THE TRADING FLOOR TIMES The David Eccles School of Business Student Investment Fund Newsletter DECEMBER, 2017 — VOL. I NO.1
******
LETTER FROM THE DIRECTOR
Eccles School professor Mike Cooper. We had strong performance for the 2016-2017 academic year with our dollar-weighted portfolio earning 28.2% after fees as compared to the S&P 500, which had a total return of 14.4% over the same time period. Best, Elizabeth Tashjian Director Undergraduate Finance Program Student Investment Fund Faculty Advisor
We hope you can join us for one or more of the following events. Please contact Jennifer McConnell at Jennifer.McConnell@Eccles.Utah.edu or 801.581.7463 for details or to RSVP.
SIF ANNUAL REUNION Thursday, Dec. 21, 2017
SIF alumni and friends, We are excited to bring you the first edition of The Trading Floor Times, the David Eccles School of Business’s semiannual Student Investment Fund Newsletter. In the 19 years since SIF began, our assets under management have grown from $50,000 to more than $500,000. We have grown from a single fund to four different funds. Each of our funds is a long-only equity fund, but each fund has slightly different investment objectives. More than 350 students have contributed to our success as fund analysts. Our graduates are investment bankers, asset managers, equity researchers, lawyers, physicians, parents, educators and graduate students. This edition describes several of our recent winners and losers and highlights SIF alumni and
6 to 8 p.m.
Location: Twist Bar and Bistro 32 Exchange Pl. SLC, UT 84111
STUDENT PRESENTATIONS TO PROFESSIONALS Tuesday, Feb. 6 4 to 5:45 p.m. Location: Spencer Fox Eccles Building, Room 1170 Tuesday, March 6 4 to 5:45 p.m.
Location: Spencer Fox Eccles Building, Room 1170 Tuesday, April 3 4 to 5:45 p.m.
Location: Spencer Fox Eccles Building, Room 1170
******
ADDITIONAL INFORMATION ON SIF’S HISTORY CAN BE FOUND AT OUR WEBSITE. ECCLES.LINK/SIF
KEEP IN TOUCH! We would like to add a class notes section in future editions. Drop us a line at Elizabeth.Tashjian@Eccles.Utah.edu for our next edition.
2016-2017 PERFORMANCE UNIVERSITY OF UTAH STUDENT INVESTMENT FUND PORTFOLIO RETURN V. S&P 2016-2017
Professor Profile: Mike Cooper Featured in: The Wall Street Journal, The New York Times, the Washington Post, USA Today, The Financial Times Bio: Professor Mike Cooper of is the A. Blaine Huntsman Presidential Chair in Finance at the University of Utah’s David Eccles School of Business. Prior to joining the faculty at the University of Utah, Professor Cooper was a finance professor at Purdue from 1997 to 2005. Professor Cooper also worked at the Goldman Sachs Asset Management division from 2008 to 2009. Professor Cooper’s primary research and teaching interests are in the area of investments. His current research is focused on equity return predictability, asset pricing models, measures of firm innovation, the effects of firm location on firm performance and the behavior of mutual fund investors. Professor Cooper’s research has appeared in numerous academic journals including the Journal of Business, the Journal of Finance, the Journal
Financial Economics, and the Review of Financial Studies. His research has won several awards, including the 2000 Barclays Global Investors Award from the European Finance Association and the 2006 Fama/DFA best paper award in The Journal of Financial Economics. His research has been covered in the popular press, with citations in The Wall Street Journal, The New York Times, the Washington Post, USA Today, The Financial Times and many others. He currently works in industry applying research ideas to hedge funds.
What brought you to Utah from Purdue? My wife and I came here 12 years ago to take advantage of Salt Lake City’s amazing outdoors. I enjoy mountain biking, skiing, and trail running, which are all easily accessible from Salt Lake.
How does your research differ from what SIF students do? SIF students focus on individual security fundamental analysis, examining the performance of individual companies on the basis of key performance indicators such as revenue growth, valuation ratios, margins, cash flow and others. In my research, I hope to find stocks that will outperform the market by building quantitative models and applying them to large baskets of stocks.
Summary of recent study – “Implications of Innovation Measurement”: Professor Mike Cooper, along with the help of professors from Washington University in St. Louis and the University of South Carolina, developed a new method for measuring innovation within a firm. Traditional measurements of innovation use patent-based methodologies. These fail to capture the innovation of many firms as only about half produce patents. The work of Cooper and his colleagues proposes a new measure that applies to more companies, with greater consistency and significance than prior methods. The method measures a firm’s research quotient (RQ), which is defined as the firm-specific output elasticity of its research and development (R&D) costs. In other words, the method measures how well a firm utilizes additional capital spent on R&D by measuring how the increase influences firm revenue. The study found the new innovation measure to be a statistically significant predictor of stock price returns, more so than previous innovation measures.
BEST STOCK PICKS OF THE YEAR KITE PHARMA (KITE)
KITE Price
Kite Pharma is a clinical-stage biotechnology company developing innovative treatments for blood-based and solid-tumor cancers. We bought KITE in November 2016 after the company released data from its drug’s pivotal trial to treat diffuse large b-cell lymphoma (DLBCL). Response rates were the highest ever seen in this subset of patients, and it led us to believe that the probability for FDA approval was extremely likely. KITE reported positive data throughout 2017 and was eventually acquired by Gilead Sciences (GILD) for $11.9B. The drug was approved by the FDA on October 18, 2017. Our net holding period return was 241.7% as compared to the S&P’s return of 12.1%
MYRIAD GENETICS (MYGN)
MYGN Price
Myriad Genetics is a company that uses molecular diagnostics to identify a person’s risk for various cancers. Recently, the company has developed products for companion diagnostics. We bought MYGN in January 2017 after the company lost more than 50% of its market value. We thought that the market had excessively punished MYGN and that the stock was undervalued. We were especially bullish on the company’s acquisition of Assurex and its Genesight platform for companion diagnostics of behavioral disorders. Myriad has beat earnings estimates several times since then, driven primarily by strong growth from Genesight. We sold in October 2017 due to valuation. Our net holding period return was 108.5% as compared to the S&P’s return of 11.7%.
ALIGN TECHNOLOGIES (ALGN) Align Technology (ALGN) is a medical device manufacturer known primarily for its Invisalign products. Invisalign aligners are clear, plastic teeth aligners used as an alternative to traditional metal braces. We initially invested in ALGN due its market-leader position, strategic partnerships with other established medical device distributors and expected international expansion. ALGN performed extraordinarily well over our holding period, generating a return of 116% in less than a year. Strong market share growth and product adoption, as well as cost-cutting advancements in 3D modeling and printing technology contributed to this significant price gain.
ALGN Price
WORST STOCK PICKS OF THE YEAR SPORTSMAN’S WAREHOUSE (SPWH)
SPWH Price
Sportsman’s Warehouse, a retailer of outdoor gear and apparel, has been one our worst performing stocks over the last year. The stock was originally purchased in October 2015 because the company uses an adaptable, low-cost store layout that mitigates costs and encourages store base growth. Sportsman’s Warehouse also opens stores in areas that do not compete directly with big box retailers such as Cabela’s and Bass Pro Shops. We re-evaluated the company in October 2016 and decided to hold based on the assumption that a Hillary Clinton presidency would push people to buy more guns and ammunition. This obviously did not pan out. Gun sales have decreased during the Donald Trump presidency and Sportsman’s Warehouse has felt the pressure of bankruptcies and weakness in the brick-and-mortar retail space. We sold our remaining shares in October 2017. We lost almost 60% of our investment while the S&P was up 22%.
CHIPOTLE (CMG) We originally bought shares of Chipotle, the operator of fast-casual restaurants, in November 2015 after the first outbreak of E-Coli. Unfortunately, the second outbreak happened, and the stock has been punished. We bought additional shares in October 2016 under the assumption that the company was making a comeback. The thesis started playing out until the company was rocked by yet another food-borne illness. We sold all of our shares in August 2017. We lost about half of our initial investment and 25% of our second investment.
CMG Price
JACK LESTER
DAVID KEHR
GRADUATING DECEMBER 2017
GRADUATING DECEMBER 2017
What is your favorite memory from the trading room? When our TA took our class picture before a group stock pitch to investment professionals. Instead of “say cheese,” he asked, “can everyone say short sale?”
What do you like to do in your spare time? Traveling,
anything
out-
doors, surfing, basketball, Where will you be working practicing Excel shortcuts while after graduation? blindfolded.
I am a Child Fellow for the Student Investment Fund and will be an investment banking analyst for Credit Suisse’s Financial Sponsors and Gaming M&A practice.
What are your future career plans?
I hope to start a career in private equity or venture capital after finishing a two-year How did SIF help you the investment banking program.
most?
I enjoyed learning about business models of companies in different industries...
Who
is
your
favorite
professor? Everything I learned about how to model financial Unfortunately, I am unable statements, value companies, to disclose that information write well, and put together a at this time. compelling presentation. What was your favorite part about SIF?
What is your favorite part about Salt Lake City?
I enjoyed learning about business models of companies in different industries, and I especially enjoyed all of the friendships that were forged over deadlines and late nights in the trading room. It was also incredibly rewarding to finish my personal and group projects as I was proud of both.
The mountains are a half an hour drive from the city.
I use financial analysis skills I learned in SIF to effectively examine potential investments...
I use financial analysis skills I learned in SIF to effectively examine potential investments, understanding how potential investments will generate returns.
What do you like to do in your spare time? I like to get outdoors while the weather is good, ski when it starts snowing, and paint and play music any other time.
Where will you be working after graduation?
What do you like most about your job now?
I enjoy the chance to work alongside experienced professionals to conduct meanHow did SIF help you the most? ingful analysis and underwriting SIF helped me to under- of potential investments. stand a fundamental analWhat are your future career ysis of companies and to effecplans? tively communicate through I want to enter into a reports and presentations. top-tier consulting firm What was your favorite part either before or after an MBA about SIF? program, and ultimately found/ I enjoyed actively managing lead impact investing funds and a real fund. Having our nonprofit startups. Sundance Equity
Bay
Private
analysis and recommendations result in real investments added ownership and responsibility to our analyses.
What is your favorite memory from the trading room? When Nathan found some old shopping bags from the kitchenette to protect his fancy leather shoes from the rain.
What is something you learned in SIF that you’re using in your current job?
Who is your favorite professor? Nope. Trick Question. All of them.
What is your favorite part about Salt Lake City? The amazing outdoors that I too often take for granted.
MAGGIE REIGELSPERGER GRADUATING MAY 2018
What is your favorite memory from the trading room? One weekend night, a few of us were there very late and no one else was in the building. All of us were starting to fall asleep so one of my classmates decided to show a short 80s workout video on the projector to wake us up. We all followed the video for about 5 minutes and then all dropped dead laughing.
Where do you work now and where will you work after graduation?
SIF helped me start to understand bottom-up investment analysis for companies.
What was your favorite part about SIF?
What is your favorite part about Salt Lake City?
My favorite part about SIF was the close-knit class that Who doesn’t love being we had. After all of the late nights this close to more than six in the trading room, I can say world-class resorts!? I also like that some of my classmates are being this close to my home in now close friends. Park City while still getting the city experience.
38%
13%
12%
12% 9%
Asset Management
Corporate Finance
Equity Research
Investment Banking
Opperations
Other
ALUMNI 2017
What are your future career plans?
SIF helped me start to I’m very excited to be at understand bottom-up Citigroup starting in July, investment analysis for compaand we’ll see where that takes nies. More importantly, it helped me! me learn how to truly take responsibility for any work that Who is your favorite was mine and be able to answer professor? to it. I’m not at liberty to say…
Just over half of the SIF alumni accepted a first position in Utah. Another 15% stayed in the west, primarily in San Francisco, Los Angeles, or Seattle. 10% started in New York City.
17%
What do you like to do in your spare time?
I love doing anything outdoors with my friends. I am a Child Fellow for SIF and will be a Sales & Trading Whether that’s biking, hiking, Analyst at Citigroup in New York skiing, running or playing soccer. I also love to watch my Netflix City. shows (who doesn’t?).
How did SIF help you the most?
WHERE ARE THEY NOW? ALUMNI 2011-2016
In the 2016-2017 academic cycle SIF alumni received almost 40% more in base pay than other finance majors in their first position. Of the 19 SIF alumni who accepted new full-time positions, ■■Five accepted positions in investment banking (Moelis, Goldman Sachs, Wells Fargo).
SIF alumni received almost 40% more in base pay than other finance majors.
■■Four joined corporate rotational programs (Microsoft, Honeywell). ■■Two will be helping to manage college endowments (Swarthmore, Indiana University). ■■Two are equity analysts (Citigroup, Goldman Sachs). ■■Two are in real estate (Leon Capital Group, Bonneville Real Estate). ■■Four others are working in asset management, compliance, operations, and private wealth management (Alta Capital, FDIC, Goldman Sachs, JP Morgan Chase).
FIANA LOMU
REITs Research Associate Citigroup | New York City
GRADUATED DECEMBER 2016 time, but I think the clear driver of what made SIF such a great experience was learning from Liz. She encouraged us to dig deep and question the impact of everything.
What is your favorite memory from the trading room?
Where do you work now? In equity research Citigroup in NYC.
at
How did SIF help you the most? SIF mostly helped me to understand 1) that my writing could definitely use some improvement per Liz’s many edits, and 2) just how much depth and breadth is involved in equity research. You learn how to find and connect the dots that ultimately translate into the company’s financials. We learned that those dots could be consumer confidence, capital structure, quality of management, key partnerships, shifting millennial preferences, exposure to emerging markets, zero-based budgeting implementation- anything.
I remember being in the trading room with my team one weekend and we were all a bit out of it from working on our project for so long. I was typing on one of the Bloomberg terminals when all of a sudden, I heard one of my classmates start singing out loud about the company we were researching. It was an unexpected yet funny indicator of just how much ‘brain space’ companies can take up when you are putting in the due diligence.
What is something you learned in SIF that you’re using in your current job?
You learn how to find and connect the dots that ultimately translate into the company’s financials.
Still Making an Impact
After 100 Years
What do you like to do in your spare time? Recently, I’ve been getting into kickboxing and have loved it so far. Thankfully, it also helps me balance out my love of the many food options here in the city.
What do you like most about your job now? I feel like I really lucked out with the team I’m on. The people I work with are brilliant and supportive so I’m constantly learning. We cover real estate (team recently ranked top on Wall Street for our sector!) and get to analyze everything from malls and apartments, to hospitals and data centers.
Make your impact on the future of the
David Eccles School of Business Help us build the next 100 years by supporting the Centennial Scholarship Fund
I feel like I’m using everything in one sense or another. For my work specifically, real estate modeling is quite different from other industries. So, I may not be using the same ratios or metrics I learned in SIF, but I am using the knowledge I gained in terms of how statements link What are your future career ECCLES.LINK/CENTENNIALFUND together, financial terms and plans? acronyms, business writing What was your favorite part techniques—even just arguing I spent a summer living in San Francisco a few years ago and would love the chance to go back and work about SIF? your view in general on why the on the West Coast someday. For now however, I could see myself continuing to gain expertise in equity market is wrong about a certain research or I could move into something else completely—I feel like I’m learning so much right now that It’s always neat dealing stock. could transfer well into many different types of careers. You won’t ever see me in healthcare, though. with real companies in real
ANNET UNDA
Finance Rotational Program Analyst Microsoft | Seattle
GRADUATED MAY 2017 know my team members and can say we’ve become good friends since!
What is something you learned in SIF that you’re using in your current job?
Where do you work now? Microsoft.
How did SIF help you the most?
Resourcefulness. In SIF, Professor Tashjian would tell us what she was looking for in our reports, but we were on our own to figure it out. I’ve had a similar experience at Microsoft. I’ve been given vague tasks and have had to leverage appropriate resources to deliver to my manager’s expectations.
What do you like to do in your spare time?
SIF helped me develop the I like to travel, play tennis, ability to look at any indusand recently picked up golf try and know which questions to ask and which factors to consider lessons! when evaluating a company.
What was your favorite part about SIF? Looking at the end result of the semester and realizing that I went from knowing nothing about the company I chose to cover, to being able to make an investment recommendation for the stock.
What is your favorite memory from the trading room? My favorite memory would have to be the late nights prior to my group’s presentation to professionals. I really got to
SIF helped me develop the ability to look at any industry and know which questions to ask and which factors to consider when evaluating a company.
What do you like most about your job now?
I really like the culture here. Everyone is incredibly smart, but also very humble, and willing to help out. Also, it is great to work for a company that has such a positive impact in the world.
What are your future career plans? I am not sure yet! With the rotational program I have the opportunity to experience different areas of corporate finance. I’ve always had an interest in strategy, but we will see!
Doers wanted.