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Transcript
The Marist College Greystone Equity Fund
Semi-Annual Report
Fall 2012
Page | 1 Contents
Letter from Fund President
3
Overview of Fund
5
Economic Overview and Outlook
6
Current Performance of Fund
10
Statement from the Portfolio Manager
13
Current Sector Allocation and Proposed Allocation
14
Sector and Holdings Analysis
15
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Page | 2 15
17
20
24
26
27
29
32
33
35
Fall 2012 Class
36
Disclaimer
40
President’s Letter
This semester I had the pleasure of being the President of the Greystone Equity Fund and had the
honor of working with truly impressive student analysts. We began the investment class through
lecture and learning about investments. This year’s class fell during an optimal time for learning:
the 2012 presidential election. Amid great uncertainty, we researched carefully, taking into
consideration several macroeconomic data and leading indicators to understand the investing
environment. The election had an impact on every sector of the economy and also in the
decisions we ultimately chose to make in our presentations. In the wake of the looming “fiscal
cliff,” financial reform and regulation, and a new outlook for energy, technology,
communications, and consumer sectors, we had a lot to consider.
However, we stuck to our philosophy of focusing on fundamental analysis rather than market
timing. Thus, each student analyst in all of the sectors put in countless hours into in-depth
company analysis, which began with stock screening, to find the best company or companies in a
particular sector based on various attributes: price to earnings ratio, price to book, return on
assets, return on equity, dividend yield, Piotroski F-Score, CAN-SLIM, and others. After
screening results, analysts chose the best company they believed suited our fund best and
conducted further financial analysis into assessing the financial statements. Lastly, stock
valuation was completed, with a big thank you to our valuation model creators, Tammy Lam,
Jenna Depue, and Marco Delli Carpini (TJM model.) From there the class voted on
presentations on the pitched stocks and Nicholas Gent, our portfolio manager allocated our fund
appropriately based on how we see each of the sectors performing over the next twelve months.
This class was a simulation of the real-world and boy, did we learn. Brian Haughey has done a
magnificent job of directing students towards thinking about possible factors involved in stock
selection, yet letting us make decisions for ourselves. As a student analyst, that was an
empowering thing.
I would like to extend a warm thank you to Professor Haughey for his continued dedication and
commitment to the students he teaches and his ability to let students think deeper than they
thought they could. I would also like to thank all of the analysts in the fund for their hard work,
inquisitive attitude, and intellectual curiosity throughout the semester. It is always an exciting
day when the fund gets to meet and discuss various aspects of what is going on in the markets. I
am impressed with the camaraderie, support, and engagement from all members of the class.
Furthermore, the Greystone Fund has been a talking point in interviews for many of the students,
and has even secured jobs in the financial industry. Thus, I would like to thank President Murray
and the Board of Trustees for allowing us to manage a portion of the College’s endowment and
to know that it is going to good use.
Page | 3 As we conclude the fall 2012 semester, I would like to congratulate the seniors who will be
moving on as alumni of the fund as well as all of my classmates. It was refreshing to see many of
the analysts in the investment center seven days a week from open until close, mainly due to
excitement and passion for the work we were doing. Overall, we have worked hard, collaborated
on reports, and proven to ourselves that we have the capacity, intellect, and desire to understand
the markets and the global economy.
Congratulations and I wish you all the best in your future endeavors!
Katherine R. Keegan
President, Marist College Greystone Equity Fund
Page | 4 The Greystone Equity Fund Overview
Mission Statement
The mission of the Equity Fund is a Student Managed Investment Fund at Marist College is to
provide student managers with practical experience in analyzing securities and managing an
investment portfolio, in a manner that enhances the reputation of the College. 1
Investment Objectives
The objective of the 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. 1
Benchmark
As a benchmark for The Fund, the S&P 500 will be used. The S&P 500, a composite of the 500
largest publicly traded companies by market cap will ensures a fair comparison for total return.
Process
Students enrolled in the Investment Fund use Bloomberg Terminals, excel valuation models to
conduct market, sector and individual equity research. Throughout the semester Student Analyst
monitor two sectors and the holdings. They each conduct equity screening to choose a stock to
write an in-depth report on the economic,
Evaluate
industry, company, fundamental and
Sector and
technical conditions. At the conclusion
Holdings
of their research project, the Analyst
propose a new allocation for each sector.
Research new
If there is over 60% agreement, the
Execute
investment
proposal will be passed and the
How Do
Decision
opportunities
securities will be bought and sold
Stocks Get
accordingly. All procedures follow the
Selected?
Investment Policy Statement.
Fund Vote,
need 60% to
approve
1
Investment Policy Statement, January 3, 2012
Page | 5 Present and
Propose New
Allocation
US Economic Overview and Outlook
In 2012, the US has seen some signs of economic recovery and signs of stagnate growth. Various
leading indicators show how there have been mixed signals within the economy throughout the
year.
Leading Indicators
Real GDP
2012 Estimate: 2.20%
GDP represents the value of all Goods and
Services produced within the country. As seen
the chart, Real GDP in 2012 has been stronger
than 2011, which is a good indicator for the
overall economy. However, in order for the
economy to really improve to a level that
would create economic stability, 3% or more
is necessary in the coming years.
Graph 1: GDP growth has increased
Unemployment
November 2012: 7.7%
The Unemployment rate has stabilized in 2012, dipping below 8% for the first time in the past
few years. While this does indicate that the economic conditions are slowly improving, Labor
Force Participation and the Underemployment Index both show a different story. In addition,
November payrolls were lower than both the average for the year and lower than the November
2011 figures.
Labor Force:
November 2012: 58.70%
The labor force in the United States
Economy has dropped throughout 2012
to the lowest levels in two decades. This
indicates that more workers are leaving
the labor force, and are not included in
the unemployment figures. This could be
an indicator that people are so frustrated
looking for a job, they have are giving
up.
Graph 2: Labor Force is at historic low.
Page | 6 U6 Underemployment
December 2012: 14.4
The United States Underemployment Index has remained high throughout the year. This
indicates that while some people are able to find jobs, they are not full time positions, or at the
skill level that the worker has. Underemployment staying high possibly indicates that consumer
spending may remain stagnate and not grow, as people with jobs may not spend beyond their
means. Since consumer spending contributes around 70% of GDP, this could prohibit strong
growth in 2013.
Other Indicators
National Federation of Independent Business Optimism Index
December 2012: 87.5
In its most recent survey, the Index that tracks the Optimism of Independent Businesses found
that there is growing pessimism from small business owners. In fact, the index has reached a low
that is has not seen since March 2011, which may be tied to the impending Fiscal Cliff.
University of Michigan Survey of Consumer Confidence
December 2012: 74.5
In December, the University Of Michigan Survey Of Consumer Confidence fell to the lowest
level in months. Once again, the sentiment among consumers has been lower since the election
and the focus has been on the Fiscal Cliff issues. With possible tax increases and government
spending cuts, many households could see a higher financial burden beginning in 2013, which
may impact their perception of the overall economy.
Consumer Spending
Personal Income in October fell to 3.1 after reaching 3.7 earlier in the year. Meanwhile,
Disposable income has declined to 1.2%, down from a high of 1.6% a few months ago. Both of
these measures indicate that consumers have had less money to spend in the recent months.
Inflation
Consumer Price Index (inflation for consumers) is currently 2.2%, while Producer Price Index is
currently 2.3%- which may indicate tight margins for manufacturing and retail customers, or
higher prices for consumers in the future.
Housing Market
The Housing Market has started to slowly rebound, as evidence by the 8.6% increase in new
home sales and 28.3% increase in housing starts. In addition, Home prices have risen 11.7% this
Page | 7 year. While there is still an excess of supply in the market, these are encouraging signs as the
housing market begins to slowly recover.
Oil Prices
Over 2012, Oil reached a peak of 109.72, and a low of just under 80. It is currently trading at
85.89. The prices have eased over the last few months, which is a good sign for both companies
and consumers, as transportation costs have been cut.
Oil Prices- Going Down helps the Cut Transportation Costs.
Federal Reserve Actions
Interest Rates
The Federal Reserve has maintained interest rates at historic lows in 2012, and the rates should
remain the same through 2015, unless the unemployment rate and signs of growth pick up in the
United States.
Operation Twist
In June, the Federal Reserve announced the continuation of “Operation Twist” through the end
of 2012. The Federal Reserve has been selling short term securities and purchasing long term
securities, to lower the long term interest rates, in hopes to spur economic growth, especially in
the housing market. The Fed has swapped around $45 Billion each month in this program.
More Treasury Purchases
On December 12, 2012, the Federal Reserve announced that it will buy $45 Billion worth of
Treasuries each month, beginning in January. Market sentiment is positive, as the monetization
Page | 8 may help the economy growth. However, there have been doubts whether Fed purchases have
helped the economy, as this is the fourth round of Quantitative Easing.
Fiscal Cliff
On January 1, 2013, the United States will see automatic spending cuts and tax hikes, unless
Congress and the President are able to compromise and come to a deal. The government
spending cuts would be about $503 Billion, or about 4% of the current US GDP. In addition, the
“Bush Tax Cuts” will expire, raising all income tax rates and capital gains tax.
If Congress is unable to come to a deal, the CBO has said it could cause the country to go into a
recession for the first half of the year. Businesses have already seen the negative impact of the
looming “Cliff,” as many companies have cut back on spending and hiring- mostly due to the
high uncertainty that exists around conditions after Jan 1. Businesses simply will not invest
unless they have an understanding of the business environment, which the government has not
yet provided.
Once a deal is complete, certainty for investors should return. However, in the short run there
may be some volatility in the market based on the news of the Fiscal Cliff.
Major Economic Themes for 2013
Overall Feeling: Cautiously Optimistic
1. Fiscal Cliff Deal- The timeliness and content of the Fiscal Cliff Deal will dictate the
economic growth in 2013. It is likely taxes will rise, while government spending will be
cut. The deal will likely have major influence over consumer and business spending, and
ultimately economic growth.
2. More Business Spending- The largest motivator for companies to spend money through
capital expenditures is through certainty of return. Throughout 2012, business spending
has been stagnate, as companies have fortified their balance sheets due to uncertain tax
rates and spending starting in January. In 2013, after a deal, companies will likely begin
to spend the cash, which should lead to more economic growth, lower unemployment and
more optimism moving into the second half of the year.
3. Global Economy- The economic slowdown in Europe will likely continue, but there
should be some growth, mostly coming in the second half of 2013. In addition, economic
slowdowns in China and India are expected. Global GDP is expect to be
Page | 9 Current Performance of Fund
Total Return
Through December 7, 2012, the last day of class for
the fall semester, the Fund’s total value was $99,960,
as seen in the summary on the next page. The total
return since inception is -.04%. Comparing this
return to the S&P 500 Index shows that the fund has
underperformed both since inception and YTD. A
price chart of Total Return YTD is below.
Page | 10 Total Retun
Since Inception* YTD**
S&P 500
3.68
15.19
Greystone
-0.04
7.29
* May11, 2011- Decr 7, 2012
**Dec 30, 2011- Dec 7, 2012
Sector
Utilities
Description
GREYSTONE ENDOWMENT Summary
As of Close, Friday, December 7, 2012
% Wgt Pos Purchase Px Px Close Mkt Value Price Appreciation
2.064%
1.276% 44
0.532% 18
0.256%
4
2.411%
1.027% 45
1.385% 41
1.585% 21
4.294%
2.435% 107
0.524% 10
1.335% 57
7.728%
2.120% 169
5.608% 196
7.277%
4.107% 55
3.170% 68
11.593%
5.644% 133
1.022% 40
4.925% 79
14.592%
12.750% 443
0.297% 19
0.501%
7
1.043% 22
11.404%
2.569% 45
7.249% 128
14.540% 1.702% 40
5.805% 77
3.881% 60
3.151% 169
12.921%
4.571% 65
5.553% 79
2.797% 53
10.135%
4.143% 42
4.152% 72
1.841% 30
PPL CORPORATION
EXELON CORP
ENTERGY CORP
Telecommunication Services
TELSTRA CORP-ADR
AT&T INC
AMERICAN TOWER CORP
Materials
TERNIUM SA-SPONSORED ADR
RIO TINTO PLC-SPON ADR
KRATON PERFORMANCE POLY
Information Technology
CORNING INC
CIRRUS LOGIC INC
Industrials
BOEING CO/THE
AGCO CORP
Health Care
TEVA PHARMACEUTICAL-SP AD
PFIZER INC
NOVARTIS AG-ADR
Funds
TECHNOLOGY SELECT SECT S
FIRST TRUST FINANCIAL ALPHA
ENERGY SELECT SECTOR SPD
CONSUMER DISCR SELT
Financials
CAPITAL ONE FINANCIAL CORP
AMERICAN EXPRESS CO
Energy
SASOL LTD-SPONSORED ADR
OCCIDENTAL PETROLEUM COR
LUKOIL OAO-SPON ADR
CAMECO CORP
Consumer Staples
PROCTER & GAMBLE CO/THE
PEPSICO INC
MONSTER BEVERAGE CORP
Consumer Discretionary
NIKE INC -CL B
COACH INC
AUTOLIV INC
Cash
WELLS FARGO ADVANTAGE
HERITAGE MONEY MARKET
1.042%
100.00%
Page | 11 28.59
41.70
65.08
28.98
29.57
63.94
16.07
33.85
53.13
22.81
33.75
75.45
21.7599
68.86
19.6299
22.75
52.4
23.4
20.57
26.7599
12.54
28.6
70.38
44.29
74.64
46.6
47.049
22.89
55.36
42.42
25.56
62.32
28.7799
14.8601
68.4001
44.41
28.77
15.64
71.56
47.42
41.95
50.0699
57.07
56.61
45.26
88.28
55.54
29.189
42.53
75.37
64.65
18.64
65.69
64.61
71.75
70.29
70.26
52.76
83.33
68.99
48.22
98.59
57.64
61.34
2,063
1,275
532
256
2,410
1,027
1,384
1,584
4,292
2,434
524
1,334
7,725
2,119
5,606
7,274
4,105
3,169
11,588
5,642
1,022
4,923
14,586
12,745
297
501
1,043
11,399
2,568
7,246
14,534
1,701
5,803
3,879
3,150
12,916
4,569
5,551
2,796
10,131
4,141
4,150
1,840
1,042
T otal Value $ 99,960
1.364%
-29.089%
-1.752%
41.942%
-0.295%
42.010%
4.550%
-23.904%
19.206%
-39.037%
6.876%
6.053%
5.216%
-9.839%
11.664%
12.572%
-0.034%
5.248%
4.620%
6.778%
36.043%
13.062%
-6.032%
-14.624%
16.403%
-36.140%
7.003%
8.745%
-26.467%
18.313%
-16.452%
27.209%
-0.0402%
Outperformers
Returns By Sector
To understand how The Greystone Equity Fund
has underperformed, it is necessary to look at the
YTD returns by sector. As seen in the Graph
below, sectors such as Utilities, Information
technology, Energy and both Consumer Sectors
have lagged the S&P 500. There have been a few
strong sectors within the Fund, as Financials and
Telecommunications both outperformed the
benchmark. In order to realign with the
Page | 12 Telecommunications
Financials
Materials
Underperformers
Utilities
Information Technology
Industrials
Energy
Consumer Sectors
Health Care
Statement from the Portfolio Manager
As we enter 2013 the Greystone Fund has revamped its holdings. Many of our current positions
have outperformed, we remain long many of our current positions, some of which we have
increased our weight in. Some of the highlighted changes for 2013 are our new position in a
Gold ETF to hedge against inflation and a weakening USD. Also we highlight a new position in
M&T Bank to gain exposure to the banking
Buy
sector while staying clear of the large names
Description
Ticker
Sector
that have greater exposure to financial
Utilities Sector SPDR ETF XLU
Utilities
regulations and negative sentiment.
Gold SPDR
GLD
Materials
Highlights in terms of divestitures are the
MICROS Systems
MCRS IT
Textainer Group
TGH
Industrials
sale of Cirrus Logic, American Express,
HCA Health Care
Novartis and the individual utility companies. HCA Holdings
MTB Financials
Looking forward we see continued volatility M&T Bank
Invest More
in the equity market with a focus on the Fed
and the Fiscal Cliff. We believe after these
issues give investors a direction in terms of
an outcome we will likely see the market
react accordingly.
Description
First Trust Financial ETF
Capital One
Consumer Disc Select ETF
Autoliv
We continue to search for value in the equity
market, the stocks we have selected offer
solid fundamentals as well as growth
potential. It should be noted we came across
numerous companies that offer the former,
but were not selected for the fund because
they are currently trading at a premium. It
should also be noted that we were
constrained to purchasing no more than a 5%
overall exposure to a single equity. This
coincides with our investment policy which
is in place to prevent too much exposure to
any single company.
Description
PPL Corporation
Excelon
Entergy Corp
AT&T
Kraton
Cirrus Logic
Boeing
Novartis
Energy Select ETF
American Express
Occidental Petroleum
Coach
Sector
Financial
Financial
Consumer Disc
Consumer Disc
Sell
Nick Gent
Portfolio Manager, Marist College Greystone Equity Fund
Page | 13 Ticker
FXO
COF
XLY
ALV
Ticker
PPL
EXC
ETR
T
KRA
CRUS
BA
NVS
XLE
APX
OXY
COH
Sector
Utilities
Utilities
Utilities
Telecomm
Materials
IT
Industrials
Health Care
Energy
Financials
Energy
Consumer Disc
Proposed Sector Allocation
Based on the Analyst recommendation, presentation and voting, the fund has reallocated its
sector weightings. The sector weights presented are
Proposed Greystone Equity Fund Holdings By Sector
estimated, based on market values of December 7,
Sector
Description
% Weight
2012. Actual sector and individual security weights Utilities
1.44%
Utilities Select Sector SPDR
1.44%
may differ based on actual market value of the
individual securities when they are officially sold or Telecommunication Services
4.00%
purchased. It is the intention of the fund to have
TELSTRA CORP-ADR
2.41%
AMERICAN TOWER CORP
1.58%
sector weights as close to those presented here.
Materials
The Fund’s Analysts believe the shift in sector
weights gives the Fund the best chance for success
in the coming months. After considering the overall
macro-economic outlook, industry outlook and
Information
individual stock outlook, the weights were
determined.
TERNIUM SA-SPONSORED ADR
Gold SPDR ETF
RIO TINTO PLC-SPON ADR
Technology
CORNING INC
MICROS Systems
TECHNOLOGY SELECT SECT SPDR
9.46%
2.43%
6.50%
0.52%
20.87%
3.12%
5.00%
12.75%
Industrials
AGCO CORP
Textainer Group Holdings
Sector Allocation Summary
Sector
Current Greystone Proposed Greystone
Health Care
Utilities
2.064%
1.44%
Telecommunication Services
2.411%
4.00%
Materials
4.294%
9.46%
20.478%
20.87%
7.277%
6.00%
Health Care
11.593%
11.59%
Financials
11.701%
13.30%
Energy
Energy
15.041%
8.73%
Consumer Staples
12.921%
12.92%
Consumer Discretionary
11.178%
11.18%
Cash
1.042%
0.51%
100.000%
100.00%
Information Technology
Industrials
6.00%
3.17%
2.83%
TEVA PHARMACEUTICAL-SP ADR
PFIZER INC
HCA Holdings
11.59%
5.64%
1.02%
4.93%
CAPITAL ONE FINANCIAL CORP
M&T Bank
FIRST TRUST FINANCIAL ALPHAD
13.30%
5.00%
5.00%
3.30%
Financials
SASOL LTD-SPONSORED ADR
LUKOIL OAO-SPON ADR
CAMECO CORP
8.73%
1.70%
3.88%
3.15%
Consumer Staples
PROCTER & GAMBLE CO/THE
PEPSICO INC
MONSTER BEVERAGE CORP
12.92%
4.57%
5.55%
2.80%
Consumer Discretionary
NIKE INC -CL B
AUTOLIV INC
CONSUMER DISCRETIONARY SELT
11.18%
4.14%
5.00%
2.04%
Money Market
WELLS FARGO ADVANTAGE
HERITAGE MONEY MARKET
0.50%
Page | 14
0.50%
Total
100.00%
Actual Holding Weights Subject to Change Due to Market
Values on Day of Transactions
Sector and Holding Analysis
Consumer Discretionary
Nike: May 2011
Autoliv: December 2011
Consumer Discretionary Direct ETF: May 2011 & December 2012
Overview
The consumer discretionary sector is defined as “a sector consisting of businesses that sell
nonessential goods and services. Companies in this sector include retailers, media companies,
consumer service companies, consumer durables, apparel companies, and automobiles and
components companies. 2” Due to this sector’s typically cyclical performance, it does well when
the economy is doing well and vice versa. There are mixed outlooks for 2013, largely based on
the stability of unemployment and consumer spending.
Nike
Nike is one of the world’s most recognizable brand for footwear, apparel and accessories. With
large market share and extreme brand loyalty, the company has the ability to succeed in difficult
economic condition. The fund has chosen to continue to hold Nike due to its ability to capture
market share, especially in emerging markets such as Latin America. Even with difficulty due
consumer spending and global economic conditions, the company has continued to drive high
margins. IN addition, the stock should see some benefit from the company’s initiatives to buy
back stock and continue to pay cash dividends. The forecasts for Nike are encouraging, thus the
fund has chosen Nike as a Hold.
Since the acquisition of Nike in 2011, the Fund has seen over 18% price appreciation, with over
20% total return. Its return is currently above both the S&P Consumer Discretionary and the
S&P Index.
2 "Consumer Discretionary." Definition. N.p., n.d. Web. 13 Dec. 2012. Page | 15 Autoliv
Autoliv is a manufacturer of automotive safety equipment- including seatbelts, airbags and leg
protection equipment. The company is highly diversified and a major contender on the global
market. It has strong growth opportunities in developing markets where automobile usage is
growing. The company continues to develop new technologies, while maintaining a strong
balance sheet, which should continue to drive value for shareholders. While there is some risk in
the European auto market, the company should see headwinds in North American Auto Sales as
well as emerging markets.
The Fund will be adding weight to Autoliv, bringing its weight in the fund to 5.0%, from 1.8%.
The current price appreciation since initially investing in the company is 27.2%, with a total
return of over 30%.
Consumer Discretionary Direct
Since the inception of the Investment Fund, there have been ETFs in the fund. One of these is the
Consumer Discretionary Direct ETF, which tracks the consumer discretionary sector. The old
weight of the fund was about 1.0%, and more shares will be purchased to bring the holding to
about 2% of the total fund.
While the ETF, like the sector is highly tied to the economy, the Analysts believe it provides a
good diversification option for this sector. The economy has slowly grown over the past few
years, and the outlook gives a cautiously optimistic view for this sector. In addition, by investing
into an ETF, the Fund is able to receive diversification from large multinational corporations that
provide necessary diversification. The top five holdings include Comcast, McDonald’s, Disney,
Amazon and Home Depot. Since the outlook is cautiously optimistic, diversifying into an ETF
with a low expense ratio (.19%) enables the Fund to get adequate diversification and exposure to
the sector.
Page | 16 Consumer Staples
Monster Energy- May 2012
Pepsi Co- December 2011
Proctor and Gamble- May 2011
Overview
The Consumer Staples Sector consists of products that are necessary for all consumers- including
food, tobacco, and necessary household items. The sector tends to outperform in times of
economic volatility and uncertainty. Currently, the outlook is positive for the sector moving into
2013. This semester, all three of the current holdings were kept, and no new stocks were added to
the sector.
Monster Energy
Monster Energy currently has the largest market share of energy drinks in the United States. The
company also produces and sells fruit drinks, smoothies, ice teas, and more.
Since the Fund invested in Monster Energy, the stock has a total return off -23%. This is largely
due in part to weakening demand, news that the drinks were connected to multiple deaths, and
fears the FDA will begin to highly regulate the industry. However, there have been reports that
Monster Energy Drinks were not connected to the deaths, and the FDA regulation will not be as
stringent as once though, which has strengthened the stock in the last few weeks. In addition, the
company most recently reported an increase of 14% in sales for the third quarter 2012 compared
to the third quarter 2011. Therefore, Monster Energy still has a lot of price potential, with highly
sought after products, and the possibility of a takeover remains.
Page | 17 Proctor & Gamble
Proctor & Gamble Co. is one of the leaders in the consumer staples sector. They manufacture
consumer packaged goods in categories including beauty, grooming, health care, fabric care and
home care, baby care and family care. They have considerable market share in this sector, with
over $40 billion in gross profits in 2012. They are comprised of many well-known subsidiaries
including Olay, Gilette, and Dawn, to differentiate their products and target markets. Their major
competitors include Johnson & Johnson and Kimberly-Clark. Proctor & Gamble’s major strength
looking into the future is their penetration into foreign emerging markets.
The stock’s total return since the fund bought it in May 2011 has been 10.46%, slightly above
the S&P 500 index. Although Proctor & Gamble is subject to significant foreign market risk, this
stock has long-term benefits, especially with their generous dividend yield of 3.2%.
Pepsi
PepsiCo, Inc. is the Greystone’s fund’s final stock in the consumer staples sector. Pepsi sells
snacks and beverages. They compete in a tight duopoly with Coca Cola in the beverage industry,
but they are the market leader in the snack foods industry, with subsidiaries including Lays,
Doritos, and Quaker. Some other competitors of Pepsi include Dr. Pepper Snapple Group and
Kraft foods. Pepsi has a competitive advantage through their range of diversified products, as
well as their efficient supply chain management.
The total return for this stock has been 8.9% since purchased in December 2011, slightly under
the S&P and consumer staples index. We can expect the demand for Pepsi products to stay
Page | 18 consistent looking forward because of their strong brand equity and strong consumer base, giving
us reason to believe it will have a strong 2013.
Page | 19 Energy
Cameco – May 2011
Occidental Petroleum – Dec 2011
Lukoil – May 2012
Sasol – May 2012
Energy Industry
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, natural gas, and renewable energy. In addition, 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.
In 2012, the price of oil has been volatile as the global economy shows more signs of slow
growth, sovereign debt in Europe continues to be a problem, and tensions in the Middle East
continue to rise which has led to decreasing confidence for future growth in the energy industry.
In addition, crude oil prices have fallen dramatically from the beginning of the year. The price of
crude oil started declining from $109.72 in March to $79.93 in June, but since has increased to
$86.83 in December. Moreover, in the latter half of 2012, Hurricane Sandy hit the northeast late
October slowing production in Padd I of the US and President Obama and Chavez were reelected, meaning that there is an expected tax and regulation increases in the US and Venezuelan
oil will continue to be under state control. With oil prices being low many extractors and miners
of crude oil are slowing production, keeping inventory at a 5 year low, waiting for the price of
crude oil to increase. Furthermore, 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
and in the long term, natural gas could become a very attractive alternative to oil, and we expect
the gas sector to outperform in the long term due to its abundance and low price, which can
revive the manufacturing industry in the U.S. because of low energy costs.
Assuming the fiscal cliff is avoided; U.S. GDP is expected to grow about 1.8 to 2 percent in
2013. Overall, energy usage worldwide is expected to increase, mostly from the BRIC 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.
Cameco
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
Page | 20 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 33%.
In spite of ifs underperformance we decided to stay with the company because we still believe
that the market overreacted to the incident in Fukishima, Japan and we believe that moving
forward the demand for nuclear power would increase from developing countries.
Occidental Petroleum
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.
Currently, the company has a negative return of 19.79%. We believe that a major factor for their
underperformance is the declining crude oil prices, which significantly lowered their operating
margins and affected operating margins. In the end, we believe that oil prices will continue to
remain low and that Occidental Petroleum will continue to perform poorly.
Page | 21 Lukoil
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.
Since its acquisition, the company has had a total return of 16.55%, the best performer in the
energy sector. We decided to keep Lukoil because not only has it outperformed both the S&P
and the S&P energy index, but also moving forward we still see it as a good company. However,
we still see it as a risky investment because of the environment it operates in and we should
continue to monitor it closely.
Sasol
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 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.
Since its acquisition, the company has had a negative return of 2.63%, underperforming the S&P
and the S&P energy index. In spite of its performance, we decided to maintain Sasol in the fund
because the company is currently in the planning stages of building a plant to convert natural gas
Page | 22 into chemicals, diesel and other fuels in the US. Moreover, since its announcement the company
has been offered a $135 million incentive packaged from Louisiana to build the plant in its
southwest region. We see this as a positive sign and that this plant will substantially improve
Sasol’s performance.
Page | 23 Financials
Capital One Financial – Dec 2011
M&T Bank – Dec 2012
Financial Sector
The financial sector is broken up into three segments: banking, insurance, and REIT.
Banking is performing very well at the present moment. Despite low interest rates, financial
institutions are managing to continue to make loans and increase their revenues.
Throughout the sector, dividend hikes and share buybacks have been incorporated into
the strategy of most banks which makes this sector fairly attractive. However, net interest
margins have been decreasing across the board due to higher costs associated with regulatory and
compliance costs, and the overall poor state of the economy. Furthermore, in order to prepare for
the implementation of higher capital requirements outlined by the Basel III Accord, financial
institutions have been managing their risk through deleveraging their balance sheet and removing
non-core components from the business. This recent capital and regulatory overhaul further
challenges the profitability of banks; therefore, with greater capital requirements and growing
regulatory compliance costs, larger banks may have difficulty in maintaining their operating
efficacy.
For the outlook of the credit card industry, we remain bullish due to optimism in regards
to credit as a percent of consumer spending, which experienced growth of 6.8% in November.
Moreover, global credit and charge volumes have seen growth of 16.1% in 2011 from 2010,
while also growing in Q3 2012 by 5.3%.
Capital One Financial
Since the Fund’s acquisition of Capital One in Dec of 2011, the company has consistently
outperformed the S&P Financials Index with a total return of 31.92%. Capital One has stayed up
to par with the S&P Index, slightly underperforming until just recently. Capital One is now
outperforming the S&P index.
Page | 24 Capital One has been successful this past quarter with net income increasing to $1.2
billion, or $2.01 per diluted common share in the third quarter, compared with net income of $93
million, or $0.16 per diluted common share, for the second quarter of 2012. Furthermore, from
2009 to 2011, Capital One’s global credit and charge volume increase an average of 18.6%,
while firm recognized an average growth of 15.54% over the past five quarters. Capital One has
also continued to thrive as a diversified bank through its subsidiaries and offering a broad
spectrum of financial products and services both domestically and abroad.
M&T Bank
M&T is our most recent addition to our holdings in the financial sector. As a whole, we have
decided to overweight the financial sector giving M&T a 7% stake in the fund. M&T is a bank
holding company that offers a variety of commercial banking, trust, and investment services to
their customers. They are a Northeast-regional bank that operates primarily in New York,
Maryland, Pennsylvania, Delaware, New Jersey, Virginia, West Virginia, and the District of
Columbia.
M&T has proven to be a financially strong company, even throughout the financial crisis when
many other financial services companies faltered and failed. M&T prides itself on a being a
conservative bank that strives to enhance the businesses and individuals within the communities
they serve.
M&T has consistently paid a $2.80 per share annual dividend throughout the financial crisis.
They are looking to increase that dividend to $2.83 per share in 2013. M&T’s revenues have
increased 14.6% over the past year, and they have seen increased retail banking and commercial
banking revenues by 34.49% and 25.63% respectively in 2011. Their Tier 1 Capital Ratio is
currently 10.21% (well above liquidity requirements) which will be important going forward in
complying with the Basel accords. Furthermore, M&T’s acquisition of Wilmington Trust in 2011
added $8.3 billion in deposits and $8.1 billion in loans after the deal making it the 19th largest
bank by deposits in the country, up from the 21st biggest.
M&T has outperformed the S&P 500 index and the S&P Financial index over the year with a
total return of 38.14% versus 15.55% and 24.80% respectively. Its current P/E is 14.98 which is
above the industry
average of 13.75.
However its
revenue growth
year to date is
11.37% versus the
industry average of
-2.94%.
Page | 25 Health Care
HCA- December 2012
Teva- May 2011
Pfizer- May 2011
HCA
Our previous healthcare exposure was based solely on pharmaceutical companies; we recently
divested our position in Novartis due to a recent price increase, fear of European exposure, lack
of innovation in their pipeline and the likely downturn in their pet products lines. To fill the place
for Novartis we have selected HCA. HCA is a hospital management company, we selected the
company on two investment beliefs, the beliefs are as follows:
1. The population in America is aging, currently 13% of the population is older than 60
years old, and in 2 years that percentage will grow to 17% and will remain between 17%
and 19% through 2019.
2. Our second investment belief is that the sentiment for healthcare service companies will
improve drastically with the expectation of Obamacare approvals. HCA will benefit from
the greater number of insured patients, this is a highlight because the hospitals are
currently performing these services to individuals who are uninsured and HCA receives
little to no compensation, therefore it is our belief that going forward they will continue
to perform a similar amount of services but will be compensated due to the coverage
under the new healthcare laws.
Teva and Pfizer
Our other holdings Teva and Pfizer remain strong. Teva announced that they are expecting to
meet the low end of consensus estimates for 2013, we believe this is due to lack of new
innovative products and will likely see Teva open up their balance sheet and put their cash to use
in the way of acquisitions. Pfizer is the strongest company in the pharmaceutical sector, although
we do not expect any drastic price appreciate we see a subtle upside, low volatility and a good
yield.
Page | 26 Industrials
Boeing- December 2011
Textainter Group Holdings- December 2012
AGCO- May 2012
Boeing
While some investors view a large potential upside from the growing demand for Boeing’s
commercial airplanes, especially in the emerging markets and from Boeing’s positive market
outlook with world passenger traffic to grow 5% annually, we believe that their 76% revenue
exposure to the aerospace, defense and security segments will be negatively impacted by
sequestration. Moreover, slow progress of the Congress and President to address the fiscal cliff and
obvious tax hikes in 2013 have led to our beliefs that GDP will further decline in 2013, translating
into weaker global airline traffic growth, which will cause a decrease in airplane orders. Boeing’s
optimistic projections from 2011 to 2031 and outlook for China had us second-guessing if Boeing’s
profits from the commercial airplane segment can truly offset losses from the aerospace and defense
segment for the next two years, because Boeing will go through significant restructuring in order to
focus on optimizing and increasing their commercial airplane segment. Moreover, the 2013 outlook
from Bloomberg claimed that aircraft margins are expected to decline from new aircraft programs.
We will divest Boeing and take in a profit of approximately 8.44%. Below is a graph of its total
return from the trade date of 12/19/2011.
Page | 27 Textainer Group Holdings
TGH is the world’s largest lessor for intermodal containers that controls approximately 18% of the
container leasing market. The company’s utilization rates have been increasing over the past five
years and reached a high utilization rate in 2012 of 97.7%, surpassing its top three competitors:
TAL, CAP, and BOX. The company has been focusing in maintaining and increasing the value of
its shareholders through their recent increase in container assets in 2011, which led to large capital
expenditures. This is significant, because the company earns the most revenue from container
ownership. The company had an ROE of 22% over the last five years and we favor their increasing
dividends for the past 11 consecutive quarters. The current dividend yield is 5.69%. The company
will benefit from various growth opportunities in 2013, such as shipping lines increasing reliance on
lessors to provide containers, growth in reefers which had grown by over 65% CAGR from 20082011, purchase leasebacks, and container management for other investors. We value TGH at $40.00
and selected TGH because of its ability to sustain high margins during the recession, its high
financial flexibility, predictable cash flows from high certainty of expected returns from the four
types of leases they offer to their customers, their well-managed relationships with some of the
largest shipping lines, focus on cost management, and high shareholder returns.
AGCO Corporation
The U.S. farming industry suffered in 2012 as the Midwest saw the driest summer in decades,
resulting in a decrease of margins for farmers as well as farm equipment manufacturers. Although
the firm did not perform as efficiently as we had hoped since its incorporation in Spring 2012, we
are very optimistic for the year 2013. Due to the lack of produce from farmers in 2012, specifically
in from corn and soy beans, there is expected to be more crops planted in 2013 in order for farmers
to make up for the down year. Moreover, farming equipment manufacturers could possibly see an
increase in sales as farmers prepare for a big year and benefit from having more disposable income,
which can be attributed to a productive farming season. Furthermore we decided to hold our
position on AGCO Corporation as we see great value in the firm and are confident in the upcoming
farming season.
Page | 28 Information Technology
Corning – May 2011
MICROS Systems – Dec 2012
Information Technology
The Information Technology Sector consists of several industries: semiconductors, hardware,
software, storage, and mobile phones. Despite softer PC sales and decreased consumer and
business spending on technology, there is a positive fundamental outlook for the sector where
software spending is expected to grow at a rate of 6.8% through 2013. The global cloud market is
expected to continue its rapid growth through 2013 and reach approximately $36 billion. The
three primary segments of the cloud market are SaaS (Software as a Service), IaaS (Infrastructure
as a Service), and PaaS (Platform as a Service). The primary purpose of these segments is to
provide virtualized data solutions through on-demand services.
In regards to the mobile commerce market, smartphone shipments will increase by 28% through
2013. A major driver for smartphone sales will be business and consumer demand for mobile
data, which accounts for data activity on smartphones, laptops, netbooks, and tablets. With
smartphone traffic forecasted to increase by 156% in 2013, companies providing services that
allow for mobile integration into cloud driven information systems will be able to capitalize on
developing market trends. Based off current market trends and expectations for the coming years,
our outlook for the Information Technology Sector is bullish. We believe Corning and MICROS
Systems will be able to provide hardware, software, and services that complement the expected
trends within the sector.
Corning
Corning Inc. is a technology based company with a strong global presence. Within the
telecommunication sector, the firm manufactures optical fiber cables and photonic components.
However, the company’s largest business segment is producing and manufacturing glass panels,
funnels, projection video lens, and liquid crystal display glass for the technology sector.
Since acquisition, Corning has underperformed the S&P 500 and the Information Technology
Sector. However, we intend to increase our position in Corning due to the strong expectations for
TV, tablet, and smartphone markets, which will allow Corning to improve revenue for its display
Page | 31 technology business segment and, therefore, improve the profitability of the firm.
Despite its strongest quarterly performance in Q3 2012 from the Gorilla Glass segment of its
revenue, the firm’s Gorilla Glass has not yet reached its full expected growth potential. Corning
believes that greater domestic and foreign consumer demand for LCD televisions, tablets, and
smartphones will improve Gorilla Glass sales in the future.
Corning has experienced an average revenue growth of 9.9% over the past three years, while the
industry average hovered around 4.2%. Dividend yield increased to 2.85% in Q3 2012, which
still far exceeds the industry average. Furthermore, Corning has increased its quarterly dividends
from .075 to .09 in Q3 2012. Even with the potentially sluggish economy, the firm is expected to
see revenue and profit growth throughout 2013, attributable largely to Gorilla Glass sales finally
reaching expected growth potential.
Cirrus Logic
Cirrus was purchased on 5/11/2012 and had a total return of 19.36%, fulfilling our strategy in
outperforming both the S&P 500 and S5INFT Index. With Apple representing 62% of its revenue
in 2012, its stock price appreciated tremendously from over the past four years from Apple’s
booming success. We plan to divest Cirrus and take in the profits due to our concern for the large
market share that Android possesses and the high risk Cirrus holds if Apple were to switch to a
different supplier. Over the past few quarters, we have seen margins shrinking, suggesting higher
pricing demands from Apple. Moreover, the obvious correlation between CRUS and AAPL is a
leading indicator that AAPL’s stock price being punished severely will lead to unfavorable prices
for CRUS as well.
MICROS Systems
We will replace Cirrus with MCRS, a company that designs, manufactures, markets, and services
enterprise information solutions for the hospitality and retail industry. We believe their large
global presence and close relationships with well-known and diverse customers will continue to
grow. Moreover, the company will benefit from the SaaS market growing at a CAGR of 20.7%
from 2011 – 2016 and the growth of the mobile markets especially in virtual payment solutions
from emerging markets which is marketed through their POS systems. The company targeted the
mobile market through their recent partnerships with Apple, TabbedOut, Isis, Google Wallet, and
Page | 32 Verifone. These partnerships will be valuable in contributing to the growth of the company,
because clients in the hospitality sector seek integrated enterprise systems to improve their
productivity, efficiency, and profitability through analyzing business trends.
In regards to its financial position, its operating margins have been trending up over the past six
years, surpassing the upper bounds of its peer group average. Its current operating margin is
17.74% and the company virtually holds no debt. The company has a current ROE of 16.01% and
a current ROA of 11.43%. The company has attractive valuations with a target price of $58.15
and the current P/B, P/E, P/S and P/CF are trading below its five year averages, suggesting it is
still undervalued. MCRS P/E is 19.68 and has a forward P/E 17.15.
Page | 33 Materials
Rio Tinto- May 2011
Ternium- May 2012
Gold ETF- December 2012
Overview
We view the materials sector benefitting from the growth in the BRIC nations with a stagnant
demand in the developed markets, we also believe Chinese growth will slow, but we do not
expect a hard landing in China. This paired with new leadership present a good opportunity for
our holdings in the steel area to capitalize on the Chinese urbanization projects. We divested our
position in Kraton Performance Polymers because we viewed the company as a high risk high
reward company that does not fit in our fund.
The two companies we looked at based on our screens were Rock Tenn Co., which is a
packaging company and offers great fundamentals with great long term potential due to its recent
acquisitions but is likely to feel near term pressures from mill issues and slowing global demand
in developed markets (Rock ten has yet to gain a solid foothold in the developing markets.)
We also analyzed a small cap gold mining company. The company offered solid fundamentals,
but due to its small nature and the new trends for investing in gold we believe we were better off
investing in the Gold ETF where we gain exposure to the gold market without any company
specific risk. Our outlook on Gold is that with the Fed announcing rates to remain artificially low
until unemployment falls to 6.5% the negative real yield on treasuries will push people in gold.
This belief is furthered by Fed easing and the likely inflation we will see in the intermediate term
due to QE3 and 4.
Page | 34 Telecommunication Services
Telstra- December 2011
American Tower Corp- May 2011
Telecommunications Sector
The telecommunications industry is rapidly evolving and society is creating more innovative
ways to connect. One of the major trends in the industry is data usage, which is projected to
growth exponentially over the coming years. This industry was one of the best performing
sectors in the economy in 2012 because of increasing consumer demand for smartphones.
Global Mobile Data Traffic Forecast by Region
Furthermore, as we thoroughly analyzed Cisco Systems Inc. with the possibility of being
incorporated into the Greystone Equity Fund we did not see enough value in the firm to allow a
vote to be made. We have come to notice Cisco as a valuable firm as they have a robust balance
sheet and have positioned themselves to take advantage of market transitions in order to gain
market share over their competition. This is illustrated through their nine acquisitions in 2012 as
they position themselves for the large investments expected in Big Data and cloud computing.
Big Data is expected to increase by $13 billion from 2011 to 2015, while cloud computing is
expected to have a CAGR of 29% through 2015. Cisco is a very strong valuable firm who has
positioned themselves for success; however they have done a poor job of returning shareholders
investments. Although the firm has issued a dividend, which should continue to increase as a
result of a robust balance sheet, the tax on dividends is expected to increase, which makes the
firm less desirable as the majority of our return would come from Cisco’s dividend. Due to lack
of confidence in the firm’s ability to tiled quality returns to shareholders we decided to forego
Page | 35 our investment in Cisco Systems Inc.
American Tower Corp.
American Tower Corp. is a real estate investment trust that owns, operates, and develops wireless
communications and broadcast Towers. The company leases antennae sites on multi- tenant
towers for a diverse range of wireless communications industries, including personal
communications services, paging, and cellular. Since its purchase in the spring of 2011,
American Tower Corp. has consistently outperformed the S&P 500, and the telecommunications
sector as a whole. They have taken advantage of the global trend in increased use of wireless and
data services. Their major customers include Verizon and AT&T, the largest wireless providers
in the telecommunications industry. Their infrastructure is necessary for future growth of the
wireless industry, especially in emerging markets. American Tower Corp. is leveraged with low
debt and steady cash flows, and we expect this firm to outperform the S&P in the upcoming year.
AT&T Inc.
The Greystone Fund decided to sell shares of AT&T in order to purchase more shares of Telstra.
AT&T is a telecommunications service provider in the United States. They have generally
outperformed the S&P 500 index and have stayed consistent with the telecommunications index,
with total returns since purchased in May 2011 of about 20%. We see significant risks in the
wireless service segment, which is currently an oligopoly with tight duopoly power shared by
AT&T and Verizon, boast boasting the broadest and most reliable networks. However, more
wireless service providers are emerging and threatening lower-priced plans. Specifically, Sprint
is expected to gain significant market share with the new acquisition by Japanese Softbank. We
see this as a huge threat to AT&T’s customer base, and feel that our return on this stock for the
Greystone Fund is realized.
Telstra Corporation Limited
Telstra is a domestic and international telecommunications provider for Australia. The firm was
incorporated into The Greystone Equity Fund in the fall of 2011 and has had an YTD total return
of 42.44% with a 10 year total return of 288.95%, illustrating the firm’s continuous success.
Telstra Corp. has a monopoly over the Australian market as there are few firms that have the
ability to compete, however there is still room to grow in the Australian market as well as Asia
where they work to capture more of this emerging market. As the economic future is uncertain
and the fiscal cliff continues to approach without being resolved we have decided to increase our
position in Telstra Corp. Limited. The economic issues in America and Europe should not have
a major effect as the firm operates mostly out of Australia, allowing this investment to be less
risky in a sector that is cyclical and volatile. We strongly believe that by increasing our position
in Telstra from 1.04 to 2.44 we are investing in a valuable firm with a quality margin of safety
that has yielded excellent returns for their shareholders.
Page | 36 Utilities
XLU- December 2012
Overview
The Utility sector has been hit especially hard with recent natural disasters most recently
Huricane Sandy which many North-East Utility companies will continue to recover from into
2013. Bloomberg mentions that the National Grid notes more than $184.7 million of storm costs
in 2011-2012. These natural disasters have exposed the vulnerability of utility companies many
of which still use old power grids. Increasing operating costs are expected going forward as
companies update old grids with newer ones.
Our decision was to divest all our positions in the utility sector. Total returns for utility stocks
remain one one the worst performing in the Fund. Our YTD price aprreciation for Exelon
Corporation was -30.32%, the worst performer in the utilities sector. PPL Corporation had a
YTD price depreciation of 0.24% and Entergy YTD
price depreciated -13.02%.
All of the lagging in
comparison to the S&P 500
which has a YTD price
appreciation of 12.61%.
We initally proposed to
divest our holdings in only
Exelon citing poor performance and a recent credit downgrade and expected dividend decrease.
We eventually decided to sell all our utility stocks based on their underperformance. Strict
regulations, lower than average consumption and base rate stagnation were just some of the
reasons why we had a bearish outlook on the utilities sector going forward. Another looming
issue that is expected to have long term effects is the Obama Administration’s psotion on coal;
with most of our companies still generating most of their power from coal we felt that they could
face threats of increasing regulation which could dim future outlook. Reinforcing our position on
our utilities stocks were other analyst recommendation of the stock which are weak and bearish.
The return potential of our stocks also indicate minimal to negative returns for our company.
Keeping the industry weight the same, our final recommendation is to invest 70% of our
proceeds from the sale in a Utility ETF and keep the rest in cash. We felt that the Utility ETF
was a better option than our current holdings; with buying an ETF protects us from the pressures
of company specific risks of which our surrent holdings had increasing problems with. Our
decision to buy the industry ETF was to increase our diversification coupled as well as tap in
early to what we percieve as an increasing demand for ETF’s in the future.
Page | 37 THE FALL 2012 INVESTMENT FUND CLASS
Kat Keegan
President
Financial and Energy Analyst
Kat Keegan is a junior at Marist College majoring in finance and minoring in
math. Kat is from Guilderland, New York (Albany area) and will be making
the move to Manhattan this summer to intern as an operations analyst at
Barclays. In the Greystone fund she served as President and analyst in the
energy and financial sectors. Kat initiated research on the northeast regional
bank, M&T for the financial sector. In her free time, Kat enjoys spending
time with her family, reading, skiing, zumba and training for the New York
City marathon in fall 2013. Upon graduation, Kat hopes to pursue a career in
commercial banking, wealth management, or commercial real estate.
Nick Gent
Portfolio Manager
Materials and Healthcare Analyst
I am a Senior Finance major and captain of the Men’s Soccer team.
I am currently interning at Merrill Lynch in Poughkeepsie and I am
pursuing a career on the institutional side of finance, preferably
investment banking or sales and trading. My personal outlook for
the economy in 2013 is that we are likely to see a slowing demand
growth in the developed markets, long term equities still remain
cheap, and the best investments for 2013 are dividend growth
stocks.
Kevin Manning
Economist
Consumer Discretionary and Consumer Staples Analyst
Kevin is currently a Senior Finance Major, Accounting minor. He is
involved on campus as a member on the SGA Board for the Class of 2013 as
Historian. During the summer of 2012, he interned at Merrill Lynch in
Wayne, PA. His hobbies include playing golf, performing magic tricks, and
speaking about himself in the third person. Kevin believes the discretionary
sector will outperform in the latter half of 2013.
Page | 36 Jenna DePue
Excel Expert
Consumer Discretionary and Health Care Analyst
Jenna DePue is a junior studying Business Administration with a
concentration in finance. She is also minoring in information systems.
In addition, she is an analyst for the consumer discretionary and
healthcare sectors in the Greystone Investment Fund. Upon
graduating in spring 2014, she hopes to have a career in in the
financial sector that will lead down the path to becoming an
investment banker or actuary.
Emilio Menendez
Accountant
Energy and Financials Analyst
My name is Emilio Menendez and I am senior. I am currently
majoring in accounting with a minor in psychology and business
and I am from San Juan, PR. Furthermore, I am the energy and
financial analyst for the Greystone Equity Fund and I am one of
two extinguished accountants in the fund. Moreover, I am
currently interning at GLOBALTEAM International Marketing
Consultants Inc.
Aileen Lamontagne
Newsletter Editor
Telecommunications and Consumer Staples Analyst
Aileen Lamontagne is a senior studying Business Administration
with a concentration in finance. She is an analyst for the
telecommunications and consumers staples sectors in the
Greystone Investment Fund. She hopes to find a career in either
financial planning or marketing analysis upon graduation.
Page | 37 Tammy Lam
Excel “Expert”
IT and Industrials Analyst
Tammy Lam is a senior at Marist College graduating in May 2013.
Her passion is to be an equity research analyst, which is
demonstrated through the reports on MICROS Systems and
Textainer Group Holdings. She is an analyst for the Industrials and
Information Technology as well as a financial modeling expert for
stock valuation with her partner for the Greystone Fund.
Marco Delli Carpini
Excel “Expert”
IT and Financial Analyst
Marco Delli Carpini is a Junior at Marist College studying
Accounting and Finance. For the Greystone Equity Fund, he served
as one of the distinguished Excel and Bloomberg experts, aiding in
the creation of the fund's beloved valuation model. Marco analyzed
the Financial and Information Technology Sector, for which he
reported on Goldman Sachs and MICROS Systems. Over the
summer he intends to intern at Lloyds Banking Group where he
interned the previous summer in the Group Corporate Treasury.
Okimasi Takim
Accountant
Materials and Utilities Analyst
I am an international student from Nigeria currently studying
Economics with a minor in Business Administration. My decision to
apply for the Greystone Equities class was sparked by my interest in
Investment Analysis. I interned over the summer at AXA Advisors,
which is a subsidiary of AXA Equitable and provides wealth
management to individuals and small businesses. My hobbies include
learning Chinese and Korean and in regards to my future plans; I would
like to work in the Asian market specifically in corporate finance or
investment banking.
Page | 38 Ben Clark
Economist
Utilities and Health Care Analyst
Ben is currently a Senior Business Administration
major. Within the Fund he worked on the Utilities and
Health Care Sectors and worked as economist. He is a
member of the men’s crew team.
Tommy Reilly
Newsletter Editor
Industrials and Telecommunications Analyst
Tommy is from Marlton, New Jersey and is a senior finance major
with a minor in psychology. He is the quarterback of the football
team where he has been a key factor for the team’s success setting
multiple records. Tommy aspires to be CEO of a truck equipment
company while he continues to sharpen his skills in order to obtain
his goals.
Page | 39 Disclaimer
All information contained in this document is the opinion of, and the result of analysis by, one or
more Marist College students seeking academic credit. It is not intended and should not be
construed as offering investment advice. The analysis is not the work of professionals, is not a
recommendation of any particular security, strategy or investment product, and should in no way
be used to make financial decisions or investments. The opinions of the author(s) are subject to
change without notice. Information contained herein has been obtained from sources believed to
be reliable, but is not guaranteed to be accurate or complete.
This document has been prepared for The Greystone Fund’s internal educational purposes.
Please consult your financial and tax advisors before engaging in any transactions.
MARIST COLLEGE, MARIST COLLEGE SCHOOL OF MANAGEMENT, AND
MARIST COLLEGE’S TRUSTEES, FACULTY, STAFF, AND STUDENTS MAKE NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, ABOUT THE
ACCURACY OR SUITABILITY FOR ANY USE OF THIS REPORT, AND EXPRESSLY
DISCLAIM RESPONSIBILITY FOR ANY LOSS OR DAMAGE, DIRECT OR
INDIRECT, CAUSED BY USE OF OR RELIANCE ON THIS REPORT, OR FURTHER
COMMUNICATION PROVIDED IN RELATION TO THIS DOCUMENT.
Page | 40