Document Type

Investment Portfolio

Publication Date

2023

Abstract

We would like to thank you for your service to the Crummer Truist Portfolio. Without your participation, Crummer students would not benefit from the unique insight you bring to managing an active portfolio. We have been fortunate to listen and learn from some outstanding guest speakers who have been generous with their time and expertise: Phillip Rich, Chief Investment Officer, Seaside Bank; Sarah Passero, Senior Consultant, EY; Shawn Fletcher, Financial Analyst, The Walt Disney Company; Ryan Abronski, Venture Capital Associate, Morgan Creek Digital; Robert Zhang, Senior Research Analyst, DePrince, Race and Zollo; Dr. William Seyfried, Professor, Crummer Graduate School of Business; Marc Miller, Partner, DePrince, Race and Zollo; Rick Ahl, President, Ahl Investment Management; Dr. Rob Roy, Senior VP and Chief Investment Officer, AdventHealth; Jay Menozzi, Principal and Chief Investment Officer, Orange Investment Advisors, LLC; Sean Warrington, Partner & Portfolio Manager, Gresham Partners. SunTrust (now Truist) endowed this portfolio to provide scholarships for future Crummer students and to give current students a practical, hands-on learning opportunity. This year, we are pleased to be able to disburse $55,000 to be used for scholarships. We are extremely grateful for SunTrust’s generosity and investment in higher education. We have all learned a great deal from this experience and the responsibility of managing real money. Our first challenge is to establish a portfolio position that takes advantage of economic opportunities while avoiding unnecessary risk and conforming to the Crummer Truist Investment Policy Statement (IPS). We are also tasked by the IPS to operate at two levels simultaneously – tactical for the near term, and strategic for the long run. Additionally, this portfolio presents some unusual portfolio management challenges by trading only once a year, in early April. Our tactical approach began with a top-down sector analysis. We established an economic forecast based on research and consultation with economists, including Professor William Seyfried of the Crummer School and Philip Rich of Seaside Bank. We based our equity and fixed income split on that forecast with a 20% allocation to bonds, at the highest level allowed by the IPS. That forecast also drove our allocation among the eleven S&P sectors: Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Healthcare, Industrials, Information Technology, Materials, Real Estate, and Utilities. Within the next twelve-month period, we forecast stagnant economic growth that will not quite be a recession. Accordingly, we tilted the allocation towards sectors that should do well in such a macro environment while paying attention to ongoing recovery from inflationary pressures as well as other issues such as the ongoing war in Ukraine. Our asset class allocation embodies the long-run strategy of our portfolio. The IPS sets asset class ranges from low to moderate risk to keep the portfolio from being whipsawed by transitory market cycles. Our equity allocations signify a heightened level of risk, consistent with our view that the stock market will relatively underperform the fixed income market through the end of March 2024. We maintain an allocation to a sector ETF in each sector to ensure diversification. Due to enrollment constraints, we actively manage eight sectors this year with a limit of two individual stocks in each sector. The remaining sectors are invested 100% in their sector ETF. Fixed income is our anchor sector, providing a hedge against the risk of an economic slowdown adversely impacting our equity holdings. Consistent with our non-parallel shifting yield curve projection, we are at the high end of our IPS range for fixed income at 20%, but towards the lower end of the permissible duration level. Furthermore, we have continued to incorporate the theme of Environmental, Social, and Governance (ESG) investing into our portfolio selection process. While ESG investing has become a lightning rod and ESG ratings have been under heavy criticism for lack of consistency, the fund flows into this domain have continued to grow globally. Regardless of a security’s consistency with this theme, all recommendations must be undervalued after rigorous quantitative and qualitative analysis. In other words, our intent is not to maximize the ESG impact of our portfolio but to tilt towards this factor. Specifically, the proposed equity holdings in this year’s portfolio have a weighted average FTSE ESG score of 3.56 out of 5, while S&P 500 holdings have a cap-weighted average score of 3.34. Since the onset of the COVID-19 pandemic, we have witnessed three extraordinary and unpredictable years in many respects. Inflation levels that have not been seen in the past 40 years, supply chain problems, the Russian-Ukrainian war, and interest rate hikes at an unprecedented pace have all contributed to an increased uncertainty. We do not intend to simply follow the crowd. Yet, echoing the philosophy of Warren Buffett, “our opinions and beliefs, grounded in economics and guided by all of those who have counseled us,” lead us to a strategy that is not significantly different from many investors. Even so, we accept responsibility for our investment decisions. We are investing for the long-term and we have been conservative in our forecasts and recommendations. Simultaneously, in the short term, we are mindful of the need to protect the portfolio’s commitment to scholarships. We thank you for your time and participation in this important endeavor. - Sincerely, The Crummer Investment Management Team

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