Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student...

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1 Student Investment Advisory Services | Simon Fraser University

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Page 1: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

1 Student Investment Advisory Services | Simon Fraser University

Page 2: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

2 Student Investment Advisory Services | Simon Fraser University

Page 3: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

3 Student Investment Advisory Services | Simon Fraser University

Page 4: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

4 Student Investment Advisory Services | Simon Fraser University

Current Month Asset Mix

Name % Δ $ Δ Name % Δ $ Δ 30-Jun-10 IPS Range

BARRICK GOLD CORP 23.99 33,660.00 INMET MINING CORP -28.57 -29,505.00 35.64% 30 - 40%

BIOVAIL CORP 20.72 24,640.00 TECK RESOURCES LTD -28.86 -57,465.00 35.90% 30 - 40%

TELUS CORP 6.27 4,384.50 RESEARCH IN MOTION LTD -30.46 -38,964.00 26.18% 20 - 40%

MOLSON COORS CDA INC 6.08 4,090.60 FIRST QUANTUM MINERALS LTD -35.92 -45,030.00 2.29% 0 - 10%

REITMANS (CANADA) LTD 4.69 3,528.00 CANADIAN NATURAL RESOURCES LTD-53.00 -9,696.50

Asset Selection Interaction Value

Weight Return W*R Weight Return W*R Δ Weight Δ Return Allocation Decision Added

Canadian 35.00% -5.51% -1.93% 37.69% -8.22% -3.10% 2.69% -2.71% 0.07% -1.27% 0.08% -1.11%

Global 35.00% -8.45% -2.96% 34.89% -3.03% -1.06% -0.11% 5.42% 0.29% 1.72% -0.16% 1.85%

Fixed Income 28.00% 1.07% 0.30% 24.69% 1.06% 0.26% -3.31% -0.01% -0.04% 0.00% 0.00% -0.04%

Cash & Equivalents 2.00% 0.12% 0.00% 2.73% -1.05% -0.03% 0.73% -1.17% 0.00% -0.02% -0.01% -0.03%

Total 100.00% -0.05% -4.58% 100.00% -0.04% -3.92% 0.00% 0.01% 0.32% 0.43% -0.09% 0.66%

Attribution by Asset Class Attribution Analysis by Effects

(Rp-Rbm)x(Wp-Wbm)

Asset Class Allocation

Investment Objective

Compliance Officer

Selection Decision Interaction

Quarterly Report for the period ended June 30, 2010

Relative Attribution of Portfolio

Benchmark Portfolio Attribution

Due to Due to

Top gainers and losers

Gainers Losers

(Rp-Rbm)xWbm

0.43% -0.09%

Due to

Benchmark

(Wp-Wbm)xRbm

Attribution Review

The primary objective of this fund is to provide long-term capital growth. To achieve this

objective, the fund may focus its assets in specific industry sectors and asset classes based on

the analysis of business cycles, industry sectors and market outlook.

The SIAS Fund had a net value added 0.66% compared to the benchmark in 2010Q2. All asset

classes are in compliance with the IPS. The return data stated in this report include dividend

and interest.

Genica Gao

Genica Gao

[email protected]

-4.58% 0.32%

Portfolio Attribution

36%

36%

26%

2%

Canadian Global Fixed Income Cash & Equivalents

Asset Allocation 0.07% 0.29% -0.04% 0.00%

Selection Decision -1.27% 1.72% 0.00% -0.02%

Interaction 0.08% -0.16% 0.00% -0.01%

Value Added -1.11% 1.85% -0.04% -0.03%

-1.50%-1.00%-0.50%0.00%0.50%1.00%1.50%2.00%2.50%

%

Segal Graduate School of Business at Simon Fraser University

500 Granville Street. Vancouver, British Columbia. V6C 1W6

www.sfu.ca/segalschool

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Asset Selection Interaction Value

Weight Return W*R Weight Return W*R Δ Weight Δ Return Allocation Decision Added

Financials 10.90% -9.81% -1.07% 10.59% -11.88% -1.26% -0.31% -2.07% 0.03% -0.23% 0.01% -0.19%

Health Care 0.17% 11.27% 0.02% 1.22% 21.30% 0.26% 1.05% 10.03% 0.12% 0.02% 0.10% 0.24%

Utilities 0.58% -5.31% -0.03% 0.91% 1.55% 0.01% 0.33% 6.85% -0.02% 0.04% 0.02% 0.04%

Consumer Discr 1.58% 1.57% 0.02% 1.79% 4.44% 0.08% 0.21% 2.87% 0.00% 0.05% 0.01% 0.05%

Consumer Staples 0.90% -9.08% -0.08% 2.32% 2.66% 0.06% 1.42% 11.74% -0.13% 0.11% 0.17% 0.14%

Energy 9.22% -4.86% -0.45% 10.31% -3.74% -0.39% 1.09% 1.12% -0.05% 0.10% 0.01% 0.06%

Information Tech 1.17% -24.96% -0.29% 1.25% -30.46% -0.38% 0.07% -5.50% -0.02% -0.06% 0.00% -0.09%

Materials 6.97% 0.79% 0.06% 7.53% -19.68% -1.48% 0.56% -20.47% 0.00% -1.43% -0.11% -1.54%

Telecomm Svcs 1.52% 3.84% 0.06% 1.77% 5.03% 0.09% 0.25% 1.19% 0.01% 0.02% 0.00% 0.03%

Industrials 1.99% -6.20% -0.12% 0.00% 0.00% 0.00% -1.98% 6.20% 0.12% 0.12% -0.12% 0.12%

Total 35.00% -5.51% -1.89% 37.69% -8.22% -3.00% 2.69% -2.71% 0.07% -1.27% 0.08% -1.11%

`

Attribution by Asset Class Attribution Analysis by Effects

(Rp-Rbm)x(Wp-Wbm)

Asset Class Allocation

(Wp-Wbm)xRbm

0.07%-1.89%

PortfolioBenchmark

Due to

Quaterly Report for the period ended June 30, 2010

Relative Attribution of Canadian Equity

-1.27%

Benchmark

0.08%

Due to

Selection Decision

(Rp-Rbm)xWbm

Attribution

Due to

Interaction

Portfolio Attribution

-0.19%

0.24%0.04% 0.05% 0.14% 0.06%

-0.09%

-1.54%

0.03% 0.12%

Canadian Equity Value Added

Value Added

Market Selection Interaction Value

Weight Return W*R Weight Return W*R Δ Weight Δ Return Allocation Decision Added

Asia Pacific 6.54% -12.18% -0.80% 4.17% -10.47% -0.44% -2.37% 1.71% 0.29% 0.11% -0.04% 0.36%

Emerging 3.29% -7.29% -0.24% 3.67% -12.25% -0.45% 0.38% -4.96% -0.03% -0.16% -0.02% -0.21%

North America 15.43% -11.87% -1.83% 22.47% -6.47% -1.45% 7.04% 5.41% -0.83% 0.83% 0.38% 0.38%

Europe 9.74% -17.18% -1.67% 4.76% -7.48% -0.36% -4.99% 9.70% 0.86% 0.94% -0.48% 1.32%

Total 35.00% -4.53% -4.54% 35.06% -2.69% -2.69% 0.06% 1.84% * 0.29% 1.73% -0.17% 1.85%

The difference between the total Δ Return and the total Value Added

is because our attribution analysis is based on the static portfolio weight

Attribution by Regions Attribution Analysis by Effects

(Rp-Rbm)x(Wp-Wbm)

Segal Graduate School of Business at Simon Fraser University

500 Granville Street. Vancouver, British Columbia. V6C 1W6

www.sfu.ca/segalschool

Due to

Benchmark

(Wp-Wbm)xRb

-4.53% 0.29%

Market Allocation

1.73% -0.17%

Relative Attribution of Global Equity

Benchmark Portfolio Attribution

Due to Due to

Selection Decision Interaction

(Rp-Rbm)xWbm

0.36%

-0.21%

0.38%

1.32%

Asia Pacific Emerging North America Europe

Global Equity Value Added

Value Added

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Segal Graduate School of Business at Simon Fraser University

500 Granville Street. Vancouver, British Columbia. V6C 1W6

www.sfu.ca/segalschool

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Risk Metrics

Risk Summary 2010:Q2 Canadian & US Equity Transaction

Company Name Ticker Sector Trans Shares Price Values MVaR Beta

Husky Energy Inc HSE CN Equity Energy PURCHASES 1200 26.94 -32543.00 0.0230 1.027

Potash Corp of Saskatchewan IncPOT CN Equity Materials PURCHASES 576 101.54 -58700.08 0.0306 1.366

Molson Coors Canada Inc TPX/B CN Equity Consumer Staples SALES -1656 45.35 74884.60 0.0159 0.666

Nexen Inc NXY CN Equity Energy SALES -2100 22.48 46993.00 0.0282 1.179

Suncor Energy Inc SU CN Equity Energy SALES -1400 34.03 47427.00 0.0115 0.480

Total 78061.52

Canadian Equity Transaction on June 23, 2010

-0.5241%

0.6046%

-7.4351%

0.7693%

Annualized Port. Volatility:

Diversification Effect:

18.0844%

0.92948

After

0.93510

72051.23

43.7808%

Portfolio Beta:

Effect

Risk Statistics

Before

44.1176%

77838.60Daily 99 % VaR:

17.9896%

Asset Allocation (After)Asset Allocation (Before)

Cons. Discret., 4.36%

Cons. Staples, 6.94%

Energy, 24.46%

Financials, 28.57%

Health Care, 4.04%

Industrials, 0.00%

Info. Tech, 3.16%

Materials, 19.76%

Telecom Services, 5.33%

Utilities, 2.68%Cons. Discret.,

4.36%

Cons. Staples, 4.83%

Energy, 23.10%

Financials, 29.35%

Health Care, 4.32%

Industrials, 0.00%

Info. Tech, 3.05%

Materials, 21.86%

Telecom Services, 5.52%

Utilities, 2.77%

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Risk Decomposition (After)Risk Decomposition (Before)

Cons. Discret., 4.36%

Cons. Staples, 2.46%

Energy, 29.01%

Financials, 24.25%

Health Care, 4.10%

Industrials, 0.00%

Info. Tech, 2.53%

Materials, 32.98%

Telecom Services, 2.15%

Utilities, 0.96% Cons. Discret., 4.36%

Cons. Staples, 2.59%

Energy, 26.79%

Financials, 25.99%

Health Care, 2.16%

Industrials, 0.00%

Info. Tech, 2.93%

Materials, 34.27%

Telecom Services, 2.33%

Utilities, 1.14%

Company Name Ticker Sector Trans Shares Price Values MVaR Beta

SPDR S&P 500 ETF Trust SPY US Equity ETF Buy 1660 107.86 179262.43 0.0096 0.3980

Health Care SPDR Fund XLV US Equity Health Care Buy 6500 29.04 188974.35 0.0153 0.6333

Technology SPDR Fund XLK US Equity Info. Tech. Buy 9000 21.53 193985.00 0.0237 0.9811

562221.78

Company Name Ticker Sector Trans Shares Price Values MVaR Beta

Chevron Corp CVX Us Equity Energy Sell 2700 70.47 185370.00 0.0097 0.3811

Freeport-McMoRan Copper FCX US Equity Materials Sell 800 64.93 54093.92 0.0218 0.8520

Goldman Sachs Group GS US Equity Financials Sell 400 137.56 53685.96 0.0403 1.5757

Visa Inc V US Equity Info. Tech. Sell 1800 76.77 140351.82 0.0311 1.2155

433501.70

US Equity Transaction on June 25, 2010

-0.802%

0.301%

-3.000%

-22.451%

Before

50229.23 48722.36

Diversification Effect:

Risk Statistics

Effect

Portfolio Beta:

19.9695%

25.7857%

19.8093%

19.9966%

After

Annualized Port. Volatility:

0.75107 0.75333

Daily 99 % VaR:

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Asset Allocation (Before) Asset Allocation (After)

Risk Decomposition (Before) Risk Decomposition (After)

Cons. Discret., 4.36%

Cons. Staples, 18.76%

Health Care, 4.50%

Industrials, 9.54%

Information Tech., 21.14%Materials,

5.44%

US ETF, 22.57%

Energy, 9.67%

Financials, 2.86%

Cons. Discret., 4.36%

Cons. Staples, 17.64%

Health Care, 13.29%

Industrials, 8.97%

Info. Tech, 22.53%

Materials, 2.56%

US ETF, 29.83%

Cons. Discret., 4.36% Cons. Staples,

9.86%

Health Care, 7.77%

Industrials, 9.74%

Info. Tech, 28.60%

Materials, 5.29%

US ETF, 36.14%

Cons. Discret., 4.36% Cons. Staples,

9.57%

Health Care, 1.60%

Industrials, 9.46%

Info.Tech., 26.30%

Materials, 10.30%

US ETF, 24.75%

Energy, 12.52%

Financials, 2.95%

Page 10: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

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Canadian Equity

Global Equity

Fixed Income

Economics and Portfolio Strategy

Canadian Equity Risk Metrics Monthly Report for the period ended April 30, 2010

16.633% -1667.242%

19.702% 0.177%

48.965% -762.270%

1M Performance: 1M Performance:

Q2 Performance Q2 Performance

Total Performance: Total Performance:

93037.47 0

294210.30 0

0

10 Days 99% VaR:

99% Value at Risk V.S Actual Returns

Annualized TSX Volatility:

Tracking Error I:

Tracking Error II:

Chances of Outperform

45.933%

38.095%

-0.0052

Chances of Outperform

-1.2873

38.095%

38.095%

38.095%

48.804%

Risk Adjusted Alpha Risk Adjusted Alpha

Information Ratio:Diversification Effect:

Num of Exception from July 2009:

Num of Exception in Q2:

Annualized Port. Volatility:

Sharpe Ratio Analysis Treynor Ratio Analysis

Num of Exception in April:

Daily 99 % VaR:

Quick Statistics

Port. Returns

99% VaR

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

20

09

-07

-02

20

09

-08

-02

20

09

-09

-02

20

09

-10

-02

20

09

-11

-02

20

09

-12

-02

20

10

-01

-02

20

10

-02

-02

20

10

-03

-02

20

10

-04

-02

2.0000

1.5000

1.0000

0.5000

0.0000

0.5000

1.0000

1.5000

2.0000

2.5000

3.0000

02

/07

/09

02

/08

/09

02/0

9/0

9

02

/10

/09

02/1

1/0

9

02

/12

/09

02/0

1/1

0

02

/02

/10

02/0

3/1

0

02/0

4/1

0

Risk Adjusted Alpha

0.0100

0.0050

0.0000

0.0050

0.0100

0.0150

0.0200

02/0

7/0

9

02/0

8/0

9

02/0

9/0

9

02

/10

/09

02

/11

/09

02/1

2/0

9

02/0

1/1

0

02/0

2/1

0

02

/03

/10

02

/04

/10

Risk Adjusted Alpha

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11 Student Investment Advisory Services | Simon Fraser University

Sector Risk(%) Asset(%) Strategy

Cons. Discretionary 0.815% 4.477% Market

Cons. Staples 1.422% 6.319% Market

Energy 36.465% 27.541% Over

Financials 16.512% 28.426% Market

Health Care 1.634% 3.250% Over

Industrials 0.000% 0.000% Under

Info. Tech 9.237% 3.343% Market

Materials 31.137% 19.663% Over

Telecom Services 2.172% 4.629% Market

Utilities 0.606% 2.322% Market

Total 1.0000 0.9997

Sector Per Dollar Sector Per Dollar

Info. Tech 0.07358 Energy 0.00017

Materials 0.06232 Discretionary 0.00152

Materials 0.06161 Staples 0.00365

Energy 0.05387 Staples 0.00590

Materials 0.04585 Discretionary 0.00623

[email protected]

604-518-1622

Objective of RiskMetrics Team

The objective of the Risk Team couple with Compliance is to add value to the SIAS fund operation, in terms of regularly

monitoring risk factors and providing risk statistics to support asset allocation and selection process. The reestablishment of the

risk team will be permanent and all the procedures are organized into user manual to facilitate the transition of management.

RiskMetrics Officer

TECK RESOURCES LTD

Activity Highlights

Value at Risk Decomposition By Sector

REITMANS CANADA LTD

Top 5 Stabilizer by MVaR

CENOVUS ENERGY INCRESEARCH IN MOTION

Top 5 Fluctuaters by MVaR

www.sfu.ca/segalschool

FIRST QUANTUM MINER

INMET MINING METRO INC

MOLSON COORS CDA INC CL B

Segal Graduate School of Business at Simon Fraser University

500 Granville Street. Vancouver, British Columbia. V6C 1W6

Ted Hsieh

Ted Hsieh

We have made some improvements for the estimation as the following:

1. All the returns are adjusted and taken the dividends into account

2. The month risk adjusted alphas (sharpe & treynor) are added into the report

TIM HORTONS INC

CANADIAN OIL SANDS TR

Discretionary1%

Consumer Staples

1%

Energy36%

Financials17%

Health Care2%

Industrials0%

Information Technology

9%

Materials31%

Telecom Services

6%

Utilities1%

Page 12: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

12 Student Investment Advisory Services | Simon Fraser University

Canadian Equity Risk Metrics Monthly Report for the period ended May 31, 2010

18.228% 26.233%

18.783% 0.327%

41.407% -405.653%

1M Performance: 1M Performance:

Q2 Performance Q2 Performance

Total Performance: Total Performance:

-90871.19 30

-287359.93 1

1

Sharpe Ratio Analysis Treynor Ratio Analysis

Num of Exception in May:

Daily 99 % VaR:

Quick Statistics

Annualized Port. Volatility:

Risk Adjusted Alpha Risk Adjusted Alpha

Information Ratio:Diversification Effect:

Num of Exception in from April 2003:

Num of Exception in Q2:

50.000%

51.220%

55.000%

50.673%

Annualized TSX Volatility:

Tracking Error I:

Tracking Error II:

Chances of Outperform

49.776%

48.780%

-0.0002

Chances of Outperform

0.0099

10 Days 99% VaR:

99% Value at Risk V.S Actual Returns

2.0000

1.5000

1.0000

0.5000

0.0000

0.5000

1.0000

1.5000

30

/04

/03

30

/04

/04

30

/04

/05

30

/04

/06

30

/04

/07

30

/04

/08

30

/04

/09

30

/04

/10

Risk Adjusted Alpha

0.0400

0.0300

0.0200

0.0100

0.0000

0.0100

0.0200

0.0300

0.0400

30/0

4/0

3

30

/04

/04

30

/04

/05

30/0

4/0

6

30/0

4/0

7

30

/04

/08

30

/04

/09

30/0

4/1

0

Risk Adjusted Alpha

Port. Returns

99% VaR

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20

03

-04

-30

20

04

-04

-30

20

05

-04

-30

20

06

-04

-30

20

07

-04

-30

20

08

-04

-30

20

09

-04

-30

20

10

-04

-30

Page 13: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

13 Student Investment Advisory Services | Simon Fraser University

Sector Risk(%) Asset(%) Strategy

Cons. Discretionary 1.438% 5.126% Market

Cons. Staples 2.110% 6.934% Market

Energy 29.655% 24.178% Over

Financials 27.942% 29.192% Market

Health Care 1.235% 3.312% Over

Industrials 0.000% 0.000% Under

Info. Tech 2.392% 3.271% Market

Materials 32.512% 20.114% Over

Telecom Services 1.812% 5.223% Market

Utilities 0.904% 2.650% Market

Total 1.0000 1.0000

Sector Per Dollar Sector Per Dollar

Materials 0.07361 Materials 0.00010

Materials 0.07110 Cons. Staples 0.00059

Materials 0.06169 Cons. Discretionary0.00611

Energy 0.05270 Cons. Discretionary0.00863

Energy 0.05227 Tele Services 0.00867

[email protected]

604-518-1622

Objective of RiskMetrics Team

The objective of the Risk Team couple with Compliance is to add value to the SIAS fund operation, in terms of regularly monitoring

risk factors and providing risk statistics to support asset allocation and selection process. The reestablishment of the risk team will

be permanent and all the procedures are organized into user manual to facilitate the transition of management.

RiskMetrics Officer

SUNCOR ENERGY INC NEW

Activity Highlights

Value at Risk Decomposition By Sector

MOLSON COORS CDA INC CL B

Top 5 Stabilizer by MVaR

AGRIUM INCFIRST QUANTUM MINERALS

Top 5 Fluctuaters by MVaR

www.sfu.ca/segalschool

TECK RESOURCES LTD CL B

INMET MINING CORP REITMANS CANADA LTD

TIM HORTONS INC

Segal Graduate School of Business at Simon Fraser University

500 Granville Street. Vancouver, British Columbia. V6C 1W6

Ted Hsieh

Ted Hsieh

We have made some improvements for the estimation as the following:

1. Back tracking the hisorical data to April 30, 2003, and the back testing results for the risk model is favuorable.

2. Sharpe, Treynor, and VaR analysis are undated corresponding to the back tracking historical data.

BCE INC

CANADIAN NAT RESOUR

Consumer Discretionary

1%Consumer

Staples

2%

Energy30%

Financials28%Health Care

1%

Information Technology

2%

Materials33%

Telecommunication Services

2%

Utilities1%

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14 Student Investment Advisory Services | Simon Fraser University

Canadian Equity Risk Metrics Monthly Report for the period ended June 30, 2010

17.593% -23.362%

17.890% 0.350%

43.977% 220.257%

1M Performance: 1M Performance:

Q2 Performance Q2 Performance

Total Performance: Total Performance:

-85727.42 31

-271093.90 2

1

Sharpe Ratio Analysis Treynor Ratio Analysis

Num of Exception in June:

Daily 99 % VaR:

Quick Statistics

Annualized Port. Volatility:

0.0028Risk Adjusted Alpha

Information Ratio:Diversification Effect:

Num of Exception from April 2003:

Num of Exception in Q2:10 Days 99% VaR:

Risk Adjusted Alpha

49.206%

45.455%

49.206%

-0.0002

Chances of Outperform

50.000%

49.113%

99% Value at Risk V.S Actual Returns

Annualized TSX Volatility:

Tracking Error I:

Tracking Error II:

Chances of Outperform

49.169%

2.0000

1.5000

1.0000

0.5000

0.0000

0.5000

1.0000

1.5000

30

/04

/03

30/0

4/0

4

30/0

4/0

5

30

/04

/06

30

/04

/07

30/0

4/0

8

30/0

4/0

9

30

/04

/10

Risk Adjusted Alpha

0.0400

0.0300

0.0200

0.0100

0.0000

0.0100

0.0200

0.0300

0.0400

30

/04

/03

30

/04

/04

30/0

4/0

5

30/0

4/0

6

30

/04

/07

30

/04

/08

30

/04

/09

30/0

4/1

0

Risk Adjusted Alpha

Port. Returns

99% VaR

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20

03

-04

-30

20

04

-04

-30

20

05

-04

-30

20

06

-04

-30

20

07

-04

-30

20

08

-04

-30

20

09

-04

-30

20

10

-04

-30

Page 15: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

15 Student Investment Advisory Services | Simon Fraser University

Sector Risk(%) Asset(%) Strategy

Cons. Discretionary 1.743% 5.332% Market

Cons. Staples 2.383% 4.988% Market

Energy 26.287% 23.000% Over

Financials 24.459% 29.305% Market

Health Care 4.211% 4.624% Over

Industrials 0.000% 0.000% Under

Info. Tech 2.679% 2.865% Market

Materials 34.872% 21.457% Over

Telecom Services 2.414% 5.574% Market

Utilities 0.951% 2.855% Market

Total 1.0000 1.0000

Sector Per Dollar Sector Per Dollar

TECK RESOURCES LTD Materials 0.05798 Materials 0.00487

FIRST QUANTUM MINERALS Materials 0.05088 Cons. Discre. 0.00562

INMET MINING CORP Materials 0.04990 Cons. Discre. 0.00750

SUNCOR ENERGY INC NEW Energy 0.03875 Utilities 0.00803

POTASH CORP OF SASKA Materials 0.03652 Energy 0.00866

www.sfu.ca/segalschool

REITMANS CANADA LTD

EMERA INC

Segal Graduate School of Business at Simon Fraser University

500 Granville Street. Vancouver, British Columbia. V6C 1W6

Ted Hsieh

Ted Hsieh

604-518-1622

Top 5 Fluctuaters by MVaR Top 5 Stabilizer by MVaR

AGRIUM INC

The objective of the Risk Team couple with Compliance is to add value to the SIAS fund operation, in terms of regularly monitoring

risk factors and providing risk statistics to support asset allocation and selection process. The reestablishment of the risk team will

be permanent and all the procedures are organized into user manual to facilitate the transition of management.

TIM HORTONS INC

TRANSCANADA CORP

Value at Risk Decomposition By Sector

Objective of RiskMetrics Team

RiskMetrics Officer

[email protected]

Consumer Discretionary

2%

Consumer Staples

2%

Energy26%

Financials25%

Health Care4%

Information Technology

3%

Materials35%

Telecommunication Services

2%

Utilities1%

Page 16: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

16 Student Investment Advisory Services | Simon Fraser University

Global Equity

Canadian Equity

Fixed Income

Economics and Portfolio Strategy

U.S. Equity Risk Metrics Monthly Report for the period ended April 30, 2010

24.251% -271.84%

24.182% 0.20%

33.414% -529.51%

1M Performance: 1M Performance:

Q2 Performance Q2 Performance

Total Performance: Total Performance:

-82437.54 0

-260690.40 0

0

10 Days 99% VaR:

Quick Statistics

Annualized Port. Volatility:

Sharpe Ratio Analysis Treynor Ratio Analysis

Num of Exception from in April:

99% Value at Risk V.S Actual Returns

-0.0075-0.1456

Numnber of Exception in Q2:

Chances of Outperform

Risk Adjusted Alpha Risk Adjusted Alpha

Annualized S&P500 Volatility:

Tracking Error I:

Tracking Error II:

42.857%

46.190%

Num of Exception from July 2009:Daily 99 % VaR:

Information Ratio:Diversification Effect:

Chances of Outperform

47.619%

47.619%

45.238%

42.857%

3.0000

2.0000

1.0000

0.0000

1.0000

2.0000

3.0000

4.0000

01

/07

/09

01

/08

/09

01

/09

/09

01

/10

/09

01

/11

/09

01

/12

/09

01

/01

/10

01

/02

/10

01

/03

/10

01

/04

/10

Risk Adjusted Alpha

0.0100

0.0050

0.0000

0.0050

0.0100

0.0150

01

/07

/09

01

/08

/09

01

/09

/09

01

/10

/09

01

/11

/09

01

/12

/09

01

/01

/10

01

/02

/10

01

/03

/10

01

/04

/10

Risk Adjusted Alpha

Port. Returns

99%VaR-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

20

09

-07

-01

20

09

-08

-01

20

09

-09

-01

20

09

-10

-01

20

09

-11

-01

20

09

-12

-01

20

10

-01

-01

20

10

-02

-01

20

10

-03

-01

20

10

-04

-01

Page 17: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

17 Student Investment Advisory Services | Simon Fraser University

Sector Risk(%) Asset(%) Strategy

Cons. Discretionary 2.485% 5.300% -

Cons. Staples 12.939% 18.061% -

Energy 11.638% 10.275% -

Financials 4.262% 2.964% -

Health Care 2.172% 4.510% -

Industrials 7.923% 9.572% -

Info. Tech 29.872% 22.426% -

Materials 7.539% 5.966% -

US ETF 21.170% 22.883% -

Total 1.0000 1.0196

Sector Per Dollar Sector Per Doolar

Discretionary 0.08072 Discretionary 0.02031

Info.Tech. 0.08060 Staples 0.02033

Materials 0.07461 Health Care 0.02095

Financials 0.06255 Staples 0.02751

Info. Tech. 0.05514 Staples 0.02985

Ted Hsieh

KRISPY KREME DOUGHNUTS INC WT

Top 5 Fluctuaters by MVaR

As the strategic decision, the US ETF is hold as self-diversified

purpose for the US equity portfolio, and additional investment

is made into the individual stock that is expected to be well

performing

Value at Risk Decomposition By Sector

Segal Graduate School of Business at Simon Fraser University

Ted HsiehRiskMetrics Officer

500 Granville Street. Vancouver, British Columbia. V6C 1W6

[email protected]

604-518-1622

www.sfu.ca/segalschool

VISA INC COM CL A

FREEPORT MCMORAN COPPER & GOLD JOHNSON & JOHNSON COM

COCA COLA CO COM

ALTRIA GROUP INCINTEL CORP

Objective of RiskMetrics Team

The objective of the Risk Team couple with Compliance is to add value to the SIAS fund operation, in terms of regularly monitoring

risk factors and providing risk statistics to support asset allocation and selection process. The reestablishment of the risk team will be

permanent and all the procedures are organized into user manual to facilitate the transition of management.

WAL MART STORES INC COM

Activity Highlights

We have made some improvements for the estimation as the following:

1. All the returns are adjusted and taken the dividends into account

2. The month risk adjusted alphas (sharpe & treynor) are added into the report

GOLDMAN SACHS GROUP INC COM

Top 5 Stabilizer by MVaR

MCDONALDS CORP COM

Consumer Discretionary

2%

Consumer Staples

13%

Energy12%

Financials4%

Health Care2%Industrials

8%Information Technology

30%

Materials8%

US ETF21%

Page 18: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

18 Student Investment Advisory Services | Simon Fraser University

U.S. Equity Risk Metrics Monthly Report for the period ended May 28, 2010

19.257% -4.63%

27.002% 0.29%

26.493% 128.70%

Risk Adjusted Alpha 1M

1M Performance: 1M Performance:

Q2 Performance Q2 Performance

Total Performance: Total Performance:

59571.63 30

188382.03 3

2

Chances of Outperform

30.000%

41.463%

48.965%

30.000%

Annualized S&P500 Volatility:

Tracking Error I:

Tracking Error II:

41.463%

50.065%

Num of Exception from April 2004:Daily 99 % VaR:

Information Ratio:Diversification Effect:

Chances of Outperform

Risk Adjusted Alpha 1M

Sharpe Ratio Analysis Treynor Ratio Analysis

Num of Exception in May:

99% Value at Risk V.S Actual Returns

-0.0008-0.0517

Numnber of Exception in Q2:10 Days 99% VaR:

Quick Statistics

Annualized Port. Volatility:

1.0000

0.5000

0.0000

0.5000

1.0000

1.5000

2.0000

08

/04

/04

08

/04

/05

08

/04

/06

08

/04

/07

08

/04

/08

08

/04

/09

08

/04

/10

Risk Adjusted Alpha

0.0200

0.0100

0.0000

0.0100

0.0200

0.0300

0.0400

08

/04

/04

08

/04

/05

08

/04

/06

08

/04

/07

08

/04

/08

08

/04

/09

08

/04

/10

Risk Adjusted Alpha

Port. Returns

99%VaR (%)

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20

04

-04

-08

20

05

-04

-08

20

06

-04

-08

20

07

-04

-08

20

08

-04

-08

20

09

-04

-08

20

10

-04

-08

Page 19: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

19 Student Investment Advisory Services | Simon Fraser University

Sector Risk(%) Asset(%) Strategy

Cons. Discretionary 2.075% 5.390% -

Cons. Staples 10.046% 18.860% -

Energy 8.949% 10.034% -

Financials 3.477% 2.903% -

Health Care 2.082% 4.399% -

Industrials 7.967% 9.413% -

Info. Tech 21.524% 20.812% -

Materials 10.925% 5.662% -

US ETF 32.955% 22.526% -

Total 1.0000 1.0000

Sector Per Dollar Sector Per Doolar

Materials 0.03610 Cons. Staples 0.00555

Materials 0.03424 Cons. Staples 0.00713

Con. Disc. 0.03147 Cons. Staples 0.00852

US ETF 0.02600 Cons. Disc. 0.00878

Financials 0.02515 Cons. Staples 0.01046

Ted Hsieh

FREEPORT MCMORAN COPPER

Top 5 Fluctuaters by MVaR

As the strategic decision, the US ETF is hold as self-diversified

purpose for the US equity portfolio, and additional investment

is made into the individual stock that is expected to be well

performing

WAL MART STORES INC COM

DOW CHEM CO COM

Segal Graduate School of Business at Simon Fraser University

Ted HsiehRiskMetrics Officer

Value at Risk Decomposition By Sector

500 Granville Street. Vancouver, British Columbia. V6C 1W6

www.sfu.ca/segalschool

KRISPY KREME DOUGHNUTS COCA COLA CO COM

MCDONALDS CORP COM

PROCTER & GAMBLE CO COMGOLDMAN SACHS GROUP

Objective of RiskMetrics Team

The objective of the Risk Team couple with Compliance is to add value to the SIAS fund operation, in terms of regularly monitoring

risk factors and providing risk statistics to support asset allocation and selection process. The reestablishment of the risk team will be

permanent and all the procedures are organized into user manual to facilitate the transition of management.

Top 5 Stabilizer by MVaR

COLGATE PALMOLIVE CO

[email protected]

604-518-1622

Activity Highlights

We have made some improvements for the estimation as the following:

1. Back tracking the hisorical data to April 8, 2004, and the back testing results for the risk model is favuorable.

2. Sharpe, Treynor, and VaR analysis are undated corresponding to the back tracking historical data.

SPDR TR UNIT SER 1 S&P

Consumer Discr 2%

Consumer Staples

10%

Energy9%

Financials3%

Health Care

2%Industrials

8%

Information Technology

22%

Materials11%

US ETF33%

Page 20: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

20 Student Investment Advisory Services | Simon Fraser University

U.S. Equity Risk Metrics Monthly Report for the period ended June 30, 2010

19.474% -28.15%

25.083% 0.37%

21.427% 325.43%

Risk Adjusted Alpha 1M

1M Performance: 1M Performance:

Q2 Performance Q2 Performance

Total Performance: Total Performance:

58336.46 32

184476.09 5

2

99% Value at Risk V.S Actual Returns

Annualized S&P500 Volatility:

Annualized Port. Volatility:

Quick Statistics

Information Ratio:

Tracking Error I:

Num of Exception in June:

10 Days 99% VaR: Numnber of Exception in Q2:

Sharpe Ratio Analysis Treynor Ratio Analysis

Diversification Effect:

Tracking Error II:

41.270%

48.852%

-0.0204

Chances of Outperform

41.270%

Daily 99 % VaR:

-0.0003Risk Adjusted Alpha 1M

49.936%

40.909%

Num of Exception from April 2004:

Chances of Outperform

40.909%

1.0000

0.5000

0.0000

0.5000

1.0000

1.5000

2.0000

08

/04

/04

08

/04

/05

08

/04

/06

08

/04

/07

08

/04

/08

08

/04

/09

08

/04

/10

Risk Adjusted Alpha

0.0200

0.0100

0.0000

0.0100

0.0200

0.0300

0.0400

08

/04

/04

08

/04

/05

08

/04

/06

08

/04

/07

08

/04

/08

08

/04

/09

08

/04

/10

Risk Adjusted Alpha

Port. Returns

99%VaR (%)

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20

04

-04

-08

20

05

-04

-08

20

06

-04

-08

20

07

-04

-08

20

08

-04

-08

20

09

-04

-08

20

10

-04

-08

Page 21: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

21 Student Investment Advisory Services | Simon Fraser University

Sector Risk(%) Asset(%) Strategy

Cons. Discretionary 2.254% 5.198% -

Cons. Staples 8.854% 18.021% -

Health Care 7.194% 13.636% -

Industrials 8.888% 8.998% -

Information Tech. 30.280% 22.438% -

Materials 4.817% 2.454% -

US ETF 37.714% 29.255% -

-

-

Total 1.0000 1.0000

Sector Per Dollar Sector Per Doolar

Materials 0.04008 Cons. Staples 0.00925

Cons. Discre. 0.03426 Cons. Staples 0.01003

Info. Tech. 0.02808 Cons. Staples 0.01029

Industrials 0.02699 Cons. Discre. 0.01030

Info. Tech. 0.02573 Health Care 0.01221

KRISPY KREME DOUGHNUTS

COLGATE PALMOLIVE CO

500 Granville Street. Vancouver, British Columbia. V6C 1W6

The objective of the Risk Team couple with Compliance is to add value to the SIAS fund operation, in terms of regularly monitoring

risk factors and providing risk statistics to support asset allocation and selection process. The reestablishment of the risk team will be

permanent and all the procedures are organized into user manual to facilitate the transition of management.

Ted Hsieh

Segal Graduate School of Business at Simon Fraser University

604-518-1622

[email protected]

Objective of RiskMetrics Team

We have made some improvements for the estimation as the following:

1. Back tracking the hisorical data to April 8, 2004, and the back testing results for the risk model is favuorable.

2. Sharpe, Treynor, and VaR analysis are undated corresponding to the back tracking historical data.

www.sfu.ca/segalschool

Ted Hsieh

CORNING INC COM COCA COLA CO COM

MCDONALDS CORP COM

JOHNSON & JOHNSON COMINTEL CORP

RiskMetrics Officer

UNION PAC CORP COM

Activity Highlights

WAL MART STORES INC COM

Value at Risk Decomposition By Sector

Top 5 Stabilizer by MVaR

DOW CHEM CO COM

As the strategic decision, the US ETF is hold as self-diversified

purpose for the US equity portfolio, and additional investment

is made into the individual stock that is expected to be well

performing, and also to have some exposure of certain sectors

due to lack of value stock in Canadian Market.

Top 5 Fluctuaters by MVaR

Cons Discretionary

2%

Consumer Staples

9%

Health Care7%

Industrials9%

Information Technology

29%

Materials5%

US ETF39%

Page 22: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 15, 2010

Energy Sector Jerry Su

22 Student Investment Advisory Services | Simon Fraser University

Sector Outlook

Global Equity

Fixed Income

Economics and Portfolio Strategy

Natural Gas Outlook

Volatility is on the run in the short term.

Price will be depressed in the longer term.

In the short run, fluctuations in Natural Gas (NGAS)

prices are largely derived from weather, current economic

conditions, and storage. Volatility is higher as all these

factors are harder to predict whereas the long term price

is mainly derived from supply and demand. This is

substantiated by Figure 1, which shows that the spot rate

is more volatile than the futures contract. As per the same

figure, we can see that prices tend to increase when the

storage cycle is at its low. Therefore, prices are expected

to increase in the short term. But we don’t expect it to

achieve new highs above $7.50 as it did in Jan 2010. The

reason is because the current market is oversupplied with

the discovery and popularity of Shale gas production.

In the long run, based on the overall consumption of

natural gas in USA (Figure 2), we can see that the current

consumption has reached a low for United States since

early 2007. Economic recovery in the long run leading to

increased demand for energy is the consensus among

economists, however, the total consumption is only

expected to increase by 0.5 trillion cubic feet (TCF) by

2011 according to the Department of Energy.

The only way that NGAS usage will surpass other non-

renewable resources such as Oil and Coal is if governments

implement pro-natural gas policies and assuming no

advancement in renewable energy technology for decades

to come. This prediction can be confirmed with DOE’s

future projection of world consumption of non-renewable

energy (Figure 3). The gap between Oil and NGAS

consumption will actually increase by 2035. The gap is

forecasted to be filled by the increasing consumption of

coal. The reasoning behind this is that coal currently costs

$2.27 per Million BTU while NGAS costs $6.05 for the

exact amount of energy. Crude oil is still the most

expensive, costing around $9.30 per Million BTU1

.

1 http://www.eia.doe.gov/emeu/mer/pdf/pages/sec9_15.pdf

Figure 1

Figure 2

Figure 3

Page 23: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 15, 2010

Energy Sector Jerry Su

23 Student Investment Advisory Services | Simon Fraser University

Long term supply exceeds demand

Growth in consumption of NGAS has stabilized in

the past six years in North America. The level of

consumption has not deviated by more than 1%

except in 2007. The 2007 growth is mainly due to

increase in NGAS usage for power generation,

lease and plant fuel (Table 1). Looking on to the

projected net change of world natural gas reserves

by 2035 (Figure 4), we can expect a total of 48.8

TCF of natural gas increase in global reserves and

an increase of 4.1 TCF from the United States. The

current known world reserve for NGAS is 6,254

TCF2. This will allow approximately 50 years of

usage.

View on energy companies.

Energy companies are 26% of the TSX so it is difficult to avoid companies with natural gas plays. Do note

that despite our bearish view on the price of natural gas, it will not deter us away from well managed

companies such as EnCana. Also, North America’s shale gas region hasn’t fully discovered yet. Companies

could be sitting on reserves that will increase their value significantly despite the downward pricing. Also, a

downward pricing of natural gas could make it into a favourable alternative energy compared to Coal. If this

was to happen in the future, it will increase the demand of natural gas significantly.

2 http://www.eia.doe.gov/emeu/international/reserves.html

Figure 4

Consumption (TCF) 2004 2005 2006 2007 2008 2009

 Residential 4.8545 4.8253 4.36905 4.7231 4.85815 4.7596

-1% -9% 8% 3% -2%

 Commercial 3.12075 3.0003 2.8324 3.01125 3.12805 3.11345

-4% -6% 6% 4% 0%

 Industrial 7.22335 6.59555 6.5116 6.64665 6.63205 6.14295

-9% -1% 2% 0% -7%

 Electric Power 5.44945 5.8692 6.22325 6.8401 6.6503 6.88755

8% 6% 10% -3% 4%

 Lease and Plant Fuel 1.095 1.11325 1.14245 1.2264 1.2191 1.2629

2% 3% 7% -1% 4%

 Pipeline and Distribution Use 0.56575 0.584 0.584 0.6205 0.64605 0.63875

3% 0% 6% 4% -1%

 Vehicle Use 0.0219 0.0219 0.02555 0.02555 0.0292 0.03285

0% 17% 0% 14% 13%

 Total Consumption 22.3307 22.0095 21.6883 23.09355 23.1629 22.83805

-1% -1% 6% 0% -1%

Table 1

Page 24: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 10, 2010

Energy Sector Richard Cotter

24 Student Investment Advisory Services | Simon Fraser University

0

20

40

60

80

100

10/2008 03/2009 08/2009 01/2010 06/2010 11/2010

Crude Oil Spot and Futures Prices ($USD/barrell)

SpotPrice

Jun-11

Crude Oil Outlook

Volatile Markets Crude oil markets have been extremely volatile

since prices peaked in 2007. With a decrease in the

amount of storage tankers holding crude oil for

speculative profits, it appeared that crude markets

were showing signs of reverting towards true

fundamentals where general supply and demand

drive prices. However, large speculation and

continuous worry over European sovereign debt

and Chinese demand has sent crude prices back to

10 month lows ($70 USD/barrel).

Oil Arbitrage The growing trend over the last 6 months has been

for speculators to enter into crude arbitrage

agreements by holding oil in tankers coupled with

taking advantage of contango futures’ markets.

While the trend was starting to diminish, it

reverted by the end of Q1 2010. We believe that

this trend will continue for the short-term as prices

are at 10 month lows. This speculative strategy is

difficult for value investors who trade on

fundamentals and look for long-term gains.

However, we believe that enviably supply and

demand for a non-renewable resource will revert

back to rationale economics. Correspondingly, the

most prudent way to take advantage of this is to be

bullish on long-term crude prices.

Supply and Demand Due to the number of storage tankers decreasing

during Q1 2010, there was a flood of crude

entering the markets. While short-term demand is

in question, long-term demand is not. Until

efficient renewable sources are the focal, long-

term demand for crude oil is safe.

On the Move

As supply increased, shipping and pipeline indexes

have increased as well. The Baltic Dry Ice Index,

as a proxy to determine the movement of all the

overall economy, demonstrates that the business

continues to be strong.

The BUSPIPE index reveals that the top North

American pipelines are increasing in value. While

we forecast that crude storage will increase, we

believe in summer months businesses will

continue to need oil and in turn pipeline activity

will remain strong. Crude oil speculative investing

that is associated with the tankers is only one half

of the equation. The second half being that crude

serves a function. Even though, equity markets

have been volatile, company earnings continue to

demonstrate strong growth and this will

fundamentally help drive crude price in the future.

Estimated

-4

-2

0

2

Net Demand Minus Supply Crude Oil (millions barrels/day)

0

20

40

60

80

0

1000

2000

3000

4000

5000

10/2008 02/2009 06/2009 10/2009 02/2010

Pipeline and Shipping Indexes

BDIY

BUSPIPE

BDIY BUSPIPE

0

10

20

30

11/2009 12/2009 01/2010 02/2010 03/2010

Storage Tanker Index (Flot)

Page 25: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 25, 2010

Financial Sector Ye (Juliet) Zhu

25 Student Investment Advisory Services | Simon Fraser University

Financial Institutions Outlook

In order to investigate future opportunities in the

financial sector, we take a look at the products and

services offered by financial institutions. Besides

the general saving deposits, we placed the

emphasis on the other major financial products

including fixed income, insurance and mutual

funds. The specific potential risks in financial

market are also analyzed.

Fixed income is an

excellent choice of

investment vehicle for

investors who are

looking for a secure

and stable source of

interest income. In the

context of portfolio management, fixed income is

often used to reduce the overall risk. There is a

variety of fixed income investments, including

Government of Canada and Provincial Bonds,

Federal Crown Corporation Bonds, corporate

bonds, stripped bonds ("strips") and mortgage-

backed securities. Except for Federal Crown

corporation bonds, all others are eligible for RSP

(Retirement Saving Plan) / RRIF (Registered

Retirement Income Fund).

In the life and

health insurance

sector, a wide

range of financial security products are provided to

about 26 million Canadians and their dependants.

These products include individual and group life

insurance, individual and group annuities

(including RRSPs, RRIFs and pensions) and

supplementary health insurance. These products

are designed to protect policyholders from the

financial risks of premature death, illness and

retirement. Incorporated insurers as well as

foreign insurers are well regulated by the federal

government through the Office of the

Superintendent of Financial Institution (OSFI) and

the provincial level. To ensure the safety and

soundness of the overall insurance industry, OSFI

requires each insurer to hold a 150% Minimum

Continuing Capital and Surplus Requirement

(MCCSR), which is the minimum level of risk-

adjusted capital, over and above its actuarial

liabilities. This helps ensure that insurers can

meets its obligations on an ongoing basis. Under

the Insurance Companies Act, insurers are also

required to invest in a reasonable and prudent

manner to avoid undue risk of loss. On the other

hand, policyholders are protected by Assuris, a

not-for-profit organization, from the event that

their life insurance companies may fall.

A mutual fund can be considered as a large

investment pool that gathers investment from a

large number of investors. Each fund has its own

set of investment objective. Investment decisions

are entrusted to a group of professional money

managers who will act in the best interest on their

clients by acting upon the given investment

objectives.

The chart above clearly shows the upward trend of

mutual fund assets under management.

Currently, the mutual funds and mutual fund

wraps (also known as the mutual fund advisory

program, which benefits investors by ease the

burden creased by building and monitoring a

diversified portfolio in order to lower the risk)

account for roughly 30% of Canadians’ total

financial wealth. This comes to an enormous

amount of over $700 billion being managed.

Despite the fact that mutual fund is managed by

Fixed Income Government of Canada Bonds Federal Crown Corp. Bonds Provincial Bonds Stripped Bonds Mortgage-Backed Securities

Life and Health Insurance

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Canadian Equity Research June 25, 2010

Financial Sector Ye (Juliet) Zhu

26 Student Investment Advisory Services | Simon Fraser University

professional money managers and that it offers

diversification benefit, there is no guarantee on the

rise of value, nor is there any sort of protection

against the downfall in value. The mutual fund

industry is regulated by a number of authorities

including the Securities Commission, Self-

Regulatory Organizations, and Registration and

Education Requirements for people who would

like to provide investment advice on mutual fund

products.

Investment Thesis – for Insurance

and Asset Management Company Among the three biggest sectors in S&P/TSX, the

financial sector has a relatively better performance

in the past 12 months. In the more detail level (the

subcategories are banks, diversified financials,

insurance and real estate), the bank sector has the

highest return whereas the insurance sector has the

lowest return on the other end. However, using

the aggregate data obtained from Statistics

Canada, it is difficult to tell which sector is more

profitable based on the financial ratios presented in

table 1 (see appendix). The only stable trend

shown from the aggregate data is that the leverage

ratio of all categories decreased.

This reflects the intentions of the financial

institutions to lower the exposure to risk.

Furthermore, we think that banks are more

attractive to individual investors due to their sound

environment and diversified products and services

including deposits and loans.

As of the report date, the SIAS portfolio contains five financial holdings, including Great-West Lifeco Inc.

(GWO), Onex Corporation (OCX), Brookfield Asset Management Inc. (BAM/A), IGM Financial Inc. (IGM),

and Manulife Financial Corp. (MFC). OCS and BAM have been analyzed in 2010 Q1. Within three month

(from Mar. 25 to Jun. 24) BAM and OCX declined by 4.87% and 7.54%, respectively. In our opinion, such

drop is normal and expected as it is more or less caused by the European market crisis.

Stock Current

Price

Target

Price

52 Week Range Market

Cap

EPS

TTM

P/E TTM Dividend Recommend

MFC C$ 16.26 $20 $16.2-$26.5 28.6B $2.12 7.7x $0.52 BUY/HOLD

GWO C$ 24.55 $28.27 $20.02-$29.24 23.3B $1.85 13.3x $1.23 BUY/HOLD

IGM C$ 38.24 $41.85 $37.51-$45.60 10.0B $2.28 16.8x $2.05 BUY/HOLD

* June 25 2010

Great-West Lifeco Inc. (GWO)

Similar to other companies in financial sector, Great-West Lifeco Inc. is still on its way to fully recover. Its

revenues decreased from C$35.9B to C$24.0B year over year, however, a positive signal is that it was able to

grow net income from C$1.5B to C$1.7B. Compared to the same quarter last year, its revenues remained

relatively flat (C$6.1B to C$6.0B) and net income grew from C$343.0M to C$461.0M.

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Canadian Equity Research June 25, 2010

Financial Sector Ye (Juliet) Zhu

27 Student Investment Advisory Services | Simon Fraser University

Due to the reason that GWO began to sell guaranteed minimum withdrawal benefit (GWMB) products only

recently, it is less sensitive to equity market movements. According to the statistics from CIBC, a 10%

increase in equity markets would add $26 million to GWO’s earnings while a 10% decrease would reduce

GWO’s earnings by $73 million. GWO’s exposure to financial institutions is a problem that will mainly

affect its performance. In terms of the geographic exposure, $2.8 billion out of $11.7 billion (total exposure

to financial institutions) is in U.K.. $0.9 billion of the upper Tier 2 and Capital Securities) is invested in the

U.K. bank securities. The recent down-trend in European equity market caused by downgrade increased

GWO’s charge.

GWO’s EPS for 2009 is $1.71 and for 2010 Q1 is $0.47. Our estimated 2010 EPS is $2.08 (adjusted by its

exposure to European market). The P/E multiple was 12.1x in 2008 and 16.2x in 2009. Because the 6-month

stock market of insurance sector is in a downturn , our estimated 2010 P/E Multiples is 13.8x. Out target

price for GWO is C$28.7. This target price is effective over the next 6-12 months.

Manulife Financial Corp. (MFC)

Manulife Financial Corp. (MFC) has seen revenues remain relatively flat from

2008 to 2009 (C$30.4B to $30.0B), but its net income grew from C$497.0M to

C$1.4B. Compared to the same quarter last year, Manulife Financial Corp. has

been able to turn their revenue from a loss of C$1.1B to a gain of C$1.1B.

For the 2010 Q1, it has a C$0.64 EPS and 16.8% ROE. The positive impact of

stronger equity markets brings MFC $351 million / $0.2 per share in 2010 Q1.

Besides, MFC also obtained $195 million after tax income from the fixed income investing activities. While,

compare to its peers, MFC has the highest MCCSR ratio. It is much higher than 150%, the ratio required by

OSFI. It indicated that MFC is with a high degree of sensitivity to volatile inputs. The capital ratios

sensitivity is primarily driven by equity market and the hedges for annuity guarantees.

The EPS (ttm) is $2.12. The estimated 2010 EPS is $2.0. The estimated 2010 P/E ratio is $10 due to the

uncertainty of insurance sector. The target price of MFC is $20, which is also effective over the next 6-12

months.

IGM Financial Inc. (IGM)

IGM Financial Inc. is the fourth largest publicly traded asset manager globally, based on market

capitalization. It is the largest long-term mutual fund manager in Canada. IGM Financial operates through

three subsidiaries, including Investors Group, Mackenize Investments and Investment Planning Counsel.

Based on the Investment Funds Institute of Canada mutual fund investor survey, about 85% of Canadians

using mutual funds rely on an advisor. The increasing number of baby-boomers in prime savings years of 40-

65 years old indicates this is a high growth industry.

In 2009, the revenues of IGM fell from C$2.5B to C$2.3B and the net income fell from $730m to $559m.

IGM had a good Q1 besides its revenues keep an up-trend in the recent four quarters. In the last month,

IGM’s stock price is off 9%. In the past 10 year,

the EV/EBITDA ratio is around 7.0x to 11.0x

with the 9.0x average. Out target price $41.85

for IGM is calculated by applying a 9.0x

multiple to the estimated EBITDA/Share.

Q4/09 Q1/10

MFC 240% 250%

GWO 204% 202%

SLF 221% 210%

IAG 208% 223%

2008 2009 Q1 2010 2010 E

EBITDA ($m) 1,157.5 1,050.0 $284.4 1,226.0

EBITDA/Share 4.36 3.97 $1.08 4.65

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Canadian Equity Research June 25, 2010

Financial Sector Ye (Juliet) Zhu

28 Student Investment Advisory Services | Simon Fraser University

Appendix

Table 1 Key Ratios Calculated by Aggregate Data

Risks Associated with Target Price

The risks include meaningful declines in equity markets, interest rates, exchange rates and a drop in the

number/quality of clients.

2009 Banking Insurance

Investment

Services

Other Financial

Services

Other Consumer and

Business Credit

Gross Margin 19.28% 6.95% 34.95% 14.82% 34.22%

Net Profit Margin 9.45% 10.50% 26.01% 11.09% 10.04%

Return on Assets 0.44% 2.52% 4.34% 1.23% 1.11%

Return on Equity 5.87% 8.93% 8.86% 9.85% 6.02%

Debt/Equity 11.79 2.41 1.02 6.42 4.08

Assets/Equity 12.79 3.41 2.02 7.42 5.08

Asset Turnover 4.74% 23.12% 16.43% 11.32% 11.28%

Page 29: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research June 17, 2010

Technology Sector Jerry Chen

29 Student Investment Advisory Services | Simon Fraser University

US Equity/Technology Sector

Same as the select sector SPDRs, we are

combining both ―Information Technology‖ and

―Telecom Service‖ of the original SP500 Index

into one single and bigger ―Technology‖ sector,

representing 21.94% of the market. In a deeper

look, its component industries include

Semiconductors & Semi Equipment; Software &

Services; Tech Hardware & Services; and

Telecommunication Services. The technology

sector is a major economic engine for America’s

future, and it has been and will continue to be the

one important factor that sets US economy apart

from the rest of the world. We think US equities

still remain attractive after the broad brush market

dislocation in late 2008 and the most recent

turbulence due to the Euro-zone liquidity concerns

and slow-than-expected global recovery in general.

More particularly, our research and analysis shows

that the technology sector may be poised to

outperform every other industry sector over the

next few years.

Investment Outlook/Highlights Among four industry sectors that we would like to

strategically overweight in US equity, the

technology sector outlook makes the most sense

for us (High ROE, High Net Margin, and low

Debt-to-equity ratio). We feel the following points

about the sector can truly reflect our principles of

investment as a value fund:

o Increased global exposure (See Exhibit 1) with

continued strength in emerging markets

o More value-add products pipelined for the

mainstream

o Higher corporate expenditures on IT

o Longer-term themes across a broad range of

sub-sectors

o Unremitting R&D outlays from technology

companies

o Strong balance sheet, high cash reserves and

operating margin up

o Valuations remain attractive, and revenue

continuingly rebound

With the five-year median of 19.5X and the 1993-

2000 median of 20.5X, we believe the near-term

forward-looking P/E (13.7X, based on 4Q’09

earnings) remains attractive. What makes that

scenario more desirable is the broad-based global

diversity in technology companies’ revenue stream.

In fact, technology is the most ―globally leveraged‖

of all GICS sectors, with more than half of

revenues coming from outside of the U.S. The

materials and industrials follow with 43%, 35% of

non-U.S. revenue sources, respectively. Another

promising fact about the sector is the forward

planning decisions made by the industry as a

whole, especially these boosting R&D expenses

(more than 10% increased) committed by market

leaders, despite the market turmoil.

Those fat R&D budgets are fuelled by technology

firms with a build-up in cash on strong and healthy

balance sheets. Illustrated by the industry analysis,

technology companies hit an all-time high of $301

billion as of September of 2009, while much of

this falls in the hands of the biggest tech brands.

As a truth, the top 10 account for two thirds of the

industry total, and this is also in line with that the

top 10 holdings of the sector ETF count for 62.8%

of the portfolio. Furthermore, technology

companies have improved some key business

fundamental factors:

- operating profit margin lift up through

continued efficiency gains

Exhibit 1, Souce: ISI

Sector Breakdown (as of 17-Jun-2010)

Page 30: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research June 17, 2010

Technology Sector Jerry Chen

30 Student Investment Advisory Services | Simon Fraser University

- Revenue rebound base on high demand-

fueled growth

- Inventories declined close to 30 days worth

of supply, well below historical avg. (see

appendix)

Most Preferred Companies

When it comes to stock picking, we don’t hide our

preference on sub-sector leaders. The following

companies not only do have their spectacular track

record of successes, but also they are well

positioned in their own industry and they share

some of key indicators that we rely on:

- Piles, piles, piles of cashes

- Innovator (also the largest winner) of ― the

next big thing‖

- Big and getting bigger, but a swift player

- Creator of the industry standards and eco-

systems

- Serve both consumer and business well and

diligently

For example, Apple iPhone now takes 28% of the

smart phone market is U.S. (RIM: 35%) according

to Nielsen research, but over 50% of mobile

browsing is generated by iPhone. Also, Apple

grabs 48% of the U.S. mobile advertising market

in only 8 weeks after it released iAd platform (a

new eco-system that sells Ad’s through Apple

apps to support free app developers), based on the

company released data and a recent report on

mobile advertisement from J.P. Morgan.

Furthermore, Apple, Microsoft and IBM happen to

be among top 10 constituents by market cap of the

SP500 index; while SPDR Technology Select

Sector Fund holds Microsoft, IBM, Intel, Cisco,

and etc. in its top holdings. For our BUY list, we

have MSFT, IBM, HPQ as the candidate firms.

Risks Associated with

Recommendation If not impossible, then it is extremely difficult to

predict the macro economic conditions and the

course of the global recovery with any certainty,

our analysis indicates an upside potential in the

technology sector. However, any or more of the

factors such as the unstable post-recession

environment, a negative supply shock, political

risks associated with countries where technology

companies operate, currency swings, and mergers

and actuations could significantly alter our outlook.

At a company stock level, further due diligence is

necessary to conclude our decisions.

S&P 500 INFO TECH SECTOR AGGREGATE B/S CASH

HOLDIGNS

Exhibit 2, Source: FactSet

Research, ISI

Page 31: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research June 17, 2010

Technology Sector Jerry Chen

31 Student Investment Advisory Services | Simon Fraser University

Appendices

Appendix I Sector ETF/Technology SPDR (NYSE:XLK)

Appendix II Technology Sector SPDR XLK

Price $22.41

52-week Range $17.15 - $24.16

Avg. volume 15.7M

Mkt cap $4.2B Current Div. $0.31

Div/yield 1.38%

Outstanding Shares 189M 189 M

Beta vs. S&P500 1.03 1.03 Standard deviation 23.2%

Page 32: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research June 17, 2010

Technology Sector Jerry Chen

32 Student Investment Advisory Services | Simon Fraser University

Appendix III

Appendix IV

Fundamentals for Preferred US Technology Companies – 2008Q1 v.s. 2010Q1

Source: FactSet Research

TECH FORWARD DAYS INVENTORY DROPPING

Page 33: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 25, 2010

Material Sector Ye (Juliet) Zhu

33 Student Investment Advisory Services | Simon Fraser University

Fertilizer Industry Outlook

Fertilizer industry is a necessary market component that tightly relates to the agriculture production. On the

other hand, the trend of agricultural also affects the demand of fertilizer. Thus, the macro factors that are

affecting the global agriculture and fertilizer consumption should be highlighted.

Economy The global economy recovered a lot in 2009.

Take U.S. for example, the percent change from the

preceding quarter has raised above 4%. The rebound is

partly attributable to the growth in the emerging countries,

which lead to a strong food demand.

Population Currently, the global population is estimated

to be over 6.8 billion, and is expected to hit 6.9 billion by

March 20111. Continued growth in population will drive

the sustainable demand for food and fertilizer.

Oil Price Oil prices should be considered since high oil

price will increase the input cost not only for most

agricultural crop but also for fertilizer.

Freight Costs Neighbouring countries may be relied

upon heavily from imported goods, to save on freight costs.

Exchange Rate Currently, Asia has the largest

fertilizer consumptions. The appreciation of Canadian

Dollar increased the cost of import for Asian countries. In

other words, the future trend of Canadian dollars will

continue to exert its influence on the Canadian export.

Dietary History Wheat, rice, corn, fruit & vegetables

and other crops, as a whole, consumes around 76% of the

worlds fertilizer. A large part of the population growth

originated from developing countries such as China, India

and Brazil. Therefore, the consumption trends in these

countries can be seen as a reflection of the fertilizer market

trend.

Future trend of fertilizer demand can be also analyzed from

the dietary history. For instance, China has a significant

increase in the daily consumption of some major food types

such as fruits and vegetables, meat, eggs and fish (see

graph on the right). Furthermore, we believe that the

demand for corn and fertilizer will continue to increase as

life quality continues to improve.

Page 34: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 25, 2010

Material Sector Ye (Juliet) Zhu

34 Student Investment Advisory Services | Simon Fraser University

The three primary crop nutrients are potash, phosphate and nitrogen. For fertilizer, three countries including

Canada, Russia, and Belarus together possess more than 80% of the global reserves and produce 2/3 of the

annual world production2. Compared with phosphate and nitrogen, potash is rare. While a significant portion

of potash production occurs in only 12 countries, potash is consumed in about 160

countries3. Currently, about 80% of the world potash is traded across borders.

Besides, only about 19% of the global potash industry are controlled by

governments4. Therefore, potash is primarily driven by economic factors.

According to the historical trends of fertilizer use and crop production in China,

India, Malaysia, and Brazil (see appendix), the fertilizer market has an up-trend.

Appendix

China Fertilizer Use and Crop Production

India Fertilizer Use and Crop Production

Malaysia Fertilizer Use and Crop Production

Brazil Fertilizer Use and Crop Production

Fertilizer Potash

Phosphate

Nitrogen

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Canadian Equity Research June 17, 2010

Consumer Staples Sector Tanya Lu

35 Student Investment Advisory Services | Simon Fraser University

Consumer Staples Outlook

As a defensive sector, Consumer Staples tracks the

overall economic condition and poses less volatility.

As the U.S. economy didn’t recover at the expected

pace, accompanied by the euro zone debt crisis,

Consumer Staples has been underperforming.

However, the euro zone crisis has now come to a full

disclosure, which has helped ease the panic in

investors. On top of that, sales in April has increased

by 0.6% accompanied with a 1.2% increase in new

orders for manufactured goods. The U.S. census

Bureau also revealed that new home sales has grown

by 14.8%. The consumer staples industry is expected

to resume. The following company stocks owned by

SIAS fund are futher examined .

Altria Group INC. (NYSE: MO)

Price $19.83

52-week Range $16.1 - $21.91

Dividend Yield 6.96%

Date of Price 17-June-10 EPS (T12M) 1.79

Company Description:

Altria Group Inc. is the owner of the bestselling brand,

Marlboro, in the U.S. Altria has outperformed its peers

throughout the years, enjoying high returns and

dividends. Also, the tobacco Industry has always been

profitable with their high profit margin. Although

facing more legal challenges, the tobacco company

have had time to enact to regulations. Altria has

responded to the Family Smoking Prevention and

Tobacco Control Act (signed June, 2009) by adding

smokeless cigarette to their product line.

High sustainable profitability combined with adequate

leverage and high dividend yield make Altria an

appealing investment.

Yet, its current high price can only support a hold recommendation.

P/E ROE PM Debt/Equity Interest Coverage Inv Turnover Gross Div

ALTRIA GROUP INC 11.05 97.43 20.58 2.83 4.98 4.21 7.04

Industry Average 9.78 63.46 13.90 1.64 7.77 2.94 4.72

0

1

2

3

4

J-0

1

J-0

2

J-0

3

J-0

4

J-0

5

J-0

6

J-0

7

J-0

8

J-0

9

J-1

0

Bas

e M

on

th J

an,0

1

Relative Price of Altria v.s. Consumer Staples SPDR

XLP

MO

Page 36: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 17, 2010

Consumer Staples Sector Tanya Lu

36 Student Investment Advisory Services | Simon Fraser University

Coca-Cola Company (NYSE: KO)

Price $52.40

52-week Range $47.18 - $59.45

Dividend Yield 3.24%

Date of Price 17-June-10

EPS (T12M) 3.19

Company Description:

Coca-Cola Company generates more than 50%

of their profit from outside of North America

(73.6% for FY 2009) with 120.89 B in market

cap. Overall, Coca-Cola Company is in good

shape, having higher profitability and lower

than industry average debt ratio. Although the

beverage industry is generally highly leveraged,

Coca-Cola is well covered with high interest

coverage. It also provides sufficient dividend

that is expected to continue.

Coca-Cola now faces possible threats from

declining euro and weakening euro zone

economy (35.8% sales are from European

Countries) accompanied by the proposed ―fat-

tax‖ in United State. During the past, Coca-

cola has been successful in lobbying. Also,

sales in developing countries have continued to

grow with a 35% presence as of first quarter in

2010. Therefore, in spite of the risks, continuing

to hold the stock is recommended.

Colgate-Palmolive Co. (NYSE: CL)

Price $80.63

52-week Range $68.32 - $87.39

Dividend Yield 2.29%

Date of Price 17-June-10

EPS (T12M) 4.56

Name P/E ROE PM Debt/Equity Interest Coverage Inv Turnover Gross Div

COCA-COLA 16.34 31.11 21.45 46.25 22.67 4.77 3.37

Industry Average 17.40 30.50 14.38 57.52 21.39 6.10 2.25

Name P/E ROE PM Debt/Equity Interest Coverage Inv Turnover Gross Div

COLGATE-PALMOLIVE CO 17.64 104.62 9.32 1.13 6.19 6.46 2.63

Industry Average 15.53 55.67 10.25 0.79 17.62 5.47 3.32

0

0.5

1

1.5

J-0

1

J-0

2

J-0

3

J-0

4

J-0

5

J-0

6

J-0

7

J-0

8

J-0

9

J-1

0

Bas

e Y

ear

Jan

,01

Relative Price of Coca-cola v.s. Consumer Staples SPDR

Coke

XLP

Eurasia &Africa

8% Europe 16%

Latin America

12%

North America

24%

Pacific 15%

Bottling 25%

Revenue by division

Page 37: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

US Equity Research 11 August 2010

[Consumer Staples] [Tanya Lu]

37 Student Investment Advisory Services | Simon Fraser University

Company Description:

Colgate Company has only 20% sales coming from North America with 39.55B market cap. Excluding an

unusual and infrequent charge in the first quarter of 2010, Colgate has continued to grow at a rate exceeding

market estimate. As a market leader, Colgate has continued to enjoy its growth in developing countries. The

slightly lower profit margin caused by continuous promotion is offset by increasing sales. Combined with its

sufficient leverage, holding Colgate is recommended.

PROCTER & GAMBLE CO. (NYSE: PG)

Price $61.19

52-week Range $39.39 - $64.58

Dividend Yield 2.95%

Date of Price 17-June-10

EPS (T12M) 3.79

Company Description:

Procter & Gamble Company has 43 brands with strong

presence around the globe. It has successfully grown its brands,

offering various products at different prices, thus benefiting

from economies of scale and scope efficiency.

Despite the increasing competition in the premium brand

segment, the company has reported 3% sales growth for Q1

FY10. Having more than 40% growth coming from developing

country, the company is expected to prosper and maintaining

the position is recommended.

Name P/E ROE PM Debt/Equity Interest Coverage Inv Turnover Gross Div

PROCTER & GAMBLE CO/THE 16.26 20.90 13.48 0.45 11.87 5.24 3.13

Industry Average 15.53 55.67 10.25 0.79 17.62 5.47 3.32

0

1

2

J-01 J-03 J-05 J-07 J-09Bas

e Y

ear

Jan

,01

Relative Price of Colgate v.s. Consumer Staples SPDR

CL

XLP

0

1

2

3

J-01 J-03 J-05 J-07 J-09

Bas

e Y

ear

: Ja

n,0

1

Relative Price of P&G v.s. Consumer Staples SPDR

P&G

XLP

North America

20%

Latin America

26%

Europe& South Pacific 22%

Greater Asia& Africa 19%

Pet nutrition

13%

Revenue by division

Page 38: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 16, 2010

Energy Sector Parry Pasricha

38 Student Investment Advisory Services | Simon Fraser University

Canadian Equity

Global Equity

Fixed Income

Economics and Portfolio Strategy

Cenovus (TSE: CVE)Price 29.99

Date of Price 16/06/10

52-week Range 24.26 - 32.00

Shares Outstanding 751.70 Mil

Market Cap 22.54 billion

Current Dividend 0.80

Dividend Yield 2.667%

P/E (TTM) 27.26X

EPS (TTM) 1.10

P/B (Q1) 2.174X

Target Price 33.00

Target Price Date 31-DEC-2010

Rating Sector Outperform

Company Description

Cenovus Energy Inc., an integrated oil company,

engages in the development, production, and

marketing of bitumen, crude oil, natural gas, and

natural gas liquids in Canada with refining

operations in US. CVE was formed on November

30, 2009 from the split of Encana (ECA)

Corporation into two highly focused and

independent publicly traded energy companies:

one an integrated oil company (CVE), the other a

pure play natural gas company (ECA).

Production and Reserves

As of March 31, 2010 CVE has 1,143 million

barrels of proven Oil reserves and 1.5 Tcf of

Natural gas reserves. CVE has four major Crude

Oil assets in the Canadian Plains, all of which are

still being developed and expanded to increase

production. CVE also operated two refineries out

of the U.S with production capacities of

450,000BPD, however it has been focusing its

expansion on upstream, oil recover, rather than

downstream, refinement, operations.

Current Projects

CVE’s strategy is focused on growing its oil

business, which accounts for approximately 85%

of its proved plus probable reserves and 98% of its

economic contingent resources. In 2009, CVE

expanded the Foster Creek output capacity from

60,000 BPD to 120,000 and is still working

towards an increase of 30,000. In February, the

acceleration of construction of phase D at

Christina Lake was approved. The completion has

been advanced by about six months with

production expected to begin in 2013, adding

40,000 BPD to their production capacity.

Operations

CVE reported net revenue of $3.49 billion during

the first quarter of 2010, compared to $2.23 billion

for the same period of the previous financial year.

During the first

quarter, CVE’s mature conventional oil and gas

properties generated about half a billion dollars in

0

0.5

1

1.5

2

0

10

20

30

40

Nov-09 Feb-10 May-10

Price & EPS

Price

TTM EPS

50

100

150

Q1 08 Q3 08 Q1 09 Q3 09 Q1 10

Tho

usa

nd

s B

PD

Crude Oil Production

Pelican LakeWeyburnChristina LakeFoster Creek

0

50

100

150

0

2000

4000

6000

8000

Q1 08 Q3 08 Q1 09 Q3 09 Q1 10

Oil

Pri

ce -

USD

Mill

ion

s C

dn

Do

llars

Revenues & Oil Price Net RevenueCrude Oil Prices

Page 39: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 16, 2010

Energy Sector Parry Pasricha

39 Student Investment Advisory Services | Simon Fraser University

operating cash flow in excess of capital

expenditures. CVE’s operating costs per barrel at

Foster Creek and Christina Lake averaged $11.82

in the first quarter of 2010, down from $16.33 in

the first quarter of 2009 driven by higher

production volumes and a lower level of repair and

maintenance activities. While the non-fuel

operating costs for Foster Creek and Christina

Lake were $8.57/bbl in the first quarter of 2010

compared to $13.02/bbl in the first quarter of

2009.

Valuation

A target price of $33 is achieved by using the

multiples approach with an earnings estimate of

$1.73 from Bloomberg for 2010 and current

industry PE of 19X.

Recommendation

CVE’s mature oil and gas properties allow for

continous predictable cash flow in the near future.

Since focusing on expanding oil capacity in

Alberta, they have been able to significantly

reduce costs, while increasing excess capacity.

CVE has strong revenue growth potential at

current production levels and has demonstrated

significant cost reduction over the last year, which

making it suitable for SIAS even at its currently

high PE relative to industry. Date Apr-02 Aug-04 Nov-06 Mar-09

EBITDA Margin EBITDA Margin

Page 40: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 10, 2010

Energy Sector Richard Cotter

40 Student Investment Advisory Services | Simon Fraser University

Husky Energy Inc. (TSE: HSE)

Price 26.42

Date of Price 01/06/10

52-week Range 25.37 - 36.09

Shares Outstanding 850 million

Market Cap 22.5 billion

Current Dividend 1.20

Dividend Yield 4.12%

P/E (T12M) 14.5X

EPS (T12M) 1.67

P/B 2.2X

Target Price $30

Target Price Date 01/06/2011

Rating Sector Outperform

Recommendation

Husky Energy Inc. (Husky or the Company) has

short-term CFO concerns that should be off-set

with expected production increases. Stable lift

costs and investment in mega projects balances

short-term and long-term incentives. The highest

dividend yield amongst its peers and targeted

increases in earnings makes Husky an attractive

opportunity.

Company Description

Husky Energy Inc. (Husky or the Company) is

integrated crude oil and natural gas company.

Husky is segmented into three divisions: upstream,

midstream, and downstream. With assets-in-place

in Canada (59% of revenue), United States (40%),

and outside of North America (1%), the company

has low exposure to foreign country risk. It was

announced that the Husky will be under new

leadership, with Asim Ghosh taking over as

President and CEO.

Production and Reserves

Production per day in Q1 2010 averaged 296 000

boe/d which was a YoY decrease of 14% from Q1

2009. Decreases in production were attributed to

scheduled maintenance shut-downs and a

softening in natural gas prices. Natural gas

production in the quarter was 524 million cubic

ft/day, down 5% YoY. The new SEC procedure on

calculating reserves is forecasted to have minimal

impact of current reserve levels, and adjusted

reserve levels are expected to be announced in late

Q2 or early Q3 2010. Husky has an estimated

proved reserve life of 8 years.

Commitment to Mega Projects

Phase 1 of the Sunrise project in northern Alberta

is complete, and costs were $1 billion lower than

estimated. Forecasts show by 2014, production of

oil should commence. In Eastern Canada, Husky’s

share of the North Amethyst project is estimated to

produce 25 000 boe/d by year end. White Rose is

forecasted to have stable production of 6000

boe/d. Continued progress is being made for

exploration and development in China. Potential

new regulation is a concern for offshore drilling in

Eastern Canada, and US. Husky acquired 98 retail

outlets in Q4 2009, therefore strengthening their

presence in southern Ontario.

0

0.5

1

1.5

2

0

20

40

60

01/2007 09/2007 05/2008 01/2009 09/2009

Share Price and Diluted EPS

PriceEPS

0

200

400

600

800

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Production and Reserves

Production/Day

Total Reserves

Res. Replacement

0.00

0.20

0.40

0.60

2000 2002 2003 2004 2005 2006 2007 2008 2009

Production (MBOE/D) per Share

Page 41: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 10, 2010

Energy Sector Richard Cotter

41 Student Investment Advisory Services | Simon Fraser University

Operations and EPS

Cash flow from operations (CFO) is a concern

with falling production levels. While, levels of

production are expected to increase, Q1 2010 CFO

is only 25% of Q2 2008. Volatile commodity

prices have been balanced with stable lifting costs

(5 year average $12/boe). Falling EBITDA

margins, demonstrates management’s commitment

to operational efficiency. Husky pays out the

highest dividend yield amongst its peers (4.12%

versus peer’s average 1.83%) Consensus

estimates for EPS are: $2.06 (2010), $2.64 (2011),

and $2.53 (2012).

Valuation

The target price for Husky is achieved by using the

current PE 14.5X and the consensus 2010 earnings

per share.

0%

20%

40%

60%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EBITDA Margin

Page 42: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 10, 2010

Energy Sector Richard Cotter

42 Student Investment Advisory Services | Simon Fraser University

-1

0

1

2

3

0

20

40

60

01/2007 09/2007 05/2008 01/2009 09/2009

Share Price and Diluted EPS

PriceEPS

Canadian Natural Resources Limited (TSE: CNQ)

Price 36.61

Date of Price 29/05/10

52-week Range 26.35 – 50.42

Shares Outstanding 1.09 billion

Market Cap 39.9 billion

Current Dividend 0.30

Dividend Yield 0.62%

P/E (T12M) 12.1X

EPS (T12M) 1.46

P/B 2.0X

Target Price 39.00

Target Price Date 01/06/2011

Rating Sector outperform

Recommendation

Canadian Natural Resources Limited (Canadian

Natural or the Company) large cap presence and

ability to have continuous cash flow contends with

a great opportunity for SIAS. Further, the

emphasis towards crude oil and the Horizon

project puts shareholder value in the forefront.

Higher expected returns and a forecast of cash

costs on the lower end of industry standards is

appealing. It is suggested to hold the current shares

of Canadian Natural.

Company Description

Canadian Natural participates in exploration,

development and production of crude oil and

natural gas. Revenue by geographic segment is as

follows: North America 80%, North Sea 11%, and

Offshore West Africa 9%. In Q1 2010,

shareholder’s and the board approved a 2:1 split of

common shares.

Production and Reserves

Production per day in Q1 2010 increased 9% YoY

from Q1 2009 versus management’s target of

10%. Production is estimated to climb above 600

000 boe/d by 2011. Forecasted capital

expenditures in 2010 are $4 billion. Nearly 80%

are aligned with crude oil projects. A strong

reserve replacement ratio demonstrates an active

increase in total proved reserves.

Horizon Project

The Horizon project once complete (further

construction is pending future economic

conditions) will provide 500 000 boe/d. Recent

production has reached 110 000 boe/d and are

estimated to grow 10% in 2010. Currently, average

cash cost for production is $34/barrel; higher than

the targeted $30/barrel. Missed target did hurt

earnings; however costs are expexted to decrease

with increase in production.

Operations

Forecasted increase in production should translate

into consistent CFO. However, missed target costs

and volatile commodity prices hurt EBITDA

margins. Canadian Natural has actively engaged in

hedging strategies. The Company has in place

50% of Q2 and 25% of Q3-Q4 crude oil hedged in

collars ($60USD - $90USD). Natural gas collars

($4.50 - $8.00) make up 17% of estimated

production volumes.

0

1000

2000

3000

4000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Production and Reserves Production/Day

Total Reserves

Res. Replacement

0.00

0.20

0.40

0.60

2000 2001 2002 2003 2004 2005 2005 2006 2007 2008 2009

Production (MBOE/D) per Share

Page 43: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 10, 2010

Energy Sector Richard Cotter

43 Student Investment Advisory Services | Simon Fraser University

Acquisitions and EPS

Acquisition of core assets amounted to $1 billion

in Q1. The acquired assets are forecasted to

increase production levels by 28 000 bpd. Crude

oil segment portion is 25%, while conventional

natural gas constitutes a significant source of the

remaining barrels. The assets purchases are in

Western Canada; therefore strengthen Canadian

Natural’s position in the area. Consensus estimates

for EPS are: $3.19 (2010), $3.86 (2011), and $3.87

(2012).

Valuation

The target price for the Company is achieved by

using the current PE 12.1X and 2010 consensus

earnings per share.

30%

50%

70%

90%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EBITDA Margin

Page 44: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 10, 2010

Energy Sector Richard Cotter

44 Student Investment Advisory Services | Simon Fraser University

Imperial Oil Limited (TSE: IMO)

Price 39.46

Date of Price 01/06/10

52-week Range 37.75 – 46.79

Shares Outstanding 848 million

Market Cap 33.9 billion

Current Dividend 0.44

Dividend Yield 1.02%

P/E (T12M) 19.3X

EPS (T12M) 1.84

P/B 3.3X

Target Price 36.50

Target Price Date 01/06/2011

Rating Sector Perform

Recommendation

The target price is not intriguing to a value

investor, however low debt and strong cash flow

combined with a commitment to spending at an

opportune time does appeal. Conversely, below

average dividend yield, and above average lift

costs, does put Imperial at a disadvantage. It is

suggested not to purchase Imperial.

Company Description

Imperial Oil Limited (Imperial or the Company) is

an integrated crude oil and natural company. With

three segments, Imperial focuses on upstream,

downstream and chemical divisions. Imperial has

all assets-in-place in Canada, therefore low

country risk. The Company largest shareholder is

Exxon Mobile Corporation (about 70%).

Production and Reserves

Gross production from Q1 2010 averaged 291 000

bpd (barrels per day) versus 302 000 bpd Q1 2009.

The decrease in production was due to a scheduled

maintenance. The Cold Lake project (bitumen) and

Syncrude project (crude oil) were at par with

production levels compared with Q1 2009 – 148

000 bpd, and 67 000 bpd respectively. Finally,

natural gas production was down 11% to 273

million cubic ft/day compared with Q1 2009. This

drop off was largely related to scheduled

maintenance and has not returned to full

production. It is estimated that Imperial has 9

years of proved reserve life.

Spending Through the Downturn

Capital expenditures have increased 82% from Q1

2009 to 900 million, largely financed from CFO.

The Kearl project, located in northern Alberta,

continues to be in the construction stage. First

production is scheduled for 2012. An estimated

100 000 bpd of bitumen is estimated during the

first phase of production; while maximum bpd are

forecasted at 300 000. The development of the

Dartmouth project is on time and budget. The first

stage of two is complete, with the latter expected

to be finished by the end of 2010. Dartmouth will

decrease emissions by 25% and increase sulphur

recovery to 98%.

Operations and EPS

The upstream division has been positively affected

from the rise in commodity prices. Earnings from

upstream are up 46% from Q1 2009 ($491 millio).

Downstream earnings have suffered 80% losses

($52 million) with demand levels fluctuating

0

0.5

1

1.5

2

0

20

40

60

80

01/2007 09/2007 05/2008 01/2009 09/2009

Share Price and Diluted EPS

Price

EPS

-500

0

500

1000

1500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Production and Reserves Production/Day

Total Reserves

Res. Replacement

0

0.1

0.2

0.3

0.4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Production (MBOE/D) per Share

Page 45: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Canadian Equity Research June 10, 2010

Energy Sector Richard Cotter

45 Student Investment Advisory Services | Simon Fraser University

through-out the quarter. Strong CFO has enabled

Imperial to increase capital expenditures without

bombarding the balance sheet with debt. The

company’s average lift cost of $36/ barrel, does

place it on the upper end compared with peers.

Consensus estimates for EPS are: $2.65 (2010),

$3.03 (2011), and $3.26 (2012).

Valuation The target price for the Company is achieved by

using the current EV/EBITDA 10.6X, and

adjusting for net debt -$373 million. As well,

using current PE and PB, corresponds with price

of $36 and $37 respectively.

0%

10%

20%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

EBITDA Margins

Page 46: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research July 2010

Technology Victor He

46 Student Investment Advisory Services | Simon Fraser University

Global Equity

Canadian Equity

Fixed Income

Economics and Portfolio Strategy

Texas Instrument Incorporated (NYSE: TXN) Price 23.11

Date of Price 05/07/10

52-week Range 20.11 - 27.44

Shares Outstanding 1.22B

Market Cap 28.37B

Current Dividend 0.12

Dividend Yield 2.08%

P/E (T12M) 13.98X

EPS (T12M) 1.67

Target Price $26-30

Target Price Date 06/07/10

Rating Buy

Recommendation

I would recommend a ―buy‖ for this stock with a

long-term investment horizon. The fundamentals

and outlook of the company are strong, and it has

the lowest multiple compared to its closes

competitors. It has superior financial strength and

strong profitability. Please see detailed analysis in

the following:

Company Description

TXN is organized in the following 4 segments.

TXN’s product portfolio is well-diversified and

well-positioned:

Analog (40% of revenue) is the focus and the

engine of growth for TXN going forwards. Analog

products have a wide scope of use in real life—

amplifying/converting signal, etc. Basically it is

the essential building block for communication

infrastructure. In the world ever increasingly

connected, it is expected that the demand for

analog would remain strong for the foreseeable

future. TXN has a leading position in the analog

market with about 13% of the market share.

Embedded Processing Products (15%) are chips

that perform mathematical computation. TXN is

also the leader in this segment and has about 11%

of the total market share. An important

characteristic about this product is that there is

switching cost, and customer relationships tend to

be stable and long for this segment. Therefore

TXN is also in a good position to grow this

segment going forward.

Wireless and Others (45%): they are technically

two separate segments, but they are not TXN’s

focus area. There are a wide variety of products

but suffice to say that the wireless segments are

largely driven by the use of wireless products –

cell phones, WiFi network, etc – which should

remain stable. As for the ―others‖ segment, the

income is mainly through licensing production of

many smaller product lines – such as graphing

calculator.

Financial Strength/Profitablity

Analysis

The company is financially sound: it has no long-

term debt and its current ratio is at 3.68,

substantially higher than the industry average of

0.58.

Earnings have also performed well: it has a profit

margin of 17.03% (average of 5 years) and

18.28% (TTM). And both the top-line and the

bottom-line growth have been consistently

increasing for all 5 quarters since Q1 of 2009.

Macro fundamental Analysis

The cyclicality of the technology industry has a

strong correlation with economic cycle – firms

spend on technology to improve efficiency in the

hope that the cost would be recovered quickly,

especially when they are optimistic about the

future. However, while we agree the economy

would do well in the long term, there is also a

growing consensus that the market is poised to

experience a major correction (the DJIA has been

seeing 7 consecutive days of decline, from June

25th

– July 2nd

, 2010).

The turning point of the U.S. bull market we’ve

seen since March 2009 started with the Euro

gaining unprecedented attention in late April. And

Page 47: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research July 2010

Technology Victor He

47 Student Investment Advisory Services | Simon Fraser University

after what happened to BP, which drags down other oil giants and adds fuels to the decline of the

overall market, the major headline risks are now concentrated in the U.S. itself—the uncertain effects of the

financial regulation; the weakness of positive economic indicators, etc.

While I believe the most fear-driven moment that caused dramatic fall in the market has passed, what follows

now would be the chronic decline due to the aftermath of all the negative headlines. Therefore, it is

recommended to simply watch where the market is heading and buy the stock when we see more clarity in

the direction of the stock market.

Valuation

TXN is a big-cap stock and has a beta of 1.08 – very in sync with the movement of the overall market. There

would not be dramatic upside for this mature company in the short term. But according to this 5-year graph,

it seems the resistance is around the $30-35 range, using technical analysis.

TXN’s main business is in the analog segment, and its competitors who operates in the heavily in the same

segment. These companies are selected according to Reuters’ classification, and it has an average P/E of 23

compared to TXN’s current P/E of 14. To take a conservative estimate by taking the P/E of 16-18 would

arrive at the target price of $26-30.

Page 48: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research June 26, 2010

Consumer Foodservice Jin Yan

48 Student Investment Advisory Services | Simon Fraser University

McDonald’s Corporation (NYSE: MCD) Price $69.90

Date of Price 11-Aug-10

52-week Range $53.88 - $71.84

Shares Outstanding 1.076 billion

Market Cap $75.2 billion

Current Dividend $0.55

Dividend Yield 3.15%

P/E (T12M) 15.92x

EPS (T12M) $4.36

P/B (MRQ) 5.33x

Target Price $78.67

Target Price Date 23-July-10

Rating Sector Outperform

Recommendation Bu

Recommendation

McDonald’s Corporation as a value stock fits in

well with the SIAS portfolio. The company has

provided consistent returns historically and a

higher dividend yield than its main competitors. In

addition, its management has demonstrated an

ability to explore areas with growth potentials

ahead of the industry. Since its shares are currently

trading at a lower price than its intrinsic value, I

would issue a buy recommendation on MCD.

Company Description:

McDonald’s is a global leading brand in consumer

foodservice. The Company operates exclusively

under the McDonald’s brand with its burger fast

food chain and McCafé, the expanding coffee

specialist shop. 80.8% of McDonald’s 32,000+

restaurants are operated by franchisees. Franchise

arrangements require payment of initial fees from

the franchisee, as well as continuing rent and

royalties. In effect, McDonald’s business is driven

by rental income as well as store sales. Such

agreements grant franchisees the use of the

Company’s property for a period of 20 years. The

guaranteed revenue flow shelters McDonald’s

from the cyclical nature of the economy and this is

reflected in the share price performance graph.

Industry Outlook

Overall, the fast food industry has weathered the

global financial crisis well and while not immune

to the recession, has shown more resistance than

other sectors in consumer foodservice. Despite the

large drop in consumer spending, the larger and

more established fast food operators such as

McDonald’s and YUM! Brands still managed to

post positive growth, with strong sales in Western

Europe and China offsetting the hard-hit U.S.

market. Since consumers will still be in a price-

conscious mindset while the economy remains

soft, fast food is expected to benefit the most from

a small increase in consumer spending. Other

dining categories, including full service restaurants

and cafes/bars will remain laggards in the sector.

While global consumption of fast food remains

concentrated in developed markets, growth in

spending is much stronger in Asia Pacific and the

Middle East/Africa regions. Large international

chains are at an advantage in these markets due to

their financial strength and their ability to support

aggressive marketing campaigns.

Growth Forecast and Earnings

Outlook

McDonald’s earnings increased 16.5% from Q2

2009 to same quarter this year. Same store sales

increased 1.5% in the U.S., 5.2% in Europe, and

5.7% in the APMEA regions. Bloomberg analyst

consensus EPS estimates average at $4.53 for

2010. Outlook is strong as year-on-year growth in

the fast food industry is expected to average at

5.5% over 2009-2013 (Euromonitor).

The Company has also been injecting excess funds

into reimaging existing restaurants to further push

sales. This strategy has proven to be successful as

same-store sales have grown at a faster pace than

McDonald’s competitors. Further, management

continues to refine its marketing concepts and the

Company is able to leverage its scale in

implementing new programs.

As 70% of McDonald’s operating income is

generated outside of the U.S. and 45% of debt is

Page 49: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research July 2010

Consumer Foodservice Jin Yan

49 Student Investment Advisory Services | Simon Fraser University

held in foreign currencies, the company benefits

from currency conversions on a weak dollar.

Valuation (DCF)

Since McDonald’s Corporation is a well-

established company operating in a stable

environment, its revenues and earnings tend to

align closely with forecasts. Assuming 2010 is a

recovery year for McDonald’s and its compounded

revenue growth rate rebounds to the same level as

2007, a year-end target price of $78.67/share is

obtained through the FCFE model. Compared to

the current trading price of $69.90 the shares

appear to be trading at a discount.

Valuation (Multiples)

McDonald’s has historically outperformed its main

competitors in terms of profit margins. Its shares

are currently trading at below its 10-year average

P/E as well as the peer group P/E ratio of 17.8. At

a forecasted EPS of $4.53 and forward P/E of 16x,

a year-end target price of $72.48 is reached.

Risks Associated with Target Price Consumer confidence in the U.S. and

Eurozone remain soft, and may lead to

volatility in sales

Currency markets also impact earnings;

however, currency conversion risks are

reduced by the Company’s strategy to

partially hedge

Commodity prices (i.e. beef, chicken) and

labour costs

Appendices

-60

-40

-20

0

20

40

CQ

1 2

00

3

CQ

4 2

00

3

CQ

3 2

00

4

CQ

2 2

00

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CQ

1 2

00

6

CQ

4 2

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6

CQ

3 2

00

7

CQ

2 2

00

8

CQ

1 2

00

9

CQ

4 2

00

9

Profit Margin Analysis

MCD

YUM

WEN

JACK

SBUX

0

5

10

15

20

25

CQ

3 2

00

1

CQ

2 2

00

2

CQ

1 2

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CQ

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CQ

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CQ

3 2

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CQ

2 2

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CQ

1 2

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CQ

4 2

00

9

Historical P/E Ratio Analysis

0

0.5

1

1.5

CQ1 CQ2 CQ3 CQ4

Diluted EPS

2007

2008

2009

2010

-1

-0.5

0

0.5

1

1.5

Relative Share Price Performance

MCD

YUM

WEN

SBUX

SPX

Page 50: Student Investment Advisory Services | Simon Fraser University · 2017-08-16 · 7 Student Investment Advisory Services | Simon Fraser University Risk Metrics Risk Summary 2010:Q2

Global Equity Research July 2010

Consumer Foodservice Jin Yan

50 Student Investment Advisory Services | Simon Fraser University

Relative Valuation

Name

Dvd

Yld

Diluted

EPS

T12M

EPS: 1-

Yr

Growth

BEst

EPS:Y ROA ROE P/E P/B Debt/Cap

Curr

Ratio

Quick

Ratio

Operating

Margin

Profit

Margin

Average 1.2 2.1 13.7 2.3 10.1 28.9 18.5 4.7 32.4 1.4 1.0 13.1 8.0

MCDONALD'S CORP 3.3 4.4 13.0 4.5 16.2 34.8 16.0 5.3 42.7 1.4 1.1 31.2 20.6

YUM! BRANDS INC 2.0 2.2 -6.2 2.5 15.3 132.6 17.6 16.9 72.5 0.7 0.4 16.0 11.1

STARBUCKS CORP 0.5 1.1 35.0 1.2 13.3 24.6 21.9 5.4 13.4 1.5 1.0 11.9 8.0

TIM HORTONS INC 1.3 1.6 21.6 2.0 15.7 26.5 19.1 5.4 25.0 0.8 0.5 21.3 13.5

DARDEN RESTAURANTS INC 2.3 2.8 -6.7 3.3 7.9 23.1 14.5 3.2 47.2 0.5 0.2 9.9 6.2

CHIPOTLE MEXICAN GRILL INC 0 4.7 33.3 5.1 16.0 21.5 30.2 6.1 0 3.4 3.1 16.4 10.0

PANERA BREAD COMPANY-

CLASS A 0 3.0 45.6 3.5 11.9 16.3 24.1 3.8 0 2.5 2.1 11.6 7.1

BURGER KING HOLDINGS INC 1.1 1.4 -14.3 1.4 7.4 19.3 11.9 2.1 43.0 0.8 0.6 13.2 6.9

WENDY'S/ARBY'S GROUP INC-

A 1.2 0 50.0 0.2 0.3 0.5 20.4 0.8 40.2 1.9 1.4 4.5 -0.4

BRINKER INTERNATIONAL INC 2.2 1.1 16.7 1.2 6.0 18.0 13.5 2.4 46.4 0.7 0.3 7.0 5.6

CHEESECAKE FACTORY

INC/THE 0 0.9 14.3 1.4 4.7 10.3 18.7 2.7 15.8 1.0 0.6 8.9 4.6

JACK IN THE BOX INC 0 1.8 -38.5 1.9 7.1 19.4 13.5 2.0 42.9 1.0 0.2 5.3 3.3

All measures based on last filing unless otherwise indicated.

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Global Equity Research 11 August 2010

Consumer Staples Belinda, Tanya, Wei, & Jerry

51 Student Investment Advisory Services | Simon Fraser University

Yum! Brands, Inc. (NYSE: YUM)

Price $41.46

Date of Price 13-March-2010

52-week Range $32.24 - $44.00

Shares Outstanding 0.469 million

Market Cap $1921 million

Current Dividend $0.84

Dividend Yield 2.10%

P/E (T12M) 17.30

EPS (T12M) $2.26

P/B (MRQ) 18.30

Target Price $40.28

Target Price Date 1-December-2010

Rating Sector Outperform

Recommendation Based on our analysis, Yum! is a company with a

bright future. We believe in their strategy and

management’s ability. With the ability to localize

food menu items in different countries, they will

remain competitive in the medium to long run.

With our valuation capturing the potential growth

of the company, we believe this stock’s

conservative fair price is at $40.28 with a high of

$50.30 and low of $33.38. A hold

recommendation can be concluded if the price

drops below $40.28 as we do not believe in

purchasing something that is overpriced.

Exhibit 1: Source Yahoo Finance

Company Description Yum! Brands, Inc. is the world’s largest restaurant

company which owns the famous fast food stores,

and operates 37,000 restaurants in over 110

countries and territories with over 1 million team

members. The company’s well-known fast food

restaurants are KFC, Pizza Hut, Taco Bell, A&W,

and Long John Silver’s, which are the global

leaders for chicken, pizza, Mexican food, Burgers

and quick-service seafood. Over the past few

years Yum’s stock performance has been

outperforming the consumer discretionary index

and economy trends (See Exhibit 1). As well as

the revenue and operating profit that has been

increasing aggregately for the past six years (See

Exhibit 2).

Exhibit 2: Yum Annual Report

Industry Outlook

Yum! Brands Inc. (Yum!) is in the Quick Service

Restaurant (QSR) industry, primarily competing

with McDonald’s, Domino’s Pizza, and Burger

King. The nature of the industry deals with

commodity prices and dairy farm products. The

main inputs for QSR are chicken, beef, cheese, and

beverages. The industry structure is oligopoly,

which is characterized by few major sellers in the

market. Therefore, when the commodity prices

rise, the intense competition makes companies

more difficult to earn margin or to set higher

prices. It is important for firms to be aware of

competitors’ actions (marketing, promotion) in

order to survive in the industry.

Growth Forecast and Earnings

Outlook The growth opportunity for Yum! is to focus on

their China division since China is predicted to be

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Global Equity Research 11 August 2010

Consumer Staples Belinda, Tanya, Wei, & Jerry

52 Student Investment Advisory Services | Simon Fraser University

the fastest growing country in the

world. According to China’s GDP statistics, it

increased from 1.93 trillion in 2004 to 4.33 trillion

in 2008 (Google, 2010). The growing GDP

indicates that the Chinese purchasing power will

increase rapidly based on their expanding

economy. 35% of operating profit was generated

from China division in 2009 that was very close to

U.S. segment profit of 37% (See Exhibit 3).

Exhibit 3: Source Yum Investor Conference

Information

Valuation I (FCFE)

As a MNC, Yum! has different strategies for

regions with distinctive characteristics. Therefore,

our valuation model needs to consider each

geographic division’s prospects and unique value

drivers when forecasting the company’s financial

performance (See Exhibit 4).

Exhibit 4

China Division

In order to incorporate the China market’s

enormous growth potential into our forecast, we

use a 3-stage growth model with 3-year high

growth and 5-year declining growth. Exhibit 5

summarizes the assumptions of our model. In the

3-year high growth stage, we expect the new unit

development rate to be 13.23%, with sales per unit

of 1.06 million for company-owned restaurants

and 0.23 million for franchise units. The

percentage of company-owned units is higher than

the historical average as we observe an increasing

trend in this number. Same store growth rate is 5%

and operating profit margin is 16.9%. In the

following 5-year declining growth stage, the new

unit development rate will decrease by 2.21%

annually. Same store sales growth rate is 2%,

which will continue in the terminal stage.

Exhibit 5

YRI Division

The YRI Division is undergoing refranchising.

The effect will lower company sales with a higher

franchise income. We set the annual refranchising

rate to be 0.5% and the net impact on revenue to

be 0.93 million per unit (Exhibit 6). Beside the

refranchising program, we expect this division to

enjoy 3-year above average growth with total unit

growth rate of 3.9% and same store sales growth

rate of 4.8%. In the terminal stage, the growth rate

is 2% (Exhibit 7).

Historical

Average2009

3-Year High

Growth

Stage

5-Year

Declining

Growth Stage

Terminal

Stage

Total Unit

Compounded

Growth Rate

13.23% 13.20% 13.23%

2.21%

decrease

annually from

13.23%

0%

Sales per Company

Owned Unit1.06 M 1.21 M 1.06 M 1.06 M 1.06 M

Sales per Franchise

Unit0.23 M 0.22 M 0.23 M 0.23 M 0.23 M

% of Company

Owned Unit80% 82% 85% 85% 85%

% of Franchise Unit 20% 18% 15% 15% 15%

Same Store Growth

Rate10% -2% 5% 3% 2%

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Global Equity Research 11 August 2010

Consumer Staples Belinda, Tanya, Wei, & Jerry

53 Student Investment Advisory Services | Simon Fraser University

Exhibit 6

Exhibit 7

U.S. Division For the U.S. unit, the company’s refranchising

program aims to decrease its company-owned unit

percentage to below 10% (Exhibit 8). Based on

historical trend, we expect this number to decline

by 1.5% per year until it reaches the target level.

The net impact on revenue is estimated to be 0.86

million per unit. For other factors, the same store

sales growth rate is 2%, and the operating profit

margin is set to be 14%.

Exhibit 8

Yum! Firm-wide Cash flow After the three division’s future sales are

determined, combining them can reach Yum!’s

equity value. Exhibit 9 presents the summary of

our FCFE model metrics. In the aggregated 8-year

growth stage, we expect the company to maintain

a high level of capital expenditure and leverage as

what has been shown in the historical trend. In the

terminal stage, a 2% terminal growth rate is

expected while a 50% capex/OCF is predicted to

support the matured company. Yum! can also

decrease its dependency on leverage after passing

the peak of growth.

Exhibit 9

Yum! Equity Value

Exhibit 10 shows the intrinsic value per share of

Yum! based on our valuation model and the results

of our sensitivity analysis. The fair value of Yum!

Is $40.28, which is very close to the closing price

of $41.46 on May 13, 2010. For the sensitivity

analysis, we choose to vary the growth estimates

of the China Division, since the China market

possesses the highest potential yet the highest

uncertainty. We also examine the effect of change

in Yum!’s risk factor. This analysis shows a price

range of $33.38 to $50.30 per share. We can see

that Yum!’s equity value is highly sensitive to the

expansion in China, and that cautions investors

about China’s economic growth and the

company’s development in this region.

ResultRevenue Impact per Refranchised Unit: 0.93M (Historical Average)

Effect

Lower Company Sales Higher Franchise Income

Target Company-owned Unit

9.5%

Annual Refranchise Rate

0.5% (Historical Average)

Refranchising Program

2009 Company-owned Unit: 12%

Historical

Average2009

3-Year High

Growth

Stage

Terminal

Stage

Total Unit

Compounded

Growth Rate

3.93% 3.61% 3.93% 0%

Net Revenue Impact

per Refranchising

Unit

0.93M 1.21 M 0.93M n/a

Same Store Growth

Rate4.80% 1.00% 4.80% 2%

Cost of Equity

• Risk Free Rate: 3.43%

• Market Premium: 6.47%

• Beta: 0.87

• Cost of Equity: 9.05%

Growth Stage (8 years)

• OCF/Revenue: 13.5%

• Capex/OCF: 65%

• Debt/Capital: 85%

Terminal Stage (9 year +)

• Terminal Growth Rate: 2%

• Capex/OCF: 50%

• Debt/Capital: 50%

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Global Equity Research 11 August 2010

Consumer Staples Belinda, Tanya, Wei, & Jerry

54 Student Investment Advisory Services | Simon Fraser University

Exhibit 10

Valuation II (Relative)

Whether Yum! Company is worth investing

depends on its profitability, liquidity and

operational efficiency. Yum! has a continuous

growth in ROA in the last 10 years, and its ROA is

the highest among its international QSR peers and

consumer discretionary industry for fiscal year

2009 (Exhibit 11 & 12)

.

Exhibit 11

We use ROA instead of conventional ROE as the

profitability measurement due to the fact that

Yum! has very low equity value and negative

equity in fiscal year 2000 and 2008.

Exhibit 12

However, their energetic growth is the reason that

they maintained a high level of the debt. In fact,

the international QSR industry prefers to leverage

a substantial amount of debt to increase their

overall profit. As of 2009, Yum! has a 0.78 debt to

capital ratio, while the peer average is close to 1.5

(Exhibit 13 & 14).

Exhibit 13

Exhibit 14

Risks Associated with Target Price

Yum! faces some of the very common yet

significant risks shared by many multinational

corporations (MNC) as well as other quick service

restaurants (QSR). The risks are associated with

food safety, Food borne-illness, foreign

operations, input prices and YUM’s franchisees.

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US Equity Research 11 August 2010

Technology Roxana Zaman

55 Student Investment Advisory Services | Simon Fraser University

Microsoft Corp. (NASDAQ:MSFT)

Price $25.80

Date of Price 11-Aug-10

52-week Range $22.73.00 - $31.58

Shares Outstanding 8763.8M

Market Cap $226194.7M

Current Dividend $0.52

Dividend Yield 2.01%

P/E (T12M) 12.29x

EPS (T12M) $2.10

P/B (MRQ) 4.84x

Target Price $29.50

Rating: Sector Outperform

Recommendation Microsoft Corp. is currently trading at a discount

relative to its target price, and is relatively

undervalued compared to its historical average and

its peer group, signalling a good buying

opportunity. Even though the Company has not

been able to successfully capitalize on significant

trends in comparison to its competitors, it

continues to have relatively strong operating cash

flows. In addition, an increase in worldwide PC

sales as well as the Company’s new products and

services are expected to contribute to strong future

performance.

Exhibit 1:Source Bloomberg

Company Description

Microsoft Corp. is a multinational computer

technology corporation engaged in developing,

manufacturing, licensing and supporting a wide

variety of software products and services for many

different types of computing devices; it also

designs and sells hardware. Its products are

distributed primarily through original equipment

manufacturers (OEMs), distributors and resellers,

as well as online directly from the Company.

Exhibit 2: Source Bloomberg

Industry Outlook

The technology sector is cyclical as consumer

spending on technological products and services

fluctuates with the business cycle; economic

growth is thus a significant drive of the technology

sector. In June, consumer sentiment rose to its

highest level since February of 2008, while

incomes climbed the most in a year to 1.4%.

According to a Bloomberg survey of economists,

U.S. GDP may grow by 2.7% in 2010. Assuming

that the overall economy continues to improve,

technology stocks are expected to outperform

during such periods of economic growth.

Exhibit3: Source Bloomberg

In addition, many technology companies such as

Apple Inc., IBM Corp. and Microsoft Corp. have

been stockpiling cash and extending debt

securities. These cash stockpiles limit how much

investors can lose if the economy rebound tails off.

A significant industry trend is cloud computing –

Internet-based computing – which is decreasing

the need for local operating systems and

application suites. Similarly, there is increased

usage of mobile devices. For example, it is

estimated that mobile PCs will drive 90% of PC

growth over the next three years (Gartner).

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Share Price Performance

MSFT

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Qu

art

erl

y %

Ch

an

ge

sin

ce 2

00

0

Relative Performance

US Nominal GDP

MSFT Equity

-20%

-10%

0%

10%

20%

30%

40%

Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10

Re

tu

rn

Relative PerformanceMSFT

XLK

NASDAQ Composite

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August 9, 2010

56 Student Investment Advisory Services | Simon Fraser University

Growth Forecast and Earnings

Outlook

Over the last twelve months, Microsoft Corp. has

been able to enjoy higher returns relative to the

market and its peer group. The Company generates

most of its revenue from the Client segment

(Windows product family) and the Microsoft

Business Division (Microsoft Office system).

However, Microsoft Corp. has not been able to

successfully capitalize on significant trends,

allowing its competitors to gain large market

share. Regarding mobile operating systems,

Symbian OS along with Android and Apple’s iOS

dominate the market. In the cloud-computing

world, Google has become a significant threat; its

cloud-based services (ie. Google Docs) are causing

a downward pressure on the selling price of the

Microsoft Office system. In addition, the increase

in popularity of Netbooks is adversely affecting

growth rates in the Client segment, since many are

sold with a lower cost version of Windows.

Going forward, worldwide PC shipments are

projected to increase by 19.7% in 2010, up from

12.2% in 2009 (Gartner). Windows is the

dominant operating system for desktop and laptop

PC’s, with Windows 7 being the fastest growing

operating system in history. In addition, there is a

vast marketplace for cloud computing and the

Windows Azure Platform is well-positioned to

take advantage of this emerging opportunity. Other

new products and services such as Bing and

Microsoft Office 2010 are well-positioned in the

product cycle and are thus expected to contribute

to strong future performance; earnings per share

are expected to increase to $2.40.

Valuation

Microsoft Corp. has outperformed its main

competitors in terms of profit margin over the past

decade, indicating relatively stronger financial

health. In addition, Microsoft Corp. has a much

lower debt-to-total equity ratio (13.12%) than the

industry average (18.65%), signalling its cash

flows are less risky than those of its peers.

Exhibit 4: Source Bloomberg

Additionally, the Company has a long history of

relatively stable and predictable cash flows and

earnings - Exhibit 4 shows an increasing trend in

both of these variables. Both its return on equity

and dividend yield are higher than the industry

average; these features are consistent with a value

investment philosophy. Microsoft Corp. is

currently trading at a discount relative to its

historical level and to its peer group, indicating

that the stock is undervalued.

Exhibit 5: Source Bloomberg

Given that earnings per share are forecasted to

increase to $2.40, the leading price-to-earnings

ratio is 10.75x. The expected value of the stock

based on forecasted earnings is $29.50.

Risks Associated with Target Price

Given that the Company’s main focus is

innovating and developing new products in order

to drive growth, these objectives are highly

dependent on consumer acceptance. It is not

guaranteed that high R&D spending will lead to

the manufacturing of commercially successful

products. The Company may not be able to

achieve significant revenue from its new products

and services for a number of years, if at all. Other

general risks to consider are worldwide economic

conditions, consumer preferences and existing

claims and lawsuits that may result in adverse

outcome.

-80

-60

-40

-20

0

20

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Perc

enta

ge

Profit Margin

MSFT

AAPL

GOOG

IBM

0

0.5

1

1.5

2

2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

MSFT Cash Flow/Share vs. Diluted EPS

Cash Flow Per Share

Diluted EPS