Fund Arizona State University 22

Unusual Activity/Security Specific Exceptions Viacom Oversight Prices now VIACA ( 46.04) and VIAC ( 41.11) VIACA (Class A Shares)-Voting Shares VIAC (Class B Shares)-Nonvoting Shares Holding both doubled our company specific exposure MBA Student Investment Management Fund Arizona State University 23