D Artagnan Capital Fund Williams College of Business Xavier University 3800 Victory Parkway Cincinnati, OH 45207-5162 6 Months Ending 9-28 Report March 30, 2012 September 28, 2012 Prepared by: Matt O Driscoll, Greg Rose, Justin Coop, Drew Janzen
TABLE OF CONTENTS s and Interpretation of Data... 3 Best and Worst Performance... 4 Top Holdings... 4 Attribution Analysis and Security Selection... 5 Economic Summary... 5 Strategy... 6 Trades... 6 Compliance..7 Conclusion... 7 Appendix... 7 2 D CF March Report
D ARTAGNAN CAPITAL FUND MONTHLY PERFORMANCE (3/30/2012 9/28/2012) RETURNS Statistics DCF S&P 500 Total 1.09% 3.43% Sharpe Ratio 2.388 3.855 Treynor Ratio.008.032 Beta 1.12 1.0 Alpha -2.73% M^2-1.10% INTERPRETATION OF DATA Total Overall, the portfolio underperformed in the 6 months since the beginning of our fiscal year, returning 1.09%. In comparison, the benchmark of the S&P 500 Index returned 3.43% over the same time period. In total, the portfolio underperformed by 2.34%. Beta The fund s Beta of 1.12 for the six month period is slightly higher than the implied beta of 1.0 for its benchmark. The higher beta indicates for the six month period the portfolio experienced more volatility of returns and was more risky than the market as represented by the S&P 500 benchmark. Sharpe Ratio The Sharpe Ratio is the excess return of the portfolio over its standard deviation. The portfolio returned a Sharpe Ratio of 2.388. In comparing this to the benchmark s ratio of 3.855, it can be determined that on a risk-adjusted basis the portfolio underperformed the market and experienced less return per unit of total risk. Treynor Ratio The Treynor Ratio is the return of the portfolio less the risk-free rate over its beta. The portfolio returned a Treynor of.008. In comparing this to the benchmark s ratio of 0.032, it can be determined that on a risk-adjusted basis the portfolio underperformed the market, given its exposure to market risk. 3 D CF March Report
Alpha During the month of September, the portfolio returned an alpha of -2.73%. This indicates that the portfolio underperformed our benchmark by 2.73% on a systematic risk adjusted basis. M2 The portfolio returned an M 2 measure of -1.10%. On a total risk adjusted return for the month of September, the portfolio returned 1.10% below the S&P 500 when adjusted for the deviation of the portfolio relative to our benchmark. BEST AND WORST PERFORMANCE Best Performers Worst Performers 1) NRG Energy Inc. 37.12% 1) Peabody Energy -22.49% 2) Watson Phar. Inc 26.99% 2) Caterpillar Inc. -18.37% 3) AT&T Inc. 23.95% 3) Intel Corporation -18.13% 4) Time Warner 18.23% 4) Chesapeake Energy -17.08% 5) Google Inc. 17.66% 5) Nike, Inc. -14.44% The most volatile sector was the Energy sector with NRG Energy our top performer returning 37.12%, however Peabody Energy was our worst performer returning -22.49%. The Information Technology/Telecom sector provided two of the top performers in Google Inc. (returned 17.66%) and AT&T Inc (returned 23.95%). Watson Pharmaceuticals Inc. provided the second best security performance with a return of 26.99%. TOP HOLDINGS Top Holdings (9/28/2012) % of Portfolio 1) Apple Inc. 5.83% 2) Visa Inc. 5.74% 3) PNC Financial 4.53% 4) Microsoft Corp. 4.24% 5) Cognizant Tech. 3.6% *It s the fund s policy to keep holdings underneath 6% of the total portfolio. 4 D CF March Report
ATTRIBUTION ANALYSIS AND SECURITY SELECTION Sector Relative Weight to Benchmark Asset Allocation Security Selection Total Excess Information Technology + - + - Consumer Staples - + - - Health Care - - - - Industrials + + - - Energy - - - - Financials - + + + Utilities - - + + Materials - + - - Telecommunication Services + + + + Consumer Discretionary - - - - Total - - - Excess Attribution -.09% -4.28% The fund has over-weighted information technology, industrials, and telecommunication services. On the other hand, the fund has underweighted consumer staples, health care, energy, financials, utilities, materials, and consumer discretionary. The majority of the fund s underperformance can be attributed to our security selection, as opposed to our asset allocation. The financial, utility, and telecommunication services sectors all over-performed. Economics Summary Over the last six months central banks around the world have engaged in money printing, or quantitative easing as it is often referred to. In the United States, Federal Reserve Chairmen Ben Bernanke announced the third round of Quantitative Easing, in which the Fed will buy $40 billion of mortgage backed securities per month, with the possibility that they could continue to ease if there is no economic improvement. The European Central Bank also has announced that they are prepared to come to the aid of struggling countries, most notably Greece and Spain who have experienced rising interest rates. Domestically, the possibility of the fiscal cliff and the election have led to a sense of uncertainty in markets, and an unemployment rate that was above 8% throughout the spring and summer has fallen to 7.8% in September, although this has partly been attributed to Americans continuing to leave the labor force. Internationally, tensions with Iran remain and have resulted in economic sanctions, mostly related to oil, imposed by the US, Europe, and other countries. The Arab Spring has also continued into the fall, as uprisings and rebellion in Syria have continued from the summer. China s economic growth has slowed, from 9.2% in 2011 to a government projected 7.5% in 2012; also of note is the transition in leadership the country will go through that happens once a decade. 5 D CF March Report
Strategy Statement As the school year was came to an end in the spring the Fund entered into more defensive positions, such as Phillip Morris, and decided to put all cash received as dividends into the Spyder ETF in order to stay competitive with the market. With the resumption of school in the fall the Spyder was liquidated and our cash position was reduced in order to take advantage of opportunities in the market place, such as our purchase of shares in Express Scripts, Toronto Dominion Bank, and Nike. TRADES Date Ticker Buy/Sell # of Shares Price 5/9/2012 WYNN BUY 290 $127.36 5/9/2012 WPI BUY 12 $73.66 5/9/2012 V SELL -80 $81.07 5/9/2012 TD BUY 355 $43.18 5/9/2012 QCOM SELL -600 $62.04 5/9/2012 PEP SELL -600 $65.92 5/9/2012 PM BUY 70 $89.05 5/9/2012 NKE BUY 285 $111.66 5/9/2012 INTC BUY 700 $27.92 5/9/2012 GM SELL -200 $22.24 5/9/2012 GM SELL -700 $22.23 5/9/2012 EMN BUY 450 50.77 5/9/2012 DOW SELL -725 32.32 5/31/2012 SPY BUY 35 132.56 6/29/2012 SPY BUY 30 131.32 7/31/2012 SPY BUY 14 136.4 6 D CF March Report
9/21/2012 APPL SELL 10 $700.06 9/21/2012 ESRX BUY 125 $63.01 9/28/2012 NKE BUY 60 $95.73 9/28/2012 SPY SELL 79 $146.11 9/28/2012 TD BUY 70 $84.87 COMPLIANCE Into the spring and the summer we remained in compliance with our prospectus by keeping our cash position below 10% and rolling dividends into the SPYDR ETF. Each sector weight remained within the limits relative to the S&P 500. No single position exceeded 8% of the portfolio; however due to Apple s price appreciation it exceeded our internal control limit set of 6% of the portfolio. Since reconvening in August, the DCF has engaged in several security transactions; we liquidated 10 shares of Apple which had risen above 6% of the portfolio and sold our position in Chesapeake Energy, which had been less than 1% of the portfolio. CONCLUSION For the six months from March 31, 2012 to September 28, 2012 the D Artagnan Capital Fund underperformed the S&P 500 benchmark by 2.34%, which can be attributed more to our security selection than asset allocation; our beta was slightly higher than the market. Our top two holdings for the period were Apple and Visa. NRG Energy was our top performer returning 37.12% while Peabody Energy was our worst performer returning -22.49%. APPENDIX Weight Portfolio Weight Benchmark Portfolio Benchmark Contribution Portfolio Total 100.00 100.00 0.87 5.24 0.87 Information Technology 25.96 19.52 1.26 0.25 0.16 VISA INC 5.74 0.48 14.40 14.40 0.81 QUALCOMM INCORPORATED 0.49 0.75-8.92-7.43-0.25 MICROSOFT CORPORATION 4.24 1.87-6.51-6.51-0.31 INTEL CORPORATION 3.57 0.96-18.13-18.13-0.75 GOOGLE INC. 2.49 1.19 17.66 17.66 0.42 COGNIZANT TECHNOLOGY 3.60 0.14-9.17-9.17-0.45 SOLUTIONS APPLE INC. 5.83 4.17 11.74 11.74 0.68 Financials 11.93 13.24 1.33-0.08 0.04 U.S. BANCORP 1.61 0.45 9.57 9.57 0.15 7 D CF March Report
TORONTO-DOMINION BANK, THE 1.44 0.00 3.05 0.02 PNC FINANCIAL SERVICES GROUP 4.53 0.24-0.88-0.88-0.11 JPMORGAN CHASE & CO 1.95 1.06-10.64-10.64-0.28 CHUBB CORP. 2.40 0.14 11.60 11.60 0.25 Health Care 10.76 11.59 6.87 8.11 0.74 WATSON PHARMACEUTICALS INC. 1.04 0.07 26.99 26.99 0.25 UNITEDHEALTH GROUP INCORP 2.78 0.43-5.27-5.27-0.16 JOHNSON & JOHNSON 1.76 1.34 6.43 6.43 0.13 Express Scripts Holding Co 1.54 0.27 15.60 15.60 0.23 CARDINAL HEALTH, INC. 0.01 0.10-1.56-8.53-0.03 BRISTOL-MYERS SQUIBB CO. 1.52 0.42 1.99 1.99 0.04 ABBOTT LABORATORIES 2.12 0.74 13.70 13.70 0.28 Consumer Staples 7.81 11.46 1.84 3.52 0.04 PROCTER & GAMBLE CO. 2.15 1.31 4.97 4.97 0.11 PHILIP MORRIS INTERNATIONAL IN 2.09 1.11 3.40 3.40 0.07 PEPSICO INC. 0.50 0.80-5.24 8.31-0.14 KELLOGG CO. 1.67 0.13-1.99-1.99-0.05 CAMPBELL SOUP CO. 1.40 0.08 4.66 4.66 0.06 Consumer Discretionary 9.47 11.65-8.24 3.42-0.95 WYNN RESORTS LTD 1.62 0.08-8.47-6.61-0.29 TIME WARNER CABLE INC. 1.73 0.19 18.23 18.23 0.32 NIKE, INC. 1.53 0.27-14.44-11.86-0.34 MCDONALD'S CORPORATION 2.58 0.68-5.00-5.00-0.16 MACY'S RETAIL HOLDINGS INC. 1.50 0.11-4.29-4.29-0.09 GENERAL MOTORS COMPANY 0.51 0.25-13.53-11.31-0.39 Industrials 13.51 10.79-2.70 20.23-0.28 ILLINOIS TOOL WORKS INC. 2.79 0.19 5.52 5.52 0.13 General Electric Co 1.93 1.56 15.00 15.00 0.30 DONNELLEY (R.R.)& SONS CO. 2.12 0.00-10.87-0.18 CSX CORP. 2.84 0.17-2.35-2.35 0.05 Caterpillar Inc 2.71 0.43-18.37-18.37-0.64 3M COMPANY 1.12 0.45 4.98 4.98 0.06 Materials 2.90 3.56-2.46 1.09-0.09 The Dow Chemical Company 0.31 0.27-6.83-14.61-0.11 EASTMAN CHEMICAL COMPANY 1.23 0.05 13.34 11.43 0.21 ALCOA INC 1.36 0.07-11.02-11.02-0.18 Energy 10.74 10.97-2.29 3.02-0.27 TOTAL - ADS (REPRE: 1 ORD - SDL: 1.87 0.00 0.69 0.01 B15C557) PEABODY ENERGY CORPORATION 1.29 0.05-22.49-22.49-0.40 MURPHY OIL CORP. 2.22 0.07-3.47-3.47-0.07 HALLIBURTON COMPANY 1.34 0.22 2.10 2.10 0.02 CHEVRON CORPORATION 3.10 1.54 10.58 10.58 0.35 CHESAPEAKE ENERGY CORP 0.91 0.09-17.08-17.83-0.18 Unclassified 0.40 1.09 11.30 0.53 0.08 STANDARD & POOR'S - SPDR S&P 0.40 0.00 11.30 0.08 500 Cash 0.20 0.00 0.12 0.00 CASH 0.20 0.00 0.12 0.00 Utilities 3.10 3.18 23.08 1.74 0.66 PROGRESS ENERGY INC. 1.13 0.06 15.83 15.83 0.19 8 D CF March Report
NRG ENERGY INC. 1.57 0.00 37.12 0.55 DUKE ENERGY CORP (HOLDING 0.41 0.21-6.17 5.19-0.08 CO) Telecommunication Services 3.24 2.95 23.95 21.77 0.74 AT&T INC. 3.24 1.53 23.95 23.95 0.74 9 D CF March Report