HASLAM TORCH FUND Prepared for Mr. & Mrs. James A. Haslam II - Haslam College of Business
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HASLAM
TORCH FUND
Prepared for Mr. & Mrs. James A. Haslam II
PERIOD 2 PERFORMANCE REPORT
01/01/2022 – 03/31/2022
MANAGERS:
Wil Buechley, Andrew Campbell, Joseph DeLay, Gibby
Gibson, Jackson Long, Adam Mendoza, Myles Terry
March 31, 2022
Dear Mr. and Mrs. James A. Haslam, II:
We would like to start by expressing our gratitude for everything you have done for this program and the
many individuals who have had the opportunity to participate. This would not be possible if not for your
generosity. The Torch Fund allows us to gain exposure to the financial markets and gives us the
responsibility of making real-life decisions that many of our peers cannot. A successful manager requires
continuous research, discussions on the macroeconomic environment, individual security analysis, and a
well-structured team. As Haslam Torch Fund managers, we are excited to take the valuable experience we
gain from this program into our future endeavors.
During P2 (January 1, 2022, through March 31, 2022), the fund reported a return of -2.94%, beating our
primary benchmark (a 60/40 split between the S&P 500 and Bloomberg Barclays U.S. Aggregate Bond
Index), which returned -5.14%. We are delighted to inform you that the Haslam Fund received the highest
return out of all the funds as well as beating all other benchmarks tracked during P2. As we move into P3,
we look forward to building upon these results and establishing a trend of continued success.
Our results in P2 can be attributed to the analysis of our investments and changes made to the portfolio.
After considering the macroeconomic environment and its changing nature, we ended P2 with 40 holdings
across the 11 sectors of the S&P 500, including fixed income securities. We bought positions in KKR &
Co (KKR) and liquidated our positions in Activision Blizzard (ATVI), Comcast Corporation (CMCSA),
Intel (INTC), Kroger (KR), and ONEOK (OKE). We also increased allocation in our position in Energy
Transfer (ET). We believe these transactions diversify our financials exposure, minimize downside risk in
technology and communications, and realize profits to allow us to take advantage of opportunities presented
by heightened market volatility.
Once again, thank you for allowing us this position and responsibility of being Torch Fund managers. Your
time, effort, and continued support gives us the opportunities to learn, grow, and develop in ways that would
otherwise be out of reach. The experiences that we gain from this program will carry us forward for the rest
of our lives. We are proud to be members of the Haslam Torch Fund, and there is no doubt that we will one
day look back on these moments and feel the same pride as we do now.
Sincerely,
Your Haslam Torch Fund team
Wil Buechley, Andrew Campbell, Joseph DeLay, Gibby Gibson, Jackson Long, Adam Mendoza, and
Myles Terry
2
Table of Contents
Economic Outlook………………………………………………….……….……………………………..4
Summary of Portfolio Performance……………………………………………………………………....5
Overview of Weight and Performance……...……………………………….…………………………....7
Relative Fund Performance…………………….……………………....…………...….……………........8
Portfolio Allocation……………......……………………………….…………………….………………..9
Summary of Individual Holding Returns……..………………………………………...……………....10
Summary of Actions for the Haslam Fund………………………………...………………………........12
Communication Services ArcBest Corporation 42
Activision 14 Honeywell International Inc. 43
Comcast 15 Lockheed Martin Corp. 44
Communication Services Select Sector SPDR 16 Global X Infrastructure Development ETF 45
Verizon 17 Raytheon Technologies Corp. 46
Consumer Discretionary Information Technology
Amazon 19 Apple Inc. 48
Dollar General 20 Applied Materials Inc. 49
Broadcom Inc. 50
Consumer Staples Intel Corp. 51
Kroger 22 Jabil 52
Procter & Gamble 23 Microsoft Corp. 53
Tyson 24 Palo Alto 54
Walmart 25
Materials
Energy DuPont de Nemours Inc. 56
Energy Transfer LP 27 Graphic Packaging 57
Oneok 28
Real Estate
Financials Prologis Inc. 59
Bank of America 30 Welltower 60
JPMorgan & Chase Co. 31
KKR 32 Utilities
MetLife 33 Entergy 62
Utilities Select Sector SPDR 63
Healthcare
Abbott Laboratories 35 Fixed Income
Amgen Inc. 36 iShares Core US Aggregate Bond ETF 65
CVS Health Corp. 37 SPDR ICE Preferred Securities ETF 66
GlaxoSmithKline PLC. 38 Wisdom Tree Treasury Fund 67
Merck & Co. Inc. 39
Stryker Corp. 40 International
Fidelity International Discovery Fund 69
Industrials
Fund Manager Bios………………………………………………………………………………………70
Works Cited/Appendix…..………………………………………………………………………………73
3
Economic Outlook
Global Economy a contributing factor to pushing inflation rates
The Haslam Fund has switched its outlook for the higher. We still maintain that rivalries with
global economy to a pessimistic outlook in 2022. China, Russia, and Middle Eastern countries will
Our team discussed the various economic, affect productivity and trade in the future. The
political, and geopolitical events facing the world conflict in Ukraine has pushed U.S. energy prices
and revisited our previous reasons to come to this to record highs, prompting U.S. President Joe
conclusion. We have shifted our previous opinion Biden to use oil reserves to curb rising costs.
of growth in the global economy because of the Geopolitical tensions will continue to raise
increasing effects that the war in Ukraine has had concerns over volatility in the markets in the
on the global economy. The sanctions imposed upcoming months. Upsides for the U.S. economy
against Russia coupled with the energy demand are the country’s response to the Omicron
issues facing Europe have created a volatile subvariant and the safety of the U.S. market. The
global economy. Inflation and rising energy U.S saw rising cases in the beginning of P1 which
prices have further increased this volatility. threatened the economy, but markets were largely
Global food prices have hit record highs due to unaffected by this rise in cases prompting belief
shortages of wheat and corn where, respectively, that the U.S. has demonstrated an ability to fight
Ukraine is the fourth and fifth largest exporter off the effects of future subvariants. The Haslam
globally. In China, Shanghai has returned to Fund also believes that the U.S. stock markets
lockdowns as COVID-19 cases hit record highs, represent a safer base than the broader global
which have caused the country’s prices to surge. markets because of their greater independence
We previously saw the global recoveries from the from the conflicts in Europe, and we believe that
pandemic as a sign of growth, but we have the markets have embraced Fed rate hikes better
adjusted our viewpoint based on these recent than expected. For these reasons we have decided
trends in our market. the outlook for the domestic economy is slightly
better than the broader global economy, but we
Domestic Economy remain wary to developing economic trends.
Our viewpoint on the U.S. economy has also
shifted from neutral to cautiously pessimistic. Overall Outlook
Markets are being rattled by high inflation and After considering both our domestic and
tightening monetary policy, and we believe these international economic outlooks for 2022, the
issues will persist throughout 2022. The hope for Haslam Fund’s overall outlook is currently
a soft landing of the economy looks less probable slightly pessimistic. We will continue to closely
due to indicators of a recession like the inversion monitor all these factors when making decisions
of U.S. Treasury yields. Following interest rate on how to strengthen this portfolio.
hikes in March, the Fed has implied possible
hikes of 50 basis points starting in May to combat
rising prices. The tightening labor market is also
4
Summary of Portfolio Performance
Returns P1 P2 P3 Tenure
Haslam Fund Portfolio (%) 7.28 -2.94 - 4.13
Benchmark (%) 6.61 -5.14 - 1.17
S&P 500 (%) 11.00 -4.61 - 5.90
Barclay’s Aggregate Bond Index
0.01 -5.93 - -5.92
(%)
BETFX** (%) 3.22 -3.98 - -0.68
Tenure
Torch Fund Returns P1 P2 P3 Tenure Spread
(Benchmark)
Carroll (%) 5.30 -4.32 - 0.76 -0.41
Haslam (%) 7.28 -2.94 - 4.13 2.95
LaPorte (%) 8.51 -5.06 - 3.02 1.85
McClain (%) 3.59 -5.59 - -2.21 -8.79
Betas P1 P2 P3 Tenure
Beta Compared to
1.17 1.11 - 1.12
Benchmark
R-Squared of Beta 0.87 0.94 - 0.92
Beta Compared to S&P 500 0.68 0.68 - 0.68
R-Squared of Beta 0.91 0.97 - 0.95
Note: All calculations presented are annualized and calculated using daily returns over the reporting period.
Please see Appendix on page 78 for an explanation of these calculations.
*The primary benchmark for the Haslam Torch Fund is a 60-40 portfolio, weighted 60% of S&P 500
returns and 40% of Bloomberg Barclays U.S. Aggregate Bond Index returns.
5
**
BETFX is Morningstar Balanced ETF Asset Allocation Portfolio Fund.
Summary of Portfolio Performance
Sharpe Ratios P1 P2 P3 Tenure
Haslam Fund Portfolio 2.83 -0.75 - 0.69
Benchmark 3.19 -1.55 - 0.27
S&P 500 3.03 -0.79 - 0.72
BETFX** 0.89 -1.38 - -0.07
Treynor Ratios P1 P2 P3 Tenure
Haslam Fund Portfolio 0.24 -0.10 - 0.08
Benchmark 0.25 -0.20 - 0.03
S&P 500 0.42 -0.17 - 0.13
BETFX** 0.25 -0.19 - -0.01
Other Metrics P1 P2 P3 Tenure
Standard Deviation (%) 9.93 14.90 - 12.63
Tracking Error (%) 3.82 3.92 - 3.86
Information Ratio
0.74 2.28 - 1.51
(Benchmark)
Note: All calculations presented are annualized and calculated using daily returns over the reporting period.
Please see Appendix on page 78 for an explanation of these calculations.
*The benchmark for the Haslam Torch Fund is a 60-40 portfolio, weighted 60% of S&P 500 returns and
40% of Bloomberg Barclays US Aggregate Bond Index returns. 6
**
BETFX is Morningstar Balanced ETF Asset Allocation Portfolio Fund.
Summary of Weight and Performance
Goal: Period Two
Beat our benchmark
Outperform other funds
Generate a positive return
Fund P2 Return (%) P2 Spread (%)
Carroll -4.32 0.82
Haslam -2.94 2.20
LaPorte -5.06 0.08
McClain -5.59 -4.74
7
Relative Fund Performance
Largest Holdings Weight (%)
iShares Core U.S. Aggregate Bond ETF (AGG) 7.03
Wisdom Tree Floating Rate (USFR) 6.77
Microsoft (MSFT) 5.69
SPDR Wells Fargo Preferred Stock ETF (PSK) 5.61
Amazon (AMZN) 4.42
Smallest Holdings Weight (%)
Utilities Sector SPDR (XLU) 0.61
Honeywell International (HON) 0.96
Graphic Packaging (GPK) 1.00
GlaxoSmithKline (GSK) 1.01
ArcBest (ARCB) 1.15
Best P2 Performers Return (%)
Kroger (KR) 26.12
Energy Transfer (ET) 25.32
Lockheed Martin (LMT) 24.98
Activision Blizzard (ATVI) 20.40
ONEOK (OKE) 17.15
Worst P2 Performers Return (%)
ArcBest (ARCB) -32.77
Applied Materials (AMAT) -16.09
Abbott Laboratories (ABT) -15.57
JPMorgan (JPM) -13.28
Fidelity International Fund (FIGRX) -12.41
8
Portfolio Allocation
Sector Weights
Utilities, 2.08%
Real Estate, 2.71%
Cash, 7.01%
Communications,
Materials, 2.21% 5.37%
Consumer
Information Discretionary,
Technology, 19.16% 7.51%
Consumer Staples,
6.32%
International, 1.27% Energy, 2.53%
Industrials, 6.25%
Financials, 9.73%
Healthcare, 8.44%
Fixed Income,
19.41%
Asset Type P2 End Value ($) P2 End Allocation (%)
Cash 134,547.56 7.01
Equities 1,411,517.14 73.58
Fixed Income 372,352.00 19.41
9
Summary of Individual Holding Returns
Holding P2 Return % Current Weight (%)
Equities
AAPL -1.54 3.74
ABT -15.57 1.41
AMAT -16.09 3.04
AMGN 8.35 1.60
AMZN -2.23 4.42
ARCB -32.77 1.15
ATVI 20.40 -
AVGO -4.75 2.63
BAC -6.88 3.15
CMCSA -5.88 -
CVS -1.36 1.92
DD -8.50 1.22
DG -5.42 3.09
ET 25.32 2.53
ETR 4.54 1.47
FIGRX -12.41 1.27
GPK 3.15 1.00
GSK -0.07 1.01
HON -6.21 0.96
INTC -6.28 -
JBL -12.14 2.77
JPM -13.28 3.74
KKR -0.98 1.48
KR 26.12 -
LMT 24.98 1.29
MET 13.23 1.36
MRK 7.96 1.31
MSFT -8.14 5.69
OKE 17.15 -
PANW 11.81 1.30
PAVE -1.43 1.39
PG -6.06 1.99
PLD -3.62 1.41
RTX 15.71 1.46
SYK 0.23 1.20
10Holding P2 Return (%) Weight
Equities
TSN 3.36 1.87
VZ -0.73 2.33
WELL 12.80 1.31
WMT 3.31 2.46
XLC -11.23 3.04
XLU 4.68 0.61
Fixed Income
AGG -5.84 7.03
PSK -8.25 5.61
USFR 0.24 6.77
11Summary of Actions for Haslam Fund
P2 Actions
Intel Corp (INTC)
• Sold 575 shares for $27,542.00. (3/04/2022)
Energy Transfer (ET)
• Purchased 1,638 shares for $16,887.78. (03/11/2022)
ONEOK (OKE)
• Sold 250 shares for $16,974.91. (03/11/2022)
Activision (ATVI)
• Sold 375 shares for $30.037.33. (03/14/2022)
Comcast Corp (CMCSA)
• Sold 574 shares for $27,046.74. (03/25/2022)
KKR & Co (KKR)
• Purchased 484 shares for $28,580.20. (03/25/2022)
Kroger (KR)
• Sold 582 shares for $33,098.17. (03/25/2022)
12Communications Services
Fund Manager: Myles Terry
P2 Analysis:
The Communications Services sector did not see capital gains during this period. The S&P 500 sector ended
P2 down -11.23%, roughly 7.00% below how the S&P did as a whole. The fund’s Communications Services
investments saw -2.62% in overall return, beating the S&P’s sector by 8.61%. We held 5.37% of our assets
in the sector, while the S&P had a 9.34% weighting. Not only did we outperform the sector, but we managed
to mitigate our losses by not heavily investing in a sector that did not do too well. With inflation sticking
around, it became difficult for customers to buy products or services they did not need, such as games,
movies, and other forms of entertainment. People constantly worry about paying for food and clothes as
they lose purchasing power. With the start of the Russia-Ukraine war, fertilizer, gas, and other commodities
are becoming more expensive as production drops and sanctions are made against Russia. The fund sold
both Comcast and Activision due to changing macroeconomic trends and worries about individual business
practices, respectively. Comcast, Activision, Verizon, and XLC saw returns of -5.88%, 20.40%, -0.73%,
and -11.23% respectively over the period. Although many of our investments saw negative returns,
Activision had a strong P2, given that its share price shot up after the news of its planned sale to Microsoft.
As inflationary pressures ease up due to rising rates, the Communications Services section will begin to see
more room for growth.
Moving Forward:
Given that the war has not shown signs of slowing down and inflation is still at large, the fund will be
expecting the investment markets to be negatively impacted in P3. Global supply chains conditions continue
to decline as political relations worsen. The US has continued to impose sanctions on Russia while also
combating inflation. Although inflation will ease over time, the fund does not expect it to lower dramatically
until 2023. As a result, the fund’s Communication Services sector will likely achieve an at-weight status
with the S&P to avoid negative returns if the rate hikes are not sufficient towards curbing inflation. With
advertising agencies and global internet/media companies preparing to improve their profit margins and
decrease in revenue growth from last year, the fund remains on the hunt for opportunities to invest in
companies in these spaces that appear to have the necessary components to gain an edge over its
competitors. This will both work to diversify the fund’s holdings by investing in industries it does not have
holdings in, while also opening the fund to profits that those industries are expecting to see in P3.
.
Weighting
S&P Sector Difference from
Period Start Value ($) End Value ($) Return (%) Return (%) S&P (%)
P1 176,345.01 165,202.05 -5.84 -2.84 -5.12
P2 165,202.05 102,931.04 -2.62 -11.23 -3.97
Tenure 176,345.01 102,931.04 -8.30 -13.73 -3.97
13Activision Blizzard (ATVI)
Sector: Communications Services
Fund Manager: Myles Terry
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 29,021.25 24,948.75 -14.03 -
P2 24,948.75 - 20.40 -
Tenure 29,021.25 - 3.50 -
P2 Actions: Sold 375 shares for $30,037.50 on 03/14/2022. No dividend payments during this period.
Holding Description:
Activision Blizzard is a leading global developer and publisher of interactive entertainment content and
services that was founded in 1979. It is headquartered in Santa Monica, CA and Robert “Bobby” Kotick is
its CEO. It operates mainly in the U.S. It is the biggest producer of video games in the world, with the
biggest of its franchises, including World of Warcraft, Overwatch, Candy Crush, and Call of Duty. It offers
many different categories such as action/adventure, action sports, racing, role-playing, simulation, first-
person action, music-based gaming, and strategy. Activision offers games on mobile, console, and PCs
while owning an esports league dedicated to Call of Duty. It offers digital advertising within its content.
Positive Drivers:
On January 18th, Activision announced a planned acquisition by Microsoft. The $68.70B deal values
Activision at $95.00 per share. This move takes the heat off Activision’s falling share price due to the many
lawsuits it has been facing and the delays for some of its big title games. This is the biggest acquisition in
the history of the video game industry and is set to help Microsoft expand offerings on its Xbox Game Pass.
Activision has a long history with Xbox, so the transition and synergies will likely be relatively smooth.
Negative Drivers:
Activision was once again hit with a lot of legal complications in P2. Soon after it announced its acquisition
through Microsoft, reports came out detailing that there was some alleged insider trading before the
announcement was made. Film and music executive David Geffen, broadcasting executive Barry Diller,
and Diller’s stepson Alexander Von Furstenberg spent $180.00M on call options just four days before the
announcement.1 The U.S. began probing a meeting between Kotick and Von Furstenberg, claiming that
Kotick may have leaked information about the acquisition during breakfast the week of the announcement.
In addition to this probing, Activision shareholder Kyle Watson called the acquisition unfair and filed a
lawsuit against them with the claim that the acquisition was not in the best interest of the company’s long-
term future but rather benefitted the officers and directors of Activision. 2 He also accused them of failing
to hire an independent committee worthy of processing the sale. Four Senators also asked the FTC to
investigate the acquisition claiming that its success could undermine employee-led efforts to hold
Activision’s leadership accountable. This accountability refers to lawsuits involving sexual misconduct and
unfair labor practices. CEO Kotick is set to receive a golden parachute and a way to avoid accountability
for the culture that Activision has created under his authority. All the factors and lawsuits listed above could
be detrimental to Activision’s attempt to put itself under Microsoft’s supervision if the FTC decides that
the acquisition is unlawful. The combination of the alleged insider trading, Watson’s lawsuit, and the
Senators’ pleading may cause Lina Khan and the FTC to deny Microsoft’s acquisition of Activision. Given
the assumed drop in share price this would cause, the fund decided to eliminate our exposure in Activision.
14Comcast Corporation (CMCSA)
Sector: Communications Services
Fund Manager: Myles Terry
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 32,103.82 28,889.42 -9.57 0.45
P2 28,889.42 - -5.88 0.45
Tenure 32,103.82 - -14.86 0.89
P2 Actions: Sold 574 shares for $27,046.88 on 3/25/2022. Total dividend payments of $143.50 during
this period.
Holding Description:
Comcast is a global media and technology company that provides media and television broadcasting
services for customers worldwide. It is based in Philadelphia, PA, operates in all 50 states, and also does
business in Europe (mainly the UK, Italy, and Germany). It offers video streaming, television programming,
high-speed Internet, cable television, and communications services.
Positive Drivers:
Comcast had a strong Q4 earnings report where they reported rises in revenue and profit due to its profitable
broadband customer base. The pandemic drove lower customer churn rates due to needing internet services
at. Comcast’s revenue at its NBC segment grew 26.00% due to growth in attendance at its theme parks, and
Peacock, its streaming service, saw a 4.50M increase in monthly active users over the past several months.
This year’s Super Bowl saw an audience of 112.30M people, which was a 16.00% increase from last year’s
numbers. Over 99.00M of those people were on NBC’s broadcast. NBC sold out of their 30-second
advertising spots, which went for $7.00M each. Over 70 spots were sold, and more than 30 of them were
to new advertisers.
Negative Drivers:
In P2, Comcast’s NBC broadcasted the Winter Olympics, which has historically low ratings. NBC saw an
average of 12.30M viewers a night on its broadcast, which is down from the 23.00M it saw during the
Olympics four years ago. This resulted in less ad revenue and lower ad rates as well. In addition, some
reports have come out concerning Comcast’s broadband growth. It reported an addition of 212.00K internet
subscribers in its Q4 report, which is lower than the 221.00K estimate. In addition, telecommunications
companies such as AT&T and Verizon have recently been coming out with fiber-optic internet services to
combat industry leaders like Comcast in obtaining new broadband subscribers in the upcoming years. Fiber-
optic services are superior to the cable internet services that Comcast provides in the sense that it is faster,
more reliable, and more symmetrical in their upload and download speeds. Although it takes a while to set
up due to its expensive nature, there will be newer broadband customers who prefer fiber optic services
over the services Comcast provides. There is also satellite internet with companies such as StarLink and
Viasat paving the way. Although it does not have the same capabilities as fiber-optic and cable broadband,
it is more widely available in rural areas that have little to no connectivity. Such areas have not been reached
by its cable and fiber-optic counterparts. The fund liquidated all shares in Comcast due to changing trends
within the broadband industry and declining high margin businesses.
15Communications Services Select Sector SPDR Fund
(XLC)
Sector: Communications Services
Fund Manager: Myles Terry
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 67,853.17 65,794.96 -2.84 0.20
P2 65,794.96 58,256.66 -11.23 0.22
Tenure 67,853.17 58,256.66 -13.73 0.41
P2 Actions: Held. Total dividend payments of $146.29 during this period.
Holding Description:
XLC is an exchange-traded fund that is traded in the U.S. It tracks the Communication Services Select
Sector Index. It invests in U.S. companies that do business in the industries of diversified
telecommunication services, wireless telecommunications, media, entertainment, and interactive media and
services. Its fund managers are Karl Schneider and Kala O’Donnell. Its top 3 industry groups are Internet
(53.37%), Media (19.23%), and Telecommunications (13.91%). Its top 3 holdings in terms of weight are
Meta Platforms (19.88%), Alphabet (22.82% - made up of both class A and class C), and Netflix (4.59%).
It also rebalances quarterly, and the median market cap of its holdings is $211.00B, with an average market
cap of $562.00B. It also has an average dividend yield of 1.12%.
Positive Drivers:
Research suggests that the advertising campaign spending rebound will look to continue into 2022, with
many advertising agencies looking to expand their organic revenue by 3.00-5.00%. In addition, many
people are shifting their lives closer to online as research suggests that many employees are would rather
work from home4 and an increased number of consumers are shopping online5. This will increase the
spending of global online advertising which should help companies like Google and Meta who make money
through companies generating ads on their platforms.
Negative Drivers:
Reports have been coming out that suggest that large-cap stocks will be seeing more volatility throughout
2022 as rate risk continues, inflation remains high, and the economy constricts due to these economic
drivers. Since XLC consists primarily of large-cap stocks, the thought that they will see major volatility
does not bode well. This especially goes for growth stocks such as Meta and Google, companies that XLC
is heavily invested in. The Federal Reserve has been tightening its policy, and the multiples of growth
companies are dropping as a result. The Fed will continue to tighten until inflation has been cooled, so these
growth companies will have to brace for that in 2022. The start of the Russian-Ukraine war has made worse
an already damaged global supply chain which is causing prices to rise for necessary commodities like gas.
This affects the communications services stocks, which mainly offer products that people pay for after they
have paid for all of their necessary products to live. Meta had its worst day on record and dropped more
than 25.00% on February 3rd after its earnings report showed a drop in daily Facebook users and the impact
of Apple’s new privacy measures.3
16Verizon Communications (VZ)
Sector: Communications Services
Fund Manager: Myles Terry
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 47,366.77 45,568.92 -2.61 1.18
P2 45,568.92 44,674.38 -0.73 1.18
Tenure 47,366.77 44,674.38 -3.31 2.37
P2 Actions: Held. Total dividend payments of $561.28 during this period.
Holding Description:
Verizon is a telecommunications services company that provides Internet services, wireless services,
wireline voice, and data services, and published directory information. They operate mainly in the U.S. and
are headquartered in New York City. They serve individual consumers, government entities, and businesses
alike. They lead in 4G LTE performance and are making moves to expand their 5G network.
Positive Drivers:
Verizon’s new 5G services are providing the company with an expectation of 4.00% in revenue growth in
2024 and beyond. Verizon has spent billions of dollars on 5G technology, so an expected return has been
much needed for a while. In its Q4 report, Verizon posted earnings and subscriber growth that exceeded
expectations. Considering that it has been turning to discounts and giveaways to match offers from its
competitors, a good earnings report is a strong sign of optimism for Verizon. It also gave a full-year earnings
forecast that exceeded expectations which is a good sign that its heavy investment into 5G technology is
not killing its bottom line. Verizon saw wireless subscriber gains of 1.06M, with 558.00K of them being
phone customers. Verizon also launched a 5G service on a faster C-band frequency than what it had months
ago and has announced that it will start selling wireless home internet service to residential customers in
major cities across the U.S. This is aimed at getting cable users and those without landline alternatives to
jumping to its wireless services. Verizon also announced that it would be building a private 5G network for
BlackRock at its new Hudson Yards headquarters, which could be the making of a good business
opportunity for the asset management firm. It has even claimed that its 5G services can replace Wi-Fi and
give BlackRock access to applications that require instant network response time, such as virtual reality
and edge computing.
Negative Drivers:
In January, Verizon and AT&T agreed to temporarily delay turning on hundreds of their 5G cell towers
near U.S. airports. This deal would expand the areas near airports where 5G signals will not be allowed in
an effort to decrease the disruption they allegedly cause with an airplane’s landing system. This will limit
Verizon’s 5G reach and will hurt the customer’s view of its services as well. It also gives Verizon access
to fewer customers that may live relatively close to an airport. In addition to that delay, there is also some
concern that Verizon will not be able to keep up with the surge in new wireless subscribers it saw in 2021.
With it spending billions on 5G airwaves that will have to wait to be fully realized, coupled with it cutting
its margins to keep up with the competition, investors are becoming more worried about Verizon’s future
growth.
17Consumer Discretionary
Fund Manager: Andrew Campbell
P2 Analysis:
Overall, Consumer Discretionary stocks struggled in P2. This was likely the result of investors growing
worrisome over the conflict in Russia and Ukraine, as well as the Federal Reserve beginning to fight
inflation with its first interest rate hike since 2018.1 Consumer Discretionary stocks have historically been
more responsive to changes in the business cycle.2 When the stock market and economy perform well,
Discretionary stocks excel. The opposite is also true. As the S&P 500 declined 4.61% in P2, the Consumer
Discretionary sector experienced losses almost twice as severe (9.37%). The Haslam Fund’s Consumer
Discretionary stocks performed quite well. While losses are never ideal for the Haslam Fund, our
Discretionary holdings did outperform the sector. This is likely due to the fact that our selection of
Consumer Discretionary stocks is quite risk-averse. That is, we have chosen to invest in equities of larger
companies with more consistent demand. While Amazon and Dollar General are Discretionary companies,
they also have many characteristics of Consumer Staples. In P1, this led to us underperforming the sector
during an “upmarket.” Looking forward to P3, these conservative stock selections in the Discretionary
sector are compatible with our fund’s cautiously pessimistic outlook for the U.S. financial markets.
Moving Forward:
The most notable risk for Consumer Discretionary stocks right now as we move into P3 are changes in
consumer sentiment. The success of Discretionary companies largely depends on how people feel and their
willingness to spend more money on their disposable income. News headlines have constantly been
reminding people of the current war in Ukraine, inflation, higher oil and gas prices, and the possibility of a
recession. Investors briefly watched the two-year and ten-year treasury yields invert in late March, which
has historically been considered a “warning sign” of an economic downturn.3 As a result, consumer
sentiment is low. The University of Michigan Consumer Sentiment Index was reported at 59.40 at the end
of March; this is the lowest the index has been reported at since 2011. If consumers are concerned about
the economy and world conflicts, then they are more likely to save their money rather than spend it. This
typically leads to Discretionary companies announcing disappointing revenues and earnings. However, it
is possible that we have seen the worst of consumer worries. If the Federal Reserve can curb inflation
effectively in 2022 or if the war in Ukraine reaches an end, then sentiment could certainly rebound. It is
very likely that neither of these events will happen for some time, though, which does not bode well for
Discretionary stocks.
Weighting
S&P Sector Difference from
Period Start Value ($) End Value ($) Return (%) Return (%) S&P (%)
P1 141,840.28 149,423.62 5.43 14.09 -4.98
P2 149,423.62 143,978.28 -3.57 -9.37 -1.82
Tenure 141,840.28 143,978.28 1.66 3.41 -1.82
18Amazon.com, Inc. (AMZN)
Sector: Consumer Discretionary
Fund Manager: Andrew Campbell
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 85,411.04 86,692.84 1.50 -
P2 86,692.84 84,758.70 -2.23 -
Tenure 85,411.04 84,758.70 -0.76 -
P2 Actions: Held. No dividend payments during this period.
Holding Description:
Amazon.com, Inc. has a complex, unique business model. First and foremost, the company is an online
retailer. Amazon sells a wide variety of goods directly to consumers through its website. This generates
revenue for the company, as it charges vendors per unit fees and other additional costs to vendors who sell
their products through Amazon. Amazon also generates revenue from its online retail business by charging
consumers for shipping costs. In addition, Amazon manufactures and sells its own electronic products, such
as Amazon Echo speakers, Kindle Fire reading tablets, and more. Some other key facets of Amazon are the
company’s Amazon Prime and Amazon Web Services branches. Amazon Prime is a subscription-based
service for consumers which provides free shipping on orders, free media streaming rights, and other
benefits. Amazon Web Services (AWS) is an online cloud platform that helps provide computing and online
infrastructure for commercial customers.
Positive Drivers:
There are significant reasons to believe in the success of Amazon as a company. The company is one of the
world’s largest brands. Its diversified revenue streams not only increase potential revenues but decrease the
risk for investors. Amazon’s AWS operations have been growing drastically since its inception and show a
lot of promise. Furthermore, the company’s exposure to the grocery market also makes it attractive. The
Haslam Fund’s outlook for the domestic economy is currently cautiously pessimistic. Amazon’s exposure
to staples like groceries should provide stability even if the S&P 500 suffers losses in P3. Amazon has
begun to capitalize on its position in the daily lives of consumers by raising the price of its annual Amazon
Prime subscription for families by $20.00.4 If Amazon continues to raise the prices of its other products and
services, the company should continue to grow.
Negative Drivers:
Since a large portion of Amazon’s business is delivering goods directly to consumers, Amazon is more
impacted by lingering supply chain issues than other companies. Amazon has the second largest workforce
out of any corporation in the U.S. The tight labor market in the United States affects Amazon more than
just about any company. Amazon has staved off labor unions’ efforts in the past by offering its workers
quite reasonable pay and benefits. The company currently reports that its starting full-time pay in the U.S.
is $18.00 an hour.5 However, as we enter P3, the Haslam Fund will need to watch if the company will be
further impacted by rising wages, as workers maintain strong negotiating power.
19Dollar General Corp. (DG)
Sector: Consumer Discretionary
Fund Manager: Andrew Campbell
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 56,429.24 62,730.78 11.37 0.20
P2 62,730.78 59,219.58 -5.42 0.20
Tenure 56,429.24 59,219.58 5.34 0.40
P2 Actions: Held. Total dividend payments of $111.72 during this period.
Holding Description:
Dollar General Corp. owns and operates over 17,000 discount retail stores across the U.S. Dollar General
stores are spread mostly across the South, East Coast, and Midwest. The discount store chain targets mostly
smaller, more rural markets since 75.00% of its stores come from towns of 20,000 people or fewer. This
allows the chain to compete on both price and convenience. The most notable products sold at Dollar
General stores include food, pet food, beauty products, and cleaning products. 80.00% of the chain’s
revenues come from consumable goods. Recent moves by the company include DG Fresh and p0pshelf.
DG Fresh is the company’s new line of fresh produce for consumers to buy, helping expose Dollar General
to the grocery industry. Additionally, p0pshelf is a small chain of retail stores across the South which sell
home goods, toys, kitchen appliances, and other similar products. This has helped Dollar General expand
into selling more non-consumable products.
Positive Drivers:
Dollar General has done a respectable job navigating supply chain issues and managing its costs well as it
met earnings benchmarks in its Q4 (1/29/2021) earnings release, despite missing revenues targets. 6 As
mentioned in prior reports, Dollar General has invested significantly in expanding its reach with new stores.
Investors are still waiting and hoping to see these investments pay off. The company announced that it was
increasing its forecast for 2022 annual revenues, which encouraged investors. 6 Dollar General also
announced a higher dividend to be paid on April 19th.
Negative Drivers:
Dollar General missed its revenues targets in its most recent earnings report, meaning that new investments
are unlikely to pay off as quickly as hoped.6 Same-store sales also dropped, meaning that individual stores
are seeing consumers spend less. This is likely due to Dollar General’s target market. Dollar General has
made a reputation for opening discount stores in small, rural towns mostly. As a result, most Dollar General
shoppers are less affluent and thus more affected by inflation. As prices continued to rise in P2, it seems
that Dollar General buyers had to cut their discretionary spending budgets, as they paid more for gas and
other essential goods.
20Consumer Staples
Fund Manager: Andrew Campbell
P2 Analysis:
Like most sectors, consumer staples suffered losses in P2. While the S&P 500 decreased 4.61%, Consumer
Staples only decreased 1.15%. Therefore, Consumer Staples outperformed the market. The Haslam Fund’s
selected equities in this sector performed even better, with a positive return of 4.79%. Our stock selection
proved to be excellent in P2 by generating a positive return in a down market. Much of this was due to
Kroger’s stock having an excellent period, posting a return of 26.12%. Staples are expected to be far less
cyclical than other sectors and to have consistent positive returns. Our selected Consumer Staples equities
met this expectation in P2.
Moving Forward:
Consumer Staples companies face many of the same threats that most of the market faces moving forward.
The Russian-Ukrainian war has led to higher prices for oil and gasoline. Higher energy costs will impact
Consumer Staples companies as they will continue to experience higher costs associated with shipping their
goods to stores and keeping their factories and distribution centers heated and running. Staples companies
also rely more on unskilled workers than in other sectors like IT, Real Estate, and Financials. Thus, the
tight labor market provides more pressure on Staples companies to pay their workers a reasonable living
wage in order to maintain their workforce and productivity. The Haslam Fund’s outlook for P3 is cautiously
pessimistic. Thus, the performance of our Staples equities is vital, as we are expecting this sector to
outperform the market once again. Being overweight in Consumer Staples and having our money invested
in companies with strong brands should pay off in P3 if the Haslam Fund is correct about what to expect in
the stock market.
Weighting
S&P Sector Difference from
Period Start Value ($) End Value ($) Return (%) Return (%) S&P (%)
P1 134,239.72 147,967.05 10.62 12.76 1.61
P2 147,967.05 121,259.64 4.79 -1.15 2.51
Tenure 134,239.72 121,259.64 15.90 11.47 2.51
21The Kroger Co. (KR)
Sector: Consumer Staples
Fund Manager: Andrew Campbell
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 23,530.26 26,341.32 12.47 0.52
P2 26,341.32 - 26.12 0.52
Tenure 23,530.26 - 41.70 1.04
P2 Actions: Sold 582 shares for $33,098.34 on 3/25/2022. Total dividend payments of $122.22 during
this period.
Holding Description:
The Kroger Co. operates a chain of 2,740 retail grocery stores across the United States. These stores span
35 states. Of these 2,740 locations, approximately 1,600 of these stores are also accompanied by Kroger’s
own gas stations. As a retail grocery store, Kroger buys produce, nonperishables, cleaning goods, etc., from
vendors and sells it at a markup. In addition to this, Kroger also manufactures its own store-brand goods,
which it sells in its grocery stores.
Positive Drivers:
Kroger has an excellent yet simple business model. The company grew sales by 7.50% in its most recent
earnings release.7 Kroger also beat earnings targets.7 The company is also diversifying its business model
by delivering groceries directly to consumers and by expanding its online pickup service. Also, the Staples
sector outperformed the S&P 500 as investors were worried in P2 and flew to less cyclical investments; this
market sentiment certainly benefited Kroger’s stock. Kroger also benefits from its exposure to the oil and
gasoline industries via its 1,600 fuel centers. Also, the company announced on its March earnings call that
it would be investing more in new stores and distribution centers in 2022, which provides growth
opportunities for the company.8
Negative Drivers:
Kroger has focused much of its attention on growing its online sales through its partnership with Instacart
and through its online pickup options. Some analysts are worried that these business opportunities are not
as profitable as Kroger’s traditional model since online buyers may buy less than they would if they were
physically walking through the store and handling products themselves. Also, costs are much higher with
Kroger’s online model, as workers must fulfill and deliver orders themselves. Another major concern with
Kroger is its inability to capitalize on rising gasoline prices. Kroger’s business model includes discounting
gas prices for their loyal customers who use their fuel points. As a result, though prices are rising, Kroger’s
gas margins are very low. Lastly, Kroger has to spend more on labor than it has historically because of the
U.S.’s inflationary environment and tight labor market. Kroger faced a labor strike in Colorado with 8,000
workers in its King Sooper stores early in 2022; the company ultimately had to meet the union’s demand. 9
Kroger announced that it currently pays its full-time employees an average of $22.00 per hour after
factoring in employee benefits.8 Furthermore, the company is also trading at high price to book and price
to earnings multiples when compared with itself historically. Ultimately, the Haslam Fund managers agreed
to sell our Kroger position in order to realize profits from its high capital gains and to avoid all of the above
risks.
22The Procter & Gamble Co. (PG)
Sector: Consumer Staples
Fund Manager: Andrew Campbell
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 34,950.00 40,895.00 17.63 0.62
P2 40,895.00 38,200.00 -6.06 0.62
Tenure 34,950.00 38,200.00 10.54 1.24
P2 Actions: Held. Total dividend payments of $217.45 during this period.
Holding Description:
The Procter & Gamble Co. sells several name-brand household consumer goods. Some of its notable brands
are Tide laundry detergent, Crest toothpaste, Old Spice soap, and Bounty paper towels, among others.
Procter & Gamble typically sells its goods through retail, wholesale, and drug stores, rather than directly to
consumers. P&G has five main sectors of its goods. They are Fabric and Home Care, Feminine and Family
Care, Beauty, Health Care, and Grooming. P&G targets a wide scope of consumers in more than 180
countries. Procter & Gamble also has operations in more than 30 countries. Although it sells to many
consumers, its top 10 customers make up 40.00% of revenues. Procter & Gamble’s largest customer is
Walmart.
Positive Drivers:
Procter & Gamble’s biggest strength is likely its branding. Because Procter & Gamble sells quality, well-
known brands of consumer goods, the company is able to price its products above lesser-known or store-
brand goods. In early 2022, Procter & Gamble reported that the company had been able to push rising prices
off onto consumers, even as shipping and input cost increased.10 This is because P&G’s strong branding
resonated so much with individual consumers that people were willing to pay the premium for the perceived
higher quality. This ability is a tremendous asset to the company. This is even more notable as wages rise
and many workers have even more income to spend at the grocery store. Another key strength for Procter
& Gamble is the company’s strong growth. P&G has seen revenue growth of 7.28% and EPS growth of
12.49% over the last year. Both of these numbers put it above other major competitors like Unilever,
Colgate-Palmolive, and Kimberly-Clark. This growth is very impressive for a company as large as Procter
& Gamble.
Negative Drivers:
The biggest risk facing Procter & Gamble right now is how the company would perform in the event of a
recession. In theory, as a consumer staple, P&G could see more new investors if the U.S. entered a
recession, as people flee to safer stocks in which to invest. On the other hand, P&G currently trades a
slightly higher price-to-earnings ratio than its key competitors, which is risky in the event of a recession.
Also, consumer sentiment generally drops in the event of a recession. This could lead to consumers
becoming more frugal in the supermarket and turning to less expensive substitutes for P&G products.
Ultimately, if P&G cannot continue to push its rising costs onto consumers, then this jeopardizes the success
of Procter & Gamble in P3 and beyond.10
23Tyson Foods, Inc. (TSN)
Sector: Consumer Staples
Fund Manager: Andrew Campbell
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 31,576.00 34,864.00 11.00 0.58
P2 34,864.00 35,852.00 3.36 0.58
Tenure 31,576.00 35,852.00 14.71 1.17
P2 Actions: Held. Total dividend payments of $184.00 were received during this period.
Holding Description:
Tyson Foods is one of the largest meat suppliers in the U.S. Tyson typically sells to grocery retailers and
wholesalers rather than directly to consumers. In addition to raw poultry, beef, and pork, Tyson also makes
pre-cooked/frozen meals. Approximately one-third of all of Tyson’s revenues come from beef, one-third
comes from chicken, and the remaining third is from pork and frozen meals. Tyson Foods raises chickens
itself in its own hatcheries and production centers, but the company does not raise cattle itself. Rather,
Tyson buys beef and most of its pork from other suppliers. In addition to its stronghold in the United States,
Tyson also sells to 140 different countries across the globe.
Positive Drivers:
Tyson Foods has benefited greatly from being able to foster consistent demand for its meat products. Even
as prices have risen, Tyson has continued to maintain steady revenues.11 This is especially helpful for the
company as the U.S. could potentially be entering a recession in the next 18 months. While people often
cut their spending budgets during recessions, people are most likely to move to buying off-brand products
or using coupons first. Consumers are unlikely to cut meat out of their diet completely. This leads to
consistent performance for Tyson and other similar companies. This strength was reflected in Tyson’s most
recent earnings release. Tyson Foods reported earnings of $2.87 per share, while some analysts were
predicting earnings of $1.93 per share.12 The company also reported that its suppliers were able to increase
volumes of both chicken and beef in order to meet high market demand.12
Negative Drivers:
One threat that arose during P2 was the threat of a bird flu epidemic in the United States. Various flocks in
Kentucky, Virginia, and other states tested positive for bird flu.13,14 Most notably, a number of chickens at
Tyson’s largest processing plant located in Fulton County, Kentucky, tested positive for bird flu. As a result,
the company had to isolate the birds that were infected, separate, and kill them. 13 This, of course, led to the
company having to take a loss on those birds. Furthermore, news headlines about this event and other cases
likely alarmed some consumers, despite federal officials assuring consumers that there was no chance of
infected birds reaching the supermarket.13 In summary, the current bird flu epidemic presents a large liability
for Tyson Foods with regard to financial performance and public perception of the company’s products. If
Tyson can push larger costs associated with this bird flu epidemic onto customers, then this may not be
much cause for worry in terms of revenues. Rising costs have been a major concern, though, as Tyson
Foods and some of its competitors have been accused of price gouging.
24Walmart, Inc. (WMT)
Sector: Consumer Staples
Fund Manager: Andrew Campbell
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 44,183.46 45,866.73 3.81 -
P2 45,866.73 47,870.17 3.31 0.40
Tenure 44,183.46 47,870.17 7.25 0.40
P2 Actions: Held. Total dividend payments of $177.52 during this period.
Holding Description:
Walmart’s main store model is a discount retail store. This store sells groceries and merchandise, which
includes a wide variety of items from tech to children’s toys to apparel. In addition to this, there are also
Walmart's “Neighborhood Markets” (which are smaller and focus on groceries) and Supercenters (which
are massive stores that offer an even wider variety of goods for customers to purchase). Outside of the
Walmart name, the company also operates Sam’s Club wholesale stores. These stores are paid membership
only and operate similarly to a Costco store. Walmarts in the U.S. make up about 65.00% of the company’s
sales. 20.00% come from international stores (mostly in Canada, the U.K., South America, and Asia).
10.00% comes from the company’s Sam’s Club stores. Walmart supplies its store by stocking and shipping
from its 210 distribution centers. In addition to selling goods from other vendors, Walmart also makes its
own products under brand names it has developed. For food products, these goods are sold under the “Great
Value” name.
Positive Drivers:
Walmart is a successful company because of its diversified revenue streams. Not only is the company’s
main model a one-stop store for the everyday consumer, but the company’s exposure to gas stations,
wholesale markets, and financial services also helps give it stable demand. If the U.S. enters a recession,
the stock market is still likely to reward Walmart for its stability. Analysts tend to agree that Walmart is a
buy. Out of all analysts listed on Bloomberg, the company has a 78.60% “buy” rating and a 0.00% “sell”
rating. Most analyst target prices are well above what Walmart’s stock closed at the end of P2. In P3, the
Haslam Fund hopes that the market will see a large correction for Walmart, leading to high returns for this
position. A large reason for Walmart posting a positive return despite the S&P 500 having a “down” period
in P2 was Walmart’s financial performance. The company grew its quarterly EPS by approximately 10.07%
from the previous year, beating analysts’ targets.16 Walmart also grew its shareholder dividend.16
Negative Drivers:
Walmart suffers many of the same risks that Kroger does. It is imperative that Walmart finds a way to
capitalize on rising oil and natural gas prices at its fuel centers. It is also important for the company to
manage costs associated with its online shopping options. Online pickup and grocery delivery provide a lot
of opportunities for Walmart to reach new customers, but the company must be sure not to allow higher
labor costs associated with these models to cut too deeply into the company’s margins. Lastly, as the U.S.’s
largest private employer, Walmart is at risk of paying its workers higher wages. In fact, the company
announced in March that it planned to hire 50,000 new associates in the immediate future. 17 Walmart will
need to offer their employees a competitive wage in order to attract workers it needs to function and grow.
25Energy
Fund Manager: Jackson Long
P2 Analysis:
In P2, the Haslam Fund’s Energy holdings slightly underperformed those of the S&P 500. We were slightly
underweight compared to the S&P 500, with a weighting difference of -0.82%. Our holdings returned
33.66%, yielding significant position returns. However, we were also slightly behind the sector as a whole,
which saw returns of 38.99% over the period. These returns were pushed higher by the Energy sector
volatility created by Russia’s invasion of Ukraine, as shown in the spiking oil prices over the past few
months. With countries around the world either weaning their demand for Russian energy or cutting it out
entirely, there have been concerns over international supplies, which at one point pushed the price of WTI
crude over $120.00 per barrel.1 These concerns have only been exacerbated by OPEC’s refusal to increase
output, which would help to ease the volatility in the markets.2 Without the help of OPEC, Europe has
looked into the option of importing more oil and gas from the United States, which would help our holdings
benefit due to their exposure to midstream operations. Increased production would create more demand for
midstream services, which would create exciting opportunities for Energy Transfer LP.
Moving Forward:
As we move into P3, we believe that the Energy sector will continue to see uncertainty. As the European
Union attempts to move away from Russian oil and gas, we should see demand ramping up for American
alternatives. However, there will be a lag between demand and exports actually hitting the mark that has
been set, creating uncertainty in the meantime. On the one hand, the Energy Secretary has called on oil and
gas firms to increase production in order to boost exports 3 but the White House has also created a task force
focused in part on decreasing global demand for natural gas.4 While the current administration pushes for
abandoning oil and gas, the impacts of these efforts will likely not be felt for several years, which is why
we believe that the impact of rising U.S. production will provide tailwinds for the Energy sector in P3 and
in the coming years.
Weighting
S&P Sector Difference from
Period Start Value ($) End Value ($) Return (%) Return (%) S&P (%)
P1 14,497.50 36,869.85 -3.79 7.88 -0.29
P2 36,869.85 48,486.27 33.66 38.99 -1.34
Tenure 14,497.50 48,486.27 28.10 49.42 -1.34
26Energy Transfer LP (ET)
Sector: Energy
Fund Manager: Jackson Long
Period Start Value ($): End Value ($): Return (%): Dividend Yield (%):
P1 24,066.35 22,179.85 -7.84 -
P2 22,179.85 48,486.27 25.32 1.83
Tenure 24,066.35 48,486.27 19.54 1.83
P2 Actions: Bought 1,638 shares at $10.31 on 03/11/2022. Total dividend payments of $471.63 during
this period.
Holding Description:
Energy Transfer LP is a diversified company within the Oil and Gas Midstream industry that operates in
the United States. Energy Transfer’s pipelines are concentrated in Texas along with its oil pipelines and oil
stabilization facilities, but its broad network of interstate pipelines extends through many other states. The
company operates from the following segments: Intrastate Transportation and Storage, Interstate
Transportation and Storage, Midstream, NGL and Refined Products Transportation and Services, and Crude
Oil Transportation and Services. Energy Transfer also has exposure to downstream operations thanks to its
2012 purchase of the controlling stake of the motor fuel distribution firm Sunoco, Inc. Having exposure to
crude oil, natural gas, liquid natural gas, natural gas liquids, and motor fuels helps the firm reach into
different industries as a midstream provider, opening Energy Transfer to more sources of revenue and
helping to diversify the firm’s cash flow sources.
Positive Drivers:
In P2, we decided to increase the Haslam Fund’s holding in Energy Transfer LP. This decision was made
for several reasons, including the exposure that the firm has to terminals along the coast. 5 With two
terminals on the East Coast and two more in the Gulf of Mexico, we believed that Energy Transfer was in
a good position to benefit from increasing domestic production of oil and gas. Energy Transfer also operates
oil pipelines, which allows them to benefit from rising prices outside of natural gas. We also expected their
downstream operations to experience stronger cash flows in the face of rising gas prices. All of these reasons
contributed to the decision to pick Energy Transfer when we streamlined our Energy sector holdings, and
they are reasons that we remain bullish on the firm moving forward.
Negative Drivers:
Energy Transfer, like any Energy firm, is susceptible to the impact of interest rates on its cash flows. While
this threat has been outweighed by the growth expectations around rising energy demand, it could still pose
a risk to Energy Transfer’s cash flows moving forward, which in turn could impact the returns of our
holding as the market takes this shift into account. Energy Transfer could also potentially miss out on
growing midstream demand, which would make it less attractive compared to peers.
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