Smith Barney Portfolio Manager Institute Conference

Transcription

1 Smith Barney Portfolio Manager Institute Conference Richard E. Cripps, CFA Portfolio Strategy Group March 2006

2 The EquityCompass is an investment process focused on selecting stocks and managing portfolios based on three investment principles 1) Orient stock selection to Quality and Value 2) Discipline portfolio exposure to stocks with favorable long-term relative price direction 3) Opportunistically and systematically exploit investor over-/underreaction Page 2

3 Each month we analyze approximately 1,600 stocks to determine their relative valuation, long-term relative price direction, changes in forward-looking expectations, and intrinsic value fundamentals. We utilize three equity models to process the information to provide investment insights. Multi-Year EquityCompass Models Time Horizon Yearly Quarterly Monthly Redline PPS SVI Weekly News Over-/ Relative Relative Long-Term Underreaction Valuation Price Fundamentals (Change in (Mean (Oscillating) (Trending) (Quality) Expectations) Reverting) Variables Influencing Stock Performance Page 3

4 Performance Probability Score (PPS) PPS Rating Matrix 100% 83% 4 Growth 9 Technical Failure Relative Valuation % Ranking 50% 3 2 Growth at a Reasonable Price Growth at a Discount Busted Growth Value Trap 17% 0% 1 Value 6 Backwater Positive Neutral Negative Relative Price Analysis Page 4

5 PPS Performance 15% Annualized Returns Relative to the S&P Equalweight by PPS Category (6/28/01-02/28/06) Rel Return to the S&P EW 10% 5% 0% -5% -10% -15% 8.84% 8.47% 5.14% 0.16% -1.88% -1.20% -0.39% Indexed returns are calculated on an equal-weighted basis with monthly rebalancing. Dividends are excluded. S&P Equalweight annualized return was +6.98% from 6/28/01-2/28/ % % PPS Category Page 5

6 Redline Relative Valuation Percentile 100% 50% 0% Redline Redline High Monthly Valuation Well Above 12-Month Valuation Redline Low Monthly Valuation Well Below 12-Month Average Time (Months) 12-Month Average Valuation Monthly Valuation Page 6

7 Redline Performances 35% 30% 25% 20% 15% 10% 5% 0% Average Buy & Hold Performances (6/30/02-9/30/05) 31.2% 21.8% 20.4% 15.2% 13.4% 11.2% 9.0% 9.4% 5.7% 1.8% 4.1% 5.4% 2.4% 1.1% 0.6% 1-Month 3-Month 6-Month 9-Month 12-Month Redline Low (EW) S&P 500 (EW) S&P 500 Page 7

8 Page 8 Shareholder Value Index (SVI) Shareholder Value Index Increasing Revenues Decreasing Revenues + Improving Margins Revenue Growth Rank Operating Margin Rank Worsening Margins Reducing Debt + + Change in Long-Term Debt Rank Increasing Debt Reducing Shares Out Change in Shares Outstanding Rank Increasing Shares Out + Increasing Dividends Dividend Growth Rank Reducing Dividends + A Top 25% Overall Composite Ranking Score D Bottom 25% Relative Ranking to Sector Peers Lowest Highest SVI Grade Value Creation Shareholder Benefits

9 EquityCompass Risk/Reward Rating Com pass Recom m endation Buy 100% 100% 75% Fully Invested 75% Neutral 50% 25% Mostly Invested 50% N eutrally Invested 25% Mostly Uninvested Sell/A void 0% Not Invested M ost favorable risk/reward expectations Favorable risk/reward Concerns for extreme high valuation and poor quality Lack of compelling risk/reward expectations Concerns for high valuation and lower than average quality Risk/reward expectations unfavorable Extreme low valuation or high quality reason for retaining partial position M ost unfavorable risk/reward Page 9

10 Portfolio Tactics Utilizing Risk/Reward Rating Combined Model Conclusion Risk/Reward Rating EquityCompass Rating Portfolio Weighting Most Favorable 100% Buy Significant Overweight Favorable 75% Buy Slightly Overweight Lack of Favorable Attributes 50% Neutral Slightly Underweight Unfa vorable 25% Sell Significant Under weight Most Unfavorable 0% Sell Eliminate Position 12% 10% Annualized Returns (11/29/02-02/28/06) * Returns exclude dividends and assume monthly rebalancing. - Portfolio Strategy 9.43% 8% 6% 6.73% 7.03% 4% 2% 0% DJIA Index (Price Weighted) *DJIA (EW with monthly rebalancing) *DJIA (Using Recommended Weightings) Dividends included in DJIA and excluded from DJIA with recommended weightings Page 10

11 DJIA EquityCompass Position Weights Ticker Name Price 01/31/06 Passive Index Weight Compass Rating Risk Reward Rating Rec. Index Weight RW - PW IBM I B M $ % Buy 100% 4.8% -1.1% INTC Intel Corp. $ % Buy 100% 4.8% 3.3% GE General Electric $ % Sell 25% 1.2% -1.2% JNJ Johnson & Johnson $ % Neutral 50% 2.4% -1.8% XOM Exxon-Mobil Corp. $ % Buy 75% 3.6% -0.8% C Citigroup $ % Buy 100% 4.8% 1.4% MMM 3M Company $ % Sell 25% 1.2% -4.2% UTX United Tech. $ % Buy 100% 4.8% 0.5% DD DuPont $ % Neutral 50% 2.4% -0.5% KO Coca-Cola $ % Sell 25% 1.2% -1.9% MSFT Microsoft Corp. $ % Sell 25% 1.2% -0.8% PG Procter Gamble $ % Buy 100% 4.8% 0.4% BA Boeing Co. $ % Buy 100% 4.8% -0.5% VZ Verizon Comm. $ % Buy 75% 3.6% 1.1% MCD McDonald's Corp. $ % Buy 100% 4.8% 2.2% HD Home Depot $ % Buy 75% 3.6% 0.5% HON Honeywell Int'l $ % Neutral 50% 2.4% -0.6% AA ALCOA Inc $ % Buy 100% 4.8% 2.6% HPQ Hewlett-Packard $ % Buy 100% 4.8% 2.4% JPM JP Morgan Chase $ % Buy 100% 4.8% 1.8% GM General Motors $ % Sell 0% 0.0% -1.5% T AT&T Inc. $ % Buy 100% 4.8% 2.8% MO Altria Group $ % Buy 100% 4.8% -0.5% WMT Walmart $ % Neutral 50% 2.4% -0.9% AIG American Int'l Group $ % Buy 100% 4.8% -0.1% DIS Disney(Walt)Prod. $ % Sell 25% 1.2% -0.8% MRK Merck & Co. $ % Sell 25% 1.2% -1.3% AXP American Express $ % Buy 100% 4.8% 0.8% PFE Pfizer Inc. $ % Neutral 50% 2.4% 0.5% CAT Caterpillar Inc. $ % Buy 75% 3.6% -1.7% DJIA Members - 02/28/2006 Page 11

12 The investment insights of the EquityCompass are available in a variety of tools Update & Review Client approved monthly publication focusing on stock selection lists, portfolio management insights, and investment commentary Portfolio Analyzer Analyze client portfolio holdings utilizing proprietary EquityCompass analytics Stock Screener Screen 1,600 stocks by sector, model ratings, analyst opinion, and numerous fundamental variables to hone a short list of ideas Model Guide In-depth discussion of model methodology Page 12

13 EquityCompass Tool Demonstration Portfolio Analyzer Stock Screener Page 13