Undergraduate Student Managed Fund Fall 2018 Portfolio Report Team Terrion-Wilkos Student Managed Fund
Introduction Co-Lead Managers: Matthew Arons & Austin Langer Portfolio Manager: Alana Phillips Communication Manager: Trent Nobile Web Manager: Sean Homa Matthew Arons Harrison Newman Sean Homa Trent Nobile Austin Langer Alana Phillips Sharon Liu John Quevreaux Samantha Martin Zachary Yellen Undergraduate Supervisor: Patrick Terrion & Christopher Wilkos Fund Director: Chinmoy Ghosh 2
Agenda Portfolio Overview Investment Process Economic Overview Portfolio Performance & Sector Overview Current Holdings & Future Outlook 3
Portfolio Overview
Portfolio Overview Philosophy Investment Style Strategy Managers invest Managers use a Managers review with a 10-year time bottom up security their specific sector horizon to selection to find assignments to find outperform the S&P investments which companies with 500 by finding are fundamentally strong balance investments that undervalued by the sheets and business have been market through models that have a inefficiently valued research and sufficient margin of by the market financial modeling safety 5
Investment Process
Investment Process We look for companies that exhibit strong financials, attractive valuations, and many of the following competitive advantages : Brand Leadership High Barriers for Entry Innovative Growth-Oriented Business Model 7
Investment Process Key Points of Emphasis During Weekly Pitches •Is their recent success a fad or new trend? •Example: Corporate strategy that has made ULTA unique in Competitive the beauty space Advantage •How can a name brand company keep growing consistently? •Example: AXP can benefit from the increasing use of cards International globally Demand •SMF Managers started the year in a valuation-high environment Perpetuity •Example: PLD was pitched at a previous all-time high Growth Rate 8
Investment Process Risk Management Detailed Analysis • Careful financial research conducted in advance of investment decisions Stop-Loss Orders • 25% minimum stop-loss orders to account for recent market volatility Margin of Safety • Utilize the Graham-Dodd concept of margin of safety 9
Economic Overview
Economic Outlook - U.S GDP Growth Consumer Inflation Employment Private Fixed Confidence Investment 3.7% Oct 3.5% Q3 growth 135.7 in Nov. Up 8.1% YoY 2.0% Core PCE (Update for Nov Q3 YoY soon) Projections of Manufacturing Close to the 10 year TIPS 2.8% Q3 Wage 3.1% 2018 GDP output previous18-year spread at Growth growth Oct. high increased for 5 th 1.91% straight month in Oct. Modest growth with tightening labor market below the natural rate of employment expected to keep inflation at the Federal Reserve target of 2% 11 11
Portfolio Performance
Sector Allocation *Data as of November 30 th , 2018 13 13
Portfolio Performance *Data as of November 30 th , 2018 14 14
Total Portfolio Unrealized Gains *Data as of November 30 th , 2018 15 15
Sector Overview
Communication Services ● Performance: Communication Services ETF vs. S&P 500* ○ Decreased 9.91% since 115 6/19/18 ● Future outlook: 110 ○ Saturation of top performers ○ More wireless product 105 demand ● Risks: 100 ○ New expenses with faster networks 95 ○ Content creation slowdown ● Current Holdings: 90 ○ Disney (NYSE: DIS) ○ Electronic Arts(NASDAQ: 85 EA) ○ Alphabet (NASDAQ: GOOG) 80 6/19/2018 7/19/2018 8/19/2018 9/19/2018 10/19/2018 11/19/2018 XLC US Equity SPX Index *Prices reflective of June 19, 2018- November 30, 2018. 17 17
Consumer Discretionary Consumer Disc. ETF vs. S&P 500* ● Performance: ○ 120 Increased 4.87% YTD 115 ● Future outlook: ○ 110 Increasing wage growth ○ Shift from retail to online 105 ● Risks: 100 ○ Consolidation of industry 95 ○ Trade disputes could raise prices 90 85 ● Current holdings: 8 8 8 8 8 8 8 8 8 8 8 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / ○ 2 2 2 2 2 2 2 2 2 2 2 Ulta Beauty (NASDAQ: / / / / / / / / / / / 1 2 3 4 5 6 7 8 9 0 1 1 1 ULTA) VCR US Equity SPX Index *Prices reflective of January 2, 2018- November 30, 2018. 18 18
Individual Holdings
Alphabet – Basic Metrics Alphabet Stock Performance Basic Metric 1300 Purchase Price $1049.96 1250 1200 Current price $1094.43 1150 1100 52 Week High $1273.89 1050 1000 52 Week Low $980.64 950 900 Market $766.04 B 850 Capitalization 800 8 8 8 8 8 8 8 8 8 8 8 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 Dividend Yield NA 0 0 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / 1 2 3 4 5 6 7 8 9 0 1 1 1 Source: Bloomberg 20 20
Alphabet – Thesis & Risks Thesis Risks We recommend GOOG based on: • Internal Start-Ups: The majority of Alphabet’s “other bets” business • Strong Business Model: Alphabet is segment are in risky markets an industry leader that will continue to expand their reach as it generates free • Competition: New companies cash flow continue to emerge to compete with Alphabet and could capture some of • Future Focused: Alphabet is focused Alphabet’s predominant market share on investing in artificial intelligence and cloud software to make data of • Regulation: Alphabet is the number the world easily accessible to one search engine in the world, and everyone therefore has the risk of being considered a monopoly • International Growth: Alphabet is looking east to Asia to continue their growth. Alphabet recently launched a new app called Google Pay in India which has already processed over a billion dollars in payments 21 21
Ulta Beauty – Basic Metrics ULTA Stock Performance Basic Metric 330 Purchase Price $279.77 310 290 Current price $297.79 270 52 Week High $322.49 250 230 52 Week Low $191.70 210 190 Market $17.94 B 170 Capitalization 150 8 8 8 8 8 8 8 8 8 8 8 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 Dividend Yield NA 0 0 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / 1 2 3 4 5 6 7 8 9 0 1 1 1 Source: Bloomberg 22 22
Ulta Beauty – Thesis & Risks Thesis Risks We recommend ULTA based on: • Real Estate Strategy: Most stores • Largest Beauty Retailer: ULTA is the are located in off-mall shopping premier beauty destination for centers, a decrease in traffic to big- cosmetics fragrance, skin, hair care box stores can slow down customer products and salon services traffic • Unmatched Product Breadth: Mix of • Vendor Partner Relationships : ULTA high and low end products and beauty needs to maintain good relationships salon for “the beauty enthusiast” to keep access to their exclusive • Store Growth: Increased its number products of stores in the US by 10% in 2018 • Recognition of Beauty Trends: Market trends move fast, not being update can affect ULTA’s “cool” factor 23 23
Electronic Arts – Basic Metrics Electronic Arts Basic Metric Stock Performance 170 Purchase Price $93.99 150 Current price $84.07 130 52 Week High $151.26 110 52 Week Low $80.42 90 Market $25.69 B 70 Capitalization 50 8 8 8 8 8 8 8 8 8 8 8 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 Dividend Yield NA 0 0 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / 1 2 3 4 5 6 7 8 9 0 1 1 1 Source: Bloomberg 24 24
Electronic Arts – Thesis & Risks Thesis Risks We recommend EA based on: • “Hit” Driven Industry: Highly competitive with respect to consumer • Franchise Strategy: Well known, attention strongly branded franchises that can cheaply be leveraged into additional • Rapid Technological Changes: content Older products become outdated and act as an overall disruptive force • Improving Margins: Growth in digital sales as a percentage of total revenue • Cybersecurity & Piracy: Poses is driving stronger gross margins by constant risks due to the digital decreasing operating expenses nature of EA’s products • Market Overreaction: Delay of Battlefield V title resulted in a market overreaction that was not rooted in long-term business fundamentals 25 25
Future Outlook
Portfolio Expectations We will continue to monitor both marker-wide and company specific trends. As we move on, we will carefully monitor our current events and actively pursue new investments that fit out investment philosophy Potential Investment Ideas HealthCare to be steady during volatility Increased infrastructure spending Corporate social responsibility Global trade risks 27 27
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