On Tuesday, March 6, Austin Mendez successfully pitched CME Group (NYSE: CME) to be added into the SMIF portfolio. CME Group, the largest derivatives exchange by trade volume, operates within an industry with very high barriers to entry. Austin is confident that CME has positioned itself to see strong growth in the coming years. Through its strategic partnerships with exchanges across the globe, CME is poised for consistent trade volume growth as the economies and derivatives markets in developing countries continue to expand. The exchange has seen various successes in releasing new products, targeting these developing markets, and has plans to continue this initiative in 2018. In addition to the exchange increasing its global presence, Austin’s investment thesis encompassed expanding new and existing product lines, the reemergence of market volatility, and a strong commitment to shareholders. Securities exchanges was a subsector of financials that the portfolio did not hold. Investing in CME Group would expand the breadth of the portfolio’s financial sector holdings and add a security with less correlation to XLF and the large banks already in the portfolio. The class unanimously approved Austin’s motion to purchase 40 shares of CME Group, to be funded through the sale of 230 shares of XLF.
On Tuesday, February 27th, Charlie Duryee pitched Callaway Golf as an addition to SMIF portfolio. Callaway is a producer of all types of golf accessories ranging from clubs to clothing. Given the success of the company’s most recent line of clubs, EPIC, and its strategic acquisitions of TravisMatthew and OGIO, Callaway saw a significant revenue increase in 2017. This is expected to continue into 2018 with the companies’ new golf club line, ROGUE and increased investment into TopGolf. Unlike any of its competitors, Callaway currently holds nearly a 20% stake in TopGolf, a privately held golf entertainment company with 41 locations, three of which are in the U.K. TopGolf has brought a social aspect to the game by simplifying it and inviting guests to both eat and drink while they play with their friends and family. Analysts estimate Callaway’s initial 54-million-dollar investment to be worth up to 400 million dollars today. In addition, an investment in Callaway further diversifies the consumer discretionary sector of the SMIF portfolio through an investment in a golf specific, Russell 2000 company. The motion to purchase 400 shares of ELY and sell 60 shares of XLY was ultimately approved by the class. Now, Callaway makes up about 75 basis points of the equity fund and is the smallest company held in the portfolio with a market cap of roughly 1.5 billion.
On Tuesday, March 6, one of our Consumer Staples analysts, Jack Horan, pitched Costco as an addition to the SMIF portfolio. Costco (COST) is a membership warehouse club that is uniquely positioned in the retail industry to capitalize on current consumer trends. With the looming concern of a potential market downturn, Costco’s low cost, low margin business structure gives the company a unique advantage over its competitors in the retail space, as was evident in 2007/2008. Costco is determined to grow its store count year over year, with an emphasis on the upcoming years in particular. Costco is a growth company and thus behaves as a growth stock. Jack based his thesis on the idea of investing in Costco’s future growth prospects, which will help provide substantial return for the portfolio in future years. An investment in Costco further diversifies the retail consumer staples industry through an investment in the world’s largest membership warehouse club. The motion to buy 30 shares of COST at market price and sell 105 shares of XLP was approved by the class.
On Tuesday, February 6, Brian LeBlanc successfully pitched Humana (HUM) to be added into the SMIF portfolio. He is confident that Humana has strategically positioned itself to generate strong growth in the Medicare Advantage (MA) segment going forward. With Medicare Advantage projected to increase 30% in the next 12 months, Humana is likely to see positive figures as more than 70 percent of their revenue is generated from their MA segment. With nearly all of their revenue generated in the United States, they stand to capitalize on the lower corporate tax rate. This investment diversifies the SMIF portfolio by selling out of Cigna (CI), which is far more correlated to United Healthcare (UNH) than Humana. The class unanimously approved the motion to purchase 30 shares of HUM at market price, funded through the sale of Cigna and XLV. This purchase rebalanced the healthcare sector of the SMIF portfolio to the class target.
On Tuesday, February 6, Meghan Holtz pitched Caterpillar Inc. to be added to the SMIF portfolio. She is confident that Caterpillar is well positioned to deliver growth in the next one to two years. Caterpillar is the largest worldwide company in the machinery industry with an 18 percent increase in sales in 2017. Caterpillar will continue to grow with an expanding economy and an increasing infrastructure budget. She emphasized decreasing expenses due to a restructuring program that Caterpillar has implemented and improving margins as a catalyst for earnings growth after four years of falling sales. Caterpillar has an established global footprint and their new company strategy, O&E Model, will help expand the company’s market share and best service its customers and shareholders. This investment diversifies the SMIF portfolio by giving exposure to the heavy construction machinery industry. The class approved the motion to purchase 50 shares of Caterpillar and fund this purchase through the sale of industrial ETF, XLI and using SPY to fund the remaining cash balance.