AIM Class of 2016 has two more months to generate alpha in the Small Cap and International Equity Funds

January 2016 Performance of AIM Small Cap and International Equity Funds

The AIM Class of 2016 has been managing the two funds since April 2015 and after ten months have had many interesting learning experiences. With two months left to manage the AIM Small Cap and International portfolios, the students are seeking to add alpha during their tenure.

Small Cap Fund

January 2016 was a good month for the fund – generating 70 bps of alpha over the benchmark (Russell 2000 Index).

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The healthcare, utilities, information technologies and telecommunications sectors generated solid returns, while the energy and materials sectors continued to produce disappointing results.

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Since the AIM Class of 2016 has been managing the small cap fund they are 65 bps below the benchmark (-17.07% vs. -16.42%). With two more months to go, the students are hopeful that they will be able to overcome the large relative return deficit that was incurred during the summer. With each student conducting one more equity analysis this semester, they are optimistic they will be able to generate a positive alpha for the Marquette endowment.   

The AIM Class of 2016 has been managing the two funds since April 2015 and after ten months have had many interesting learning experiences. With two months left to manage the AIM Small Cap and International portfolios the students are seeking to add alpha during their tenure.

International Cap Fund

January 2016 generated -27 bps of excess return versus the benchmark (Russell Global ex US Index). The AIM International Fund was off 7.25%, while the benchmark was off -6.98%.

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The utilities and telecommunications sectors generated solid returns, while the consumer discretionary sector was disappointing. Two automotive related holdings (Delphi and Mobileye) dropped by more than 25% during January.

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Since the AIM Class of 2016 has been managing the international equity fund they are 177 bps below the benchmark (-15.54% vs. -13.77%). With two more months to go, the students are hopeful that they will be able to overcome the large relative return deficit that was the result of the emerging market underperformance. With each student conducting one more equity analysis this semester, they believe they will be able to generate a positive alpha for the Marquette endowment.   

Make A Difference - Wisconsin visited Marquette's AIM Program on Friday, January 29, 2016

Make A Difference - Wisconsin and AIM are working on a partnership

On Friday, January 29, 2016, Rachel Kauer and Patrick Rorabeck of Make A Difference–Wisconsin visited the students in the AIM program. Make A Difference – Wisconsin is an organization dedicated to empowering teenagers with financial literacy educational resources and real-world lessons. 

Through a network of volunteers (including students in Marquette University’s AIM program), MAD-Wisconsin has been tirelessly working to build stronger communities in southern Wisconsin by helping teens become ‘money smart’.

Over the past decade, Make A Difference – Wisconsin programs have evolved and grown into a series of successful, measurable and timely lessons that prepare 16-to-18-year olds on a range of real-life money matters before they enter adulthood. 

This school year MAD-Wisconsin plans to reach more than 8,000 students through their vision of improved teenage financial education shared by 700 dedicated volunteers, more than 85 schools and youth organizations, and thousands of community-minded supporters.

Rachel Kauer, Make A Difference - Wisconsin

Pat Rorabeck and Rachel Kauer in the AIM Room

Meeting with the AIM students was Rachel Kauer (Program Manager at Make A Difference – Wisconsin), who is responsible for connecting high schools in need of financial literacy programming with experienced volunteers from the business community in presenting their interactive Money Sense program. 

Using an activity-based curriculum, and adding to it real-world stories and experiences, volunteers have been successful in bringing to life key concepts such as budgeting, saving and credit. The result is measurable behavioral change, leading to a brighter future for our youth.

Patrick Rorabeck (Program Director) also presented information about a possible partnership between Make A Difference – Wisconsin and the AIM program.  He focuses on MAD-Wisconsin’s Money Coach program, which focuses on establishing savings goals, life goals and preparing teens to transition to living independently as a young adult. 

Mr. Rorabeck has identified areas where the AIM students can work to help create an ‘Investments 101’ module that can be layered on to the MAD-Wisconsin curriculum. 

Joanne Wycklendt

Over 30 students attended the MAD-Wisconsin / AIM program open house at Marquette – and the response rate of likely volunteers was impressive. Special thanks to Joanne Wycklendt (a current AIM program student) for her efforts with Make A Difference and in arranging for this opportunity.

We will work with MAD-Wisconsin this semester to establish an afternoon where students from a local high school can visit the AIM program. We will provide them with an opportunity to learn more about Marquette University and our students decision to study finance. It is expected that the event will take place on a Friday afternoon this April. (Stay tuned for further details).

Four AIM students pitched stocks in the AIM Room before their peers (and on the web)

First AIM Presentations of the Spring 2016 Semester

On Friday, January 29, 2016, four AIM students in the Class of 2016 pitched stocks. In addition to over 50 students attending the pitches in the AIM Room, their presentations were viewed on-line via a webcast by more than a dozen alumni across the country.

#AIMpitch Twitter feed

These presentations also included something new: micro-blogging (via Twitter). During the AIM student equity pitches on Friday more than 20 questions and comments were posted at #AIMpitch. 

The presenting students have the opportunity to respond to the questions over the weekend before the students vote on whether or not to add the stocks.

The AIM student equity pitches have always been one of the main highlights of the program. The opportunity for students to actively manage domestic and international equity and fixed-income portfolios has been an important part of Marquette AIM program’s experiential learning since its inception in 2005.

The AIM students who presented on Friday included:

• Avery Flyte (Buffalo Wild Wings,  BWLD,  Consumer Discretionary)
• Dan Kralovec (Medidata Solutions, MDSO,  Healthcare)
• Travis Mantel (Prudential Plc, PUK, International Financial Services)
• John Grant (WNS Holdings, WNS, International Industrials)

Avery Flyte, Dan Kralovec, John Grant and Travis Mantel

  Their AIM equity write-ups can be accessed at:http://business.marquette.edu/centers-and-programs/aimp-student-equity-write-ups. Copies of all student presentations since the inception of the AIM program can be viewed at the AIM web site.

Viewing the AIM Program Student Equity Presentations on Friday, January 29 at 3:00 pm CST

First AIM Student Equity Pitches of the 2016 Spring Semester

The AIM student equity pitches take place each Friday afternoon during the semester – either in the AIM Room or at a local investment company. The students prepare and distribute a professional equity write-up (note: every AIM write-up since the inception of the program in 2005 is archived here). This week’s equity write-ups can be found at:

http://business.marquette.edu/Content/Uploads/AIM/equity-writeups/1-26-16.pdf

The students are responsible for making a five-minute pitch before their peers, faculty and any alumni or investment professional in attendance (note: the Friday afternoon equity presentations are also webcast live - see below on how to join the webcast).

Following the student’s pitch the floor is opened for questions and answers for about ten minutes. This has been highly instructive as the students must be prepared to defend their investment recommendation and answer questions in an extemporaneous manner.

How to view the AIM Student Equity Presentations on January 29, 2016:

Webcast Link: https://meet77796088.adobeconnect.com/r1n8y17obal/

How to comment using Twitter:

• Go to the MarquetteAIM Twitter account (you can use Search Twitter on your site) and click Follow
• During AIM presentations, go to #AIMpitch and follow the tweets (discussion) on Twitter (it will also be appearing on the Rise Display Board in the AIM Room and on your smartphone)

• 

  Click here to go to AIM Twitter

  Tweet your comments and questions during the AIM equity pitches
  • Follow the rules of etiquette for using Twitter during AIM pitches
  • Use the hashtag #AIMpitch to start each tweet
  • Use $TICKER (note: this is called a cashtag and it be should the unique ticker/symbol for the stock that is being presented, ex: $TSLA)
  • Keep you comment short because each tweet is limited to a maximum of 140 characters
  • Example for Tweeting on a student’s Tesla equity pitch (note: the ticker for Tesla is TSLA):
    •  #AIMpitch $TSLA How do lower gas prices impact demand for electric cars?

29th AIM student update by Dylan Harkness: Agree Reality Corp. (ADC, $35.15) This REIT should still be a winner in 2016 - even with rising rates.

 

ADC (Agree Realty Corp.): Do We Agree on Agree?

By: Dylan Harkness, student at Marquette University

 

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

• Agree Realty Corp. (ADC) is a real estate investment trust, which focuses on the ownership, development, acquisition and management of retail properties net leased to national tenants. It specializes in acquiring and developing net leased retail properties for industry leading retail tenants.

• ADC’s reduced shopping center exposure should be seen as a positive.

• The record setting acquisition pace seen in 2015 should continue throughout 2016.

• Their small team organization results in a hands on approach to sourcing deals.

• Occupancies in the net-lease sector are now above prior peak levels – and are close to 100%.

Agree Realty Corp. (NYSE:ADC) should still be considered a winner in this rising interest rate environment. The company has successfully transformed itself from a conventional shopping center REIT into one of the market’s top performing triple-net lease players. Recently the company announced two shopping center divestitures, North Lakeland Plaza (171k sq ft) for $13.2 million and Ferris Commons (170k sq ft) for $5.8 million. Throughout 2015, the company acquired 73 retail net lease properties for a total purchase price of $220 million. The weighted average cap rate of the acquisitions was 8% and the properties have remaining leave terms of 12.2 years. The company has provided 2016 acquisition guidance of $175-$200 million of retail net lease properties with similar yields. The company’s small team and expertise in single tenant net lease developments allows for the company to source unique acquisition opportunities that may have some extra work to do (lease restructuring, entitlement issues, environment, build to suit, etc.). By doing this the company is able to generate higher initial yields. Currently, the company is basically the only player that integrates added value by a development arm to coincide with growth by acquisition. Across the net lease sector, fundamentals are above prior peak levels with occupancies close to 100%. Even in the event of an economic downturn, the long term lease durations should allow the sector to remain profitable throughout various economic cycles.

What has the stock done lately?

Since the Federal Reserve decided to raise interest rates in December of 2015, ADC has seen a 5.8% increase in stock price ($34.8). This is a positive indicator that the rising interest rate environment will not have such a dramatic effect on REITs - as many individuals believe.

Past Year Performance: ADC has increased 19.5% in value over the past year, but the stock is still a deal. During the past 52 weeks, ADC’s shares have traded in a range of $27.74-$36.15. The dips can be attributed to the slump in August and the uncertainty leading up to the Fed’s decision to raise interest rates.

 

Source: FactSet

My Takeaway

With the young management team’s hands on approach, along with ADC’s expected pipeline for 2016, it should be expected the company will continue to grow into a REIT giant. The management has successfully transformed the portfolio into a high quality, investment grade net lease portfolio with little to none near term lease expirations and an above par balance sheet. If you need convincing about the management, look at the way they handled the Borders’ bankruptcy and the divestiture of a struggling tenant, Kmart. In short, we agree that Agree should be held throughout 2016!