William C. Conner Foundation
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` William C. Conner Foundation Educational Investment Fund 2020 Annual Report Celebrating 48 Years of The Educational Investment Fund Setting the Standard of Excellence in Investment Management Education, Experience, Ethics, and Philanthropy since 1973 William C. Conner Foundation Educational Investment Fund Neeley School of Business Texas Christian University Fort Worth, TX April 27, 2021 2 Table of Contents Management Letter ....................................................................................................................... 4 History of the Educational Investment Fund ................................................................................ 6 EIF Members and Officer Pictures ............................................................................................... 7 2020 Investment Transactions ...................................................................................................... 9 Distributions ................................................................................................................................ 10 Performance Graphs.................................................................................................................... 11 Asset and Sector Allocations ...................................................................................................... 12 Schedule of Investments ............................................................................................................. 13 Description of Holdings .............................................................................................................. 15 Independent Accountant Review ................................................................................................ 20 Fund Members ............................................................................................................................ 34 Board of Trustees ........................................................................................................................ 35 Preface 2020 marked the 48th year of operations of the Educational Investment Fund, during which time the William C. Conner Foundation has provided students at Texas Christian University a unique learning experience in fundamental security analysis and portfolio management. In 2020, 45 student analysts - 36 undergraduates, and 9 MBA students - contributed to the management of the Foundation’s assets. This report summarizes the activities and events that transpired in 2020. 3 To the Trustees of the William C. Conner Foundation Economy in Review strong as economic growth continues to rebound on The onset of the COVID-19 pandemic in early 2020 the tailwinds of consistent government stimulus and and the resulting lockdowns led to a dramatic drop robust consumer spending. in economic activity during the year. The violent economic downturn and resulting fallout led to Other major economies across the world suffered in record high unemployment and low spending, 2020 as their markets suffered from the coronavirus ushering in the first worldwide recession since pandemic. Hindered by economic shutdowns and a 2007. The domestic recession was met with over $3 drop in global demand, Chinese GDP grew at a trillion in government stimulus to aid households modest rate of 2.3% during the year and was the and businesses affected by the pandemic, providing only major economy to experience positive growth. a foundation for a slow resurgence in economic Despite its slowest growth rate in years, Chinese growth in the last half of 2020. On an inflation- industrial production remained robust and grew adjusted basis, US economic growth fell from 2.3% 7.3% during 2020, with analysts expecting similar in 2019 to -3.5% in 2020. According to the World growth in 2021. According to the IMF, continued Bank, global GDP growth weakened from 2.8% in policy support from Beijing and the gradual 2019 to -4.4% in 2020 as COVID-19 impacts were reopening of the global economy will lead to ~8.2% felt in economies across the world. GDP growth in 2021. Although domestic GDP growth turned negative in Eurozone economic growth was hit hard in 2020 as 2020, the United States outperformed relative to the continent faced stringent lockdowns during the other developed nations due to an increase in year. Eurozone GDP contracted 6.8% during 2020 economic activity in the second half of the year. even after the region experienced GDP growth of Unemployment rose from 3.6% at the start of the 12.4% during the third quarter of the year. year to a peak of 14.8% in April as all non-essential Economic performance across the continent varied businesses were forced to close, before steadily by country, as countries heavily reliant on tourism decreasing during the remainder of the year to finish suffered the most while countries with strong 2020 at 6.7%. Although essential workers faced less manufacturing benefitted from the rebound in job risk in 2020, the number of non-farm employees economic activity later in the year. European fell by 6.3% in 2020 even as over $500 billion in consumer sentiment remained weak moving into Paycheck Protection Program loans were approved 2021 at -15.3, well below the long-term average for by the federal government. the European Union of -10.7. Despite significant government stimulus, business The Federal Funds Target range started the year at executives showed caution by pulling back their 1.50% to 1.75% before being cut twice during the investments due to COVID-19 uncertainty and the onset of the pandemic to finish the year at 0.00% to global economic shutdown; in 2020 private 0.25%. At the end of the year, the Federal Reserve nonresidential fixed investment showed a modest detailed the expectation that rates would remain low decline of 0.9% after growing at a rate of 2.5% in during the upcoming years as the economic 2019. However, manufacturing growth was resilient ramifications of the pandemic continue to permeate in 2020 and the US ISM Manufacturing PMI ended the domestic economy. After inverting in April, the the year above 60 and showed a significant rebound 2-10 Year Treasury Yield showed strong from its 2020 low of 41.5 in April during the height performance during the second half of the year and of the pandemic. The US ISM Services PMI showed finished 2020 at 0.80%. At the end of 2020, the similar resilience in 2020; after reaching a low of earnings outlook for 2021 remained strong, driven 41.6 during May the index steadily improved by expectations of a resurgence in growth as throughout the remainder of the year and finished economic shutdowns subside, providing optimism 2020 at 57.7. Overall, even though the domestic for economic performance in 2021 and beyond. economy slowed in 2020, future outlook remains 4 EIF Operating Summary and seniors. Lastly, several EIF members serve as The EIF is a long-only, equity-focused investment mentors for students in the Transaction and fund with a traditional equity allocation of 70% to Investment Professionals Board Program, helping 75%. The total EIF portfolio return for 2020 was place students in competitive internships. 18.59% compared to 13.45% for the Lipper Balanced Fund Index, which is the average of the Many EIF members were successful in their search 30 largest professionally managed balanced funds. for post-graduation employment. Some of the In 2020, the EIF equity allocation averaged 74.4%, companies hiring EIF members include Amazon, with total returns of 23.05% compared to 18.40% Bank of America, Capital One Bank, Citibank, for the S&P 500, and 16.11% for the Lipper Large Deloitte, Evercore, Goldman Sachs, Harrison Street Cap Core Index. The EIF fixed income allocation Real Estate Capital, Houlihan Lokey, Microsoft, averaged 20.2% with returns of 7.10%, compared to Scotiabank, and Truist Securities. 5.40% for the Barclay’s Aggregate Bond index. The EIF increased the bond duration slightly above the Ending Comments Barclay’s Aggregate duration to position the EIF to On behalf of the 2020 EIF members, I thank the benefit from lower interest rates due to COVID-19. William C. Conner family, the Board of Trustees, the administration of Texas Christian University, We are proud to distribute $91,911 to our Jim Hille, UBS, and all of our guests during the beneficiaries, Texas Christian University and the year. We thank the team at Weaver and Tidwell, Department of Ophthalmology at the Baylor L.L.P. for their financial review of the EIF accounts. College of Medicine. With the 2020 contribution, We also thank Professor Mo Rodriguez - the cumulative distribution of the William C. Chairperson of the Finance Department and the Conner Foundation Educational Investment Fund is Board members of the Luther King Capital $3,352,106. All fund members take great pride in Management Center for Financial Studies for their the philanthropic component of the EIF. continuing support of the students in the EIF. Year Highlights We express our profound gratitude to Dr. Larry The EIF continues to have a strong reputation in Lockwood as the 2020 EIF faculty advisor. Fort Worth and across the country. During 2020, Although the EIF is student-managed, the Fund many EIF members were recognized on the Dean’s generates much of its success due to the time, Honor List for the Neeley School of Business and instruction, and unwavering support provided by received numerous scholarships, including the Dr. Lockwood. We also extend a special thank you Meredith Fraker Thompson Memorial Scholarship, to Dr. Stan Block for