New P1 PERFORMANCE REPORT - Haslam College of Business · 2021. 3. 2. · Jake Barnes, Lance Ellington, Mary Graham Harvey, Jada Kirby, Noah Mayer, Jacob Saripkin, Paige ... **BETFX

P1 PERFORMANCE REPORT PREPARED FOR PERIOD 10/01/2020 – 12/31/2020

HASLAM TORCH FUND

PREPARED FOR MR. & MRS. JAMES A. HASLAM II

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February 18, 2021

Dear Mr. and Mrs. James A. Haslam, II:

Thank you for providing the invaluable professional opportunity to be a member of the Haslam Torch Fund at the University of Tennessee. Your generosity provides our team with an unrivaled learning experience and exposure to asset management and the equity markets. Furthermore, your contributions enable Haslam Fund members to develop invaluable collaboration and leadership skills, as well as earn confidence in the field of financial management.

During the last reporting period from October 1, 2020 to December 31, 2020, the Haslam Fund earned a return of 6.55% with a beta of 0.63 in comparison to the S&P 500. Our benchmark, a weighted average of the S&P 500 and the Barclay’s Aggregate Bond Index, generated a return of 7.54%. The returns for the Carroll, LaPorte, and McClain funds during P1 were 10.22%, 7.17%, and 15.66%, respectively.

At the end of P1 on December 31, 2020, the fund had 33 holdings within 10 sectors of the S&P 500, in addition to our fixed income allocation. We continue to reevaluate holdings and actively pursue promising opportunities, thus making several changes to the portfolio.

Although the country faces ongoing uncertainty due to the effects of the pandemic, the Haslam Fund team holds a neutral outlook regarding the future of the economy. Despite current challenges, the portfolio has made significant strides forward, and we hope low interest rates favoring equities over bonds will amplify the fund’s performance. We will continue to monitor the effects of the current pandemic, as well as track the progress of vaccination campaigns. We are also paying close attention to variants of COVID-19 as well.

We are extraordinarily grateful for the chance to serve on the Haslam Torch Fund. Thank you for investing in our futures.

Sincerely,

Your Haslam Torch Fund Team

Jake Barnes, Lance Ellington, Mary Graham Harvey, Jada Kirby, Noah Mayer, Jacob Saripkin, Paige Schmincke, Phoenix Van Zuphten, and Jack Yardley

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Economic Outlook………………………………………………….……….……………………………..4 Summary of Portfolio Performance……………………………………………………………………....5 Relative Fund Performance…………………………………………….………………………………....7 Summary of Weight and Performance…………………….……………………....…………...….…......8 Portfolio Allocation……………......………………………………..……………………………………..9 Summary of Individual Holding Returns……..………………………………………...……………....10 Summary of Actions for the Haslam Fund………………………………...………………………....…11 Communication Services iShares Telecommunications ETF 17 Communication Services Select Sector SPDR 18 Consumer Discretionary Amazon 20 Consumer Staples Dollar General 22 Kroger 23 Procter & Gamble 24 Walmart 25 Energy 26 Financials Bank of America 28 JPMorgan & Chase Co. 29 Fixed Income iShares U.S. Aggregate Bond ETF 31 SPDR Wells Fargo Preferred Stock ETF 32 Wisdom Tree Treasury Fund 33 Healthcare Abbott Laboratories 35 Amgen Inc. 36 CVS Health Corp. 37 Edwards Lifesciences Corp. 38

GlaxoSmithKline PLC. 39 Merck & Co. Inc. 40 Stryker Corp. 41 Industrials Honeywell International Inc. 43 iShares Transportation Average ETF 44 Lockheed Martin Corp. 45 Global X Infrastructure Development ETF 46 Raytheon Technologies Corp. 47 Information Technology Apple Inc. 49 Applied Materials Inc. 50 Broadcom Inc. 51 Intel Corp. 52 International Business Machines Corp. 53 Microsoft Corp. 54 Materials DuPont de Nemours Inc. 56 Real Estate Prologis Inc. 58 Welltower 59 Utilities Entergy 61 Utilities Select Sector SPDR 62

Fund Manager Bios………………………………………………………………………………………63 Works Cited………………………………………………………………………………………………66 Appendix…….............................................................................................................................................69

Table of Contents

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Table of Contents

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Overall United States Economy Going into P1*, the U.S. still experienced strong effects from COVID-19. Although society has had time to adjust to what has occurred regarding lockdowns and regulations, businesses have not been as fortunate. Over the past few months, many businesses have not been able to survive the financial losses that came about as a result of the unexpected pandemic. Despite unemployment dropping to 6.90%, many people are still experiencing debt from being laid off or furloughed during the past year. Even though GDP increased at a rate of 33.40% during P4 of last year, P1 only experienced a 4.00% growth of GDP. While this increase does reflect the continued economic recovery from the pandemic, the decline in growth over periods shows the ongoing effects of COVID-19, including new shutdowns and the continuing spread of the virus. GDP did not have a large positive outcome by the end of 2020, but personal income and outlays did. In November, personal income decreased by 1.30%, but increased by 0.60% in December. The first stimulus check and increase in personal income helped consumer spending in the short run but did not solve all of the problems that the economy was experiencing. A second stimulus check is in the works and has many people feeling optimistic, giving the market a hope that consumer spending will increase again soon, as it decreased in December by 0.20% as provisions from the CARES Act ended. As vaccines were announced in December, it gives the economy and society hope that things will return to normal in the next few periods.4

Global Economy Along with the U.S. economy, global economies are still experiencing the ongoing effects of COVID-19. With the announcement of a vaccine, the hope of an eventual full economic recovery is present; however, countries are slowing down their openings and reinstating lockdowns. The optimistic outlook to return to pre-pandemic levels has been halted due to the rampant spread of COVID-19. While it was thought to be a quick recovery, it is looking to be more gradual or stagnant even. Fortunately, economies did start to see the pace of industrial and trade growth begin to increase at the end of November.5 Hopefully, this will contribute to a more accurate optimistic outlook moving forward. Outlook Overall, the Haslam Fund Team is neutral moving forward. The pandemic has gone on longer than originally projected, and with COVID fatigue, future numbers are increasingly uncertain. Despite unemployment numbers improving, they are not returning to the level where they were years ago. The rent moratorium is continuing to grow and will eventually need to be dealt with. Regarding the vaccine, there have been, and will be, more difficulties with getting large batches to the public, and the distribution and supply chain of the vaccines is also a major challenge. As Biden is sworn into office in January, there may be regulatory changes. These may put a burden on some companies, as well as on certain policies that put a damper on business operations.

Economic Outlook

Economic Outlook

*P1 spanned from 10/01/2020-12/31/2020

*P1 spanned from 10/01/2020-12/31/2020

5

P1 Betas

Beta Compared to Benchmark

1.05

R-Squared of Beta

0.92

Beta Compared to S&P 500

0.63

R-Squared of Beta

0.95

P1 Sharpe Ratios

Portfolio

2.42

Benchmark

3.00

S&P 500

2.85

BETFX**

2.92

P1 Returns

Portfolio (%)

6.55

Benchmark (%)

7.54

S&P 500 (%)

12.12

Barclay’s Aggregate Bond Index (%)

0.67

Summary of Portfolio Performance*

Summary of Portfolio Performance


*All calculations presented are annualized and calculated using daily returns over the reporting period. Please see Appendix on page 69 for an explanation of these calculations

**BETFX is Morningstar Balanced ETF Asset Allocation Portfolio Fund

6

P1 Treynor Ratios

Portfolio

0.24

Benchmark

0.29

S&P 500

0.46

BETFX**

0.36

P1 Metrics

Standard Deviation (%)

10.56

Tracking Error (%)

2.99

Information Ratio (Benchmark)

-1.13

Summary of Portfolio Performance*



*All calculations presented are annualized and calculated using daily returns over the reporting period. Please see Appendix on page 69 for an explanation of these calculations

**BETFX is Morningstar Balanced ETF Asset Allocation Portfolio Fund

7

Goal

P1

Generate a

Positive Return

Outperform Other Funds

Beat our

Benchmark

Fund

P1 Return (%)

P1 Spread (%)

Carroll

10.22

2.68

Haslam

6.55

-0.98

LaPorte

7.17

-0.37

McClain

15.66

-1.50

Relative Fund Performance



8

Largest Holdings

Weight (%)

iShares Core U.S. Aggregate Bond ETF (AGG) 8.90 Wisdom Tree Floating Rate (USFR) 7.76 Wells Fargo Preferred ETF (PSK) 7.33

Communications Sector SPDR (XLC) 5.13 Amazon (AMZN) 5.06

Smallest Holdings

Weight (%)

Utilities Sector SPDR (XLU) 0.58 GlaxoSmithKline (GSK) 0.98

Prologis (PLD) 1.00 Welltower (WELL) 1.01

Kroger (KR) 1.11

Best P1 Performers

Return (%)

Applied Materials (AMAT) 43.91 JPMorgan Chase & Co. (JPM) 29.64

Honeywell (HON) 28.04 Raytheon (RTX) 25.46

Bank of America (BAC) 24.01

Worst P1 Performers

Return (%)

Amgen (AMGN) -9.40 Kroger (KR) -6.30

Lockheed Martin (LMT) -3.68 Intel (INTC) -3.05

Abbott Laboratories (ABT) -1.59

Summary of Weight and Performance



9

Asset Type

P1 End Value

($)

P1 End Allocation

(%)

Cash

166,660.72

9.97

Equities

1,214,608.08

72.64

Fixed Income

290,843.17

17.39

Portfolio Allocation



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Holding

P1 Return (%)

Weight (%)

Equities AAPL 14.21 3.26 ABT -1.59 1.49

AMAT 43.91 2.28 AMGN -9.40 1.75 AMZN 3.70 5.06 AVGO 20.62 2.09 BAC 24.01 2.66 CVS 17.41 1.48 DD 19.45 1.35 DG 0.49 3.35

ETR 0.72 1.44 EW 13.62 1.49 GSK -0.76 0.98 HON 28.04 1.21 IBM 4.72 1.79 INTC -3.05 1.71 IYT -0.61 1.19 IYZ 0.33 2.77 JPM 29.64 4.00 KR -6.30 1.11

LMT -3.68 1.19 MRK -0.96 1.50 MSFT 5.83 4.71 PAVE 3.49 1.19

PG 0.59 2.08 PLD -0.58 1.00 RTX 25.46 1.21 SOJA -1.37 - SYK 16.56 1.26

WELL 17.60 1.01 WMT 3.00 2.73 XLC 0.99 5.13 XLU 4.47 0.58

Fixed Income AGG 0.59 8.90 PSK 3.25 7.33

USFR -0.03 7.76

Summary of Individual Holding Returns

11

P1 Actions

Bought 697 shares for $23,578.87. (10/01/2020)


Redemption payout of $32,500. (10/20/2020)






Sold 133 shares for $27,691.98. (12/03/2020)


Summary of Actions for the Haslam Fund


Summary of Actions for the Haslam Fund Kroger (KR)

Kroger (KR)

Kroger (KR)

Kroger (KR)

Utilities Sector SPDR (XLU)




Southern Company (SOJA)




DuPont de Nemours (DD)




Lockheed Martin (LMT)




Abbott Laboratories (ABT)




Prologis (PLD)

Prologis (PLD)

Prologis (PLD)

Prologis (PLD)

Global X US Infrastructure Development ETF (PAVE)



Honeywell (HON)

Honeywell (HON)

Honeywell (HON)

iShares Transportation Average ETF (IYT)


12

P1 Actions Continued

Bought 1,512 shares for $45,647.28. (12/03/2020)

Sold 20 shares for $7,346.83. (12/03/2020)

Sold 195 shares for $14,218.11. (12/03/2020)


Portfolio Rebalance Actions*

Sold 65 shares for $7,042.44. (12/29/2020)

Sold 3 shares for $10,012.31. (12/29/2020)

Sold 100 shares for $22,705.49. (12/29/2020)





iShares US Telecommunications ETF (IYZ)





iShares U.S. Telecommunications ETF (IYZ)








Raytheon (RTX)

Raytheon (RTX)

Raytheon (RTX)

Raytheon (RTX)

Communications Sector SPDR (XLC)








Amazon (AMZN)

Amazon (AMZN)

Amazon (AMZN)

Amazon (AMZN)

Amgen (AMGN)

Amgen (AMGN)

Amgen (AMGN)

Amgen (AMGN)

Apple (AAPL)

Apple (AAPL)

Apple (AAPL)

Applied Materials (AMAT)



Bank of America (BAC)

Bank of America (BAC)

* The portfolio was rebalanced on 12/29/2020 in accordance with the Haslam Fund’s desired target allocation per sector, target allocation for fixed income, target allocation for equities, and target allocation for cash.

13

Portfolio Rebalance Actions Continued

Bought 2 shares for $855.20. (12/29/2020)

Sold 253 shares for $17,135.06. (12/29/2020)

Sold 29 shares for $6,094.34. (12/29/2020)

Sold 32 shares for $2,206.99. (12/29/2020)

Sold 411 shares for $37,127.88. (12/29/2020)

Sold 205 shares for $19,773.86. (12/29/2020)

Sold 600 shares for $22,141.97. (12/29/2020)

Sold 14 shares for $291.61. (12/29/2020)

Bought 1 share for $208.07. (12/29/2020)





Summary of Actions for the Haslam Fund Broadcom (AVGO)

Broadcom (AVGO)

Broadcom (AVGO)

Broadcom (AVGO)

CVS Health (CVS)

CVS Health (CVS)

CVS Health (CVS)

CVS Health (CVS)

Dollar General (DG)

Dollar General (DG)

Dollar General (DG)

Dollar General (DG)





Edwards Lifesciences (EW)




Entergy (ETR)

Entergy (ETR)

Entergy (ETR)

Entergy (ETR)

GlaxoSmithKline (GSK)








Honeywell (HON)

Honeywell (HON)

Honeywell (HON)

Intel (INTC)

Intel (INTC)

Intel (INTC)

International Business Machines (IBM)

International Business Machines (IBM)

14






Sold 115 shares for $3,608.62. (12/29/2020)


Sold 194 shares on $15,740.81. (12/29/2020)

Sold 9 shares for $2,019.33. (12/29/2020)

Sold 50 shares for $6,918.84. (12/29/2020)

Sold 77 shares for $7,538.90. (12/29/2020)




Summary of Actions for the Haslam Fund iShares Transportation Average ETF (IYT)




iShares Core U.S. Aggregate Bond ETF (AGG)




iShares U.S. Telecommunications ETF (IYZ)




JP Morgan & Chase (JPM)




Kroger (KR)

Kroger (KR)

Kroger (KR)

Kroger (KR)





Merck & Co. (MRK)

Merck & Co. (MRK)

Merck & Co. (MRK)

Merck & Co. (MRK)

Microsoft (MSFT)

Microsoft (MSFT)

Microsoft (MSFT)

Microsoft (MSFT)

Procter and Gamble (PG)



Prologis (PLD)

Prologis (PLD)

Prologis (PLD)

Raytheon (RTX)

Raytheon (RTX)

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Sold 133 shares for $8,177.38. (12/29/2020)

Sold 109 shares for $26,176.77. (12/29/2020)

Sold 63 shares for $9,064.35. (12/29/2020)

Sold 119 shares for $7,521.23. (12/29/2020)


Wells Fargo Preferred Stock ETF (PSK)












Stryker Corporation (SYK)




Walmart (WMT)

Walmart (WMT)

Walmart (WMT)

Walmart (WMT)

Welltower (WELL)

Welltower (WELL)

Welltower (WELL)

Welltower (WELL)

Wisdom Tree Floating Rate (USFR)





16

Communication Services

Fund Manager: Jada Kirby P1 Analysis: The Communication Services sector makes up 11.03% of the S&P 500 and made up 7.90% in our portfolio in P1. The sector has two main industries, media and entertainment and telecommunications. The sector had a return of 13.52% in P1. During recessive business cycles Communication Services typically underperforms but this has not been the case for all companies during the pandemic. COVID-19 has brought changing consumer needs with many people working from home and many students attending school virtually. Streaming platforms have seen an increase in subscribers, and we are also seeing changing advertising trends. Traditional TV ads are following a downward trend while ad-based video on demand is growing.1 In the previous period, the Haslam Fund had no holdings within the Communication Services sector but has since invested in two ETFs giving us broad exposure to the sector as a whole, as well as exposure to the Telecommunications industry. Currently, the fund is 3.13% underweight in comparison to our benchmark. Moving Forward: Moving forward, the Haslam Fund will continue to research specific companies to invest in to supplement our current ETF holdings. There is exciting growth within the sector as 5G networks continue to expand and streaming platforms gain copious amounts of subscribers driven by the pandemic. Prolonged periods of working from home and online education drive opportunities related to internet service providers as well. Other areas to be mindful of are companies facing antitrust lawsuits, ride share services as COVID-19 restrictions begin to lift, and the trend away from TV net-work centered media companies towards streaming.1

Period

Start Value ($)

End Value ($)

Return (%)

S&P Sector Return (%)

Weighting Difference from S&P

(%)

P1

130,081.00

132,064.12

0.76

13.52

-3.13

17

iShares U.S. Telecommunications ETF (IYZ) Sector: Communication Services Fund Manager: Jada Kirby

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield

(%):

P1

45,828.72

46,297.04

0.33

2.47 P1 Actions: Bought 1,512 shares for $45,647.28 on 12/03/2020. Bought 20 shares for $601.40 on

12/29/2020. Total dividend payments of $287.47 during this period.

Holding Description: IYZ is a Telecommunications ETF that seeks investment results similar to the Dow Jones Telecommunications Index (DJSTEL). There are a total of 46 holdings within the fund, and it is rebalanced quarterly. IYZ is primarily made up of companies that operate in the telecommunications industry, but approximately 17.00% is covered by the electronics, media, internet, and computers industries. A large majority of the ETF is made up of AT&T Inc. and Verizon Communications who together hold 42.00%. All other holdings are weighted at just over 5.00% or less. Other notable companies within the ETF are Arista Networks Inc., Motorola Solutions Inc., Cisco Systems Inc., Garmin Ltd., and T-Mobile.1 Positive Drivers: The growth of 5G networks is an exciting driver in the Communication Services sector and specifically within this ETF. Verizon, AT&T, and T-Mobile all currently have 5G networks and are working to expand their reach across the country. These three companies make up approximately 46.00% of the ETF. The ongoing pandemic has also been a somewhat positive driver within this sector. The prolonged work from home as well as online school has increased the need for stronger bandwidth and coverage.7 Once the pandemic begins to subside, the industry may rebound slightly as retail spending normalizes once again.1 Negative Drivers: Telecoms have been lagging in comparison to the S&P 500. One possible factor could be that carrier revenue tends to follow GDP because they rely on the discretionary spending of their consumers. Consumers with low discretionary income will not be investing in new phone plans, cable, or internet purchases. If COVID-19 continues to linger, it is possible consumers will hold off on 5G phone purchases.1

18

Communication Services Select Sector SPDR (XLC) Sector: Communication Services Fund Manager: Jada Kirby

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield

(%):

P1

84,252.28

85,767.08

0.99

0.63 P1 Actions: Bought 1,259 shares for $84,827.77 on 12/03/2020. Bought 12 shares for $809.40 on

12/29/2020. Total dividend payments of $134.66 during this period.

Holding Description: The Communication Services Select Sector SPDR is an ETF that tracks the Communication Services Select Sector Index (IXCTR). The fund invests in the following industries: diversified telecommunication services, wireless telecommunication services, media, entertainment, and interactive media and services. The fund is made up of 27 holdings and is rebalanced quarterly. The ETF is heavily weighted in the internet industry which makes up 53.88%. Media, telecommunications, software, and advertising industries make up 19.49%, 13.09%, 10.39%, and 2.09% respectively. The holdings with the highest weights are Facebook and Alphabet. Other notable holdings are Disney, Netflix, Comcast, and T-Mobile. Positive Drivers: As mentioned previously, 5G is an exciting growth opportunity, and this ETF will potentially see the benefits having weight in T-Mobile (4.23%) and AT&T (3.94%). The ongoing pandemic has benefitted streaming services such as Netflix and Disney+ who have seen a rise in subscribers. We are also seeing the growth of AVOD or ad-based video on demand. This type of advertising is becoming increasingly popular on streaming platforms and allows for targeted ads towards viewers.1 We have also seen the pandemic benefit internet provider companies as consumers are looking to upgrade their plans to accommodate changing working from home needs. Negative Drivers: Google continues to face growing scrutiny from U.S. Regulators and is the subject of multiple antitrust lawsuits. As of 12/17/2020, there were lawsuits against Google from 38 states. They have also been sued by the Justice Department who has accused them of anticompetitive tactics in order to preserve a monopoly for their search-engine business. Facebook (FB) is also another subject of antitrust lawsuits. The Federal Trade Commission sued the company on 12/09/2020 accusing them of choking out competition by buying and freezing out small startups.2 FB faces similar antitrust lawsuits from numerous states as well. Together, these two holdings make up approximately 44.00% of the ETF. With the new Biden administration taking office shortly, there is potentially for antitrust enforcements to intensify.

19

Consumer Discretionary

Fund Manager: Lance Ellington P1 Analysis: The Consumer Discretionary sector is made up of goods and services that are considered non-essential by consumers. Some of the products and services in this sector includes items such as automobiles, hotels, restaurants, media, and leisure products. Consumer Discretionary is cyclical being influenced by the different stages of the economic cycles. The sector will grow when the economy is strong and expanding. This is because during strong economic times consumers tend to have more disposable income and are more likely to buy goods that are considered non-essential. When the economy is shrinking or contracting, consumers will buy less discretionary goods and will focus their spending on essential products in the Consumer Staples sector. The cyclical nature of Consumer Discretionary makes the sector a good indicator of the direction the economy is moving in. Amazon, an internet retailer, is our only holding in this sector and performed well during the last quarter of 2020. With an increase in online purchases and usage of their Amazon Web Services, Amazon saw a 3.70% return, compared to the S&P Sector Index return of 7.86% during P1.1 Moving Forward: The Haslam Fund is monitoring the Consumer Discretionary sector closely as COVID-19 vaccines become more available to the general public and regulations begin to be lifted. The markets overall have been performing well, but the current stock market does not align with economic indicators we have seen over the past months, such as unemployment rates and other macro indicators. Consumer spending is now taking place more online than ever and companies that have not adapted to the new way of conducting business are sitting ducks in the water. Businesses in this sector must be in tune with the ever-changing consumer preferences as the goods and service they provide are non-essential. Industries and companies that thrive in Consumer Discretionary have discovered a way to turn their non-essential business into goods and services that have become integral in the consumer’s daily life.1

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

91,313.17

84,680.18

3.70

7.86

-7.84

20

Amazon (AMZN) Sector: Consumer Discretionary Fund Manager: Lance Ellington

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

91,313.17

84,680.18

3.70

-

P1 Actions: Sold 3 shares for $10,012.31 on 12/29/2020. No dividend payments during this period.

Holding Description: Amazon primarily operates an online marketplace that offers a vast array of products such as books, home furnishings, clothing, automotive products, grocery products, jewelry, consumer electronics, software, and many other products. Amazon also produces electronic devices such as the Kindle, Echo, Ring, Fire TV, and other devices. Amazon is a dominant provider of cloud services through Amazon Web Services, a popular streaming company through Prime Video, and has entered the retail grocery industry through its ownership of Whole Foods. Amazon reported a net income of $21.3B for the year 2020, which almost doubles their net income of $11.6B in 2019. Amazon had a 3.70% return during P1 compared to a sector return of 7.86%.1 Positive Drivers: Amazon has seen unprecedented growth over the years and the pandemic only allowed Amazon to grow exponentially faster with more people ordering from their online site during this time. The company recently reported its fiscal year 2020 Q4 results. They reported net sales of $125.60B which is an increase of 44.00% compared to Q4 of 2019.8 The company also recently launched Amazon Pharmacy in the U.S., allowing the business to deliver medicine to customers’ households. Amazon Fresh grocery stores also expanded recently with seven new stores in the states of California and Illinois. Prime Video continues to release new content and reported their highest viewership of live sports since this addition. Moving forward the Haslam Fund expects Amazon to continue to be a dominant company as it improves their current services, invests in R&D within their company, and continues to grow through acquisitions.1 Negative Drivers: Amazon, along with Apple, Google, and Facebook, is a company that the United States Department of Justice and the Federal Trade Commission is focusing antitrust investigations on. This is a sign of efforts to police Amazon’s conduct. They also face the regulatory risk of a rise in USPS shipping fees, which may disrupt shipping operations. As e-commerce has continued to grow during the pandemic, Amazon is looking for ways to minimize operation and logistic costs.3

21

Consumer Staples Fund Manager: Lance Ellington P1 Analysis: The Consumer Staples sector is made up of industries and goods that are constantly in demand regardless of the state of the economy. The sector is made up of companies that produce goods and services that are used every day in people’s lives such as: food, beverages, tobacco, clothing, personal products, and household products. The sector is described as non-cyclical and usually has low price elasticity of demand. Consumer spending holds a large hand over the economy, with the Consumer Staples sector making up 70.00% of the country’s gross national product. Consumer Staples stocks tend to yield higher and more consistent dividends than most other sectors. Consumer Staples is a great sector for diversifying a portfolio, and portfolio managers can expect to see slow and steady growth over the tenure of their holdings. Our holdings generated a return of 0.36%, compared to the S&P Sector Index return of 5.64% during P1.1 Moving Forward: Consumer Staples has been a reliable sector and has performed well throughout the pandemic. The low volatility and stability of this sector has created anchors for investors throughout this time allowing them to rely on consistent companies due to the nature of essential products being needed. Consumer Staples will continue to grow as the potential for another stimulus is around the corner and the pandemic continues to run its course. The stimulus provides a boost to consumer spending which some may spend on essentials and other products that were not previously affordable. The pandemic has increased the purchasing and stockpiling of essential goods, providing this sector with a boost. Industries such as household products, personal products, food retail, hypermarkets and supercenters, food products, and beverage products are attractive as we move forward.1

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

180,412.64

155,268.67

0.36

5.64

3.06

22

Dollar General (DG) Sector: Consumer Staples Fund Manager: Lance Ellington

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

61,837.90

55,939.80

0.49

0.72

P1 Actions: Sold 29 shares for $6,094.34 on 12/29/2020. Total dividend payments of $106.20 during this period.

Holding Description: Dollar General is a discount retailer chain corporation that operates over 17,000 convenient stores across 46 different states. Dollar General stores offer a variety of products including paper and cleaning products, packaged food, perishables, snacks, health and beauty, pet supplies, seasonal items, and tobacco products. Dollar General’s strategy involves targeting low fixed-income shoppers in rural towns where bigger stores such as Walmart or Target are not easily accessible. The company attempts to price the majority of items in their store at $10.00 or less. Their smaller sized stores measure close to 7,400 square feet. Dollar General expects to report 2,780 real estate projects for FY20 with 1,000 new store openings, 1,670 remodels, and 110 store relocations.9 Dollar General had a 0.49% return during P1 compared to a sector return of 5.64%.1 Positive Drivers: Dollar General is constantly looking for ways to expand their operations through projects such as new store openings, remodels, and relocations. The company is expected to continue the trend of expansion through the upcoming year.9 Another Dollar General initiative includes expanding their DG Fresh initiative, which implements grocery departments within their stores to provide customers with fresh produce. Other initiatives by the company include investing into technology and other tools to improve their overall customer experience. Moving forward, the Haslam Fund expects Dollar General to continue to grow and expand as their strategy has proven to be very successful and their future plans seem promising. Negative Drivers: Dollar General may be at risk to long-term effects such as competitive dynamics, changing customer demands, and economic conditions of low to middle class customers. The company faces a variety of competition as traditional grocery stores, convenient stores, and other retail spaces diversify their offerings. Digital sellers are also a risk as they grow their customer base into the less densely populated areas where Dollar General normally has a strong hold. Another risk is that Dollar General’s customer base can have their income strained through things such as fuel prices, rent, and healthcare prices.3

23

Kroger (KR) Sector: Consumer Staples Fund Manager: Lance Ellington

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

23,711.94

18,484.32

-6.30

2.02

P1 Actions: Bought 697 shares for $23,578.87 on 10/01/2020. Sold 115 shares for $3,608.62 on 12/29/2020. Total dividend payments of $125.46 during this period.

Holding Description: Kroger is the largest pure grocer in the United States. They operate both supermarkets and convenience stores. They were founded in 1883 and are headquartered in Cincinnati, Ohio. Kroger currently operates 2,755 supermarkets in 35 states – 2,270 of these locations have pharmacies and 1,565 have fuel centers. The company also manufactures and processes food products for sale in their supermarkets. Kroger offers online ordering and pick up at roughly 1,990 of its stores. Their business provides a home delivery service option to about 95.00% of their customers. Kroger operates 35 food processing plants in the U.S. as well. Kroger had a -6.30% return during P1 compared to a sector return of 5.64%.1 Positive Drivers: Kroger is well-known for their strong loyalty card program. Over 95.00% of their transactions are made using a loyalty card and they have reached 60 million unique households across the U.S. The program not only provides their customers with benefits and rewards but offers Kroger a large sum of data to make analytically charged decisions to meet their customers’ changing needs. In 2020, their total sales to retail customers made up 88% of their total revenue with supermarket fuel sales making up the other 12%.10

Kroger has adapted well and was prepared for COVID-19 as they had an online order and pickup service in place. Kroger has improved this service overtime by implementing an app and social distancing practices to keep their customers safe. Moving forward, the Haslam Fund expects Kroger to benefit from its current strategy of improving the digital experience for customers, as well as the intangible assets and cost advantages Kroger boasts among its competitors.1 Negative Drivers: Kroger faces a risk from both the changing environment of the grocery landscape and from the possibility of a breach in their data. Switching costs are low in this industry and Kroger must keep pace with its competitors such as Walmart, Amazon as a digital retailer, and Whole Foods. Online grocery adoption has only been accelerated by the pandemic and it is important for Kroger to maintain their strong position as both a traditional and digital seller. As Kroger captures more and more data to improve their customer experience, the company is at risk of a data breach that could turn away thousands of buyers from their services. Kroger must continue to adapt to the competition and their customer needs to remain competitive in their industry.3

24

Procter & Gamble (PG) Sector: Consumer Staples Fund Manager: Lance Ellington

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

41,697.00

34,785.00

0.59

2.47 P1 Actions: Sold 50 shares for $6,918.84 on 12/29/2020. Total dividend payments of $237.21 during this

period.

Holding Description: Procter & Gamble is the world’s largest producer of consumer-packaged goods, having billion-dollar brands in both their home and health sections. Procter & Gamble boasts a variety of brands under their different business segments, including Pampers, Tide, Crest, Gillette, Old Spice, and many other well-known brands. Procter & Gamble sells their products in over 180 countries and has operations in about 70 countries across the globe. Proctor & Gamble sells their products worldwide through channels such as grocery stores, department stores, wholesalers, specialty beauty stores, e-commerce, and many other channels. Procter & Gamble had a 0.59% return during P1 compared to a sector return of 5.64%.1 Positive Drivers: In 2020 revenue and net income both hit highs with $70.95B in revenue and $13.18B in net income. The company recently reported its fiscal year 2021 Q2 results ending 12/31/2020, reporting net sales of $19.7B. This is an increase of 8.00% compared to Q2 of 2020. All five business segments increased sales by a minimum of 5.00%, with Fabric and Home Care leading the way with an increase of 12.00% for the quarter.11 Procter & Gamble is focusing on adopting a holistic approach to their brand, investing in product packaging, online sales, and brand messaging, all of which should drive Procter & Gamble’s competitive edge in the Consumer Staples sector. Moving forward the Haslam Fund expects P&G’s current strategy and the pandemic to continue to benefit the company as they grow and expand their existing products lines. Negative Drivers: Procter & Gamble is at risk to foreign exchange rates and other foreign policy, as 60.00% of its sales come from outside the U.S. This has the potential to put strains on their financials as the company does not always manufacture the products in the same areas they are sold. P&G has also struggled to grow sustainable sales in their grooming segment which was formerly problem within their beauty business but has since learned to overcome.3

25

Walmart (WMT) Sector: Consumer Staples Fund Manager: Lance Ellington

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

53,165.80

45,695.55

3.00

1.50

P1 Actions: Sold 63 shares for $9,064.35 on 12/29/2020. No dividend payments during this period.

Holding Description: Walmart is the world’s largest retailer, largest company by revenue, and largest employer with 2.20 million associates. Walmart operates roughly 5,400 stores in the U.S. and has another 6,000 locations through its international division in which they sell groceries and other merchandise. Walmart services about 265MM customers each week through its stores and eCommerce websites across 26 countries. Walmart’s business can be broken down into the following three segments: Walmart U.S., Walmart International, and Sam’s Club. The main strategy of Walmart can be explained in one phrase: “Everyday low prices on a broad assortment – anytime, anywhere”. Walmart hopes to meet their customers’ need of being a convenient one-stop shop with low prices and high-quality products and service. Walmart had a 3.00% return during P1 compared to a sector return of 5.64%.1 Positive Drivers: Walmart has a transportation fleet that is made up of 6,100 tractors, 61,000 trailers, and over 7,800 drivers. Each distribution center can support between 90 to 100 individual stores. This portfolio of tangible assets that Walmart boasts is extremely difficult for other competitors to imitate. Walmart’s primary eCommerce website, Walmart.com, hosts approximately 100MM unique users each month.1 In Walmart’s most recent earnings during Q3 FY21, the company reported a revenue increase in Walmart U.S. eCommerce sales of 79.00% YoY.12 Walmart has clearly been able to grow their online presence and traffic throughout COVID-19 as people look for safer and quicker options to receive their groceries and other purchases. Walmart is also doing its best to meet customer needs through services such as online grocery pickup, next day shipping, and a variety of other apps to save consumers time and money. Moving forward, the Haslam Fund expects Walmart to continue to increase their online presence and adapt to the needs of their customers as they maintain the status as one of the largest retailers in the world. Negative Drivers: Walmart faces risk due to a competitive landscape with low switching costs, customers demanding high-quality service across a range of Walmart’s channels, and the always changing consumer habits, especially in the digital retail industry. Consumers have begun to expect Walmart to keep pace with Amazon and offer a variety of options such as ship-to-home, delivery, click-and-collect, and in-store shopping all with excellent functionality. Walmart could also be subject to a data breach as they continue to grow their online presence as a digital retailer. The company’s costs can also be affected through wage laws, trade policy, and the state of the global economy.3

26

Energy Fund Manager: Paige Schmincke P1 Analysis: Over P1, the energy sector experienced large amounts of uncertainty. As for COVID-19, the sector overall has taken a large hit over the past year and may take longer to recover than expected. With travel bans, fuel use is down in major transportation methods, such as cars, trains, buses, and planes. With seemingly no end to the pandemic in sight, it is hard to tell when travel levels will rise to where they were pre-pandemic, if they ever will. Moving Forward: There is currently a large shift occurring to renewable energy, with the overarching goal being low carbon greenhouse gas emissions. This is important to know going forward when assessing the sector. By 2050, it is estimated that there will be a decrease of natural gas, nuclear, and coal use. Many traditional energy firms that have been strong in the past will lose their strong positions, as a new movement of clean energy becomes more normalized. Another problem is dealing with the fluctuation of business along with the business cycle. The energy sector is known to perform especially poor in the early cycle, citing problems in dealing with early inflationary pressure, leading to lower prices.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1 -

-

-

25.78

-2.28

27

Financials Fund Manager: Jacob Saripkin P1 Analysis: The financial sector is composed of stocks that provide financial services to commercial and retail customers. The sector breaks down into five subsectors: Asset Management, Banking, Financial Technology, Insurance, and Specialty Finance. The top five companies with the highest weightings are American Express, JP Morgan, PNC Financial Services, Everest, and Progressive. Interest rates and the state of the economy heavily influence the performance of this sector. With interest rates near 0.00%, it has decreased profitability for loans and mortgages from financial institutions. Also, the economy is steadily improving with the rolling back of lockdowns and the distribution of vaccines. Moving Forward: Looking to the future, we are cautiously optimistic about the performance in this sector. With vaccines rolling out and the cutting down of restrictions, this should increase consumer confidence and decrease unemployment. Consumers will be more willing to take out loans and participate in financial services the sector has to offer. However, the Fed plans on keeping interest rates near zero for the foreseeable future which will decrease profitability for loaning institutions. The Senate is evenly split 50-50 with democrats having the tie breaker, which means sweeping legislation will not occur since democrats do not have a super majority. However, there is possibility of regulations via executive orders.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

79,299.21

111,273.28

26.82

20.65

3.91

28

Bank of America (BAC) Sector: Financials Fund Manager: Jacob Saripkin

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield

(%):

P1

32,449.23

44,434.46

24.01

0.55 P1 Actions: Bought 119 shares for $3,578.93 on 12/29/2020. Total dividend payments of $242.46 during

this period.

Holding Description: Bank of America (BAC) is a banking company headquartered in Charlotte, North Carolina. They operate in more than 4,500 locations and have more than 17,000 ATMs. Their online banking operations has more than 40MM active users. They are a leading wealth manager and manage around $2.5T of assets. Operations in the U.S. account for the majority of their sales. 55.00% of their revenue comes from net interest income. They operate in four segments: consumer banking, global banking, global markets, and global wealth and investment management. Positive Drivers: In the past 7 years, digital banking has increased 28.00%, while branch banking has fallen 22.00%. This has driven down the cost ratio increasing profitability. BAC's AI Erica has proven successful and has added 5.6MM users in 2020. The success in digital banking and their AI has helped BAC earn the number one spot in consumer deposit market share. With lockdowns loosening and vaccines rolling out, this should decrease unemployment and raise consumer confidence. Negative Drivers: In the Fed's meeting in January, they announced that that will be keeping inflation near zero and say that they are a long way from monetary policy and inflation goals. As a result, this will hurt their interest income which makes up more than 50.00% of their revenue. Since 2000, Bank of America has been fined $82.7B and leads their industry in that category. The next bank is JP Morgan at $32.7B in fines. Top banks are hopping on the tech trend in banking which will make this industry even more competitive.

29

JPMorgan & Chase Co. (JPM) Sector: Financials Fund Manager: Jacob Saripkin

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

46,498.41

66,838.82

29.64

0.65

P1 Actions: Bought 43 shares for $5,395.00 on 12/29/2020. Total dividend payments of $434.70 during this period.

Holding Description: JPMorgan & Chase Co (JPM) is a banking company headquartered in New York. They are the largest bank holding in the U.S. They operate approximately 5,000 branches in 25 states. They manage around $2.7T in assets. Investment banking and asset management services are provided by its subsidiary JP Morgan Chase. They are among the top mortgage lenders and credit issuers with around $170B in credit card loans. 75.00% of their sales come the U.S. and 60.00% of revenue comes from interest income. Positive Drivers: JPM will be investing $1B in tech with 50.00% going to artificial intelligence, machine learning, and cybersecurity. Technology is increasingly becoming a vital part in every aspect of business and this investment should keep them on par or ahead of the game. In 2020, JPM moved up to #3 in global equity underwriters. JPM is planning on increasing their Asset and Wealth Management segment through mergers and acquisitions. Also, their Asset and Wealth Management is less capital intensive which makes them less hampered by federal regulation. Lastly, their one-year P/E ratio is 10 less than their 1-year historical average. Negative Drivers: The Feds plan on keeping interest rates near 0.00% for the foreseeable future. This will decrease profits from interest rate income which contributes to 60.00% of their income. The investment banking industry is highly regulated. With president-elect Biden entering office, it leaves the possibility of increased regulations via executive orders. Technology is proving to be a vital part of the success of banking companies and is making the industry increasingly more competitive. JPM needs to ensure their investment in technology is not wasted.

30

Fixed Income Fund Manager: Noah Mayer P1 Analysis: The fixed income market continued its trend of having low rates through Q4, but we did see a slight rise in rates for the 10-Year Treasury yield and 30-Year Treasury yield. The 10-Year yield has increased from 0.68% at the start of the quarter to 0.93% at the end of the quarter.6 Despite this, the Fed Funds rate remains at nearly 0. The 10-Year Treasury inflation-protected security has stayed close to -1.00%, thus suggesting the Federal Reserve believes they can drive inflation higher by keeping interest rates low and allowing the economy to pick up with the introduction of the vaccine and stimulus packages.1 The Fed also announced it would continue Treasury and mortgage-backed security purchases of at least $120B per month until substantial progress has been made toward inflation and unemployment goals. This is in an effort to push inflation moderately above its 2.00% annual target in order to average the inflation rate to 2.00%.1 Moving Forward: With the increase in the Fed’s balance sheet over the year, we could see rate inflation in the future. The rise in inflation could be weighted heavily towards consumer goods. In the coming months, Fed chairman Jerome Powell has said he expects continued struggle for the next few months as Treasury yields are expected to remain relatively flat.1 The continuation of fiscal stimulus packages and the rollout of the vaccine bode well for the economy as a whole. We have seen the equity markets continue to reach all-time highs, but it is uncertain how long this will last with government rates rising. Also, fixed income might be sought after by investors who believe we are in a bubble, in order to hedge against the risk of the equity markets.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

339,979.77

401,025.89

-8.30 -

-

31

iShares Core U.S. Aggregate Bond ETF (AGG) Asset Class: Fixed Income Fund Manager: Noah Mayer

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

114,518.20

148,801.21

0.59

0.61


Holding Description: The iShares Core U.S. Aggregate Bond ETF (AGG) is an exchange-traded fund that seeks to track the Bloomberg Barclay’s U.S. Aggregate Bond Index (LBUSTRUU). Issued by BlackRock Fund Advisors, the fund invests in securities within the total U.S. investment-grade bond market, including treasuries, government-related and corporate securities, MBS, ABS, and CMBS. Overall, 97.56% percent of AGG is allocated in the U.S. AGG is composed of three major types of bonds with 45.36% of assets government, 29.63% corporate, and 28.90% mortgage. AGG consists of almost all investment grade bonds, with only 1.01% not being investment grade and 41.14% being AAA. This shows that AGG has a very high-credit-quality portfolio. Of its 7,492 holdings, 29.61% have maturities of 1-3 years, 27.12% of 3-5 years, 12.63% of 5-7 years, 9.42% of 7-10 years, and 20.10% of 10 plus years. It also has a relatively low management fee with an expense ratio of 0.04%.1 Positive Drivers: AGG consists of a diverse multitude of bonds with minimal credit risk. AGG has maintained a solid dividend yield of 2.12% relative to its credit risk and expense ratio of 0.04%.1 AGG acts as a fixed income benchmark for our portfolio. It sits in between PSK, which leans towards risk and return, and USFR, which leans away from risk and return. Negative Drivers: Despite the low credit risk of the fund, corporate bonds leave uncertainty as liquidity issues could arise due to COVID-19. This could have a significant impact on the fund as corporate bonds represent 29.63% of the portfolio.1 A continued low interest rate environment could also see more investors move to equity markets for a higher return.

32

SPDR Wells Fargo Preferred Stock ETF (PSK) Asset Class: Fixed Income Fund Manager: Noah Mayer

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

92,417.22

122,482.78

3.25

1.79

P1 Actions: Bought 632 shares for $27,854.39 on 12/29/2020. Total dividend payments of $1,693.35 during this period.

Holding Description: The SPDR Wells Fargo Preferred Stock ETF (PSK) seeks to provide investment results that correspond to the total return of the Wells Fargo Hybrid and Preferred Securities Aggregate Index. It invests at least 80.00% of its total assets in the securities comprising the index. It seeks to provide exposure to preferred securities that are non-convertible, have par amounts of $25, and maintain a minimum par value of $250MM. All holdings are required to be rated investment grade. The top 3 industry groups with holdings consist of Banks with 39.22%, Insurance with 22.43%, and Electric with 14.28%. The rest of the holdings are dispersed between Finance, REITS, Telecommunications, Venture Capital, Gas, Internet, and Pipelines. The expense ratio is relatively high, sitting at 0.45% as of right now.1 Positive Drivers: PSK provides an opportunity for solid yield despite the low interest rate environment. This provides a low-risk alternative to the equity markets with the potential for a high return. PSK provides a great way to diversify the fixed income portfolio to counteract the low government bond rates by exposing the portfolio to preferred stocks. PSK had the largest return of the funds fixed income positions and has a 12-month dividend yield of 5.19%. With the equity markets continuing to rise, we could see more investors move to preferred ETFs with the rising theories of an upcoming bubble. Negative Drivers: A turnoff of the ETF is the high expense ratio of 0.45%. This cuts into the returns of PSK significantly. Also, the introduction of fiscal stimulus has increased the number of retail traders taking advantage of the low interest rate environment. This has led to all-time highs in the equity markets, which has caused investors to entertain equity offerings. The sector allocation largely consists of Banks and Insurance, which appear safe at the moment, but if liquidity were to dry up, a large percentage of the holdings would be in danger of defaulting.1

33

WisdomTree Floating Rate Treasury Fund (USFR) Asset Class: Fixed Income Fund Manager: Noah Mayer

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

100,063.35

129,741.90

-0.03

0.01


Holding Description: WisdomTree Floating Rate Treasury Fund (USFR) is an exchange-traded fund incorporated in the United States. It seeks to track the performance and characteristics of the Bloomberg U.S. Treasury Floating Rate Bond Index (BUSYFL). The fund consists of 99.95% Sovereign debt and its assets consist of 99.95% Government yields. Also, 99.95% of those bonds have maturities within 1-3 years with credit ratings of AAA. USFR has a focus on ultra-short maturities and bonds that are investment grade. The management fee of this fund is 0.15%.1 Positive Drivers: USFR protects our portfolio. With it being composed of short-term, government-backed securities, it offers virtually no risk of default. USFR allows us to mitigate risk in uncertain times. Although it has produced a miniscule return of 0.31% over the past year, we have seen a rise in treasury yields showing optimism for the low-risk bond market.1 USFR acts as a way to minimize risk in the funds other fixed income investments, such as preferred stock. Negative Drivers: Interest rates are extremely low and are not expected to rise significantly in the near future. This makes other fixed income or equity investments more attractive when looking for high yields. Additionally, the management fee of 0.15% is high considering the returns we are seeing.

34

Healthcare Fund Manager: Jake Barnes P1 Analysis: The Healthcare sector is very robust, comprising roughly 13.44% of the weighting in the S&P 500, making this the second most heavily weighted sector behind Information Technology. The sector is quite complex, as it is constantly evolving with advances to modern medicine and technology. Throughout P1, we saw increasing COVID-19 case counts, which spurred more diagnostic testing, but the main focus over the period was the approval of a COVID-19 vaccine for distribution to the public. On 12/11/2020, the FDA approved the first vaccine that was created by Pfizer, shortly followed by approval of a Moderna vaccine. Our portfolio in previous periods was heavily overweight versus the S&P 500 in Healthcare. This period, we decided to rebalance the portfolio to come more in line with the S&P 500, so we took profits in our holdings and allocated these in other sectors. Moving Forward: As we continue on into 2021, we expect to see mass distribution of the COVID-19 vaccine. In addition to vaccine distribution, the new administration has taken further steps to curb the spread of the virus by implementing federal mandates requiring masks and an emphasis on social distancing. President Biden released his plans to help combat the virus at the end of January outlining focus in key areas: antigen and molecular based testing, personal protective equipment (PPE) and durable medical equipment, vaccine development, manufacturing and distribution, and therapeutics and key drugs.13 We expect that the pandemic will linger on and demand for diagnostic testing and vaccine distribution will remain high. In addition to the COVID-19 plan, President Biden wants to change numerous things in the Healthcare sector including a public option for healthcare benefits and reducing pharmaceutical prices.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

267,984.38

166,379.29

5.31

7.55

3.63

35

Abbott Laboratories (ABT) Sector: Healthcare Fund Manager: Jake Barnes

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

32,523.00

24,963.72

-1.59

-

P1 Actions: Bought 293 shares for $32,156.75 on 11/19/2020. Sold 65 shares for $7,042.44 on 12/29/2020. No dividend payments during this period.

Holding Description: Abbott Laboratories discovers, develops, manufactures, and sells a diversified line of healthcare products and services. These products include pharmaceuticals, nutritional, diagnostics, and vascular products.1 While Abbott is classified as a Medical Device company, which is their largest revenue driver, their ability to generate significant revenue in other segments makes Abbott appear more like a Healthcare conglomerate. Abbott Laboratories provides us with broad exposure to the Medical Devices subsector of Healthcare. Positive Drivers: Abbott has greatly benefited over the past year from diagnostic testing of COVID-19. Abbott has multiple diagnostic tests including Molecular and Antigen based testing that received U.S. Emergency Use Authorization (EUA). Abbott also received several key approvals for their diabetic and cardiovascular medical devices in 2020.14 The investment in and strength of Abbott’s pipeline continue to be a positive driver for the company. Negative Drivers: While COVID-19 has boosted Abbott’s diagnostic division, other segments of their business have not experienced this type of growth. If the pandemic lingers on, Abbott’s other segments will continue to be affected. Furthermore, as herd immunity begins to develop as more people become vaccinated, the increase in demand for Abbott’s diagnostics will fall back to pre-pandemic levels.

36

Amgen, Inc. (AMGN) Sector: Healthcare Fund Manager: Jake Barnes

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

57,694.32

29,199.84

-9.40

2.79

P1 Actions: Sold 100 shares for $22,705.49 on 12/29/2020. Total dividend payments of $363.20 received during this period.

Holding Description: Amgen, Inc. is an independent biotechnology company that discovers, develops, manufactures, and markets medicine for grievous illnesses. The company focuses on human therapeutics and concentrates on innovating novel medicines based on cellular and molecular biology.1 Their key therapeutics are EnbrelÒ, ProliaÒ, NeulastaÒ, and OtezlaÒ. Amgen is our only exposure to the Biotechnology subsector of Healthcare. Positive Drivers: Amgen’s ability to secure patents on therapeutics gives them a competitive advantage over their peers. Biotechnology patents are longer in nature than pharmaceuticals, therefore allowing them to monopolize the product. Amgen continues to develop their pipeline to help produce future growth for the company. They also expect to submit a supplemental New Drug Application to the FDA in Q1 2021 to extend the patent life on OtezlaÒ. Amgen saw revenue increase 9.00% over fiscal year 2020 lead by increased sales in OtezlaÒ, EVENITYÒ, AMGEVITAÔ, and RepathaÒ.15 Negative Drivers: Biotechnology firms are in nature more volatile, as there are significant costs associated with the development of new therapeutics. In addition, Amgen relies heavily on the success of EnbrelÒ, which accounts for one fifth of their revenue. EnbrelÒ does have a patent through 2028, but aside from that, a number of their human therapeutic’s patents are set to expire in the next five years.15 Despite the company’s boosted earnings over fiscal year 2020, the company saw an increase in their operating and net income caused by a significant increase in their operating expenses.

37

CVS Health Corp. (CVS) Sector: Healthcare Fund Manager: Jake Barnes

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

35,974.40

24,792.90

17.41

2.72


Holding Description: CVS Health Corp. is an integrated pharmacy healthcare provider. The company offers pharmacy benefit management services, mail order, retail and specialty pharmacy, disease management programs, and retail clinics.1 The company established a larger footprint in healthcare benefits products and services with their acquisition of Aetna Inc. in the year 2018. CVS gives us exposure in the Healthcare Facilities and Services subsector of Healthcare, but more specifically Healthcare Benefits and Consumer Retail Services. Positive Drivers: With a rise in COVID-19 cases and an increased demand for diagnostic testing, CVS was able to step up and turn their consumer retail centers into COVID-19 testing sites. This has boosted the company’s revenue in the short-term. The pharmacy services segment is expected to benefit from specialty pharmacy growth and continued improvements in purchasing economics.16 Negative Drivers: COVID-19 has greatly impacted CVS and while they have seen short-term revenue boost from diagnostic testing, it is unlikely that this is sustainable. The company experienced higher seasonal operating costs to support readiness for 2021. Also, with new presidential administration, CVS will likely have to change its business environment, as significant modifications are to be made to public policy and existing laws and regulations.16 The Biden Administration has talked about implementing a public option, which if passed, would likely disrupt the company’s Healthcare Benefits segment.

38

Edwards Lifesciences Corp. (EW) Sector: Healthcare Fund Manager: Jake Barnes

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

54,596.88

24,905.79

13.62

-

P1 Actions: Sold 411 shares for $37,127.88 on 12/29/2020. No dividend payments received during this period.

Holding Description: Edwards Lifesciences Corp. designs, develops, manufactures, and markets products and services to treat late-stage cardiovascular disease. They offer products such as tissue replacement, heart valves, heart valve repair, hemodynamic monitoring devices, angioscopy equipment, oxygenators, and pharmaceuticals.1 They are the global leader of patient-focused innovations for structural heart disease and monitoring.17 Edwards Lifesciences Corp. provides us with exposure to medical devices, specifically focused on cardiovascular devices. Positive Drivers: Edwards Lifesciences Corp. saw growth in their transcatheter heart valve therapy segment over 2020. Also, one of their biggest competitors in this area, Boston Scientific Corp., had a recall on their Lotus Edge Aortic Valve System. This was obviously beneficial for Edwards Lifesciences Corp. as it reduces some of their competition in the space. The company saw positive updates in their pipeline including progress in early-stage development in their Transcatheter Mitral and Tricuspid Therapies (TMTT). It is estimated that global TMTT opportunity could reach $3.00B in sales by 2025.17 Finally, the company should greatly benefit from the aging population in the United States and around the world. This would likely increase demand for their cardiovascular products as these problems are associated with aging. Negative Drivers: Despite strides in a number of different areas throughout 2020, Edwards Lifesciences’ revenue grew stagnant for the year. COVID-19 impacted the company and they saw increases in their costs associated with discontinuing their SUTRAFIX program, which was a medical device for the use in cardiovascular procedures.17

39

GlaxoSmithKline PLC. (GSK) Sector: Healthcare Fund Manager: Jake Barnes

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

39,371.44

16,412.80

-0.76

2.58

P1 Actions: Sold 600 shares for $22,141.97 on 12/29/2020. Total dividend payments of $515.60 received this period.

Holding Description: GlaxoSmithKline PLC. operates as a research-based pharmaceutical company. They develop, manufacture, and market vaccines, prescriptions, and over-the-counter medicines, as well as health-related consumer products. They also provide products for infections, depression, skin conditions, asthma, heart and circulatory diseases, as well as cancer.1 GlaxoSmithKline gives us exposure to large pharmaceuticals both domestically and internationally. Positive Drivers: With their international exposure, GlaxoSmithKline can offset some of the risk associated with President Biden’s administrative agenda. His desire to cut drug prices will not impact GlaxoSmithKline as much as some of their United States based competitors due to their operations abroad. The company also invested heavily into their pipeline development of new drugs. They increased their research and development expenses by 12.00% to roughly £5.10B or roughly $6.90B.18 This is a positive driver because in pharmaceuticals without pipeline development the company grows stagnant and will eventually get beat out by competitors. This investment shows that the company is looking down the line to how they can remain relevant and continue to remain competitive. Negative Drivers: Even though the company faces less risk compared to its United States based peers, the company still has some risk associated with the new administration. Also, the company invested heavily into research and development in 2020 to come up with new drugs, but the process for these to be approved takes a while and not all of them will be approved. This creates some uncertainty for their future, as their success is contingent on development and approval of novel medicine.

40

Merck & Co., Inc. (MRK) Sector: Healthcare Fund Manager: Jake Barnes

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

41,475.00

25,030.80

-0.96

3.32


Holding Description: Merck & Co. is a global healthcare company that delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. They market their products through both direct and joint ventures. Their main revenue segments are pharmaceuticals, animal health, and consumer care.1 Merck & Co. give us broad exposure to large pharmaceuticals with some exposure to biologics and animal healthcare. Positive Drivers: Merck has invested in their pipeline development and has seen some promising results from trial studies. They increased their research and development expense by 37.00% for the year. The company showed positive results in a drug that helped maintain viral suppression in treatment-naïve adults with HIV-1 infection.19 The company has also been working on orally available antivirals for the treatment of COVID-19, which is currently in Phase 2/3 clinical trials. Finally, with a rise in pet ownership sparked by the pandemic, Merck & Co. should see positive impacts to their animal healthcare segment. Negative Drivers: Merck & Co. experienced negative financial impact, estimated to be $2.50B, due to COVID-19.19 They also have risk involved with President Biden’s goal to reduce drug costs across the board. Additionally, like some of their competitors, their investment into the development of drugs and vaccines always bears risk. The company does not necessarily know if this investment will pay off or if the product will never make it past a trial phase.

41

Stryker Corp. (SYK) Sector: Healthcare Fund Manager: Jake Barnes

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

40,632.15

21,073.44

16.56

0.96


Holding Description: Stryker Corp. develops, manufactures, and markets specialty surgical and medical products. These products include implants, biologics, surgical, neurological, ear, nose, and throat equipment, interventional pain equipment, endoscopic, surgical navigation, communications and digital imaging systems, and patient handling and emergency medical equipment.1 Stryker’s revenue can be split into three main segments: MedSurg, Orthopedics, and Neurotechnology and Spine. Stryker gives us exposure to medical devices that are more concentrated in surgical and orthopedic devices. Positive Drivers: Stryker Corp. closed a deal over the period that acquired Wright Medical Group for $4.70B.20 Wright Medical Group is also a medical device company specializing in orthopedic, surgical, and neurologic and spinal products. This increases Stryker’s market share in the space and helps them to further deepen their portfolio of devices. Negative Drivers: Stryker was greatly impacted by COVID-19 as their devices are mainly used in elective surgeries. Due to many hospitals, especially in geographic areas which had virus breakouts, elective procedures were put on hold. Although in the U.S. some places still held elective surgeries, places like the United Kingdom halted all elective procedures as they went into full lockdown. This lack of demand for their products hurt their bottom line. Also, while their acquisition of Wright Medical Group seems like a good fit, one can never fully predict if they will be successful or not.

42

Industrials Fund Manager: Jack Yardley P1 Analysis: During P1, Industrials held a weight of 5.99% of our portfolio and had a return of 12.32%. Our holdings in the Industrials sector, as a whole, underperformed the S&P Industrials Index by a little under 3.00%. We also weighted our position in the Industrials sector lighter than the S&P by 2.11%. With that being said, we had a lighter position in our portfolio than if you were to hold in the S&P 500, and we also had a slightly lower return. Although this does not seem all too great, there were some holdings that pulled their weight this last period, and some that dragged the sector down. The two holdings that performed well were Honeywell (HON) and Global X Infrastructure Development ETF (PAVE). The laggards for our sector were Raytheon Technologies (RTX), Lockheed Martin (LMT), and iShares Transportation Average (IYT). Moving Forward: The team will continue to analyze and monitor our holdings in this sector and rebalance where necessary. Keeping in mind the laggards, we may go forward and liquidate those holdings and allocate more towards our winners, or we will find better investment opportunities so we can beat the S&P sector return next period. We may also consider investing more of our overall portfolio in this sector, as we are a little bit lighter than expected. This sector should see unprecedented growth as the economy recovers from COVID-19. Our goal for P2, P3, and our Tenure return, is to beat the S&P Sector return by having our allocation and selection better than this period.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1 133,215.47

150,286.42

12.32

15.19

2.11

43

Honeywell International Inc. (HON) Sector: Industrials Fund Manager: Jack Yardley

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield

(%):

P1

37,366.47

20,206.50

28.04

1.83 P1 Actions: Sold 133 shares for $27,691.98 on 12/03/2020. Bought 1 share for $208.07 on 12/29/2020.

Total dividend payments of $211.11 during this period.

Holding Description: Honeywell International Inc., also known as Honeywell, is a worldwide tech and manufacturing company that provides the following: aerospace products and services, control, sensing and security technologies for commercial buildings, safety and productivity solutions, specialty chemicals, advanced materials, and energy efficient products and services. Honeywell can be broken down into four different segments. The four segments are as follows: Aerospace – 40.00% of revenue – they create products and services for aircraft and vehicles sold to OEMS and other customers. Performance Materials & Technologies – approximately 30.00% of revenue - this segment operates in three divisions: Honeywell UOP, Process Solutions, and Advanced Materials. Building Technologies – less than 15.00% of revenue – they sell automation controls for commercial customers. Safety & Productivity Solutions - greater than 15.00% of revenue – they provide products that improve productivity, workplace safety, and asset performance. Products in safety solutions include PPE and footwear. Products in productivity solutions include gas detection tech, software for computing and data collection, supply chain equipment, and more. Overall, 60.00% of Honeywell’s revenue comes from the U.S., while the other 40.00% is overseas.1 Positive Drivers: Honeywell tends to focus their expenses on R&D to generate new ideas to stay ahead of the spinoffs taking some of the market cap. To combat the spinoffs that were taking business from them, Honeywell acquired Rebellion Photonics to become a part of their Safety and Productivity Solutions segment. Rebellion Photonics makes gas monitors that maximize safety and operational performance. Financially, Honeywell has a strong cash balance on their balance sheet, signaling stability for their company. This is truly important, as they have survived the worst of the pandemic and were actually able to grow from it. Another driver of their growth is their dividend payout ratio.1 Even though dividends are not a necessity for companies, seeing Honeywell return a greater dividend to their shareholders is another strong driver of this company’s growth and stability in the current volatile market. Negative Drivers: Honeywell has faced some problems over the last few years. Their revenues and net income had both dropped significantly in 2019 due to spinoff companies taking some of the customer base. Revenue decreased by a total of 12.00% YoY, and net income dropped $620MM ($6.70B to $6.10B).1 These spinoffs are making it harder for Honeywell to keep growing, leading them to expensive mergers. It would be more beneficial for Honeywell to develop their own products to control the market, but with globalization growing at a rapid pace, especially because of COVID-19, Honeywell now has to compete with countries that are not sources in America.

44

iShares Transportation Average ETF (IYT) Sector: Industrials Fund Manager: Jack Yardley

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield

(%):

P1

19,345.32

19,848.60

-0.61

0.93 P1 Actions: Bought 87 shares for $19,505.40 on 12/03/2020. Bought 3 shares for $658.32 on 12/29/2020.

Total dividend payments of $33.41 during this period.

Holding Description: iShares Transportation Average, also known as IYT, is an exchange-traded fund incorporated in the U.S. The fund’s main goal is to correspond to the price and yield performance of the Dow Jones Transportation Average Index.24 The fund invests at least 90.00% of their assets in securities within the index.1 The industries that make up this portfolio and their respective weight in this portfolio are as follows: Railroads (36.08%), Air Freight & Logistics (30.05%), Trucking (18.04%), Airlines (10.33%), Marine (5.30%), and Cash/Derivatives (0.20%).24 IYT is held because it is an ETF that closely follows the transportation industry within the Industrials sector. This helps us diversify our sector holdings by giving us positions in transportation and logistics. This ETF is also the largest to follow the Dow Jones Transportation Average, and it was the best performing ETF to follow the index. Positive Drivers: The Transportation industry is one of the most important industries in this country, and globally. Not only is it necessary to assure efficiency for companies to be global competitors, but it has proven to be a major factor in the supply chain. Especially now with the COVID-19 vaccine, transportation is more important than ever.1 Making sure the vaccines get delivered to the right place at the right time might be the difference in saving lives. Also, transportation has been proven to be an industry essential for businesses large and small to survive. For example, Amazon growing and delivering to more homes as people cannot go out due to COVID-19 has helped bolster FedEx, UPS, and other partners. Restaurants have started to ship their raw products to customers so they can make their food at home. Without an efficient transportation supply chain, some of this would not be possible. Transportation is only going to grow more as globalization grows, and the need for moving goods at a fast pace might introduce more competition as well. Negative Drivers: This industry is facing a severe shortage of truck drivers, according to Jeff Taylor, Chief Executive Officer at Greene County Partnership with over 20 years of experience in the transportation industry. Without truck drivers the industry might face a bottleneck in growing, and deliveries will not be completed on time. Although there is the growth of autonomous semi-trucks within the near future, these automatic semi-trucks will need somebody to still be present to make sure everything is running efficiently and smoothly. This means that the problem will still exist, even as sustainability continues to be a priority for many companies worldwide. With that being said, there is also a high cost to these autonomous vehicles, and with the Biden Administration taking over, we could see more regulation forcing these companies to switch to greener vehicles, leading to higher costs, and less returns for shareholders.

45

Lockheed Martin Corp. (LMT) Sector: Industrials Fund Manager: Jack Yardley

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield

(%):

P1

27,760.36

19,878.88

-3.68

2.66 P1 Actions: Bought 74 shares for $27,689.32 on 11/13/2020. Sold 20 shares for $7,346.83 on

12/03/2020. Bought 2 shares for $706.61 on 12/29/2020. Total dividend payments of $192.40 during this period.

Holding Description: Lockheed Martin Corporation is a global security company that specializes in research, design, development, manufacturing, and integrated technology products and services. Their business covers space, telecommunications, electronics, information and services, aeronautics, energy, and systems integration. Lockheed Martin supplies many kinds of aircrafts to the government and commercial customers. The U.S. government is Lockheed’s largest customer, as they account for approximately 71.00% of revenue. The U.S. Department of Defense accounts for 61.00% of all revenue for Lockheed Martin. The main aircrafts Lockheed produces to the government are combat aircrafts, unmanned aircrafts, helicopters, satellites, and spacecrafts. Specifically, the Flagship F-35 is the largest generator of revenue, accounting for 25.00% of their revenue.1 Lockheed Martin can be broken down into four different segments: Aeronautics, Rotary & Mission Systems, Space Systems Segment, Missiles & Fire Control. Positive Drivers: Lockheed Martin’s main customer is the U.S. government, which makes up about 60.00% of revenue. Overseas customers are mainly U.S. Allies and commercial customers in the U.S. As the COVID-19 pandemic charges on, there is now a global tension and worry of trust between countries.22 Many countries are now investing in their defense systems if conflict were to ever go that far. Financially, Lockheed Martin is a stable company. Since 2015, Lockheed Martin’s revenue has grown 48.00%. Between 2018 and 2019, revenue grew from $53.00B to almost $60.00B. Cash on hand has always been a substantial number for Lockheed. At the end of 2019, they had $1.50B on hand, and an increase of $742.00MM from last year.1 This can help us confirm that they are safe financially if they were to run into any trouble down the road. Negative Drivers: Lockheed Martin does not have many negative drivers qualitatively. Lockheed has great management, good customer base, and a nice share of the market cap. However, compared to peers, Lockheed has some negative drivers financially. Their net debt-to-equity is extremely high. Although, this could be occurring because of their growth recently. They have a net debt-to-equity of 167.40% compared to the peer average of 32.20%, this could be a warning to shareholders that they would receive absolutely nothing if the company went under. Another negative driver of Lockheed Martin is their quick ratio. At 0.40%, compared to a peer average of 0.90%, this could indicate that they are not as liquid as rivals in the short term.1

46

Global X U.S. Infrastructure Development ETF (PAVE) Sector: Industrials Fund Manager: Jack Yardley

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield

(%):

P1

19,588.44

19,979.82

3.49 -

P1 Actions: Bought 956 shares for $19,636.24 on 12/03/2020. Sold 14 shares for $291.61 on 12/29/2020.

Holding Description: Global X U.S Infrastructure Development is an exchange-traded fund (ETF) that invests in companies that benefit in the potential increase in infrastructure activity levels in the U.S. This includes those involved in the production of raw materials, heavy equipment, engineering, and construction.1 This ETF tries to correspond directly to the price and yield of the INDXX U.S Infrastructure Development Index. The sectors that make up this portfolio and their respective weight in this portfolio are as follows: Industrials (61.10%), Materials (25.90%), Information Technology (6.70%), Financials (4.70%), Utilities (1.20%), and Cash/Derivatives (0.24%).23 PAVE gives us a strong position in the infrastructure industry of the U.S. It also is one of the best ETFs to follow the index it corresponds as well. Positive Drivers: Infrastructure Development will continue to be a necessity and have high demand in the future if the population continues to grow. As rural areas become more populated, the global population continues to grow faster than ever, and immigration being easier now than ever before, the demand for infrastructure is going to continue to accelerate.23 The need for clean and renewable energy will help drive this growth in the future as more and more countries are pushing their companies into producing more green products. Although this might phase out some products such as oil and gas (materials needed to run many goods), renewable energy should be a direct replacement. Negative Drivers: Recently, the COVID-19 pandemic shook the U.S economy. This slowed the growth of many companies in this sector, and as the economy tries to bounce back, this ETF might observe some drastic change in the weighting of the portfolio.23 This could change a lot of things, including new companies coming in that are not as stable as the ones historical ones. Another thing worth noting, is the impact of sustainability. It is projected that it will help increase jobs, but there is not an exact number of how many jobs would be lost due to it. This could slow industry growth down and lessen profit for shareholders of this ETF or other individual companies.

47

Raytheon Technologies Corp. (RTX) Sector: Industrials Fund Manager: Jack Yardley

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

26,813.64

20,165.82

25.46

3.17

P1 Actions: Sold 195 shares for $14,218.11 on 12/03/2020. Bought 11 shares for $768.24 on 12/29/2020. Total dividend payments of $221.35 during this period.

Holding Description: Raytheon Technologies Corporation is a company that serves as an aircraft manufacturing company. Raytheon focuses on technology offerings and engineering teams to deliver innovative solutions such as aero structures, avionics, interiors, mechanical systems, mission systems, aircraft engines, power and control systems, software, and more. Raytheon provides these high-tech products and services to the aerospace and commercial buildings industries. Raytheon is operated in four different segments: Pratt & Whitney – over 25.00% of revenue – they mainly focus on aircraft engine manufacturing. Carrier – a little less than 25.00% of revenue – they produce residential and building systems such as AC units, heating systems, refrigeration, fire, flame, gas, smoke and carbon monoxide alarms, and more. Collins Aerospace System – about 35.00% of revenue – they make and distribute aerospace products and aftermarket services for aircraft manufacturers, airlines, regional, business and general aviation markets, the military, and space ops. Otis – over 15.00% of revenue – they are the world’s largest elevator and escalator manufacturer.1 Positive Drivers: Raytheon’s global business strategy moving forward is something to take note of as it could skyrocket revenue and earnings in the future. This could also help Raytheon in taking a large share of the global market share. They have invested in the following countries: Argentina, Brazil, China, India, Indonesia, Mexico, Poland, Russia, South Africa, Turkey, Ukraine. They have also invested in countries in the Middle East and Central Asia that carry high levels of currency, political, compliance and economic risk since the need for defense is higher here. Raytheon expects significant amounts of sales from these regions in the future.21 Another financial driver is their quarterly sales acceleration. Compared to peers, theirs stands at four quarters, whereas peers are only at one quarter.1 Negative Drivers: Raytheon was hit hard by the COVID-19 pandemic. The pandemic caused many countries to cut back spending on national defense so they could focus on saving their economies. As the economy continues to recover, many countries are heading back into their normal spending habits. With that being said, there are some financial negative drivers as well. One being their five-year dividend growth. The peer average is about 9.80%, whereas theirs is -3.30%. This could be a sign that Raytheon is heading into financial instability. Another driver is their net debt to EBITDA ratio for the last twelve months. Theirs is 9.10x compared to their peers 1.70x.1 This could signal to shareholders that they are taking out more money and not making profit off of it. If this does not correct itself, Raytheon’s credit rating could take a hit.

48

Information Technology Fund Manager: Phoenix Van Zutphen P1 Analysis: The Information Technology sector ushered in a great wealth of success for the Haslam Torch Fund in P1. As the S&P 500’s largest sector, the Information Technology sector boasts a substantial and significant weighting in the S&P of 27.61%. At the onset of the period, the IT sector had already climbed steeply due to the demand generated from the COVID-19 pandemic and the world’s shift into increasingly digital mediums of communication, entertainment, and job-telecommuting. This trend continued throughout the entirety of P1 as many of our holdings saw plentiful price appreciations and as the S&P 500’s IT sector experienced an 11.52% boost over the same time period.1 The Haslam Fund has had the pleasure of greatly capitalizing on the Information Technology sector’s returns through our ownership of Apple Inc., Applied Materials Inc., Broadcom Inc., Intel Corp. (which was relatively stagnant), International Business Machines (IBM) Corp. (which was also fairly stagnant), and Microsoft Corp. Moving Forward: There are a multitude of positive drivers pushing value and growth increasingly higher for the Information Technology sector as a whole. With the soon to come advent of a Biden administration and the looming possibility of another potential quarantine shutdown, the Information Technology sector is situated in a uniquely opportunistic position. As Biden encourages clean energy initiatives, many of our holdings can capitalize on the components that create solar systems and controls. Factories at large shut down when the COVID-19 pandemic hit, costing companies billions as factories sat empty. This is sparking an even greater demand for automation technology and enterprise systems, both of which many IT firms delve into. Cloud computing systems and cloud storage is also rapidly growing as more and more of our daily lives are shifting to the digital realm. In the Haslam Torch Fund specifically, we are proud to have exposure to these high demand products from numerous holdings within the IT sector. The potential for another COVID-19 fueled quarantine would likely function to boost the Information Technology sector in the long run, as an event like this would nearly cement the entire worlds reliance on IT firms and the globe connecting products they create. I feel that if another COVID-19 quarantine took place, an investment in the Information Technology sector would hold its value and provide superior returns in the long run. In the more likely event that another quarantine does not take place as vaccines distributions are underway, we at least know how steadfast, innovative, and crucially important the Information Technology sector has been in 2020.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

230,092.55

265,050.81

15.19

11.52

-11.76

49

Apple Inc. (AAPL) Sector: Information Technology Fund Manager: Phoenix Van Zutphen

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

46,324.00

54,535.59

14.21

0.61

P1 Actions: Held. Bought 11 shares for $1,498.42 on 12/29/2020. Total dividend payments of $82.00 during this period.

Holding Description: Apple Inc. is the second largest holding in the Information Technology sector, comprising 3.26% of the Haslam Funds overall AUM. Within the last year, the security has endured massive swings in its share price. Over the course of P1, Apple’s price per share appreciated by 14.58%. The company’s core business model revolves around their unique ability to design innovative products for the worlds mass market of technology hungry consumers. Their revenue streams break down as follows: the iPhone provides 50.20%, the wearables, home, and accessories stream provides 11.20%, the Mac line provides 10.40%, the iPad provides 8.60%, with services comprising the remaining 19.60% of their revenue.1 The recent announcement of the “Apple Car” project opens the door for an entirely new revenue stream in the future. Apple Inc. is currently in the process of issuing $14B in debt in what will be early 2021’s largest investment grade bond. Recently, the firm has paid out over $3.6B in dividends and repurchased around $24B worth of Apple shares (approximately 200 million shares in total). All of this is indicative of a prosperous, comfortable, and growing firm that the Haslam Torch Fund is proud to hold. Positive Drivers: Apple Inc. achieved $100B in revenues throughout the last quarter, compared to the same quarter one year before. Delightfully, iPad sales increased by 41.00%, Mac sales increased by 21.00%, and iPhone sales grew at a rate of 17.00%, marking an immensely successful quarter. This is due to the tremendous increase in demand for newer and higher functioning connected devices as the COVID-19 pandemic pushes the world further towards digital mediums of communication, entertainment, and job-telecommuting. Apple’s revenue has increased substantially year over year, as well as its gross profit, EBITDA, net income, and earnings per share (EPS). Meanwhile, Apple’s cash from operations has grown over the last four years, while it has leaned its capital expenditures by $3.75B and increased its Free Cash Flows by $28.45B.1 Apple has also heightened its privacy features to bar social media firms and third-party apps from collecting customer data for use in extremely targeted advertising practices. Apple’s alignment with protecting their customers personal data and privacy is seen by many as a positive promise of support for its user base. Negative Drivers: Some investors are quite scared of the issuance of $14B in debt, despite its high investment grade range of Aa1 to AA+, as the company has reported a decrease in cash since 2017. Potential issues may arise in the future as Facebook acknowledges Apple Inc. as one of their biggest competitors as the two tech giants spar over privacy concerns in association with Facebook and Instagram’s usage of iOS user’s metadata for increased advertising accuracy. The recent falling out with Hyundai Motors and Kia over the Apple Car project could stifle production of an asset that utilized a fortune in R&D.

50

Applied Materials Inc. (AMAT) Sector: Information Technology Fund Manager: Phoenix Van Zutphen

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

25,563.50

38,144.60

43.91

0.78


Holding Description: Applied Materials Inc. is a firm that operates in the high functioning technology realm, comprising 2.28% of the Haslam Torch Fund’s portfolio. The company manufactures, supplies, and designs equipment, software, and services to meet the needs of numerous clients. These include firms building products for semiconductor manufacturers, flat panel displays for TV’s and smartphones, and solar power components. Applied Materials generates revenue from three overarching streams: the silicon systems business, which deals in the selling of equipment and machines used in the creation of semiconductors, memory storage systems, and solar panel photovoltaic components; the global services business, which includes technology for automating the manufacturing process, output performance and productivity enhancing systems, and products and parts to service current machinery; and the display business, which provides products used in the manufacturing process of LCD displays, LED displays, and OLED displays. Demand for technology components has only increased since the onslaught of the COVID-19 pandemic and with a change of leadership in Washington soon to come, we can expect an uptick in their solar business as Biden ran on a promise of a $400B investment in clean energy over the next 10 years. Positive Drivers: Applied Material’s revenue has grown at a rate of 17.80% year over year and has held constant at a strong gross profit margin of ~45.00%. These data points coupled with the increased demand for additional connected devices in the age of a pandemic paints a positive picture for the firm moving forward. A global shortage of semiconductors spawned by the heightened demand from the COVID-19 pandemic could prove to further boost revenues as they invest in their silicon systems business. To sweeten the security, the firm is also at a crossroads of opportunity for their photovoltaic solar power and solar cell business to rapidly expand as $400B in government funding is funneled into the renewable energy industries. Throughout P1, the security has also enjoyed a price appreciation of 45.16% as Applied Materials Q4 revenue broke previous records. Negative Drivers: Potential downsides to this security are slim; however, as with all investments, there is inherent risk in both the market and overall business environment the firm operates in. Potential issues could arise from their dwindling cash balance that decreased by 50.00% between 2017 and 2019. Another potential issue could be their relatively flat free cash flows that have decreased by 1.80% over the last four years. Another potential shortcoming for the firm is their debt level, which weighs in at almost 2x their net income in a typical year.1 Despite these concerns, we feel that the company has strong potential for continued growth and success moving forward, especially in light of the recent semiconductor shortage.

51

Broadcom Inc. (AVGO) Sector: Information Technology Fund Manager: Phoenix Van Zutphen

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

28,416.96

35,028.00

20.62

3.01 P1 Actions: Held. Bought 22 shares for $855.20 on 12/29/2020. Total dividend payments of $280.80

during this period. Holding Description: Broadcom Inc. is a designer, developer, manufacturer, and supplier of semiconductor and infrastructure software products. Broadcom in its current form was created by a merger between Broadcom Inc. and Avago Technologies in the year 2016. This security currently comprises 2.09% of the Haslam Portfolio. Broadcom’s abundance of revenue is attributed to its two key revenue streams known as “Semiconductor Solutions” and “Infrastructure Software.” Semiconductor Solutions generates 72.00% of the company’s total revenue, while Infrastructure Software comprises 28.00% of the total revenue. Four key internal operations generate their significant revenue makeup. The Wired Infrastructure segment builds and sells products that create network infrastructure systems, telecom systems, components for data centers, and gateways for broadband internet access, which is currently their largest revenue stream. The Wireless Communications segment manufactures an array of wireless connection chips and mobile phone components for the smart phone market. The Enterprise Storage segment manufactures and sells components for large scale servers and storage systems. The Industrial and Other Business segment designs and sells factory automation technology, display and lighting products, motor control products, and vehicle entertainment systems.1 Broadcom Inc. offers a unique and diverse revenue stream within the Information Technology sector and tactically manages, operates, and executes their business functions. Positive Drivers: Broadcom Inc. has an abundance of cash in the amount of $7.60B that can fuel an explosion of innovations and acquisitions to continue their forward-looking stride. Revenue is growing at a rate of 5.70% per year, while their gross profit margin has increased to a hefty 56.80%.1 Their cash generated from operations has doubled in the last four years, while their free cash flows have increased nearly 2x since 2017. They have also been able to significantly decrease their capital expenditures over the last four years as well. Given the increasingly high demand for manufacturing automation created by the empty factories and lost revenue from COVID-19 quarantines, many manufacturers are looking towards automation technologies. The cultural shift to online education, working, and communication caused by COVID-19 has yielded a massive increase in demand for connected devices. This increase in demand has been a partial input into their stock appreciation of 20.18% over the period. Broadcom Inc. has a healthy and prominent exposure to capitalize on these markets moving forward. Negative Drivers: Broadcom’s net income has considerably declined year over year since 2018. Meanwhile, within the last two years, their earnings per share have decreased by 11.80% as their stock price has risen exponentially, potentially signaling an overpriced security. Changes in export policies under a Biden administration could cause many firms who purchase semiconductor components and manufacture abroad to entirely outsource their supply chain, potentially putting a damper on Broadcom's revenue. A growing debt level of 238.00% over the last four years poses a threat; however, Broadcom Inc. is an overwhelmingly stable company with very few negative drivers.

52

Intel Corp. (INTC) Sector: Information Technology Fund Manager: Phoenix Van Zutphen

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

28,996.80

28,646.50

-3.05

2.29

P1 Actions: Held. Bought 15 shares for $740.03 on 12/29/2020. Total dividend payments of $184.80 during this period.

Holding Description: Intel Corp. is a multinational tech giant headquartered in Silicon Valley. Within their facilities, they design and manufacture semiconductors, computer components, networking systems, data storage, and communication platforms. They are a highly recognizable firm whose products and computer components appear in most of the devices the public uses every day. This security currently encompasses 1.71% of the overall Haslam Fund portfolio. Their revenue is comprised of six overarching segments that capture every range of their broad revenue streams. The Client Computing group provides Intel with 51.40% of their overall revenue and functions by designing and manufacturing processors used in laptops, tablets, and smartphones. The Data Center group yields 33.50% of Intel’s total revenue and sells microchips and microprocessors used in their cloud, communications infrastructure, enterprise systems, and technical computing systems. The Non-Volatile Memory Solutions group (NSG) comprises 6.90% of Intel’s revenue and both manufactures and sells solid state drives and various memory solutions. The Internet of Things group yields 5.10% of their overall revenue and sells platforms used in the automotive, medical, and industrial fields. The Programmable Solutions group provides Intel with 2.40% of their overall revenue, creating components for network security and architecture for software development. All other groups and the corporate stream accounts for a meager 0.70% of their yearly revenue and is comprised of miscellaneous revenue inputs. Positive Drivers: Intel has a consistent and stable business model that keeps them on the forefront of technological innovation and computer systems. Intel’s revenue growth of 8.20% is strong, as well as their increase in cash over the last four years of $6.46B, or a 28.60% increase. This is attributed to their stellar cash from operations increase of 59.90%. These drivers, combined with the massive surge in demand for computer products and automated technology spawned by the COVID-19 pandemic, places Intel in a unique strategic position. Additional demand for connected devices, automation, microchips, and cloud computing, along with their focus on constant innovation, will keep clients lining up to do business with Intel. Negative Drivers: There are certainly some concerning data points regarding Intel’s future share price. The decrease in price in P1 of 3.79% is unfortunate, but a real cause for concern emerges from the opposite moving price trend compared with the Information Technology sector in its entirety. Intel experienced a 16.76% decrease in price over the last year, while the rest of the IT sector nearly appreciated by that amount. The slowing and negative dip of their earnings per share growth also elicits some potential worry. Intel’s gross profit margin growth decrease of 2.00% – 3.00% annually is also a cause for concern as some metrics reflect positively on the firm, while others cast a shadow of doubt.

53

International Business Machines Corp. (IBM) Sector: Information Technology Fund Manager: Phoenix Van Zutphen

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

28,227.44

29,959.44

4.72

5.39

P1 Actions: Held. Bought 6 shares for $742.38 on 12/29/2020. Total dividend payments of $378.16 during this period.

Holding Description: International Business Machines Corp. is an Information Technology firm that comprises 1.79% of the Haslam Fund’s AUM. IBM began in 1911 as the Computing-Tabulating-Recording (CTR) company in Endicott, New York. The company has had a notable history of success and longevity as they have successfully managed to navigate through eleven decades of technological innovation. IBM in its current form focuses almost purely on business-to-business solutions. They do this in the realms of cloud computing, site and data hosting for large companies, healthcare applications, and plug-ins for insurers, hospitals, and the machine learning field. IBM’s “Watson” has been a pinnacle of technological development and innovation as an analytical tool for mass amounts of data. IBM has drastically altered its business plan and business model over the last couple of decades. They have transitioned from being the household name in personal computers to almost exclusively a business-to-business software and cloud hosting firm. They have done this through the penetration of numerous new markets. The Global Technology Services stream comprises 35.10% of IBM’s total revenue and deals with infrastructure, cloud services platforms, and technical support services. The Cloud and Cognitive Software segment makes up 31.80% of IBM’s revenue and is comprised of three smaller streams: cloud and data platforms, transaction processing platforms, and cognitive applications. IBM’s Global Business Services generates 22.00% of their revenue and encompasses their consulting, application management, and global process services business. The Systems segment composes 9.50% of their revenue and functions by selling systems hardware and operating systems software. The Global Financing Division comprises 1.50% of IBM’s revenues and is tasked with leasing and financing their products and software solutions through IBM credit LLC. Positive Drivers: IBM’s long-time adaptability and inventiveness as a corporation has provided them with eleven decades of prosperity and continued success. The massive facelift in their business model over the last couple of decades will continue to yield positive results for the company, so long as they keep innovating. IBM’s increasing cash from operations and free cash flows are a positive sign looking forward, potentially giving them the ability to acquire small cutting edge cloud computing firms. IBM is also amassing a wealth of future resources, as they currently hold the largest number of patents granted to any U.S. company. The demand in the business-to-business market for automation, enterprise systems, and software solutions grants IBM a continued path forward. Negative Drivers: IBM’s declining stock price over the last year and their successive increase of debt in the amount of $26B over the last four years raises concern. Their revenue growth, which is declining at a rate of -4.60%, indicated lackluster performance. Meanwhile, their earnings per share have declined to a growth rate of -38.80%. Their net income has also been cut nearly in half from $12.23B in 2017 to $6.32B in 2020, marking a -48.30% decrease in net income over the span of four years.1

54

Microsoft Corp. (MSFT) Sector: Information Technology Fund Manager: Phoenix Van Zutphen

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

72,563.85

78,736.68

5.83

0.92


Holding Description: Microsoft Corp. is one of the world’s largest personal computer and software manufacturers and comprises 4.71% of the Haslam Fund’s AUM. Microsoft was founded in New Mexico in 1975 by Bill Gates and has always stayed in the realm of designing and manufacturing software and operating systems, while also exponentially branching out into numerous other technology products. Some of its most notable products are the Windows operating systems, Microsoft Office suite, the many iterations of the Xbox game console, and the web browsers Internet Explorer and Edge. Microsoft has a diverse and far-reaching line of product offerings that create varied and substantial revenue streams. The company has organized its revenue segments into three overarching categories: The Intelligent Cloud (33.80%), More Personal Computing (33.70%), and Productivity and Business Processes (32.40%). Their revenue has grown year over year by 14.20% and they have been able to boost revenues 48.00% over the last four years from $96.57B in 2017 to $143B at the end of 2020.1 Microsoft has continued to innovate and make massive strides through product differentiation, product offerings, business to business software and services, and investment in forward looking endeavors. This drive to continually innovate, expand, and adapt has made Microsoft one of the largest and most successful companies in existence. Positive Drivers: Microsoft’s decreasing debt level and massive revenue increases are enough to comfort any investors concerns. The extremely high and continuously growing profit margin of 68.40% illustrates a lean and efficient corporate environment. The sheer increase in their net income of 214.00% over the last four years should strike fear in any competitor in Microsoft’s business sphere. Overwhelmingly positive analyst reports from over 40 analysts show a great vote of confidence in the security by the informed and educated. With strong cash from operations and booming free cash flows, Microsoft is a powerful firm and a security that embodies longevity. The Haslam Torch Fund feels that Microsoft will continue to generate high returns for years to come. Negative Drivers: The mass number of firms entering the Information Technology sector poses a threat to Microsoft’s existence, as smaller firms continually innovate and find the “next big thing.” Potential competitors such as Apple and the popularity of the Mac operating system could drastically hurt many of Microsoft’s core revenue generators. High volumes of international competitors investing in their own cloud platforms could also pose a threat to Microsoft’s systems, as emerging companies possess greater maneuverability and introduce disruptive technologies; however, the sheer amount of cash on hand makes it hard to take down such a tech giant as the high costs of acquisitions are only a drop in the bucket for a firm with $136.50B in cash and equivalents today.

55

Materials Fund Manager: Jack Yardley P1 Analysis: During P1, Materials held a weight of 1.35% of our portfolio and had a return of 19.45%. Our holding in the Materials sector outperformed the S&P Materials Index by over 5.50%. We also weighted our position in the Materials sector lighter than the S&P by 1.25%. With that being said, we had a lighter position in our portfolio than if you were to hold in the S&P 500, but we also had a greater return. This is great for our portfolio, but there is definitely room to grow as this sector holds a very minimal spot in our portfolio. Our one holding, DuPont de Nemours, performed well as the economy began to recover and really caught speed closer to the election as predictions of Joe Biden winning started piling in. Moving Forward: The team will continue to analyze and monitor our holdings in this sector and rebalance where necessary. The success of our allocations in DuPont motivates us to closely monitor the holding. If we decide that DuPont should have more invested into it because of future cash flows or new product development, we will do that. We also will look into added more holdings in this sector, as an almost 20.00% return for one sector is extremely impressive and will almost always beat the sector index. Our goal from here on out is to continue to have positions that put us ahead of the S&P Materials Sector for P2, P3, and Tenure Returns.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

20,807.38

27,748.86

19.45

13.92

1.25

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DuPont de Nemours Inc. (DD) Sector: Materials Fund Manager: Jack Yardley

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

20,807.38

22,541.87

19.45

1.90

P1 Actions: Bought 349 shares for $20,838.79 on 11/06/2020. Sold 32 shares for $2,206.99 on 12/29/2020. Total dividend payment of $104.70 during this period.

Holding Description: DuPont de Nemours Inc., also known as DuPont, is a company founded in 1802 in the state of Delaware. The company operates mainly as a chemicals company. They offer elastomeric photopolymer printing plates, structural and elastic adhesives, fluids, foams, coatings, rubber and elastomers, food ingredients, animal nutrition, biomaterials, water purifying tech, and fibers.25 Positive Drivers: DuPont is also under new management as of February 2020. New appointed CEO, Ed Breen, has taken this role and has a strong background with multiple previous CEO positions. For example, he was CEO of Motorola and was able to turn them back into a profitable company during his tenure there. He also saved Tyco International out of bankruptcy. This makes us believe that he can make DuPont more profitable and potentially increase the dividend ratio as it has struggled to climb over the previous five years.25 Also, the latest merger with International Flavors and Fragrances Inc. for their Nutrition & Bioscience segment, along with the newest merger with Texas Tech Core Matrix Technology for Life Protection segment is going to help DuPont continue to grow their market share as international expansion and competition continue to increase. Another driver, as DuPont strives to be a leader in sustainability, is President Biden’s views on sustainability. Policy could pass that would bolster this part of the economy, and DuPont would favor heavily in that. In their financials, they have a strong 12-month EBITDA margin, recorded at 1.14 at the end of 2020.1 Quarterly sales acceleration being higher than their peers provides shareholders the thought that their growth is stronger than global competitors. Negative Drivers: DuPont has some infamous history as well surrounding the allegations that they knowingly dumped hazardous chemicals into the Ohio River. This caused many people to die, have birth defects, and even traces of C8 are in over 98.00% of American’s blood. This caused a lot of turmoil with consumers and worry about how safe products are. While this was a few years ago, there is still concern in the air about this. Financially, DuPont has continued to grow their total debt, all while net income is decreasing. DuPont’s net debt to EBITDA is extremely high in comparison to global competitors. DuPont’s net debt to EBITDA is 196.60x, where the global average is 3.50x.25 While this is concerning, this might be a strong reason why DuPont is growing and acquiring firms to control the market better than competitors.

57

Real Estate Fund Manager: Mary Graham Harvey P1 Analysis: COVID-19 dramatically affected the Real Estate sector, which is divided into three main subsectors: residential real estate, commercial real estate, and industrial real estate. In comparison to the broader equity market, the sector has struggled to bounce back from the effects of the pandemic; however, different subsectors within the sector have been affected quite differently from one another. Commercial real estate, for example, has gravely suffered from the pandemic, one reason being the result of the rapid acceleration of e-commerce that the pandemic brought about, largely eliminating the need for traditional malls and retail spaces. In comparison, the residential segment is thriving from the pandemic as a result of people being at home more and seeking new or more space to reside in as a result. Furthermore, people are also shifting from clustered cities to suburbia in search of safety from the pandemic, of note, despite the pandemic, 6 million homes have been sold since the start and the average home price was up 5.00%.1 Low mortgage rates are also contributing to the increase in home purchases. Finally, the industrial real estate sector, though affected by COVID-19, has seen a shift towards an increased need for distribution warehouses for example, as large companies such as Amazon look to find ways to continue to deliver faster and quicker to their customers, who are ordering from home more than ever. Moving Forward: Despite the challenges that COVID-19 has brought upon the Real Estate sector, it has also brought a wealth of opportunities. Namely, changing living patterns and lifestyles present major opportunities for this sector. Due to the fact that people are now working from home, there is less of a need for office space. This could be an opportunity for developers to creatively transform now obsolete real estate, such as office space or malls, into storage spaces or other more appropriate uses given the times. We are also closely monitoring opportunities in the industrial real estate sector due to the rise in e-commerce, which will increase the need for storage and distribution facilities. Finally, we are cautious and weary of the hospitality and retail areas, as we believe they will continue to struggle and suffer from the ongoing effects of the pandemic. Overall, we are optimistic that with thoughtful consideration of the current macroeconomic trends and living patterns, we will be able to secure even more promising investment opportunities with strong dividends in this sector.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

45,400.08

33,509.04

7.08

4.09

-2.09

58

Prologis, Inc. (PLD) Sector: Real Estate Fund Manager: Mary Graham Harvey

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

24,465.88

16,643.22

-0.58

2.15

P1 Actions: Bought 244 shares for $24,400.00 on 11/20/2020. Sold 77 shares for $7,538.90 on 12/29/2020. Total dividend payments of $141.52 during this period.

Holding Description: Prologis is an Industrial Real Estate Investment Trust (REIT) founded in 1983 and headquartered in San Francisco, California. It is the largest industrial REIT in the world, with a market cap of roughly $78.00B.28 The company invests in logistics facilities, with a focus on the consumption side of the global supply chain. Prologis owns around 5,000 buildings in North America, Latin America, Europe, and Asia. Prologis is a leader in logistics real estate with a focus on high-barrier, high growth markets. Positive Drivers: Prologis draws on consumption, supply chain modernization, and e-commerce, leasing modern logistics facilities to a diverse base of around 5,000 customers, with the majority of their revenue coming from the United States. We believe the company is a strong investment due to the fact that COVID-19 has dramatically accelerated the growth of e-commerce, in turn causing a demand boost for warehousing and distribution centers, which will directly benefit Prologis. We also believe they have a strong base of established customers and a strong distribution network, including, to name a few, UPS, FedEx, Amazon, and Home Depot, with Amazon, DHL, and XPO Logistics representing their top three customers.29 Negative Drivers: There is a high number of industrial properties under construction and it may be reaching a peak, signaling a late cycle of economic expansion. Furthermore, due to the fact that the company has 30.00% of its properties outside of the U.S., the company is relatively vulnerable to foreign exchange fluctuations. Finally, there is always the risk that tenants may not be able to pay their lease obligations due to unforeseen macroeconomic events.29 The organization also may draw criticism for its inability to integrate sustainability into its business practices. Finally, there is a high level of competition in the industry and new players could seek to enter the market, attracted by the high profitability.

59

Welltower (WELL) Sector: Real Estate Fund Manager: Mary Graham Harvey

Period

Start Value ($):

End Value ($):

Return (%): Dividend Yield (%):

P1 20,934.20

16,865.82 17.60

4.06


Holding Description: Welltower, Inc. is an S&P 500 Real Estate Investment Trust (REIT) that primarily invests in senior housing, assisted living and memory care communities, post-acute care facilities, and medical office buildings, while also owning hospitals and other healthcare facilities. Headquartered in Toledo, Ohio, Welltower is the largest healthcare-focused REIT in the market, having invested in healthcare for over 40 years. The company owns interest in over 1,500 properties throughout the U.S., Canada, and the United Kingdom. Positive Drivers: Healthcare real estate is a defensive asset, as people will always require access to medical facilities. Furthermore, Welltower is a stable REIT due to the growing market for healthcare real estate and the consistent need for senior living homes and medical-related facilities, as the current population is aging. It is predicted that the senior citizen population of Welltower’s target market is expected to double by the year 2050.1 Furthermore, Welltower is also a stable investment due to the fact that 93.00% of its portfolio derives its income from private-pay sources, which are much more predictable and stable than healthcare revenue dependent on government reimbursement programs.1 Finally, the company has also closed around $700M of acquisitions since the start of the fourth quarter at a significant discount.27 Negative Drivers: Despite being a stable REIT, there are still some risks associated with Welltower, one being a lack of liquidity. Another risk involves the fact that the company’s main revenue driver is senior housing, which involves individuals who are most vulnerable to COVID-19. As one might imagine, the pandemic hit the company hard, but we expect to see the company make a full rebound. Furthermore, in reaction to COVID-19, Welltower has made significant investments in making sure their facilities are in-line with rules and regulations regarding protecting residents during the pandemic. Finally, it should also be noted that due to the fact that Welltower has many joint ventures in its portfolio, the company could be vulnerable to the performance of other companies.

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Utilities Fund Manager: Paige Schmincke P1 Analysis: Over P1, the utility sector has provided the expected positive outcome. First, it has been shown that utility stocks and treasury bond interest rates have an inverse relationship. With the current treasury interest rate being at 0.90%, utility stock prices are at a high. This is a positive for the time being. Second, utilities are an absolute necessity of the U.S. people. Without them, we would not be able to live fully. This is what makes these stocks appealing for us and make for a sound investment compared to other sectors that we have holdings in. This factor has helped keep these stocks relatively stable during COVID-19. The utility bill is the first priority for many people, and the first thing that they delegate to pay. As we are getting into the colder months of the year, we expected, and saw, stock prices rise. Northern states need more heat to bear the weather, leading for utility companies to experience a surge during this period. Moving Forward: In the near future, new regulations will be the largest factor that need to be considered, especially after the recent presidential election. With President-elect Biden taking office, it is clear that there is going to be a shift in regulatory measures in the economy. He has expressed moving towards a green economy and decreasing greenhouse gas emissions. This may cause a problem for companies in the utility sector in the future, as many companies do not have the capability to convert to zero emissions; however, this may be an opportunity to get into companies that have a strong focus on renewable utilities, such as solar and wind.

Period

Start Value ($)

End Value ($)

Return (%)



(%)

P1

61,377.13

33,942.48

1.78

2.01

-0.02

61

Entergy (ETR) Sector: Utilities Fund Manager: Paige Schmincke

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

44,042.91

24,161.28

1.44

3.50


Holding Description: Entergy is an integrated energy company involved in electric power production and retail distribution. Headquartered in New Orleans, Louisiana, the company employs over 13,600 people and takes in about $11B in revenue annually. Operating in Arkansas, Louisiana, Mississippi, and Texas, Entergy generates, transmits, distributes, and sells electrical power to 2.90 million customers. The company is broken into two segments, utilities and wholesale commodities. Both of these segments allow for the company to be the second largest nuclear generator in the United States, as it operates nine facilities, forty power plants, and nine nuclear plants. Positive Drivers: Currently, electricity rates are below the national average, leading to strong industrial development in the Mississippi delta region and electricity sales growth. Second, it is a positive that the company is getting into renewable energy and cleaner energy. Over time, they have been moving out of the nuclear business. Having closed two of their nuclear plants, the company is in the process of closing three more. This will free up capital to focus more on their new projects, such as completing Lake Charles Power Station, a natural gas power station. Along with this, more money can go to providing more power from Capital Region Solar, the largest solar facility in Louisiana. Entergy recently started providing energy from this facility and increasing this will give the company a competitive advantage over others who have not broken into renewable energy yet. Negative Drivers: Being located in areas commonly affected by hurricanes, Entergy is largely at risk. Unplanned capital costs can be detrimental to the company and this possibility needs to be kept in mind by the shareholder. While moving into clean energy is a positive in the long run, Entergy is, and will, experience losses due to closing nuclear power plants for the time being.

62

Utilities Select Sector SPDR Fund (XLU) Sector: Utilities Fund Manager: Paige Schmincke

Period

Start Value ($):

End Value ($):

Return (%):

Dividend Yield (%):

P1

17,334.22

9,781.20

4.47

3.15

P1 Actions: Bought 289 shares for $17,197.36 on 10/01/2020, Sold 133 shares for $8,177.38 on 12/29/2020. Total dividend payments of $150.79 during this period.

Holding Description: XLU ETF offers exposure to 28 well performing companies in the utilities sector. This fund is well diversified and provides a relatively stable return. The companies inside this fund include water, sewage services, electricity, dams, and natural gas. Stocks have stayed relatively stable during recessions and during the COVID-19 pandemic due to constant need. One of the largest holdings is NextEra Energy Inc., at 18.50%. Having a large position in renewable energy is beneficial for the present and future. 62.13% of the fund is made up of electricity companies, who have strong investment strategies and plans for upcoming years. Positive Drivers: A few factors make this ETF attractive. Utility companies offer a low interest rate environment, a low beta, and a consistent revenue stream. Currently, most are trading at a premium, due to a growth in the sector and a low yield environment. XLU has had, and typically does have, a higher return than the S&P 500 Utilities Sector. Negative Drivers: Many utility companies will be experiencing pressure from regulatory measures around coal, natural gas, and nuclear power in efforts to decrease their carbon footprint and greenhouse gases. They must be able to adapt or change their practices to meet these regulations. Many of these companies have relationships with regulators and need to meet their demand. Weather is also a negative driver in many of these companies, as hurricanes and wildfires can cause unplanned damages and large capital losses.

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Fund Manager Bios Jake Barnes

Jake is currently a Senior at the University of Tennessee pursuing a bachelor’s degree in Finance with a collateral in Entrepreneurship. Jake joined the fund in August 2020. He previously covered the Real Estate sector and currently covers the Healthcare sector of the S&P 500. This past summer he interned with First Horizon Bank in Charlotte, NC with their Commercial Real Estate team. While at First Horizon, Jake performed ongoing credit monitoring and analysis for a $600MM CRE portfolio to maintain credit quality. After graduation in May 2021, Jake hopes to continue his career in the finance industry.

Lance Ellington

Lance is currently a senior at the University of Tennessee pursuing a bachelor’s degree in Business Analytics and Finance with a collateral in Entrepreneurship and a minor in Leadership Studies. Lance joined the Haslam Fund in August 2020. He previously covered the Materials sector and currently covers the Consumer Discretionary and Consumer Staples sectors. At the University, Lance has held positions on campus such as the Vice President of the Honors Leadership Program, a member of the Heath Integrated Business and Engineering Program, and an Ignite Summit Team Leader. Lance has experience as a Business Process and Change Management intern at Akamai Technologies

and as a Manufacturing and Distribution Consultant Intern at Crowe LLP. Upon graduation in May 2021, Lance has accepted a full-time position with Crowe LLP in Nashville, TN as a Manufacturing and Distribution Consultant. Mary Graham Harvey

Mary Graham is a first year full-time MBA student with a concentration in Finance and Supply Chain Management at the University of Tennessee. She joined the Haslam Torch Fund in October of 2020 and helps to oversee the Real Estate sector. Originally from Nashville, Mary Graham attended Sewanee: The University of the South, graduating Magna Cum Laude with a BA in English Literature. She was highly involved during college, inducted into the University’s highest academic honor society, Order of the Gownsmen, her first eligible semester, on the Dean’s List every semester, as well as worked in the Office of Admissions as a Senior Interviewer and served as a volunteer and

resident for the Sewanee Women’s Center. After graduation, she worked in non-profit development and fundraising at Anderson Ranch Arts Center in Snowmass, Colorado for three years. When COVID-19 struck, she pivoted and returned to Tennessee to pursue her MBA. She currently serves as a Graduate Teaching Assistant for an Organizational Behavior class and is a member of the Tennessee Organization of MBA’s and the National Association of Women MBA’s. After graduation, she hopes to work in corporate finance in connection to supply chain management.

64

Jada Kirby

Jada is currently a senior pursuing a bachelor's degree in Finance with a collateral in Marketing and a minor in Tourism and Hospitality Management. Jada joined the Haslam Fund in August 2020. She previously covered the Consumer Discretionary and Consumer Staples sectors and currently covers the Communication Services sector. During her time at UT, she has worked as a Student Assistant in the Graduate and Executive Education Department in Haslam, served as a Finance Teaching Assistant, and been a member of the Dean’s List every semester. On campus, she is a member of Alpha Chi Omega, UT Investment Group, Volunteers Tutoring Club and Mortar Board. She is

currently interning at TVA in their Portfolio & Capital Allocation group. Upon graduation in May 2021, Jada hopes to continue her career in corporate finance. Noah Mayer

Noah is currently a junior at the University of Tennessee pursuing a bachelor’s degree in Finance with a minor in Statistics and a collateral in Business Analytics. Noah joined the fund in January 2021 and covers Fixed Income. At the University, he is involved as a founding member of Sigma Chi, the UT Investment Group, and the Financial Management Association. During his time at UTK, he has been a member of the Dean’s List every semester. This past summer, Noah interned as a Sales Representative for Clear Defense Pest Control. After graduation in December 2021, Noah hopes to pursue a career in corporate finance.

Jacob Saripkin

Jacob is currently a senior at the University of Tennessee and is pursuing a bachelor’s degree in Finance with a collateral in Economics. Jacob joined the Haslam Fund in 2020. He previously covered the Industrials sector and currently covers the Financials sector. At the University, he has held the positions of personnel officer, flight commander, squadron commander, and director of staff in Air Force Reserve Officer Training Corps, Treasurer in his Fraternity, and Financial Management Officer in the Arnold’s Air Society. After graduation in May 2021, Jacob will be commissioning in the United States Air Force as a Financial Management Officer.

65

Paige Schmincke

Paige is a first year full-time MBA student with a concentration in Finance at the University of Tennessee. She recently graduated in May 2020 from the Haslam College of Business with a degree in Finance. Paige joined the Torch Fund in September 2020 and covers the Energy and Utilities sectors. She serves as the Vice President of Finance for the Tennessee Organization of MBAs and a Graduate Teaching Assistant, helping undergraduate students in their final capstone class. After graduating from the master’s program, she hopes to work in corporate finance.

Phoenix Van Zutphen

Phoenix Van Zutphen is currently a senior at the University of Tennessee pursuing a bachelor's degree in Finance and minoring in Entrepreneurship. He has been a serial entrepreneur all throughout his college career while also serving as a National Student Representative and club President. He has experience investing his own personal funds and in developing effective business strategies in numerous industries. He has been in Real Estate as a licensed affiliate broker for 3 years and has negotiated in the purchase of assets in excess of $30MM on client's behalf. This is his second semester as a part of the Haslam Fund and his fourth semester at the University of Tennessee after

receiving an associate degree from Pellissippi State Community College. He has consistently been awarded Dean’s List honors, he graduated Summa Cum Laude from PSCC, and has earned a distinguished service medallion. He is incredibly excited and grateful for the opportunity to be a portfolio manager on the Haslam Fund. After graduation, he plans to continue his entrepreneurial endeavors and complete a master's degree. Jack Yardley

Jack is a Finance and Economics double major from Livonia, Michigan. He recently joined the Haslam Fund in January 2021 covering both the Industrials, and Materials Sectors. As a junior, he is enrolled in the Heath Integrated Business and Engineering Program, studying in the exclusive Honors Finance Curriculum, and a member of the Dean's List. On top of all of that, he also works as a Shift Manager at a local Jersey Mike's Subs for the past 10 months. He hopes to work in corporate finance or investments when he graduates and is currently searching for an internship for this summer.

66

Works Cited

Common Source 1. “Bloomberg Professional Services” | Bloomberg Finance LP.” Bloomberg.com, Bloomberg Terminal | www.bloomberg.com/professional 2. “Wall Street Journal.” | WSJ | Wall Street Journal, wsj.com 3. Morningstar| Independent Investment Research. Morningstar.com, www.morningstar.com/ 4. https://www.bls.gov/opub/ted/2020/unemployment-rate-falls-to-6-point-9-percent-in-october-2020.htm#:~:text=The%20unemployment%20rate%20decreased%20by,6.9%20percent%20in%20October%202020. 5. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/global-economics-intelligence-executive-summary-november-2020 Fixed Income 6. “U.S. Department of the Treasury.” Daily Treasury Yield Curve Rates, 9 Feb. 2021, www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx?data=yieldYear&year=2020. Communication Services

7. “Mergent, Inc.” | Mergent Online | University of Tennessee Library, May 2020. Web. May 2020.

Consumer Discretionary 8. “Investor Relations.” | Investor Relations | Amazon, https://ir.aboutamazon.com/investor-relations Consumer Staples 9. “Investor Relations.” | Investor Relations | Dollar General, https://investor.dollargeneral.com/websites/dollargeneral/English/3100/us-secfilings.html?years=2019&categories=1 10. “Earnings Release.” | Investors | Kroger, http://ir.kroger.com/CorporateProfile/press-releases/default.aspx 11. “Investor Relations.” | Investor Relations | P&G, https://www.pginvestor.com/CustomPage/Index?KeyGenPage=1073748359 12. “Investor Relations.” | Investor Relations | Walmart, https://stock.walmart.com/investors/default.aspx

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Healthcare 13. National Strategy for the Covid-19 Response and Pandemic Preparedness. White House, Jan. 2021, www.whitehouse.gov/wp-content/uploads/2021/01/National-Strategy-for-the-COVID-19-Response-and-Pandemic-Preparedness.pdf. 14. Abbott Laboratories. 4Q 2020 Press Release. January 27, 2021. https://www.abbottinvestor.com/static-files/57c390e9-30b4-4068-8cd7-6cdd268d7dd4 15. Amgen, Inc. Amgen Reports Fourth Quarter and Full Year 2020 Financial Results. February 2, 2021. https://investors.amgen.com/news-releases/news-release-details/amgen-reports-fourth-quarter-and-full-year-2020-financial 16. CVS Health Corporation Form 10-Q for Quarterly period ended September 30, 2020. Securities and Exchange Commission, 2020, https://d18rn0p25nwr6d.cloudfront.net/CIK-0000064803/76206f2f-7807-477c-84e2-0d67c77a0990.pdf 17. Edwards Lifesciences Corporation Q4 2020 EW Earnings Report Press Release. January 27, 2020. https://ir.edwards.com/static-files/5b27d0c3-1e87-499b-b6c2-e02737c83de2 18. GlaxoSmithKline, PLC. FY 2020 results announcement. February 3, 2021. https://www.gsk.com/media/6557/fy-2020-results-announcement.pdf 19. Merck & Co., Inc. 4Q20 Merck Earnings Announcement. February 4, 2021. https://s21.q4cdn.com/488056881/files/doc_financials/2020/q4/Merck-4QFY20-Earnings-News-Release.pdf 20. Stryker Corporation. Stryker reports 2020 operating results and 2021 outlook. January 27, 2021. https://investors.stryker.com/press-releases/news-details/2021/Stryker-reports-2020-operating-results-and-2021-outlook/default.aspx Industrials 21. “Reports & Proxy Statements.” Raytheon Technologies Corporation, investors.rtx.com/financial-

information/annual-reports.

22. “Investor Overview.” Lockheed Martin Corp, 10 Feb. 2021, investors.lockheedmartin.com/investor-overview.

23. “U.S. Infrastructure Development ETF.” Global X ETFs, 3 Feb. 2021, www.globalxetfs.com/funds/pave/.

24. “iShares Transportation Average ETF Information.” BlackRock, www.ishares.com/us/library/stream-document?stream=reg&product=I-DTRAN&shareClass=NA&documentId=926326~925965~926263~925623~925565&iframeUrlOverride=%2Fus%2Fliterature%2Fsemi-annual-report%2Fsar-ishares-dj-sectors-etfs-10-31.pdf.

Materials 25. “Investment Thesis.” DuPont De Nemours, Inc. - DuPont Investors,

www.investors.dupont.com/investors/dupont-investors/default.aspx.

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Real Estate 26. How Risky Is Welltower, Inc.? | The Motley Fool 27. Welltower (WELL) Q4 2020 Earnings Call Transcript | The Motley Fool 28. Prologis, Inc. | Nareit 29. https://seekingalpha.com/article/4251035-prologis-low-risk-play-on-e-commerce

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Appendix https://www.investopedia.com/terms/b/beta.asp Beta is the measure of the portfolios risk in comparison to other benchmarks. Betas of 1 mean that the portfolio is strongly correlated with that benchmark. Betas greater than 1 indicate that our portfolio has greater volatility than the benchmark. Betas less than 1 indicate less volatility than the benchmark. https://www.investopedia.com/terms/r/r-squared.asp R-squared is the percentage of our portfolio’s movements that can be explained by movements in a benchmark index. An R-squared of 100% means that all movements of a security (or other dependent variable) are completely explained by movements in the index (or the independent variable(s) you are interested in). https://www.investopedia.com/terms/s/sharperatio.asp Sharpe Ratio is our average return earned in excess of the risk-free rate per unit of volatility. The greater the Sharpe Ratio, the more attractive the risk-adjusted return. https://www.investopedia.com/terms/t/treynorratio.asp Treynor ratio is a performance metric for determining how much excess return was generated for each unit of risk taken on by a portfolio. https://www.investopedia.com/terms/t/trackingerror.asp Tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark. It can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. https://www.investopedia.com/terms/i/informationratio.asp The information ratio is a measurement of portfolio returns above the returns of a benchmark. It is used to evaluate the skills of portfolio managers at generating returns in excess of a given benchmark. A higher IR result implies a better portfolio manager who's achieving a higher return in excess of the benchmark, given the risk taken.

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