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Portfolio & Risk Report

February 2019 Issue | Released monthly

Authors & Editors: VP of Investments, Aman Regmi

VP of Finance, Denis Karmalita

Finance Associate, Aron Goldenberg

Finance Associate, Rohan Shah

Finance Associate, Tony Tran

March 8th, 2019


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Important Information
This report is a monthly update on the performance of York Trading Club’s Long Equity Fund (‘York
Trading Club Principal Fund (Class A)’). York trading Club is a ratified student club at York University.
Our goal is to provide practical knowledge and awareness in the field of finance and investments.

Investing in the types of equities referred to in this report involves several risks, including loss of
capital, illiquidity, lack of dividends and dilution, and it should be done only as part of a diversified
portfolio. For more information about the risks of investing, please read our disclaimer.

The performance statistics stated in this report refer to the past, and past performance is not a
reliable indicator of future results. All of our returns reflect paper returns, which means that while
they show the notional performance of investments based on market activity. The do not necessarily
reflect the cash returns that could be achieved if the relevant financial instruments were traded.

All tax treatment referred to in this report depends on individual circumstances and may be subject
to change in the future.

York Trading Club does not provide legal, financial or tax advice of any kind and nothing in this report
constitutes such advice. If you have any questions with respect to legal, financial or tax matters, you
should consult a professional adviser.

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Investment Overview & Performance

York Trading Club Principal Fund Overview (Class A)

Performance
Return Since
Monthly Return 5.96% 4.68%
Inception

YTD Return 9.26% Annualized Return –13.59%

% of Positive
Excess Return –1.21% 75.00%
Months (Last 4)

Risk

Maximum 9.26% 1.19


Beta
Drawdown
Annualized SD 6.73% Treynor Ratio 3.64

Sector Exposure (Feb 2019)

ETFs 26%
Retail - Food 17%
Consumer - Discretionary 15%
Consumer - Cyclical 15%
Retail - Consumer 6%
Energy 6%
Paper and Related Products 6%
Consumer - Non-cyclical 5%

Communications 4%

0% 7.5% 15% 22.5% 30%

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Paper and Related Products Consumer - Non-cyclical
6.0% 5.0%

Energy Communications
6.0% 4.0%

Retail - Consumer
6.0%
ETFs
26.0%
Sector Exposure -
Consumer - Cyclical Feb 2019
15.0%

Consumer - Discretionary Retail - Food


15.0% 17.0%

Bio Telemetry Inc. Dominos


$3,663.50 $2,507.30

Under Armour Dave & Buster's


$2,286.00 $2,589.50

California Resources Corp. Baidu


$4,748.00 $3,241.80

ETSY Inc. CanadaGoose


$3,638.50 $3,686.50

S&P 500 ETF


$19,628.70
Portfolio Breakdown
Cash
- Feb 2019
$28,397.73

Floor & Decor Holdings


$7,730.00

International Papers Loblaw Companies Ltd.


$4,908.09 $12,978.00

Best Buy Inc.


$4,678.89

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 York Trading Club Principal Fund (Class A) Holdings - As of February 28, 2019
Market Price (Feb Price (Feb
Symbol Company Name Exchange Sector P/L % P/L $
Value 1) 28)

Loblaw Companies
L Ltd. TSX Retail-Food $12,978.00 $63.63 $64.89 0.0198 $ 252.00

BBY Best Buy Inc. NYSE Retail-Consumer $4,678.89 $59.24 $67.81 0.1447 $ 591.33

International Paper and


IP NYSE $4,908.09 $47.43 $45.87 -0.0329 $ (166.92)
Papers Related Products

Floor & Decor Consumer-


FND Holdings NYSE Discretionary $7,730.00 $34.29 $38.65 0.1272 $ 872.00

SPY S&P 500 ETF NYSE ETFs $19,628.70 $270.06 $280.41 0.0383 $ 724.50

Consumer-
ETSY ETSY Inc. NASDAQ Discretionary $3,638.50 $54.65 $72.77 0.3316 $ 967.50

California
CRC Resources Corp. NYSE Energy $4,748.00 $20.87 $23.74 0.1375 $ 574.00

Consumer,
UAA Under Armour NYSE $2,286.00 $20.79 $22.86 0.0996 $ 207.00
Cyclical

Consumer, Non-
BEAT Bio Telemetry Inc. NASDAQ cyclical $3,663.50 $72.02 $73.27 0.0174 $ 62.50

Consumer,
DPZ Dominos NYSE $2,507.30 $280.10 $250.73 -0.1049 $ (293.70)
Cyclical

Consumer,
PLAY Dave & Buster's NASDAQ $2,589.50 $47.52 $51.79 0.0899 $ 213.50
Cyclical

BIDU Baidu NASDAQ Communications $3,241.80 $164.50 $162.09 -0.0147 $ (48.20)

Consumer,
GOOS CanadaGoose TSX $3,686.50 $76.02 $73.73 -0.0301 $ (114.50)
Cyclical

Cash $28,397.73

Portfolio Value

$104,682.51
$100,000.00 $100,406.41

$86,968.00
$83,174.89

Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019

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This past month of February was a month full of earnings announcements for the markets. The S&P
500 rose by upwards of 10% heading into February. York Trading Club’s trading strategy is focused on
a short term trading horizon, thus we trade based on event-driven plays and earnings. Over the past
month, our fund has accumulated a total gain of 5.96%. This provides an annualized return of
100.31%. Our fund’s performance was stronger than the market over this period, given that the S&P
500 grew by 2.97% in February. This is simply due to our earnings-based trading philosophy and
several successful earnings announcements. Our returns can once again be credited to the
performance of Loblaw Companies Limited (TSX: L) which has gained 23% since we opened the
trade. Loblaw appreciated on strong Q4 earnings and its guidance was increased by management
going forward. Best Buy Co. (NYSE: BBY) on the other hand appreciated 14% after a strong holiday
performance and Q4 earnings announcement. ETSY Inc. (NASDAQ:ETSY) has been our most
successful trade since inception with a 33% gain in just one month. ETSY appreciated on strong
earnings, raised guidance and added revenue from higher vendor fees. We also have a large position
in the S&P 500 ETF (NYSE: SPY) for hedging purposes.

Closed Positions
On the other hand, we did not exit any positions in February. January saw a lot of volatility with
improved US-China trade talks pushing up the major financial markets with small waves of declines
due to the same trade tensions. Additionally, no stop losses in our positions were triggered
throughout the month. A majority of our positions including Loblaw (TSX: L), Best Buy (NYSE:BBY),
ETSY (NASDAQ:ETSY), and many others have reported strong earnings throughout the month and
continue to show positive momentum thus we have not exited any of these positions.

New Positions
While January was a dormant month for our portfolio, we managed to open several positions through
February. Some positions include Under Armour (NYSE:UAA), Dave and Buster’s (NASDAQ:PLAY) and
Baidu (NASDAQ:BIDU). We experienced a very strong series of stock pitches submitted by our
associate team through this month with almost every pitch reflecting a good trade. A majority of
these trades were geared to profit from upcoming earnings at the time they were submitted and have
delivered good results since.
Portfolio
Market Entry
Symbol Company Name Exchange Sector Allocati
Value Price
on

California
CRC Resources Corp. NYSE Energy $4,174.00 $20.87 4.17%

UAA Under Armour NYSE Consumer, Cyclical $2,079.00 $20.79 2.08%

Consumer, non-
BEAT Bio Telemetry Inc. NASDAQ Cyclical $3,601.00 $72.02 3.60%

DPZ Dominos NYSE Consumer, Cyclical $2,801.00 $280.10 2.80%

PLAY Dave & Buster's NASDAQ Consumer, Cyclical $2,376.00 $47.52 2.38%

BIDU Baidu NASDAQ Communications $3,290.00 $164.50 3.29%

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Macro & Market Outlook

US Tariffs Update. In the recent months, the employment, the rate consistent with 2%
Trump administration has imposed numerous inflation. Wage growth should reach 3¼-3½%
tariffs on its major trading partners (China, in this environment, and firmer wage pressures
Canada, and Mexico) across various industries. coupled with additional tariff rounds should
During mid to late 2019, the adverse effects of boost core PCE inflation to 2¼% by end-2019.
the tariffs are set to become more visible in the History counsels that large labor market
overall marketplace. As goods intermediate overshoots raise recession risk down the road.
good will become more expensive (ex. Steel), For financial markets, this combination of less
companies will be forced to either increase growth, more inflation, and more rate hikes
prices or cut down on labour. As a result, than priced could be challenging. But a
companies are expected to slow down on meaningful deceleration next year would help
investments until the government fiscal policies to reduce the risk of eventually overheating and
start to become steady. (Dr. Daniel & Dr. could ultimately extend the life of the
Majumdar, 2018) expansion.

U.S. Technology Sector Outlook. In 2019, the China Outlook. The countries are currently in
cloud computing industry is expected to see a “bid-ask” which doesn’t seem to come to a
growth in demand as corporations across all comprehensive agreement in the near future.
i n d u s t r i e s a r e s l ow l y m ov i n g t owa r d s Uncertainty is high, and as a baseline we can
integrating cloud computing into their expect trade tensions to stay the same or
operations. Industry leaders are beginning to possibly escalate in 2019 which will affect the
understand the great value (ex. Improved real economy and financial markets. China has
efficiency & reduction of costs) cloud slowed quite sharply in 2018, on the back of
computing brings to their organization. Through slower credit growth and fears about a more
this integration, this will allow companies to damaging trade war.
focus on enhancing customer relations and
innovating, instead of investing capital into The typical “Catch-22” situation that Chinese
policymakers faced during previous economic
expensive specialized equipment (ex. Servers).
Consequently, industry leading cloud computing downswings is how to avert a sharp growth
hosts such as Amazon, Microsoft, Google, and slowdown without exacerbating the debt
buildup. Policy makers need to strike a fine
IBM are expected to see growth in this
particular revenue stream. (Sallomi, 2019) balance between averting a sharp slide in
growth and preventing a fast debt buildup to
GDP Deceleration. There is an expected eventually have a growth target “ 6.0 %- 6.5%”
economic growth slowdown in 2019 due to around an estimated growth rate of 6.2% by the
stabilization of the fiscal tariff which was a year end. The growth is expected to slow down
major contributor to US economy plugging the due to demographic he adwinds , cle ar
rates to 3.5%+ which will decelerate to 1.75% weakness in the economy over the past 6
potentially by end 2019. Robust job creation months even before actual export growth
should push the unemployment rate to 3% by showed any slowdown at all amid the trade
early 2020, well below our 4½% estimate of full dispute, and other growth constraints such as

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environmental, leverage and property price unless financial contagion rises sharply from
issues. here. Populist parties continue to gain
momentum beyond Italy, and governments in
PPI inflation is expected to be broadly stable at other EU countries are starting to adopt parts of
current level of around 3.3%, modestly below
the Euroskeptic rhetoric to address voter
the 2018 average which is close to 4%. Slower discontent regarding immigration and the
growth in China is generally associated with
economy. Migration is the lead cause in this
lower upstream inflation. A moderate level of oil growing populist sentiment. Anti-European
prices is another factor which put downward sentiment is also gaining influence in Eastern
pressures on PPI.
Europe, especially in Poland and Hungary. A
Gulf Tensions. Continued tensions between Iran disorderly Brexit also remains a risk, but
and Saudi Arabia, further fuelled by sustained parliamentary ratification before March 2019
U.S. sanctions on companies doing business remains our base case, which would put the UK
with Iran, have roiled the Iranian economy. More into a status-quo transition phase after Brexit.
recently, the disappearance of prominent Saudi
journalist, Jamal Khashoggi, has placed a
negative spotlight on the Kingdom. The U.S. has
moved closer to Saudi Arabia, other Sunni
states, and Israel as it becomes more
confrontational with Iran. Some potential
triggers that could further escalate the situation
include in a nuclear restart in Iran because of
U.S. withdrawal from the prior Iran nuclear deal.
The most apparent potential market implication
is the sensitivity of Brent crude oil on fears of
supply disruptions. Moreover, we may see
outflows in global risk assets if prominent Gulf
sovereign wealth funds are required to raise
cash.

European Outlook. Surprisingly, amid Brexit


deal uncertainties and economic turmoil, the
UK was able to still post a positive earnings
growth over January just shy of forecasts by 10
basis points. Consumer confidence across the
Eurozone however still in the negatives has
actually also improved. Inflation in this area for
January was also more positive than forecasted
hinting towards growth. Italy’s budget crisis
remains unresolved and we expect the Italian
economy to face a recession early next year.
Although the budget tensions might have to get
worse before they get better, we see the
economic spillovers from Italy as manageable,
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Recommendations
Equities suffered steep declines in most regions in 2018, especially in emerging markets. Stock
markets outside the U.S. are particularly attractive, whereas the S&P 500 is only slightly below fair
value. While valuation risk has been reduced as a result of the correction, rising interest rates and
firming inflation may restrain multiple expansion. Rapid earnings growth has contributed significantly
to the bull market of the past decade. However, earnings growth is expected to slow in the coming
year, as tailwinds from tax cuts fade, economic growth decelerates and profit margins come under
pressure. S&P 500 profit growth is forecast in the high single digits in 2019, down from the greater
than 25 percent increase in 2018. That said, stocks still offer decent upside under reasonable
assumptions, as long as earnings materialize as analysts expect.

As we could potentially be nearing the end of the cycle, investment associates are advised to seek
counter cyclical or defensive opportunities to tackle issues regarding the slowing down of economic
growth. Consumer discretionary spending may become suppressed as building permits and housing
prices decline across North America with a possibility of rising wages. Emerging market asset
classes, or even North American equities with a sizeable revenue exposure to the emerging market
may be susceptible to drawbacks. U.S. Dollar rally means emerging markets with dollar denominated
debt will be particularly squeezed.

Although the market is frothy, we recommend that investment associates continue to invest in good
opportunities regardless of sector. We believe that the global and U.S. economy still has some slack
and that the recession is not imminent. With current market conditions where they are after a
correction, equity prices are attractive and more names will be added to our portfolio. These
assumptions are based on the current economic state that we are in and likely will adjust our view in
the future based on new information and developments.

Disclaimer: all information present in this report is for educational and informational purpose only and without warranty of any kind. All
information present in this report represents only the opinion of the writers, which may be influenced by various factors. You are advised to
conduct your independent research and invest responsibly. Investing in markets may not be suitable for all investors, and investing in the
stock market has risks, with the possibility in which you could lose all your investment. Before making your investment decision, please
consult with your financial advisor. York Trading Club is not responsible for your losses, financial or otherwise, as a result of making
investment decisions.

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