Analysis of Value Sector Portfolio IVE, an ETF that mirrors the index fund SVX, has holdings in companies

across a variety of different sectors. This diversification allows the portfolio to minimize unsystematic risk, and provide a quality return. However, IVE maintains a large holding in the financial sector, nearly a quarter of their total allocations. The financial sector, along with the energy, industrial, and consumer (non-cyclical) industries collectively comprise approximately 66% of the entire portfolio. In the proposed top ten method, the value stocks were chosen in attempt to provide a diversification enough to negate the effects of unsystematic risk. A value stock is one with low price/book ratios or price/earnings ratios. The top 10 stocks give a P/B ratio of 1.84 and a P/E ratio of 12.86. This diversification allows for a low value for these two ratios, lower than the values for the top 15 method and the top 20 method. One of the reasons that the top 15 method has a higher weighted P/E ratio is that the top 15 method includes several technology firms, an industry characterized by high growth, which increases the P/E ratio. However, looking at the 52-week return between the three different methods suggest that increasing the diversification provides for a higher return. The top 10 value stocks do not proportionally represent the different sectors, while the top 15 and top 20 do more so. The top 10 method only contains 5 of the different sectors, while the other two contain 6. With allocations in more sectors, the top 15 and top 20 methods minimize their unsystematic risk and increasing their return. Although the top 20 method includes some sectors that the top 10 and top 15 do not, there still remain some sectors of IVE not represented. In order to minimize unsystematic risk as much as possible, there needs to be representation of at minimum 8 of the different sectors. Recommendation for Value Sector Portfolio With the push for diversification, the top 20 method seems to be the best option for increasing the breadth of represented sectors. The remaining 20% invested in IVE covers a good portion of the

underrepresented sectors, helping to diversify away the unsystematic risk. The benefit of this diversification can also be seen in the P/B and P/E ratios. One of the main principles to value investing is to strive to identify companies whose inherent or intrinsic value is significantly above where the market has
priced it. In the top 20 method, the P/B and P/E ratios are lower than both top 10 and 15. The lower P/B

and P/E ratios make the top 20 method seem more indicative for a high performing portfolio based on value stocks.

Top 10 Value Firms Sector Analysis

Industrials 10.00% 10.00% Energy 10.00% 20.00% Financials Telecommunication Services Consumer Staples

40.00%

Company
General Electric Company Chevron Corporation Berkshire Hathaway Incorporated Wells Fargo & Company JPMorgan Chase & Company AT&T Incorporated Exxon Mobil Corporation Citigroup Incorporated Wal-Mart Stores Incorporated Johnson & Johnson Average

Ticker
GE

Sector
Industrials

52Percent Week Dividend Allocation Return Yield

10% 6.29% 2.03% 3.22% 3.44%

P/B
1.96 1.58

P/E
15.30 9.50

5-Year Forecasted Market EPS Capitalization Growth (M)

10.00% 5.05% 196.56 183.9

Energy CVX Financials BRK/B Financials WFC Financials JPM T XOM Financials C Consumer Staples WMT Healthcare JNJ 10% 27.77% 12.73% 3.07% 2.96% 3.47 1.8357 16.30 12.86 6.27% 8.65% 92.46 145.06 10% -0.63% 2.57% 3.33 14.20 9.33% 96.76 10% 37.99% 0.08% 0.76 9.50 9.80% 118.21 Telecommunication Services Energy 10% 10% 10% 25.22% -5.72% -5.63% 2.99% 5.33% 2.96% 0.10 2.09 2.26 7.90 14.30 11.00 7.00% 5.34% 15.08% 156.14 143.39 141.18 10% 15.99% 2.97% 1.44 10.70 9.94% 158.55 10% 23.95% N/A 1.37 19.90 N/A 163.46 10%

45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Top 10 Method Allocation IVE Allocation

Company General Electric Company Chevron Corporation Berkshire Hathaway Incorporated Wells Fargo & Company JPMorgan Chase & Company AT&T Incorporated Exxon Mobil Corporation Citigroup Incorporated Wal-Mart Stores Incorporated Johnson & Johnson Microsoft Corporation Proctor & Gamble Company (The) International Business Machine United Technologies Corporation ConocoPhillips Average

Ticker GE CVX BRK/B

Sector Industrials Energy Financials

Percent Allocation 8% 8% 8%

52Week Return 6.29% 2.03% 23.95% 15.99% 25.22% -5.72% -5.63% 37.99% -0.63% 27.77% 14.49% 14.91% 11.99% 34.38% 26.52% 13.31%

Dividend Yield 3.22% 3.44% N/A 2.97% 2.99% 5.33% 2.96% 0.08% 2.57% 3.07% 3.39% 3.13% 2.10% 2.29% 3.96% 2.73%

P/B 1.96 1.58 1.37 1.44 0.10 2.09 2.26 0.76 3.33 3.47 3.49 3.15 11.19 3.50 1.76 2.39

P/E 15.30 9.50 19.90 10.70 7.90 14.30 11.00 9.50 14.20 16.30 12.10 19.00 12.00 18.20 11.90 13.22

5-Year Forecasted EPS Growth 10.00% 5.05% N/A 9.94% 7.00% 5.34% 15.08% 9.80% 9.33% 6.27% 8.29% 8.88% 10.51% 12.42% 5.57% 8.05%

Market Capitalization (M) 196.56 183.9 163.46 158.55 156.14 143.39 141.18 118.21 96.76 92.46 91.82 86.94 72.03 70.73 69.68 131.70

Financials WFC Financials JPM T XOM C WMT JNJ MSFT PG IBM UTX COP Energy Information Technology Industrials Healthcare Information Technology Consumer Staples Financials Consumer Staples 8% 8% 4% 4% 4% 4% 4% Telecommunication Services Energy 8% 8% 8% 8% 8%

Top 15 Value Firms Sector Analysis

8.00%

12.00% Industrials Energy

12.00% 20.00%

Financials Telecommunication Services Consumer Staples Healthcare

8.00%

32.00%

35% 30% 25% 20% 15% 10% 5% 0%

Top 10 Method Allocation IVE Allocation

Company General Electric Company Chevron Corporation Berkshire Hathaway Incorporated Wells Fargo & Company JPMorgan Chase & Company AT&T Incorporated Exxon Mobil Corporation Citigroup Incorporated Wal-Mart Stores Incorporated Johnson & Johnson Microsoft Corporation Proctor & Gamble Company (The) International Business Machine United Technologies Corporation ConocoPhillips Pfizer Incorporated Occidental Petroleum Corporation UnitedHealth Group Incorporated CVS Caremark Corporation American International Group Incorporated S&P 500 Value Index Fund Average

Ticker GE CVX BRK/B WFC JPM T XOM C WMT JNJ MSFT PG IBM UTX COP PFE OXY

Sector Industrials Energy Financials

Percent Allocation by Proportional Market Capitalization 7.55% 7.07% 6.28%

52Week Return 6.29% 2.03% 23.95% 15.99% 25.22% -5.72% -5.63% 37.99% -0.63% 27.77% 14.49% 14.91% 11.99% 34.38% 26.52% 15.26% 14.88% 25.91% 21.19% 33.22% 10.77%

Dividend Yield 3.22% 3.44% N/A 2.97% 2.99% 5.33% 2.96% 0.08% 2.57% 3.07% 3.39% 3.13% 2.10% 2.29% 3.96% 3.39% 2.72% 1.57% 1.55% 0.84% 2.17%

P/B 1.96 1.58 1.37 1.44 0.10 2.09 2.26 0.76 3.33 3.47 3.49 3.15 11.19 3.50 1.76 2.39 1.81 2.29 1.83 0.72 1.83

P/E 15.30 9.50 19.90 10.70 7.90 14.30 11.00 9.50 14.20 16.30 12.10 19.00 12.00 18.20 11.90 13.40 13.80 13.60 16.30 13.10 10.65

5-Year Forecasted EPS Growth 10.00% 5.05% N/A 9.94% 7.00% 5.34% 15.08% 9.80% 9.33% 6.27% 8.29% 8.88% 10.51% 12.42% 5.57% 5.52% 7.52% 10.96% 13.51% 10.75% 6.49%

Market Capitalization (M) 196.56 183.9 163.46 158.55 156.14 143.39 141.18 118.21 96.76 92.46 91.82 86.94 72.03 70.73 69.68 62.5 61.47 59.26 57.14 57.42 102.42

Financials Financials

6.09% 6.00%

Telecommunication Services Energy Financials Consumer Staples

5.51% 5.42% 4.54% 3.72%

Healthcare Information Technology Consumer Staples Information Technology Industrials Energy Healthcare Energy

3.55% 3.53% 3.34% 2.77% 2.72% 2.68% 2.40% 2.36%

Healthcare UNH CVS AIG IVE Diversified Consumer Staples Financials 2.21% 20.00% 2.28% 2.20%

Top 20 Value Firms Sector Analysis

1.30% 1.35% 0.78% 0.75% Financials Energy 7.96% 27.65% 10.06% 11.25% 20.50% Industrials Consumer Staples Healthcare Information Technology Consumer Discretionary 12.90% Utilities Telecommunication Services Materials

30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

Top 10 Method Allocation IVE Allocation

Works Cited

Harvey, Campbell. "Value Stocks." Nasdaq. Nasdaq, n.d. Web. 10 Oct 2013. <http://www.nasdaq.com/investing/glossary/v/value-stock>.

Kallen, Eric. "Fundamental Value Investing: An Interview with Eric Kallen, President and Chief Investment Strategist at Hayek Kallen Investment Management, LLC.." The Wall Street Journal. 30 Sep 2013. The Wall Street Journal, New York. 30 Sep 2013. Web. 10 Oct 2013. http://finance.yahoo.com/news/fundamental-value-investing-interview-eric-184100055.html.