Diversified, Risk-Adjusted Portfolio

transcript

Diverse, Risk-Adjusted

Portfolio

Jackson EnglesB.S. Intended Business Admin.

May 2019

Krystal AbbassiB.A. Political Economy

May 2018

Consumer Discret Sel Sect SPDR ETF (XLY)

Summary

● Seeks investment results that correspond to the price and

yield performance of the equity of the companies in the

Consumer Discretionary Select Sector Index. It generally

invests substantially all, but at least 95%, of its total assets.

● Industries included: media; retail; hotels, restaurants &

leisure; textiles, apparel & luxury goods; household durables;

automobiles; auto components; distributors; leisure

equipment & products; and diversified consumer services.

● The fund is non-diversified.

KEY TERMS: ETFs, or

Exchange-Traded

Funds, are a marketable

security that tracks an index, a

commodity, bonds, or a basket of

assets like an index fund and trades

like a stock.

Key Financials

NYSE: XLY YTD Return: 0.64% Total Assets: 10.35B

Current Price: $81.62 P/E Ratio: N/A Yield: 1.40

52 Week Range:

$66.00-$82.03

Volume: 4.0M NAV: 81.61

KEY TERMS: - YTD Return, or Year To Date Return, is the return from the ETF so far in the year- P/E Ratio, or Price-Earnings Ratio, is the ratio for valuing a company that measures its current share price relative to its per-share earnings.- NAV stands for Net Asset Value.- Yield is a financial ratio that indicates how much a company pays out in dividends each year relative to its share price.

$437.8 BillionU.S. Consumer Goods Market

Young and growing population + rapid

urbanization, rising incomes + e-commerce + innovation all affect the price of consumer goods

=GROWTH OF CONSUMER

MARKET

Industry Trends

Brand entrants are more focused.

•Stores are shrinking.

•Retail giants personalize and

localize.

Global brands embrace social issues.

ETF Overview

Company Symbol % Assets

Amazon AMZN 12.39

Home Depot, Inc. HD 7.11

Comcast Corporation

CMSA 7.06

Walt Disney Company

DIS 6.54

McDonald’s Corporation

MCDO 4.73

Financial Analysis

Return XLY (Mrkt) XLY (NAV)

YTD 5.23 5.16

1-Year 9.92 9.94

3-Year 42.74 42.74

5-Year 5.99 5.98

Statistic XLY

Alpha (against Standard

Index)6.55

Beta (against Standard

Index)1.02

R-squared (against Standard

Index)79.28

KEY TERMS: - Alpha Year is a measure of performance on a risk-adjusted basis.- Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.- R-Squared is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index.

Recommendation

This ETF gives us great exposure to diverse companies in the relatively risk-free consumer market. There are holdings in large companies such as McDonalds and Starbucks that will ensure profit and stability. The fund performed 6.55% better than the index, is not volatile with a beta almost 1, and follows the index very well with a R-squared of 79.82. It has had positive returns in the last five years and only continues to perform. I would buy and devote around 24% of our portfolio for this ETF (around 3 shares).

Corning Inc. (GLW)

Summary

● Corning Incorporated is an American manufacturer of glass,

ceramics, and related materials, primarily for industrial and

scientific applications.

● The company operates through five segments: Display

Technologies, Optical Communications, Environmental

Technologies, Specialty Materials, and Life Sciences.

● Has an excellent product, Gorilla Glass., which is a brand of

specialized toughened glass developed and manufactured by

Corning, now in its fifth generation, designed to be thin, light and

damage-resistant.

● Corning further developed the material for a variety of

smartphones and other consumer electronics devices for a range

of companies such as Apple and Samsung.

Key Financials

NYSE: GLW Market Cap: 23.89B EPS: 0.4

Current Price:

$22.29 Beta: 1.37

Yield: 2.43%

52 Week Range:

$15.42-22.62 P/E Ratio: 12.24

Enterprise Multiple:

KEY TERMS: - EPS, or Earnings Per Share, is the portion of a company’s profit allocated to each outstanding share of common stock.- Market Cap, or Market Capitalization, is the total dollar market value of all of a company's outstanding shares.

$1.24 BillionMarket Cap of the Diversified Electronics Industry

Innovation +

e-commerce

+ rising incomes

+ growth in cell phone industry

+ and increase consumption all

affect the price of diversified

electronics

GROWTH OF

DIVERSIFIED

ELECTRONICS

MARKET

Industry Trends

Rising insulation demand from the construction sector.

•Increasing awareness regarding the importance of tempered glass in the

automotive industry among consumers.

•The increasing use of laminated and

insulating glass in solar energy applications.

•Cell phone

Industry growth.

Competitive Landscape

Company P/E Ratio Revenue

Sumitomo Electric

Industries

11.38 23.59B

Asahi Glass Company 14.70 11.24B

Furukawa Electric Co. 19.05 7.25B

Financial Analysis

○ Shares down 1.5% to 52-week high

○ 2015 results: Revenues for Corning, Inc. declined

to $9.1B. Net income decreased to $1.34B.

○ Negative cash flows of -$809M, total cash flows

from investing activities were $685M on Dec 31,

○ ROIC of 2.07% in Q1 of 2016.

KEY TERMS: ROIC, or

Return on Invested

Capital, is a calculation

used to assess a

company’s efficiency at

allocating the capital under its control to

profitable investments.

Recommendation

The company’s services are essential for the cellphone industry. Companies such as Apple and Samsung will need Gorilla Glass for their smartphones, especially since the iPhone 7 will be launching in Q4 of 2016. Shares have increased 30.8% so far in 2016 showing steady growth. P/E is low at 12.25 meaning the company is currently be undervalued or that the company is doing exceptionally well relative to its past trends. In addition, Corning plans to buy back roughly half of its current market cap over the next four years while investing heavily into potential high-growth markets. Corning may be a risky investment today, but the risk is balanced out by a big four-year upside. The Wall Street Recommendation is to buy (score of 4.0) as well as mine. I would devote 10.7% of our portfolio to this stock (around 5 shares).

We would have to pass this portfolio down and rebalance

it by calculating the weightings of each fund in the

portfolio by dividing the current value of each asset

class by the total current portfolio value then

comparing this figure to the original weightings. If we find that changes in our asset class weightings have distorted the

portfolio's exposure to risk, we would take the current total value of the portfolio

and multiply it by each of the weightings originally assigned to each asset class. We would

want to sell securities from asset classes whose weights are too high, and purchase

additional securities in asset classes whose weights have

declined.

SolarCity, Inc. (SCTY)

Summary

● SolarCity Corporation designs, manufactures, installs,

monitors, maintains, leases, and sells solar energy systems to

government, residential, and commercial customers in the

United States.

● The company provides solar energy systems

● It also sells electricity generated by solar energy systems to

customers.

● The company offers its products and services through direct

outside sales force; door-to-door sales force; call centers;

channel partner network; and robust customer referral

program. SolarCity Corporation was founded in 2006 and is

headquartered in San Mateo, California.

Key Financials

NASDAQ: SCTY EBITDA: -549.47M

Current Price: $26.70 P/E Ratio: -42.18

52 Week Range: $16.31-61.72 EPS: -0.63

Market Cap: 2.62B Dividend Yield: N/A

Beta: 1.54 Enterprise Multiple: -10.04

$413.88 MillionRevenue of the Semiconductor Industry

Public policy + under-investment in energy +

high prices for oil & gas + volatility in electricity market +

public sentiment, energy dependence + market liquidity + and cost advantages all affect the price of renewable energy

=GROWTH OF

SEMICONDUCTORINDUSTRY

Industry Trends

The U.S. will install more than 10 GW of solar PV in

2016, U.S. policy risk shifts from the federal to

the state and utility levels.•

The global PV module market maintains

balance, PV module component

prices will fall.

Realization of emerging markets in South and Southeast Asia and Latin America will build on its

momentum of 2015.•

Company P/E Ratio Revenue

Ameresco, Inc. 29.64 649.17M

SunPower Corp. -6.86 2.1B

Real Goods Solar, Inc. -0.33 45.53M

Financial Analysis

○ Shares down 56.74% to 52-week high○ 2015 results: Revenues for Corning, Inc. increased

to $399.6M. Net income decreased to -$58.33M.○ Negative cash flows of -$121.8M, total cash flows

from investing activities were -$1.73B on Dec 31, 2015.

○ ROIC of -23.99% in Q1 of 2016.

RecommendationSolarCity is another promising stock to invest, especially during hot summer months where solar companies peak. Tesla recently proposed to acquire SolarCity (at an undisclosed date) in an all-stock deal in which shareholders will receive 0.122-0.131. SolarCity also has one of the largest market caps compared to its competitors. The company has been on the cutting edge of the solar space for five years and has a $2 billion valuation. It also has a steady increase of revenue and positive gross profit of $118 million. SolarCity was surprisingly seen benefiting from Brexit. Shares of SolarCity Corporation rose 1% after Brexit, due to positive comments from analysts at Needham & Co., who see the referendum benefiting the alternative energy company. SolarCity benefits due to its lack of international exposure. A low Enterprise Value/Revenue of -10.04 demonstrates that the company is potentially undervalued. I would devote 12.7% of our portfolio to this stock (around 5 shares).

Vanguard S&P500 ETF (VOO)

Summary

● This ETF seeks to mimic the performance of the S&P500

directly by investing in the entirety of the index.

● Very low cost of investment

● Invests in three fourths of the large capitalization market,

● This fund invests in 500 of the world's largest companies,

allowing for widely diversified risk.

● Buying this fund is a direct bet that the stock market will

continue to rise in value as time progresses.

● The most important driver of this fund is the growth of the US

economy.

KEY TERMS: ETFs, or

Exchange-Traded

Funds, are a marketable

security that tracks an index, a

commodity, bonds, or a basket of

assets like an index fund and trades

like a stock.

Key Financials

MUTF: VOO Net Assets: $234.3B

Current Price: $198.10 P/E Ratio: 20.7

52 Week Range: $167.83-$198.11 NAV: N/A

YTD Return: 1.69% SEC Yield: 2.11%

10 YR Return: 7.40% Dividend Yield: N/A

2173.60Index Value of the S&P 500

Confidence in the economy + Increased Consumer Spending + Increased Industry Spending

+ Less volatility=

GROWTH OF US ECONOMY

=Increase in value of VOO

Industry Trends

Increase in global terrorism send markets

into volatile cycles which tends to stifle growth.

As long as the world economy continues to grow so will the S&P

Events such as Brexit and the US presidential effect have measurable effects on the value of the US

markets because of the volume of speculation present in investing.

ETF Overview

Sector % of fund Top 5 Holdings

Information Technology

20.40 APPL

Financials 16.30 GOOGL

Health Care 14.70 MSFT

Consumer Discretionary

12.60 XOM

Consumer Staples 10.10 JNJ

Financial Analysis

Return VOO

YTD 1.69%

1-Year 5.52%

10-Year 7.40%

Statistic VOO

Beta (against S&P) .98

Beta (against Dow) .98

R-squared (against S&P) 1

KEY TERMS: - Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.- R-Squared is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index.

RecommendationVOO is a great fund for the FAST portfolio, the long term gain from investing in the entirety of the stock market is larger than you’ll find with most other mixes of equities with a similar low long term risk. In the short term there will be volatility that may cause fluctuations in the value of the investment, that being said the overall trend in the past has been upward. Essentially, the bet here is that the U.S. economy will continue to grow for the foreseeable future. As long as there is no prolonged downturn in the economy or some sort of stark change in the way the world economy functions, this should be a safe bet to continue to grow. This is a fund where the investor must wait out the valleys in the market and be sure to sell at a high, can be a long play. The price of this ETF forces us to only purchase one share of this ETF, however this will act as a good anchor for our overall portfolio.

Ford Motor Company (F)

Summary

● Ford is a major American manufacturer and servicer of

automobiles as well as a financial servicer of its products.

● The company employs nearly 200,000 people across the world

through a variety of its ventures.

● Having weathered the Great Depression, financial crises in the seventies and early 2000s, as well as the Great Recession the company is battle tested and managed not to necessitate a bailout in 2007-08 unlike the rest of its American counterparts.

● Gives a quarterly dividend of $.05-$.30

● Working directly with Google on AI and its application to self

driving cars.

Key Financials

NYSE: F Market Cap: $49.7B EPS: 2.16

Current Price:

$13.57 Beta: 1.2576

Yield: 4.79%

52 Week Range:

$10.44-15.84 P/E Ratio: 5.79

$9TAutomotive industry top line revenue

Global GDP + Consumer confidence + Availability of

credit + Employment + Increases in the disposable

income of consumers=

GROWTH OF THE

AUTOMOTIVE

INDUSTRY

Industry Trends

Growth of 2.5% over the last five years.

•Increased spending as the economy has grown and we have come out of

the most recent recession.•

Low oil prices decrease the consumer facing price at the pump, thus increasing disposable income

and increasing demand for new automobiles.

Major Competitors Country Top Line Revenue

BMW Germany $80.4B

Daimler AG Germany $129.9B

Toyota Japan $291.8B

Ford USA $149.5B

Financial Analysis

○ Shares down 15% to 52-week high

○ 2015 results:

■ Revenue:

● $149.5B

■ Net Income:

● $7.3B

○ Positive cash flows of $3.51B

○ ROIC of 7.89% Q1

KEY TERMS: ROIC, or

Return on Invested

used to assess a

RecommendationFord is a logical pick for an equity addition to the FAST Portfolio as it exhibits relatively low risk of loss of principal and has shown a consistent value through its quarterly dividend. Ford has little risk of going out of business because of the aversion the U.S. government has shown to letting any of the big three U.S. automakers fail. Ford does a good job of preserving the value of its shares in an incredibly competitive industry while also taking care of its shareholders. In addition, if you believe the potential for growth into the driverless car market, there is potential for Ford and Google to be quite a formidable team in the industry. Where we see Ford as a better fit for the FAST portfolio than other similar automakers like VW, Daimler or any of the Japanese auto manufacturers is in the consistency of performance that Ford has displayed. In an already equity rich portfolio, we look as Ford as a good anchor. The consistent dividend provided by Ford will help to grow the FAST portfolio and dampen risk carried with some of the other, more volatile, equities included in the portfolio.

Barrick Gold Corp. (ABX)

Summary

● Barrick produces and sells copper and gold throughout the world

while also participating in mining and explorations.

● Proven mineral reserves of 91.1M ounces of gold and 11.7B

pounds of copper.

● Founded 1983 Toronto, Canada● Second largest gold manufacturer in the world.

● Barrick is a favorite among bearish investors because its value

acts similarly to that of the value of gold as a commodity.

● When there is high volatility in the market gold and gold

producers tend to rise in value.

Key Financials

NYSE: ABX Market Cap:

$24.88B

EPS: -2.56

Current Price:

$21.35 Beta: -.2007

Yield: .395

52 Week Range:

$5.91-21.43 P/E Ratio: 9.887

-43.24

3000 TonnesAmount of gold mined in 2015

Quantity of deposits + Price of gold as a commodity +

Demand for precious metals + Disposable income + Consumer confidence

GROWTH OF THE

AUTOMOTIVE

INDUSTRY

Industry Trends

Brexit has caused a sharp spike in the price of gold tethered values because of

the uncertainty it has created.•

Gold is considered as the safest bet for investment in devious times of war and

high inflation with currency fluctuations.•

Gold is a precious metal and has high ductility as well as malleability, mainly used as jewellery and for investment

purposes globally.

Major Competitors Country Top Line Revenue

Goldcorp Canada $4.375B

Newmont Mining USA $7.7B

Barrick Gold Canada $9.1B

Financial Analysis

○ Share price 21.35 which is down from their 52wk high of 21.43

○ 2015 results:

■ Revenue:

● $3.113B■ Net Income:

● -$3.11B

○ Positive cash flows of $224M

○ ROIC of-8.67% Q1

KEY TERMS: ROIC, or

Return on Invested

used to assess a

RecommendationBarrick Gold Corporation is an interesting equity pick for the FAST portfolio because while it is natural for investors to look to gold in times of volatility it isn't always the best bet to get in late on the action. Barrick is only a good pick if you believe there is more volatility to be seen in the market in the future. Personally, I believe there is far too much going on in Europe and the Middle east for there to be any stabilization of the markets in the near future. This assertion leads me to believe that gold will continue to rise and thus so will Barrick. A base of five shares of ABX should round out our portfolio.

Final Recommendation

We believe this combination of fixed income investments and equities in the form of individual stocks and exchange traded funds will provide FAST with a fundamentally sound investment portfolio. FAST will be able to be assured of their financial stability going into the future while also knowing the value of their portfolio will be gaining value. We advise that the portfolio be regularly adjusted to account for changes in market conditions as time progresses.

Symbol Shares Price

XLY 3 $244.86

GLW 5 $111.45

SCTY 5 $133.50

VOO 1 $198.10

F 15 $203.55

ABX 5 $106.75

TOTAL: $998.21

Diversified, Risk-Adjusted Portfolio

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