Greystone Equity Fund 2011‐2012 Annual Report Marist College Contents
Director’s Letter ............................................................................................................................................ 4 The Greystone Equity Fund ........................................................................................................................... 5 Portfolio Guidelines ...................................................................................................................................... 6 Letter From Students .................................................................................................................................... 7 Fund Performance ........................................................................................................................................ 9 Flight to Quality ......................................................................................................................................... 9 Allocation To Exchange‐Traded Funds .................................................................................................... 10 Economic Outlook ....................................................................................................................................... 10 Labor Force Participation ........................................................................................................................ 11 Interest Rates .......................................................................................................................................... 11 Consumer Spending ................................................................................................................................ 12 Economic Indicators ................................................................................................................................ 12 Consumer Spending ............................................................................................................................ 12 US Unemployment Rate SA ................................................................................................................ 13 University of Michigan Survey of Consumer Sentiment ..................................................................... 13 CPI Index ............................................................................................................................................. 13 US Auto Sales ...................................................................................................................................... 13 US New Home Sales‐ Single Family Homes ......................................................................................... 13 NFIB Small Business Optimism Index .................................................................................................. 13 Rail Freight Transportation Industry Performance ............................................................................. 14 Sector Allocation ..................................................................................................................................... 14 Stock Analysis .............................................................................................................................................. 15 Consumer Discretionary ......................................................................................................................... 15 Nike – May 2011 ................................................................................................................................. 15 Autoliv – Dec 2011 .............................................................................................................................. 16 Coach – May 2012 ............................................................................................................................... 17 Consumer Staples ................................................................................................................................... 17 Proctor and Gamble ‐ May 2011 ......................................................................................................... 17 PepsiCo – Dec 2011 ............................................................................................................................. 18 Monster Beverages – May 2012 ......................................................................................................... 19 Energy Industry ....................................................................................................................................... 19 2 Cameco – May 2011 ............................................................................................................................ 21 Occidental Petroleum – Dec 2011 ...................................................................................................... 22 Lukoil – May 2012 ............................................................................................................................... 22 Sasol – May 2012 ................................................................................................................................ 22 Financials Sector ..................................................................................................................................... 23 American Express – May 2011 ............................................................................................................ 24 Capital One Financial – Dec 2011 ........................................................................................................ 25 Healthcare Industry: ............................................................................................................................... 25 Teva Pharmaceuticals– May 2011 ...................................................................................................... 26 Novartis – Dec 2011 ............................................................................................................................ 27 Pfizer Inc – May 2012 .......................................................................................................................... 28 Industrials ................................................................................................................................................ 28 Boeing – Dec 2011 .............................................................................................................................. 28 AGCO – May 2012 ............................................................................................................................... 29 Information Technology .......................................................................................................................... 30 Corning – May 2011 ............................................................................................................................ 30 Cirrus Logic – May 2012 ...................................................................................................................... 31 Materials Industry ................................................................................................................................... 31 Rio Tinto – May 2011 .......................................................................................................................... 31 Kraton Performance Polymers – Dec 2011 ......................................................................................... 32 Ternium – May 2012 ........................................................................................................................... 32 Telecommunications ............................................................................................................................... 32 American Tower Corporation – May 2011 ......................................................................................... 33 Telstra – Dec 2011 .............................................................................................................................. 34 AT&T – May 2012 ................................................................................................................................ 35 Utilities Industry ...................................................................................................................................... 36 Exelon – May 2011 .............................................................................................................................. 36 PPL Corp – Dec 2011 ........................................................................................................................... 37 Entergy – May 2012 ............................................................................................................................ 37 Guest Speakers ........................................................................................................................................... 39 Student Analysts ......................................................................................................................................... 40 3 Director’sLetter
May 23, 2012 On behalf of the students who participated in Marist College’s student‐managed investment program in 2011 and 2012, I am pleased to present the first Greystone Equity Fund Annual Report for the period ending May 31, 2012. The Greystone Equity Fund was launched in April 2011 with an initial seed capital of $100,000 allocated from the College’s endowment. While it may not have been a propitious time to launch a fund benchmarked against the S&P 500 index, with the market dropping almost 20% in the five months since the fund was launched, the continuing Great Recession and a lingering debt crisis in Europe have provided our students with an unequaled opportunity for learning. Three classes of students have passed through the program, actively managing the portfolio of financial securities. The initial group, in the Spring 2011 semester invested roughly one third of the capital in nine stocks, with the remaining two thirds being allocated to exchange‐traded funds (ETFs). They were followed by the Fall 2011 cohort, who added a further nine stocks to the portfolio, and by the Spring 2012 cohort who purchased an additional ten stocks. The students have been responsible for all aspects of the portfolio management process, from analyzing potential ETF investments, to screening, analyzing and evaluating potential stocks and writing analyst reports, and voting on portfolio allocation decisions. Each class has had to make decisions in the face of uncertainty and incomplete information, and they have done an excellent job. On behalf of the students I would like to thank President Murray and the Board of Trustees for allowing the Greystone Equity Fund to manage a portion of the College endowment and for providing the Fund a home in the state‐of‐the‐art Investment Center in the Hancock Center. John Pecchia and Jay Pantaleo have helped us enormously, as has Dean Elmore Alexander, while our guest speakers have been overwhelmingly generous with their time and support. Students also benefited from our trips to two GAME forums, conferences for student‐managed investment funds, and to the Bloomberg offices in New York City. These trips were generously underwritten by the School of Management. Our first year with the Greystone Equity Fund has been exciting and rewarding. The students have demonstrated a tremendous capacity for hard work and a thirst for knowledge. I am confident that the team‐based, practical learning experience gained by the student participants will serve them well in their future careers and, notwithstanding the travails of the world economy, I believe that the Greystone Equity Fund will continue to provide our students with the opportunity to excel. Congratulations and best wishes in the future to the 2011‐2012 Greystone Equity Fund alumni. Brian J Haughey, CFA, FRM Director, Marist College Investment Center. 4 TheGreystoneEquityFund
The Greystone Equity Fund – a student‐managed investment fund (SMIF) – was established in 2011 to provide Marist College students with “hands‐on” experience in investment management, by bridging the gap between traditional classroom instruction and “real world” application. The aim of the program is to maximize the long‐term total rate of return on fund assets, while providing student managers the opportunity to gain experience in identifying, analyzing, valuing and investing in securities, in the management of a portfolio, and in the reporting of portfolio performance. Student participants in the SMIF submit to a recruitment process that is designed to be both highly selective and representative of what students will be exposed to when they graduate. Each applicant was required to complete an application form, and to provide a letter of recommendation from one of their professors. Other than in exceptional circumstances, only applications from those students with a GPA of 3.0 or better were considered. After an initial screening process, selected applicants were invited to take part in an interview process. Students who acquitted themselves satisfactorily in the interview were then invited to participate in the class. The class is organized just as an investment management firm might be. Each student has responsibility for one of ten market sectors, and is responsible for identifying and researching potential stock investments, and writing an analyst report on his or her stock suggestion. The entire class comprises the investment committee, responsible for asset allocation and formulating investment strategy, subject to the provisions of the fund’s Investment Policy Statement, and votes on each investment proposal. A super‐majority is required for a proposal to be accepted. Students meet formally for regularly scheduled classes, as well as informally while performing research, and are required to dress professionally when in the Investment Center. Students in the SMIF learn how to assess the current state of the economy to determine the likely performance of industries and companies. They work on their own and in small teams, and gain experience in performing both quantitative and qualitative analysis, and in presenting their findings both verbally and in written analyst reports. Equally importantly, they gain experience in decision making with incomplete information, and in weighing and evaluating several prospective outcomes. They perform “top‐down” analysis to determine the fund’s sector weighting, by evaluating the macroeconomic environment, examining leading economic indicators and keeping abreast of political, economic and regulatory news. They then perform a “bottom‐up” fundamental analysis, screening for stocks in a given sector on the basis of relative value to identified undervalued securities, and performing a comprehensive evaluation of their selected stock. This analysis entails evaluating the company’s financial statements, earnings guidance, competitive position and industry research, and using discounted cash flow models and relative valuation metrics to determine what the students believe is a “fair value” for the security. The emphasis in the program is on bridging the gap between the academic and the practical, and in this we have been assisted by a group of Wall Street professionals who have generously devoted their time to visiting the class and making presentations. Students in the Greystone Equity Fund also benefit from 5 the resources available in Marist’s world‐class Investment Center, featuring a dozen Bloomberg terminals, the Morningstar data service, stock tickers and TV displays, and their rich learning experience would not be possible without the resources provided by the College administration. PortfolioGuidelines
The investment objective of the Greystone Equity Fund is to maximize the long‐term total rate of return on fund assets, consistent with prudent risk limits and diversification requirements, while providing its student managers with the opportunity to gain experience in identifying, analyzing, valuing and investing in securities, in the management of a portfolio, and in the reporting of portfolio performance. The portfolio is managed against a benchmark, the S&P500 index, with student managers being subject to the provisions of the fund’s Investment Policy Statement. Consistent with this policy, student managers may only invest in stocks that are either domiciled in the US or that have ADRs traded on a US exchange. Permitted asset classes include equities, convertible bonds, ETFs and cash. The fund may invest in common and preferred stocks of US domestic equities with market capitalization of at least $100 million. No more than 20% of fund assets may be invested in small‐cap stocks, and no more than 40% may be invested in medium‐cap stocks, where small‐cap stocks are defined as those with a market capitalization of between $100 million and $2 billion, and medium‐cap stocks are defined as those with a market capitalization of between $2 billion and $5 billion. The fund seeks to outperform the index by overweighting those market sectors the managers believe, on the basis of their analysis, will outperform the market over the next 12 months, and underweighting those sectors they believe will underperform. Within each of the market sectors the managers seek to identify individual stocks that will outperform their peers. The portfolio remains fully invested over the summer and winter breaks, in order to replicate the performance of a buy‐and‐hold portfolio. The class could choose to liquidate the portfolio between semesters, but to do so would expose the Fund to basis risk, that is, the risk that the market could recover from a decline, or appreciate significantly leading to significant underperformance by the cash‐
only portfolio. 6 LetterFromStudents
The Greystone Equity Fund was initiated during the spring semester of 2011. The first class of this student managed investment fund met in January of that year and since then, two additional classes have participated in the program. The first set of students selected a group of exchange traded funds (ETFs) that covered each major market sector for the initial allocation of portfolio assets. As the semester progressed the class then analyzed individual stocks in which they pitched to the class and after a vote, liquidated a portion of the ETF investments and allocated the proceeds to the selected equities. During the next two semesters the incoming class examined the ETF and stock selections of the preceding students, choosing to maintain the current investments. At the end of each semester, the class voted to accept the stocks that were pitched, and liquidated some of the existing ETF holdings to fund the stock purchases. Each class learned how to access and evaluate the market environment by using tools such as MorningStar and Bloomberg. Each member of the class was responsible for specific roles that would help the whole team achieve the best conclusions. Members responsible for the analysis of the economic environment kept the class updated about facts that could affect final decisions. In addition, the class used valuation models developed by Bloomberg and in the class to help analyze the chosen stocks. The benchmark for fund assets was the S&P 500, and we analyzed the market using sectors defined by Standard and Poor’s: Consumer Discretionary, Consumer Staples, Energy, Financials, Heath Care, Industrial, Information Technology, Materials, Telecommunication services, and Utilities. We sought to generate alpha, or outperformance relative to the benchmark, by overweighting sectors we thought would outperform, as well as picking what we considered to be superior stocks. We discuss our sector weights in a subsequent section. Our stock research primarily focused on fundamental analysis, opposed to technical analysis, and the Investment Center’s Bloomberg terminals provided the class with an extensive array of stock screening tools which each student could tailor to fit their own preferred criteria. Students also made use of company financial statements (Income Statement, Balance Sheet, Statement of Cash Flows, and Statement of Retained Earnings), with company filings available in some cases all the way back to the 1960s. The three most popular initial screens used by students were the Price/Book ratio, the Price/Earnings ratio, Price/Sales, and Earnings per Share. The Price/Book (P/B) ratio provides an excellent measure regarding the relative value of an underlying stock. It compares the current price of the stock to the proceeds likely to be realized if the company were to be liquidated today. Typically, investors searching for a bargain purchase should buy a stock with a P/B ratio of less than 1. This shows that an investor will be buying a stock at a “discount. The Price/Earnings (P/E) ratio tells an investor how much he is paying for a company’s earnings power. Some stocks feature a high P/E (20 or more) stock; in such a case an investor is prepared to pay more for this stock because of its higher expected earnings power, although these stocks carry more risk than a low P/E (15 or less) stock. Examples of this observation are the new, innovative tech companies such as Apple, Google, and Hewlett‐Packard. Investors in a stock that features a low P/E (15 or less) expect the company to 7 maintain a steady cash flow. These companies include General Electric, Exelon and Verizon, and they usually pay dividends. Conversely, high P/E stocks do not tend to pay dividends. The Earnings Per Share (EPS) screen is a useful indicator that shows how much profit the company produced for one share of common stock. EPS provides investors with a solid screen because if EPS increases year after year the stock has consistent earnings growth or earnings momentum, while a history of paying dividends is attractive also. We also used a variety of other screens, such as the Pietrowski F‐score, to rank stocks. The portfolio’s weighted‐average Beta was 1.00, matching that of the Benchmark, the S&P500, giving us a pretty safe position considering the market’s uncertainties while allowing us to grow relatively consistently with our benchmark. With that said, as the U.S. economy continues to improve and as companies’ actual performance meets its expected performance, the Greystone Equity Fund should expect to see increasing returns from its budget allocations. This will provide a solid position for future students that will have the chance to manage and improve the performance of the portfolio. Professor Haughey organized a consistent stream of guest speakers every Friday. This complemented the in‐class lectures and provided the students with some interesting real‐world stories and insight. Students benefited tremendously from the question‐and‐answer segment at the end of each presentation. These personalized questions allowed the speakers to tailor each of their presentations toward the students’ interests, which helped them further improve their analysis in this class. We are very grateful to the speakers for contributing to our learning experience. Throughout the year students had the opportunity to travel, with one class visiting the offices of Bloomberg in New York City for a series of lectures and a guided tour, and students participating in two trips to conferences. On March 29‐30th four of us, together with Professor Haughey, attended the Quinnipiac G.A.M.E forum, a conference for participants and faculty in student‐managed investment funds, held at the Sheraton hotel in Manhattan, New York. Upon arrival on Thursday, March 29th, we attended four keynote presentations, where the speakers elaborated on topics such as the economy, alternative assets, stocks markets, and corporate governance. On the following day the format was different, with a choice of 26 different breakout panels, workshops, and keynote perspectives that we could choose to attend. We all attended different sessions for the most part and each got the chance to learn from many intelligent people. Though we did learn a lot from the event it was nice realizing that our program here at Marist has even more to offer. Our professors have a lot of knowledge to spread and are almost always available. On top of that it was nice to see that Marist’s Investment Center is significantly better equipped than almost every other school whose students were attending the conference. Overall it was a great experience in that it allowed us to learn about topics we had interest in as well as reassure us that Marist really is one of the best, and we were able to share our experiences and insights with our classmates when we returned. 8 FundPerformance
From our initial investment in May 2011 the Greystone Equity Fund modestly outperformed the benchmark. In recent months, however, the portfolio has underperformed the S&P 500. As you can see from the Figure 1, the portfolio has tracked the bogey fairly closely, which is to be expected given that the portfolio’s beta is close to 1.0. From inception through 05/31/12 the benchmark returned ‐1.56% while the total return of the portfolio was ‐3.83%. Figure 1 ‐ Portfolio total return from 5/1/11 through 5/31/12
FlighttoQuality
We believe that the portfolio’s underperformance in 2012 stems largely from continuing concern over the turmoil in Europe, which led to a flight to quality in both the bond and equity markets, with investors eschewing European and small to intermediate capitalization stocks for the relative safety of the S&P500. Several of our positions are in foreign companies, including Autoliv (Sweden), Telstra (Australia), Rio Tinto (UK), Novartis (Switzerland) and Teva Pharmaceuticals (Israel). Figure 2 shows the price return of the S&P 500, the MSCI Europe, Asia and Far East (MSCI EAFE) and the MSCI World indices in 2011 and 2012. The Figure 2 ‐ Relative price performance of global markets
9 performance of the regions diverged sharply in the middle of 2011, with the S&P 500 significantly outperforming the other two indices. We anticipate that a resolution of the European crisis will see a return of capital from the US, with a concomitant strengthening of our foreign holdings. AllocationToExchange‐TradedFunds
Figure 3 shows that over 40% of the assets of the portfolio were invested in ETFs through May 10th 2012. These ETFs have expense ratios that range from 0.18% to 0.70%, which serve to reduce the total return of the portolio. As our stock allocation increases this drag reduces. Figure 3 ‐ Asset Allocation
EconomicOutlook
Global markets are currently experiencing volatility, as macroeconomic and political uncertainty have been driving the gains and losses and will continue to cause markets to trade sideways. As for Latin America and Asia, growth will continue over the next few years however, large countries such as China and India have also been experiencing a slowdown in growth as depicted by leading economic indicators and recent market performance. Although US growth was relatively strong at either end of 2011, it struggled severely in the middle of the year, resulting in lackluster growth for the year of only 1.7% as shown in Figure 4. Although 2011 ended on a strong note, with growth coming in at 3% for the last quarter, the first quarter of 2012 saw GDP growth fall back to just 1.9%. Nevertheless, we expect growth to pick up in the second half of the year and remain up through year end, coming in between 2% and 2.3% for 2012, although fallout from the continued turmoil in Europe could hurt US prospects. However, even growth at 2.3% will still run short of the pace needed to have a Figure 4 ‐ US GDP growth remains weak
10 significant impact on unemployment. Figure 5 ‐ The size of the workforce continues to shrink
We had been expecting the United States to create a total of about 2.2 million jobs this year. This averages out to 185,000 jobs per month, a figure that falls below the pace set during the first three months of the year, but above the surprisingly low 120,000 jobs added in March. However, the slowing pace of job creation, as evidenced by the addition of 115,000 jobs in April, and just 69,000 in May, is worrying and any turnaround in 2012 is not expected to be overwhelming. The current unemployment rate is 8.2% and job creation will most likely not be enough to lower it anywhere below 8% by year‐end. LaborForceParticipation
One reason that the unemployment rate is not expected to decrease materially this year is that hiring has not increased significantly. Rather, the recent reductions in the reported unemployment rate have been due in large part to people leaving the workforce. This was the story in March when the workforce declined by 164,000, with the labor force participation rate at a 30‐year low, shown in Figure 5. The job market remains trying for job seekers as the number of workers unemployed for more than 27 weeks is 5.4 million, or 42.8% of the jobless population currently, more than two years after the supposed end of the Great Recession. This figure has declined slightly of late but is still much higher than it ever was prior to 2009. Additionally, employers are hesitant to hire those who have been unemployed for a long period of time, considering their skills outdated for current market conditions and thus believing them to be unqualified. This is a particular concern given that the average length of unemployment is 39.7 weeks. One worrying note for the economy is that the U‐6 unemployment rate, which reflects those either unemployed or underemployed, is running close to 15%, while those jobs that have been created recently are overwhelmingly low‐skilled and low‐paid. Given that consumer spending accounts for about 70% of US GDP a failure by workers to find well‐paid jobs will depress economic growth. One reason for the lack of high‐paying jobs noted by Bloomberg is that due to increases in productivity the demand for skilled manufacturing workers continues to decline; even as the civilian population increased 140% the number of manufacturing workers is the same as it was in 1941. There are 1.8 million fewer people employed in manufacturing than in December 2007 when the recession began. InterestRates
Interest rates remain at historic lows, with continued worries about economic turmoil in Europe driving 10‐year Treasury yields to record lows in a flight to quality, with the 10‐year yielding 1.55% as of May 31 2012. However, as uncertainty in Europe eases, we believe rates are likely to float between 2.1% and 2.3% in the latter part of the year. Barring a significant economic shock that would drive the U.S. into another recession, such as a sustained period of extremely high oil prices or a full‐blown euro crisis, the Treasury rate should push to about 2.5% by year end. 30‐year fixed‐mortgage rates are expected to climb by about 50 basis points to the year around 4.5%. The Federal Reserve does not, however, wish to see mortgage rates rise too drastically in the belief that this may inhibit improvement in home sales and 11 ultimately the acceleration of a housing recovery. Consequently, signs point to Fed Chairman Ben Bernanke beginning a new round of credit swaps when the current program ends in June. Further, the central bank will likely continue to roll over short‐term debt into purchases of long‐term Treasuries in order to keep downward pressure on long‐term rates. ConsumerSpending
Consumers are finally beginning to spend after efforts to restore lost wealth as a result of the housing crash and 2008 stock market drop. Even those with sizeable debt are willing to borrow or dip into savings to buy certain items. Certain issues, however, such as heightened tensions with Iran leading to higher energy prices, will keep consumer spending from rebounding dramatically. Consumer spending will ultimately end only slightly higher in 2012 than in 2011, although there will be opportunities to profit. For example, commentators have noted an “hourglass effect”, with the CEO of the luxury goods producer Coach, Inc., Lew Frankfort, commenting recently that unemployment among college graduates over 25, who comprise the majority of Coach customers, is in the 4% range, while Richard Smucker, CEO of food producer J.M. Smucker, noted a “clear bifurcation” in US consumer spending behavior, suggesting that luxury goods and basic foodstuffs may outperform. Otherwise moderate inflation this year should not be overwhelmed by sharp hikes in gasoline prices. Relatively slow economic growth in 2012 should continue to keep price increases in check. While the Federal Reserve is continuing to pursue an expansionary policy, inflationary pressures resulting from the increase in the money supply appear to be tempered, at least in the short term, by asset price deflation. A rise of about 2% in the Consumer Price Index is forecasted for this year after a 3% jump in 2011. After several years of working off spare capacity, business investment in new equipment will help expand production and spur demand for labor. A very modest turnaround in the housing industry this year should help drive at least a small degree of economic growth after subtracting from it over the last few years. Low interest rates will lure buyers into the market and a turnaround in prices will convince people the worst of the housing crisis has passed. On the other hand, some fear that we have not yet seen the worst of the housing crisis and that foreclosures will skyrocket to record highs in the coming months. Additionally, improvements in the housing industry will remain inhibited by demand for home construction which is still lagging and will account for only 3% or less of GDP in 2012, compared to 6% before the crisis. Close to three years after the end of the recession, a strong, sustained economy is still a long shot. The economy remains particularly vulnerable to possible shocks as growth is not accelerating as swiftly as it normally does in a recovery. EconomicIndicators
We analyze a wide range of economic indicators in order to gauge the state of the economy and its likely future prospects. Some of these include: ConsumerSpending
Consumer spending, which accounts for 70 percent of US GDP, advanced 2.9 percent in the first quarter of 2012, rounding out the highest quarterly gain since the fourth quarter of 2010. Contributing factors include a 0.4 percent increase in incomes, an improving job market, and warmer weather. In order to 12 sustain improvements in consumer spending, hiring and wage increases need to continue to rise over the second quarter. USUnemploymentRateSA
In April, unemployment fell to a three year low of 8.1 percent from 8.2 percent in March. While a positive sign that employers are continuing to hire, April also saw the fewest number of jobs added in six months, pointing to a shrinking labor force as the reason behind this dip in unemployment. As noted above, the employment situation continues to be weak and new jobs are of weak quality. UniversityofMichiganSurveyofConsumerSentiment
Consumer sentiment reached a one year high of 76.4 in April, climbing from 76.2 in March and surpassing analyst expectations. This increase is due to a number of factors, including an easing of gasoline prices that reached a high early in the month and continuing improvements in the job market, which has contributed to increases in spending. CPIIndex
Inflation rose 0.3 percent in March, lower than its 0.4 percent pace in February, totaling a 2.7 percent increase since March 2011. If energy prices continue to ease, inflation should continue to slow down as well, while consumers should have more disposable cash to spend. USAutoSales
Auto sales in March were 14.32 million, down from 15.03 million in February. Auto sales for the first quarter of 2012 grew at the fastest pace in four years, indicating a strengthening economy and higher consumer confidence. USNewHomeSales‐SingleFamilyHomes
In March, new home sales totaled 328,000. This number is lower than the revised 353,000 home sales in February, but is 7.5 percent higher than the 305,000 homes sold in March 2011. Though growth in the housing market remains sluggish, new home sales and the number of building permits issued have risen significantly over the past few years. Home sales is an important measure, signaling not just confidence in the economy, but also raising the prospect of increased demand for durable goods as purchasers furnish their new homes. NFIBSmallBusinessOptimismIndex
Figure 6 ‐ Optimism is not robust The Small Business Optimism Index is based on ten survey indicators: outlook for expansion, earnings, sales, prices, employment, compensation, credit conditions, borrowing needs, inventories, and capital expenditures. 13 In March 2012, six consecutive months of gains in the index were reversed, dropping from 94.3 in February to 92.5 in March. Ratings fell in all of the survey indicators except for inventories, and the single most important problem reported by small business owners continues to be poor sales, followed by government regulations and taxes. In April, the index rose to 93, though this is still below the February number. A Republican victory in the US Presidential elections in November might provide a fillip for the economy, if small business owners believe that a Republican administration would reduce regulatory burdens. RailFreightTransportationIndustryPerformance
Other indicators we watch include rail freight indices, which are good measures of industrial activity as raw materials are shipped to factories and finished products shipped to customers. The rail freight transportation industry is driven by US GDP, industrial production, US unemployment, consumer confidence, and business inventory and sales. Because this industry is so closely tied to general economic conditions, its growth is a reasonable indicator of a recovering economy. After bottoming out in September of 2011, the industry has since been steadily improving, with industry sales growth continuing to increase. SectorAllocation
One of the ways we attempt to outperform our benchmark index is to overweight those sectors we believe will tend to beat the market average over the next twelve to eighteen months, while underweighting the sectors we expect to lag. It is generally accepted that certain market sectors – such as consumer staples, for example ‐ will tend to outperform in a recession, whereas others – such as luxury goods, for example – will do well in an expansion. Figure 7 ‐ Sector rotation through the business cycle
While the class economists believe that we are in a continuing recession, they believe the outlook for Energy is positive due to the renaissance in the US oil and gas industry and so overweight this sector. The portfolio target weights chosen in April 2012 are shown in Figure 8. As a reference, the results of a Bloomberg survey of economist expectations are shown in Figure 9. Figure 8 ‐ Benchmark and portfolio target weights 14 Figure 9 ‐ Analyst consensus rankings for sectors StockAnalysis
ConsumerDiscretionary
The Consumer Discretionary sector encompasses companies that sell non‐essential goods and services to consumers. These companies could be retailers, consumer services, media, consumer durable, apparel, and automobile and components companies. This industry is known to be cyclical, making returns heavily reliant on the business cycle. If economic conditions are favorable these companies normally excel past the general market performance. Nike–May2011
Analysts in the consumer discretionary sector used stock screens featuring low price to earnings, low price to book, and low debt to equity to select a security that they expected to outperform the sector. Nike was founded in 1964 by William Bowerman and is now the world’s largest designer and wholesaler of athletic footwear, apparel, equipment and accessories for men, women, and children. Nike markets apparel with licensed colleges and professional teams, and league logos. The company sells to more than 50,000 retail accounts through its retail stores and e‐commerce, independent distributors and licensees. Some of stock highlights that stood out for Nike compared to its competitors were its high quick and current ratios as well as their immense market cap which shows its dominance in their industry. 15 Nike is currently the world's largest designer and wholesaler of athletic footwear and apparel for men, women, and children. Their abilities to produce quality products and superior marketing technique have helped Nike to develop a wide economic moat. Since our initial investment in Nike, the stock has appreciated in price by 30%. Nike’s most recent performance such as their estimated 18% year over year growth in revenues last quarter (which has not fallen below 7% during our holding period) and their 14% year over year growth in EPS show signs of the stock’s ability of continuously contributing to our fund’s goal of outperforming the S&P 500 index. With its recent successful performance, we feel confident in maintaining a holding our position in Nike unless other extraordinary factors arise. Autoliv–Dec2011
Autoliv (ALV) is the leader in the automotive safety systems industry, offering a range of products that include modules and components for airbags, seatbelts, anti‐whiplash seats, child restraints, and leg protection equipment. Autoliv has a third of the automotive safety systems market share and a substantial global presence, operating 20 test tracks and 80 facilities within 29 countries. Autoliv currently employs 34,600 people, all working to improve the safety features offered to customers. Their country of domicile is Sweden, but they are by no means confined to this geographic location as their major customers are automobile manufacturers, who use the safety components Autoliv offers to build their vehicles which are then sold worldwide. Autoliv appears ready to take advantage of two major opportunities which we feel will generate the company’s future success: active safety systems, and growth opportunities in Asia and some other emerging markets. 16 Their ability to increase their market share and their readiness to advance into new geographical and product markets is supported by their strong financial data. Their most recent quarter’s operating margin was estimated to be 7.04%, following Q4 2011’s 10.96% (which is high for this business), and they generated a $6.99 EPS in 2011. Despite the economic downturn, last year the company achieved record net sales, net income, and return on equity, justifying Autoliv’s strategic initiatives. The firm’s ability to increase its market share and their readiness to advance into new geographical and product markets is supported by its financial resources. Coach–May2012
The latest portfolio addition in this sector is Coach Inc., one of the leaders in the luxury items industry, which offers a range of products that include handbags, wallets, shoes, accessories, watches, jewelry, and other luxury apparel. Coach control a large part of the luxury market, with a market share of over $20 billion, higher than the industry average of 16.1 billion. Coach has recently been developing substantial global presence, increasing its distribution in Japan and other parts of Southeast Asia. There are currently over 5,200 employees working at Coach and its country of domicile is the United States. Coach is currently expanding its distribution of items to customers through its web‐based purchasing outlet. This online web service has saved Coach tremendous amounts of capital by allowing the company to ship items directly to its customers, rather than having to pay for a distribution service. If Coach continues to market its online purchasing service and get even more customers to buy online, it will have yet another significant edge over its competitors. ConsumerStaples
The Consumer Staples sector, which makes up 11.6% of the S&P 500, is comprised of those goods that are considered basic necessities to consumers and that are used on a daily basis. These goods include food and beverages, tobacco products, and personal products and household goods. For these reasons the industry is defensive and tends to outperform the market during troubling economic times. ProctorandGamble‐May2011
P&G is a major player within the consumer staples industry. Their products are categorized into six segments: beauty, grooming, health care, snacks and pet care, fabric and home care, and baby and family care. They are 17 one of the most recognized Consumer Staples companies. Procter & Gamble has 50 ‘Leadership Brands’ that are some of the world’s most well‐known household names and of those 50, 24 brands generate more than one billion dollars in annual sales each. These 50 brands produce 90% of the company’s sales and more than 90% of profits. P&G has seen significant growth in emerging markets and is putting a stronger emphasis on expanding its business overseas. P&G has steadily increased its sales in developing markets and for fiscal 2011, 35% of net sales were delivered in these areas. The company has integration plans set in place for developing markets that reduce the barriers to entry. In 2011 P&G saw revenue growth of 4.6%, below the industry average of 7.7%, but it continues to offer a dividend yield of 3.6%, significantly higher than the industry average of 2.65%, while its P/E of 16.72 is attractive relative to its peer average of 20.5. Despite its weak recent market performance we are optimistic about its future prospects. PepsiCo–Dec2011
PepsiCo is a major player in the food and beverage sector, which is characterized by a tight duopoly between Coca‐Cola and PepsiCo, which together dominate the market. Unlike Coca‐Cola, PepsiCo is also leader in the snack food industry, and owns brands such as Lays, Doritos, Gatorade and Quaker. PepsiCo has 19 mega brands that generated more than $1 billion in annual retail sales in 2010. The top 5 brands include Pepsi‐Cola, Mountain Dew, Lays Potato Chips, Tropicana Beverages and Diet Pepsi with Pepsi‐
Cola boasting more than double the retail sales of the second place Mountain Dew. PepsiCo recently completed its acquisition of The Pepsi Bottling Group, Inc. (PBG) and PepsiAmericas, Inc. (PAS). These companies are the key bottlers for PepsiCo and were acquired to increase the effectiveness and efficiency of the distribution of brands and to enhance revenue growth. Merger agreements were originally signed in mid‐2009 with full acquisition being completed in early 2010. The acquisitions represent the creation of a more fully integrated supply chain for PepsiCo, which is expected to significantly reduce costs for the company. In 2011, PepsiCo saw revenue growth of 15%, following an increase of 33% in 2011, with the most profitable segment being the PepsiCo Americas Beverages business unit. 50% of net revenues came from within the U.S., 15% from Mexico, Canada and the United Kingdom, and 35% from the rest of the world. PepsiCo is also well diversified between both their beverages and snack; 34.8% of net revenue came from PepsiCo Americas food, 33.7% from PepsiCo Americas beverages, with the remaining 31.5% coming from PepsiCo International. Net income was $6.443 in 2011. Furthermore, the firm was able to increase their annual dividend by 7.4% in 2011 and 18 remains a member of the S&P 500 Dividend Aristocrats Index. It trades at a P/E of 15.6, lower than Coke’s 19.3 and the industry average of 18.98. MonsterBeverages–May2012
Monster Beverages is a major player in the beverage sector which is dominated by a tight duopoly between Coca‐Cola and PepsiCo. However, Monster controls a large share of the energy drinks market in which Coca‐Cola is currently underrepresented. While Monster is attractive on its own, we believe it to be a takeover candidate. Indeed, just as we completed our analysis the price spiked on speculation that Coca‐Cola has been in talks regarding an acquisition. Monster would be a strong buy for Coca‐Cola because it would allow more room for Coca‐Cola to grow. In its current state, Coca‐Cola would have a very tough time inducing growth because it already distributes its products all around the world. On the other hand, Monster is still a relatively small company and therefore Coca‐Cola could greatly raise the intrinsic value of Monster Inc. if it could finance its growth. If Coca‐Cola absorbed Monster then it is likely that any Monster stock that we acquired would be converted to Coca‐Cola stock. Our purchase decision, however, was predicated solely on Monster’s stellar financials. Monster’s operating margin and ROE, at 26.8% and 32% respectively, are twice the industry average, while its 2011 revenue growth of 30.6% is also close to twice the industry average of 16.94%. At 35%, it’s 2011 growth in net income dwarfs Pepsi’s 1.95%, while Coke showed a decline of 27.4%. Monster’s P/E of 45 is high relative to the industry average of 29, but given the company’s growth we believe it is a good addition to the portfolio. EnergyIndustry
The energy industry is comprised of companies involved in the production, sale, manufacturing, extraction, refining and distribution of a variety of different forms of energy such as liquid fuels, coal, electricity, nuclear, and renewable energy. In 2010, oil prices rose as the economy started to grow and confidence to increase. Prices rose even further due to the unrest in the Middle East and Africa, while in 2011 and 2012 the price of oil has been volatile as the global economy shows more signs of slow growth and sovereign debt has been a headline issue, decreasing confidence for future growth. The current low real interest rate environment is a positive for the energy sector, although reduced demand over the next year due to slowing growth may lead the energy industry to experience slow growth over the next 6 to 12 months. The outlook for the energy industry varies depending upon the category of energy being delivered. Overall energy usage worldwide is expected to increase, mostly in emerging markets. These nations experiencing economic development need energy in order to foster their growth. Fossil fuels are expected to still be the dominant source of energy throughout the world in the distant future. Liquid Fuel is expected to continue to grow into the future due to its use in transportation and industrial sector activities. The production of liquid fuel is expected to increase by a total of 26.6 million barrels per day from 2008 to 2035. Looking forward over the next several years, continued demand driven by emerging 19 market economies will continue to increase energy prices as supply is strained with constant increases in demand. See Figure 10. In the long term, natural gas could become a very attractive alternative to oil, and we expect the gas sector to outperform over the next several years due to its abundance and low price. The integrated oil and gas segment of the energy industry is the largest component within the energy sector. This segment is characterized by large, international companies that are all highly vertically integrated due to their involvement in upstream, mid‐stream and downstream activities. Upstream activities in the industry include the recovery and production of crude oil and natural gas. Mid‐stream activities involve the transportation and marketing of oil and natural gas. Finally, downstream activities include the refining of crude oil. The companies in this segment are highly dependent on commodity prices, specifically crude oil and natural gas. The oil and gas market is set to grow at a compound annual growth rate (CAGR) of 7% between 2012 and 2015 after having only grown at a rate of 3.1% between 2006 and 2011. While growth is expected to more than double, many companies within the segment strive to protect their assets by diversifying their operations and reducing reliability on one specific commodity. Shale gas has been identified as a major source of energy for the future and has become increasingly more cost‐efficient to gather making it more attractive. Firms that have the technologies to harness the currently low cost‐ natural gas as a feedstock to convert it into more valuable liquid fuels such as diesel and jet fuel will likely hold a competitive advantage going forward as shale gas becomes a more used source of energy. We expect that developed nations will need to decrease their usage of oil in the near future in order to balance the supply and demand as emerging nations continue to increase their demand. Profitability in the energy industry is driven by independent E&P spending, OECD GDP, world crude oil supply and demand, and miles traveled. As the economies of various countries improve, consumer spending will rise and companies will increase production, driving up the demand for oil. Therefore, energy companies benefit from growing economies as oil and natural gas are used to fuel manufacturing and production. In particular, in the United States we see a renaissance in the energy sector as more low‐cost shale gas is exploited by manufacturing companies to provide a global competitive advantage. U.S. GDP is expected to grow about 2 to 3 percent in 2012, with most of the growth occurring in the latter half of the year. Figure 10 ‐ West Texas Intermediate oil price Over the next few years, a rise in industrial production resulting from the cheap natural gas prices will help boost growth even further and bolster 20 revenues for utility companies. While significant decreases in unemployment are yet to be seen, such decreases will help boost consumer confidence, though remaining uncertainty because of the European Debt Crisis may be a continuing source of uncertainty moving forward. Cameco–May2011
The world needs more electricity than it currently produces. As emerging countries like China, Brazil, and India become more modern electricity demand is going to increase dramatically, with a corresponding need for technology to produce mass amounts of electricity from a single source. Cameco sells uranium to 30 different countries, and has a short term competitive advantage because it is the only company capable of producing uranium for the CANDU reactors. Our purchase decision was driven in large part by the disaster in Japan, which drove uranium prices down over 30% and Cameco’s stock price by 29%. We believe that the market overreacted to news of the disaster; it takes many years for electric power plants to be constructed meaning that nuclear plants, even if judged unattractive, must continue to be operated for years to come. Furthermore, as consumer concern over carbon emissions continues, nuclear energy is viewed, at least by some, as environmentally friendly, making Cameco an attractive buy in our view. Since we purchased Cameco, the stock has been very volatile, and is currently down about 30%. The company missed analyst estimates in quarter one and two of 2011. The company cited that uranium deliveries are heavily weighted in the second half of 2011 and do expect revenues to increase 5 to 10 percent over the 2010 number. The company also expects uranium sales to increase 10 to 15 percent at year end given their long‐term contracts with other companies. Cameco’s operating margin was 21.7 in 2011, higher than the industry average of 14.45%, with revenue growth of 12.28%.Currently Cameco trades at a P/E of 15.8, almost one‐third the industry average of 44. Its dividend yield is 2.06%. We shall continue to monitor its performance and, if its performance fails to improve, consider divestiture. 21 OccidentalPetroleum–Dec2011
Occidental Petroleum (OXY) has three major business units, oil and gas, chemical production and midstream marketing. The oil and gas sectors are subject to extreme demand fluctuations which are based on the condition of the economy. The profitability of OXY is based upon the price of oil and gas which fluctuate constantly. OXY’s chemical production segment produces and distributes chemicals to several companies and manufactures worldwide. The midstream and marketing segment involves derivative sales. The company is continually expanded into both developed and undeveloped markets and tapping into new revenue streams. It has a narrow economic moat that gives the company a significant competitive advantage in its industry. The company has a large stake in oil production and extraction in the United States. It is a leader in the U.S and generates a considerable amount of revenue from U.S operations. OXY trades at a P/E of 9.96, versus the industry average of 14.99. It had above‐average revenue growth in 2011 at 25.7%, versus the industry’s 20.18%, and at 45.2% its EPS growth was much higher than the 30.8% of its peers. We believe that Occidental has significant upside potential. Lukoil–May2012
Lukoil is one of the world's leading vertically integrated oil & gas companies based in Moscow, Russia. The Company operates under three main business segments: Exploration and Production, Refining and Marketing, and Power Generation. Lukoil’s E&P activities are primarily located within Russia, with its main resource base being in Western Siberia. The Company owns modern refineries, gas processing and petro‐chemical plants located in Russia, Europe and CIS countries. Lukoil’s production is marketed in Russia, Eastern and Western Europe, CIS countries and the United States. Lukoil has evolved into an international company, working in more than 37 countries worldwide. As of January 1, 2011 Lukoil’s retail network consisted of 2,242 filling stations in Russia and 4,266 in the CIS countries, Europe, and the United States. Our investment in Lukoil is a play on the diversified oil market. Sasol–May2012
Sasol Limited is a global integrated energy company based in Johannesburg, South Africa. Sasol operates under four business segments: South African Energy Cluster, International Energy Cluster, Chemical Cluster and other. Sasol’s Energy clusters focus on manufacturing, refining and marketing of automotive and industrial fuels. Furthermore, their Energy Clusters consist of four subsidiaries: Sasol Mining, Sasol gas, Sasol Synfuels and Sasol Oil. Company revenue is derived from a diversified offering of products and 22 services including coal mining, oil and gas exploration and production, and synthetic fuels. As an integrated oil company, Sasol is involved in all stages of production: upstream, mid‐stream and downstream. Their presence in emerging markets coupled with a diversified product portfolio will allow Sasol to continue to grow their business, while their process to convert natural gas to diesel fuel is very exciting. FinancialsSector
The financial sector as a whole is extremely large and encompasses everything from retail banks to insurance companies and REITS. The financial sector is still in the process of recovering from one of the worst financial crises in history. Large investment banks such as J.P. Morgan, Citigroup and Well Fargo are now reporting profits and have been approved by the government to issue dividends or reinstate their stock repurchase plans. These are bullish signs, suggesting that the larger banks are recovering, although the smaller regional banks are still struggling to make loans to consumers. The housing market is still searching for a bottom which is making it difficult for the smaller regional banks to make loans and create mortgages. The insurance industry has also taken a hit after the earthquake in. The risky U.S. economic climate and uncertainty in the Euro‐zone has deterred banks from lending and towards investing in U.S. treasuries. In recent months, the Federal Reserve has enacted Operation Twist to decrease the amount banks invest in government debt and increase the amount of public investments. The largest Central Banks in the world are lowering their borrowing rates by 50 basis points in order to help Europe by adding liquidity to the market. Furthermore, regulation has kept any positive momentum to a sluggish pace. The Dodd‐Frank Act and various other forms of legislation have hindered any big banking strategies. Therefore, we have a neutral rating on the financial sector as a whole. One of the more resilient areas in the sector is the credit card subsector. This industry is poised for substantial growth as consumers move away from cash and checks towards plastic and online payment systems. The industry is also driven by domestic and global spending which has increased as the economies around the world continue to recover. Another bullish sign for this industry is the improving credit quality that has occurred both here in the United States and around the world. As consumer credit rebounds, consumers will not only be able to spend more they will also be able to repay their debts faster. Our outlook for the credit card industry is bullish, and we believe that consumers will continue to spend going into the summer months, and that online sales will continue to grow as more customers shop at Amazon and other online retailers. 23 AmericanExpress–May2011
Founded in 1850, the New York‐based American Express Company is a diversified financial services company, with worldwide operations and a strong brand name. During the fourth quarter of 2008, American Express became a bank holding company under the Bank Holding Company Act of 1956. The Federal Reserve Board became the company s primary regulator. As of March 31, 2011, American Express had a total of 62,400 employees. Amex generates its revenues through its five operating segments: U.S. Card Services (USCS), International Card Services (ICS), Global Commercial Services (GCS), Global Network & Merchant Services (GNMS), Corporate & Other. American Express sells its products and services to various customer groups including consumers, small businesses, middle‐market companies, large corporations and banking and financial institutions through various channels such as direct mail, online applications, sales forces and direct response advertising. Amex is also venturing into other business opportunities through its recent investments in Loyalty partners, Accertify, Loyalty Edge, Business Insights, Revolution Money and Serve. The main focus of these investments is to improve and expand their cardless and online payment systems. This will allows clients to pay for items using their cell phones for example instead of carrying around the plastic charge card. American Express has a unique spend centric business model which focuses on consumer spend rather than lending to the consumer. Amex also operates the only closed loop credit card system in the United States, which means they have control over the whole value chain. American Expresses is also best positioned within the industry to take advantage of mobile and online sales with their acquisitions of Accertify, and Serve. Amex has also partnered up with Amazon, Ticketmaster, Foursquare and many more online retailers to ensure they have the leading edge in mobile and online sales going forward. In addition to this Amex has an elite client base with a special emphasis on superprime clients. Superprime clients are high net worth clients that are not afraid to spend; these clients also have high credit ratings which make them less likely to default. Lastly, American Express offers the best rewards program in the industry which has helped the company gain market share from its competitors. American Express is an established company with a strong brand name and the potential for substantial growth going forward. The company has the highest return on equity, return on assets, return on capital, dividend yield as well as the largest amount of free cash flows when compared to its peers Capital One and Discover. American Express has a strong management team and a pristine balance sheet which should support future growth and prosperity into the future. Our purchase decision was based on their favorable spend centric business model and organic growth strategies on top of already steady and plentiful recurring cash flows. When looking at their revenues their biggest segment is their US Card Services business, making 24 up about 51% of their revenues. International Card Services is the next largest business, accounting for 18.2%. The United States generates 70% of revenues, with EMEA (Europe, Middle East, Africa) making up an additional 11.6% with Asia and Latin America at 10% and 9% respectively. CapitalOneFinancial–Dec2011
Capital One has recently restructured its operations from national and local banking to credit card services, consumer banking and commercial banking. The credit card business segment accounts for 61% of revenues in 2011 and continues to improve customer credit quality by decreasing their net charge off rate. The company’s P/E of 8.13 is low compared to the industry average of 14.53. Capital One’s strategy involves shifting deposit allocation from higher cost time deposits to lower cost consumer savings and money market deposits continues to increase profit margin. Total deposits increased by $6 billion, or 4.92%, to $128.2 billion as of Dec.31, 2011. COF was successful in implementing their conservative strategy to lower cost liquid savings and transaction accounts during tough economic times. The firm leverages the power of combining national scale lending and local scale banking to offer their card, consumer and commercial clientele the optimum financial product available. Although marketing has taken a back seat during the financial downturn, advertising has played an important role in attracting these customer deposits in order to leverage their money to offer promotional deals. Our investment decision was predicated on the belief that Capital One is in the best position in an industry that has underperformed in recent times, and that the company combines the success of the credit card business with the potential play of a rebound in banking. COF stock is up 11.5% since our purchase. Its P/E is 8.13 relative to the industry’s 14.53. However, its revenue growth was negative 2.84%, while EPS growth at 5% was dwarfed by the industry’s 35.34%. We shall reevaluate this holding in the Fall. HealthcareIndustry:
The healthcare sector is considered to be defensive and non‐cyclical because health care services will always be in demand, regardless of economic conditions. Sub‐sectors consist of medical equipment and devices, health care facilities and services, and biotechnology and pharmaceuticals. We expect to see tremendous growth opportunities for generic pharmaceutical companies over the next couple of years as a record breaking number of major branded blockbuster drugs lose their patent protection in the United States and Europe. IMS Health estimates that about 17% of the global branded drug industry’s worldwide sales will lose patent protection over 2010‐2015. 25 The Patient Protection and Affordable Care Act (PPACA), also known as Obamacare, was signed into law by President Obama on March 23, 2010. This reform will expand the patient population to cover the 32 million Americans who currently do not have insurance. Overall, the PPCA is expected to cost about $938 billion over the next ten years based on estimates made by the nonpartisan Congressional Budget Office (CBO). Generic pharmaceuticals provide the perfect solution for the government to cut costs while expanding coverage. It is estimated that generic drugs will save the U.S. healthcare system at least $70 billion in savings over the next four years. According to IMS Health, generic drugs accounted for more than 70% of prescriptions written in the United States in 2009, up from 57% in 2004. We predict that these levels will continue to rise with the implementation of the healthcare reform. As the baby boomers (Americans born from 1946 through 1964) continue to age, the older segments of the age demographics will encounter a tremendous increase. The US Census Department projected that the 65 and older segment of the population will increase from 41.7 million in 2010 to 79.3 million by 2030. Throughout the world, the United Nations Population Division projects that people ages 60 and older will account for 22% of the total world population by 2050, up from 10.8% in 2009. Generic pharmaceuticals will increase at a greater rate than branded drugs due to the economic relief they can provide to retired medication users. The generic industry will also benefit from the planned implementation of a new FDA regulatory process to approve biosimilars, generic versions of biologics (no such process currently exists). President Obama’s healthcare reform formally authorized the FDA to establish a regulatory process for the approval and marketing biogenerics (also known as biosimilars, or follow‐on‐biologics). These products are generic versions of biotechnology products (also known as biologics). Biologics are targeted towards hard‐to‐treat diseases of the immune system, such as cancer and multiple sclerosis. The FDA is hesitant to create a definite standard for approval because of the process’s expense and the inability to be completely accurate when establishing a drugs bioequivalence due to the instability of the drugs compounds. Biogenerics are currently being marketed in Europe and in order for the U.S. to remain competitive; it will have to establish these standards soon. TevaPharmaceuticals–May2011
Teva Pharmaceutical Industries Ltd is one of the top 15 pharmaceutical companies worldwide and is the world's leading generic pharmaceuticals company. Founded in 1901, Teva is headquartered in Petach Tikva, Israel. Teva has a strong international presence, with 48% of sales generated in North America and 31% in Europe in 2011. TEVA has experienced a dramatic increase in revenue and has matched our initial expectations in nearly every aspect other than price appreciation. The market price however has responded with a year to date price change of nearly ‐17% despite revenue growth of nearly 16% year over year. While revenue increased, gross and profits margin declined (to 51.96 from 56.23 and to 15.07 from 20.66, respectively), and Teva’s net income in 2011 declined 17% compared to a 66% increase in 2010. Teva plans to increase their footprint in emerging markets through acquisitions. Market shares in most major countries in Eastern Europe either increased or remained the same from 2009‐2010. In 2010 Teva 26 became the second‐largest generic pharmaceutical company in Russisa and Kazakhstan and the 5th largest in Ukraine. Teva will focus on the European generics market, which we expect will grow faster than the US market over the next five years. We continue to believe that Teva’s strong generic product line will translate to increased profits over the next few years. Novartis–Dec2011
Novartis (NVS) is a major competitor within the healthcare sector. It has an extensive drug pipeline that will ensure its profitability well into the future. The company has expanded through multiple acquisitions which had a positive effect on revenue growth. Recently NVS has acquired Alcon Inc., which expands the company’s product line in eye care. The company also has an extensive generic drug pipeline which will offset profit losses due to loss of patent protection on key brand name drugs. Overall the company has performed well over the past five years and, as the sector is considered to be consumer defensive, in harsh economic times we expect NVS to outperform the market and sector. Almost 33% of NVS revenues are generated in the US, 9% in Japan and the remainder spread throughout the world. Novartis is suffering from the economic uncertainty in Europe, with 14% of its revenue coming from Germany, France, and Switzerland. However, we feel that out of Europe these three nations have shown the best economic fortitude of the major European nations. Novartis’ revenue has increased 15.7% in 2011, compared to its peer average of 7.5%, although EPS declined 10.5% while its peers increased 66.5% on average. The reduction in net income from 2010 to 27 2011(from $9.8 billion to $9.1 billion) was due to a reduction in gross margin from 71.35 to 67.59 and, especially, the drop in profit margin from 19.35 to 15.56. PfizerInc–May2012
The new security for the healthcare sector is Pfizer Inc (PFE), the largest pharmaceutical company in the world with annual revenues near $70 billion. Biopharmaceutical sales account for almost 86% of total revenues, with 40% coming from the US and 24% from Europe. Due to their broad product portfolio the impact of key patent losses, such as Lipitor, is reduced, with revenues estimated to drop just 10% over the next few years, despite the sale of their baby food business to Nestle. At a P/E of 9.58 relative to its peers 14.15 average, we see Pfizer as a good investment. Its dividend yield of 3.98% and profit margin of 14.84% are attractive, and its decision to sale non‐core businesses suggests prospects for growth. Industrials
This sector consists of five core industries including aerospace and defense, electrical equipment, machinery, transportation equipment, and transportation and logistics. This sector is usually a strong indicator of production within the United States, with drivers that include GDP, unemployment, commodity prices, manufacturing, construction spending, and industrial production. Companies within this sector are typically multinational corporations providing goods and services on a global scale. For many of these companies, the development of emerging markets will provide strong future growth. The industrials sector is cyclical and has underperformed during the recession, but appears to be recovering in early 2012. It is currently weighted at 10.14% of the S&P 500 and 7.10% of our portfolio. Boeing–Dec2011
Boeing is the world’s largest airplane manufacturer and, accordingly, is a leader in the aerospace and defense industry. Boeing designs, develops, manufactures, and sells commercial jets, military aircraft, satellites, and missile defense and launch systems worldwide while primarily serving a large clientele in the United States. However, growth in developing markets has presented many new overseas customers to Boeing. Commercial aircraft account for 52.56% of revenues, with Boeing Defense, Space and Security generating 46.47% of revenues, making it a leader in both markets. Boeing is highly dependent on its customer contracts, considering it holds a production backlog of several years. In November 2011, Boeing recorded its two largest contracts in company history at the Dubai 28 Airshow. These orders reflect the growing demand in developing markets, as the new customers Lion Air and Emirates are both located in the Middle East. Overall the Dubai Airshow was successful for Boeing since the company recorded 285 orders for 737s and 74 firm orders for widebody planes throughout the week. These new orders are guarantees of business for Boeing throughout the next few years. Boeing has consistently recorded a high ROE and ROA throughout the past five years, showing that the company effectively manages its business. Despite the fact that free cash flows are inconsistent, this is not of great concern for Boeing since this is common considering the nature of the business. In 2011, Boeing increased its revenues by 6.89% from 2010. In addition, analysts expect revenue to grow by an additional 15.8% in 2012 and 8.3% in 2013. Net income continued to grow in 2011, increasing by approximately 21.50%. AGCO–May2012
AGCO Corporation was founded in 1990 in Duluth, Georgia and is traded on the New York Stock Exchange under the ticker AGCO. The company is one of the leading agricultural machinery manufacturers in the world, producing and distributing heavy agricultural equipment, particularly tractors, as well as various replacement parts. AGCO’s products and parts are sold under various brand names, comprising of AGCO, Challenger, Dafeng, Fella, Fendt, Gleaner, Hesston, Massey Ferguson, Tye, and Valtra. Aside from its product diversity, this company also operates worldwide with the support of more than 3,100 dealers. The company has recently focused its expansion into emerging markets such as Brazil, Africa, the Middle East, and Eastern Asia. This is a mid‐cap company, with a market capitalization of $4.36B. They are not a component of any major indexes such as the S&P 500, which allows for a positive investment outlook since they do not attract the attention of the majority of analysts. The company is also one of the top three players in its industry, who collectively represent 70 – 75% of the global market. This allows for strong purchasing and pricing power. The company has experienced more than 27% growth in sales over the past year, and with strong financials and a very low amount of debt in its capital structure, it is well‐positioned for sustainable growth in future years. The company also carries more free cash flow than its two larger competitors. These top competitors, Deere and CNH Global, are very highly leveraged and have Z‐Scores that indicate a relatively high potential for bankruptcy. While AGCO is globally diversified, selling in more than 140 countries, European countries consume a significant portion of its agricultural machinery, accounting for 47.3% of its total revenue. While this could pose a threat given the current European crisis, Europe’s agricultural equipment market is projected to recognize a compound annual growth rate of 5.4% over the next four years. Even during difficult times, this industry is relatively reliable as there will always be a strong demand to harvest food. Agco’s ROE and ROA are higher than their competitors, at 20.63% and 9.19%, respectively, while its profit margin of 6.65% trails Deere’s 8.88%. The company also appears to be highly undervalued, with industry leading P/E, PEG, P/S, and P/B ratios. 29 InformationTechnology
The technology sector is comprised of numerous industries such as telecom, software, semiconductors, hardware, handsets, and solar. Within these industries are various sub‐industries that fill certain niches, like networking hardware. Technology firms typically flourish during the very beginning of an economic expansion. Due to their need for constant excess cash to fund research and growth, technology companies tend to suffer during recessions, stemming from sharp declines in consumer spending on goods. In the long‐run, cloud computing and virtualization are expected to revolutionize the industry, so investing in technology firms that will (or already) offer these services may be an opportunity for growth. Generally, there is a neutral fundamental outlook on the semiconductor industry. The unstable global economic environment will contribute to softer PC and consumer electronics spending. Improving global economic conditions into next year are anticipated, which would recommence the industry’s sequential growth. Semiconductor firms have increasingly utilized third‐party foundries, formulating a shift to fabless manufacturing; this leads to more flexible cost structures and less margin variability. Year to date, the industry has returned about 3.7% above the S&P 1500’s 11.2%. Buttressed by rapid, widely used technological advancements, the use of semiconductors will continue to surge in the future. Many consumers, regardless of age, use semiconductor chip based products; there are also more people in developing markets utilizing these products. Corning–May2011
Corning is an information technology‐based materials company that has been in operation for over one‐
hundred‐sixty years. It trades on the NYSE under the symbol “GLW”. During the holding period, Corning underperformed the S&P 500 and all the other securities in our portfolio. For one, the natural disaster in Japan disrupted the display supply chain, negatively affected nearly all of Corning’s partners and clients, and ultimately resulting in poor earnings. Being that such strong external factors have taken place, we still do feel confident in Corning as a company, and feel that its future performance will not be hindered. Corning’s revenue has grown steadily over the last five years and its earnings have increased over 42% annually during that time. Its three‐year average sales growth is 10.87%, twice the industry average, while its P/E Ratio is about half the industry average. Its dividend yield at 2.32% is also almost twice the industry average. Corning could be a potential growth opportunity as demand for smart phones and tablets that use gorilla glass become more and more common, popular, and affordable. 30 CirrusLogic–May2012
Cirrus Logic Inc. is a premier supplier of high‐precision analog and digital signal processing components for the audio and energy markets. Founded in 1984 and headquartered in Austin, Texas, the company excels at developing complex chip designs where feature integration and innovation is a premium. Cirrus Logic has over 1,000 key patents to over 700 products, which serve more than 3,000 end‐customers worldwide. The company manufactures optimized products through two product lines: audio products and energy products, for both consumer and industrial markets. Cirrus Logic’s key customers are among the world's leading electronics manufacturers including Apple, Sony, Harman and Samsung. They have been named one of the top places to work, receiving numerous awards from various publications. A majority of their revenues are generated from the Asia Pacific region, where a majority of its customers manufacture their products. Although considered volatile due to its beta, the company has generated outstanding returns and has experienced exceptional growth. Its ROE is twice the industry average, at 19.46%, and its P/E at 19.12 is less than the peer average of 23.81, while its profit margin at 20.61% is almost three times that of its peers. MaterialsIndustry
The materials industry consists of metals & mining, chemicals, iron & steel, and other materials that are used for production. The materials sector is driven by growth and it performs well during good economic times. The industry relies on different resources which come from all different global economies and for that reason global economic growth can drive this industry. The industry has suffered recently due to recessionary periods that decreased demand for products and from high raw material costs that impact the bottom lines of companies. The materials industry is diverse in that many of the companies have different operations and operate in different sectors which respond differently. RioTinto–May2011
Rio Tinto is an international mining company that falls into the materials and mining subsector. The company mines for a diverse group of raw materials including aluminum, coal, iron ore, silver, tin, and zinc to name a few. This stock was purchased by the first group of Greystone Equity analysts during the Spring 2011 semester, when the stock was purchased on May 10, 2011. While Rio has struggled performance‐wise since being purchased it still does seem to be a strong company in a position to grow. The share price has been very volatile, and is down 38% over the holding period, with a 4.2% dividend yield. From Feb through May the stock price was down 31%. Rio Tinto’s P/E is 14.86, which makes it expensive relative to the industry median of 8.82. EPS is down 58.5% in 2011, while the peer average is up 42.8%. While the price 31 performance has been disappointing, we remain bullish on copper and expect Rio’s price to rebound as the economy recovers. KratonPerformancePolymers–Dec2011
Kraton is a materials company that converts simple molecules into more advanced materials called polymers which are used to produce various end products. Kraton’s innovative abilities have allowed them to outperform other polymer providers. These advanced materials are used in many different industries including adhesives, sealants, coatings, paving and roofing, and they are beginning to get involved in emerging businesses as well. Kraton provides these materials to a number of various customers that use their materials globally. It remains cheap with a P/E at 7.13 which is half the industry average, with an ROE of 16.34%. Revenue growth was 17% in 2011, and is expected to be 10.6% in 2012. Ternium–May2012
Ternium is a steel producer that functions in Latin America. The main markets of Ternium include Mexico and Argentina. Ternium suffered from global economic conditions in 2009 and has slowly been recovering. The firm is in a strong position in Latin America where countries are experiencing growth which has led to an increase in demand for steel products, specifically from the construction and automobile industries. Ternium will also look to take advantage of the recent sharp decline in natural gas prices that could benefit manufacturing companies. The company has financial flexibility which will allow them to continue to pursue new opportunities in growing markets. They have built strong relationships with suppliers and customers in these key regions and should continue to grow. We believe the company’s stock price to be undervalued and this in addition to their strong dividend yield provides a good investment opportunity. Telecommunications
The telecommunications industry is effectively the world’s largest machine. The global system touches nearly all of us, allowing us to speak, share our thoughts, and do business with almost anyone, anywhere in the world. The system is comprised of complex networks, telephones, mobile phones, and internet‐
linked PCs. Maintenance of the system and access to its services is made possible by telecommunications operating companies. Historically, a club of big national and regional operator comprised the telecom industry. Over the past decade, however, rapid deregulation and innovation has had considerable influence on the industry. 32 Previous Government monopolies have been privatized and face a plethora of new competitors all around the world. As growth in mobile services outpaces the fixed line and as the internet starts to replace voice as the staple business, traditional markets have been turned upside down. The North American telecom industry, however, is dominated by AT&T and Verizon. Combined, the two firms account for nearly two‐thirds of all revenue creating a duopoly market in the United States. In 2010, AT&T led the industry with revenue of $124 billion followed by Verizon with revenue of $107 billion. This has prompted regulators to scrutinize any proposed deal in order to preserve competition in this highly consolidated market. The industry’s two main segments are wireless and wireline services. Growth in recent years has been driven by the wireless segment as demand for data services has exploded due to widely expanding smartphone usage. Wireless services have steadily grown as a percentage of total industry revenue since 2005. Wireless services now account for about 59% of total revenue versus 44% in 2005. Hampered by the secular decline in voice services, the wireline segment has remained stagnant but has been helped by increases in wireline video and business services. While the industry’s biggest revenue generator continues to be plain old voice services, advances in network technology are causing this paradigm to change. Telecommunications is becoming less about voice and more about text and images. High‐speed internet access has, and continues to make its way into homes and businesses around the world, delivering computer‐based data applications such as broadband information services and interactive entertainment. Demand for services delivered over mobile networks present the greatest growth potential. Residential and small business markets are arguably the toughest of all the customer markets. Competitors rely heavily on price as the services they provide are interchangeable in many cases. In addition to price, brand name also plays an important role. The industry’s favorite customers remain the corporate market. Big corporate customers are less price‐sensitive than residential customers as they are concerned mostly about the quality and reliability of their telephone calls and data delivery. Large multinationals invest heavily in telecom infrastructure to support their massive operations over significant distances. Large companies are also willing to pay a premium for certain services as high‐
security private networks and videoconferencing. Telecom operators also generate revenue by providing network connectivity to other telecom firms that require it as well as by wholesaling circuits to heavy network users including internet service providers and large corporations. AmericanTowerCorporation–May2011
Founded in 1995, American Tower Corp. is a telecom company that owns, operates, and develops wireless communication and broadcast towers in the US. Its primary business is leasing antenna sites on multi‐tenant towers for personal communication services, paging, and cellular. It also offers a variety of network development services, which constitute a small portion of the firm’s profits. 33 American Tower has exposure to emerging markets in Latin America, India, and Africa. While there is modest growth potential here in the states, the growth opportunity in foreign markets is very attractive. American Tower Corp.’s presence in these nations diversifies its market exposure and lessens a possible negative impact from the currently volatile American market. The best characteristics of American Tower Corp.’s finances are its low debt leverage and cash flow visibility. Since late 2009, American Tower Corp. has consistently outperformed the entire telecommunications sector. Its stock price has steadily increased annually over the past decade. American Tower Corp. produces higher revenue per tower than any of its peers and has maintained low exposure to the weaker‐margin network‐development segment. Overall, American Tower has taken advantage of the nature of the telecommunications industry. American Tower provides infrastructure for the telecom heavyweights AT&T and Verizon. Boasting steady cash flows and an impressive business model, AMT is a stronghold in the industry. While its revenues grew 23% in 2011, more than its peers, its P/E at 49.41 is higher than the industry median of 36.64, and we shall reevaluate our holding in the Fall. Telstra–Dec2011
Telstra Corporation is an Australian telecommunications provider, with ADRs traded in the US with the ticker TLSYY. Telstra provides telephone exchange lines to homes and businesses; supplying local, long distance, and international land‐line telephone services. It also is the top provider of mobile telecommunications services in Australia and New Zealand. Telstra also provides data, internet, and other on‐line services; similar to many American telecommunication organizations. Telstra was once owned by the Australian government, but has been slowly privatized over the past decade or so, with nearly 90% of the company being sold by the government by 2009. The National Broadband Network is a national wholesale‐only, open‐
access data network that is set to be completed in 2015. The construction of this network will be highly 34 beneficial to Telstra and the telecommunications sector as a whole. By 2021, the network is expected to reach nearly 93% of the Australian population. Telstra’s return on equity for 2011 is 26%. Its P/E ratio of 12.7 is slightly below the industry median, at 13.1. Telstra is certainly not overpriced, and while it may be slightly undervalued, we like it as a growth stock more than a value stock. Its current dividend yield of 8.03% is expected to. This yield has the potential to be a solid source of income and it is well above the median of Telstra’s peers. AT&T–May2012
AT&T Inc. (T) provides telecommunications services to consumers, businesses, and other providers worldwide. The company’s Wireless segment provides wireless voice and data communications services including long‐distance, local wireless communications, and roaming services. This segment also sells hardware and accessories including wirelessly enabled computers, personal computer wireless data cards, various handsets, carrying cases, batteries, battery chargers, hands‐free devices, and other items. These products are sold through the company’s own stores, third‐party retail stores, and third‐part agents. The company’s Wireline segment offers data services such as switched and dedicated transport, data equipment, Internet access and network integration, businesses voice applications over IP‐based networks, managed Web‐hosting services, packet services, enterprise networking services, Wi‐Fi services, and more. Voice services provided by this segment include 1‐800 conference calling, local and long‐distance services, caller ID, calling card services, call waiting, voice mail services, security services, integrations services, and satellite video services. The company’s Advertising Solutions segment publishes white and yellow pages directories and also sells directory advertising and Internet‐based advertising and local search. In addition, the company offers customer information services. Formally know as SBC Communications Inc., the company changed its name to AT&T Inc. in November 2005. AT&T Inc. is headquartered in Dallas, Texas and was founded in 1983. Relative to its direct competitors, AT&T’s financials are very strong with a dividend yield nearly double the industry average. The company’s declared dividend and dividend yield has been steadily increasing over time, an indication of the company’s long‐terms stability. AT&T’s price to earnings ratio is nearly a quarter lower than the industry average at 14.57, a strong sign that the company is not overpriced. The company’s return on equity of 3.63% in 2011 was significantly higher than the industry average which was in fact negative. We view AT&T as a value stock on account of its high dividend yield, low price to book ratio, and low price to earnings ratio. While the company’s total number of wireless subscriber base, wireline subscriber base, and wireless average revenue per unit are all well above the industry median, we still see growth potential for the company via acquisitions as well as expansion and deeper penetration into emerging markets. Over the past decade, AT&T has generated a 1.31% annualized return— all while paying substantial, steadily increasing dividends. The overall return on AT&T for the last ten years is 12.91%. 35 UtilitiesIndustry
The utilities industry is comprised of the power generation, transmission, distribution, and marketing segments. Most commercial power comes from burning fossil fuels such as coal and natural gas to produce steam that powers turbine engines. Uranium, hydroelectric conversion, and renewable energy sources such as solar, wind, and geothermal can also be used as power sources for utilities. In the U.S., coal accounts for about 45 percent of electricity, while natural gas, nuclear, and hydroelectric generation make up 23, 20, and 7 percent of electricity used, respectively. Power plants are highly automated, and nuclear plants have especially sophisticated automation systems that can sense dangerous conditions and automatically shut down the nuclear reactors. The power generation segment is highly capital intensive and profitability is largely driven by regulations and fuel costs. Typical customers are wholesale and retail power distributors and brokers, and demand is dependent on commercial, residential, and government needs for electricity. The segment has an expected CAGR of 5 percent between 2012 and 2015. The power transmission, distribution, and marketing segment is also capital intensive, giving the larger companies an economies of scale advantage and higher purchasing power. Primary operations include acquiring wholesale power, maintaining and extending a line network, and billing and collections. In the U.S., interconnections among electric utilities form a national power grid which is organized into three major networks: Eastern, Western, and Texas. An aging transmission network in the U.S. will require heavy modernization investments in the near future, which will be largely undertaken by individual transmission utility companies. The power transmission, distribution, and marketing segment also has an expected CAGR of 5 percent between 2012 and 2015, driven by an expected increase in electricity demand. Exelon–May2011
Our oldest holding in the utilities sector is Exelon. In 2010, Exelon posted more than $18 billion in annual operating revenues, making it one of nation’s largest electric utility companies. They are involved in energy generation, power marketing, transmission and energy delivery. The Exelon Generation sector has one of the industry’s largest electricity generation capacities and a nation‐wide reach concentrated in the Midwest and the Mid‐Atlantic. It includes their Nuclear Power and Power team. Exelon is the largest owner and operator of nuclear power plants in the United States with 17 nuclear reactors operated by approximately 8,700 professionals. Following our purchase of Exelon, the stock performed well against its comparison groups in 2011, but since then has underperformed. On a total return basis the stock is down 7.0%, whereas the utility sector is up 10.59%. There was a negative earnings surprise 36 in January 2012, with earnings 7% below expectations, largely in response to warmer than normal weather which led to reduced demand for heating. (Chicago, for example, had its warmest fourth quarter in 40 years, while Illinois and Pennsylvania had temperatures 10% and 14% warmer, respectively, than the previous year). At a P/E of 10.06 EXC is cheaper than its peer average of 14.56 while its ROE is higher at 11.34% (compared to 9.3%) and dividend yield is higher at 5.59% (versus 4.127%). If it can improve its revenue growth relative to its peers (1.5% in 2011 versus 6.78% for its peers) we believe Exelon will be a strong performer. PPLCorp–Dec2011
PPL Corporation is involved in energy generation, transmission and delivery of power to consumers. PPL Corp is broken down in to three main subsidiaries; PPL Energy Supply, PPL Electric, and newly acquired LKE. PPL transformed through two recent acquisitions. These acquisitions add to their operations, making them a more diverse company. One of these companies is Central Networks which serves the Midlands region of the U.K. This will strengthen operations in the U.K. by adding electricity delivery service to more than 7.6 million customers. PPL is projecting an increase in earnings per share from about 10 to 15 cents in 2011 to 32 to 38 cents by 2013. On November 1, 2010, acquired and renamed Louisville Gas & Electric and Kentucky Utilities. By increasing the amount of business done in the regulated market, stability is created in earnings through related returns and the ability to recover costs of capital investments compared to the competitive market where earnings and cash flows are subject to market conditions. Both of these acquisitions of the Kentucky and U.K. operations have increased the percentage rate of regulated earnings mix and added to stability of the business and heightened the dividend growth profile. PPL has underperformed, despite having a lower PE (10.55 versus the industry’s 16.08) and ROE (15.98% versus 10.65%). Its revenue growth in 2011 was a whopping 49.48%, versus the 3.22% shown by its peers, and it has a higher dividend yield at 5.21% than its peers’ 4.21%. We expect the market to recognize its relative attractiveness. Entergy–May2012
Entergy Corporation is an integrated utilities holding company headquartered in New Orleans, Louisiana. It is divided into two main business segments: utility and Entergy wholesale commodities, under which it operates nine subsidiaries and employs about 15,000 people. These subsidiaries engage in electricity 37 generation, transmission, distribution, and marketing, providing electricity to 2.8 million customers in Louisiana, Texas, Mississippi, and Arkansas. Entergy also runs a small natural gas distribution business and has the second largest nuclear fleet in the U.S., operating a total of six nuclear generators; five in strategic areas of the Northeast and one in Michigan. In 2011, Entergy reported revenues of $11.23 billion and $1.35 billion in net income. 38 GuestSpeakers
We would like to offer our sincere thanks to our guest speakers who took time out of their busy schedules to speak to offer their insights into the market and offer their advice. 
Mr. Bryan Christian, DirectEdge. 
Mr. Roger Coleman, Morgan Stanley Smith Barney 
Mr. Jim Daly, Stifel Financial. 
Mr. Brian Dobson, Nomura Securities. 
Mr. Morgan Downey, Bloomberg. 
Mr. Kevin Duffy, ING Bank. 
Mr. Christopher Faille, Author, “Gambling With Borrowed Chips”. 
Mr. Barry Feirstein, Feirstein Capital Management. 
Mr. Lain Gutierrez, DBRS Inc. 
Mr. Tim Keneally, Kapstone Paper. 
Ms. Carole Lamb, Bloomberg. 
Ms. Lisa Marchese, American Express. 
Mr. Zoran Milojevic, Auerbach Grayson. 
Ms. Wendy Nickerson, UBS. 
Mr. Jes Staley, JP Morgan. 
Mr. Rob Wall, Goldman Sachs. 
Mr. Tom Winters, Seix Advisors. 39 StudentAnalysts
Spring 2012 Class Serena Bubenheim is a senior at Marist College studying Economics and Finance. Her work as an analyst at the Greystone Equity Fund included serving as one of the team’s two economists and reporting on the Energy and Utilities sectors, particularly the oil companies Lukoil and Sasol, and the utility company Entergy. James Conlon is graduating with a degree in Business Administration with a concentration in Finance. James was born and raised in Rockland County, NY, and graduated from Clarkstown South High School where he was a Varsity Athlete in soccer, basketball, and lacrosse. He was a 3x all county lacrosse player who set the single season goal record for Clarkstown South. James focused on the consumer staples and consumer discretionary sectors. Upon graduation James will work for Macy’s as a member of their Finance Executive Development in NYC. Rich Doyle is a senior at Marist College and a Business Administration major with an emphasis on Finance. He is a four‐year participant of the Marist Men’s Rugby Football Club. He was primarily concerned with the analysis and overview of the performance of the Financial and Healthcare sectors throughout the fund's history, as well as determining where to allocate future assets to maximize returns ‐ in his analyst report he gave Pfizer Inc. a buy rating. His career interests are geared towards equity research and financial analysis. Tom Engelhardt was born and raised on Long Island, New York, and is graduating this spring with a degree in Finance and a minor in Economics. Tom is a member of Marist College’s Honors Program and titled his honors thesis The Financial State of the U.S. Economy; written while working closely with faculty advisor Mr. John Finnigan. Tom has participated in various clubs and organizations throughout his time at Marist including serving as Secretary of Marist Republicans, Co‐Director of Marist Meals on Wheels, and captain of his intramural softball team. Tom is the lead analyst of the Communications sector and has also served as one of the fund’s two economists throughout the semester. He will commence his studies at St. John’s University School of Law in Jamaica, New York, this coming August. 40 Vincent Mormando will be graduating in May of 2012. In his role as Fund accountant, Vincent was responsible for reporting Fund performance, and was also responsible for portfolio reallocation. Apart from his life in the investment center, Vincent enjoys athletics and cooking. In the future he looks to leave the world of finance and open up a restaurant. Thomas Murphy was the portfolio manager of the Greystone Equity Fund for spring 2012. He is a senior mathematics major from Queens, New York, and will be working towards a PhD in mathematics at Carnegie Mellon University next fall. He is happy with the “real world experience” he gained while working with the Greystone Equity Fund. He said, “Being a member of the Greystone Equity Fund is not like being in a standard college class; because our work depends on the dynamics of the market, we must always keep up with current news and this makes our study much more engaging.” Steven Ondrof is a senior at Marist and is graduating this May. He is a dual major in Finance and Economics. He is from the small town of Pequannock, New Jersey where he resides during the summer. He enjoys being outside and being active playing sports. He is a huge sports fan particularly of the New Jersey Devils and the New York Giants. He is currently conducting a job search and would ideally like to work in New York City doing research related to financial markets. Vincent Ricciardi is the financial sector analyst and part of the web/marketing team. He is a senior at Marist College, graduating in May of 2012 with a BS degree in Finance and Economics, and intends to pursue a career in the field of finance. He has worked as a sales manager in the beverage and soft drink industry as well as the financial analytics development industry. Charles Rigoliosi is a senior at Marist College, graduating this spring with a degree in Business Administration with a concentration in finance and a minor in economics. Charles is from Paramus, New Jersey and graduated from Paramus High School in 2008. He is currently a member of the marketing team of the Greystone Equity Fund, also serving as an analyst for the industrials and technology sectors. Throughout this spring semester, Charles has analyzed AGCO Corporation, a global supplier of agricultural machinery. Upon graduation, Charles hopes to pursue a career in either investment banking or equity research. Jordan Sanchez serves as President of the Greystone Equity Fund, overseeing day to day operations. He also serves as an analyst for the Technology and Industrials sectors, and initiated coverage on Cirrus Logic Inc. Jordan is a senior Finance major, from Hopewell Junction, NY. After graduation Jordan is interested in pursuing a career in either investment banking or asset management and, after gaining some experience, an MBA. 41 Nicholas Van Benschoten was one of the analysts for the Energy and Utilities sectors, where he recommended Lukoil, Sasol, and Entergy. He is a graduating senior Business Administration major with an emphasis in Finance. Currently living locally, in Lagrangeville, New York, Nick’s career interests include financial analysis, wealth management, and trading along with an MBA somewhere in the future. Some of his hobbies include basketball, running, and fishing. Kaleigh Stetler served as Energy and Utility analyst for the Greystone Equity Fund. She recommended the investment of Lukoil, one of the world’s largest oil refineries; Sasol, an up‐an‐
coming firm based in South Africa; and Entergy, a United States based nuclear firm. Kaleigh is a graduating senior looking to pursue a career as a financial analyst. Fall 2011 Class Jeffery Hausner. Major in Accounting, Minor in Business, Minor in Mathematics. Senior Year. Mark Hauser. Major in Information Systems. Senior Year. Analyzing the telecommunications and the information technology market. Robert Schule. Major in Accounting, Minor in Business. Senior Year. Analyzing the financial and information technology market sectors. 42 Catherine Wiacek. Major in Accounting, Minor in Business, and Hudson River Valley Regional Studies. Senior Year. James Boylan. Major in Accounting. Minor in Business, Minor in Psychology. Senior Year. Sam Miller. Major in Business Administration: Emphasis in Finance. Minor in Economics. Senior Year. Dylan Murphy. Major in Business Administration: Emphasis in Finance. Senior Year. Analyzing the utilities and consumer discretionary market sectors. Daniel Mabry. Major in Business Administration: Emphasis in Finance. Major in Economics. Minor in Accounting, Minor in Math. Junior Year. Analyzing the materials and consumer discretionary market sectors. 43 Mike Petta. Major in Business Administration: Emphasis in Finance. Major in Economics. Senior Year. Analyzing the healthcare and energy market sectors. Nick Iannicelli. Major in Business Administration: Emphasis in Finance. Major in Economics. Minor in Psychology. Senior Year. Analyzing the telecommunications and health care market sectors. Dan Montefusco. Major in Business Administration: Emphasis in Finance. Senior Year. Analyzing the healthcare and energy market sectors. Erika Bates. Major in Business Administration: Emphasis in Finance. Minor in Mathematics. Senior Year. Analyzing the consumer staples and utilities market sectors. Brian Haughey, CFA, FRM. Assistant Professor of Finance. 44 Spring 2011 Class Erika Bates ‐ Proctor and Gamble (PG) Peter Bogulaski ‐ Corning Incorporated (GLW) John Driessen ‐ American Tower (AMT) ‐ Rio Tinto (RIO) ‐ Teva Pharmaceuticals (TEVA) Travis Fink Michelle Francesconi 45 Chris Fratino ‐ American Tower (AMT) ‐ Cameco (CCJ) Alex George Kelley Hanifin ‐ Altera Corporation (ALTR) Joshua Holland ‐ Millicom International (MICC) ‐ Exelon (EXC) Chris Kane 46 Tom Manton ‐ Proctor and Gamble (PG) Tom LaCalamito ‐ American Express (AXP) Stephanie McDonald ‐ Teva Pharmaceuticals (TEVA) ‐ General Dynamics (GD) ‐ Nike (NKE) Mike McGowan Tom Scimonelli 47 Mike Scotko ‐ Rio Tinto (RIO) Michael Upman ‐ Nike (NKE) Juliana Vilas‐Boas ‐ Exelon (EXC) 48