Annual Report FY 2014 Student-Managed Endowment for Educational Development SEED (Student-Managed Endowment for Educational Development) Virginia Tech Kaley Burlingame & Parker Gillcash Virginia Tech Pamplin College of Business www.virginiatechseed.com
Table of Contents Contents SEED 2014 Highlights 1 2 Contact Information 5 Company Information 5 Sector Reports 6
Pg. 01 SEED 2014 Highlights Notable Placements Full Time Paul Hurst - McKinsey Consulting Dan Lee - JP Morgan S&T Ryan Cassidy- Houlihan Lokey IBD Crystal Johnson- Goldman Sachs AM Tyler Authur- Citigroup IBD Jacob Anderson - McKinsey Consulting Zvonko Varas- ExxonMobil Brian Dang SunTrust IBD SEED 2014 Highlights SEED finished 2014 with over 20 holdings and approximately $5.2 million AUM. We expect the portfolio s return to be even stronger in 2015 as we will be able to hold all of our positions over the summer. In addition to managing our portfolio, SEED members had the opportunity to visit firms in New York and participate in two national stock pitch competitions. Once again, placement in 2014 for full-time positions and internships was exceptional. We would like to thank those alumni who have helped support us on these trips and those who have helped SEED members looking for employment opportunities. Financial Highlights This year, SEED returned 9.44%, gross of fees. Our two leading sectors this year were Financials and Healthcare, lead by Visa in Financials and Express Scripts in Healthcare. The Energy and Industrials sector were the laggards, suffering from exposure to the decline in oil prices towards the end of the year. This led to losses in both National OIlwell Varco and Apache. Operating Highlights In 2014, Dan Lee and Paul Hurst completed their tenure as co-ceo s. Dan will be returning to JP Morgan full time in the Sales and Trading department in New York City. Paul will be joining McKinsey as a Management Consultant and will be based out of their Washington DC office. In December, Financials Sector Area Manager Ingrid Chris graduated and will begin working for JP Morgan this summer. Grant Chaney- AllianceBernstein Curtis Calder- Deloitte Consulting Ingrid Christ- JP Morgan Nicolette Killen- JP Morgan S&T Rich Episcopo- Qualcomm
Pg. 02 Notable Placements Internships Parker Gillcash- Goldman Sachs IBD Kaley Burlingame- KPMG-Advisory Gabe Cohen- Boeing Brandon Chandler- Ernst & Young Evan Towle- Boeing Maddie Butz- KPMG-Audit Neil Hartman- PWC-Valuation Austin Hagerty- Morgan Stanley S&T Rebecca Slatkin- Ernst & Young Recruitment During the fall of 2014, SEED received over 100 applications for entry into the Spring 2015 New-Analyst class. After careful review, 40 hour-long interviews were offered which consisted of a 30-minute stock pitch with Q&A and a 30 minute behavioral and case study interview. Ultimately, 8 students, all of whom accepted, were selected to be in the New-Analyst class. During 2015, these 8 students will participate in SEED s training program led by the CEO s. Training will consist of weekly meetings, reading assignments and projects. Upon successful completion of a capstone project at the end of the semester, these students will become analysts in one of SEED s six sectors. Trips In 2014, SEED members had the opportunity to visit 8 firms in New York City. Students met with Alumni and HR contacts from Goldman Sachs, Morgan Stanley, AllianceBernstein, Citigroup, JPMorgan, Credit Suisse, BAML and UBS. As a result of networking opportunities during the trip, students received full time offers and internships for the summer of 2015. Stock Pitch Competitions In 2014 SEED competed in two national stock pitch competitions against some of the top undergraduate business schools in the country. The first came in the spring as a team of 4 students participated in the Georgetown Stock Pitch Competition where they competed against 24 other universities. Despite never having competed and being unfamiliar with the style of presentation, the team placed in the top 20%. Drawing from the knowledge of the Georgetown team, in the fall SEED sent another team to the much larger annual competition hosted by the University of Michigan. The 4 students representing Virginia Tech pitched MASCO and also received very high scores from the judges, but ultimately were beat out for the spot in the finals. Both teams saw this as a great experience to interact with students from other schools and to enhance the reputation of both Virginia Tech and SEED as an organization. We plan to send a team to both competitions again in 2015 and hope that SEED continues to compete in the future.
Pg. 03 Data Analytics Team With the new policy allowing SEED to hold positions over the summer, a Data Analytics team was created to more closely monitor performance and evaluate the portfolio. Heading this team are senior Matt Harris and junior Austin Hagerty. The team was formed in 2014 and will continue to explore SEED s holdings and investment strategy in more detail. They will examine the stylistic focus as well as explore the determinants of portfolio performance. Investment Strategy The valuation method of potential investments continued to be revised as a more in-depth discounted cash flow model was created. While still pulling on multiple years of historical financial information to predict future free cash flows, the revenue was broken down into each individual stream to provide a more accurate prediction of future growth and sales predictions. The addition of a more expansive sensitivity analysis that shows the effects of changes to both the WACC and different inputs helps model different potential scenarios. The forced liquidation of the majority of positions preceding summer led to a quick repopulation phase in the fall. In the past this has caused an issue, as the investment strategy is a long only fund that looks for intrinsically undervalued stocks using a 5 year discounted cash flow prediction. The liquidation of the portfolio in the spring forced members to start looking more short-tem when valuing potential investments. This led to a cycle of buying positions in the fall and holding for the rest of the year, with minimal activity regarding positions throughout the rest of the year. This past year the liquidation erased any opportunity to capture the summer gains and the buy back in the fall occurred during a peak in the overall market. Fortunately this will no longer be an issue as the endowment has graciously offered to manage the portfolio during the summer while SEED members are spread across the country with internships in numerous areas of finance and business. This new development came to fruition during the fall of 2014 allowing for a more long-term view on positions and the potential for an more actively managed portfolio, breaking the cycle of pitching in the fall and holding until summer. This new policy led to the creation of the Data Analytics team, whose role will include portfolio management and tracking performance. The information provided by the team will help provide a better picture of the portfolio as a whole and gain insight into different trading opportunities during the year. While SEED historically has been attracted to large-cap investment, under the leadership of CEO s Dan and Paul more emphasis was put on seeking out opportunities in small and mid cap companies. Additionally, they encouraged fewer holdings in each sector, which led to larger positions in each security. The overall allocation by sector reflected their respective weightings in the S&P.
Pg. 04 2015 Investment Outlook Moving into 2015, SEED maintains bullish on the equity market. In our opinion, despite falling unemployment, rising GDP and a strengthening U.S economy, the Fed will keep interest rates low until the inflation rate rises closer to its target. We expect that this will not occur until late 2015. As a result, the financials sector will be looking into REITs as a potential investment opportunity. Additionally, because SEED is now able to hold up to 50 positions, allowing risk to be more broadly diversified, we will be investing in more small and midcap companies with greater emphasis on value stocks. SEED expects that oil prices will remain low for the foreseeable future as Saudi Arabia continues to flood the market. In response, we will look less into upstream companies and more into downstream transportation and Super Major companies such as Exxon, Shell and Chevron as they will be more capable of handling lower oil prices. Additionally, we will explore opportunities that will benefit from the expected growth in non-residential construction. Domestically, we expect GDP to exhibit growth of roughly 3% while China, Europe and Japan will likely experience below average growth. Therefore, we expect the U.S stock market to be one of the strongest investment opportunities in 2015, especially as the strengthening U.S dollar diminishes returns for those investing in foreign markets. A potential headwind for the equity market would be interest rates rising sooner than expected, which would likely cause an exit from the stock market and a higher demand for long-term bonds. However, we expect any rise in rates to be mild and as a result we will focus much of our attention on cyclical stocks, which have historically beat the market when the cost of borrowing goes up.
Pg. 05 Contact Information Contact Information Kaley Burlingame Co-CEO Phone: 571-205-8902 Email: Kaleyb16@vt.edu Parker Gillcash Co-CEO Phone: 703-389-2660 Email: parker94@vt.edu Professor R. Billingsley Faculty Advisor Phone: 540-231-7374 Email: r.billingsley@vt.edu Professor John Pinkerton Faculty Advisor Phone: 540-231-5002 Email: jpinkert@vt.edu Professor Art Keown Faculty Advisor Phone: 540-231-8143 Email: emily@vt.edu Organization Contact Information SEED (Student-Managed Endowment for Educational Development) Virginia Tech Pamplin College of Business www.virginiatechseed.com Facebook.com/VirginaTechSEED