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Equity Research - Materials

In: Business and Management

Submitted By Mukwaya
Words 1424
Pages 6
Basic Material Sector
Investment Results:
For the semester our total portfolio return was 12.52%. Since, we recalibrated the sector from Healthcare to Basic Materials the return has been 14.01%. Our sector return from the sector change is 11.48%, which means as portfolio managers we brought 2.53% of alpha with our stock selection. The outperformance can be attributed to our one active pick Hexcel.
Asset Allocation:
During the fiscal third quarter of 2006 the Basic Materials sector was created after liquidating the Healthcare sector. So as to facilitate this sector change, the
Fund recalibrated the assets under management for all sectors in the portfolio. At the time, the Healthcare portfolio was overweight compared to all the other portfolios of the fund. As a consequence, Healthcare sold down some of its assets and released the proceeds to the other sectors. Then, in the next step,
Healthcare was converted to Basic Materials. This step required a complete sale of the rest of the Healthcare sector and the acquisition of a passive position in the Basic Material sector using the IYM I-shares. On November 11, with the additional investment of $100,000 to our sector, we bought 877 shares of Hexcel, and 1488 shares of IYM. At the end of the semester 0.54%, 5.36%, and 94.10% was allocated to cash, Hexcel, and IYM shares respectively.
Risk:
We have maintained a low tracking error of 2.05%, which is lower than the benchmark’s. At the end of the semester our beta was 1.3017 versus the benchmarks beta of 1.3055. The portfolio had an absolute volatility of 20.0179.
Macro Environment:
During the semester, equity investments in the broad market performed well. The
S&P 500 returned 6.57%. During the same horizon, the basic material sector had an even stronger performance of 11.48%. We attribute this to commodity pricing increases, which provided a strong…...

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