13
2015 ANNUAL REPORT Blue Hen Investment Club 1/1/2015 – 12/31/2015

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Page 1: Blue Hen Investment Club - cpb-us-w2.wpmucdn.com€¦ · Blue Hen Investment Club Learning Portal The Blue Hen Investment Club, since its inception, has served as a key component

2015 ANNUAL REPORT

Blue Hen

Investment Club

1/1/2015 – 12/31/2015

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2

TABLE OF CONTENTS

New Developments 3

Portfolio Performance 5

Investment Highlights 11

Future Initiatives 13

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Blue Hen Investment Club Learning Portal

The Blue Hen Investment Club, since its inception, has served as a key component of financial education at the University of Delaware. This year, the Executive Board has sought to make the club’s educational initiatives even more engaging and accessible. With the help of the Executive Board, Sector Heads, and many club members, Jim Celia, the Director of Education, rolled out a comprehensive online education portal complete with detailed explanations of a wide variety of fundamental analysis techniques, formula sheets, and Excel-based valuation templates. The portal acts as an analyst handbook and highlights the research process that the club utilizes in constructing an investment thesis. In addition to building out the Educational Portal, the Executive Board has continued to expand on the modeling workshops built out last year. Extensive classes have been taught to go over in-depth relative and intrinsic valuation techniques and financial statement analysis. Planned additions to the education role include further development of content focused on the mechanics behind equity options as well as the creation of video walkthroughs for the most commonly used intrinsic and relative valuation practices. Several additions to the FINC120 curriculum, a 1-credit project based class, were made this year in order to provide a better learning experience. The class now includes an online accounting boot camp through WallStreetPrep, a software program designed to bring students less-versed in accounting concepts up to speed. The Executive Board has added more interactive sessions such as a financial statement analysis case study and the opportunity for students to present their projects to Executive Board. A larger emphasis on education has greatly improved the knowledge base of new analysts.

Recruitment Success

One of the main reasons that individuals join the Club is to learn real-world, tangible skills that will put them ahead of the competition when it comes time to interview for internships and full time careers. Being able to showcase the knowledge and skillset developed over the years outside of standardized classroom learning has provided many opportunities for members during recruitment season. The club is proud to see members at firms such as J.P. Morgan, DuPont Capital, Morgan Stanley, Hamilton Lane, McKinsey & Co., Mizuho Bank, Guggenheim, The Big 4, and many others.

New Developments

Position Name Placement Division Locations

President Phillip Flesch Hamilton Lane Private Equity Philadelphia, PA

Director of Education Jim Celia EY Assurance Philadelphia, PA

Consumer Discretionary Jeremy Plamondon PwC Assurance Philadelphia, PA

Energy & Utilities Kyle Lojek Guggenheim Investment Management Santa Monica, CA

Energy & Utilities Joe Sagsveen EY Assurance New York, NY

Industrials & Materials Jimmy Baxter J.P Morgan Chase Internal Audit New York, NY

Healthcare Frank Depinto J.P Morgan Chase Finance Development Program Newark, DE

Industrials & Materials Jeff Sowden Hamilton Lane Private Equity Philadelphia, PA

Position Name Placement Division Locations

Director of Strategy Josh Carruthers Mizuho Investment Banking New York, NY

Industrials & Materials Colin Miller Mizuho Investment Banking New York, NY

Information Technology SJ Desai Deloitte Consulting Philadelphia, PA

Consumer Discretionary Ryan Fante KPMG Assurance Philadelphia, PA

Consumer Staples Justin Ferrarie Cowen Group Sales & Trading New York, NY

Energy & Utilities Frank Haendel Bloomberg Global Data Princeton, NJ

Financials Josh Stern EY Assurance New York, NY

Consumer Discretionary A.J Smiley Affinity Wealth Management Wealth Management Wilmington, DE

Financials Theodore Walker Bloomberg Global Data Princeton, NJ

Consumer Discretionary Samantha Besold J.P Morgan Chase Treasury Services New York, NY

Healthcare Jacob Fertell Jefferson University Hospital Neurosurgery Research Philadelphia, PA

Consumer Staples Matthew Gordon Dot Foods Supply Chain Hagerstown, MD

Healthcare Luke Malone PwC Assurance New York, NY

Healthcare Hannah Crismon Bloomberg Intelligence Princeton, NJ

Industrials & Materials Rory Smith Hamilton Lane Private Equity Philadelphia, PA

Full Time Placement

Internship Placement

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Professional Development The Club has focused on a few areas to improve profession skillset and exposure of our members including distributing a Member Promotional Booklet, building an interview guide, and hosting Alumni Visits and networking workshops. The Member Promotional Booklet includes a picture, brief biography, and resume for each member of the club and is distributed to recruiters and alumni connections for specific instances. For example, if there is a position open for an asset management analyst internship in Philadelphia, PA, the book will be condensed into those interested in and best suited for that opportunity then distributed. Our hope is to continually distribute this booklet to all who are interested to connect our member for networking, internships, and full time careers. If you are interested in connecting with our members, feel free to request a copy of our Member Promotional Booklet by emailing [email protected]. The club has also been working on producing an interview guide for its members to use in preparation for interviews. From surveying our members, we were able to produce content on typical interview questions, both behavioral and technical, to better prepare our members for in-person interviews. Having an idea of what to expect from certain company interviews has proved to be a beneficial aspect to members receiving official offers. Firms that are interested in developing a relationship with the Blue Hen Investment club are always welcome to reach out to set up a time to speak. This past year we have fostered relationships with firms in the greater Philadelphia area through having employers come to our weekly meetings to give presentations on their company and different opportunities for internships and full time positions. We hope to continue developing these strong relationships to form alumni networks at places including Delaware, New York, Philadelphia, Washington DC, Chicago, Boston and other areas. The last area of focus leading to recruitment success was multiple networking workshops presented by club members and alumni visits. BHIC believes that relationships are one of the most important parts of a career and developing connections while still in school is imperative to getting a foot in the door for employment. Focusing on starting a network from ground zero, the club was guided on building and maintaining relationships with alumni and other connections at firms they are interested in working at. Many of our members can attest to having their network providing a support system when they need assistance or just a question to bounce off someone. Alumni have visited many times in the past and we expect more in the future to discuss with our members their career path and experience. Last fall we had alumni from Hamilton Lane and Mizuho Bank visit and this spring we have featured presentations from alumni at McKinsey & Co., Houlihan Lokey, and JP Morgan.

Equity Options One of the future initiatives in 2014, which was successfully rolled out in 2015, was the introduction of equity options into the portfolio. In the fall of 2015, a committee of five members was established to devise a strategy for option implementation. Based on the classification of the portfolio as a value-oriented fund seeking long-term capital appreciation, the members of the committee decided that writing covered calls on existing positions would provide the most optimal results. After a series of educational seminars in which club members were taught the basics of option valuation, trading, and options in the use of portfolio management, the first trade was made on Symantec Corporation. Calls were written on at-the-money contracts and successfully executed using limit orders to tap liquidity in the contract. Going forward, the club hopes to continue to strategically write covered calls on positions that need to be exited.

Portfolio Reports 2015 marked the first year in which the executive board implemented monthly and quarterly portfolio reports. The initiative was carried out to keep members better up to date with the market, the portfolio’s performance, and ongoing developments within the club. The reports are sent out to current and past members of the Investment Club, and going forward, the club hopes to distribute the quarterly reports across all alumni of the Lerner College.

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Style Asset Allocation

S&P 500 Value Total Return: -3.16% S&P 500 Growth Total Return: +3.83%

Value vs Growth Allocation

As a traditional value fund, the Blue Hen Investment Club’s allocation is heavily weighted towards equities classified as having “value” characteristics. In 2015, growth stocks largely outperformed value stocks with the growth portion of the S&P 500 returning 3.83% versus a loss of 3.16% on the value side. The portfolio’s underperformance versus the S&P 500 is largely attributable to a misallocation into value-based companies combined with large unsuccessful plays on individual securities.

Portfolio Performance

2651.332799.8

2400

2500

2600

2700

2800

2900

3000

Jan

uar

y-1

5

Feb

ruar

y-1

5

Mar

ch-1

5

Ap

ril-

15

May

-15

Jun

e-1

5

July

-15

Au

gust

-15

Sep

tem

ber

-15

Oct

ob

er-

15

No

vem

ber

-15

Dec

em

ber

-15

4114.353984.00

3600

3700

3800

3900

4000

4100

4200

Jan

uar

y-1

5

Feb

ruar

y-1

5

Mar

ch-1

5

Ap

ril-

15

May

-15

Jun

e-1

5

July

-15

Au

gust

-15

Sep

tem

ber

-15

Oct

ob

er-

15

No

vem

ber

-15

Dec

em

ber

-15

50.00% 50.00%

82.00%

18.00%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Value Growth

S&P 500 Blue Hen Investment Club

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Monthly & Annual Performance vs. S&P 500 The student-managed fund performed poorly versus the S&P 500 throughout most of the year, losing 5.12%. The portfolio marginally outperformed the benchmark in January, April, and September by 40, 80, and 10 basis points respectively. Much of the losses can be attributed to stocks including Dick’s Sporting Goods, United Rentals, Ralph Lauren, Union Pacific, and Symantec, which lost the portfolio an aggregate value of 4.70% in 2015.

-2.6%

5.8%

-2.3%

1.8%0.7%

-2.2%

0.2%

-6.4%

-2.4%

8.1%

-0.6%

-3.1%-3.0%

5.8%

-1.6%

1.0%1.3%

-1.9%

2.1%

-6.0%

-2.5%

8.4%

0.3%

-1.6%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

BHIC S&P500

-5.12%

1.19%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

BHIC S&P500

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Sector Performance

Top performing sectors versus the market were Health Care, Energy, and Consumer Staples, outperforming by about 140, 70, and 25 basis points respectively. Industrials and Information Technology were the worst performing sectors in the portfolio, losing 21.76 and 4.98%. Knight Transportation, Union Pacific, and United Rentals, the worst performers within Industrials, collectively wiping off almost 2.5% of the portfolio’s total assets. Much of the losses in these securities can be attributed to the continued collapse of oil prices combined with persistently low interest rates.

Sector Active Weights

In the beginning of 2015, the board established an investment policy geared towards placing a larger emphasis on security as opposed to sector selection. The fund made aggressive bets on individual securities such as Bank of America, Symantec, and Dick’s Sporting Goods. Unfortunately, many of these individual plays drastically underperformed, dragging down the portfolio as a whole. The active weights ending in December 2015 manifest the fund’s strategy, as the portfolio’s sector weights fall fairly in line with the S&P’s weights. Industrials marks the only large deviation from the benchmark weight, as the sector lost over 20% of its market value in 2015. Going forward, the club hopes to revert back to its traditional allocation-driven investment policy and eliminate more of the idiosyncratic losses experienced in 2015.

1.37%

-1.29%

1.23%

0.98%

1.82%

-3.76%

1.06%

-5.00% -4.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00%

Consumer Discretionary

Consumer Staples

Energy & Utilities

Financials

Health Care

Industrials & Materials

IT & Telecom

-4.03%

7.13%

-20.08%

-6.24%

8.52%

-21.76%

-4.98%

-3.09%

6.87%

-20.81%

-1.80%

6.60%

-2.49%

5.43%

-25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00%

Consumer Discretionary

Consumer Staples

Energy & Utilities

Financials

Health Care

Industrials & Materials

IT & Telecom

S&P 500 BHIC

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Sector Selection & Allocation Effect

A heavier focus on security selection as opposed to asset allocation resulted in considerable losses generated by misplaced wagers on stocks in IT & Telecom, Industrials & Materials, Financials, and Consumer Discretionary. Few gains and losses were attributable to the allocation effect as there were no large capital allocations above sector benchmark weights. Going forward, the club wants to reposition its strategy to be more reliant on returns generated through sector asset allocation.

Selected Sector Analysis

Healthcare

The healthcare sector was the strongest performer of the year, returning a total of 8.52 versus the benchmark total return of 6.60%. Excess nominal returns were attributable to successful bets on companies including Pfizer, Myriad Genetics, Icon Plc, and Gilead. The healthcare sector has now outperformed the healthcare portion of the S&P 500 for three consecutive years.

8.52%

6.60%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

BHIC Sector

0.19%

-0.08%

-0.40%

-0.02%

0.05%

-0.12%

0.06%

-1.68%

0.14%

0.24%

-0.78%

0.37%

-2.43%

-2.18%

-3.00% -2.50% -2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00%

Consumer Discretionary

Consumer Staples

Energy & Utilities

Financials

Health Care

Industrials & Materials

IT & Telecom

Selection Allocation

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Industrials

The industrials sector was the weakest performer in the portfolio with significant losses experienced in names including Union Pacific Corporation, United Rentals, and Knight Transportation. The sector depreciated 21.76%, and contributed to 2.76% of the portfolio’s losses for the year. Much of these losses were attributable to unavoidable macroeconomic factors including the continued demise of oil price prices and persistently low interest rates. Recent changes were made to reallocate capital within the sector to more promising names.

Risk, Return, Sharpe Ratio, and Alpha

In 2015, the portfolio underperformed significantly on a risk-adjusted basis, generating an alpha of -.12. Out of all of the large-cap U.S equity funds in the United States, the investment fund’s alpha, calculated on a weekly basis, ranked in the bottom 20th percentile. The portfolio’s Sharpe Ratio trailed the S&P 500’s as well as 80% of actively managed equity fund in the U.S. Much of the negative risk-adjusted returns were generated from enhanced portfolio volatility. The standard deviation and beta both measured much higher than previous years, with the portfolio’s beta rising to 1.07.

-0.35

-0.25

-0.15

-0.05

0.05

0.15

Alpha

BHIC Alpha= -0.12

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

Sharpe Ratio

BHIC Sharpe= -0.27

-5.12%

13.21%

1.19%

13.08%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

Annual Return Standard Deviation

BHIC S&P 500

-21.76%

-2.49%

-30.00%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

BHIC S&P 500

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Portfolio Price to Earnings Ratio The portfolio looks cheap from a valuation perspective, trading down to 15.9 times trailing earnings as of December 2015. The portfolio price-to-earnings multiple suggests that prices in the portfolio have fallen much faster than earnings.

Portfolio Dividend Yield The portfolio’s dividend yield has moved inversely to market prices, rising from just 1.72 to 2.31% in 2015. Dividend yields have skyrocketed on many companies we hold in the energy and healthcare sectors as equity prices have gotten crushed. Aside from our energy allocation, we believe that the general financial robustness of most of our holdings will eliminate the possibility of large dividend reductions.

19.6

15.9

18.2518.47

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

20.5

BHIC S&P 500

1.72%

2.31%

1.50%

1.70%

1.90%

2.10%

2.30%

2.50%

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Starbucks (SBUX)

Starbucks was the portfolio’s top performer, returning a total of 47.42% after dividends, and contributing 1.28% to the fund in 2015. Investors aggressively bought shares of Starbucks as the company reported record margins and profits, with earnings growing over 27% in 2015 alone. To generate additional top-line growth, Starbucks took part in a number of strategic acquisitions, purchasing companies including Teavana, Evolution Fresh, and Bay Bread. Management hopes that these purchases will help enable Starbucks to expand beyond capturing morning coffee traffic. The position currently comprises just under 4% of the portfolio.

Dick’s Sporting Goods

Dick’s Sporting Goods was the portfolio’s worst performer of the year, dropping almost 30% on the back of severely depressed operating margins. Sluggish demand for cold-weather gear decreased Dick’s Sporting Goods operating margin by over 200 basis points as management was forced to fire-sale inventory at significantly reduced prices.

Investment Highlights

40.72

60.03

35

40

45

50

55

60

65

49.91

35.2133

38

43

48

53

58

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Icon Plc (ICLR) Icon Plc was purchased as part of the healthcare sector in November of 2015 as a small-capitalization play on the rapidly expanding clinical research management field. Analysts in the healthcare sector identified Icon as a promising play in the space with consistent double-digit revenue growth, zero long-term debt, and an exclusive partnership with IBM to utilize the Watson supercomputer for data analytics. The year to date performance of Icon in 2015 was impressive, with shares of ICLR appreciating 11.5% since November.

Premiere Global Services (PGI)

Premiere Global Services was purchased in March of 2015 as another small-capitalization play on the Conference & Collaboration Software space. In mid-September, news was released that private equity firm, Siris Capital, made a bid to buyout PGI for $14 per share. About two months after the deal was announced, the Blue Hen Investment Club decided to sell PGI for $13.70 a share, making about 30% in just nine months.

8

9

10

11

12

13

14

Position Entry 03/26: $9.37

Position Exit 11/19: $13.70

77.7

65

67

69

71

73

75

77

79

2-N

ov

4-N

ov

6-N

ov

8-N

ov

10

-No

v

12

-No

v

14

-No

v

16

-No

v

18

-No

v

20

-No

v

22

-No

v

24

-No

v

26

-No

v

28

-No

v

30

-No

v

2-D

ec

4-D

ec

6-D

ec

8-D

ec

10

-Dec

12

-Dec

14

-Dec

16

-Dec

18

-Dec

20

-Dec

22

-Dec

24

-Dec

26

-Dec

28

-Dec

30

-Dec

Position Entry 11/05: $68.80

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Portfolio Management & Allocations Committee

There is a comprehensive plan in the developmental stage geared towards improving portfolio management and strategy, an area that has been identified as underdeveloped in relation to the rest of the Club’s progress. The Executive Board believes that additional human capital needs to be devoted towards monitoring the portfolio’s holdings, establishing sector asset allocations, and generating performance reports. To help facilitate these developments, the board wants to separate the role of strategist back into the traditional portfolio and economic strategist. In addition to the separation of these two roles, a specialized portfolio management committee is in the process of being established to provide support. Roles within the committee will include, “sub-sector allocation specialist, international allocation analyst, derivative specialist, and portfolio reporting analyst.”

Charitable Distribution Committee A committee has been established to develop a proposal for the portfolio to make distributions to Resident Student Organizations (RSO’s). If approved the portfolio may distribute up to a certain percentage of its dividend income each year to RSO’s at the University of Delaware. The Executive Board believes that making charitable donations will be a great way for the Blue Hen Investment Club to connect with other student-run organization and help give back to the University of Delaware community.

Future Initiatives