Student Managed Investment Fund 2016 Annual Review
2016 in Review 2016 was a year full of ups, downs, and surprises. U.S. financial markets experienced one of the worst starts of the year in history, but ended the year at record highs. Meanwhile, ripple effects from global events in China and the United Kingdom made their way to the U.S., further adding to the list of domestic events that shaped 2016’s economy.
Dismal January 2016 in the U.S., and other countries, started off very poorly from an economic standpoint. Concerns over China’s slowing economy and depreciating currency caused global equity markets to lose nearly four trillion dollars of value in the first 10 days. The effect rippled through international and domestic markets for over the month. By mid-February, the Dow Jones, S&P 500, FTSE 100, ^HSI, and Nikkei 225 indices all lost roughly 10% of their values. The U.S. indices regained much of its losses by mid-March. In addition to China’s economic growth crisis, another crisis was unfolding globally: declining oil prices. Oil prices had been in decline going into 2016, but the third week of January saw prices hit record lows. On January 18th, the price of Brent crude oil fell below $30 a barrel. This caused the energy sector to underperform significantly, which added to the U.S. stock markets’ poor start to the year. Oil prices increased slightly before falling again to $27 a barrel on February 11th. On November 30th, OPEC finalized a deal that cut oil production by over one million barrels per day. Oil prices reached nearly $50 a barrel after the announcement was made. Japan concluded the dismal month of January by issuing bonds with negative interest rates. This caused a bond rush in the U.K, Europe, and U.S. as investors sold off Japanese bonds in search of higher yielding debt.
Brexit The U.K’s surprise decision to leave the European Union caused economic turmoil in both global and domestic markets. The decision caused an immediate 5% decline in both major U.S. indices. The vote also caused the pound to fall over 10%, giving strength to the U.S. dollar. Aside from the major indices falling and currency fluctuations, Brexit also forced both the U.S and U.K to negotiate a new trade deal, something that is still in progress and could cause lasting effects for both countries. Uncertainty surrounding Brexit faded in the U.S. after two weeks when S&P 500 reached a record high.
Election Effect On November 8th, the U.S. experienced its own version of Brexit as Donald Trump won the election for President of the United States. This was an unexpected result that shocked international and domestic markets. After the election result, both the Dow Jones and S&P 500 futures declined over 5% due to uncertainty by investors. However, when the markets opened the next day, both indices increased slightly. This made way for a post-election rally that would carry on into 2017. Donald Trump’s plan for investing in infrastructure and deregulating banks spurred growth in multiple industries, causing U.S. based steel, manufacturing, and construction companies to receive the “Trump bump”. Donald Trump’s election win had an overall positive effect on U.S. financial markets. Both the Dow and S&P 500 increased 7% and 10%, respectively, from November 8th to the end of the year.
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2016 in Review (Cont.) Federal Reserve Increases The Federal Funds Rate The overall economy in 2016 was positive. On average, steady amounts of jobs were added each month, household wages increased, and unemployment fell below 5%. This strong economic data made a case for increases in the federal funds rate. During the Federal Reserve’s last meeting of 2016, it decided to increase the federal funds rate from .50% to .75%. The Federal Reserve was optimistic about the economy and discussed the possibility of three more increases in 2017.
Economic Outlook Since the financial crisis in 2008, the U.S. economy has been steadily improving. The unemployment rate has continuously dropped and now stands at 4.7%. The low unemployment rate is creating a tighter labor market that will result in increasing average hourly earnings and inflation. GDP growth has been modest, yet consistent. Current estimates for GDP are around 2.8% for 2017. There are many risks associated with economic growth in the coming years. Although the new presidential administration plans to create favorable business policies and lift strict regulations, his aggressive foreign policies have already created some international turmoil. There is also uncertainty in Europe with Brexit making headlines earlier this summer. It is very difficult to predict the impact Brexit will have in the European economy, but the additional uncertainty makes it tough for businesses to make rational capital investment decisions. We expect this issue to offset the easy money policies in Europe. GDP growth will be very modest, as will inflation. Asian and Pacific countries are expected to post the highest GDP growth. Expectations are around 6.2% growth in 2017, this would be down year-over-year. China is expected to post around 6.5% growth, which is also down from over 7% from the prior year. Major commodity exporters are predicted to grow GDP by around 5%. Overall growth in developed countries is only expected to be around 1.8% and emerging economies are expected to grow around 4.2%. Inflation around the world has been modest even as central banks continue to stimulate growth with low interest rates. Looking past 2017, global growth is expected to continue at a slow rate as central banks start raising rates. This may cause investment to slow and the economy to contract. We have seen a rally since the bottoms of 2009 and valuations are starting to creep toward the high end of the historical range.
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Fund Prospectus Investment Strategy & Guidelines The SMIF Fund will invest exclusively in US equities, ADRs, and near cash assets such as money market funds or securities. Investments in US equities and ADRs should be consistent with an expected holding period of 3-5 years at the time an investment is made. This is not to imply that any stocks purchased must be held for the complete term. The SMIF Fund may invest in large-cap stocks ($10 billion + market cap), mid-cap stocks ($2-10 billion market cap), small cap stocks ($300 million to $2 billion market cap) and micro cap stocks ($100 million - $300 million). Stocks may or may not pay dividends. Stocks may be in any industry group as defined in the Industry Classification Benchmark (ICB) system. Short-selling is prohibited. Leverage will not be used to magnify returns. Derivatives will not be used. The maximum investment in the equity of a single issuer is 10% of fund assets at the time of the investment. Shares held in the SMIF Fund’s core equity index fund are not counted against this limit. The maximum investment in the stocks of a single industry (one of the 10 defined in the Industry Classification Benchmark (ICB) System) is 25% of fund assets. This constraint is binding on individual stock purchases that would otherwise exceed the allowable maximum. Shares held in the SMIF Fund’s core equity index fund are not counted against this limit. Students present their best stock investment ideas to members of the SMIF Fund advisory board, outside advisors and selected faculty. Following the presentation, the floor is open for questions that the students are expected to answer in an accurate, thorough manner. Once the discussion is over, a vote determines whether the recommended stock will be purchased.
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Sector & Industry Exposure Sector Exposure of Actively Managed Portfolio We are currently overweight in four sectors: Technology, Consumer Cyclical, Healthcare, and Consumer Non-Cyclical. About 25%, 22%, 15%, and 11% of our portfolio is allocated to each of these sectors, respectively. Nvidia Corp. is our largest position in the technology sector, representing 51.5%, it is also the biggest gainer in the fund. DSW and Vail Resorts make up 38.8% and 30.2%, respectively, of the portfolio’s exposure to the Consumer Cyclical sector.
Passive Portfolio We keep a large portion of our un-invested funds in the market through the Vanguard Total Stock Market Index Fund Admiral Shares ETF, which is a residual fund that represent 35.21% of our portfolio. This fund is well-diversified across several sectors, with no more than 21% invested in any one sector, and provides exposure to the entire U.S. equity market. Because it is a residual fund, the amounts allocated change periodically.
ACTIVE PORTFOLIO SECTOR EXPOSURE Basic Materials 9% Technology 25%
Consumer Cyclical 22%
Real Estate 4% Industrials 5%
Healthcare 15%
Consumer Non-Cyclical 11% Financial Services 9%
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Fund Activity New Positions Company
Date Purchased
Yield
Return Since Purchase
CALM
1/29/2016
$
49.99
500
$
24,994.95
500
$
44.18
1.00%
-11.62%
NVDA
1/29/2016
$
28.81
870
$
25,064.61
870
$
106.74
0.32%
270.50%
MTN
2/25/2016
$
128.39
120
$
15,407.28
120
$
161.31
1.51%
25.64%
PDCO
4/11/2016
$
44.84
450
$
20,176.20
450
$
41.03
1.75%
-8.50%
FLIR
4/11/2016
$
32.28
460
$
14,846.96
460
$
36.19
-
12.11%
SKX
4/22/2016
$
32.04
770
$
24,668.80
770
$
19.65
-
-38.67%
THRM
4/22/2016
$
42.69
580
$
24,759.91
580
$
32.43
0.88%
-24.03%
IBM
11/18/2016 $
159.37
95
$
15,140.15
95
$
165.99
0.00%
4.15%
GILD
11/18/2016 $
74.54
335
$
24,970.90
335
$
71.61
0.66%
-3.93%
Price Purchased
Shares
Total Investment
Shares Purchased
Year-End Price
Sold Positions Company
Date Purchased
Price Purchased
Date Sold
Price Sold
Percentage Sold
Return Since Purchase
ARMH
3/26/2015
$
48.16
1/29/2016
$
41.74
100%
-13.34%
THRM
4/22/2016
$
42.69
8/2/2016
$
32.43
100%
-24.03%
HSY
4/17/2014
$
100.13
1/29/2016
$
87.04
100%
-13.07%
SNAK
5/1/2015
$
9.78
1/29/2016
$
5.71
100%
-41.60%
NVDA
1/29/2016
$
28.81
6/15/2016
$
47.17
48%
63.73%
NVDA
1/29/2016
$
28.81
11/18/2016
$
92.39
22%
220.69%
PCP
4/9/2013
$
184.13
2/1/2016
$
235.00
100%
27.63%
RH
3/2/2015
$
90.35
5/17/2016
$
32.70
100%
-63.81%
RH
12/2/2015
$
91.84
5/17/2016
$
32.70
-
-64.39%
SKX
4/22/2016
$
32.04
10/25/2016
$
19.65
100%
-38.67%
VDSI
4/1/2015
$
21.87
8/5/2016
$
16.81
100%
-23.15%
VDSI
5/1/2015
$
25.36
8/5/2016
$
16.81
-
-33.73%
Denied Positions Company
Date Pitched
Price Pitched
Year-End Price
Yield
Return Since Day Pitched
MCK
1/26/2016
$
170.99
$
140.45
0.16%
-17.86%
JBLU
2/18/2016
$
21.30
$
22.42
-
5.26%
GT
2/18/2016
$
30.23
$
30.87
0.50%
2.12%
FLTX
3/29/2016
$
38.00
$
60.00
-
57.89%
RACE
4/19/2016
$
44.00
$
58.14
1.05%
32.14%
HI
10/12/2016
$
31.86
$
38.35
0.64%
20.37%
EXPD
10/12/2016
$
51.34
$
52.96
0.78%
3.16%
STZ
10/12/2016
$
170.00
$
153.31
0.24%
-9.82%
DG
11/15/2016
$
74.95
$
74.07
0.33%
-1.17%
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2016 Performance & Holdings 1-Year SMIF Performance USF SMIF
SMIF S&P Fund500
^GSPC Russel 1000 ^RUI
Russel 3000
Russel 2000 ^RUT ^RUA
15%
10%
5%
0%
15% Return
-5%
-10% Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
SMIF Holdings (Percentage of Assets as of December 2016)
VANGUARD TOT STK MKT-ADM
35%
$ 158,972.78
NVDIA
8%
$
37,359.00
DSW
6%
$
24,915.00
GILD
5%
$
23,989.35
CALM
5%
$
22,087.50
MTN
4%
$
19,357.20
PDCO
4%
$
18,463.50
CMA
4%
$
17,027.50
FLIR
4%
$
16,647.40
PGTI
4%
$
16,030.00
IBM
3%
$
15,769.05
PKG
3%
$
15,267.60
CSX
3%
$
13,294.10
IRT
3%
$
12,131.20
OME
2%
$
11,272.50
BK
2%
$
10,423.60
VMC
2%
$
8,760.50
UA
1%
$
4,608.70
DVMT
1%
$
2,803.47
Cash & Equivalents
1%
$
2,289.77
Total
100%
Holdings IRT 3%
VMC UA OME BK 2% 1% 2% 2%
DVMT 1%
Cash & Equivalents 1%
CSX PKG 3% 3% IBM 3%
VANGUARD TOT STK MKTADM 35%
PGTI 4% FLIR 4% CMA 4% PDCO 4% MTN 4%
GILD DSW 6% 5%
NVDIA 8%
CALM 5%
$ 451,469.72
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Historical Performance 3-Year SMIF Performance USF SMIF
S&P 500
Russell 1000
Russell 2000
Russell 3000
30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% Dec-13 Mar-14
Jun-14
Sep-14
Dec-14 Mar-15
Jun-15
Sep-15
Dec-15 Mar-16
Jun-16
Sep-16
Dec-16
SMIF Performance Since Inception USF SMIF
S&P 500
Russell 1000
Russell 2000
Russell 3000
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
-20.00% Mar-10
Oct-10
May-11
Dec-11
Jul-12
Feb-13
Sep-13
Apr-14
Nov-14
Jun-15
Jan-16
Aug-16
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SMIF Best Performers of 2016 NVIDIA Corporation – NVIDIA Corporation was the portfolio’s best performing stock in 2016, returning over 250%. The company enjoyed such a transformative year because NVIDIA managed to broaden its addressable market by expanding into artificial intelligence. NVIDIA's data center segment in 2016 captured additional business with giants like Google, Microsoft, Facebook, and Amazon. Comerica – Comerica was the best-performing big bank stock in 2016. The company experienced a rough start in 2016 when oil prices fell below $30 a barrel, however, a rebound in energy prices and a postpresidential election rally saw the company’s stock have a year-to-year return of 62%.
CSX Corporation - For 2016, CSX’s stock experienced a year-to-year return of 41%. CSX’s rail freight transportation business benefited from favorable low coal prices in the first half of 2016 and the company experienced $550 million in cost saving in 2016 by improving efficiency in its initiatives and volumerelated savings.
SMIF Worst Performers of 2016 Under Armour – Under Armour stock fell almost 28% in 2016 due to a weak retail environment, heavy competition, and uncertainty of clothing trends. The speculative growth story behind the company has bolstered the stock price to a level that seemed expensive to many investors. Moreover, both the company’s top- and bottom-lines were slowing as compared to bigger competitors such as Nike. Cal-Maine Foods - Cal-Maine Foods generated a negative return of more than 12% for the Fund in 2016, largely due to average egg selling prices falling 58% year-over-year (as of September 2016). This was a result of a higher supply of shell eggs occurring after disruptions caused by an avian flu epidemic in 2015. The company’s revenues were also adversely influenced by weak institutional demand for egg products and lower egg exports. Patterson Companies – Patterson Companies generated a negative return of more than 8% for the Fund in 2016, caused by a combination of mixed to negative quarter earnings results. Investors were concerned over the underperformance of the company’s Dental platform, rising operating expenses, increasing competition in the U.S. dental products distribution industry, and management’s decision to discontinue its exclusivity relationship with Dentsply Sirona.
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Bank of New York Mellon Corp. (BK) Business Description Bank of New York Mellon (BK) provides an array of services that enable institutions and individuals to move and manage financial assets in more than 100 markets worldwide.
Performance Since Inception 80%
Key Statistics Price
70% 60%
$46.46
Market Cap
47.7B
P/E
14.66
Beta
1.29
50% 40%
Div. Yield
30%
1.65%
20% 10% 0% -10% Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16
2016 Performance 30%
BK S&P 500 Russel 1000 Russel 2000 Russel 3000 Financial SPDR ETF
25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Investment Thesis
Risks
Rising rates will strengthen fundamentals of banks
Adverse regulatory changes
Equity undervalued due to short-term litigation issues and a bearish sentiment regarding the banking industry
Foreign exchange risk
Sustained low-rate environment Credit deterioration
10
Cal-Maine Foods Inc. (CALM) Business Description Cal-Maine Foods is engaged in the production, grading, packaging, marketing and distribution of shell eggs. Co. is also a producer and marketer of specialty shell eggs, including cage free, organic and brown eggs.
Key Statistics
Performance Since Inception
Price
40%
$42.05
Market Cap
2.03B
P/E
19.58
20%
Beta
0.59
10%
Div. Yield
N/A
30%
0% -10% -20% -30% Jan-16
Feb-16 Mar-16 Apr-16 May-16 Jun-16
Jul-16
Aug-16 Sep-16
Oct-16 Nov-16
CALM S&P 500 Russell 1000 Russell 2000 Russell 3000 Consumer Staples SPDR ETF
Investment Thesis
Risks
Growing market for high-margin specialty eggs
Market prices of wholesale shell eggs are volatile
Low-cost producer with expanding margins
Feed costs are volatile and can impact operating income
Strong consumer demand for eggs due to increasing high protein diets and health benefits from eggs Broadening geographic reach by acquiring farms and additional chickens
Largest customers historically accounted for a significant portion of its net sales volume Agricultural risk, including outbreaks of avian disease
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Comerica Inc. (CMA) Business Description Comerica is a financial holding company. The company’s principal activity is lending to and accepting deposits from businesses and individuals.
Performance Since Inception 60% 50% 40%
Key Statistics Price
$70.43
Market Cap
12.22B
30%
P/E
26.33
20%
Beta
1.42
10%
Div. Yield
0%
0.23%
-10% -20% -30% -40% Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
2016 Performance 70%
CMA S&P 500 Russell 1000 Russell 2000 Russell 3000 Financial SPDR ETF
60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Investment Thesis
Risks
CMA should see an improvement in total loan growth as the environment for small and medium sized businesses continues to improve
Rates continue to stay low for a longer period of time from an economic downturn, thus keeping CMA’s net interest income lower than peers
CMA loan quality restrictions over the past few years have helped increase the quality of its balance sheet and sensitivity to changes in short term rates
Exposure to the automotive and energy industry in an economic downturn could affect CMA’s credit quality
12
CSX Corp. (CSX) Business Description CSX Corporation is a railroad company that operates predominantly in the eastern United States and generates $11.7 billion in annual revenue.
Performance Since Inception
Key Statistics
120% 100%
Price
$47.93
Market Cap
44.88B
80%
P/E
26.52
Beta
1.28
60% 40%
Div. Yield
1.50%
20% 0% -20% Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
2016 Performance 50% 40%
CSX S&P 500 Russell 1000 Russell 2000 Russell 3000 Industrial SPDR ETF
30% 20% 10% 0% -10% -20% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Investment Thesis
Risks
Continued expansion of fracking operations in the U.S. will drive demand for sand shipments
New regulations could affect the railroad industry’s ability to negotiate prices and negatively affect earnings
Higher diesel prices will cause manufacturers and distributors to shift from trucking to railroads to transport goods
Failure to complete collective bargaining negotiations would result in strikes or work stoppages
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Dell Technologies Inc. (DVMT) Business Description Dell EMC sells data storage, information security, virtualization, analytics, cloud computing and other products and services that enable organizations to store, manage, protect, and analyze data.
Performance Since Inception 40%
Key Statistics Price
$63.96
30%
Market Cap
40.04B
25%
P/E
N/A
Beta
0.71
Div. Yield
N/A
35%
20% 15% 10% 5% 0% -5% -10% -15% -20% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
DVMT S&P 500 Russell 1000 Russell 2000 Russell 3000 Technology SPDR ETF
Investment Thesis
Risks
As companies harness more data, EMC2’s ability to offer value added and scalable products make EMC2 a key player in the secular change to cloud computing and Big Data management
Soft expenditures that are experienced in enterprise information technologies due to macroeconomic and industry specific events
Fifty-fold growth in data from 2010 to 2020 to 40 zettabytes will drive growth for EMC2 services and products
Product obsoleteness that may cause both increasing costs and decreasing revenues
Cybersecurity breaches that may lead to adverse litigation and unforeseen costs
Prolific inorganic acquisitions funded by $5.5 billion in FCF allow EMC2 to efficiently expand and capitalize on new technologies
*Initially the portfolio held a position on EMC, which merged with Dell on September 7th, 2016. As a result of the merger, shareholders received a cash payment of $25.05 and a .11 stake on DVMT per share of EMC. The graph above accounts for the merger and its subsequent payments. Until the merger, EMC had posted a 13% YTD return.
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DSW Inc. (DSW) Business Description DSW is a footwear and accessories retailer. DSW provides an assortment of brand name dress, casual and athletic footwear and accessories for women, men and children.
Performance Since Inception
Key Statistics
30%
Price
25% 20% 15% 10% 5%
$21.88
Market Cap
1.72B
P/E
17.08
Beta
0.61
Div. Yield
0%
3.69%
-5% -10% -15% -20% -25% Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
2016 Performance 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
DSW S&P 500 Russell 1000 Russell 2000 Russell 3000 Consumer discretionary SPDR ETF
Investment Thesis
Risks
Over reaction due to lower than expected retail sales in recent Retail Sales Reports and lower than expected quarterly results from big names in the shoe industry put downward pressure on industry players, with DSW’s fundamentals remaining the same
Unsuccessful execution of the omni- channel strategy Fluctuations in prices of raw materials needed for shoes Inability to maintain strong relationships with its vendors Uncertain general economic conditions in the U.S.
Expansion of DSW’s omni-channel strategy will increase top-line growth
15
Flir Systems Inc. (FLIR) Business Description Flir Systems designs, develops, markets, and distributes thermal light imaging systems, locator systems, measurement and diagnostic systems, and advanced threat-detection solutions.
Performance Since Inception
Key Statistics
30%
Price
25%
Market Cap
4.96B
20%
P/E
28.85
15%
Beta
0.61
10%
$36.92
Div. Yield
1.30%
5% 0% -5% -10% -15% Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
FLIR S&P 500 Russell 1000 Russell 2000 Russell 3000 Technology SPDR ETF
Investment Thesis
Risks
FLIR will benefit from a shift in government spending towards surveillance
FLIR’s revenues are dependent on the U.S. Governments defense spending, with 20% of revenues coming from the DOD
Growth in FLIR’s emerging technologies segment, which include auto applications is positioned well to take market share The introduction of Lepton Technology will help FLIR expand operating margins
International exposure Adverse economic conditions
16
Gilead Sciences Inc. (GILD) Business Description Gilead Sciences is a research-based biopharmaceutical company that discovers, develops and commercializes medicines.
Performance Since Purchase 6% 5%
Key Statistics Price
$67.90
Market Cap
89.13B
4% 3% 2%
P/E
6.84
Beta
1.19
Div. Yield
1%
3.06%
0% -1% -2% -3% -4% Nov-16
Dec-16
GILD S&P 500 Russell 1000 Russell 2000 Russell 3000 Healthcare SPDR ETF
Investment Thesis
Risks
Significant share price decline due to market overreaction because of concerns surrounding declining Hepatitis C drug sales, government pricing pressures, and overall underperformance of biotech sector
Increased pricing pressure due to competition and government regulations
Continued growth of HIV and antiviral drug sales, coupled with a promising pipeline, will offset declining Hepatitis C sales and generate significant cash flow
Changes in the dynamics of global trade could adversely affect the company’s ability to produce its products
Adverse fluctuations in exchange rates Failure to commercialize new products
Gilead’s strong cash balance provides the company with flexibility to grow both organically and inorganically, while also allowing for significant capital returns to share holders
17
Independence Realty Trust Inc. (IRT) Business Description Independence Realty Trust is a real estate investment trust. IRT is externally advised by a wholly-owned subsidiary of RAIT Financial Trust (RAIT), a multi-strategy commercial real estate company.
Key Statistics
Performance Since Inception 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% May-15
Price
$9.27
Market Cap
640.97B
P/E
12.37
Beta
1.15
Div. Yield
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
2016 Performance 40%
7.78%
IRT S&P 500 Russell 1000 Russell 2000 Russell 3000 Real Estate SPDR ETF
30% 20% 10% 0% -10% -20% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Investment Thesis
Risks
There is a fundamental shift in the real estate industry as more consumers are seeking multi-family properties over purchasing a new home
Future downturn in the U.S. economy, such as declining home prices, or more unemployment
Millennials have less desire to purchase a home and start a family early in life The firm investments in properties located in secondary markets that have the potential for rental and occupancy growth
Vulnerable to potential tenant defaults
Failure of the real estate market to attract the same level of capital investment
18
International Business Machine Corp. (IBM) Business Description IBM is a global enterprise IT solutions company providing computer hardware, software and services. The company operates in four major segments: Systems, Services, Software and Financing. The 105-year-old company generates about $80 billion in annual revenue and employs around 377,757 people as of 2015.
Performance Since Inception
Key Statistics
6%
Price
$178.72
5%
Market Cap
170.55B
4%
P/E
43.03
3%
Beta
0.97
2%
Div. Yield
3.31%
1% 0% -1% -2% -3% Nov-16
Dec-16
IBM S&P 500 Russell 1000 Russell 2000 Russell 3000 Technology SPDR ETF
Investment Thesis
Risks
IBM is being disvalued as an IT consulting company yet it is evolving into a software company competing in the data analytics and cloud space
The strengthening US dollar has made offerings from international competitors more attractive
The cognitive computing capabilities of its Watson AI system are being integrated and monetized in various industries to provide robust analysis, but this business and other strategic imperatives are undervalued
IBM competes in a highly competitive market segment
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Nvidia Corp. (NVDA) Business Description NVIDIA Corp. is a visual computing technology provider and the inventor of the Graphics Processing unit (GPU). NVIDIA’s GPU technologies power most of the computers and AI systems used today, in a wide variety of products ranging from car infotainment systems to mobile phones.
Performance Since Inception 300% 280% 260% 240% 220% 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% -20% Jan-16
Key Statistics Price
$109.08
Market Cap
58.42B
P/E
42.66
Beta
1.33
Div. Yield
0.51%
NVDA S&P 500 Russell 1000 Russell 2000 Russell 3000 Technology SPDR ETF Feb-16 Mar-16 Apr-16 May-16 Jun-16
Jul-16
Aug-16 Sep-16
Oct-16 Nov-16
Investment Thesis
Risks
Cloud ad mobile applications pose tremendous growth opportunities as the GPUs made by NVIDIA provide processing power to drive data centers and high-end automotive infotainment systems
NVIDIA faces stiff competition in the discrete GPU market from AMD. Additionally, Intel’s integrated GPUs are also getting more powerful and slowing down demand for discrete GPUs. Although NVIDIA produces high-end products, they can experience a slow down in demand in the event of unfavorable economic conditions.
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Omega Protein Corp. (OME) Business Description Omega Protein is a nutritional product company. Omega operates through two segments: animal nutrition and human nutrition.
Performance Since Inception
Key Statistics
150%
Price
$25.60
125%
Market Cap
100%
P/E
18.38
75%
Beta
0.32
50%
Div. Yield
572.17B
0%
25% 0% -25% Mar-15 May-15
Jul-15
Sep-15 Nov-15 Jan-16 Mar-16 May-16
Jul-16
Sep-16 Nov-16
2016 Performance 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
OME S&P 500 Russell 1000 Russell 2000 Russell 3000 Consumer Staples SPDR ETF
Investment Thesis
Risks
Growing demand from consumers becoming more conscious about their health
New entrants into menhaden fishing market
Increased product offerings in Human Segment will drive revenue growth Fish oil from menhaden is the only Omega-3 oil approved by FDA
Government/FDA regulations adversely affect the firm’s ability to catch menhaden Energy swap adjustments and seasonality of the business could dilute earnings more than anticipated
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Packaging Corp. of America (PKG) Business Description Packaging Corporation of America is a producer of containerboard, corrugated packaging products and uncoated freesheet. PCA has three product segments: Packing, Paper, and Corporate & Other.
Performance Since Inception
Key Statistics
50%
Price
40%
Market Cap
8.94B
30%
P/E
19.96
Beta
1.85
20% 10%
$94.55
Div. Yield
2.66%
0% -10% -20% -30% Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
2016 Performance 60%
PKG S&P 500 Russell 1000 Russell 2000 Russell 3000 Materials SPDR ETF
50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Investment Thesis
Risks
Dominant player in an increasingly consolidated industry
Macroeconomic downturn would create oversupply and reduction in prices in the industry
Will benefit from a pervasive increase in productivity on a macro scale Large scale progressively decreases costs
High competition in the market for containerboard products may crimp profits Increased usage of substitute products both within the white paper and packaging industries
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Patterson Cos. Inc. (PDCO) Business Description PDCO distributes dental and veterinary supplies. The company serves North American dental, U.S. veterinarian, and U.K. veterinarian markets. Patterson’s Animal Health segment is divided into two subsegments, which are supply distribution for companion animals and distribution for production on animals.
Performance Since Inception
Key Statistics
30%
Price
$143.26
25%
Market Cap
4.22B
20%
P/E
20.05
15%
Beta
0.90
10%
Div. Yield
2.21%
5% 0% -5% -10% -15% Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
PDCO S&P 500 Russell 1000 Russell 2000 Russell 3000 Healthcare SPDR ETF
Investment Thesis
Risks
Market leader with a competitive moat, trading at a discount to its competitors
Acquisitions failing to create synergies and value
Low risk business structure given the dynamics of the dental and animal health space
FDA regulation in Animal Health segment Consolidation of manufacturers and customers
Growing demand in company’s two industries of dental and animal health
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PGT Innovations Inc. (PGTI) Business Description PGT Innovations is a manufacturer and supplier of residential impact-resistant windows and doors.
Performance Since Inception 30%
Key Statistics
20%
Price
10%
Market Cap
530M
P/E
17.71
Beta
1.26
Div. Yield
N/A
0% -10%
$11.65
-20% -30% Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
PGTI S&P 500 Russell 1000 Russell 2000 Russell 3000 Industrials SPDR ETF
2016 Performance 30% 20% 10% 0% -10% -20% -30% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Investment Thesis
Risks
Pricing power as an industry leader in a niche market
Unfavorable economic conditions
Continual vertical integration of the supply chain Increasing manufacturing capacity to capture sales in the growing market
Building codes and regulations for impactresistant windows are becoming more stringent in Florida
Heavy concentration of sales in Florida Volatile prices of raw materials Possibility of a dilution of brands due to the acquisition of CGI Windows and Doors, Inc. Slowdown or decline in remodeling and new construction markets
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Under Armour Inc. (UA) Business Description Under Armour engages in marketing and distribution of branded performance apparel, footwear and accessories for men, women and youth.
Performance Since Inception
Key Statistics
40%
Price
30%
Market Cap
8.89B
20%
P/E
43.03
10%
Beta
$18.97
n/a
Div. Yield
0%
1.89%
-10% -20% -30% Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16
2016 Performance 40% 30%
UA S&P 500 Russell 1000 Russell 2000 Russell 3000 Consumer Discretionary SPDR ETF
20% 10% 0% -10% -20% -30% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Investment Thesis
Risks
Economic downturn would decrease consumer purchases of discretionary items, which could hurt Under Armour’s earning potential
Under Armour will continue to establish brand recognition globally in Asia, EMEA and the Middle East
The firm’s strong foothold in the youth market will continue to benefit Under Armour by establishing brand loyalty for their products The success of Under Armour endorsees will continue to increase brand recognition and create a recurring revenue stream
A loss of one or more key customers could adversely affect growth strategy Rapid growth that Under Armour will experience in the future will lead to operating deficiencies
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Vail Resorts Inc. (MTN) Business Description Vail Resorts is a holding company. Through its subsidiaries, Vail operates in three segments: Mountain, which operates mountain resort properties and urban ski areas. Lodging, which owns and/or manages hotels under its RockResorts brand, and Real Estate, which owns, develops and sells real estate in and around its resort communities.
Key Statistics
Performance Since Inception 40%
Price
$171.72
35%
Market Cap
6.91B
30%
P/E
43.03
25%
Beta
0.43
20%
Div. Yield
1.89%
15% 10% 5% 0% -5% Feb-16 Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Dec-16
Investment Thesis
Risks
Megatrend of Millennials spending more money on experiences
Unfavorable weather conditions
High-end demographic to withstand economic downturns
MTN S&P 500 Russell 1000 Russell 2000 Russell 3000 Consumer Discretionary SPDR ETF
High fixed cost structure in a seasonal industry
Inelastic demand and increasing prices driving profit margins
Maturing company with a wide competitive moat
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Vulcan Materials Co. (VMC) Business Description Vulcan Materials is a producer of construction aggregates (primarily crushed stone, sand and gravel) and a producer of asphalt mix and ready-mixed concrete.
Performance Since Inception
Key Statistics Price
70% 60%
$122.01
Market Cap
50% 40% 30% 20%
P/E
41.76
Beta
1.02
Div. Yield
10%
16.94B
0.82%
0% -10% -20% -30% May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
2016 Performance 60% 50%
VMC S&P 500 Russell 1000 Russell 2000 Russell 3000 Materials SPDR ETF
40% 30% 20% 10% 0% -10% -20% Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
Investment Thesis
Risks
Infrastructure improvement throughout the U.S. should bolster profits for Vulcan
Revenues are sensitive to government and private construction spending conditions
VMC is the largest supplier of aggregates in the nation, enabling significant pricing power
Construction activity is impacted by weather conditions at both the local and national level
VMC operates from coast to coast, serving approximately 40% of U.S. states, including 7 of the 10 fastest growing states
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Student Analysts Luiz Barduco Setti de Arruda Luiz Arruda has a 4.0 GPA and served as an undergraduate research assistant at USF for nearly two years. He also received the Excellence in Undergraduate Research award. Arruda has interned with AXA Advisors, where he analyzed clients' portfolios and research on mutual funds. He is highly involved at USF, serving in a leadership role for Global Business Brigades and participating in the Corporate Mentor Program, where he is paired with a mentor from the business community. The Brazilian native speaks three languages – Portuguese, English, and Italian.
Marc Costello Marc Costello is the fifth member of his family to attend the University of South Florida. His interest in finance stems from his father, who instilled in him the importance of saving and investing at a young age. Costello is an investment banking analyst intern at Crosstree Capital Partners, where he works in healthcare mergers and acquisitions. He previously interned with Citigroup in its Institutional Clients Group. Costello plans to pursue a master's degree in finance and attain a CFA designation.
Jeremy Davis Jeremy Davis is the first person in his immediate family to attend college. His passion for finance stems from his desire to understand the mechanics of the business world. Davis' interest in finance inspired him to intern at Raymond James where he is an equity capital markets analyst. He is also the President of the Student Finance Association at USF. He aspires to attain a CFA designation and build a career in the field of investments.
Zachary DeGregorio Zachary DeGregorio aspires to start his own private equity fund after first gaining experience in the financial services industry. His strong aptitude for financial analysis led to multiple internships in finance and technology roles, most notably assisting options and U.S. Treasury futures traders at a Manhattanbased hedge fund. DeGregorio is a member of the Pi Kappa Alpha fraternity and Delta Sigma Pi business fraternity. He is a recipient of USF's Program of Accountancy Achievement Award.
Laura Del Castillo A finance and MIS double major, Laura Del Castillo aspires to work in equity research. She is well on her way as she has held three internships in the finance industry. She worked as a financial operations consultant at JPMorgan, served as a credit risk management intern at Raymond James, and interned as a controller at Goldman Sachs. Del Castillo is an active leader and has held numerous positions such as president of Toastmasters, co-leader for a career workshop, and coordinator for a missionary trip. She speaks three languages and is an artist and pianist.
Andres Nader Andres Nader is currently an investment banking intern at Crosstree where he assists in healthcare M&A transactions. He previously served as an intern at Ballast Point Ventures, JP Morgan, and Raymond James. After graduation, he hopes to continue working in investment banking. Andres is the President of the Student Finance Association. A native of Colombia, Nader is bilingual and enjoys spending his free time building and racing cars.
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Quan Nguyen A native of Vietnam, Quan Nguyen believes in giving back to the community. He was the first manager of Suit-A-Bull, a university program that lends business attire to those in need. Nguyen also helps students with their professional development as an officer of the Student Finance Association. Beyond USF, Nguyen interned at Citi, where he prepared annual reports and property statements for Citi's businesses. As an intern at Ballast Point Ventures, Nguyen analyzes prospective companies and makes recommendations to the investment team. Nguyen was a 25 Under 25 honoree in 2016.
Jose Ortiz Jose Ortiz spent his first two years of high school in his homeland of Mexico, saying the experience helped him better understand Latin American culture and how business operates there. He joined USF as a member of the invitation-only Bulls Business Community which serves high-achieving students. Ortiz enjoyed the experience so much that he volunteered to mentor three incoming business students the following year. His finance acumen, bi-lingual skills, and understanding of Latin American business led to an internship in Miami for Beta Capital Management. There he handled equity research and conducted anti-money laundering investigations.
Samuel Rodas Samuel Rodas is a Peruvian native whose family moved to the United States when he was 8 years old. Rodas is the first in his family to attend college. He has held an internship at Wells Fargo Advisors, where he assisted two financial advisors. Rodas is a member of two honor societies: Phi Theta Kappa and the National Society of Collegiate Scholars. He is also a member of the Student Finance Association. Rodas aspires to work in corporate finance and to earn a master's degree in finance.
Roger Sentongo Ugandan native Roger Sentongo came to America at the age of 20 to pursue an undergraduate degree in finance. He chose to prepare for a career in asset management as he aspires to run his own investment fund. Sentongo is proficient in the Java and C programming languages and serves as the webmaster for the African Student Association. He is also a writer for the Student Finance Association's newsletter.
Madison Suhr Madison Suhr grew up having a passion for business. He has already passed his Series 65 exam, enabling him to register as an investment advisor. Suhr works full time as a quoting coordinator at Sypris Electronics, where he helped secure more than $20 million in business. He previously served as an intern in purchasing and finance at Sypris. He aspires to become a leader and role model to the people around him.
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