The RISE Conference at the University of Dayton
A National Student Investment Strategy Symposium and Portfolio Competition
February 21-22, 2002
A report by Robert Candella

Day 1

Day 2


On February 21st and 22nd the professors and representative students from Pace University's newly offered Student Managed Investment Portfolio (SMIP) course participated in the 2nd annual Redefining Investment Strategy Education (RISE) symposium at the University of Dayton in Dayton, Ohio. At this interactive, CNBC-like conference SMIP teams from 60 colleges, 30 states, and 3 Canadian provinces gathered together to listen to, learn from, and challenge industry-leading professionals from Scudder Investments, CNBC, Prudential Securities, Salomon Smith Barney, Morgan Stanley, and Merrill Lynch. Robert J. Froehlich, Ph.D. and Vice Chairman of Scudder Investments, moderated the first day which included 5, 1-hour sessions and a 1 half-hour special guest address from CNBC reporter Maria Bartiromo via live satelite link-up from CNBC's studios in Fort Lee, New Jersey. The topics covered included: fundamental and technical stock market strategy, asset allocation and portfolio strategy, the role of media in investing, economic and fixed income strategy, and global market strategy. Each session kicked-off with a half-hour, round-table dialog between Dr. Froehlich and the expert. 6 honorary student panel members on stage with the guests then posed an initial round of questions, which were followed by questions from professors, students, and professionals in the audience. Here's some of what was discussed during the first day…


· Managing Director and Senior U.S. Equity Strategist
· Recognized by Wall Street Journal, Greenwich Associates, and Reuters as leading Capital Goods analyst
· 10-year member of Institutional Investor team
· Institutional Investor All-America Research for coverage of: engineering, construction, and machinery industries

As a Managing Director and Senior Institutional US Equity Strategist at Salomon Smith Barney, Tobias Levkovich had much to offer on the subject of Fundamental Stock Market Strategy. His presentation began with his view on the 4 fundamental considerations required to formulate a view on the market. These included:

Among the four fundamental considerations, this was easiest to gauge. This could be measured by Federal Reserve data, M2, M3 and interest rate policy.

Earnings typically lag liquidity. According to Tobias, earnings will turn in the next quarter or two.

Valuation of Markets
The market is not particularly overvalued. The market should not be viewed on the basis of the Capital Asset Pricing Model. Investors should instead look at where stock valuations should be given inflation. Don't consider Money Management surveys either because managers with over $100 million in assets do not fill out the surveys.

With regard to post September 11th, Tobias described investor sentiment as depressed. Since then, sentiment dramatically increased. It jumped ahead of fundamentals, but is now back in line.

In January, mutual fund assets increased by $3 billion, which is low for this time of year. $9 billion went into bond funds. If interest rates rise, these investors will lose money unless they reallocate--profit potential.

Investor Sentiment
Retail sentiment usually chases performance. This will be among the strongest sectors for 4 reasons:
1. Investory overcapacities are being delt with
2. Defense speding bildup
3. Pent-up demand in advertising and travel
4. Accounting issues are causing concern. Also, operating earnings are the worst since the 1950's. However, only 3 companies in the S&P accounted for 30% of the write-offs. There is still considerably more disclosure in the U.S. than in any other market. Corporate earnings are down, but small business' are looking to increase production which is indicative of positive sentiment.

The Q&A session followed where Tobias talked about the healthcare and homebuilding sectors, equity valuation, hedging, market trends, things that trouble him in the market, and equity valuation considerations. With regard to each...

The healthcare sector will benefit as baby boomers age, except for pharmaceutical. Among the reasons are:
1. Weak new product pipeline
2. Generics competition
3. Hostile FDA
4. Patent expirations

Their is a relatively low supply of housing. Immigrants are increasingly a greater percentage of the U.S. population. They will be looking to buy housing in the coming years.

Equity Valuation
Their will be a greater interest in dividend-based equity valuations. In the 90's equities appreciated 10%--5.4% was stock appreciation. going forward, income will interest investors, not just appreciation.

In terms of positioning for the coming months, Tobias recommended being overweighted in industrials, consumer discretion and financials--all tend to be cyclical.

The best hedge for an equities portfolio tends to be energy. What's different this time than in the 1970's are energy prices. Consumer debt is high and savings is low and the mean household income in the U.S. is $40,000. Typically, $4,000 are spent on energy. Gas prices are declining and prices are falling out west. The typical household has realized between $1,000 and $1,500 in savings.

There is an inverse relationship between consumer discretionary and energies.

Some of the more important trends that Tobias noted were:
1. Economic trends have a much greater impact than will recent accounting issues
2. Individual investor's usually come in to the market late
3. S&P vs. Industrial Production for 30 years run in tandem

Troubling Issues
Counterparts not looking at cashflows and accounting for cashflows appropriately. The Enron debacle is good for the market.

Japan, the second largest economy, imploding.

Things that can't be measured like catastrophic events that may move the market.

Equity Valuation Considerations
When taking a neutral market position, you should be weighted 60% stocks, 30% bonds, and 10% cash. Currently, a weighting is 70% stocks, 25% bonds, and 5% cash. A year ago, small caps were a no brainer because they were tradinging at 10 times earnings where large were trading at 20 times earnings.

In terms of valuation models, don't believe in any one discipline. What market indicators you use to gauge market tops and bottoms depends on your perspective. Technical analysts pickup on trends. Fundamental analysts pickup on inflection points.

We will see the returns of the 90's, but not to the extreme extent. 5 standard deviations from the mean again will be unlikely.

When you're evaluating the market talk to institutional investors.


· Managing Director and Director of Technical Research
· Author of: The Fourth Mega Market: Now Through 2011
· Regular panelist on "Wall Street Week with Louis Rukeyser"
· Commentator for: Wall Street Journal, Business Week, Barron's, USA Today, NBC Nightly News, CNBC, CNN, and CNNfn

Ralph Acampora was among the most entertaining of the speakers. For a man whose comments are said to be able to move the markets, his style was suprisingly straightforward and practical. On the topic of technical analysis and the subsequent Q&A, Ralph talked about: the significance of behavioral finance, aspects of good research and stock picking, difficulties of technical analysis, his typical morning, and favorite indicators. On the topic of each...

Behavioral Finance
In the current market an investor should be considering that the country is at war, we are in recession, unemployment is high, and management integrity is in question.

Aspects of Good Research
Good research is like a four-legged stool that factors in:
1. Economics
2. Fundamental Analysis
3. Quantitative Anlaysis
4. Technical Analysis

With regard to technical analysis, Ralph did note that no one valuation model should be relied on. Instead, if 4 models indicate that a stock is a value and the fifth does not, then more than the stock more than likely has buying potential. Additionally, if a stock bottoms and insiders are buying, than buy.

Stock Picking
When you establish a view based on your research, Ralph recommended using the following to pick stocks:
1. Price
2. Volume
3. Psychology

The best measures that he finds as to the state of the economy are:
1. State of Merrill Lynch
2. Interest Rates
3. Fannie Mae & Freddie Mac

The best sectors to invest in right now are cyclicals, retailers, and defense stocks. Cyclicals include: paper, chemical, forest products, and P&G. Some of the good retailers include: Home Depot, Walgreens, and Texas Instruments.

In trending, investors should be indexed. Consider that the flow into mutual funds is a 10-year low, which presents potential investment opportunity.

Technical Analysis Difficulties
Some of the danger signs in technical analysis are insider selling at tops and buying at bottoms. The most difficult things about technical analysis include:
1. Information overload
2. Being unsubjective
3. Not having emotion

Typical Morning
On the typical morning, Ralph said that he has in his mind exactly what his view for the day is. He then, says hello to the doorman, picks up his paper, runs into a few people on the elevator, says hello to his secretary and is totally confused by the time he gets into his office. On a more serious note, he uses follows these steps when viewing the market:
1. Evaluate the market
2. Identify groups and sectors with positive performance potential
3. Identify stocks in the given sector with positive potential

Favorite Indicators
Ralph again injected his wit into the dialog. When a student asked, "What are your favorite indicates?" He responded, "Everything." Having said that, he recommended buying buying the dips and identifying them with respect to the stocks moving average. Also, don't rely on any one tool. Instead, the tools that you use to evaluate your stocks should be dictated by the environment you're in. To this end, he made mention of McDonalds.


· Vice President and Equities Strategist for U.S. Equities Market
· Co-manager of U.S. Model Portfolio
· Morgan Stanley Stock Selection Committee member
· Harvard Business School MBA

The discussion with Ms. Modigliani focused on Asset Allocation an Portfolio Strategy. Her review of the topics was particularly technical and, inclusive of the Q&A session covered: the goal of asset allocation, measures and techniques, trends, and strategy.

Goal of Asset Allocation
Marrying academic research with practical application to manage risk. Further to this point, Ms. Modigliani defined risk as, "The probability of losing money and how much," emphasizing the downside risk more than upside (she joked that no one minds the benefits of risk).

Measures and Techniques
With regard to the measures and techniques used to measure and manage risk, Leah highlighted Wall St. does not use risk adjusted returns to manage risk. The only publication that she's observed that does so is Morningstar. To this end, she prefers to measure risk in terms of the return per unit of risk. This provides a better basis for evaluation. One of the measures that she recommended was the Sharp ratio, calculated as follows:

(Return of Portfolio - Best Measure of Portfolio Return - Risk Free Rate) divided by Standard Deviation of Portfolio

She cited an example where given an investor's risk tolerance, an emerging market stock would be a better investment in terms of the potential return per unit of risk.

On the topic of techniques, Ms. Modigliani talked about one technique in particular that Morgan Stanley uses to manage equities risk, which specifically involves buying and selling Treasury Inflation Protected Securities (TIPS) to increase or reduce a risk and return potential.

3 trends that trends that Ms. Modigliani anticipates in the market included:
1. Better disclosure / more clarity
2. Greater emphasis on valuation as a determinant for evaluating stocks
3. More emphasis on corporate de-leveraging (companies dropping debt)

In response to a student question, Ms. Modigliani said that she was most worried about the surplus being gone and social security being threatened.

When he topic of Strategy came up, Ms. Modigliani touched on the Capital Asset Pricing Model and followed with her market predication. On the CAPM, she said that there is an equity risk premium of about 4%--that's to say the inherent return. Moreover, be sure to compare volatility at each up point [on the securities market line] against the risk premium. Prompted by a student question, Leah began her sector allocation strategy-market prediction-by first reviewing current market conditions, namely:

1. S&P earnings are currently down 30%
2. Earnings expectations are currently up 8%
3. The Economy is improving
4. The Market is fairly valued

With this in mind, she offered the following with regard to each sector:
1. Technology - under weight
2. Financials - under weight
3. Consumer Cyclicals - over weight, specifically retail, media, and advertising
4. Energy - over weight - sector is cyclical and earnings are transparent


· CNBC Anchor
· Co-producer of "Market Week with Maria Bartiromo"
· NY Times Best Selling author of: Use the News: How to Separate the Noise from the Investment Nuggets and Make Money in the Economy

Perhaps the most surprising of interviews on the day was with Maria Bartiromo. Maria participated in the conference via live satellite from Fort Lee, NJ. Maria must have been unaware that the satellite linked up to the screen when she sat down for the interview because she had a sour look on her face as if she were annoyed that we were interrupting her day. The audience had a good laugh when it became apparent that she became aware of the fact that she was live at which point her demeanor changed dramatically. Being a fan-favorite among armchair investors, Maria quickly overcame the amusement with her charming smile, cheerful disposition, and profound and well thought out commentary, which consisted of numerous iterations of, "My message to you is to DO THE RIGHT THING!" Aside from what I thought was a rather ridiculous message for an auditorium full of aspiring portfolio strategists, Maria offered following on the subject of The Role of Media in Investing:

3 Keys to Success - in order of importance
1. Do the right thing
2. Work hard at it
3. Love what you do

After talking a few minutes on each of the above points, Dr. Froehlich, the moderator, presented Maria with questions gathered from the audience on index cards. Pace University dominated this segment by having 2 of the 4 questions in an audience of over 300 selected. The first questioned asked of Maria was from Oren who asked how the media determines what events are noteworthy. Maria's response was:

Noteworthy Events
1. Won't report rumors that are having no material impact on the stock
2. Will only report such rumors if the company is willing to comment

The next question presented asked why the media was so focused on Enron and hardly mentioned the bankruptcy of Global Crossing? In response to this question, Maria commented that Enron had a much far-reaching impact on the investment community. She elaborated on the impact citing banks, power companies, and 401k Retirement Accounts.
The third question the moderator asked of Maria was what she believed that the media's objectives should be. Her response was threefold:

Media's objectives
1. Accuracy
2. To Educate
3. Characterize the impact of a noteworthy event

The final question presented to Maria was from myself. Dr. Froehlich asked, "What was the most defining moment in your career?" Maria's response was beig the first person in 1995 to broadcast from the trading floor.

Apparently, Maria at one time put Dr. Froelich, an occasional CNBC guest, on the spot by asking him with whom his favorite interview was while she was interviewing him because he asked the question of her too. She joked with Dr. Froehlich and 3 interviews and why she was impressed:

Favorite Interviews
1. Among CEO's, Jack Welsh - his humility and candor struck her
2. NYSE Chairman Dick Grasso - also humble
3. President and King of Jordan - Interviewed him 2 weeks ago and was impressed by his humility and ability to speak clearly and simply. He was also topical and interesting and well spoken on the topic of the middle east.


· Senior Economist and Directorin the Global Securities Research & Economics Group
· Co-author of Political Cycles and The Macroeconomy
· Regularly quoted by: Wall Street Journal, New York Times, Barron's and other pulications

I was fortunate to have had the opportunity to not only observe the conversation and Q&A session with Gerald Cohen, but also sit on the student panel selected to prepare the initial round of questions. I was asked to prepare 4 questions, but knew I would probably only be able to ask 1 before the audience would chime in. So, I spent a lot of time thinking the 1 question through, bounced it off Oren and Howard, ran it by Professor P.V., and felt well prepared for my fellow Merrill Lynch employee. Apparently though I was too prepared because when I asked the question, "What geo-political events do you anticipate in the comings months as a result of the U.S. war on terrorism and what effect will they have on the U.S. economy?", Gerald blushed a bit and in good spirits asked me who my boss was. I was happy to see that Pace was again well represented. On the topic of Economic and Fixed Income Strategy Gerald offered the following:

Recession Commentary
1. Since WWII, in the first year of every Republican administration there's been a recession. The cause is a shift in policy and the growth/inflation struggle between Democrats and Republicans.
2. 2nd mildest recovery on record
3. The operative phrase when conducting a macroeconomic evaluation is opportunity cost. Citing growth figures, Gerald pointed out that this will likely be the mildest recession on record.)
4. Worst earnings recession on record

Economic Recovery Considerations
1. President advocating a tax cut
2. Companies are cutting payrolls
3. Depreciation of inventories

Commentary on Federal Reserve
1. Goal of the Fed is to manage inflation
2. Responded appropriately to Sep. 11th by assuring liquidity in market
3. Overreacted to "irrational exuberance"

Some Significant Global Economic Observations
1. China is experiencing 3% growth. Their growth rate is expected to be 5% in 30 years, which will exceed the U.S. growth rate.
2. Unemployment in Europe is 9%. Until sentiment changes, it will remain strong.

Good Economic Indicators
1. Inventories
2. Technology capital investments
3. 10 year vs. 3 mo. Treasury spread
4. Jobs - unemployment 5.5% (smallest on record in recession)
5. Oil prices - 1 cent price change affects consumers by +/- $1 billion
6. Earnings
7. Commodity Prices - indicative of probably production changes

1. Now is the time to buy junk bonds
2. 3% growth consensus on Wall St.
3. As far as interest rates, expects 2.5% rates

Q&A comments
1. Economic forecasts are basd on implied assumptions
2. Consumer savings will reverse current trend
3. Concerns if Argentina economic situation ripples into Brazil and rest of South America
4. Japan in 3rd recession in a decade
5. Impact of the 30yr treasury not being auctioned - portfolio managers will basket securities for 30 years


· Vice Chairman and Chief Investment Strategist
· Managing Director of Zurich Scudder Investments
· Member of Investment Policy Committee
· Regular guest of: CNBC, CNNfn, FOX News, and regular guest co-host of CNBC's "Squawk Box"
· Interviewed on Wall Street Week with Louis Rewkeyser, "Money Line", "The MacNeil/Lehrer News Hour" and "World Business"
· Frequently quoted by: Wall Street Journal, New York Times, and Barron's

Dr. Robert Froehlich concluded the interviews with a conversation on Global Market Strategy. As with the other speakers, a student member of the symposium organization team introduced the speaker. In this case it was the symposium team's student president and graduating senior. After introducing Dr. Froehlich, the student turned over the stage to the Dr. who talked about the U.S. economy, Europe issues, global trends, Asia issues, suggested allocation and London issues. These were his comments:

U.S. Economy
1. The biggest and most important economy in the world
2. Collapsing interest rates
3. Up-tick in government spending
4. Collapse of oil
5. Tax cuts
6. Increased retirement savings
7. Inventory buildup

Europe Issues
"The 'R' word last year was recession. This year the 'R; word is recovery." The reovery in Europe is extremely difficult to evaluate. One must look at the U.S. to do do-Europe typically lags by 6 months.

Global Trends
1. 177 interest rate changes worldwide
2. Continued restructuring of corporations. European companies have been buying U.S. companies. Taking into account that the U.S. is among the leading exporters of CEOs and CFOs, Europe will likely continue to benefit from more liberal labor pratices (like people won't be guaranteed lifetime employment, which causes high unemployment) and increased efficiencies.
3. TMT-Telecommunications, Media, and Technology all did well in Europe and will experience an up-tick
4. Launch of Euro will result in price transparency over the long-run and provide an alternative store of value

Asia Issues
With regard to Asia (excluding Japan), Dr. Froehlich commented that this market was beaten beyond fundamentals. Corporate balance in terms of debt/equity ratios were 84% in 1997. They were 50% in the U.S. at the time (many U.S. companies bought back shares since then). Today, Japan's debt/equity ratios are around 60%. They finally understood the significance of proper public policy.

Suggested Allocation
This year the Dr. anticipated a turnaround in Q3 or Q4. He believed the safrst allocation would be 60% equities in the U.S., 30% in Europe, which will likely see positive performance in 12 to
18 months, and 10% in Asia (excluding Japan, which suggested, "…having nothing in Japan for the next 10 years.")

As the Euro becomes a better store of value, Dr. Froehlich expects a sell-off in London (approx. 18 months). Investors will then recognize value in London and reinvest. The will occur over 4-year period.

Q&A Commentary
1. There is a 9-month lag in interest rate changes between US and Europe
2. The U.S. cannot have a global economy by selectively regulating industries (e.g. Steel)
3. Country specific regional banks and retail sectors have good buys

The second day of the conference was structured differently. 1-hour sessions were offered in the business school classrooms from 8:45am to 9:45am, and from 10:20am to 11:30am. Guest speakers presented to attendants in each session on the following topics:

1. Growth Style Portfolio Management (limited seating)
2. Blend Style Portfolio Management (limited seating)
3. Career Trends in the Financial Services Industry
4. Equity Research Analysts
5. Regulation Fair Disclosure
6. International and Emerging Markets
7. Value Style Portfolio Management (limited seating)
I thought I could bring back some good information for the class regarding various investment styles-growth, blends and value portfolio management, but seating had been filled before the conference. The next best alternative was the presentation on Equity Research Analysts moderated by David Legeay, CFA and Managing Director of Victory Capital Management. He introduced 3 speakers who offered the following commentary:

Senior Investment Analyst and Co-Manager One Group Technology Fund
(Banc One Investment Advisors, Banc One Investments, Columbus, Ohio)

Steven introduced himself and outlined the topics that he would be covering during his presentation. These included:
Why buy a stock
Current Sector State
What to look for / What's on his radar screen
Career Advice

Why buy a stock
First Steps…
· Define investment universe and objectives. He noted that he's paid to beat the Goldman Sachs Tech Index
· Establish investment style - values, growth, etc.
· Identify stocks that identify back to a positive secular theme
· Analyze economy, sector and respective industry

Next steps…
I. Conduct Systematic Analysis:
· Screen using: EPS quality, relative EPS growth, EPS revisions, and attractive relative valuations
· Use discounted cash flow model
· Examine price to sales to see if it's in line with economic outlook

II. Conduct Fundamental Analysis
· Identify whose positioned to benefit from growth
· Study balance sheet and cash flow forecasts
· Measure management capability, effectiveness and access to capital - literally visits each company
· Identify catalysts in 6-12 mo. timeframe that's not discounted into the stock, like a product announement
· Establish buy criteria - does it rank highly in your process and have the fundamentals been validated?
· Establish sell criteria - what changes in your secular or fundamental outlook will affect you position. Some examples are:
1. Decline in your systematic ranking
2. Deteriorating earnings quality - A/R increasing, Inventory increasing, payment terms changing
3. Negative earnings per share
With regard to all of the above, Steve commented that the problems in this industry take a long time to fix.

Current Sector State
· Long-term growth rate is 10%, growth was -5% in 2001 and expected to be +2% this year
· The issue of earnings quality in software companies was catapulted by Enron debacle. Right now debt in technology companies is too risky. He will not take balance sheet risk. Computer Associates is an example of a technology company with a high debt/equity ratio.
· Consolidation is expected to continue in the sector. There is too much capacity in the business.

What to look for / What's on his radar screen
· Industry gorillas - This is a business about standards. Look to see who will be setting the standards in the coming years. These are the most profitable companies over time.
· If it breaks, it usually takes more than 1 quarter to fix it
· This is a cyclical industry - valuation does matter. IT all comes down to how much cask can a company generate over time.
· Listen to the market, but be willing to fight the tape.

Career Advice
· Passion for the business is a requirement for hiring
· Graduate school is more or less a requirement. It teaches an analytical train of thought - you must be able to pick-up on strategies.
· As far as getting your foot in the door, there's no one way. He started off as a network adminstrator.
· There is a misnomers that the field is glamorous. It is not. It requires a lot of hours in a cubicle crunching numbers, a lot of traveling, and a lot of hours. Have the ability to listen and check your ego at the door.

Equity Analyst, Fifth Third Bank Investment Advisors
(Fifth Third Bank, Cincinnati, Ohio)

Jon's presentation covered the healthcare sector. He elaborated on the following aspects:
How to look at a stock
How to pick a stock
Key Issues

This was followed by his view on each of these component healthcare parts:

How to look at a stock
When evaluating the healthcare sector, one must ask 2 key questions:
1. Who are the customers? Specifically, who controls the customers?
2. What do the customers want?

The answers to those questions are:
1. The customers in the healthcare sector are the doctors because they ultimately prescribe the medications, use the devises, suggest the services, and drive research. For this reason, your focus should be on companies who deal directly with the Drs.
2. Customers want long life expectancy and a high quality of life.


Gross margins in the healthcare sector are about 80%. Operating margins are about 30%.

How to pick a stock
Picking a stock involves first establishing your fundamental criteria. This process should incorporate:
1. Build an earnings model 5 years out and examine:
a. Discounted earnings
b. Discounted cashflows
c. P/E ratios
d. P/Sales ratios
e. P/Cashflows
2. Evaluate the product pipeline
3. Categorize the stocks:
a. High Value - Dominant Product / Great Pipeline
b. Fair Value - Operating Normally
c. Low Value - Current Product Slowing / Pipeline Potential

Consider also exogenous factors and risks. Some of these include:
1. Time to market - the full product development lifecycle is 10 years
2. Probable success rate - 95% of new discoveries fail. If you get into Phase I trials, the success rate is low. Phase II has a greater probability of success. This is where companies get credit for their pipeline.
3. Government trying to regulate price and industry. The FDA scrutinizing Bristol-Meyers Squibb is an example.
4. Generic competition from patent expirations

Key Issues
The key issues in the healthcare sector are products, valuations, margin, revenue and research and development.

Jon provided his view on the major component parts of healthcare. These were:

· Experienced high growth in the mid 90s
· Experiencing a slowdown in Earnings and Revenue growth

· Different today than in the 90s-few than 5 were profitable. Today 20 are profitable.
· Fewer than 100 products were in development in the 90s-600 now.
· Pharmaceutical companies are using biotech discoveries today for future growth.
· Stocks got excited a few years ago with the completion of the human genome.
· Sector will realize earnings in 5-6 years.

· Pace-makers and joint replacement devices are in high demand
· Pricing is strong in this area

Wrapping up his discussion on Healthcare, Jon commented that the future of the sector is promising. The pipeline is strong '03 - '05. Valuations are also strong. The industry will benefit from the same growth drivers and he expects good performance. Pfizer was among his top picks. He advised against investing in generics because products are differentiated on a price-basis only.

Senior Securities Analyst, Commercial Services and Supplies, Household Durables (State Teachers Retirement Fund of Ohio, Columbus Ohio)

The last presenation of the first session focused on Household Durables. A great deal of information was presented, hence the scattered notes. Here's what was said:

State Teachers Retirement Fund of Ohio Funds
Gary outlined 3 funds that were managed by State Teachers Retirement Fund of Ohio. Among them were, a Select Fund and Growth and Value Funds. What differentiates them is the purchasing process. Analysts who buy and sell at will manage the Select Fund. The Growth and Value Funds are managed by portfolio mangers who receive recommendations from analysts.

Household Durables Characteristics
Concerning Household Durables, it represents a small portion of the S&P 500 index - about .5%. Among the companies that represent this sector are Homebuilders and Appliance and Furniture retailers.

Companies in the sector are characterized as:
1. Brand-oriented
2. Experiencing slow top-line growth
3. Having thin operating margins
4. Cyclical
5. Interest Rate sensitive

Current Performance Drivers
Some of the sector's current performance drivers include:
1. Consumer spending fueled by low interest rates
2. Health consumer
a. Unemployment low
b. Tax Refunds
c. Refinancings put cash in consumer pockets
d. Energy savings of $90 - $100 billion

Why Sector will continue to Perform
1. New home sales rising
2. Appliance shipments up
3. Massive company restructuring - production moved overseas
4. Home Depot and Lowes both ahead of plan

A Technical review of the sector demonstrates an almost direct correlation between interest rates and the performance of the sector. When interest rates rise, durables fall. Likewise, when interest fall, durables rise.

What has hurt the Sector
Customer concentration has hurt the sector. Namely, the meteoric rise of Loews, Home Depot, and Wal-Mart. Management from the companies demand supplier price concessions, require low inventories, and introduce into the market brutal foreign competition.

Valuation Considerations
The following were observation deemed noteworthy concerning the technical performance of the sector:
1. Relative to the S&P, sector is currently .75 times forward EPS vs. 15 year median of .95 times.
2. Relative to 15 year median, currently 14 times forward EPS are in-line historically
3. EPS are suspect given Enron situation
a. Big writeoffs, Pension Fund gains being considered as Investment Earnings
b. Rsk of estimates being too high if consumers hit pricing wall
c. PEG ratios don't work
d. Prefer free cash flows in valuation models

During the Q&A a question was specifically asked about Homebuilders. Gary's answer included these comments:
1. Homebuilders are among the deepest cyclicals and most interest rate sensistive
2. Whether to buy or sell is on debate
3. Valuation is not too stretched
4. Top performing industry in the past 2 years


Before the session concluded, each analyst was asked to present their top picks in their sector for the coming year. Their choices were:

Technology - Steven Salopek
1. EDS
2. Synaguard Data

Healthcare - Jon Fisher
1. Forest Labs
2. Pfizer
3. Genentech

Household Durables - Gary Clark
1. Fortune Brands
2. Rubbermaid