Carroll Fund
P1 Report
Table of Contents Letter to the Carrolls………………………...…………………………………….……….. 3 Economic Outlook ………………………………………………………………………….. 4 Performance Summary …………………………………………………………………….. 5 Risk Metrics……………………..………………………………………………………….. 6 Best & Worst Performers………...…………………….………………………………….. 7 Holdings Returns..…………...…...………………………...………..………………….…. . 8 Allocation of Funds……………………………………....………………………………….9 Portfolio Breakdown…………………………………...... …………………………...…….10 Communication Services …………..………11-13 Industrials …………..……..….……. 33-35
Fidelity MSCI Communication Services ETF. 12 Jacob’s Engineering . 34 Verizon 13 Raytheon Technology 35
Consumer Discretionary ………………….. .14-16 Information Technology..……...….. . 36-40 Amazon 15 Apple .37
Nike .16 Fi rst Trust NASDAQ Cybersecurity ETF 38 Consumer Staples………………………… 17-19 Microsoft 39 Coca-Cola .. 18 S PDR S&P Semiconductor ETF 40
PepsiCo .19 Materials………………....……….... .41
Energy……………………………………....20 Real Estate….…………. …….…..... 42-43 Financials ………………………………….. .21-25 PotlatchDeltic 43
BlackRock .22 Utilities ….……………...………...... 44-45
Global X FinTech ETF .23 Utilities Select Sector SPDR Fund 45
J.P Morgan . 24 Fixed Income……………...……….. 46-49
S&P Global .25 iShares Core US Aggregate Bond ETF . 47
Healthcare ……....…………………………...26-32 P rincipal Spectrum Preferred Securities Amgen 27 Active ETF 48 AMN Healthcare Services 28 .W isdomTree Floating Rate Treasury ETF 49
ARK Genomic Revolution ETF .. 29 CVS Health Corporation 30 Johnson & Johnson . 31 Merck . 32 Fund Managers…………………………………………………………………………. 50-52 Works Cited ……………………………………………………………………………... 53-58
2 Letter to the Carrolls
Dear Mr. and Mrs. Carroll,
The Carroll Torch Fund managers would like to take this opportunity to thank you for allowing us this tremendous experience in the world of wealth management. Unlike any other class, and incredibly unique in its purpose, our time spent on the Carroll Fund has been both educating and enriching to each member personally. As we venture into careers in the professional world, we will undoubtedly apply the skills and lessons learned through serving as Torch Fund managers.
Throughout Period 1, in reaction to new developments and trends, several important changes were made to the portfolio. The Carroll Fund completely liquidated our position in GlaxoSmithKline (GSK), primarily concerned with our pessimistic outlook of the company. We also sold some of our positions in other holdings, as we looked to realize profits while also freeing up cash for future investments. With our cash, we did establish new positions in several companies as well. Among those purchased over the course of Period 1 include Fidelity MSCI Communication Services (FCOM), Nike (NKE), PotlatchDeltic (PCH), S&P Global (SPGI), Utilities Select Sector SPDR ETF (XLU), and SPDR S&P Semiconductor ETF (XSD). The fund also purchased additional shares of CVS Health (CVS). The fund felt these companies greatly aligned with our long-term outlook of the economy and offered stability in times of general uncertainty.
Over the last period, the Carroll Fund’s return was 10.22%, beating our benchmark by 2.68%. The fund continues to look for opportunities to manage our risk, without leaning into currently unattractive yields available in fixed income, to achieve a risk profile comparable to our 60/40 benchmark.
We would once again like to thank you for allowing us the opportunity to take part in this experience. Knowing that this would not be possible without your generous support, we are humbled by your willingness to give back to the university and students like us.
Sincerely,
Adam Hall, Collin Wilcox, John Park, Paxton Cherry, Walker Hale, Will Davis, and Will Lewis
3 Economic Outlook
Summary Despite a remarkable fourth quarter, the Carroll Fund has a cautiously optimistic outlook for the domestic economy. Meanwhile, the fund has maintained a pessimistic outlook on the global economy for 2021. As a result, our overall economic outlook is neutral as the uncertainty of the virus looms over the national and international economy.
Domestic Economy To gauge the health and future of the domestic economy, the Carroll Fund has studied the economic data for Period 1 and noticed the purchasing manager index, existing home sales, and consumer confidence index are outperforming expectations. Similarly , the fund noticed unemployment and wholesale inventories are lower than analysts predicted. These indications give us faith in the US economic recovery continuing into 2021. However, the positive signal from these economic indicators is dampened by concerns of new virus strains, slow vaccine distribution, and limitations to the vaccine's effectiveness.1 These concerns leave us cautiously optimistic despite the positive economic data during the period.
Global Economy To gauge the health of the global economy, we studied geopolitical events throughout Period 1. The fund has decided that the most notable event within this period is the change of control in the White House and US Senate, which we expect will bring significant international policy changes. We view these changes as positive for future growth as we expect the new administration to help develop new international economic policies that will slow currency wars and trade wars.2 However, the slow distribution of the vaccine, new virus strains, and the increased tension with China leave us pessimistic about the global economy.
Outlook The Carroll Fund’s economic outlook is cautiously optimistic about short-term future economic growth. Given the state of the current economy, our portfolio allocations reflect the team’s economic outlook. We invested heavier than the S&P 500 in Healthcare, Financials, Industrials, Real Estate, and Consumer Staples. We targeted firms with high cash flows and interest coverage ratios to find companies that are not only successful, but that also are capable of surviving another economic shutdown. Overall, we believe that our investment strategy will allow for the greatest growth of the portfolio during the coming year, all while maintaining a cautiously optimistic outlook.
4 Performance Summary
Our Mission To manage our funds and securities in a financially prudent manner, so that we can increase the overall value of the fund while outperforming our benchmark and the other Torch Funds.
Carroll Spread Spread Benchmark S&P 500 Period Fund from from S&P Return Return Return Benchmark 500
P1 10.22% 7.54% 12.12% 2.68% -1.90%
Our Goals Objectives Period 1 1) Achieve Positive Return ✅ 2) Outperform Our ✅ Benchmark 3) Outperform Competing ✅ Funds on Relative Return 4) Outperform Competing ❌ Funds on Absolute Return
● Period 1 (P1) date range is 10/1/2020 - 12/31/2020. ● Our benchmark is the weighted average of the S&P 500 Index and Bloomberg Barclays US Aggregate Total Return Value Unhedged Index, weighted 60% and 40% respectively.
5 Risk Metrics
P1 Risk Metrics
Beta vs Benchmark 1.17 Standard Deviation 11.85%
R 2 of Beta 0.91 Tracking Error 3.95%
Beta vs S&P 500 0.69 Information Ratio 2.56
R 2 of Beta 0.90
Metric Portfolio Benchmark BETFX
Sharpe Ratio 3.29 3.00 2.92
Treynor Ratio 0.33 0.29 0.36
● All metrics reported are annualized and use daily returns for their calculation. ● BETFX is the Morningstar Balanced ETF Asset Allocation Portfolio
6 Best & Worst Performers
7 Holding Returns
8 Allocation of Funds
● Benchmark is the weighted average of the S&P 500 Index (60%) and the Bloomberg Barclays US Aggregate Total Return Value Unhedged Index (40%).
9 Portfolio Breakdown
Security Value on 9/30 Value on 12/31 % of portfolio SPAXX $15,704.39 $10,303.57 1.55% Equity Holdings AAPL $36,132.72 $37,949.34 5.70% AMGN $25,416.00 $14,484.96 2.17% AMN $17,888.76 $10,647.00 1.60% AMZN $50,379.68 $39,083.16 5.87% ARKG $28,796.92 $16,133.98 2.42% BLK $12,398.10 $15,873.88 2.38% CIBR - $26,095.44 3.92% CVS $20,440.00 $22,197.50 3.33% FCOM - $36,627.50 5.50% FINX $26,389.15 $21,720.15 3.26% GSK $23,261.52 - SOLD J $11,967.33 $13,402.08 2.01% JNJ $17,121.20 $10,387.08 1.56% JPM $21,179.40 $16,773.24 2.52% KO $11,355.10 $10,693.80 1.61% MRK $29,613.15 $17,341.60 2.60% MSFT $21,033.00 $22,019.58 3.31% NKE - $9,337.02 1.40% PCH - $11,704.68 1.76% PEP $25,225.20 $22,838.20 3.43% RTX $26,353.32 $31,106.85 4.67% SPGI - $17,751.42 2.67% VZ $30,458.88 $10,692.50 1.61% XLU - $12,101.10 1.82% XSD - $26,812.46 4.03% Fixed Income Holdings AGG $54,543.72 $64,649.93 9.71% PREF $48,513.28 $58,237.98 8.74% USFR $50,094.45 $59,060.30 8.87% Total $604,265.27 $666,026.30 100.00%
10 Communication Services Manager: John Park
Sector Overview The communications services sector consists of a group of companies that offer services through fixed-line and wireless networks.3 There are also companies in this sector that are dedicated to the media and entertainment industry that produce and distribute video and audio products through television, streaming content, radios, video games, and audio applications. 4 The communication services sector plays a big role because it enables and provides tools and functions for all critical infrastructure sectors.5
Recent Events One of the key drivers that will trigger growth within the communications services sector is the rollout of 5G and increased demand in media streaming. Analysts predict that there will be 2.8 billion 5G subscribers by 2025 and 3.5 billion by 2026. 5G technology is triggering change globally and will soon be the technology that will be used in everything from self-driving cars to advanced augmented reality experiences.6 The pandemic is also a key driver of the communication services sector. Due to the COVID-19 pandemic, businesses started to shift to operating through remote workforces as individuals were avoiding direct contact due to the virus. This significantly increased the demand for wireless and other telecommunication and media services. The increased demand for higher quality communication methods and more efficient ways to communicate, transfer information, and stream media will help grow the communication sector. The communication sector, however, is exposed to risk due to regulation and cyber-attacks related to data privacy and security threats.
Performance
11 Fidelity MSCI Communication Services ETF (FCOM)
Description Fidelity MSCI Communication Services Index ETF is an exchange-traded fund that seeks to imitate investment returns that correspond to the performance of the MSCI USA IMI Telecommunication Services 25/50 Index, which consists of large, mid, and small-cap domestic companies within the communication services sector.7 ,8 The ETF’s top 10 holdings, in order of most to least weight, are the following: Facebook (FB), Alphabet Inc Class C (GOOG), Alphabet Inc A (GOOGL), The Walt Disney Co. (DIS), Netflix (NFLX), Comcast (CMCSA), AT&T (T), Verizon (VZ), Charter Communications (CHTR) and Activision Blizzard (ATVI).9
Positive Impacts from Last Quarter The communications sector grew rapidly due to the pandemic as it increased the demands on communications services and products. This was no exception towards some of the companies that FCOM is holding, which contributed to its overall growth.
Negative Impacts from Last Quarter International communication companies are a major threat to domestic communication companies. As global communication is increasing (and at a faster rate due to the pandemic), global competitors entered the market, which resulted in a decrease in domestic communication services company’s international presence.
New Transactions The Carroll Fund bought $34,453.12 worth of FCOM shares on November 19, 2020, and sold $136.53 worth of shares on 12/29/2020. Period 1 Performance Start Value End Value Return Dividend Yield $34,453.12 $36,627.50 6.87% 0.68%
12 Verizon (VZ)
Description Verizon Communications Inc. is a telecommunications company that provides wireless, internet, and wireline voice and data services to over 120 million subscribers.1 0 The company also provides businesses and the government with telecommunications equipment such as business phone lines and data services so they can further support and enhance their networking services.1 0
Positive Impacts from Last Quarter Ever since 5G was announced, Verizon was the industry leader that had the most resources to bid on 5G. Ever since the start of the 5G rollout, Verizon has been showing great performance on the nationwide delivery of 5G. In addition, they are actively expanding through their 4G-based home internet availability.
Verizon has also gained performance through the acquisition of Blue Jeans, a cloud-based video conference service company that has seen an increase in users due to the pandemic. They are actively collaborating, merging, or acquiring to survive in the communication industry, which is quite competitive.
Negative Impacts from Last Quarter There are a lot of mergers and acquisitions being active within the communications sector. The merger of AT&T and T-Mobile was one factor that negatively impacted Verizon. The market share that Verizon held shifted to AT&T and T-Mobile as the number of subscribers that Verizon had decreased. Rising competition like this is a huge risk factor for Verizon. The increasing rate of cyber attacks is also a risk factor for Verizon.
New Transactions The Carroll Fund sold $19,470.00 worth of VZ shares at $59.00 on December 29, 2020. Period 1 Performance Start Value End Value Return Dividend Yield $30,458.88 $10,692.50 0.08% 4.21%
13 Consumer Discretionary Manager: Will Davis
Sector Overview The consumer discretionary sector of the economy focuses on goods and services considered non-essential by consumers; they are products that are bought at the consumer’s discretion. Apparel, automotive, home and office products, luxury goods, and travel and leisure industries all help to make up the sector. It is cyclical and heavily correlated to overall macroeconomic moves. When the economy is in expansion, employment and wages tend to follow, as does spending on non-essential items. In contrast, when the economy slows down or contracts and employment and wages fall, spending on discretionary products tends to fall as well. 11
Recent Events The outlook for the consumer discretionary sector is still relatively uncertain amid the ongoing pandemic, with recovery indicators such as unemployment levels, retail sales, and vaccine rollouts being closely monitored by the Carroll Fund. COVID-19 has had an undeniable negative impact on many sub-industries found within the sector, leading to both operational and profitability concerns due to a lack of consumer spending. The inevitable economic reopening will work to help ease some of these uncertainties about the sector as a whole by bringing a returned sense of normalcy to the spending habits of eager consumers. Efficiency measures were implemented by many entities within the sector during the heights of the pandemic. These measures helped to cut costs and increase revenues and may bring avenues of growth even after the economic recovery becomes more concrete. The Carroll Fund has two consumer discretionary holdings in Amazon (AMZN) and Nike (NKE) and is confident in these holdings’ respective post-pandemic earnings growth prospects.
Performance
14 Amazon.com, Inc. (AMZN)
Description Amazon.com, Inc. is a well-known e-commerce giant, that sells products ranging from its original staple of books to clothing, electronics, home and office furnishings, and jewelry, with thousands of other offerings available. Amazon manufactures and sells its own electronic devices as well, including products like Kindle, Fire tablet and tv, Echo, and Ring. The company dominates cloud services providers with its own Amazon Web Services (AWS), which holds the greatest market share in the cloud computing industry. It is also a dominant force in streaming operations and media content, as well as is expanding steadily into the grocery industry with the acquisition of Whole Foods Market, and increasingly available grocery delivery services.
Positive Impacts from Last Quarter Amazon has positioned itself to significantly benefit from the increasing consumer demand in both the e-commerce and cloud computing industries.1 2 Amazon proved that it could continue to operate efficiently under increased consumer demand throughout the pandemic, and continues to increase its capital investments to enhance delivery and fulfillment services. The company continues to post fortress-like balance sheets and grow its top line revenues, giving it the ability to continue its pursuit of growth through new technologies and continued expansion.
Negative Impacts from Last Quarter As consumer demand for e-commerce continues to grow, global competition could pose risks to Amazon’s international expansion efforts. Antitrust charges have been a looming concern for the company as well. The European Union proposed antitrust charges against Amazon for competition concerns, alleging that the company was using third-party seller data to gain an advantage over small, regional sellers. Amazon has since rejected these accusations, however, with the US Congress and the Federal Trade Commission stepping in to help further investigate any possible wrongdoings, the company is not completely in the clear yet.1 3
New Transactions The Carroll Fund sold $13,263.35 worth of AMZN shares at $3,315.91 on December 31, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $50,379.68 $39,083.16 3.90% 0.00%
15 Nike, Inc. (NKE)
Description Nike Inc. designs and markets athletic apparel including footwear, clothing, fitness equipment, and accessory products. Its products are sold worldwide through its retail locations and websites. Nike’s products are primarily focused on the sports of basketball, soccer, football, and running, but also develops products for other types of athletics. Outside of Nike-branded products, the company also sells apparel and footwear under the brand Converse. Nike operates in the apparel and textile products and retail industries within the consumer discretionary sector.
Positive Impacts from Last Quarter Nike has continued its push for long-term growth by positioning itself to implement the next phase of its Consumer Direct Offense during the first half of 2021.1 4 This strategy prioritizes deep personal connections with consumers through a combination of its retail products and a growing digital experiences segment. Nike made significant investments into its property, plant, and equipment during 2020, aiming to enhance the user experience through innovative platforms and efficient fulfillment procedures. These measures, coupled with Nike’s recent push to become a digital-first retailer, position the company to benefit soundly from shifting consumer trends toward e-commerce and digitization.
Negative Impacts from Last Quarter While Nike still dominates the athletic retail industry, the increasing number of brands entering into the industry places competitive pressure on the company. Nike has been able to stay ahead of the pressure by spending $3.5 billion on demand generating activities during 2020. The impacts of COVID-19 have continued to put pressure on the retail industry as a whole, with lasting pandemic concerns still posing risks to Nike’s planned growth strategies. The company took on over $9 billion in new long-term debt throughout 2020, which could bring financial concerns if forecasted future demand figures begin to fall.
New Transactions The Carroll Fund bought $8,893.04 worth of NKE shares at $130.78 on November 23, 2020. Two of these shares were sold at $141.53 per share on December 29, 2020. Period 1 Performance Start Value End Value Return Dividend Yield $8,893.04 $9,337.02 8.39% 0.77%
16 Consumer Staples Manager: Will Davis
Sector Overview Consumer staples is a non-cyclical sector that includes products considered essential to consumers, such as food and beverage products, household and personal products, and tobacco. Given that there are not many substitutes for the products found in this sector, consumers are presented with many different options, in the form of brands and product lines, to choose from when making selection decisions. The sector as a whole does not fluctuate with the economy as the consumer discretionary sector does, in part because the products in the consumer staples category are in demand regardless of the economic cycle. During the last three recessionary periods, when GDP growth was negative, the consumer staples sector outperformed the S&P 500 and has outperformed all but one other sector since 1962.1 5 This lack of sensitivity to macroeconomic factors and events helps the sector achieve relatively lower volatility compared to other sectors, along with slower, more steady growth. The Carroll Fund has two consumer staples holdings in the Coca-Cola Company (KO) and PepsiCo (PEP) and is confident in their abilities to continue to pursue their respective growth strategies.
Recent Events The coming economic reopening will likely draw large attention to an increase in discretionary spending given the current pent-up consumer demand. However, with an estimated 42% of workers, who maintained employment during the pandemic, deciding to work from home for the foreseeable future, the staples sector will continue to provide a solid, more defensive play for investors.1 6 Performance
17 The Coca-Cola Co. (KO)
Description The Coca-Cola Company is a producer and distributor of non-alcoholic beverages and has distinguished itself as one of the world’s most recognizable brands in the process. The company offers a variety of product lines outside of the typical soft drink selections, including bottled water, tea, and sports drinks. Coca-Cola operates within the global beverages sub-industry of the consumer staples sector.
Positive Impacts from Last Quarter Coca-Cola used 2020 to continue its expansion into desirable emerging markets, including affirming its commitment to long-term investment and growth on the continent of Africa. Revenues in emerging markets are continuing to grow, and represent exciting avenues of growth for the company moving forward. The partial economic reopening experienced thus far has contributed to an increase in on-site sales, which account for around 40% of the company’s volume.1 7 These revenues are poised to rise as venues continue to become increasingly accessible to consumers. Coca-Cola benefited from its ability to cut costs throughout the pandemic, including the implementation of various productivity and distribution improvements, which will help continue to drive its stable earnings growth.
Negative Impacts from Last Quarter Shifting consumer trends away from soft drink beverages continue to impact Coca-Cola’s operations, as the company’s product lines are solely concentrated on beverages. Coca-Cola introduced new product lines outside of its traditional soft drinks during 2020, but the lack of diversification in its portfolio of product offerings outside of beverages continues to limit the company’s growth prospects.
New Transactions The Carroll Fund sold $1,901.91 worth of KO shares at $54.34 on December 31, 2020. Period 1 Performance Start Value End Value Return Dividend Yield $11,355.10 $10,693.80 12.59% 2.99%
18 PepsiCo (PEP)
Description PepsiCo manufactures, markets, and sells a variety of carbonated and non-carbonated beverages, grain-based snacks, and other food items around the world. The company offers familiar product lines such as Pepsi, Mountain Dew, Tropicana, and Gatorade, as well as owns snack brands Frito Lay and Quaker Foods. PepsiCo operates across several different industries relating to food and beverage products in the consumer staples sector.
Positive Impacts from Last Quarter PepsiCo’s portfolio diversification gives it exposure to markets outside of its traditional soft drinks. Its positioning in crucial emerging markets, as well as the reopening of venues to increase on-site sales, will help continue to drive revenue growth for the company. PepsiCo’s food and snack brands continue to help the company respond to shifting consumer trends by offering healthier products, as consumer demand for healthier options continues to rise. The company maintained its non-cyclical tendencies throughout 2020 by posting growing revenue figures, strong balance sheets, and stable earnings. These factors will continue to make PepsiCo an attractive option despite continued economic uncertainty in regards to the pandemic.
Negative Impacts from Last Quarter Decreasing consumer demand for unhealthy soft drink and snack products continues to be evident through lower-than-expected consumer demand figures posted during the final two quarters of 2020. Soft drink beverage trends have shown weakness lately, however, are expected to improve in 2021.1 8 Demand concerns for many of PepsiCo’s unhealthy food and snack products will continue to pose risks to the company’s volumes as a whole, despite the company’s ability to adapt to shifting consumer preferences.
New Transactions The Carroll Fund sold $4,149.78 worth of PEP shares at $148.21 on December 29, 2020. Period 1 Performance Start Value End Value Return Dividend Yield $25,225.20 $22,838.20 6.99% 2.71%
19 Energy Manager: Adam Hall
Sector Overview Virtually all companies rely on electric power and fuels that are produced by companies within the energy sector. However, with relatively low oil prices, slumped demand, and pushes towards expanding away from nonrenewable resources, profits and growth are extremely uncertain for the overall sector in the short and long term. Uncertainty also means lower valuations, which is why we are still actively searching for the few companies that will be able to capitalize from the failures and necessary consolidations or asset sales of others. We believe that these opportunities will be within downstream companies, which involves the processing, refining, and/or distribution of oil. The parts of this sector we are looking to avoid include natural gas, as it will be a key part of companies’ decarbonization strategies, and the oil & gas equipment and services industry because of the likeliness of consolidation of its customers and increasing focus on cost savings and balance sheets.
Relevant Events The most significant uncertainty impacting the energy market is the new administration. Stakeholders will be watching how Biden attempts to update the US power infrastructure and its reliance on nonrenewable energy, deals and relationships with volatile oil-producing countries, and policy to combat the slowing US economic recovery from COVID-19. The current consensus among analysts is that President Biden will prioritize the overall economic recovery over negative policies and actions toward the industry. According to McKinsey, oil demand is still expected to climb into the 2030s1 9 and WTI crude oil prices are up approximately 4.50% since President Biden’s inauguration.
Performance
20 Financials Manager: Walker Hale
Sector Overview Within the S&P 500, the financial sector is one of the largest, operating through many industries such as investment firms, retail banks, insurance, and real estate brokerages. 20 Interest rates have a big impact on overall performance of these industries, as some benefit more so than others as a large portion of revenue is generated from loans and mortgages.2 0 For example, mortgage-focused firms experience higher net income in a low-rate environment as it is more attractive to consumers; on the other hand, big banks struggle as lower rates decrease margins on loans and make fixed income products less attractive to investors. Companies within this sector are usually a good indicator of overall economic health as their performance is closely tied to loans made to consumers, meaning if firms or people are investing in new projects and in need of capital, the banks are conducting a lot of business. In turn, this could lead to further expansion possibly consisting of more jobs, resulting in more income to spend.
Relevant Events As the COVID-19 pandemic wreaked havoc for many economies globally, the US financial sector was one of the most impacted. With the Federal Reserve combating economic hardship by lowering rates to levels near zero, and with intentions to keep them in that range until late 2022, it is possible the financial sector will lag behind and not see a big rebound until that time. On the other hand, the US economy has seen record-breaking GDP growth in Q3 and Q4 of 2020 which could kickstart financials to making higher moves as economic recovery could happen quicker, and stronger than expected. In addition to interest rates and economic growth, it will be interesting to see how the overall financial sector could play out long term in reaction to federal and government policies which play a key role in performance. The Carroll Fund has identified areas of opportunity in fintech and US big banks. Companies within the financial technology subsector (fintech) could see big growth in 2021 as the idea of autonomous banking and digitizing platforms has been heightened due to COVID-19 business implications. In addition, the growing popularity of digital and currency wallets is resurging and could be here to stay. In regard to US big banks, improved performance could be sparked by rising inflation that threatens to push interest rates higher in 2021. Investors should remain careful in their equity purchases as the overall health and growth of the economy is not certain and overall short-term returns continue to be unclear.
Performance
21 BlackRock, Inc. (BLK)
Description Globally, BlackRock is arguably the largest investment management firm with assets under management of nearly $8.68 trillion as of December 31s t, 2020. 21 Blackrock offers consumers globally a wide range of investment opportunities such as equity funds, money market instruments, and fixed income. 22 Due to the various investment vehicles offered by BlackRock, they are able to attract a wide range of investors who are looking for retirement income, college savings plans, or even basic ETFs.2 2
Positive Impacts from Last Quarter After experiencing a 28% return in 2019, BlackRock started 2020 off strong and never looked back. As the COVID-19 pandemic crashed through the US economy, leaving some businesses in shambles, many companies actually flourished during these times, and BlackRock was one of them. After experiencing a nearly 42% drop in stock price during the initial crash, BlackRock was able to regain pre-pandemic levels by mid-July. Since then, the stock has nearly surged 120% due to investors plowing money into ETFs. When Q4 earnings were released it was not surprising to see them beat expectations. Their adjusted net income came in at $10.18 per share, beating the consensus estimate of $9.142 1. The firm’s assets under management grew from $7.43 trillion a year before, to $8.68 trillion at the end of the quarter.2 1 The biggest source of revenue throughout the quarter for BlackRock was the investment and advisory fees driven by an influx of new investors.
Negative Impacts from Last Quarter As BLK performed very well in 2020, it could face some hardships heading into 2021 as the whole industry will need to adapt to changing environments. As competition has grown fiercer, regulations have become more complex and the technology aspect has further changed the nature of competition, and some firms will have to adapt quickly to remain at the top.2 4 In addition, many regulators and consumers are pushing for more focus on environmental, social, and governance investing approaches for investment management firms2 5.
New Transactions The Carroll Fund did not make any new purchases or sales of BlackRock, Inc.
Period 1 Performance Start Value End Value Return Dividend Yield $12,398.10 $15,873.88 28.68% 2.01%
22 Global X FinTech ETF (FINX)
Description The Global X FinTech ETF is an exchange-traded fund in which at least 80% of its total assets are invested into securities within the Indxx Global Fintech Thematic Index. By doing so, the ETF has the intention to provide investors with returns similar to that of the underlying index.2 6 The underlying index gives exposure to developed markets that focus on different financial technology products and analytics software, alternative currencies, and companies that are focused on peer-to-peer and marketplace lending.2 6
Positive Impacts from Last Quarter Despite the COVID-19 market crash, FINX was able to finish 2020 with a return of over 50%. As financial technology is growing more popular due to platform digitization and an increase in mobile payments and peer-to-peer lending, FINX has offered high growth potential. The ETF allows investors to experience returns of high growth companies who are applying new technological innovations to disrupt and improve the delivery of financial services. The future growth in this industry is limitless, and FINX is a great way to gain broad exposure to the entire industry. With the digital payments market growing 23.70% in 2020, it is expected that between 2020 and 2024 the industry will grow at a 13.40% compounded annual growth rate, to reach $8.17 trillion by 2024.2 6
Negative Impacts from Last Quarter As the demand for digital financial services has grown immensely, and will most likely continue to do so, many firms in the industry will have to remain agile to stay on top of new trends. As innovation is the heart of these firms, it can also pose threats as it brings a constant state of change and competing upgrades. Additionally, firms will be challenged to keep up and stay compliant as more global regulations are rolled out. 27
New Transactions The Carroll Fund sold $8,547 worth of FINX shares at $38.95 on November 10, 2020, and $371.92 worth of shares at $46.49 on December 29, 2020. Period 1 Performance Start Value End Value Return Dividend Yield $26,389.15 $21,720.15 16.48% 0.00%
23 JPMorgan Chase & Co. (JPM)
Description Conducting business globally, JPMorgan Chase & Co. operates in four primary divisions, including consumer and community banking, corporate and investment banking, institutional banking, and management of assets and wealth. 30 S&P global ranks JPM seventh largest in the world, falling behind institutions serving the continents of Asia and Europe. 29
Positive Impacts from Last Quarter While JPM had an eventful year in 2020 caused by the COVID-19 pandemic and was forced to set aside billions of dollars in potential future credit losses, it showed strength, turning great profits despite the circumstances. JPM beat analyst expectations for Q4 profits, getting a boost from releasing money set aside for credit losses.2 8 They posted earnings of $3.79 per share, beating the $2.62 per share estimates.2 8 Even without the credit loss boost of $0.72 per share, JPM would have still beaten estimates. Additionally, the firm beat revenue expectations posting $30.16 billion in revenue while the estimate was $28.70 billion.2 8 CEO Jamie Dimon said that two major developments in late 2020 causing a decrease in the bank’s reserve was news of more effective coronavirus vaccines and more government stimulus. The firm said it released $2.90 billion in cash from its reserve.2 8 As 2021 is the year of relative optimism, JPM could see heightened performance and improved profits due to the Federal Reserve allowing big US banks to resume share buybacks, a more opportunistic approach to the asset & wealth management segment, and releasing more credit reserves into earnings.
Negative Impact from Last Quarter As the US economy is recovering, there is still some mixed sentiment on the overall performance of JPM and other US big banks. As we know, the Federal Reserve aims to keep interest rates low until the end of 2022 but might have to reconsider if a sufficient rise in inflation is seen. In addition to interest rates, new COVID-19 variants could put a halt to both domestic and global economic recovery. Lastly, JPM will also be operating under a new administration, and a change in regulatory compliance could put limitations on margins or business opportunities.
New Transactions The Carroll Fund sold $10,062 worth of JPM shares at $117.00 on November 10, 2020, and $250.50 worth of shares at $125.25 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $21,179.40 $16,773.24 28.82% 2.83%
24 S&P Global Inc. (SPGI)
Description Together with its subsidiaries, S&P Global Inc. works to provide a wide variety of services for the capital and commodity markets worldwide, such as credit ratings, indices, analytics and data. Via these four primary business divisions, the organization operates: S&P Global Ratings, S&P Global Market Intelligence, S&P Global Platts and S&P Dow Jones Indices. 32
Positive Impacts from Last Quarter As the COVID-19 pandemic wreaked havoc on many large, well-known companies in 2020, SPGI was one that benefited and thrived under the new and uncertain environments. SPGI was able to top both Q3 earnings and revenue estimates when they reported on October 27t h, 2020. The company posted quarterly earnings of $2.85 per share, beating the $2.64 consensus estimate.3 3 In addition, Q3 revenue came in at $1.85 billion beating estimates by 5.43%.3 3 While all four businesses delivered revenue growth throughout the quarter, a near doubling of US high-yield issuance helped the Ratings segment deliver the strongest performance. SPGI also launched new environmental, social, and governance (ESG) that gained momentum across all business segments.3 1 A rise of passive investing became more popular due to market conditions, and SPGI’s index business benefited greatly. At the end of 2019, an estimated $4.50 trillion was indexed to the S&P 500 alone, and as of October 2020, an additional $6.60 trillion was benchmarked to the S&P 500.3 1 Growth in both indices domination and debt issuance could continue into 2021 as market conditions remain volatile and liquidity is key as uncertainty still looms.
Negative Impacts from Last Quarter SPGI could face headwinds in 2021 as lawmakers continue to push for regulation changes in the credit ratings industry, a business segment that made up nearly 50% of revenue in 2020.3 1 The goal of Congress is to have companies revamp their business models to eliminate possible conflict of interest.3 5 a reason which some believe caused the financial crisis. In addition to tighter regulations, overall debt issuance volume could decline as COVID-19 related uncertainty weakens. If debt issuance were to fall, an area that saw a 36% surge in 20203 2, SPGI could see a decline in overall revenue.
New Transactions The Carroll Fund purchased $18,667.55 worth of SPGI shares at $339.41 on November 10, 2020, and sold $322.32 worth of shares at $322.32 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $18,667.55 $17,751.42 -2.98% 0.82%
25 Healthcare Manager: Will Lewis
Sector Overview Healthcare is one of the largest and fastest-growing sectors. The firms in this sector provide services and products that are related to the medical and health fields. The Carroll Fund’s holdings include AMGN, AMN, ARKG, CVS, JNJ, & MRK. We see technological advancement as a major opportunity in the healthcare sector. Digital transformation, artificial intelligence, and “telehealth” are all examples of new innovations and potential disruptors in the sector. Big data and analytics are also becoming increasingly useful in the healthcare world and are growing in popularity. The fund is fascinated by the idea of being able to predict a patient’s needs before the patient even recognizes them, and we believe there is great opportunity in the tech-health space in the coming years.
Relevant Events At the center of attention, while the world health crisis continues, the Healthcare sector remains a great focus of our government and leaders. While the country seems to be making progress domestically, there are concerns with new variants of the virus, which distributed vaccinations have been less resistant to. It will be important to monitor how the Biden administration handles the world health crisis. A report recently released by Foley & Lardner LLP found that the pandemic has led state and federal lawmakers to remove certain restrictions and increase reimbursement for telehealth at higher than average rates.3 6 This is one of many examples of the shift to at-home healthcare, inspired by the current times.
Performance
26 Amgen (AMGN)
Description AMGN is a biotechnology company that has been serving the world since 1980. Located across the globe, the company focuses on developing medicines for illnesses that are not easily treatable. The company’s line of products is surprisingly small, approximately twenty, but Amgen has done a remarkable job of selling and distributing these products. Cancer-fighting drugs, such as Neulasta and Vectibix, are some of the company’s top-selling products. These products are expensive but can provide necessary treatment that make them worth the lofty costs. Amgen’s products are mainly sold to hospitals and different groups within the medical field.
Positive Impacts from Last Quarter The company’s smaller product line doesn’t account for the numerous medicines being tested behind the scenes, many with great potential in the coming years. As older products are phased out of offering, the company has worked to make the transition seamless. Particularly exciting is the work being done on an anti-cancer treatment, AMG 510. In the last month, Amgen reported a high disease control rate in Phase 2 of the drug’s testing, which is another step in the right direction for company innovation.
Negative Impacts from Last Quarter Some of Amgen’s patents are set to expire over the course of the next several years. However, the company has fully taken this into consideration and has developed new products to buffer expiring patent products. As new companies look to compete in the space, it will be important for Amgen to continue to market their products effectively, as a smaller product line puts more pressure on each drug individually.
New Transactions The Carroll Fund sold $8,393.08 worth of AMGN at $226.84 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $25,416.00 $14,484.96 -9.36% 2.78%
27 AMN Healthcare (AMN)
Description AMN Healthcare is a leading company in the healthcare sector. The company is broken up into three major segments: Nurse and Allied Solutions, Staffing, and Workforce Solutions.3 7 Workforce solutions developed by the company help healthcare providers in day-to-day operations as they better streamline business processes and assist in the simplifying of complex objectives. AMN also helps place healthcare professionals in positions across the country through its staffing solutions, and continues to do so, even despite a decrease in healthcare workers during the pandemic.
Positive Impacts from Last Quarter AMN has developed a healthcare workforce solution for businesses looking to safely operate their businesses during the pandemic and beyond.3 8 The AMN Managed Services Program (MSP) will help healthcare systems better understand their own capabilities as they look to operate efficiently during these times. This offering by AMN is expected to play a role in the company’s future as more healthcare providers look to improve on staffing and costs, especially as more employees begin returning to work.
Negative Impacts from Last Quarter There has been a shortage of healthcare workers over the last year, which is attributable to professionals looking to avoid potentially infectious places during these times. It will be important that more professionals begin returning to work in the near future, as the company’s staffing services and MSP are dependent on these workers. AMN has shown resistance even with shortages but a return to work would bode well for the company moving forward. Improvements in data security will also be important as the MSP grows in popularity, as this shift to online healthcare can put private information at risk.
New Transactions The Carroll Fund sold $10,195.50 worth of AMN at $67.97 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $17,888.76 $10,647.00 16.51% 0.00%
28 ARK Genomic Revolution Multi-Sector ETF (ARKG)
Description The companies held by ARKG incorporate advancements in the field of genomics as they focus on extending and improving human life.3 9 The ETF invests largely in companies, within the healthcare sector, specifically the biotechnology field, that are disrupting the traditional methods of healthcare in terms of scientific development. ARKG typically holds between 30-50 companies at a given time.
Positive Impacts from Last Quarter Teladoc Health, which is ARKG’s largest holding currently, has been on a tear of late, with shares up 660% since its IPO in 2015, and more than half of those gains were generated within the last year. The track record of ARKG is incredibly impressive as it remains committed to holding the most successful technological and scientific healthcare companies.
Negative Impacts from Last Quarter Research and development costs for many of ARKG’s holdings are very sizable. Companies held by ARKG could face problems incurring these costs if they are not able to develop and sell new products. Genomics is a field of biology that is largely still undiscovered. meaning that these R&D costs are unlikely to decrease in the future. However, ARKG has done a tremendous job of monitoring company standings and will be quick to turn over holdings if there seems to be imminent risk.
New Transactions The Carroll Fund sold $26,086.50 worth of ARKG at $93.50 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $28,796.92 $16,133.98 47.85% 0.85%
29 CVS Health Corporation (CVS)
Description CVS Health provides an unmatched array of health services to customers across the United States. Having become a household name, the healthcare provider continues to build on its impressive brand. The company operates as the largest pharmacy chain in the country and offers pharmacy various pharmacy solutions to customers through four main segments which are Pharmacy Services, Retail/Long Term Care, Health Care Benefits, and Corporate.4 0 CVS operates around 10,000 retail locations and 1,000 MinuteClinic medical clinics across the country, displaying its incredibly wide reach.
Positive Impacts from Last Quarter The company has shown commitment to mergers and acquisitions. CVS acquired Aetna, which combined the CVS pharmacy and Aetna insurance business, in an effort to cut costs company wide. Technology integration is underway and will be a major focus of the deal, and in the coming years, there will be even more transformation in back-end operations as CVS builds for the future. The company has also shown relative resistance throughout the pandemic. After the country reopened, CVS recorded solid success, as prescription and insurance increased after a down couple of months. Both COVID-19 and flu testing have been extra streams of revenue for CVS. The company will also soon be on the frontline for administering vaccine relief across the country.
Negative Impacts from Last Quarter Still heavily relying on customers to order and pick up prescriptions in store, other companies are developing new business models. Amazon, for example, has moved into the pharmaceutical space, where all services, including prescriptions, will be conducted fully online. In the coming years, this could potentially disrupt some of the market share CVS has as customers shift to a potentially more efficient way of getting their prescriptions fulfilled.4 1
New Transactions The Carroll Fund purchased $9,872.80 worth of additional shares of CVS at $60.20 on October 8, 2020, and sold $12,867.12 worth of CVS at $68.08 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $20,440.00 $22,197.50 16.52% 2.93%
30 Johnson & Johnson (JNJ)
Description Johnson & Johnson serves as a longstanding engineer in the Healthcare sector and has developed countless products for the general public since its founding in 1886. Widely considered the largest and most broadly-based healthcare company in the world, JNJ is located in more than 60 countries. It is a diversified titan of industry that operates through more than 260 companies and three primary segments: Consumer, Pharmaceutical, and Medical Devices. 42 JNJ sells its pharmaceuticals to end patients primarily through medication retailers and wholesalers, and also hospitals. Medical devices are most often sold to hospitals and doctors, while consumer healthcare products are sold through large retailers, and many of these products are the ones commercially advertised by the company.
Positive Impacts from Last Quarter The company’s COVID-19 vaccine reported a 72% success rate in its latest trials. The single-dose vaccine, if accepted, would be the first single-dose vaccine on the market, and would help speed up the administering process.4 3 Speaking of testing, the company boasts a portfolio of pharmaceuticals that are currently undergoing FDA testing but are largely expected to hit the open market over the next several years, which could be impact products for the healthcare giant going forward.
Negative Impacts from Last Quarter The company is facing several lawsuits claiming that JNJ products have led to addiction or disease, and pointing to the company as using unethical operations. The company has defended its operations but has paid handsomely in settlements. It’s expected that money will be the only major repercussion for these lawsuits.
New Transactions The Carroll Fund sold $7,585.20 worth of JNJ at $154.80 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $17,121.20 $10,387.08 5.65% 2.53%
31 Merck & Co. (MRK)
Description Merck & Co., Inc. is a renowned health care company that meets healthcare related needs through various avenues including prescription medicines, vaccines, and consumer care products.4 4 Keytruda, a revolutionary medicine and Merck’s long-standing top product, is used to combat human cancer. The company operates in consumer care, animal health, and pharmaceuticals and mostly offers its products to various wholesalers, retailers, and health care providers.
Positive Impacts from Last Quarter Merck released the news that a new spinoff company, Organon & Co., would help sell older products as the company changes directions and looks to move forward while focusing on newer products. Women’s health brands like Nexplanon will be a major focus of Organon. Along with women’s health medicines and older brands, the new business will also sell biosimilars.4 5 Last December, Merck struck a $356 million deal with the government to supply MK-7110 to hospitals to treat COVID-19 patients in critical condition.
Negative Impacts from Last Quarter MRK is ditching the development of its COVID-19 vaccines due to poor testing results, which is disappointing, as we had expected good news regarding the vaccine after a promising outlook. This had been something we had been monitoring for months and it’s unfortunate the company couldn’t generate successful results. The company’s well-known CEO, Kenneth Frazier, also announced he would be stepping down from his position this coming April and will be replaced by CFO Robert Davis. Frazier will continue to serve the company as Executive Chairman of the Board. The company has faced some backlash after reported links to Merck anti-balding treatments as the cause of numerous depression and suicide cases.
New Transactions The Carroll Fund sold $11,798.65 worth of MRK at $81.37 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $29,613.15 $17,341.60 -0.86% 3.03%
32 Industrials Manager: Paxton Cherry
Sector Overview This past year has brought about many changes due to a worldwide pandemic, COVID-19. The pandemic led the economy to become more volatile over the past year than ever before. Throughout 2020, some economic sectors outperformed expectations, and other sectors experienced devastation. The industrial sector of the economy experienced both sides of the unpredictable effects caused by the pandemic. The industrial sector produces a broad range of capital goods, finished goods, and services. The businesses within the sector include “Aerospace and Defense, Air Freight and Logistics, Commercial and Professional Services, Industrial Machinery and Electrical Equipment, Construction Equipment and Building Supplies, Transportation (cars, airlines, and railways), Manufacturing and Waste Management”.4 6 The pandemic affected each of these segments differently. Companies that focused on automation and machinery seemed to outperform companies that focused on human labor.
Relevant Events A few trends in the industrial sector of the economy explain the unpredictable performance of industrial stocks over the past year. A major performance trend is the industrial sectors’ sensitivity to economic conditions for certain industries. 47 Another trend is that the industrial sector’s companies are “capital intensive”. 4 6 Capital-intensive companies have a lot of financed items resulting in high amounts of debt. When the economy goes into a recession and certain industrial firms are severely impacted, these high amounts of debt do not go away. As a result, capital intensive companies limit their ability to offset revenue decreases by acquiring new debt. This can be seen by the airline industry’s financial performance in 2020.
Performance
33 Jacobs Engineering Group (J)
Description Jacobs Engineering Group is an international engineering company that provides construction, technical, and professional services for many different industries, and clients. Jacobs Engineering Group prides itself on “tackling the world’s toughest problems.”4 8 The company has two main lines of business: “Critical Mission Solutions and People and Places Solutions.”4 9 Jacobs Engineering Group’s Critical Mission Solution branch focuses on projects that deal with information technology. The People and Places Solutions for Jacobs Engineering company focus on renewable energy and construction.
Positive Impacts from Last Quarter Jacobs Engineering Group has major opportunities that can drastically increase the overall value of the company. The greatest opportunity for Jacobs Engineering Group comes from cybersecurity. As the world relies more on technology, the demand for safety and security is inevitable. Another opportunity comes from clean energy. The world continues to become “green” and rely more on renewable energy. As a result, Jacobs has the potential to grow through the many different green-energy solutions that they provide.
Negative Impacts from Last Quarter Jacobs Engineering Group has a couple of weaknesses that need to be watched over to determine if the stock is a good fit for the Carroll Fund portfolio. Jacobs Engineering Group is behind competitors in the continuous investment in research and development.5 0 Research and development are not only important to maintain the company’s current market share, but also crucial for the company to grow. Another weakness that needs to be addressed is rising material costs as it will reduce profits. 50 The final weakness is the new administration in the United States. The new administration is facing spending dilemmas due to the pandemic. US officials are attempting to pass a relief package for citizens and allocate money to efforts leading to the end of the pandemic. If this change in federal spending occurs, it is expected that federal spending on construction and other goods and services will decrease. As a result, Jacob’s would sustain a huge decrease in revenue as the US Government is one of their largest clients.5 1
New Transactions The Carroll Fund sold $645.60 worth of J shares at $107.60 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $11,967.33 $13,402.08 17.59% 0.70%
34 Raytheon Technology (RTX)
Description Raytheon Technology is a multinational provider of aerospace and defense products. The corporation is made up of four different businesses: Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense. 52 Each of these companies offers unique products and services that are targeted at their intended customers. Raytheon offers aviation goods and services through Collins Aerospace and Pratt & Whitney. They also specialize in military and government operations through Raytheon Intelligence & Space and Raytheon Missiles & Defense.
Positive Impacts from Last Quarter A major opportunity for Raytheon Technology is the growing need for “cybersecurity” and “aerial unmanned vehicles” worldwide.5 3 This creates a major growth opportunity for Raytheon technology through Raytheon Intelligence & Space and Raytheon Missile & Defense. The issue of cybersecurity has become a major area of concern over the last few years as more and more information is being stored by personal and business computers. The need for safety is essential for many businesses to ensure users’ privacy of information. On the other hand, over the past few years, there has been a growing demand for aerial unmanned vehicles. The increased demand for aerial unmanned vehicles stems from a lower operating cost, increased traveling distance, as well as an increase in user safety compared to its competitor, a military jet.
Negative Impacts from Last Quarter In the aerospace and defense industries, there is a lot of competition. This makes Raytheon Technology’s low profitability and ineffective use of cash and other assets an area of concern. 54 If the company does not use its resources more effectively, competitors with more efficient operations will take Raytheon Technology’s market share. However, the greatest threats to Raytheon are a slow recovery from the COVID-19 pandemic and a decrease in government spending on defense. These threats would lead to the commercial aerospace business remaining stagnant or possibly even worsen, with Raytheon Technology dependent on the Federal Government for a major revenue source. As a result, the value of Raytheon’s stocks would drastically decrease.
New Transactions The Carroll Fund sold $1,621.27 worth of RTX shares at $70.49 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $26,353.32 $31,106.85 25.02% 3.02%
35 Information Technology Manager: John Park
Sector Overview The information technology sector consists of a group of companies that operate through offering services related to software, information technology. 55 Some companies within this sector also manufacture and distribute hardware and equipment that is needed to apply the technology, such as electronic equipment, semiconductors, and other related instruments.5 5 As more businesses, governments, academic institutions, and private citizens are increasingly dependent upon the functions of information technology, the sector is becoming more critically important to the nation’s security, economy, and public health and safety.5 6
Recent Events The information technology sector fuels growth through innovation. Areas leading the most disruptive innovation include the following: artificial intelligence, big data, cybersecurity, and semiconductors. However, they face risks such as regulation, international competition, and cyberattacks. While the recent global shortage of semiconductors is an example of the growth and increase in demand for technology components, there are examples of risk such as the recent cyberattack through Solarwinds.
Performance During Period 1, the communications services sector in the S&P 500 has increased by 11.52%. This underperforms the S&P 500 performance of 11.69% from Period 1.
36 Apple (AAPL)
Description Apple Inc. serves its customers through designing, manufacturing, and marketing personal computers and mobile devices that are run by their own software (IOS), services, and networking solutions.5 7 Apple has become one of the biggest companies in the world by widely utilizing its global online and retail stores and has a big presence domestically through its direct sales force, third-party wholesalers, and resellers. 57
Positive Impacts from Last Quarter Most of Apple’s revenue comes from iPhone sales, and with the smartphone market maturing, the company is finding new ways to strategize and dominate the market through MacBooks, iPads and other wearable or home accessories. As their products set new revenue records during their first quarter of FY 2021, their revenue increased by 21% and EPS increased by 35%.5 8
Negative Impacts from Last Quarter Apple will always be exposed to threats coming from its international competitors, such as Samsung and Huawei. As new, innovative technologies for consumer technology products such as smartphones, tablets, laptops, and other accessories surface up, Apple could lose market share if it does not actively strategize in other countries where other companies are trying to gain market share.
New Transactions The Carroll Fund sold $3,572.66 worth of AAPL shares at $137.41 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $36,132.72 $37,949.34 15.09% 0.61%
37 First Trust NASDAQ Cybersecurity ETF (CIBR)
Description First Trust Nasdaq Cybersecurity ETF tracks the performance of cyber security companies of the technology and industrial sectors that are included in the Nasdaq CTA Cybersecurity Index.5 7 The ETF’s top 10 holdings, in order of most to least weight , are: CrowdStrike (CRWD), Zscaler (ZS), Cisco Systems (CSCO), Accenture (ACN), Splunk (SPLK), FireEye (FEYE), Palo Alto Networks (PANW), SailPoint Technologies (SAIL), Fortinet (FTNT), and Proofpoint (PFPT).5 9
Positive Impacts from Last Quarter As cyberattacks are getting more sophisticated and powerful, the demand for stronger cybersecurity is increasing. While this could have a negative impact towards some cybersecurity firms, which is discussed below, some firms will take this advantage and change their strategy and operations to better increase their cybersecurity products and relationships with their customers.
Negative Impacts from Last Quarter As mentioned above, the increase in cyberattacks has caused an increase in the demand for strong cybersecurity. If there is no improvement within the cybersecurity industry towards some of the events that happened during Period 1, this could negatively impact the ETF as a whole.
New Transactions The Carroll Fund purchased $26,042.52 worth of CIBR shares at $44.29 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $26,042.52 $26,095.44 0.20% 1.10%
38 Microsoft (MSFT)
Description Microsoft Corporation is one of the biggest companies in the world through developing, manufacturing, licensing, selling, and supporting software related to server applications, business and consumer applications, software development tools, Internet and intranet applications.5 7 Microsoft also offers hardware products through entertainment devices that offers video games and music.5 7 Microsoft operates in three major segments, which are: productivity and business processes, intelligent cloud, and more personal computing.6 0 Through these three major segments, Microsoft serves Office commercial products and cloud services, server products, Windows, Xbox, phones, laptops, and other accessories.6 0
Positive Impacts from Last Quarter Microsoft’s three major segments, as stated above, have all performed equally well. While the three major segments produced an increase of revenue of 13%, 23%, and 14%, Microsoft’s total performance during their Quarter 2 FY 2021 was a success. Microsoft’s total revenue, net income, and diluted earnings per share increased by 17%, 33%, and 34% respectively.
Negative Impacts from Last Quarter Cyber-attacks will always be a threat that Microsoft will be exposed to. After the cyber-attack from SolarWinds, Microsoft and other companies are questioning the cybersecurity of themselves. With Microsoft being a world-leading company with billions of subscribers to their products, it is crucial for them to access that risk and mitigate that risk through an increase in cybersecurity.
New Transactions The Carroll Fund sold $225.88 worth of MSFT shares at $225.88 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $21,033.00 $22,019.58 6.03% 0.94%
39 SPDR S&P Semiconductor ETF (XSD)
Description SPDR S&P Semiconductor ETF is an exchange-traded fund that seeks to imitate the 57 performance of the S&P Semiconductor Select Industry Index. The ETF’s top 10 holdings, in order of most to least weight , are: Sunpower (SPWR), Synaptics (SYNA), Skyworks Solutions (SWKS), Cree (CREE), Ambarella (AMBA), MACOM Technology Solutions (MTSI), ON Semiconductor (ON), Monolithic Power Systems (MPWR), Power Integrations (POWI), and Intel (INTC).6 1
Positive Impacts from Last Quarter Due to the world being more reliant on technology, the usage of technology increased significantly. This led to more computers/chips being needed to produce technology-driven products, such as electric vehicles. The increase in demand for computers and chips lead to an increase in demand for semiconductors, which is a crucial component for computers and chips.
Negative Impacts from Last Quarter Due to the sudden increase in demand for semiconductors, the semiconductor industry is growing rapidly. Broad exposure to the semiconductor industry could potentially cause the fund to lose a great investment opportunity through a single semiconductor company that has great growth potential.
New Transactions The Carroll Fund purchased $25,955.24 worth of XSD shares at $165.32 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $25,955.24 $26,812.46 3.30% 0.26%
40 Materials Manager: Collin Wilcox
Sector Overview The materials sector includes three main sub sectors: chemical production, which also includes plastics and coatings, mining, and logging, which includes paper and packaging. Due to its position at the start of many supply chains, the materials sector follows closely with the overall economy and many expect it to market-perform.6 2 One current example of this is the housing market’s strength providing steady demand for building materials like lumber. Because materials companies often sell commodities, the sector is also very sensitive to government legislations that influence prices and how they must conduct operations.
Plastics and packaging currently present the most opportunity within the materials sector. Plastic will continue to be one of the most widely produced materials throughout this century thanks to the growth of the middle class globally and the rising demand for convenience products like processed foods and beverages. However, there is also a growing concern among many consumers over sustainability, causing many to develop a negative opinion of plastics. Such consumers have expressed interest in eco-friendly alternatives to plastics, even if they come at an increased cost.6 3 This means that companies on both sides will likely have winners: developed economies will demand greener plastic alternatives while developing ones will support the growth of plastics.
Relevant Events The most significant recent event for the materials sector has been the switch to the Biden administration and the policy changes that will come. The new administration is expected to focus more on environmental initiatives through increased regulations and taxes for the sector.6 2 One such example is the rejoining of the Paris Climate Accords, which, excluding forestry, aims to reduce greenhouse gas emissions by 15% by 2030. Industries that naturally produce more pollution such as mining will now be at a disadvantage compared to more eco-friendly or exempt industries like forestry.
Performance
41 Real Estate Manager: Collin Wilcox
Sector Overview The real estate sector consists of the land, commercial, and residential subsectors. While all three were negatively impacted, the residential segment has been recovering from the pandemic while the factors hurting the commercial segment like online shopping now have an even larger presence. We believe the residential segment within real estate will outperform in the near to midterm for a few reasons. The Fed has kept interest rates low and has stated its intent to continue to do so while the economy recovers from the pandemic. These low rates make financing for home purchases and construction projects easier. Also, Gen Z, the current generation of homebuyers, has been entering into large numbers of stable jobs, giving them the capability to purchase homes.6 4 While the pandemic has raised borrowing standards, as long as the economy recovers this should not be a concern.
Retail centers on the other hand continue to suffer from the shift online which has been accelerated by the pandemic. Office buildings may also see a decline as many businesses will continue to let employees work from home all or some of the time. This shift may cause people to move into the suburbs into houses with dedicated workspaces.
Relevant Events The most significant recent event for the sector is the Biden administration’s proposed policies for housing. For example, one goal of the administration is a $15,000 tax credit for first-time homebuyers. 65 Considering the rising prices of houses and stricter borrowing standards from COVID-19, we believe this administration’s housing policies will be beneficial for both housing prices and expansion of homeownership.
Performance
42 PotlatchDeltic Corp (PCH)
Description PotlatchDeltic Corp is a REIT that operates in several US states as well as in Mexico and Canada, but the large majority of their revenue comes from their US operations. Their primary focus is timberland which is a particularly attractive asset due to its history of appreciation above inflation and for its renewable nature. PotlatchDeltic actively seeks to acquire new timberland and to continuously re-evaluate the value of their current holdings. They also seek to maximize the value of their timberland holdings as a whole by acquiring timberland which compliments their existing holdings and harvesting their lumber sustainably.
The company has 3 main segments: Wood Products which sells lumber products and represents 55% of sales, Timberlands which leases its timberlands for various purposes such as recreation and represents 35% of sales, and PotlatchDeltic TRS which sells non-strategic or low-revenue land holdings and represents 10% of sales. Their 2020 Q4 EPS was $1.48, and their current dividend yield is 3.22%.
Positive Impacts from Last Quarter The Wood Products segment of the company makes up 55% of total sales and supplies building materials for residential properties and other construction projects. The Fed’s stated commitment to low interest rates, the strong housing market, and the Biden administration’s plans for infrastructure spending will strengthen the demand for PotlatchDeltic’s lumber products. The Biden administration’s plans to aid first-time homebuyers with a tax credit will help to offset rising home prices and expand homeownership.
Negative Impacts from Last Quarter The resurgence of COVID-19 cases, as well as new strains of the virus, may threaten the recovery of the overall economy. The result could be a new lockdown or a spike in unemployment, either of which would limit the number of new construction projects as well as the demand for new residential and commercial properties, thus negatively impacting the demand for the building materials supplied by PotlatchDeltic. Record high housing prices are also a cause for concern since they could slow the sales of houses even if the pandemic subsides and the overall economy remains in good health.
New Transactions The Carroll Fund purchased $9,311.10 worth of PCH shares at $45.42 on October 14, 2020. The fund then purchased $1,465.78 worth of PCH shares at $50.54 on December 29, 2020. A cash dividend of $84.05 was received on December 31, 2020.
Period 1 Performance Starting Value End Value Return Dividend Yield $9,311.10 $11,704.68 9.39% 3.22%
43 Utilities Manager: Adam Hall
Sector Overview The Carroll Fund currently holds one utilities security, XLU. Utilities play a pivotal role in the economy, providing gas, water, and electricity to virtually every household and business in the United States. Companies under this sector can also be involved in independent power generation, marketing and trading, renewable power generation, and even pursue oil & gas exploration. We believe that this sector will perform well over the next decade, stemming from low interest rates, increased electric vehicle adoption, and the popularization of distributed energy resources like residential solar panels. Companies that exclusively produce renewable energy have drawn investors’ attention. While this has led to elevated valuations, we believe there are still opportunities for companies with stable balance sheets and reasonable valuations to lead in this transitional period. Some potential negative factors that we are looking to avoid include strict regulation for problems like unpaid residential bills or geography that is more prone to wildfires and other natural disasters.
Recent Events There is a large threat of new entrants to this sector, mainly from oil & gas companies looking to diversify away from nonrenewable energy. Chevron, BP, ExxonMobil, and more have already begun ventures into renewable power generation. Additionally, the US government has shown great interest in decarbonizing with several policies and actions such as rejoining the Paris Climate Agreement. These actions alone can greatly impact the utilities sector but are now made more complex by new entrants. President Biden has also expressed great interest in building a modern, sustainable infrastructure that includes the electricity grid.
Performance
44 Utilities Select Sector SPDR ETF (XLU)
Description XLU is an ETF provided by State Street Bank and Trust that tracks the performance of the Utilities Select Sector Index, or more simply the companies within the S&P500 that are classified under the utilities sector. The holdings are rebalanced quarterly and weighted by market capitalization. It has an expense ratio of 0.13% and a current dividend yield of 3.17%. The top five companies in terms of weight of this ETF are NextEra Energy, Duke Energy, The Southern Co., Dominion Energy, and Exelon. The acquisition of this ETF was during our rebalancing discussions to more closely track the S&P500 and its sector weights. This holding puts the utilities sector of our portfolio near equal weight to that of the S&P500.
Positive Impacts from Last Quarter This holding was purchased late into the period, on December 29th, and now allows our portfolio to have exposure to the utilities sector equal to that of the S&P500 while we are pursuing individual companies or more specific ETFs. Additionally, in December, production advanced 6.2% for utilities, as provided by the Federal Reserve.6 6
Negative Impact from Last Quarter Rising debt levels of utilities companies can negatively impact their ratings, making it more expensive to fund new projects towards cleaner energy since these growth projects are normally funded by operating cash flow and debt, rather than new equity issuance. Similarly, any risk-on sentiments or factors that increase bond yields can make these promising projects even more expensive.
New Transactions The Carroll Fund purchased $11,894.59 worth of XLU shares at $61.63 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $11,894.59 $12,101.10 1.74% 3.14%
45 Fixed Income Manager: Walker Hale
Overview Fixed income is a broader term that typically applies to a class of assets or securities that pay fixed interest or dividend payments to investors before the maturity date.6 7 In addition to these interest or dividend payments, investors are also repaid their initial principal come maturity. Government or corporate bonds are among the most common types of fixed income securities.6 7 Common advantages associated with fixed income include a steady income stream, fixed interest and/or dividend rates, and priority claim to a firm’s assets. 67 Due to investment constraints within the fund, we are only permitted to invest in fixed income securities that are investment grade, meaning a credit rating of triple-B (BBB), or better. The securities that are currently positioned in the Carroll portfolio consist of fixed income ETFs including W isdomTree Floating Rate Treasury Fund (USFR), iShar es Core US Aggregate Bond ETF (AGG), and Principal Spectrum Preferred Securities Active ETF (PREF).
Recent Events As our economy is recovering from the impacts of COVID-19, the fund sees average performance in the fixed income market as the federal reserve aims to keep interest rates low resulting in a continuation of a low yield environment. With that being said, we as a fund would like to keep the approach of balancing low-risk investments like USFR, with higher risk fixed income such as PREF, to improve overall returns while maintaining minimal risk across the portfolio. In addition to interest rates, inflation becomes a key risk in the near future as we have seen a near 17-basis point increase in the US 10-year treasury note in 2021 alone. The Federal Reserve says they do not plan to raise rates until late 2022 and a rise in interest rates would help improve the performance of fixed income markets and decrease inflation; however, our economy is still coming out of the depths of a pandemic and rising rates would not accelerate the process. If the Fed decides to abide by their word and keep rates low, bonds will continue to struggle as inflation rises and the dollar weakens. Overall, the future performance of the fixed income market is dependent on what the Fed decides to do with interest rates and the rate at which our economy can recover.
Performance
46 iShares Core US Aggregate Bond ETF (AGG)
Description The iShares Core US Aggregate Bond ETF is an exchange-traded fund with the intention of yielding similar investment results of the Barclays Bloomberg US Aggregate Bond Index, an index that measures the overall performance of the US market for investment-grade bonds. 68 With total net assets in excess of $86 billion6 8, AGG is the largest fixed-income ETF, investing approximately 90% of its total assets in its underlying index component securities. It focuses on investments comparable to the economic characteristics of its underlying index.6 8
Positive Impacts from Last Quarter In 2020 many investors found themselves searching for ways to reduce their overall risk in equity markets and by investing in AGG, that risk is alleviated. Especially in times like now, where the overall market is so volatile, having an ETF such as AGG in a portfolio would be beneficial due to the ETF’s extensive diversification and low fees.6 8 As current market conditions remain unstable, AGG is a simple and cost-effective way to invest in bonds and experience more overall stability.
Negative Impacts from Last Quarter In 2021, what the Federal Reserve decides to do with interest rates will continue to play a key role in the overall bond market performance. As the 10yr T-bill rate is still lower than before the COVID-19 pandemic, it affects performance in corporate bonds as they are usually determined by these rates. In addition to the 10yr, the low-rate environment that the Federal Reserve plans to keep in place until late 2022 will greatly limit the amount prices can rise. As a result, gains from bonds will be limited in the near term.
New Transactions The Carroll Fund purchased $10,031.70 worth of AGG shares at $118.02 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $54,543.72 $64,649.93 0.63% 2.14%
47 Principal Spectrum Preferred Securities Active ETF (PREF)
Description The goal of the Principal Spectrum Preferred Securities Active ETF is to provide investors with current income, i.e. cash flows that are anticipated, under normal conditions, during the immediate to short-term period. For investment purposes, this fund invests 80% of its net assets and all borrowings in preferred securities and can include the following: preferred shares, some depositary receipts, and different forms of junior subordinated debt. 69 Some key features of this fund include:
1. Deep and Broad Experience – The fund has a 30-year history of evaluating, handling, and pricing complicated security systems across a range of segments of the financial sector. 2. Precise Focus – This fund has dedicated exposure to $1,000 par preferred securities to provide attractive returns, diversification advantages, and reduced risk. 3. Unique Security Structures – This fund includes both fixed rate and variable rate securities in an effort to provide the potential for higher back-end spreads that could result in improved coupons to better mitigate interest rate risk.
Positive Impacts from Last Quarter As bond investment products may lose attractiveness as interest rates remain low, preferred stocks will become more attractive to investors looking for a fixed, and steady cash flow. As more investors may see preferred stocks as a better investment, PREF could gain much popularity in the future resulting in a better overall return for investors.
Negative Impacts from Last Quarter As interest rates will most likely remain low, the threat of rising rates in the future poses a challenge. A rise in rates would push share prices of preferred stock down, as investors would head for a safer investment offering a similar yield, such as US Treasury bonds.7 0 Additionally, an increase in credit risk is possible as current market conditions are indicative of higher risk and heightened volatility, possibly resulting in a decrease in credit ratings for certain preferred stocks.
New Transactions The Carroll Fund purchased $8,268 worth of PREF shares at $20.68 on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $48,513.28 $58,237.98 4.12% 4.00%
48 Wisdom Tree Floating Rate Treasury Fund (USFR)
Description The Wisdom Tree Floating Rate Treasury Fund seeks to track the Bloomberg US Treasury Floating Rate Bond Index's overall performance and yield, before expenses and fees.7 1 This is a non-diversified fund which, together with other securities having similar economic characteristics, invests at least 80% of its total assets in all component securities of the index.7 0
Positive Impacts from Last Quarter With an average year to maturity of 1.44 and an effective duration of 0.02 years7 2, this fund is able to provide investors with both low default and interest rate risks. A position in USFR offers an overall decrease in volatility from equity positions in an investor’s portfolio, while funds remain very liquid yielding slightly higher returns than an all-cash position.
Negative Impacts from Last Quarter As the Federal Reserve does not plan to raise interest rates anytime soon, a floating rate treasury fund ETF such as USFR will not be as return enhancing during these periods. As this fund experiences a near-zero beta 71, USFR would not experience much appreciation during a large market upswing. Lastly, with a negative average alpha over the last 3 years7 1, USFR could continue to underperform in a lower interest rate environment.
New Transactions The Carroll Fund sold $21,895.92 worth of USFR shares at $25.11 on November 19, 2020, and purchased $30,873.00 worth of shares on December 29, 2020.
Period 1 Performance Start Value End Value Return Dividend Yield $50,094.45 $59,060.30 -0.01% 0.40%
49 Fund Managers
Adam Hall is a senior from Collierville, Tennessee majoring in Finance with a collateral in Information Management in his second semester on the Carroll Torch Fund, currently covering the energy and utilities sectors. He is involved on campus with the National Society for Leadership and Success and volunteers at the Young-Williams Animal Center. In his free time, he can be found rooting on the Los Angeles Lakers or winning a fantasy sports league. After graduating he plans on working as a data analyst within asset management or financial technology.
Collin Wilcox is a junior from Jackson, TN. He is double majoring in Finance and Accounting with a collateral in International Business. He is in his first semester of the Torch Fund and currently covers the real estate and materials sectors. Collin is a member of the Smith GLS honors Program and in his free time is training to pursue competitive powerlifting. After graduation, Collin is considering a career in wealth management or the pursuit of his CPA.
John Park is a Finance major with an Accounting collateral at the University of Tennessee. He is currently a senior and is completing his second semester on the Carroll Torch Fund. He is also currently in charge of managing the communication services and information technology sectors on the Carroll Torch Fund. John serves as the President of the Badminton Club and is also involved in Beta Alpha Psi as a first-semester member. John enjoys sharing the knowledge that he has by working as a part-time math tutor at The Math Place at the University of Tennessee. After graduation, John plans to continue his education by joining the Masters of Accountancy program to prepare for his CPA, or get a job in the financial industry and work towards becoming a CFA. Either way, John’s future goal is to get both his CPA and CFA and be financially successful within both the Accounting and Finance fields.
50 Paxton Cherry is a senior from Knoxville, Tennessee. He is majoring in Finance with a collateral in Economics. This is his first semester on the Carroll Torch Fund, and he is covering the industrials sector. In his free time, Paxton can be found at Downtown Island Home Airport, where he works as a certified flight instructor. After graduating, he plans on working in asset management and wealth management. He also hopes to one day start his own airplane charter company.
Walker Hale is a junior from San Antonio, TX majoring in Finance with a collateral in Accounting. This is his first semester on the Carroll Fund and he is overseeing the financials and fixed income sectors. Around campus, Walker serves as treasurer of the UT golf club after serving as president during the fall of 2019 and spring of 2020. He is also a member of the Financial Management Association and serves as an intern for the Knoxville Chapter of Financial Executives International. During his free time, he enjoys spending time outdoors either hunting, fishing, or golfing. After graduating he plans to take his knowledge and passion for capital markets and become an analyst in private wealth management.
Will Davis currently manages the consumer discretionary and consumer staples sectors in his first semester on the Carroll Fund. He is a senior from Chattanooga, TN, majoring in Finance with a collateral in Marketing. He currently serves as a Young Life leader for the Webb School, Knoxville, where he helps mentor high school students. Will enjoys morning runs, watching college football and basketball, keeping up with the markets throughout the day, and traveling on the weekends. After graduation in December 2021, Will plans to pursue a career in the finance industry as an equity or financial analyst, with strong ambitions to pursue his CFA.
51 Will Lewis is a senior from Knoxville, Tennessee completing his second semester on the Carroll Torch Fund. He is currently in charge of managing the healthcare sector. Will is studying both Business Analytics and Finance. After graduating this May, he will be pursuing his Master of Quantitative Management at Duke University and sees himself working as an analytics consultant or financial analyst after his schooling. In his spare time, Will loves running, fishing, and hiking. He also works for a fantasy sports company where he provides daily NBA and WNBA content and analysis to hundreds of subscribers. Will is involved in the Knoxville community through serving at West High School and mentoring a local child in the AMACHI program.
52 Works Cited
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56 Information Technology
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