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The Sunny Optimists

Aleksandr Oumarbaev, Khan Kikkawa, Thomas Manning

Thomas Manning

on 28 April 2010

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Transcript of The Sunny Optimists

The Sunny Optimists Aleksandr Oumarbaev,
Khan Kikkawa, Thomas Manning Our Mission * The Sunny Optimists is a hedge fund that invests in equity for firms that produce 'consumer goods' and in debt.
* We believe that the U.S. economy is recovering from the 2008 financial crisis and consumer confidence will increase in the short run. We expect consumers will be seeking to purchase more consumer goods during this recovery.
* The Sunny Optimists hope to benefit from this increased confidence and economic recovery by purchasing equity in firms that produce consumer goods. Our Statistics A = 3
Inital Allocation of Portfolio
* equity = 70
* debt = 30
Final Allocation
* equity = 71
* debt = 29
Inital investment = 1,000,000
Final Investment = 1,108,388.95 Investments Equity

* Wal Mart (WMT)
* Home Depot (HD)
* Boston Beer Company (SAM)
* Time Warner Cable (TWC)
* Walgreens (WAG)
* Ford (F)
* Ebay (EBAY)


* Waterbury Connecticut Refunding Tax Revenue Intercept Reasons (Macroeconomic) Consumer confidence has been increasing overall since the end of 2008.
PPI- has increased from 108.9 in Nov 2009 to 110.5 in March 2010
Unemployment rate has been slowly decreasing since October 2009 from 10.1% to 9.7% in March
Although disposable personal income has decreased in January 2010 and has remained stagnant since then, consumer spending has continued to increase.

We believe from our analysis that the current business cycle is in an expansion.
Due to the moving trend toward expansion, we believe that sector rotations are moving toward consumer industries. Firm Selection Event driven- Walgreens, Ford

Market leading / blue chip companies- Walmart, Time Warner, Home Depot, Ebay

High Growth Potential- Boston Beer

Bonds - Diversity, stability, and tax free Portfolio Composition * 2 producer firms
* 3 retail firms
* 2 service providers

* Although our equity portfolio is comprised solely of consumer good producting firms, these firms are diverse in their production of goods and services that we feel there is less risk within the portfolio.

* We chose only to have 7 different stocks because we felt that the market trend was going to increase and wanted to adopt that rising trend with both market and firm-specific risk. Overall Performance Equity: 11.89% S&P 500: 9.75% CMR: 8.38% Financial Theory Sharpe's measure

* reward to volatility trade off
* (rE-rf)/sigmaE = .588%

Jensen measure

* Average portfolio return above predicted portfolio CAPM
* alphaE = rE-[rf+betaE(rM-rf)] = 3.27% Reflections * Initial allocation left no cash on hand so due to the strong performance of our initial investments, we did not have extra cash to invest in other companies
* Due to the short time span, we were unwilling to reallocate our portfolio because our debt to equity ratio did not change
* The short time span did not allow us to realize the full value of our investments. eg. Walgreens
* We wanted to make gains from even minor changes in stock price so were unwilling to purchase high priced stocks such as Google.
* We were event-driven in our initial allocation but not in our reallocation. Long Term Perspective * Eventually, we are going to move away from mass-produced consumer goods to industrial-based companies.
* Since the Fed will increase interest rates with recovery, we will consider selling off our bond.
* We will include hedging our equity with options to reduce risk.
* We will sell Ford and reweigh our equity holds to allow for investments in a larger number of companies.
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