Flyer Investments Fund Portfolio Analysis and Report 12.12.13

1. The Flyer Investments Team Flyer Investments Fund Portfolio Analysis and Report 12.12.13

2. Background Founded in 1999 with a $1,000,000 Grant from the University of Dayton’s Endowment 100% student-directed Currently valued at $18.3 million (12/3/2013) One of the top 10 largest undergraduate student managed funds in the nation Focused on Growth at a Reasonable Price (GARP) Relative Value High Quality

3. Flyer Investments Team • Italics Denote Sector Leader • Members above the bold line indicate 493 participant

4. Davis Center Structure

5. Investment Process Fundamental Research Portfolio Construction FinalPortfolio Macroeconomic Outlook Top-down economic cycle analysis with bottom-up fundamental research is key to consistent performance

6. Macroeconomic Outlook • Key element of gradually changing our cyclical/non-cyclical sector exposure • Look at data and keep emotions in check • Most importantly, stick with your outlook Data is refreshed through Bloomberg

7. Macroeconomic Outlook Domestic Outlook • Continue our “muddle through” philosophy • Tough decision given the environment • Government Shutdown • Unemployment steadily lowering – for the right reasons? • Quantitative Easing taper is soon. How will we be affected? • Where else besides equities? • Interest Rates

8. Macroeconomic Outlook International Outlook • EU emerging from a recession – 6 quarters of negative growth, 2 of positive • China is a slowing growth story as they move from an export-driven economy towards a more sustainable, market-driven economy • GDP QoQ: 2.20% • GDP YoY: 7.80% • Aggressive monetary easing from Fed, BoJ, and ECB • Recent Manufacturing PMIs • Europe = 51.7, China = 50.8 , Japan = 55.1, India = 51.3 • Emerging markets would greatly benefit from a global recovery • Undervalued but going through a structural change • How will all these factors affect EM?

9. Sector Weights & Allocation Effect

10. Sector Overviews

11. Energy Sector Overview Overweight Major Economic Drivers US Energy Independence by 2020 Spread between WTI and Brent US GDP growth ‘muddle through’ Performance Attribution Energy Sector Effect: (0.04%) Energy Selection Effect: (0.20%) Worst Performers Chevron Corporation (CVX): 1.62% Marathon Oil Corp. (MRO): 0.22% Plains All American Pipeline (PAA): (2.01%) Best Performers Halliburton Co. (HAL): 16.88% Apache Corp. (APA): 14.26% HollyFrontier Corp. (HFC): 8.34% • Actions • Sold: ExxonMobil (XOM), Noble Corporation (NE) • Bought: Chevron Corporation (CVX) • Trim: Halliburton Company (HAL)

12. Noble Corporation (NE) Sell Selling Decision: Capitalize on 68.06% gains due to Brazilian exposure and falling WTI prices Petrobras has capped the number of rigs in Brazil at 42 in 2014 with plans to replace the rigs over time with Brazilian-built rigs Noble has about 11% of its backlog in Brazil Macro Economic View: Falling WTI oil prices Increased production and U.S. Department of Commerce restricting exporting of crude oil has greatly increased the supply of WTI Eagle Ford, Permian, and Barnet Shale are in position to out price off shore industry due to close proximity to Gulf refineries Decreased demand and WTI prices will create falling dayrates which will hurt the profitability of offshore drillers

13. Materials Sector Overview Underweight Major Economic Drivers Housing Recovery Construction Spending U.S. GDP growth ‘muddle through’ Performance Attribution Materials Sector Effect: (0.03%) Materials Selection Effect: (0.01%) Best Performers Eagle Materials Inc. (EXP): 15.75% • Worst Performers • The Sherwin-Williams Co. (SHW): 5.68% • Actions • Monitored the housing market, which we have a large amount of exposure • Researched industries within sector and narrowing focus to agriculture industries

14. Sector OutlookEnergy & Materials The Flyer Fund had an equal weight position last semester that detracted in size due to market movements The team would like to move upwards slightly in this sector while keeping slowing housing growth in mind - quality stock selections Exploring different industries within the sector Liquid protection of hydrofracking, horizontal drilling, and global investments within the U.S., will outpace quantity demanded Eventual Fed tapering will increase the notional value of the USD, thereby decreasing the price of hydrocarbons Softening emerging market demand as shown by disappointing Brazil GDP growth, remaining concerns on China growth, and India GDP falling and inflating currency Focus on sector diversification & decreasing WTI commodity and beta risk Energy Last Semester: This Semester: Materials Last Semester: This Semester:

15. Financials Sector Overview Overweight Major Economic Drivers Interest Rate Environment Mortgage refinancing/originations Strong equity markets Performance Attribution Financials Sector Effect: (0.06%) Financials Selection Effect: 0.42% Worst Performers BB&T Corp (BBT): (1.36%) Wells Fargo & Co (WFC): 2.62% Best Performers Everest RE Group LTD (RE): 17.86% Intercontinental Exchange (ICE): 16.90% Chubb Corp (CB): 12.05% • Actions • Trim: Wells Fargo & Co (WFC): • Add: Chubb Corp (CB)

16. Utilities Sector Overview No Exposure Major Economic Drivers Population Growth Capacity Utilization Interest Rates Environment Performance Attribution Utilities Sector Effect: 0.25% Utilities Selection Effect: (0.01%) • Actions • Sold: Entergy Corp (ETR)

17. Entergy Corporation (ETR) Sell • Avoid exposure to extremely rate sensitive sector • Utilities typically suffer in a rising rate environment • High payout rates • Revenues are less economic sensitive than the average company • Less earnings risk, but little potential for dividend growth. • ROE and ROA are at their lowest levels in the past ten years signaling poor management • Unsuccessful growth prospects combined with nuclear plants closing across the industry • Lagging performance not only compared to the benchmark, but to its peers as well. • Down over 1% in the past three months with the sector SPDR up 3% and the S&P up about 9%

18. Sector OutlookFinancials & Utilities Extremely sensitive to interest rates and we do not expect the sector to perform well relative to the benchmark Sell of Entergy Corp was a great decision for the fund as seen with a 21 Bps boost from sector allocation Highly regulated, little uncertainty allows them to pay higher dividends Higher dividends rendered less useful to investors when treasury rates rise Mortgage industry had been seeing record mortgage origination and refinancing fall to lows as lenders cut jobs in the segment 10 year interest rate toying with 3% for first time since mid 2011 off of early 2013 lows Financial Institution regulation continues to frustrate companies resulting in fines, but should clean up the sector P/B important metric for the sector Volatile, Value, Regulated, Leveraged Comfortable with overweight, but moving towards a focus on security selection Targeting securities that will do well with rising rates - look for industries that fit that profile • Regional Banks • Insurers Financials Last Semester: This Semester: Utilities Last Semester: This Semester:

19. Healthcare Sector Overview Equalweight Major Economic Drivers US GDP growth ‘muddle through’ Patient Protection and Affordable Care Act Aging Population Performance Attribution Healthcare Sector Effect: (0.05%) Healthcare Selection Effect: (0.14%) Worst Performers Baxter International Inc. (BAX): (5.63%) Express Scripts (ESRX): 2.75% Best Performers McKesson Corp. (MCK): 35.71% Novartis (NVS): 10.49% Abbvie Inc. (ABBV): 7.46% • Actions • Bought: Cerner Corp. (CERN), Universal Health Services (UHS)

20. Universal Health Services. (UHS) Buy • High quality play on Affordable Care Act; growing customer volume • Diversified Business Model: behavioral health centers, acute care hospitals, ambulatory surgery centers, surgical hospitals and radiation oncology • Leading Behavioral Health provider ranked by total hospitals and net patient revenue • Catalysts: • Economic Recovery and growing populations in our geographic areas • Dominant Market Position • History of Successful business model implementations • Substantial growth opportunities • Proven track record of assimilating and improving acquired facilities • De Novo, Ascend, PSI • Consistent Top and Bottom Line Growth

21. Industrials Sector Overview Underweight Major Economic Drivers US GDP growth ‘muddle through’ Global PMIs beginning to stablize Construction Spending Performance Attribution Industrials Sector Effect: 0.01% Industrials Selection Effect: (0.48%) Best Performers Precision Castparts Corp.: 16.58% 2) 3M Co.: 14.89% 3) Ametek Inc.: 6.49% Worst Performers 1.) Stericycle Inc. (SRCL): 1.33% • Actions • Monitored the housing market, which we have a large amount of exposure to

22. Sector OutlookHealth Care & Industrials Uncertainty in companies’ ability to acquire capital necessary for growth Many industrials firms have large exposure to EM while their economic condition remains very volatile Decrease holdings that suffer from the Patient Protection and Affordable Care Act (PPACA) The purpose of the PPACA is to expand HC coverage to 32 million additional people, and is expected to cost $950 billion over 10 years Benefactors of the reform could include: • Pharmaceuticals, HC Facilities, HC Distributors, and Electronic HC Health Care Last Semester: This Semester: Industrials Last Semester: This Semester: Real Investment in Equipment

23. Technology and Telecom Sector Overview Overweight Major Economic Drivers IT Corporate Spending Growth Government Spending Personal Expenditures GDP growth ‘muddle through’ Performance Attribution Technology Sector Effect: 0.10 Technology Selection Effect: 0.65 Telecom Sector Effect: 0.18 Telecom Selection Effect: 0.00 Worst Performers eBAY Inc. (EBAY): (2.26%) Best Performers MasterCard Inc. (MA): 24.71% Apple Inc. (AAPL): 24.43% Google Inc. (GOOG): 19.38% • Actions • Bought: 3D Systems (DDD) • Sold: LSI Corp. (LSI) • Add: eBay Inc. (EBAY), Oracle Corp (ORCL)

24. 3D Systems (DDD) Buy It is a revolutionary industry with high growth opportunities Worldwide shipments of 3D printers (3DPs) priced less than $100,000 will grow 49 percent in 2013 to reach a total of 56,507 units Shipments will increase further in 2014, growing 75 percent to 98,065 units, followed by a near doubling of unit shipments in 2015 The company is financially stable and is better suited as a Flyer Fund Stock than its competitors Revenue has increased the past 11 quarters It has been able to translate revenue to the bottom line consistently 3D Systems is taking the right growth initiatives to continue growing Acquisition of Phenix Systems enhances direct metal printing capabilities Its Cube and Projet lines are starting to penetrate the consumer market

25. Sector OutlookTechnology & Telecommunications Trading near all time highs on relative forward P/E Recently underperformed due to lack of corporate and government spending The shift to cyclical names in recent months may be showing that the general economy is more comfortable with spending on these goods Savings on companies nondiscretionary IT budgets are booming as companies continue to move costly in-house IT solutions to cloud-based solutions Information Technology companies continue to hold onto large cash balance, increasing dividend yields, stable management, and controlled inventory levels Technology Last Semester: This Semester: Telecommunications Last Semester: This Semester:

26. Consumer Discretionary Sector Overview Overweight Major Economic Drivers US GDP growth ‘muddle through’ Housing/Autos Consumer spending (retail, durable goods) Global monetary easing Performance Attribution Discretionary Sector Effect: 0.7% Discretionary Selection Effect: (0.20%) Worst Performers International Game Technology (IGT): (4.85%) Best Performers The TJX Companies, Inc. (TJX): 21.45% VF Corp. (VFC): 19.62% Wyndham Worldwide Corp. (WYN): 16.89% • Actions • Bought: International Game Technology (IGT), Wyndham Worldwide Corp. (WYN) • Trim: AutoZone (AZO) , Home Depot (HD)

27. Wyndham Worldwide Corp. (WYN) Buy • Wyndham Worldwide is one of the world's largest hospitality companies across six continents • Consumers team wanted more exposure to service based companies • Extremely well diversified • Continues to return value to shareholders through buybacks and dividend increases • Industry outlook looks promising, especially in U.S. and Europe • Measured by RevPAR – key metric in lording • Debt is biggest threat (2.8 debt/equity) • Debt schedule is very spread out and cash flow is terrific

28. Consumer Staples Sector Overview Underweight Major Economic Drivers US GDP growth ‘muddle through’ Interest rate movement Oil prices Performance Attribution Staples Sector Effect: 0.09% Staples Selection Effect: (0.40%) Best Performers CVS Caremark Corp. (CVS): 9.30% Wal-Mart Stores, Inc. (WMT): 4.57% Worst Performers General Mills, Inc. (GIS): (2.24%) • Actions • Bought: Estee Lauder Companies (EL)

29. Sector OutlookConsumer Discretionary & Consumer Staples Staples had a strong run-up during first half of 2013 – many valuations are looking stretched Team believes that growth companies will continue to outperform in this economy Volatile emerging markets and currency fluctuations are hurting Staple’s bottom lines (ex. GIS) Did not actively search Staple’s companies but did find one that fits the Flyer Fund characteristics nicely (ex. EL) Home values and personal wealth have reached post-recession highs Fed policy remains extremely accommodative – historically low interest rates make big-ticket purchases more attractive Discretionary sector is well-diversified with holdings spanning across numerous industries • Autos, Housing, Gaming, Lodging, Restaurants, Retail Apparel Missed out on “triples” • Netflix (297%), Best Buy (243%), TripAdvisor (100%) Consumer Discretionary Last semester: This semester: Consumer Staples Last semester: This semester:

30. Fundamental Research • Identify companies that have accelerating earnings, revenue growth, and consistency of earnings growth • Reasonable relative valuations • Earnings Releases/Conference Calls • Strengths, Weaknesses, Opportunities, and Threats (SWOT Analysis) • Uncover companies with solid business models, a global strategy/exposure, and stability of performance

31. Watch List • Security selection process begins by consulting Watch List • Provides a list of companies in each of GICS sector that pass certain criteria • Specifications: • Market cap $2 billion or greater • 2 or more quarters of positive EPS growth • Latest quarter EPS and revenues should be accelerating

32. Watch List

33. Red-Light/Green-Light • Emphasis on relative valuation • Company History • Current Industry • Current Sector • U.S. Equity Universe • Relative valuation focuses on four factors: • Profitability • Growth • Valuation • Healthiness

34. Red-Light/Green-Light

35. Portfolio Management Tools Two consecutive quarters of underperformance or outperformance relative to sector spider • Outperformance – Review • Underperformance - analyze future growth prospects, management capabilities, any negative earnings surprises Analyze stocks effect on sector beta Relative to Sector Do not want a sector beta being outside acceptable range on up or downside Utilized to help us determine position weights Beta Worksheet Sell Discipline

36. Beta Worksheet

37. Beta Worksheet

38. Sell Discipline

39. Bloomberg PORT Function

40. Performance Explained

41. Performance (as of 11/29/13) Improved Balance of Portfolio Risk Sector Weightings Cyclical outperformance

42. High Quality Portfolio Participate on the upside and protect on the downside High Quality is defined as companies with consistent earnings and dividend growth High Quality stocks typically outperform in volatile market environments and have positive fundamental characteristics Low Quality stocks typically outperform in speculative markets and extra ‘hype’ from speculative market phases • Our outlook at the end of last semester • We have been in a low quality rally but believe that high quality will outperform over the full market cycle

43. Low Quality Outperformance Low-quality names outperformed for the first half of the semester, but high-quality names have started to perform better which has benefited our portfolio

44. Selection Effect

45. Active Share – Where did we place our bets?

46. Portfolio Characteristics

47. Performance – Fall 2013 • We have seen cyclicals that were trailing in the first half of the year rebound and defensive sectors start to lag

48. Performance – Fall 2013 • This semester we made the bet that cyclicals would outperform and we positioned our portfolio to take advantage of this

49. Flyer Investments Fund – Fall 2013 Maintaining conviction in high-quality stocks for full market cycle • Stuck to our discipline and maintain conviction that high-quality stocks will outperform in the long term • Our strategy is to maintain a high quality portfolio and take advantage of attractive valuations in cyclical sectors • Increased our beta, kept a lower standard deviation to the market, and was still able to add cyclicality to the portfolio • While maintaining a portfolio with a better growth metrics than the market, higher quality, and a lower standard deviation, we are very confident in our portfolio moving forward in 2014

50. What if – Rising Rate Environment Upon tapering, we plan to evaluate certain holdings The following scenario was run assuming a +100bps increase to the 10yr Treasury rate Flyer Fund benefits from the decision to have a zero-weighting in both Telecommunications and Utilities Results S&P – (0.77%) Flyer Fund - (0.68%)