HomeMy WebLinkAboutRegular 600 Presentation From Lateef Investment ManagementDate: May 26, 2010
The attached documents were provided by
Jennifer Lavin, Managing Director, Lateef
Investment Management to the Winter Springs
Board of Trustees and then discussed during
Regular Agenda Item "600" at the May 26, 2010
rescheduled Regular Meeting.
LATEEF
I N V E S T M E N T
M A N A G E M E N T
City of Winter Springs
Portfolio Review — Q 1 2010
May 26, 2010
LATIEEF
Discussion topics
1. Portfolio Holdings& Performance
2. Q1 2010 Leaders &Laggards
3. Recent Activity& Updates
4. Current Outlook
2
LATIEEF
City of Winter Springs Holdings
CONSUMER DISCRETIONARY
• ITT Educational
• Scripps Networks Interactive
INDUSTRIALS
• CH Robinson
• Expeditors
• Rockwell Collins
CONSUMER STAPLES
• Colgate
ENERGY
• Suncor
FINANCIALS
• Affiliated Managers Group
• Aflac
• Berkshire Hathaway
• State Street*
TECHNOLOGY
• Automatic Data Processing
• EMC
• Qualcomm
• Accenture
• Teradata
• Visa
• MasterCard
MATERIALS
• Ecolab
* Q1 addition
3
LATEEF
City of Winter Springs Performance
Net of Fees
*Amitialized
Russell 1000
Winter Springs
Growth
S &P 500
Q1 2010
5.06%
4.65%
5.39%
Since Inception*
10/1/07 — 3/31/10
- 2.89%
- 13.35%
- 8.50%
Preliminary
- 3.05%
- 3.34%
- 2.98%
YT D — 5/24/10
*Amitialized
LATIEEF
Portfolio Leaders Q1 2010
• Berkshire Hathaway - split its "B" shares 50:1
allowing Burlington Northern shareholders the option
to swap their shares in a tax -free exchange for
Berkshire shares to effect the merger.
• The increased liquidity in Berkshire shares was the
tipping point for S &P to finally include Berkshire in its
S &P 500 index.
• The stock moved higher from demand by index
funds, by investors attracted to the lower stock price
and by a recognition of its compelling value.
5
LATIEEF
Portfolio Leaders Q1 2010
• ITT Educational Services - reported a 59% increase
in Q409 EPS growth to $2.56 /share, which followed a
strong 34% increase in the prior year, and exceeded
consensus estimates by $.20 /share.
• Student enrollment grew 30% and the company
secured a $300 million student loan package from
outside lenders, which will alleviate ITT's funding of
student loans that was previously done to
accommodate students who were frozen out of the
lending market in the recent credit freeze.
n .
LATIEEF
Portfolio Laggards Q1 2010
• Qualcomm - declined 9% which included a single day drop
of 15% in reaction to its Q409 earnings report. QCOM
retained its earnings guidance for the year but slightly
lowered its revenue guidance.
• Later in the quarter, QCOM's announced a new $3 billion
stock buyback authorization after just completing a
repurchase of $1.7 billion. Notwithstanding this intra- quarter
volatility, we believe QCOM will benefit as consumers
migrate to 3G phones (third generation smart phones with
higher functions) as only 20% of the 5 billion worldwide
phones today are 3G and penetration is expected to double
to 40% by 2012.
• QCOM's long term growth thesis is in tack. At $36, QCOM
has $11 / share in cash and no debt.
7
LATIEEF
Portfolio Laggards Q1 2010
• Suncor - shares fell as one of the company's two
primary upgraders suffered an unplanned outage due
to a February fire, that interrupted production. The
upgrader can process 125,000 barrels /day.
• On April 1st, just after the quarter ended, Suncor
announced the fire damage was repaired and the
upgrader production had returned to full production
rates.
LATIEEF
New Investment -State Street (STT
State Street is a custody bank that provides outsourcing
services ( -85% revenue) to asset managers and provides low
cost asset management services ( -15% revenue) through their
State Street Global Advisors platform (index & ETF).
Competitive Advantages — 1) Scale in both businesses $18 trillion
in assets under custody and $1.9 trillion in assets under
management 2) Technology investments — State Street spends
20 -25% of operating expenses on technology.
Business Highlights
• Recurring revenue —over 80% recurring revenue, top 100
customers use 13.5 products, historically 5% of their revenue
growth is from cross - selling.
• Long term goals: Revenue 8 -12 %, EPS 10 -15 %, ROE 14 -17%
E
LATIEEF
Sell — Fastenal (FAST
Valuation — At $45 we believe FAST is fairly to
slightly over - valued. $45 represents 30x 2010 EPS
estimates of $1.49.
Potential new store slowdown —FAST has
historically grown new stores at a healthy clip. Not
surprisingly, they have slowed this down over the
past two years. However, we are not certain as to
when and what rate they will resume new store
g rowt h.
10
LATIEEF
Update -Visa and MasterCard
What's the proposal? Senator Durbin's interchange amendment to broad financial
reform was approved in the senate by a 64 -33 vote. This amendment would give
the Feds the authority to set debit interchange fees that are "reasonable and
proportional to processing costs incurred."
After speaking with MasterCard and reviewing the commentary about the bill we
believe there is more headline risk than actual earnings or fundamental
impairment. We believe the stock price reaction dramatically overstates the actual
risk.
What's next? The bill needs to go through the House, then to conference to
combine the two bills. There are those in the House who believe that this is a
commercial issue and not a consumer issue and therefore should not be in the
Financial Reform Bill. This may not pass. Even if it does pass, at the very least, it
would take 1.5 to 2 years to implement.
We do not believe that the long term thesis of V /MA has changed and that both
companies will continue to grow 15 %+ over the next 3 -5 years.
11
LATIEEF
uality next move up?
&P 500 Cos. PROFITABLE in 2009 Relative to NOT Profitable in 2909
28-M to 31 -mar -2010 :Da
8 -Mar -2000 =100: Local
T — 170
— 160
This is a low bar for quality,
and still it has not "worked"'
150
r
140
-
130
1
�
1
1
-
1
120
1
�
IL ------------ - - - - --
110
100
3108 6108 9M 12 /08 3109 6.09 9109 12AD9 3110
LATEEF
Cash Build
• Corporate cash &
equivalents rose 39% in
the last two years to $1.07
trillion to 11.4% of assets
from 8.5 %.
• Look for increased
buybacks and mergers and
acquisitions.
Source: Bloomberg
13
LATIEEF
Portfolio Characteristics
• 70% of our companies earned more in 2009 than in 2007
— S &P 500 earnings fell 31 % during this time
• 80% of our companies are expected to earn more in
2010 than in 2007
• 6% free cash flow yield
• Over 35% upside from current valuations
• We have met with 15 of our 19 companies in 2010
14
LATIEEF
Disclaimer
The information in this presentation was prepared by Lateef Investment
Management, L.P.( "Lateef'). The information is believed by Lateef to be reliable
and has been obtained from both public and private sources believed to be
reliable. Lateef makes no representation as to the accuracy or completeness of
such information. Opinions, estimates and projections in this presentation
constitute the current judgment of Lateef and are subject to change without
notice. Lateef has no obligation to update, modify or amend this presentation, or
to otherwise notify a reader thereof, in the event that any matter stated herein,
or any opinion, projection, forecast or estimate set forth herein, changes or
subsequently becomes inaccurate.
Past performance is not necessarily indicative of future results. This
presentation is provided for informational purposes only.
15
LTIEEF
Investment Portfolio Report
March 31, 2010
Account # 2119
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACTXEVIN SMITH GEN. SVCS DIR.
1126 EAST S. R. 434
WINTER SPRINGS, FL 32708
Lateef Investment Management Voice: 415 461 3800
300 Drakes Landing Road #100 Fax: 415- 461 -0436
Greenbrae, CA 94904 Website: www.lateefcom
L TIE]EF
Account No: 2119
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACT:KEVIN SMITH GEN. SVCS DIR.
Statement of Assets
Summary of Portfolio*
REPORTING PERIOD: 01/01/10 TO 03/31/1C
March 31, 2010
$4,854,029
Net Additions/ (Withdrawals)
(194,280)
Income Earned
10,825
Capital Appreciation
229,256
Management Fees
Percent
Anticipated
Current
Total
Market
of
Annual
Yield
Cost
Value
Portfolio
Income
%
CASH & CASH EQUIVALENTS
87,832
87,832
1.80
878
1.00
EQUITIES
4,095,772
4,796,689
98.14
48,598
1.01
ACCRUED INCOME
3,174
3,174
.06
0
.00
TOTAL PORTFOLIO
4,186,778
4,887,696
100.00
49,476
1.01
Please note: Lateef Investment Management does not custody the assets in your account. Please compare our records to the
records you receive independently from your broker /custodian.
STATEMENT OF CHANGES YEAR -TO -DATE INCOME, EXPENSE AND GAIN /LOSS SUMMARY
Market Value at 01/01/10
$4,854,029
Net Additions/ (Withdrawals)
(194,280)
Income Earned
10,825
Capital Appreciation
229,256
Management Fees
(12,135)
Market Value at 03/31/10
4,887,696
Dividend Income $10,819
Interest Income 6
Net Short Term Gain or (Loss) 23,746
Net Long Term Gain or (Loss) 68,345
LATEEF INVESTMENT MANAGEMENT Page 2 of 10
LTIEEF
Account No: 2119
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACTXEVIN SMITH GEN. SVCS DIR.
bwestmeut Perfonnauce
REPORTING PERIOD: 01/01/10 TO 03/31/1C
LATEEF INVESTMENT MANAGEMENT Page 3 of 10
Annualized
Year
Latest
Latest
Latest
Latest
Since Inception
to Date
12 Months
3 Years
5 Years
10 Years
10/01/2007
CLIENT ACCOUNT(NET OF FEES) 5.06
46.18
N A
N A
N A
-2.89
S &P 500 TRI 5.39
49.77
N A
N A
N A
-8.50
LATEEF INVESTMENT MANAGEMENT Page 3 of 10
L TIE]EF
Account No: 2119
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACTXEVIN SMITH GEN. SVCS DIR.
Assets in Portfolio
REPORTING PERIOD: 01/01/10 TO 03/31/1C I
LATEEF INVESTMENT MANAGEMENT Page 4 of 10
Average
($)
Unit
($)
Annual
($) Est.
( %)
Par Value
Unit
Total
Market
Market
( %)
Int /Div
Annual
Current
Unrealized
Description
or Shares
Cost
Cost
Price
Value
Portfolio
Rate
Income
Yield
Gain /Loss
CASH & CASH EQUIVALENTS
CASH
CASH BALANCE
87,832
87,832
1.80
1.000%
878
1.00
TOTAL CASH & CASH EQUIVALENTS
87,832
87,832
1.80
878
1.00
EQUITIES
ENERGY
7,561
SUNCOR ENERGY INC NEW
19.700
148,952
32.540
246,035
5.03
1.200
2,949
1.20
97.082
MATERIALS
4,120
ECOLAB INC
41.976
172,941
43.950
181,074
3.70
1.410
2.554
1.41
8.133
INDUSTRIALS
4,383
ROCKWELL COLLINS INC
58.521
256,497
62.590
274,332
5.61
1.530
4,208
1.53
17,835
3,411
CH ROBINSON WORLDWIDE INC
57.179
195,038
55.850
190,504
3.90
1.790
3,411
1.79
(4,533)
5,775
EXPEDITORS INTL WASH INC
37.540
216,794
36.920
213,213
4.36
1.030
2,195
1.03
(3,581)
TOTAL INDUSTRIALS
668,329
678,049
13.87
9,813
1.45
9,721
CONSUMER DISCRETIONARY
2,987
ITT EDUCATIONAL SERVICES INC
101.735
303,882
112.480
335,978
6.87
32,096
5,550
SCRIPPS NETWORKS INTERACTIVE
40.420
224,333
44.350
246,143
5.04
.680
1,665
.68
21,810
TOTAL CONSUMER DISCRETIONARY
528,214
582,120
11.91
1,665
.29
53,906
LATEEF INVESTMENT MANAGEMENT Page 4 of 10
L TIEEF
Account No: 2119 REPORTING PERIOD: 01/01/10 TO 03/31/1C
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACTXEVIN SMITH GEN. SVCS DIR.
Assets in Portfolio
Average ($) Unit ($) Annual ($) Est. ( %)
Par Value Unit Total Market Market ( %) Int /Div Annual Current Unrealized
or Shares Description Cost Cost Price Value Portfolio Rate Income Yield Gain /Loss
EQUITIES
CONSUMER STAPLES
2,900 COLGATE PALMOLIVE COMPANY 72.177 209,314 85.260 247,254 5.06 2.490 6,148 2.49 37.940
FINANCIALS
786 MASTERCARD INC 168.701 132,599 254 199,644 4.08 .240 472 .24 67,045
2,406 VISA INC 67.500 162,405 91.030 219,018 4.48 .550 1,203 .55 56,613
3,221 AFFILIATED MANAGERS GROUP INC 79.572 256,302 79 254,459 5.21 (1,843)
5,381 STATE STREET CORP 46.186 248,527 45.140 242,898 4.97 .090 215 .09 (5,629)
7,021 AFLAC INC 21.031 147,660 54.290 381,170 7.80 2.060 7,864 2.06 233,510
2,975 BERKSHIRE HATHAWAY INC CLASS B 68.523 203,857 81.270 241,778 4.95 37,921
TOTAL FINANCIALS 1,151,350 1,538,968 31.49 9,753 .63 387,618
INFORMATION TECHNOLOGY
4,791 AUTOMATIC DATA PROCESSING INC 45.470 217,846 44.470 213,056 4.36 3.060 6,516 3.06 (4,791)
8,125 ACCENTURE PLC IRELAND SHS CL A 38.120 309,725 41.950 340,844 6.97 1.790 6,094 1.79 31,119
4,567 QUALCOMM INC 35.378 161,572 41.960 191,631 3.92 1.620 3,106 1.62 30,059
13,859 EMC CORP MASS 15.324 212,369 18.040 250,016 5.12 37,648
11,341 TERADATA CORP 27.789 315,159 28.890 327,641 6.70 12,483
TOTAL INFORMATION TECHNOLOGY 1,216,670 1,323,189 27.07 15,715 1.19 106,518
TOTAL EQUITIES 4,095,772 4,796,689 98.14 48,598 1.01 700,917
ACCRUED INCOME 3,174 3,174 .06
LATEEF INVESTMENT MANAGEMENT Page 5 of 10
LTIEEF
Account No: 2119 REPORTING PERIOD: 01/01/10 TO 03/31/1C
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACTXEVIN SMITH GEN. SVCS DIR.
Assets in Portfolio
Average ($) Unit ($) Annual ($) Est. ( %)
Par Value Unit Total Market Market ( %) Int /Div Annual Current Unrealized
or Shares Description Cost Cost Price Value Portfolio Rate Income Yield Gain /Loss
TOTAL PORTFOLIO 4,186,778 4,887,696 100.00 49,476 1.01 700,917
LATEEF INVESTMENT MANAGEMENT Page 6 of 10
L TIEEF
Account No: 2119 REPORTING PERIOD: 01/01/10 TO 03/31/1C
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACTXEVIN SMITH GEN. SVCS DIR.
Transaction Schedule
Buys and Sells
Trade Original Average Total Total Realized
B/S Date Quantity Security Purchase Date Cost Cost Proceeds Gain /Loss
B 01/07/10 3,199 TERADATA CORP 30.54 97,696.50
B 01/07/10 2,177 ACCENTURE PLC IRELAND SHS CL A 42.68 92,912.18
B 01/25/10 3,411 CH ROBINSON WORLDWIDE INC 57.18 195,037.57
S 01/27/10 609 BERKSHIRE HATHAWAY INC CLASS B 10/02/07 79.60 48,475.79 43,215.06 (5,260.73)
S 01/27/10 2,686 EMC CORP MASS 08/19/08 15.19 40,808.13 46,601.50 5,793.37
S 01/27/10 260 MASTERCARD INC 04/22/09 162.53 42,257.98 66,004.37 23,746.39
S 01/27/10 753 SCRIPPS NETWORKS INTERACTIVE 09/10/08 39.46 29,713.30 32,403.73 2,690.43
S 01/27/10 546 VISA INC 09/22/08 67.50 36,855.00 45,391.84 8,536.84
S 02/19/10 616 BERKSHIRE HATHAWAY INC CLASS B 10/02/07 79.60 49,032.98 47,194.49 (1,838.49)
S 03/04/10 1,454 FASTENAL COMPANY 11/13/08 32.83 47,739.62 65,375.51 17,635.89
S 03/05/10 22 FASTENAL COMPANY 11/13/08 32.83 722.33 1,001.98 279.65
S 03/05/10 552 FASTENAL COMPANY 11/18/08 32.90 18,159.75 25,140.57 6,980.82
S 03/05/10 552 FASTENAL COMPANY 11/19/08 32.72 18,061.88 25,140.58 7,078.70
S 03/05/10 2,087 FASTENAL COMPANY 11/20/08 32.87 68,602.40 95,051.41 26,449.01
B 03/18/10 3,787 STATE STREET CORP 46.13 174,703.40
B 03/19/10 1,594 STATE STREET CORP 46.31 73,824.04
PORTFOLIO TOTALS: $1,034,602.85 $492,521.04 $92,091.88
LATEEF INVESTMENT MANAGEMENT Page 7 of 10
L TIEEF
Account No: 2119 REPORTING PERIOD: 01/01/10 TO 03/31/1C
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACT:KEVIN SMITH GEN. SVCS DIR.
Tax Report
Schedule of Realized Gains /(Losses)
LATEEF INVESTMENT MANAGEMENT Page 8 of 10
--- - - - Gain or (Loss)
Original nal
Date Sold
($)
($)
�$)
Quantity
Description
Purchase Date
Cost
Proceeds
Short Term Long Term
609
BERKSHIRE HATHAWAY INC CLASS B
10 -02 -07
01 -27 -10
48,475.79
43,215.06
(5,260.73)
2,686
EMC CORP MASS
08 -19 -08
01 -27 -10
40,808.13
46,601.50
5,793.37
260
MASTERCARD INC
04 -22 -09
01 -27 -10
42,257.98
66,004.37
23,746.39
753
SCRIPPS NETWORKS INTERACTIVE
09 -10 -08
01 -27 -10
29,713.30
32,403.73
2,690.43
546
VISA INC
09 -22 -08
01 -27 -10
36,855.00
45,391.84
8,536.84
616
BERKSHIRE HATHAWAY INC CLASS B
10 -02 -07
02 -19 -10
49,032.98
47,194.49
(1,838.49)
1,454
FASTENAL COMPANY
11 -13 -08
03 -04 -10
47,739.62
65,375.51
17,635.89
22
FASTENAL COMPANY
11 -13 -08
03 -05 -10
722.33
1,001.98
279.65
552
FASTENAL COMPANY
11 -18 -08
03 -05 -10
18,159.75
25,140.57
6,980.82
552
FASTENAL COMPANY
11 -19 -08
03 -05 -10
18,061.88
25,140.58
7,078.70
2,087
FASTENAL COMPANY
11 -20 -08
03 -05 -10
68,602.40
95,051.41
26,449.01
TOTAL
400,429.16
492,521.04
23,746.39 68,345.49
LATEEF INVESTMENT MANAGEMENT Page 8 of 10
L TIEEF
Account No: 2119
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACT:KEVIN SMITH GEN. SVCS DIR.
Tax Report
Income and Expenses
REPORTING PERIOD: 01/01/10 TO 03/31/1C
Date Security Net Amount
ORDINARY DIVIDEND INCOME
03/01/2010
AFLAC INC
01/01/2010
AUTOMATIC DATA PROCESSING INC
02/16/2010
COLGATE PALMOLIVE COMPANY
01/15/2010
ECOLAB INC
02/26/2010
FASTENAL COMPANY
02/10/2010
MASTERCARD INC
03/26/2010
QUALCOMM INC
03/08/2010
ROCKWELL COLLINS INC
03/10/2010
SCRIPPS NETWORKS INTERACTIVE
03/25/2010
SUNCOR ENERGY INC NEW
03/02/2010
VISA INC
TOTAL ORDINARY DIVIDEND INCOME
INTEREST INCOME
01/04/2010
02/01/2010
INTEREST INCOME
INTEREST INCOME
TOTAL INTEREST INCOME
OTHER EXPENSE
02/10/2010
02/22/2010
MANAGEMENTFEE
BANK CHARGES
COMPENSATION AS OF 01/31/10
1,965.88
1,628.94
1,276.00
638.60
1,866.80
156.90
776.39
1,051.92
416.25
740.69
300.75
$10,819.12
3.26
2.43
$5.69
12,135.00
195.32
LATEEF INVESTMENT MANAGEMENT Page 9 of 10
LATEEF
Account No: 2119
CITY OF WINTER SPRINGS DEFINED BENEFIT
CONTACT:KEVIN SMITH GEN. SVCS DIR.
Tax Report
Income and Expenses
REPORTING PERIOD: 01/01/10 TO 03/31/1C
Date Security Net Amount
OTHER EXPENSE (Continued)
01/21/2010 BANK CHARGES 184.44
FIFTH THRID BANK COMPENSATION
TOTAL OTHER EXPENSE $12,514.76
LATEEF INVESTMENT MANAGEMENT Page 10 of 10