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Carroll Torch Fund P1 Performance Report 2018-2019

Carroll Torch Fund P1 Performance Report 2018-2019. Table of Contents. P1 Carroll Torch Fund Performance Report. Cover Page 1 Table of Contents 2 Letter of Gratitude 3 Economic Outlook 4 Performance Summary 5 Breakdown of the Portfolio 6

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Carroll Torch Fund P1 Performance Report 2018-2019

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  1. Carroll Torch Fund P1 Performance Report 2018-2019

  2. Table of Contents P1 Carroll Torch Fund Performance Report Cover Page 1 Table of Contents 2 Letter of Gratitude 3 Economic Outlook 4 Performance Summary 5 Breakdown of the Portfolio 6 Performance & Risk Metrics 7 Return on Holdings 8 Individual Holding Write-Ups Alternatives 9-10 Financials 11-15 Health Care 16-20 Consumer Discretionary 21-23 Consumer Staples 24 Industrials 25-28 Materials 29-30Communications 31-32 Technology 33

  3. Letter to Mr. and Mrs. Carroll Dear Mr. and Mrs. Carroll: The Carroll Torch Fund managers would like you to know how thankful we are to learn and grow through this opportunity you have provided. Our fund has recently added three new managers who share in the appreciation and dedication to the portfolio’s continuing success. Our economic outlook moving forward includes taking a cautious approach towards our investments. Our approach is shifting due to several factors such as Chinese trade negotiations, Brexit, and several countries like China, Germany, and Italy experiencing slowdowns in their economies. Unsettling political climates in these countries as well as the UK and Venezuela additionally support action to move forward with caution. The Fed’s low probabilities of raising interest rates throughout the coming year also speak to a slowing in the domestic economic growth rates. As of the end of our last reporting period (December 31st), we made the decision to liquidate two of our holdings: Citigroup and Eagle Materials. Additionally, we purchased the Consumer Staples ETF, RHS, as well as the Floating Treasury Rate ETF, USFR. These purchases were made in an effort to bring more stability into what we predicted to be a volatile winter season. The USFR purchase has also served to move the portfolio closer to our 60/40 equites to non-equites goal. In the coming period, our goals are to invest in more non-equities as well as take closer looks into healthcare, REITS, and alternatives. Once again, each Carroll Torch Fund Manager would like to extend our gratitude for the opportunity to participate in this tremendous experience. The learning and real-world applications provided by the Carroll Torch Fund have been deeply impactful to each of the managers, and we all view serving on the fund as an honor that is not taken lightly. We greatly appreciate your continuous support and generosity. Sincerely: Chris Gates, Madison Moats, Story Ragland, Jon Russell, Jamie Roths, and Brandon Wilmoth

  4. Economic Outlook The Carroll Fund managers operated throughout performance period 1 based on observations that indicated the economy was trending in an unstable direction, as it was seeing growth, but the market was seeing major losses and volatility due to global trade talks and economic events. We made these observations through weekly analysis of Bloomberg economic data combined with discussion about current global events and trade talks. Our analysis of these economic and global factors shaped how we made our cautious economic forecast, and how we based all of our investment decisions moving forward. Throughout period 1, we looked at indicators such as the following: The fund managers kept diligent watch over the trade talks between the United States and China as well as other countries. The team believed these discussions over tariffs acted as essential factors to our investing tactics and predictions of where to invest. Depending on which goods received tariffs, or even possessed the potential of receiving tariffs, the team needed to decide how that could affect certain markets and economies. Unlike the last performance period, the percent chance of interest rate hikes were much lower. The FED was still contemplating whether or not to institute interest rate hikes in 2019, closely watching the nation’s growth and economy. Using the World Interest Rate Probability page in Bloomberg, our team saw between 0-5% probability of an interest rate hike in 2019. Throughout P1 the team monitored FED news and the World Interest Rate Probability page in Bloomberg. A key factor we monitored as a torch fund is the growth, or lack there of, of different major economies. The team kept up with current events and world news to track the potential and pre-existing economic slowing of some countries. We noted that China’s economic growth exhibited signs of slowing for the first time in many years. We also observed Italy recently slipping into a recession, and remained keen on other countries whose GDPs are shrinking. Another key area of focus for our fund is current events such as the on-going BREXIT deal and how that may affect different sectors containing companies who do business in the UK and EU countries. We also were mindful of the deadlock senate where the cost of healthcare showed it was becoming a topic on the forefront of the house of representatives. Staying on top of these developing situations proved critical to having sound understanding of the markets and knowing how to invest accordingly.

  5. Performance Summary Our Mission: Each manager will work to master their sector in order to obtain the greatest possible return based on economic, market, and industry factors. Our Goals: Achieve a postive return Outperform our benchmark Outperform the competing Haslam, LaPorte, and McClain Torch Funds

  6. Breakdown of the Portfolio Period 1: 10/1/18 – 12/31/18

  7. Performance & Risk Metrics Period 1: 10/1/18 – 12/31/18

  8. Return On Holdings Period 1: 10/1/18 – 12/31/18

  9. Energy, Fixed Income Alternatives and Utilities • Sector Overview: • When evaluating the Energy, Alternatives, and Utilities Sectors, it is helpful to look at the economy as a whole. Energy tends to perform as the economy becomes more active and additional energy is needed; however, it remains difficult to anticipate opportunities as it suffers from inconsistent economic indicators. On the other hand, investing in Utilities serves as a defensive move since they typically have lower betas and relatively high dividends. With overall economic growth slowing, drivers to investing in Utilities such as high electricity demand and robust growth in the housing market are not being realized for the coming periods. As for fixed income, our fund pursues the stability typically offered by this sector, but the flat interest rates are not creating the desired investing environment. Jamie RothsEnergy, Fixed Income Alternatives, & Utilities Current Holdings: At this time, the Carroll Fund does not own any holdings within the Energy or Utilities Sectors. Our current holdings within the Alternatives category include USFR, a Fixed Income Alternative ETF. The Carroll Fund managers voted to invest in USFR on October 1st, 2018, the first day of our performance period. Our investment into this sector was based on a slow shift in our economic outlooks from cautiously optimistic to a more cautious approach, and USFR offered to serve as an anchor for the fund during high volatility. The investment was also well received as it moved our portfolio ratio closer to our 60/40 equities to non-equities goal. Economic Outlook: Moving forward, our team’s goal of meeting a 40% non-equities ratio remains. We have discussed investing further within Fixed Income Alternatives, but we are hesitant to invest in bonds as interest rates have an extremely low probability of rising within the foreseeable periods. However, we are researching other preferred stock and fixed income sources such as REITS. In regards to investing in Energy, we are researching ways to involve the sector in more of a backdoor method. For example, rather than investing in oil companies, we have greater interest in investing in the actual gas stations. Investing in this manner allows for more predictability than is typically offered by the sector which is why our team is most interested in researching with this approach. As for Utilities, their dividends are attractive, and they remain possibilities for the Carroll Fund if economic indicators signal for continuing potential with summer construction, electricity demands, and overcoming economic growth rate expectations. Overall, these sectors offer a wide range of investing opportunities for the Carroll Fund, and we are continually monitoring key economic triggers in order to invest with anticipatory timing.

  10. Fixed Income Alternatives WisdomTree Floating Rate Treasury ETF (USFR) Beginning Shares: 1995 Ending Shares: 1995 Beginning Value: $50,049.55 Ending Value: $50,034.60 Total Dividend: $251.38 Description WisdomTree Floating Rate Treasury Fund (USFR) is an exchange-traded fund that aims to mimic certain characteristics and the performance of the Bloomberg US Treasury Floating Rate Bond Index. The top fund holds of this ETF are listed below. Top Fund Holds: (as of 02/02/19) Net Fund TF Float 10/31/20 31.081% TF Float 07/31/20 29.390% TF Float 04/30/20 27.701% TF Float 01/31/21 11.255% TF Float 01/31/20 0.125% Performance Drivers Positive Triggers Its monthly dividends offer stability amongst a continuously volatile market cycle by consistently growing the fund’s cash. Since it tracks the Bloomberg US Treasury Floating Rate Bond Index, it also serves as a shield to international risks, as it is domestically based. Negative Triggers This ETF will not appreciate from any market upswings due to its low correlation to the market as expressed in its low Beta (.02).

  11. Sector Overview: • Given the economic forecast, the Carroll Fund saw the financials • sector being affected negatively over period 1. Global economies • showed slowing growth with many of our financial holdings being • major banks that had active operations in slowing nations. The sand has • been running out on the BREXIT hourglass and throughout period 1 the • team kept a close eye on how it could effect our banking holdings. • Interest rates were also an area of concern as they were estimated to be • hiked going into P1. However, throughout P1 this proved to be the • opposite as a hike does not seem likely for 2019. The market has • leveled out after corrections during P1. • Current Holdings: • Out of the team’s current holdings within the financials sector, there are three bank • equities and one financial ETF. The team sold Bank of America (BAC) after analysis • and discussion of the bank’s recent news. BAC was reporting share repurchases, • which the team found alarming as we would rather see that money being reinvested into new business growth. The team will continue to monitor the condition and news of our other bank holdings while keeping an emphasis of focus on the international customers of these banks and their respective national economic health. The team will also watch the ETF and be conscious of any negative affects it may experience moving into riskier economic conditions. • Economic Outlook: • Looking forward into P2, we plan on keenly watching the interest rate hike probabilities and continuing trade talks between the United States and China. BREXIT continues to be a worrisome situation for the UK as a whole, but specifically the effects it could have on the British economy. A ”No Deal” BREXIT could have detrimental effects on current bank equities the team holds that operate in the U.K. We see M&A in the banking space as a positive, driving the growth of the banking industry. The recent BB&T-SunTrust merger announced is a potential start of a domino effect of consolidation in the banking space. As we continue into 2019, the team needs be to vigilant in identifying potential synergies within banks to predict where would be best to invest throughout the consolidation. Another driver of growth that is very newly announced by JPMorgan is cryptocurrency. JPMorgan will be releasing their bitcoin “JPM Coin” for their large institutional clients. We will monitor this to see which banks are developing a cryptocurrency of their own as well. Brandon WilmothFinancials and Real Estate Financials

  12. Financials Sector XLF Financial SPDR (ETF) Beginning Shares: 988 Ending Shares: 988 Beginning Value: $23,249.04 Ending Value: $23,534.16 Total Dividends: $143.21 Description XLF Financial SPDR ETF (XLF) seeks to represent the financial sector of the S&P 500. It provides exposure to companies in multiple industries within the financial sector such as financial services, banks, insurance, real estate, etc. Some of the companies represented in this ETF are J.P. Morgan (11.54%), Berkshire Hathaway (11.44%), Bank of America (8.89%), Wells Fargo (7.44%), and many more. Performance Drivers Positive Triggers The positive triggers for this ETF are the positive triggers for the financial sector as a whole. Rising interest rates have been a positive driver for this ETF. Tax reform was also a very positive thing for the performance of this ETF. Another positive driver for this sector will be the deregulation of banks. With Jerome Powell stepping in as Federal Reserve Chairman, it appears interest rates will continue to rise, and hopefully there will be more deregulation of banks. Negative Triggers There are definitely some negative triggers for this ETF. If inflation stays stagnant, this could be a threat to expected increasing interest rates this year. This would be a negative for the financial sector of the market. Another negative driver for this ETF would be a lack of deregulation. If there is more regulation, banks would grow at a slower rate than they would if there was less regulation.

  13. Financials Sector Bank of America (BAC) Beginning Shares: 786 Ending Shares: 786 Beginning Value: $23,155.56 Ending Value: $19,367.04 Total Dividends: $117.90 Description Bank of America (BAC) is a multinational banking and financial services corporation. Bank of America has four main segments: Consumer Banking, Global Wealth & Investment Management, Global Banking, and Global Markets. The majority of BAC’s revenue comes from the Consumer Banking segment (about 49%). This segment serves its customers through about 4,600 financial centers and 15,900 ATM’s, as well as call centers and online platforms. Performance Drivers Positive Triggers Bank of America has been a successful stock for our portfolio. One of the reasons for this positive return has been rising interest rates. Usually, between 40-45% of Bank of America’s revenue comes from interest. Thus, rising interest rates have been a positive thing for Bank of America. Tax reform has also been a positive thing for BAC. The bank’s effective tax rate before tax reform passed was about 29%. With tax reform passing, Bank of America will see a sizable tax break. Negative Triggers Bank of America does face some risks for the future though. The Federal Reserve appears to want to have three interest rate hikes in 2018. However, if inflation continues to be stagnant, the prospect of interest rate hikes will be at risk. Another major current risk for Bank of America is the effects of Brexit. The company is currently in the process of relocating some of their major employees and branches to other European countries away from one of their main branches in London. If the company did not relocate these employees, they run the risk of losing some pivotal clients that they would no longer have access to due to the British succession from the EU. This poses more risk for the company, and a potential slowdown in short-term earnings and growth.

  14. Financials Sector Financials Sector Goldman Sachs (GS) Beginning Shares: 100 Ending Shares: 100 Beginning Value: $22,424.00 Ending Value: $16,705.00 Total Dividends: $80.00 Description Goldman Sachs (GS)is a bank headquartered in New York City. The bank has four main segments: Investment Banking, Institutional Client Services, Investing and Lending, and Investment Management. The company serves corporations, individuals, financial institutions, and the government. Performance Drivers Positive Triggers Goldman Sachs is a company that we see a lot of upside in. Tax reform is one of the major reasons we like this bank. First off, tax reform will help to drive up profits significantly. Secondly, tax reform will give other companies a lot more cash to play with. Because of this, we believe that companies will use this cash to purchase other companies which will drive the mergers and acquisitions of FinTech companies. Goldman, along with Citigroup, has invested heavily in these companies in order to get banking more up-to-date. We think that this investment will prove to be a very good one. Negative Triggers Goldman Sachs does face some risks though. A major risk that they face, like most banks, is interest rate risk. Without interest rate hikes, the company would see less earnings and profits.. Another risk that they face is exchange rate risk. Goldman is a multinational bank, so exchange rates are something that impacts them. With the current global political scene, this is a major risk right now.

  15. Financials Sector Financials Sector Financials Sector JPMorgan Chase & Co. (JPM) Beginning Shares: 220 Ending Shares: 220 Beginning Value: $24,824.80 Ending Value: $21,476.40 Total Dividend: $176.00 Description JPMorgan Chase & Co. (JPM) is a multinational investment bank and financial services company. It is the largest bank in the United States and the sixth largest in the world based on total assets. A large portion of revenue for JPM comes from Commercial Banking (47%). The other income sources for the bank consist of its Investment Banking and Wealth Management branches. Performance Drivers Positive Triggers Since commercial banking is a large portion of business for the bank, they benefit from the rising interest rates. With the hikes continuing to happen, JPM will continue to realize more revenue and earnings. Tax reform is also going to have a positive impact on the company as they will now have more cash on hand at the end of year that they can invest. Lastly, the company has issued new cards that have resulted in growth in the number of customers. Negative Triggers JPMorgan also has some risk factors going forward. For instance, exchange rate risk is a threat to their income as about 20-25% of their revenue is generated outside of the United States. Also, since the bank is global, they are directly affected by the geo-political environment and the direct effects it has on the global economy. Lastly, as with any bank, if interest rate hikes do not continue, then JPM will also see a drop in earnings.

  16. Sector Overview: • Comprised of two main business types, the healthcare sector can be largely divided into companies who provide healthcare equipment, supplies, or services and companies who focus on research and development, production and marketing of pharmaceuticals, and biotechnology. Subsectors within the healthcare industry include Biotechnology, Health Care Equipment & Supplies, Health Care Providers & Services, Health Care Technology, Life Sciences Tools & Services, and Pharmaceuticals. Researchers have found companies classified within Health Care consistently outperform other sectors during recessions or other periods late in the business cycle. The necessity driven nature of health care is advantageous for the fund during periods of economic uncertainty, as well as periods of growth. • Current Holdings: • At this time, approximately 10.33% of the Carroll fund is allocated between two large-pharma holdings, Merck & Co. and GlaxoSmithKline. The output generated by the increases in research and development spending we have seen in these firms, along with size and quality of the mergers and acquisitions performed, reinforce our standing in these companies. ARKG remains a contentious holding, but advances made by Illumina, Inc and InVitae Corp in the areas of biotechnology and genetics, lead us to continue to look favorably on the long term prospects of ARKG. • Economic Outlook: • Moving into the new period, a combination of advances in clinical trials and positive developments within biotech firms are expected to propel new products to the front of the industry, while also mitigating pricing pressure. In addition, the Bureau of Labor and Statistics is projecting a 41% increase in job outlook for the years 2016-26, which they cite as being “much faster than average”. This is likely due in part to the fact that the Census Bureau predicts that by 2030, one in five residents will be over the age of 65. In contrast to historic trends, many of these individuals are choosing to work longer and earn higher increases in wages than other age groups, which we believe will positively impact consumer health care spending as these groups continue to age. • Health care remains a politically charged area which can majorly impact sector performance. Failure by the Republican held Congress to repeal the Affordable Care Act prior to the congressional power shift following the 2018 mid-terms makes it unlikely that any major changes regarding the ACA will take place in the near future. This also includes any changes regarding the proposed elimination of taxes and fees associated with pharmaceutical and health care device companies. The FDA’s recent approval of many generic drugs, supported by the current administration, has the ability to negatively impact the earnings of many name brand products produced by our current holdings. Despite this recent change, retail prescription drug spending has continued to increase. Madison MoatsHealth Care Health Care

  17. Health Care Sector Health Care Select Sector SPDR ETF (XLV) Beginning Shares: 305 Ending Shares: 305 Beginning Value: $29,020.75 Ending Value: $26,385.55 Total Dividend: $115.76 Description Health Care Select SPDR ETF (XLV) seeks to track the price and yield performance of the Health Care Select Sector Index before expenses. It is a passively managed fund run by State Street Investors. XLV is comprised of firms that can be assigned to the S&P 500 Health Care subsectors of pharmaceuticals, healthcare products, healthcare services, and biotechnology firms. The top five holdings within the ETF by percentage are Johnson & Johnson (10.38%), UnitedHealth Group, Inc (7.70%), Pfizer, Inc (6.85%), Merck & Co, Inc (5.68%), and Amgen, Inc (3.67%). Performance Drivers Positive Triggers Despite the high amounts of volatility that the market experienced during P1, many health care firms continued to perform well, although others were impacted by the market swings that occurred. Historically, the health care sector as a whole consistently outperforms other sectors during recessions or other periods late in the business cycle. The necessity driven nature of health care is advantageous for the fund during periods of economic uncertainty, as well as periods of growth. A combination of advances in clinical trials and positive developments within biotech firms are expected to propel new products to the front of the industry, while also mitigating pricing pressure. Negative Triggers Any changes regarding the elimination of taxes and fees associated with pharmaceutical and health care device companies that Republicans had hoped to move forward with now appear unlikely. In addition, the FDA’s recent approval of many generic drugs, supported by the current administration, has the ability to negatively impact the earnings of many name brand products produced by the holdings within XLV.

  18. Health Care Sector Merck & Co. (MRK) Beginning Shares: 357 Ending Shares: 357 Beginning Value: $25,325.58 Ending Value: $27,278.37 Total Dividend: $171.36 Description Merck & Co. (MRK) is an international health care firm that serves buyers’ health needs through their three primary business lines which are pharmaceuticals, vaccines, and animal health. Their products cover a variety of health issues including diabetes, cancer, vaccines, and hospital care. They highlight their focus on researching significant health issues that range cover cancer, Alzheimer’s, HIV, HPV, and cardiovascular diseases, as well as antibiotic-resistant infection and disease. They also focus on areas that could lead to possible global pandemics, like Ebola. The pharmaceutical’s top prescription drugs include diabetes drugs Januvia and Janumet, anti-inflammatory Remicade, cholesterol combatants Vytorin and Zetia, and hypertension fighters Cozaar and Hyzaar. Performance Drivers Positive Triggers MRK continues to be one of our highest performing holdings. As one of the few holdings in the fund that maintained a positive return despite the high volatility that encompassed P1, MRK benefited from their above industry average levels of R&D expenditures. MRK is also seeing the benefits of expanding their oncology product line. Negative Triggers MRK has recently experienced -2.44% three year growth for revenue earned in the US, as well as a decline in their Human Health product line, which is their largest revenue generator. A divided Congress makes major policy changes regarding health care unlikely, however, bipartisan desire to reduce the cost of name brand drugs and the issuance of several FDA approvals for generic brands, has the potential to negatively impact MRK’s bottom line.

  19. Health Care Sector GlaxoSmithKline (GSK) Beginning Shares: 618 Ending Shares: 618 Beginning Value: $24,825.06 Ending Value: $23,613.78 Total Dividend: $306.28 Description GlaxoSmithKline (GSK) a is a Large-Pharma designated health care company. GSK is based out of the United Kingdom. Their three primary business units, pharmaceuticals, vaccines, and consumer healthcare products, produce products that are geared towards infections, depression, skin conditions, asthma, heart and circulatory disease, and cancer. The two main focuses of their pharmaceutical branch are medications centered on respiratory issues and HIV. Priding themselves on their dedication to immune-related therapy R&D, which is centered around advanced technology and genetics studies, GSK continues to produce a varied line of health care items. Their line of vaccines include vaccinations required for travel outside of the US, early childhood and adolescent vaccinations required to attend public school, and other high demand preventative vaccinations. Performance Drivers Positive Triggers GSK also recently announced that they will be entering into a joint venture with the industry leader, Pfizer. This new partnership will be centered on consumer health care products the firms consider “Power Brands”. These include GSK’s Sensodyne, Voltaren, and Panadol, and Pfizer’s Advil, Centrum, and Caltrate. This combination of over the counter portfolios will make the venture an industry leader with a market share of 7.3%. Negative Triggers While a larger portion of their revenue is generated in the US than in any other countries, GSK’s success is also still closely tied to the world market, which opens them up to threats during volatile economic and political times. Changes in health care needs may also negatively impact GSK as demand decreases for products that may become obsolete .

  20. Health Care Sector ARK Genomic Revolution Multi-Sector ETF (ARKG) Beginning Shares: 452 Ending Shares: 452 Beginning Value: $15,110.36 Ending Value: $10,838.96 Total Dividend: $210.79 Description ARK Genomic Revolution Multi-Sector ETF (ARKG) is an actively managed, open-ended ETF run by Ark Investment Management LLC. The fund primarily invests in companies that seek to integrate advances related to genomics and other technologies in the supply chain of their business structure. The primary holdings within the ETF are related to biotechnology firms classified into the health care sector that deal with CRISPR technology, targeted therapeutics, bioinformatics, molecular diagnostics, stem cell research, and agricultural biology. Industry Allocations: (as of 1/31/19) Biotechnology 56.70% Computers 2.66% Healthcare – Services 11.23% Semiconductors 2.71% Healthcare – Products 7.56% Chemicals 1.57% Pharmaceuticals 15.26% Food 0.24% Software 4.85% Sovereign 0.09% Performance Drivers Positive Triggers Genomic sequencing is quickly continuing to become a more affordable option for health care and insurance professionals to utilize. As the demand for this service increases, ARKG will benefit from the diversity of holdings within the fund that span the entire genomic supply chain. Negative Triggers ARKG remains a volatile holding with a one year weekly Beta of 1.70. It is heavily dependent on the success of technology firms as well as health care firms, which has been problematic over the last several months as drastic variability has been observed in the technology sector. In addition, ARKG’s success is tied directly to advancements in the accessibility of genomic technology, which may be impeded by potential policy changes that may be enacted due to the possible ethical issues that arise from genomic sequencing.

  21. Sector Overview: The consumer discretionary sector refers to any consumer spending not deemed strictly necessary. This type of spending is typically very sensitive to the economic cycle and for this reason the sector is sometimes referred to as “consumer cyclicals”. Industries within the sector include leisure products, specialty retail, automobiles, auto components, hotels, restaurants, as well as a host of others. Drivers for this sector include consumer confidence and other positive economic indicators. During times of economic expansion, the consumer discretionary sector tends to outperform benchmarks such as the S&P 500 while the opposite tends to be true during times of economic contraction. The consumer staples sector encompasses industries that produce products necessary for consumers throughout the entire economic cycle. Unlike consumer discretionary, this type of spending is much less sensitive to economic contraction due to a low price elasticity of demand. Consumer Discretionary &Consumer Staples Christian GatesConsumer Discretionary & Consumer Staples Industries in this sector produce products such as food, beverages, tobacco, household products, and pharmaceutical drugs. Drivers of this sector include consumer consumption metrics such as GDP and commodity pricing as they are major inputs in the manufacturing of these products. The consumer staples sector tends to outperform market benchmarks during an economic downturn. Current Holdings: We currently are holding AMN Healthcare (AMN) and Amazon (AMZN) in the consumer discretionary sector. As the largest healthcare staffing firm in the United States, we viewed AMN Healthcare as an attractive investment this past period for its revenue diversification strategies through various brands and the general shortage of healthcare professionals in the United States. For Amazon, continued earnings growth and the announcement of two new headquarters were seen as positive factors. Macroeconomically, low unemployment and high consumer confidence were positive indicators for both AMN and AMZN. Late in the period, the fund purchased the Invesco S&P 500 Equal Weighted Consumer Staples ETF (RHS). With potential holiday season volatility, exposure to the consumer staples sector mitigated risk while providing stability to the overall portfolio. Economic Outlook: Looking ahead, our updated economic outlook will challenge the fund to search for ways to stabilize our portfolio. This period, we are looking for increased exposure to the consumer staples sector to shield ourselves from potential upcoming market volatility. Because of this, potential divestiture from the consumer discretionary sector remains a possibility. A sharp increase in unemployment or dip in consumer confidence could raise red flags for the entire sector.

  22. Consumer Discretionary Sector • Amazon (AMZN) • Beginning Shares: 16 Ending Shares: 16 • Beginning Value: $32,048.00 Ending Value: $24,031.52 • Total Dividends: N/A • Description • Amazon (AMZN) is an ecommerce retail giant that operates through their North American, International, and Amazon Web Services channels. Amazon operates in a multitude of industries including, but not limited to, media, groceries, technology, and cloud services. They have even recently opened brick and mortar stores such as “Amazon 4-star”. Operating in the consumer discretionary sector, Amazon is relatively sensitive to changes in the economy. However, there is reason to believe they have plenty of potential for growth. • Performance Drivers • Positive Triggers • Continued low unemployment and relatively high consumer confidence are, and have been, positive triggers for Amazon. High wages have also been a positive trigger due to increased spending money for consumers. If consumer confidence and wages remain relatively high throughout the next quarter, Amazon should see continued growth. • Negative Triggers • Negative triggers for Amazon include the ongoing trade wars and interest rate hikes. Slowing global economies could also pose a challenge to Amazon because of their growth strategies. If consumer confidence falls at an even faster pace, their future earnings could be put at risk. Additionally, recent slowing sales growth has made investors relatively more cautious as Amazon seems to be facing increasing competition.

  23. Consumer Discretionary Sector • AMN Healthcare (AMN) • Beginning Shares: 306 Ending Shares: 306 • Beginning Value: $16,738.20 Ending Value: $17,337.96 • Total Dividends: N/A • Description • AMN Healthcare (AMN) operates as a temporary healthcare staffing company providing travel nursing services to hospitals and other healthcare facilities. It is currently the largest healthcare staffing firm in the United States and is on track to place over 9,000 nurses and allied full-time workers with provider clients across the country this year. A general shortage in the US market of healthcare professionals has provided potential growth for AMN. • Performance Drivers • Positive Triggers • Operating in the consumer discretionary sector, AMN Healthcare is sensitive to the economic cycle. High consumer confidence, low unemployment, and low interest rates are all positive triggers for a firm in this environment. Increased revenue diversification strategies through brands such as Merritt Hawkins and NursesRx also increases growth potential. • Negative Triggers • Being sensitive to the economic cycle, an economic downturn is a negative trigger associated with AMN. The difficulty to sustain a long-term supply of high-quality healthcare could also lead to greater risk. Maintaining high enough wages for their workers to stay with AMN instead of leaving for permanent healthcare facilities is also a challenge AMN will have to combat going forward.

  24. Consumer Staples Sector • Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS) • Beginning Shares: 192 Ending Shares: 192 • Beginning Value: $24,911.19 Ending Value: $22,364.16 • Total Dividends: $177.77 • Description • Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS) is an exchange-traded fund incorporated in the USA with an inception date on November 07, 2006. The fund consists of 32 large cap consumer staples stocks allocated between the Beverage, Cosmetics, Food, Retail, Agriculture, and Household Products industries. • Performance Drivers • Positive Triggers • With the domestic economy showing signs of slowing coupled with economic slowdowns internationally, investing in the Consumer Staples sector offers a shield from some volatility. Flat rates of growth in personal income, real personal spending, consumer credit, and real average hourly earnings also create incentives to shift from discretionary investing to defensive investing. On one hand, these drivers pose a threat to the discretionary sector; however, on the other hand, they provide an opportunity to move into the staples sector to offer the portfolio more stability. • Negative Triggers • Some key staples companies are being affected by tariffs, like international brewing companies within the beverage subsectors and meat companies within the food subsector. These tariffs could lead to price increases which would negatively impact these companies. If the economy shifts and beats expectations, then defensive Consumer Staples stocks are not likely to appreciate as they tend to move inversely with the market.

  25. Industrials and Materials • Sector Overview: • The materials and industrials sectors encompass roughly 12% of the entire S&P 500 Index. Firms within the industrials sector focus on a broad range of products that primarily include capital goods. Firms within the materials sector are referred to as commodity-related manufacturing industries that encompass the discovery, extraction, development and processing of raw materials. Since raw materials and capital goods both play key roles in producing finished goods, many of the same macro-economic drivers and risks affect both of these sectors simultaneously, which is why we have chosen to group these sectors together under the same manager and provide observations about them collectively. Jonathan Story RaglandIndustrials & Materials • Economic Outlook: • The team recently decided to sell AECOM, during the beginning of P2. We believe there is going to be a decrease in demand for AECOM’s mega-project services, since we do not foresee an increase in federal infrastructure spending, which was a contributing factor for the purchase of the stock. Despite this lack of federal infrastructure spending, we believe Vulcan’s strategy of positioning themselves within the fastest growing metropolitan areas is going to lead to long-term success for the company despite market volatility. However, moving forward we are currently still looking to expand the defense portion of our portfolio by perhaps investing in areas of defense we project to grow in the coming years, such as drone technology. We are also looking for equities that perform better during slow growth periods, or perhaps even contractionary cyclical cycles. Current Holdings: Our current holdings within the Industrials and Materials sectors include the Industrials Select Sector SPDR ETF (XLI) and Materials Select Sector SPDR ETF (XLB). We have invested in both of these ETFs because of the moderately low risk provided through diversification and their steady long-term returns. We are not overly concerned with the effects of short-term market volatility with these holdings because they are long-term plays for our portfolio. Raytheon is in the top ten of the prime defense contractors of the U.S. government. Raytheon’s strategy to win more contracts is through diversification in an effort to combat decreases in the federal budget in specific areas of defense. This tactic has proven to be effective for Raytheon and is attributed to helping them grow faster than their competitors. We have continued to hold Vulcan Materials because we believe they have shown an ability to achieve their goal of positioning locations around the top twenty-five fastest growing metropolitan areas in the united states. Vulcan has currently been acquiring other companies within its market to achieve this goal and is already in nineteen out of twenty-five of these metropolitan areas.

  26. Industrials Sector Beginning Shares: 355 Ending Shares: 355 Beginning Value: $27,832.00 Ending Value: $22,865.55 Total Dividend: $139.3 Description: Industrial Select Sector SPDR ETF (XLI) is a passively managed S&P 500 ETF that is designed to provide investment results that correspond to the performance of the Industrials Select Sector Index. The largest holdings within this sector are Boeing (9.59%), Union Pacific Corporation (5.43%), 3M company (5.33%), Honeywell International Inc ( 5.01%), and United Technologies Corporation (4.42%). Industry Allocations: (as of 2/4/19) Aerospace/Defense 27.95% Electrical Equipment 5.18% Machinery 16.11% Airlines 4.77% Industrial Conglomerates 15.79% Commercial Services 3.98% Road & Rail 10.94% Professional Services 3.12% Air Freight & Logistics 6.53% Building Products 2.89% Performance Drivers: Positive Triggers Similar to the materials sector, the industrials sector is a very cyclical sector and is mainly affected by macro-economic factors. Typically, when businesses are able to be more profitable they are more willing to invest in building and construction projects. The ability for firms to reinvest these earnings are critical for firms within this sector. For growth in this sector, we are looking for a strong economy and an increase in consumer spending, manufacturing, residential and civil construction. Whenever factors such as these are increasing there are many more opportunities for growth in the industrial sector. Negative Triggers On the contrary, a slowing growth in the economy is very detrimental for this sector. Declines in the growth indicators are the main signals for this. Another current risk for this sector is the uncertainty of the current federal budget since the government is a major consumer in this sector. In addition the current trade war could be of risk to this sector since a majority of companies in this sector reported higher growth in international markets. • Industrial Select Sector SPDR ETF (XLI)

  27. Industrials Sector AECOM (ACM) Beginning Shares: 695 Ending Shares: 695 Beginning Value: $22,698.70 Ending Value: $18,417.50 Total Dividend: N/A Description AECOM (ACM) provides a variety of professional technical services such as consulting, planning, architecture, engineering, construction management, project management, and asset management. AECOM is recognized as a leader in mega-projects which consist of projects worth over 1 billion USD. Their main strategy for winning these projects is through the diversity of services they offer within this field. AECOM provides a majority of their services to the United States government at a state, local, and federal level and to non-us governments and agencies. Approximately 70% of AECOM’s revenue is generated within the US while 10% is from Europe and 20% is from the Asia-pacific region. Performance Drivers Positive Triggers AECOM is a very diversified company in the infrastructure and construction portion of the industrials sector. Therefore anything that affects these markets as a whole will greatly affect AECOM. When construction and infrastructure spending is rising, especially from larger businesses and governments, AECOM has a greater potential to win more mega-projects through their diversity strategy. Companies such as these typically thrive during times of economic expansion since their consumers are more willing to invest in these projects during these periods. Negative Triggers The largest risk to AECOM’s earnings are that of a declining economy, which results in less construction and infrastructure investments from these large entities. AECOM’s current standing with 30% of revenues being from multinational sources is a major risk for the firm. The recent trade war could affect a significant portion of AECOM’s business. AECOM also faces risks from focusing on a small demand market. If their strategies for winning projects are no longer successful, they may be subject to decline rapidly in growth with just the loss of a few contracts.

  28. Industrials Sector Industrials Sector Raytheon Company (RTN) Beginning Shares: 100 Ending Shares: 100 Beginning Value: $20,666.00 Ending Value: $15,335.00 Total Dividend: $86.75 Description Raytheon Company (RTN) is a multinational corporation that specializes mainly in defense and homeland security. This technology focused company provides electronics, mission systems integration, communications and intelligence systems, and mission support services. Raytheon is the top missile provider in the world and is a key player in constructing a comprehensive missile defense system for the United States government. The United States Government accounts for 70% of net sales with the remainder coming from international sources. Raytheon prides itself on its diverse products and services that it offers and uses this as a key factor to combat potential budget cuts for the government in certain defense areas. Performance Drivers Positive Triggers Since a majority of revenues originate from defense in the United States their main driver for growth is an increase in the military spending portion of the federal budget. The current budget for military spending has been increasing due to high geo-political tensions. An unsettling geo-political environment causes governments to steadily increase spending in this sector. Raytheon is also a prime contractor for the government, thus when spending is subject to increase, Raytheon is very likely to win more of these new projects. Negative Triggers Government spending within defense is continually increasing in the technological aspects of the defense. Because of this, Raytheon is constantly having to invest in research and development to stay relevant and competitive within this sector. Therefore, the two biggest risks for this firm would be a decrease in government spending on defense or unsuccessful research and development endeavors.

  29. Materials Sector Materials Sector Materials Select Sector SPDR ETF (XLB) Beginning Shares: 439 Ending Shares 439 Beginning Value: $25,431.27 Ending Value: $22,178.28 Total Dividend: $139.87 Description: Materials Select Sector SPDR ETF (XLB) is a passively managed S&P 500 ETF that is designed to provide investment results that correspond to the performance of the Materials Select Sector Index. The largest holdings held in this fund are DowDuPont Inc. (20.11%), Linde PLC (14.975%), Ecolab Inc. (6.625%), Air Products & Chemicals (5.970%), and Sherwin-Williams (4.531%) Industry Allocations: (as of 2/4/19) Chemicals 67.95% Building Materials 4.27% Packaging & Containers 7.21% Forest Products 3.16% Commercial Services 6.62% Iron & Steel 3.25% Mining 5.85% Household Products 1.53% Performance Drivers: Positive Triggers Firms within this sector are considered to be price takers because the goods they offer are almost identical. Thus, an increase in demand is what results in an increase in earnings for firms in this sector. During a strong economy is when the demand for infrastructure and residential projects are subject to increase. Firms within this sector are strongly affected by the macro-economy, thus any events that affect the business cycle as whole will be of great interest when monitoring this sector. Negative Triggers Because of the materials sector’s cyclical nature, a decline in the economy can result in a lack of growth in infrastructure, which shrinks the demand for the materials offered in this sector. A great opportunity for this market is to sell its resources to emerging markets that do not posses the infrastructure necessary to produce these materials. With recent trade negotiations taking place this could be a potential threat to growth in this sector. Another factor that has recently been affecting this market is the increase in wage costs due to a shortage of skilled laborers in certain segments of the market.

  30. Materials Sector Vulcan Materials Co. (VMC) Beginning Shares: 128 Ending Shares: 128 Beginning Value: $14,233.60 Ending Value: $12,646.40 Total Dividend: $35.84 Description Vulcan Materials Co. (VMC) is a major supplier of aggregates located primarily within the southern United States, and is currently the largest supplier of aggregates in the U.S.. Vulcan’s material products include aggregates such as stone, sand, gravel, asphalt mix, concrete, and cement. Vulcan also provides related services with all of these products and ships all of their products. Approximability 75% of sales comes from their aggregates, 15% from asphalt mix, and 10% from concrete. Their primary focus for sales is within the United States, with 55% of their materials going to publicly funded civil construction such as highways, airports, and government buildings. The remainder of the materials are used for residential and industrial construction projects. Performance Drivers Positive Triggers Vulcan has concentrated their efforts to states that are anticipated to grow faster than the national average through 2020. Their strategy is to be the largest producer of these materials that reaches the 25 highest growth US metro areas. Through recent acquisitions of Aggregates USA LLC and Shamrock Materials, they have already been able to expand their efforts to 19 of these high growth metropolitan areas. These acquisitions have already shown to be a profitable strategic decision for Vulcan. Negative Triggers Because of the high percentage of materials that are purchased from Vulcan to be used in government projects, the firm is greatly affected by the government’s spending in infrastructure. Currently, with the national budget still on the table for changes and renegotiation, there is great uncertainty in what government spending in infrastructure will look like over the next few years. Due to recent discussion revolving around trade tariffs, Vulcan not diversifying their target markets to take advantage of emerging markets could be a potential short-term gain, but perhaps long-term risk.

  31. Sector Overview: • 2018 was a relatively disappointing year for tech stocks, although they • still outperformed many of the other sectors. This is largely due to an • economic downturn towards the end of the year that affected the stock • market as a whole. Data privacy concerns and a subsequent increase in • government regulation also contributed to negative sentiment towards • several of the large tech companies. The telecommunications sector has • also shown great volatility over the past year but still holds significant • room for growth. Despite the concerns, there are many reasons to be • optimistic about these sectors going forward as consumer demand • has remained fairly stable. • Current Holdings: • Securities that are currently owned from the technology and telecommunications sectors include Verizon Communications (VZ) and Global X Fintech ETF (FINX). Verizon’s recently reported Q4 revenue results fell short of expectations and their forecast for 2019 projects modest growth. A positive for Verizon is that they added nearly twice as many wireless subscribers last quarter as analysts had predicted. This is a holding that will be watched very carefully going forward. Global X Fintech is an ETF that primarily holds securities in the financial technology subsector. These include technology companies that offer services such as insurance, investing, fundraising, and third-party lending. Some of the biggest holdings in this ETF include Square Inc., Paypal Inc., Intuit Inc. and Fidelity National Information Services. • Economic Outlook: • The information technology and telecommunications services sectors both show significant opportunities for growth looking forward into 2019. The biggest drivers of growth in the technology sector will be advances in cloud computing capabilities and the integration of artificial intelligence into many consumer and business products. These emerging technologies will offer businesses the ability to improve operational efficiency and consumers a more accessible method of consumption. Another tech industry potentially on the rise is augmented reality products and the many applications it will have for businesses and consumers. For the telecommunications sector, the biggest drivers of growth will be the expansion of 5G infrastructure and the increasing number of products and services that demand a wireless network (Internet of Things). It is increasingly common for products such as cars, home appliances, and wearables to require a wireless network and the bandwidth provided by 5G technology will help facilitate that demand. Jonathan RussellTechnology and Telecommunications Technology and Communications

  32. Communications Sector Verizon (VZ) Beginning Shares: 512 Ending Shares: 512 Beginning Value: $27,335.68 Ending Value: $28,784.64 Total Dividend: $308.48 Description Verizon Communications Inc. (VZ) is a holding company that provides both wireless and wireline communication services. They are currently the largest US wireless carrier and their wireless services contribute to 70% of their total revenue. Some of these wireless services include voice and data services along with equipment sales. Wireline services include voice, video, and data communications, corporate networking solutions, data center and cloud services, security and network services, and local and long distance voice services. Performance Drivers Positive Triggers The biggest driver of growth for Verizon, along with telecommunications sector as a whole, will be the rollout of 5G technology and the services that will stem from that. This 5G infrastructure is expected to be built out over the next several years and will be revolutionary from a quality of service standpoint, as well as expanding the capability of many of Verizon’s communication services. The expansion of the Internet of Things will also lead to a growing demand for wireless communication services. This will be seen specifically in products such as home appliances, internet-connected vehicles, GPS tracking, and many more. Negative Triggers A negative driver to be watchful of for Verizon Communications is the potential for increase in government regulations. There is a growing discussion among lawmakers and the public alike regarding privacy and security concerns with many telecom service providers. Mishandling of data by the industry as a whole could also prompt new regulation that may be consequential to the growth of a company like Verizon.

  33. Technology Sector Global X FinTech ETF (FINX) Beginning Shares: 695 Ending Shares: 695 Beginning Value: $19,981.25 Ending Value: $15,352.55 Total Dividend: N/A Description Global X FinTech ETF (FINX) is an exchange traded fund that provides exposure to the technology sector and specifically focuses on holdings in the “Financial Technology” subsector. This includes many online banking services such as insurance, investing, fundraising, and third-party lending. These services are differentiated by the fact that they can be provided through modern technology platforms such as a smartphone application, tablet, or website. Financial Technology is a subsector that has excellent growth potential and offers many services that traditional banks do not. Performance Drivers Positive Triggers The release of new technology platforms that can make traditional banking services more accessible will be a big driver for growth in this subsector. As many banks face government regulation that ultimately limit efficiency and quality, these services have the potential to simplify many of these processes for consumers Negative Triggers The Financial Technology subsector is strongly correlated with the broader Technology sector and carries many of the same risks. These include include threats to privacy and data security, global trade disputes that hamper manufacturing, and potential hacking. It will be important to watch how companies manage the balance of expanding their capabilities, while making the necessary upgrades to security.

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