2023 CMU CBA Student Investment Portfolio Annual Report

2023 Annual Report

STUDENT INVESTMENT PORTFOLIO

Celani, Oros and Seger Fund Leadership Team

NICK BALE

Interests: Quant Trading, Asset Management

Nick has been a part of the CMU Endowment Funds leadership team for two years and involved for three years. He has interned with RBC Capital Markets and PK Capital Management. With PK Capital Management, Nick spent a year designing and executing a mean-reversion strategy for the hedge fund. Upon graduation, Nick will be joining Gelber Group in Chicago as a junior trader.

OWEN HILL

Interest: Corporate Finance

Owen has been a part of the CMU Endowment Funds leadership team for a year and involved for two years. He interned with Owens Corning on their FP&A team in the summer of 2023. Upon graduation he will join Owens Corning as a member of their finance and accounting leadership program.

Celani, Oros and Seger Fund Members

Interests: Commercial Banking, Corporate Finance, Trading

Interests: Business Analyst, Consulting, Wealth Management

Interest: Real Estate Portfolio Management

Interest: Manufacturing Finance

Interests: Investment Banking, Wealth Management

Interests: Financial Analyst, Budget Analyst, Personal Financial Planner

Interests: Commercial Banking

Interests: Venture Capital, Private Equity, Investment Banking, Entrepreneurship

Interests: Wealth Management and Portfolio Management

TREVOR CARNOVSKY

JOSHUA KOHLHOFF

TURNER FELTON

TYLER BELLINI

OWEN BRINKER

DEREK BALLAS

JOSHUA DUCHARME

JACKSON RAYMOND

SAM MACALPINE

Overview of Funds

Celani Fund Inception

The Tom Celani Endowment Fund was started in 2005 with a generous donation of $1M by CMU alum Tom Celani. The fund is a student-managed endowment fund with oversight from university faculty. The fund has a focus on mid to large-cap equities with 45 equity positions and 47 total positions. Since inception, the fund has grown to hold 2.6 million dollars in assets under management.

Oros Fund Inception

The Bob Oros Endowment Fund was established in 2021 with a generous donation of $225,000 by CMU alum Bob Oros. The fund is a student-run endowment with oversight from university faculty. The endowment was created to give students experience managing a portfolio of fixed income and alternative investments. The fund currently holds seven positions across fixed income, real estate investment trusts, and alternative investments totaling $208k.

Seger Fund Inception

The Martha Seger Endowment Fund was established in honor of Martha Seger, a former CMU professor who served on the Federal Reserve Board of Governors from 1984 to 1991. The fund is a student-run endowment focusing on small-cap equity investments. The endowment allows students to work with a portfolio benchmarked to the Russell 2000 Index. The fund currently holds six investments totaling $297k.

Executive Summary of Funds and Fund Performance

CELANI FUND 2023 PERFORMANCE METRICS

MONTHLY 2023 PERFORMANCE

While fund managers were happy with the absolute performance of the fund in 2023, they were disappointed that the Celani Fund underperformed its benchmarkz. Much of the underperformance can be attributed to just a few individual stocks. These include Disney, JD.com, Penn National Gaming, and PayPal. While these stocks had a drag on the fund, the fund was also under-weight mega cap tech which outperformed the benchmark by a large margin. Lastly, the fund held a roughly 14% cash position throughout the year, much of this not earning the maximum risk-free rate. As the student managers look forward to next year, they would like to lower this cash position to 5-10% depending on market conditions. They would also like to institute better stop-loss rules to minimize fund drawdowns in specific holdings.

Executive Summary of Funds and Fund Performance

OROS FUND 2023 PERFORMANCE METRICS

2023 was another volatile year for the fixed income market with the benchmark closing out the year with a small gain after a strong end to the year. Fund managers would like to see better performance within the Oros fund in 2024 after a negative absolute return in 2023. This underperformance can be attributed to the fund’s weighting towards long duration and its real estate holdings. CHCT and Reality Income both accounted for the majority of the underperformance with CHCT itself responsible for a 4.5% drawdown in the entire fund. Fund managers were quick to react to the commercial real estate downturn by eliminating our holding of Reality Income and deciding to hold CHCT. The fund also voted to add SHY, a 1-3 year U.S. Treasury fund late in the year allowing the fund to take advantage of high shortterm rates. Fund managers are looking forward to a strong 2024 where they foresee a bounce in the fund’s real estate holdings and a continuation of high short-term rates.

Executive Summary of Funds and Fund Performance

SEGER FUND 2023 PERFORMANCE METRICS

MONTHLY 2023 PERFORMANCE

The Seger Fund’s transitioned to a small-cap focused fund in the Fall of 2023, it’s difficult to compare results to the new benchmark considering the portfolio has completely changed. However, fund managers were pleased with the positive absolute return of the fund. Currently, the team is continuing to look for opportunities within the small-cap space. As these new investments are improved, the team will continue to decrease the allocation in the benchmark holding IWM. Looking forward to 2024, the team is excited to have students build out investment cases across the small-cap landscape.

Performance review

FUND ASSET ALLOCATION COMPARED TO BENCHMARK INDEX: CELANI FUND

Performance review

Portfolio Manager Commentary

Going into 2023, the Celani Fund was positioned for a risk-off environment along with many other fund managers. Although the Fund had trimmed its position in consumer staples, the fund was still overweight due to a potential recession. With the Federal Reserve expected to continue raising interest rates, the fund managers decided to position slightly defensively with underweights in technology, energy, financials, materials, and a 10% money market allocation.

In 2023, the fund was able to adjust positioning to reflect market dynamics. The biggest transaction of the year was the acquisition of Activision Blizzard, a large video-game producer, by Microsoft for $95.00 per share. The fund held a 4% stake in Activision Blizzard prior to the merger and decided to hold off on redeploying the cash in the tech sector due to valuations well above historical trading averages. Looking ahead to 2024, the Celani Fund Portfolio Managers see slowing inflation and a moderate economy. With the probability of recession being lower in 2024 due to high government deficit spending and 2024 being an election year, the fund is looking to position more aggressively on pullbacks in the equity market. Specifically, the fund is looking to cut its allocation of cash in half to around 7%. Fund participants have discussed potential opportunities to allocate this cash, however, have held off due to high valuations. With money market funds currently yielding 5.25%, portfolio managers see little need to draw down the cash balance for below average or average equity market opportunities.

Within the cash balance to be deployed this year, fund managers would like to continue building exposure within the energy, materials, and financials sectors. These sectors trade at significantly lower multiples than other sectors yet have shown surprising earnings resilience and growth. All sectors have been able to greatly reduce the number of shares outstanding through share buybacks in recent years. Fund managers see this continuing to limit the equity supply within these sectors and agree it has the potential to boost valuations in the coming year.

With equity markets producing strong returns in 2023, risk management and drawdowns were less of a concern during most of the year for the equity focused Celani Fund. Portfolio managers were more concerned with melt-up risk rather than drawdown risk due to the fund’s large cash position and below market beta. However, the Silicon Valley Bank collapse in March of 2023 was a large risk event where the fund portfolio managers reevaluated all holdings in the financial sector. The fund had no small or mid-cap bank holdings going into the risk event; therefore, the impact was minimal. The fund’s holdings in JP Morgan Chase and Wells Fargo were impacted, however, fund participants agreed that both banks had above industry average balance sheets and below average funding costs. Both holdings ended the year with a 29% and 21% return respectively, meaning the decision to hold the banks was the correct decision for the fund.

Performance review

FUND ASSET ALLOCATION: OROS FUND

Portfolio Manager Commentary

As briefly discussed earlier, the Oros fund managers made the decision to cut its holdings in real estate investment trusts in 2023 with the disposal of Reality Income. A key risk management issue for portfolio managers was the commercial real estate problems created by the large valuation decline in office and other real estate properties. The fund participants decided to address this by selling its position in Realty Income (Ticker: O). This transaction greatly reduced the commercial real estate exposure within the Oros Fund. The fund decided to hold its position in Community Healthcare Trust (Ticker: CHCT) due to its longer tenant contracts and ability to raise rents in the event of continued inflationary pressures.

The fund portfolio managers kept a close eye on the bond market, especially in September and October of 2023. In these months, the U.S. 10-year bond lost 6.2% of its value causing concerns amongst portfolio managers that the fund’s long-duration holdings were going to cause a large fund drawdown. Fund participants fiercely debated whether to hold or sell its long-duration portfolio of U.S. treasuries with some even advocating for adding duration with the 10-year bond yield close to 5%. Eventually, portfolio managers decided to keep the holdings, which have rebounded alongside the rest of the bond market to end 2023.

Performance review

FUND ASSET ALLOCATION COMPARED TO BENCHMARK INDEX: SEGER FUND

Portfolio Manager Commentary

With the Seger Fund switching its mandate and benchmark in the middle of year there was less need for robust risk management with this fund. However, as with any small-cap portfolio, fund managers were monitoring all new small-cap positions after they were added. Shortly after being added, ACM Research (Ticker: ACMR) pre-reported results that were below the market’s expectations leading to a 30% drawdown in the position. This triggered a review of the position and after review, fund participants agreed the market had overreacted to the poor quarter and that earnings would be better in subsequent quarters. Therefore, the position was kept and has since rallied 50% from its earnings miss. As 2024 goes on, Seger Fund managers plan to take advantage of market opportunities and continue to diversify the portfolio away from the Russell 2000 Index.

Portfolio Holdings and Positions: Celani Fund

ENERGY AND MATERIALS SECTOR

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Energy and Materials

With the price of oil and natural gas declining towards the start of 2023, energy had a rough start to the year. Above-average allocations in the space led many fund managers to cut energy stocks from their portfolio, even though many of them still generated significant free cash flow. In addition, the long AI, short energy trade was big in 2023, contributing to downside in low momentum energy names. With the rise of the war between Israel and Gaza, energy had a strong end to the year. Although production has not directly been impacted by the war, rockets being shot at ships in the Suez Canal have limited transport through a key area of energy shipping. Going into 2024, the fund is looking to add to positions in energy, continuing to believe that the world will be undersupplied in key energy commodities going forward.

Holding: SPDR Gold Trust (GLD)

Shares represent fractional, undivided beneficial ownership stakes in the Trust, which holds gold bullion and occasional cash. Gold has experienced a remarkable year, reaching a peak of 10% growth by late December and accumulating assets totaling $55.8 billion. Despite a temporary dip to a yearly low share price of 168.21, it has not fallen below this level. In the first month of Q1, gold is projected to range from 175 to 180, followed by a subsequent decline to a yearly low of 168.21. Q2 witnessed a robust bull run, approaching all-time highs at a price of 191.50. Q3 saw consolidation within the range of 175-185. The beginning of Q4 witnessed a significant drop to yearly lows, only to rebound and establish new yearly highs around 193.18.

The fund currently holds 119 shares of GLD, constituting 0.96% of the portfolio. Given the stock’s low beta, it serves as a hedge for the fund. Gold prices traditionally move inversely to interest rates, and this characteristic is advantageous, especially since we don’t anticipate rate cuts until Q2/Q3 of 2024. Looking ahead to 2024, there is an expected surge in demand, with central banks making their most significant gold purchases since 1967. The ongoing and unprecedented debt load, concerns about the global financial system, geopolitical tensions, and overall uncertainty all contribute to a bullish outlook for gold, positioning it as the ultimate safe haven.

Holding: Chevron (CVX)

Chevron is an American multinational energy company primarily focused on oil and gas and stands as the second-largest direct successor of Standard Oil, originally named the Standard Oil Company of California. Operating in the oil and gas sector, Chevron is vertically integrated: participating in hydrocarbon exploration, production, refining, marketing, transportation, chemicals manufacturing and sales, as well as power generation. Chevron is the second largest oil company based in the United States by revenue & ranks 10th in the Fortune 500 2023. To start the year, Chevron was booming at the beginning of Q1 almost retesting company highs ($189.68) reaching a high share price of 187.81. The rest of Q1 they experienced minor setbacks and closed roughly -12% from quarterly highs. The company finished Q1 with earnings of $6.7 billion & netting about 7.2 billion in cash flow from operations. Though a rough quarter, it is up +65% percent from Q1 2022. In Q2 & Q3, Chevron experienced a few ebbs and flows but ultimately resurfaced to the same opening price of around 171.14. Going into Q4 was probably the worst quarter of the year, specifically the month of October. They faced missed earnings and a huge sell off of 13.4%, dropping the share price -$22.17 from open. This was due to suffering a setback in a large project, with increased costs and a delay of about six months in expanding oil and gas production at its Tengizchevroil operation in the Middle East. This is expected to be a non-recurring issue & the company seeks growth, especially after announcing the acquisition of Hess Corporation. The agreement is to obtain all the outstanding shares of Hess in an all-stock transaction valued at $53 billion (including debt), or $171 per share based on Chevron’s closing price on October 20, 2023. This will benefit many sectors of the company with strong strategic fit, increase cash return to shareholders, growth opportunities into 2030s all while still being capital and cost efficient. The Celani Fund currently has 71 shares with Chevron being .40% of its portfolio. Even with Chevron having a down year, portfolio managers were able to hedge the downside on a low-cost basis. Looking into 2024, The forecasted Chevron price by sell-side analysts at the end of 2024 is $165 presenting a predicted year over year gain of 11% With the acquisition of Hess, Chevron will receive five major assets including:

• Guyana, where Hess owns a 30% working interest in the Stabroek block, with a production of 108,000 boepd (Barrels of Oil Equivalent Per Day) in the third quarter

• The Bakken Basin, which produced 190,000 boepd

• The Gulf of Mexico offshore assets produced 28,000 boepd

• Southeast Asia’s natural gas business produced 69,000 boepd

• Hess also owns a midstream segment with a yearly net income of $66 million However, The Hess acquisition will face greater scrutiny due to the 2024 oil outlook being potentially bearish and Guyana’s assets becoming riskier following the territorial dispute initiated by Venezuela.

Portfolio Holdings and Positions: Celani Fund

Holding: OneOk (OKE)

With a 16% return this year, fund managers were pleased with how OneOk outperformed the rest of the energy industry. Since they’re a pipeline and transportation company, they were not impacted as much as other energy companies on commodity prices in 2023. Volumes in the Permian Basin continued to rise ensuring that OneOk maximized revenue from its offtake units. The company’s purchase of Magellan Midstream will provide synergies in 2024 and 2025 leading to higher eps. Fund managers were encouraged by the company’s ability to pay off debt in 2023, even with the acquisition.

Holding: Phillips 66 (PSX)

PSX performed fantastically for the portfolio with a 37% total return this year. The company did a great job cutting costs prior to 2023 and those paid off this year. PSX saw a large increase in margins and free cash flow due to a higher crack spread, the profit they make on refining one barrel of oil. Going forward, fund participants predict that there will continue to be a lack of refining capacity. Since building a refinery is a long and capital- intensive process, we continue to believe that existing refining companies will outperform.

Holding: Huntsman Corporation (HUN)

With a total return of -6% in 2023, Huntsman underperformed the energy and materials sectors. After a good start to the year, the company declined on earnings misses. This was primarily due to weak industrial end markets for their chemical products. Fund managers are hoping that the company is able to cut costs in 2024 as chemical prices rise.

Portfolio Holdings and Positions: Celani Fund

CONSUMER DISCRETIONARY AND COMMUNICATION SERVICES SECTORS

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Consumer Discretionary and Communication Services

These two sectors did well in 2023 with both outperforming the S&P 500 Index. These sectors along with technology were key drives of equity market upside this year. With many high weighting names such as Amazon and Tesla having 130% and 77% respective returns, this was a very profitable sector to own this year. The consumer has shown resiliency in the face of Fed rate hikes, something that few expected. When market participants realized that a recession in 2023 would be avoided, they piled into these consumer names. We expect 2024 to be a slower year for many of these names as they’ve seen significant multiple expansion in the past year. It will take time for earnings to catch up to this expansion.

Holding: Amazon (AMZN)

Amazon had an extremely successful 2023. The stock increased by upwards of 75% thanks to outstanding financial results throughout the year. Net Sales in 2023 increased by 12% and operating income more than tripled as operating cash flow increased by an impressive 82%. The company achieved these results through a focus on customer satisfaction. In terms of customer satisfaction, Amazon was able to deliver over 7 billion units with same or next day delivery. In addition, the company expanded Amazon Fresh grocery, and even allowed customers to add health care coverage from One Medical to their prime membership. The company also made drastic improvements with Prime Video with an increase in total viewership by 24% on Thursday Night Football and an impressive 68 Emmy nominations on originally created content.

Holding: EBAY (EBAY)

Ebay experienced marginal revenue growth of about 3.5% over 2023, and the stock increased by 5%. The company did experience major revenue growth within their first party advertising products, specifically through their promoted listings. However, outside of first party advertising products, Ebay struggled to increase sales volumes while other e-commerce platforms such as Amazon experienced substantial growth throughout the year. Both buyer and seller satisfaction has been challenged throughout the year due to issues within the platform. This becomes even more prevalent as EBAY currently faces a multi-billion-dollar lawsuit accusing the company of violating the Clean Air Act by allowing the sale of harmful products on the platform. Overall, EBAY hopes to make improvements in 2024 by accelerating the pace of innovation through the expanded use of AI within the platform and by ensuring shoppers get a more personalized experience.

Holding: Lowe’s (LOW)

Lowe’s stock increased by over 10% in 2023 despite a slight decline in projected 2023 sales in comparison to 2022. LOWE’S remained a popular value stock with investors even though increases in borrowing rates have affected DIY demand (75% of the company’s historical revenue) and lowered sales projections. Lowe’s was positioned well despite the overall decline in home sales; however Inventory levels are indeed elevated, and the company awaits improvements in the macroeconomic environment to drive demand again. The company has proven its ability to be resilient in times of uncertainty and focused on satisfying investors with large dividend payouts and share buybacks throughout the year.

Holding: McDonalds (MCD)

McDonalds had a whirlwind of a year with the stock price fluctuating between year highs and year lows, however it remained resilient and finished out 2023 with a return of about 12.5%. The performance can be attributed to the company’s significant improvements with their mobile app loyalty users, with over $20 billion in sales being attributed to loyalty users in 2023. In addition, core menu items continued to see increases in demand and contributed to a staggering $75 billion in sales globally. McDonalds looks to continue its success in the future with the goal of reaching 50k restaurants globally by 2027 as well as the emergence of google cloud technology within restaurants in 2024.

Holding: Nike (NKE)

In Q1, Nike had a gross margin decrease by 10 basis points to 44.2 percent. This was due to high product costs and changes in net foreign currency exchange rates. In addition, selling and administrative costs increased by 5 percent. This was due to advertising and marketing expenses. With a return on the year of -7.4%, these reduced margins hurt the outlook for the stock. However, in Q2, Nike’s revenue increased by about $500 million, and gross margin increased to 44.6 percent. Nike’s President and CEO, John Donahoe, said that they are getting back on their feet in key areas of innovation and growth. Nike announces that they are identifying opportunities to save up to $2 billion in cumulative cost savings over the next three years. Hopefully improved margins in the future will help boost the stock to new highs.

Portfolio Holdings and Positions: Celani Fund

Holding: Penn National Gaming (PENN)

In 2023, The liquidity of PENN Entertainment is still strong with their large level of debt, as they have $1.3 billion in cash and cash equivalents on hand. In addition, PENN Entertainment has also increased their total revenue by about $150 million over 2022. The downside to this was they did have an increase in costs, which in turn, made their gross profit margin decrease from the previous year, a concerning sign for the company. At the year end, PENN Entertainment’s expenses were at one of their all-times highs at around $5.75 billion. Lastly, EBITDA has decreased a little over $500 million. PENN Entertainment performed very well during the pandemic with casinos being shut down, however, the stock is priced below the cost of the stock pre-pandemic. PENN Entertainment did just sign a $2 billion deal with Disney to create another betting platform called ESPN Bet in hopes of a higher ROI. ESPN Bet became effective and available to users on November 14, 2023. With a return of -11% and rising debt, this position is currently being evaluated by portfolio managers.

Holding: Silicom (SILC)

After Silicom’s record breaking year in revenue in 2022, Silicom still continues to keep a steady inflow outflow within their company. Silicom did have Q4 losses due to an increase in their expenses in 2023. These expenses are due to the high cost of production, mostly the high energy costs. The EBITA did slightly decrease by about $6 million making it about $16 million, or about $14 million in normalized EBITDA. As far as future plans for Silicom,they have announced that it would like its EPS to be $3 by 2028. Additionally, Silicom has made operational adjustments like staff reductions and more focus on their core products. Lastly, Silicom plans to buy back about $1.6 million in shares in the next two years. Silicom saw a large decline in its share price due to the ongoing war between Israel and Palestine. Being based in Israel, the company is struggling with ongoing cost increases and reduced demand. The fund portfolio managers are evaluating this position for a potential sale.

Holding: Tesla (TSLA)

In 2023, Tesla experienced outstanding financial performance, witnessing a 130% return in our portfolio. The delivery of over 1.2 million Model Y’s solidified its status as the best-selling vehicle globally. Despite substantial investments in growth projects, Tesla maintained strong financial health with $4.4B in cash to end 2023. The Energy Generation and Storage business saw impressive growth, doubling energy storage deployments. The Services & Other business segment turned around significantly, transitioning from a -$500 million loss in 2019 to a $500 million profit in 2023. All but 1 quarter of Tesla’s 2023 earnings missed on revenue and EPS yet had increasing revenue every quarter. Tesla also reached another new high of Superchargers installed worldwide, reaching a total of 11k+ new stalls opened making a total of 50k Superchargers worldwide. This increase in revenue, cash flows, deliveries, and superchargers has led to a very successful year for Tesla.

Holding: The Walt Disney Company (DIS)

In 2023

The Walt Disney Company had a fairly stable year financially but a lot of progressions in terms of outside projects. The stock underperformed the market with a 1.8% increase for the 2023 fiscal year. Disney+ was a major focus of Disney with it adding nearly 7 million subscribers in the fourth quarter alone. Cash provided by operations increased by $3.9 billion from $6.0 billion in the prior year to $9.9 billion in 2023. This increase was primarily due to lower spending on film/television content. Another project the company focused on was ESPN, their category experienced increasing revenue and operating income year over year in the past 2 years. A large milestone for the company was their “Experiences” group containing Disney Cruise Line, Disney Vacation Club, and Disneyland Resort had increases in operating income by over 30%. Disney plans to maintain focus in their four-building opportunities including sustained profitability in streaming services, the continuation of building ESPN, improving output and finances of film studios, and boosting growth into parks and experiences.

Holding: Wolverine World Wide (WWW)

In 2023 Wolverine Worldwide had a negative year returning -21% although beating revenue in 3 quarters and EPS in 2 quarters. It was a turbulent year for the company with high inventory and debt concerns driving the board to hire a new management team with a turnaround plan. WWW’s full year reported revenue came in at approximately $2.24 billion with gross margin and pretax earnings in line with expectations. In November, Wolverine and Metallica Scholars amped up their 4th collection of high-top sneakers intended for skilled trades. Wolverine is dedicated to supporting the next generation of skilled trades workers and closing the skilled trades gap. Wolverine has donated over $750,000 to All Within My Hands, a non-profit organization that focuses on creating sustainable communities by supporting workforce education. In December the company finalized the sale of its Kentucky distribution center: generating $23 million of cash in the fourth quarter. It also announced asset monetization transactions in 2023 generating approximately $227 million in proceeds.

Portfolio Holdings and Positions: Celani Fund

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Consumer Staples

The consumer staples sector struggled in 2023 with a total return slightly negative. This underperformance was mostly due to the strong economy and continued Fed rate hikes throughout the year. Since consumer staples are typically a flight to safety play, the risk-on environment throughout the year led to significant selling within the sector. It’s important to note that the fund’s holdings outperformed the sector, mostly due to the large position in Walmart. With an 11.46% gain on the year, this led the Celani Fund portfolio to outperform in the consumer staples sector.

Holding: Service Corporation International (SCI)

Service Corp had a rocky year in 2023 with a below market average return of 2.85%. They faced a handful of challenges all throughout the year. One of the biggest challenges that SCI faced was the changing consumer and interest rate environment compared to years prior. Because of the impact of inflation, there has been a decrease in consumer discretionary spending, this has contributed to the slower growth. Some things that helped SCI this year were the conclusion of some large construction projects, and an increase in income from service trust funds.

Holding: Procter and Gamble (PG)

With a price to earnings ratio of 25, Procter and Gamble continues to be expensive, even amongst consumer staples equities. The company had an in-line year but continued to see its higher valuation hurt by rising rates. The company also saw consumers downshift to cheaper versions of its products, hurting demand for higher margin products. As mentioned prior, there was a lack of risk-off environment for consumer staples, leading to selling. We continue to hold Procter and Gamble and think it presents a good conversative opportunity in this market.

Holding: Walmart (WMT)

While still underperforming the S&P 500 Index, Walmart had a great year when compared to the rest of the consumer staples sector. With a 4.5% weighting, this name had a large positive impact on the fund’s portfolio. The company continues to expand online; being, in the opinion of fund participants, the only viable challenger to Amazon in the online retail space. We expect Walmart to continue with a positive year in 2024 as consumers continue to spend and the economy avoids recession.

Portfolio Holdings and Positions: Celani Fund

FINANCIALS SECTOR

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Financials

High interest rates, inflation, deteriorating funding and regulatory outlooks, and greater investor scrutiny forced a reality check in 2023. Following the turmoil of bank failures including First Republic and SVB, The Financials Sector has proven resilient. Margins have stabilized as the rising interest-rate cycle appears to have ended. Valuations have improved from trough levels amid potential rate cuts and a soft-landing scenario. Risks loom in credit, particularly in commercial real estate. Fund managers foresee commercial real estate continuing to be an issue market participants focus on, particularly for banks with large office loan exposure. Fixed Income and equities trading revenue may continue to stay elevated, while banking fees could improve if the Federal Reserve is done raising interest rates.

For fintech and payment companies, 2024 may be a year of maturation and recovery. Growing adoption of software-integrated payments will attract new verticals, while early adopters, like restaurants and retail, mature. As competition intensifies in consumer payments, vertical software-as-a-service (SaaS) and payment firms will rush to gain scale and product capabilities, while record private equity dry powder catalyzes fintech M&A. Highly inefficient B2B payments are emerging as a growth frontier. Banks may spend more to modernize core technology stacks going forward, helping propel fintech companies to new highs.

Holding: Blackrock (BLK)

In 2023, BlackRock Inc. showed strong financial performance, highlighted by a diluted EPS of $36.51, and an adjusted figure of $37.77. The firm’s assets under management reached an impressive $10 trillion, propped up by $289 billion in net inflows throughout the year. Despite flat annual revenue, due to market impacts on average AUM, BlackRock benefited from an increase in technology services revenue. The company faced a 2% decrease in operating income but still achieved a 7% rise in diluted EPS. This increase was partly due to higher non-operating income, though it was somewhat offset by a higher effective tax rate. BlackRock returned $4.5 billion to shareholders in 2023, including $1.5 billion in share repurchases, and approved a 2% increase in its quarterly cash dividend to $5.10 per share.

Holding: CME Group (CME)

In 2023 CME Group reported $5.6 billion in revenue which is an increase of 11% YoY. Net income for the year was reported at $3.3 billion and adjusted eps was reported at $9.25 which is a growth rate of 25.3% YoY. The company’s positive performance in 2023 was driven by increased activity in the futures market allowing CME Group to generate more revenue from clearing & transaction fees which accounts for over 80% of company’s revenue. The rise in the company’s profitability allowed CME Group to increase quarterly dividends to $1.10 per share for fiscal year 2023 compared to $1.00 per share for fiscal year 2022. With a 31% return in 2023, the fund’s portfolio managers are happy with the performance of this equity.

Holding: H&R Block (HRB)

2023 was a stagnate year for H&R Block compared to fiscal year 2022 with very limited growth in key financial areas. H&R Block reported revenue of $3.47 billion in 2023 which is less than a 1% increase YoY compared to 2022 revenues of $3.46 billion. The main uses of cash by H&R Block in 2023 were capital expenditures and repurchases of common stock to raise the company’s EPS to $3.82 in 2023 growing 9% YoY. However, the stock did well in 2023, returning 42%.

Holding: JP Morgan Chase (JPM)

In 2023, JPMorgan Chase & Co. showcased robust financial performance, marked by steady growth in key areas. The year was characterized by challenges such as: the collapse of Silicon Valley, Signature, and First Republic banks as well as global economic volatility, impacting both commodity prices and foreign exchange rates. Despite these headwinds, JPMorgan navigated effectively, leveraging its strong market position. JP Morgan was able to take advantage of the weakness in its peers by purchasing First Republic, adding billions in cheap deposits. Key financial metrics including assets and stockholders’ equity displayed resilience, with assets standing at $3.9 trillion by year-end. The firm’s strategic emphasis on investment banking and asset management contributed significantly to its performance. However, like many in the sector, JPMorgan faced margin pressures, partly due to increased operational costs and higher funding costs. Despite the fear at the beginning of 2023 due to the collapse of SVB, JP Morgan had record numbers of new deposits in such a short period, solidifying themselves as the largest and safest bank in the United States.

Portfolio Holdings and Positions: Celani Fund

Holding: PayPal (PYPL)

The Fund’s initial buy price was 92$ and the number of shares owned was 577. A value of $53,000 at its purchase. PayPal thrived during the pandemic as consumers were forced to depend more on online transactions. But as pandemic restrictions began to ease, PayPal’s stock trajectory started to fall off. The company’s growth had been squeezed by a slowdown in e-commerce spending and rising competition in the digital payment space. Fear of the “Fed Now” Application killing digital payment systems and the rise of widespread mobile banking has increased competition to a level where PayPal has struggled to maintain volumes. Blockchain technology also proves a threat to PayPal as they supply products that charge significantly lower fees presenting a continued threat to the company. Due to these reasons, the fund portfolio managers decided to realize the losses and sell at a price of $56.80.

Holding: Visa (V)

Fiscal year 2023 was a year of growth for Visa as it saw expansion in its main revenue drivers being nominal customer payments and processed transactions. Revenue for Visa experienced a YoY growth rate of 11% reporting at $32.65 billion, and Net Income experienced similar growth rising by 14% YoY finishing at $18.28 billion for 2023. Visa deployed cash to capital expenditures and share repurchases with the increase in the generation of cash from operations positioning the company for growth and expansion in upcoming years. T he stock did well in 2023, returning almost 27% for the fund.

Holding: Wells Fargo (WFC)

Wells Fargo experienced a year of strategic restructuring and focus on core banking services in 2023. The company’s total revenue for the year was $80 billion, an increase of 3% from 2022. Net income stood at $14 billion, translating to earnings per share of $3.40, a slight decrease of 2% compared to the previous year. The performance was impacted by a competitive banking environment and regulatory challenges but offset by a strong retail banking segment and growth in digital banking services. Total assets remained stable at $1.9 trillion. Wells Fargo’s loan portfolio saw a 4% growth, with a noticeable increase in mortgage and commercial lending. The bank continued its efforts in risk management and compliance improvements, reflecting a 15% decrease in operational losses. The Board approved a 5% increase in the annual dividend to $0.85 per share, reflecting confidence in the bank’s financial stability and future profitability.

Portfolio Holdings and Positions: Celani Fund

HEALTHCARE SECTOR

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Healthcare

Going into 2023, Healthcare was one of the most overweight sectors for most funds. It saw a broad underperformance compared to the S&P 500 Index in 2023. Within the sector, names tied to the new GLP-1 drugs had staggering rallies while everything else was sold. Many medical device and testing companies had lower than expected revenues with Covid-19 revenues falling short of expectations. With the population continuing to age and healthcare needs increasing, fund managers agree that healthcare will continue to be a good sector to own generating strong cash flows and buybacks.

Holding: AbbVie (ABBV)

AbbVie didn’t have a bad year in terms of earnings, still able to fund its 4% dividend. However, they lack exposure to the new GLP-1 class of weight loss drugs that most funds want exposure too. Due to this and a lack of new products, the stock was relatively stagnant in 2023. Going forward, we still believe this pharma giant will be able to overcome Medicare pricing reform and continue to grow earnings.

Holding: CVS (CVS)

2023 was a busy year for CVS, with two multibillion-dollar acquisitions. These two companies were Oak Street Health and Signify. This is an all-out effort to diversify their offerings and expand into virtual health. As for their financial performance, CVS has seen year-to-date revenue growth of 10%, and has more than doubled their adjusted EPS at $6.60. In 2023, CVS launched Cordavis, which works with pharmaceutical manufacturers to create similar or cheaper products for the U.S. market. With over 120 million people served, CVS looks to continue to grow. Moving forward, they announced new Medicare products under Aetna, allowing a wider variety of choices for users. CVS expects a slight decline in their health services, but solid growth in both their benefits and pharmacy offerings for 2024.

Holding: Stryker (SYK)

2023 was a very strong year for Stryker, as earnings grew 34% year-over-year. EPS growth was also strong, growing 13% from 2022. Net sales grew 11% for the year, signaling strong growth across the board. Their product categories’ sales grew at equally showing overall growth as the company. The company offers medical equipment in MedSurg, Neurotechnology and Orthopedics and Spine. Their growth is dependent upon continuous sales of these products. Looking to 2024, SYK is expecting continued growth at a slightly lower rate, projecting sales growth to be somewhere in the 7-9% range.

Holding: Thermo Fisher Scientific (TMO)

TMO had a bit of a down year in 2023, reporting a slight decrease in revenue and EPS for the year with losses of 5% and 12% respectively. Although they did experience slight losses, they came out with a slew of new products and technology aimed at advancing innovation in this space. The company also made strides in increasing their presence in Europe, with a new customer excellence center. They also made a couple acquisitions, of The Binding Site and CorEvitas. TMO also utilized roughly $3 Billion to pay back shareholders via buybacks and dividends. Looking to 2024, TMO expects to slightly grow both revenues and EPS.

Holding: UnitedHealth Group (UNH)

In 2023, UNH showed impressive growth, achieving revenue growth of 15% year-over-year and earnings per share growth of 13% yearover-year. Their subsidiary Optum Health continued to build on their growth in value-based care, adding nearly another million patients from the previous year. Total people served by United Healthcare grew by nearly 2 million, split between their benefits offerings and their offerings for seniors and people with complex medical conditions. Some challenges going forward for UNH include the ongoing Medicaid redetermination process, which caused a loss of 700,000 users. Another event to look out for going forward is the pending impacts of the sale of their Brazil operations, expected to close in mid-2024. With a small return of 3%, UNH underperformed the market, however, we are confident the world’s largest insurer can continue to grow in 2024.

Portfolio Holdings and Positions: Celani Fund

INDUSTRIALS SECTOR

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Industrials

In 2023, the industrials sector delivered a positive return of 10.5%, yet these gains lagged the overall S&P return of 24.0%. Several global factors impacted the performance in industrials. Global supply chain inefficiencies from geopolitical turmoil, particularly the wars in Ukraine and the Middle East, led to higher input costs and logistical delays. Furthermore, higher than anticipated inflation, specifically within energy and natural resources, impacted bottom lines and earnings for industrial companies.

However, the industrials sector in the portfolio exceeded the average return, posting 23.3% gains in 2023. The three largest drivers of growth include FedEx, Caterpillar, and Waste Management.

Holding: Caterpillar (CAT)

Caterpillar continued its post-Covid run in 2023 up around 26% for the year, outperforming the S&P 500 Index. Continued government spending on infrastructure and construction projects led to robust demand for their heavy machinery products. Therefore, the company was able to outperform the market’s expectations in terms of growth, earnings, and cash flow. Going forward into an election year, we expect another large government deficit with much of it going to infrastructure spending. We think this will lead to another excellent year for CAT as the economy continues to perform.

Holding: Delta Airlines (DAL)

The travel industry had a big rebound in 2023 as the post-covid travel boom continued to keep airline prices high. With Delta seeing record high pricing during the year, revenue continued to outperform to the upside. Some potential headwinds for the company going forward are high jet fuel prices and wage inflation among its pilots and other staff. However, fund participants are of the opinion that the company will continue to post robust growth provided that the travel industry remains robust and the economy avoids recession.

Holding: FedEx (FDX)

Although there was a significant amount of turmoil within the shipping industry in 2023, FedEx still outperformed, posting a gain of 46%, significantly higher than the S&P 500 Index. The Teamsters Union, the union for shipping workers, was in the news causing concerns about the high cost of labor for the company. However, continued modernization and online retail continue to provide a tailwind for them. Going forward, it will be important for the company to continue to be able to maintain its pricing power and market share.

Holding: L3Harris Technologies (LHX)

With the outbreak of the war between Israel and Gaza as well as the continuation of the Russia and Ukraine War, it was expected that this name would perform better than it did in 2023. There continues to be robust demand for LHX’s defense products. We expect this company to outperform in 2024 as defense budgets continue to rise. Fund participants are of the view that there will be an increase in military spending in the next decade. This will provide a significant tailwind to companies that are able to produce high-tech defense goods. Furthermore, the restock of arms that will need to occur after the current wars end will provide several years of revenue for defense stocks.

Holding: Lockheed Martin (LMT)

Similar to LHX, Lockheed Martin was expected to have a much better return in 2023 than it did. Fund participants agreed that much of the increase in defense spending was priced into the stock at the beginning of the Ukraine War. Due to this, the company had inflated expectations coming into 2023. We expect the continued restock of arms and reasonable valuation for the company will provide the basis for another leg up on the stock in 2024.

Holding: Roper Technologies (ROP)

As an outperformer in 2023, the year was a good one for Roper Technologies. The growth at a reasonable price stock beat expectations on both the top and bottom line throughout the year. Continued strength in construction and modernization is leading to the company being ahead of schedule for hitting its long-term goals and has boosted the stock price significantly. We continue to be optimistic on this holding going into 2024 and think momentum will continue to carry this stock higher.

Holding: Waste Management (WM)

With a 21% return in 2023 and a 4% weighting in the Celani Fund portfolio, Waste Management was a good name to hold. The company posted solid results all year, continuing to acquire and integrate smaller competitors in a private equity-like style. We think the company has significant potential to continue lowering costs and pricing power to improve margins, especially in areas where there is little to no competition. We continue to be bullish this company going forward, however, may look to trim the fund’s position on any large rally that puts valuation at a distorted level.

Portfolio Holdings and Positions: Celani Fund

TECHNOLOGY SECTOR

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Technology

The technology sector’s stock performance in 2023 presented a series of swings, influenced by a combination of innovation-driven growth, market volatility, and regulatory challenges. However, with a total return of 57%, the sector did extremely well. It remained at the forefront of investor interest, driven by rapid advancements in artificial intelligence (AI), cloud computing, and cybersecurity, which continued to offer significant growth opportunities. Despite this, the sector faced its share of volatility, attributed to global economic uncertainties, including fluctuating interest rates and geopolitical tensions that affected investor’s views on the sector and market. Regulatory scrutiny also intensified, with governments worldwide aiming to curb the dominance of big tech companies, impacting stock valuations and operational frameworks. However, the ongoing digital transformation across industries fueled demand for tech solutions, bolstering the stocks of companies leading in software services, semiconductor production, and next-generation connectivity technologies like 5G. Start-ups and emerging tech companies also drew attention, benefiting from venture capital and IPO activities, although their market performance varied widely. Overall, the technology sector’s stocks in 2023 reflected a dynamic role of innovation potential against economic and regulatory turmoil’s, with significant disparities in performance across different segments and companies.

Holding: Apple (AAPL)

Apple has faced a relatively challenging sales environment in 2023. This is mostly due to Apple’s Mac and iPad business taking double-digit declines of 34% and 10% year over year. However, Apple’s most recent MacBook Pro and iMac desktop were not included in Q4 sales. Apple wrapped up the fourth quarter with earnings estimates beat, but sales down for the fourth quarter in a row, resulting in a 3% decline year over year. These declines are being compared to the record sales Apple experienced in late 2022 due to a supply constraint being relieved. Despite these challenges Apple still managed to finish out the year on a positive note, increasing net income by $3.9 billion. Although Apple has faced some challenging sales environments with some of its products, our holding has remained strong, returning 24% in 2023.

Holding: JD.com (JD)

While the stock of JD.com suffered a significant loss in the year 2023, the company remained rather resilient while operating in a weaker-than-usual Chinese economy. During 2023 Chinese economy grew at a meager 5.2 percent, which is significantly less growth than it has been used to over the last 40 years. During this time, JD has seen its revenue growth slow during the first 9 months of 2023 to RMB 778,585 million from RMB 750,790 million in the first 9 months of 2022, which is a revenue growth rate of 3.7 percent. However, Income from operations has increased to RMB 24,000 million in the first nine months of 2023, from RMB 14,895 in the first nine months of 2022; this represents a remarkable growth in income from operations of 61.1 percent. To further navigate a lacking Chinese economy, and ensure some stability during the time, JD.com cut costs in 2023 such as their Research and Development expenses by 7.8 percent, and their General and Administrative costs by 5.6 percent. With a negative 49% return in 2023, this stock is currently being reevaluated by portfolio managers.

Holding: MercadoLibre (MELI)

In 2023, MercadoLibre’s narrative was not just about impressive financial growth, but also about strategic moves and market dominance in Latin America’s e-commerce and fintech sectors. The company’s story unfolded through significant milestones: a 40% increase in net revenue, the successful doubling of income from operations for the fourth consecutive quarter. Along with surge in Total Payment Volume (TPV) and Gross Merchandise Volume (GMV). These figures help show the strategic expansion and a keen focus on optimizing operations across its largest markets.

MercadoLibre’s operations highlighted the acceleration in items sold and a significant leap in its credit card TPV, surpassing $1 billion for the first time, showcasing nearly 70% growth. This indicates not just a growing base of active users but also a deepening trust in its payment solutions, particularly in Brazil and Mexico where the company noted remarkable growth in both GMV and items sold.

The company also reported a notable earnings per share (EPS) beat in Q3 2023, significantly outperforming analysts’ expectations. This financial milestone was coupled with a revenue uptick that exceeded market estimates, evidencing the company’s ability to not only navigate but thrive in competitive and dynamic markets.

Behind these numbers is a strategic investment in technology, market expansion, and a relentless focus on customer satisfaction.

MercadoLibre’s optimistic outlook and continued investment across its business sectors signal a commitment to leveraging growth opportunities, reinforcing its market leadership, and enhancing its offerings to meet the evolving needs of Latin American consumers and businesses.

Portfolio Holdings and Positions: Celani Fund

Holding: Meta Platforms (META)

Coined by CEO Mark Zuckerberg as the “year of efficiency”, Meta was a huge financial success story in 2023. The technology and social media conglomerate have made it their mission to try and advance further into the AI space, as well as into the metaverse. Revenue was recorded for the year at $134.90 billion, an increase of 16% year over year – while company costs and expenses only increased by a mere 1%. These numbers generated a 62% increase in income from operations, as well as a 69% increase in net income year over year. “I think that being a leaner company is helping us execute better and faster, and we will continue to carry these values forward as a permanent part of how we operate,” Zuckerberg stated in his 2023 annual results conference call. With the stock earning almost 200% growth in 2023, the trendy stock looks to build on its empire in 2024.

Holding: Micron (MU)

Throughout 2023, Micron Technology suffered a large decline in revenue. This decline is due to the loss of China’s business which came about in the ban of Micron’s memory chips in China and DRAM pricing falling drastically due to higher inventory levels. Although this loss is dramatic, Micron’s light at the end of the tunnel could appear sooner rather than later. Micron reported fiscal 2024 first quarter results (ended Nov. 30, 2023) of a 16% gain in revenue year over year. Moreover, Micron is poised for success in the future with the role that their microchips have in the rapid utilization of artificial intelligence. The companies’ high-bandwidth memory chips will play a critical role in AI servers’ reliable performance. Micron projects $5.3 billion in revenue for the second quarter which would result in a 43% uptick year over year adjusted for China. Although Micron has faced some headwinds their stock has displayed resilience as our holding yielded a 17% return in 2023.

Holding: Texas Instruments (TXN)

2023 was not the strongest of years for the semiconductor industry, with the global industry seeing its aggregate revenue decline by 8.8% from 2022. Being a major player in the industry with a 3.1% market share in 2023, Texas Instruments took a hit along with everyone else, as demand for semiconductors turned out to be weaker than in years past. With revenue for the company being down 12.5% in 2023 year over year, there was a negative effect on the bottom line with net income decreasing 25.59% from the previous year. The share price was largely stagnant throughout 2023, and the company hopes to rebound following the bleak 2023 for the semiconductor business.

Portfolio Holdings and Positions: Celani Fund

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Real Estate

2023 was a very turbulent year in the Real Estate industry. Due to the predicted issues with commercial real estate, the fund decided to enter the year very underweight, with just a single holding. Our holding performed exceptionally well, and we are happy that we were able to outperform the index. With high interest rates finally catching up to low capitalization rates, we think there remains issues ahead for real estate in 2024. In addition, work from home continues to provide a headwind to occupancy rates and we don’t see this going away anytime soon. With long-term contracts set to expire over the next few years, we think real estate will continue to underperform the S&P 500 Index, especially on a risk-adjusted basis.

Holding: Welltower (WELL)

The company had a robust 2023 with a 39% return on the common stock. They expect full year 2023 EPS to be $0.91 - $0.95 per diluted share, higher than the market expected going into 2023. Fourth quarter 2023 year-over-year occupancy growth meaningfully outperformed historical seasonality, representing the strongest quarterly growth of the year. Welltower’s asset management initiatives and a further improvement in supply/demand conditions continue to result in favorable trends across all geographies.

The company completed pro rata gross investments of $2.8 billion in 4Q2023 and $4.8 billion during the full year 2023. 2H2023 represented one of the most active periods of capital deployment in their history. There is $1.2 billion of under contract acquisition activity expected to close in 1H2024 with closing dates driven by loan assumption timing. Acquisitions are expected to drive meaningful value for shareholders given attractive basis, operational upside, and significant and irreplicable value-add from WELL’s operating platform. The company also disclosed agreements to purchase $3 billion of properties expected to occur at attractive high-single-digit to low-double-digit unlevered IRRs without consideration of future operating platform upside or cap rate compression in a more stable financing market.

Portfolio Holdings and Positions: Celani Fund

UTILITIES SECTOR

Portfolio Holdings and Positions: Celani Fund

2023 Industry Review: Utilities

The S&P 500 utilities sector faced significant challenges throughout 2023, resulting in an overall poor performance returning -10.4%. Several key factors contributed to the sector’s struggles, including favorable economic data, an El Nino year, and optimism for future rate cuts. Inflation rates started at 6.4% in January, but quickly dropped to the 3.7% area for the last half of the year. The unemployment rate increased 40 bps which further subsided fears of rate hikes. The utilities sector is historically a haven during economic downturns due to the lower beta and obligatory consumer expenditure. Positive news throughout the year led to investors fleeing the utilities sector for higher yielding sectors. Projected warmer winter weather in the northern hemisphere due to the El Nino season lowered revenue expectations for energy supplying utility companies. The two utilities sector names in our portfolio followed the negative trend of the S&P 500 utilities index with a return of -14.3%. The difference is due to unsystematic risk.

Holding: Consolidated Edison (ED)

Consolidated Edison delivers electricity and steam to New York City and Westchester. Due to the rapid increase of EV sales, Consolidated Edison is strained to increase supply while maintaining renewable energy goals. Projected growth in electricity demand in New York City allowed for Consolidated Edison to lead returns in 2023 of -1.31%. Consolidated Energy has one of the lowest P/E ratios in the utilities sector of 13.3.

Holding: NextEra Energy (NEE)

NextEra Energy is a renewable energy company supplying over 72 GW of electricity. The company had the largest YOY growth in its solar and wind power segment with a 21% adjusted earnings growth. Guidance of 6% - 8% EPS through 2026. Regulated investment in industry is causing growth as well as the impact of the Inflation Reduction Act. The company has promised a 10% growth in dividends for 2024, which is in line with the previous year’s growth. Although the sector saw a decline in value, the future is continuously stable.

Portfolio Holdings and Positions: Oros Fund

PERFORMANCE BY HOLDING

Portfolio Holdings and Positions: Oros Fund

Holding: IShares 1-3 Year Treasury Bond ETF (SHY)

The fund purchased SHY with excess cash in the fall of 2023. It’s over 5% yield was attractive to the fund’s portfolio managers who were looking to add short-mid duration U.S. treasuries to the portfolio. SHY is a holding that provides exposure to U.S. Treasury bonds with remaining maturities between one and three years. It is a well-managed fund that tracks its index tightly and without significant volatility. With $39.04 billion in AUM, the fund has a total of 85 treasury holdings with an average duration of 1.5 years.

Holding: Aberdeen Physical Silver Shares ETF (SIVR)

This ETF is an investment stock aiming to mirror the performance of silver prices, net of operational expenses. Like gold, silver serves as a reliable hedge against market fluctuations, with additional appeal due to its extensive industrial applications in solar panels, electric vehicles, and electronics. In 2023, the silver market outperformed the S&P, opening the year at $21.53, reaching a yearly low of $19.20 in March, and recovering in Q2 to peak at $24.90. Q3 maintained consolidation around the highs, touching $25.48 on November 30. Q4 fluctuated between $20-24, with minimal price changes.

The anticipated demand in 2023 surpassed supply, driven by record industrial demand of 632 million ounces, including a 15% rise in photovoltaic cell demand to 161.1 million ounces. Silver’s versatility extends to information technology, telecommunications, automotive, and electric vehicles, totaling 382.3 million ounces. Despite over half of demand originating from industry, the precious side remains robust, projecting 182 million ounces for jewelry and 39 million ounces for silverware. Physical investment, slightly down from 2022, is expected to be 263 million ounces.

On the supply side, mines are estimated to produce 820 million ounces, slightly less than 2022. Including recycled sources, total supply is projected at 1 billion ounces, resulting in a 140 million ounces deficit in 2023. Although lower than the 2022 record, this deficit is historically high and likely to persist. With silver’s correlation to interest rates, further climbs are expected in 2024 if global supplies continue to fall short of demand, especially if the U.S. Federal Reserve begins cutting interest rates in the coming months.

Holding: IShares 0-5 Year TIPS Bond ETF (STIP)

The ETF tracks the investment results of an index composed of inflation-protected U.S. treasury securities. It has become popular as a way of protecting asset values against upticks in inflation, and as such can be used in different ways by different types of investors. The fund managers decided to continue to hold STIP, even after inflation started to decline in 2023 due to the extreme U.S. fiscal deficit’s potential to fuel further, unexpected inflationary shocks. This position acts as a hedge for the rest of our portfolio in the event that inflation increases, and the fund is long treasuries.

Holding: Invesco Taxable Municipal Bond ETF (BAB)

With a total return of 7.84% in 2023, BAB performed exceptionally well for the portfolio. Fund managers continue to like our allocation to taxable municipal bonds as they provide a low-risk way to earn a yield of over 5%. The default risk on these bonds is incredibly low due to most of them being backed by the taxing power of municipalities. With spreads to treasuries at relative lows, the fund managers continue to like this position going forward into 2024.

Holding: Vanguard Long Term Treasury ETF (VGLT)

With a 1.49% total return this year, VGLT underperformed short and medium duration treasury holdings. The holding experienced a significant amount of volatility this year, especially with the U.S. 10 Year yield briefly hitting 5%. This led to a drawdown in this holding, however, fund managers decided it would best to keep the position. VGLT performed well in November and December as rates on the long end of the yield curve declined significantly as more Fed cuts were priced into the market. Looking forward to 2024, the fund’s portfolio managers would like to reevaluate this position due to the recent drop in yields.

Portfolio Holdings and Positions: Oros Fund

Holding: Community Healthcare Trust (CHCT)

In the past year, Community Healthcare Trust (CHCT) started off the year facing challenges following the loss of founder Tim Wallace in Q1 2023 along with the need to find a new CFO. Despite this, the company has maintained resilience in the market with ongoing acquisition activity strategically expanding its portfolio, surpassing $1 billion in gross real estate properties, and actively pursuing acquisitions with a pipeline exceeding $200 million while maintaining stable occupancy at around 91.6%, and favorable leasing dynamics. Some noteworthy transactions made by the company included the sale of inpatient rehab hospitals to LifePoint Health. CHCT faced some more difficulties such as tenant bankruptcies and property damage. The company’s commitment to shareholders and comfortable financial state was evident through a slight dividend increase to $0.4525 per common share in Q2, contributing to a positive analyst sentiment despite the underweight nature of Real Estate Investment Trusts (REITs) as an investment asset class.

In Q3, CHCT continued its growth trajectory by acquiring properties worth $51.7 million during the quarter and an additional $7.1 million post-Q3. Despite a slight dip in occupancy to 91%, the company demonstrated a proactive stance toward the GenesisCare bankruptcy, closely monitoring the process. Financially CHCT remains robust with revenue growing by 15.8% year-over-year, totaling $27.8 million in Q2. Funds from operations (FFO) increased by 8.9% year-over-year, emphasizing the company’s ability to navigate challenges and maintain financial stability even under a downturn in the REIT market. Analysts, acknowledging the struggles faced by CHCT, remained bullish, attributing the perceived undervaluation to broader challenges within the REIT asset class, reinforcing confidence in the company’s growth potential and strategic management approach. However, portfolio managers are continuing to monitor CHCT with its 22% loss in 2023 dragging down the rest of the portfolio.

Portfolio Holdings and Positions: Seger Fund

PERFORMANCE BY HOLDING

Portfolio Holdings and Positions: Seger Fund

Holding: ACM Research (ACMR)

In 2023, ACM Research saw impressive growth as their company’s revenue jumped to $387.4 million for the 9 months ended September 30. 2023 from $280.3 million during the same period in 2022, this represents a revenue growth rate of just over 38% year over year, during this time the company also saw its gross margins to 50.9% from 46.3%. Income from operations was 72.5 million compared to 42.4 million the previous year. The company has also made significant forward strides as it looks to expand globally, they have purchased new land in South Korea to begin building a new R&D, and production site. The company has also leased a facility in Oregon to further increase its services and demonstration capabilities in the region. On top of this, ACM Research also began production at their new facility in Lingang, Shanghai in the second half of 2023. ACM Research was added to the portfolio in the fall and fund managers are excited for its prospects in the coming years.

Holding: Golar LNG (GLNG)

In 2023, Golar LNG was able to deploy its second floating LNG vessel: in line with expectations. This addition will more than double the company’s LNG production capacity, providing a much-needed boost to earnings. 2024 will be the first year of full production with both ships and significant earnings growth is expected. Earnings for 2023 were in-line with expectations, with a slight decline due to lower natural gas and oil prices. Trading at 10 times forward earnings, fund participants continue to think Golar LNG is undervalued by the market and thus will continue to make it one of the fund’s largest holdings.

Holding: Ranger Energy Services (RNGR)

With U.S. oil and gas rig counts trending downward in 2023, Ranger Energy Services struggled to maintain growth in its financial results. However, the company finished the year with good financial position having paid off all of the debt on its balance sheet. Now that the company has integrated its recent acquisitions, we see the potential for cost cuts and a rise in profitability in 2024. In addition, a rise in the rig count would lead to high demand for the company, giving them significant pricing power once again.

Holding: Russell 2000 Index ETF (IWM)

With the Seger Fund not fully allocated, the portfolio managers chose to buy the Russell 2000 benchmark to minimize performance variance until the fund can be allocated to a wider variety of positions. The Russell 2000 had a turbulent year, echoing other equity indexes with a larger amount of volatility. This is especially true in March with the SVB bankruptcy causing turmoil amongst the index’s overweight position in small and regional bank holdings when compared to other indexes.

Holding: Comfort Systems USA (FIX)

Up 76% on the year, Comfort Systems was able to take advantage of the construction boom and increase in government spending. The company’s strategy of acquiring smaller firms and integrating them has worked extremely well. The share price has increased. The company was able to blow away Wall Street expectations for the year, leading to an increase in earnings and valuation. Going forward, we continue to be optimistic about this small-cap stock and would like to add to our position on any opportunities.

Holding: SpartanNash Company (SPTN)

In 2023, SpartanNash experienced a fall in price per share of 33% this was after an EPS drop of 32% was reported. SPTN experienced a large blend of economic uncertainties as well as supply chain issues in 2023. SpartanNash began implementation of a plan to target key areas as an effort to promote growth and operational efficiency. One of these target areas was their merchandising efforts. They have been trying to boost the attractiveness as well as streamline product assortments of their proprietary brands. These efforts should help the customer shopping experience and promote financial growth.

2024 Market Outlook

Starting with general equity markets, the team and I expect a continuation of the themes that dominated late 2023. We expect the market to continue rising as investor cash levels are still above historical averages and bond volatility comes down as the Federal Reserve looks to hold the Fed Funds rate at 5.25% for the first few months of 2024. We believe Artificial Intelligence will continue to be a key driver for markets and forecasted earnings growth. However, with AI valuations starting to approach the levels of the 2000 tech bubble, this will be a “show me” year with respect to monetizing this new technology. Therefore, we see many of these companies with AI exposure underperforming this year.

While we continue to see opportunities within equity markets, other portfolio managers and I are concerned with the current market concentration around the “Magnificent 7” mega cap tech names. We do see earnings growth ahead for some of them, we believe the expected return is dwarfed by the large amounts of volatility within these names. With this endowment fund having a moderate risk tolerance, we are not looking to chase short-term performance by buying names above historical valuations.

Looking at fixed-income markets, we hold a contrarian market view that long duration rates will rise this year. We see the fair value yield of the U.S. 10-Year Treasury at 4.3% compared to the market’s current pricing of 3.85%. With most economic indicators still showing full employment and GDP prints continuing to show up above the long-term average, we think it will be much more difficult for the Federal Reserve to cut interest rates than the market currently believes.

Furthermore, 2024 is an election year meaning equities and the economy typically do well. This is bearish for bond prices as it means higher inflation, more government spending, and increased risk tolerance. Net government treasury issuance is expected to rise significantly in 2024, adding supply and potentially pushing yields higher. Oil prices continue to be an issue for inflation. We believe OPEC’s power in the oil market combined with high tensions in the Middle East, supply disruptions in the Suez Canal, and U.S. producer discipline will put a strong floor on the oil market of $78 Brent and $72 WTI. This combined with high government spending and an economy at full employment suggests the Fed will have issues cutting rates, keeping yields high throughout 2024.

Going into 2024, there are many positions that portfolio managers would like to review. These include Disney, JD.com, Penn National Gaming, and longer-duration fixed income holdings. We would like to continue to allocate funds in the Seger Fund from the benchmark to specific small-cap positions. Within the Oros Fund, we would like to position ourselves bearishly by increasing our exposure to short-duration U.S. Treasuries and reducing our position in long-duration bonds. As the Celani Fund aims to decrease its cash allocation, we would like to be a buyer of equities at a reasonable valuation.

In conclusion, the students would like to thank the alumni and faculty for all of their help and support with these endowment funds. It’s a privilege to be able to manage this money and we are grateful for your support.

Nick Bale