Sam M. Walton College of Business - University of Arkansas

Cumulative Returns  larger view

Annual Returns  larger view

Investment Policy Statement: The primary objective of the Rebsamen Fund is to earn a higher total return while taking no more risk than that of the Russell 1000.

Constraints: The Rebsamen Fund may not invest in commodities.

Liquidity Needs: Approximately $45,000 is needed for an annual Bloomberg subscription, class trip to New York, the Redefining Investment Strategy Education (RISE) Symposium in Dayton, OH, New York University's Leonard N. Stern School of Business Investment Analysis Competition, and miscellaneous expenses.

Taxation and Regulation: As an educational endowment under the auspices of the University of Arkansas, The Rebsamen Trust Fund is tax-exempt under US Federal and Arkansas State law. The Fund is not regulated by the Securities and Exchange Commission. Foreign taxes may be withheld.

Asset Allocation

The asset allocation analysis used is based on a top-down, mean-variance optimization of 37 index returns. Indices included in asset allocation analysis on an inflation adjusted basis and were chosen with consideration to three investment criteria expected to affect overall portfolio performance:

• Firm Size: Investment range categorized by market capitalization of firm according to Standard & Poor's 400, 500, and 600 indices.
• Sector: Investment range sub-divided into sectors Standard & Poor's 400, 500, and 600 indices.
• Geography: Investment range international extended through the inclusion of foreign indices.

Asset Weight  larger view

Strategic & Tactic Portfolio  larger view

Our asset allocation determined the weights of the above specific asset classes within our portfolio, which primarily consisted of the S&P economic sector indices within each of the S&P size indices. Our data was derived from Ibbotson and Associates. Yearly return data was calculated on a trailing twelve-month basis using the monthly returns derived from Ibbotson, and the expected return and standard deviation for each asset class was calculated from these annual results. We created two separate portfolios to represent both our long-term and medium-term growth objectives. Our Tactical model covers a historical five-year period spanning 1997-2001, and our Strategic portfolio covers a historical ten-year period covering 1997-2006. This approach assumes that these time periods are good indicators of the next five and ten year periods, respectively, based on our belief that these historical periods closely relate to the upcoming years in the economic cycle. Our final asset allocation model equally weights these two portfolios. It is important to know that our asset allocation model depends on the following assumptions:

• Investors prefer portfolios with the greatest amount of return for a given level of risk or the least amount of risk for a given level of return.
• Complete absence of market friction.
• Historical returns are a good indicator of future returns.

In order to ensure diversification, our model constrains each combined sector weight in the portfolio to overweight or underweight that of the Russell 1000 by no more than 300 basis points. As a result, all economic sectors are represented in our portfolio, but are allowed room to move around the benchmark weight to account for timing opportunities or issues. Additionally, the weights are assigned non-negativity constraints to prevent our model from utilizing short selling of any asset class to accomplish its optimization. For each portfolio, we constrained the standard deviation of the portfolio to be exactly that of the Russell 1000 over the same period of time. Thus, our allocation achieves a higher return than the Russell 1000 while taking on exactly the same risk. Once these weights are determined, individual securities are selected within the indices by a team of analysts specializing in each sector. Thus, our portfolio generates upside both from strategic weighting of asset classes and individual security selection. This data can be found in tables 1- 4 and Graph 1.