Student Managed Investment Fund

Bucknell University College of Management

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Healthcare Update

SMIF Holdings: CELG, TEVA, BMY

BMY and CELG are both outperforming the S&P 500, yet TEVA is struggling.  Healthcare consumption has been rising every quarter in the past few years, however we see political risk present in several lawsuits that are challenging President Obama’s Healthcare bill. The supreme court decision on the three cases (Florida v. Department of Health and Human Services, No. 11-400; National Federation of Independent Business v. Sebelius, No. 11-393; Department of Health and Human Services v. Florida, No. 11-398) is expected in June 2012.  Until March, when the Supreme Court will start to hear arguments, we believe the sector is safe.

Overall, we judge this sector to be  risk averse, low volatility, and high yield.  We have identified that due to the complex capital structures of many companies in healthcare, SMIF must perform more analysis than previously thought to assess company dividend yields.

We are satisfied with BMY but plan to close out our positions in CELG and TEVA in the near future.  Ideally, we will pick up JNJ, LLY, and ABT.

The current SMIF recommendation is to overweight the S&P 500 by 100 to 150 basis points.

 

Read the full presentation here: Fall 2011 Healthcare Sector Report

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Fall Utilities Sector Update

Holdings: ED

The utilities sector is more immune to market conditions than other sectors.  These companies are mostly government regulated and only susceptible to changing energy prices, but will always be in need.  They present high dividend yields and investors flock to these companies during downturns due to their safety.  Utilities are currently out-performing the S&P 500 by a significant amount, and U.S. utilities are out-performing global utilities as well.  Low interest rates will continue to drive the performance of the utilities sector.

However, there is a large concern that SMIF missed the boat over the summer and utilities prices are already inflated.  Thus, we will remain neutral with the S&P 500 sector weightings for the current period.

 

Access the full report here: Fall 2011 Utilities Sector Report

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Fall Telecoms Sector Update

Holdings: VZ

The major news in this sector is the possible AT&T merger with T-Mobile.  We do not feel that it will occur because the created company would possibly violate antitrust laws and reduce competition in the marketplace.

Other research on this sector shows that pre-paid plans are rising in popularity as many Americans become unable to pay for pricey contracts, especially now that both AT&T and Verizon Wireless have gotten rid of their intermediary one year-long contract options.  Verizon Wireless has also followed AT&T in discontinuing their unlimited data plan, a move that might indicate that customers of both companies are not subscribing to the more costly, higher minutes per month plans.  The introduction of tiered data pricing also demonstrates the growing wireless data usage of smartphones in the U.S.

This industry is generally defensive but has on the whole been slightly out-performing the S&P 500. With consistently high dividends in this sector, we feel it is best to keep our neutral weighting, but look to diversify our portfolio with foreign providers, internet operators, and infrastructure owners.  Potential holdings include Dish Network (DISH), DirectTV (DTV), TimeWarner (TWX), and China Telecom (CHA).

 

Acess the full report here: Fall 2011 Telecoms Sector Report