Portfolio & Risk Report

January 2019 Issue | Released monthly

Authors & Editors: VP of Investments, Aman Regmi

VP of Finance, Denis Karmalita

Investments Associate, Shreya Kothari

February 14th, 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
–1.21% Annualized Return –13.59%
Inception
% of Positive
YTD Return 3.11% 33.33%
Months
1Y Return –1.21%

Risk

Maximum –4.58% 0.26

Beta
Drawdown
Annualized SD 5.43% Sharpe Ratio –0.63

Sector Exposure (Jan 2019)

Consumer Staples 15.63%

ETF 61.35%

Consumer Discretionary 23.02%

0% 17.5% 35% 52.5% 70%

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This past month of January was a historic
month for the financial markets. The S&P 500
rose by upwards of 10% just in the first month
of 2019. Our 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
loss of 1.21%. This provides an annualized
return of -13.59%. Our fund’s performance was
not in line with the market’s trend throughout
January. This is simply due to our earnings-
based trading philosophy and losses carried
over from December. However, with earnings
season coming up in February, our returns can
once again be credited to the performance of
Loblaw Companies Limited (TSX: L) which has
gained 26% since we opened the trade. Loblaw
appreciated on strong Q3 earnings and its
guidance was increased by management for the
holiday season. The stock has been
experiencing positive momentum going into Q4
earnings at the end of February. Best Buy Co.
(NYSE: BBY) on the other hand is our least
profitable stock sitting at an 8% loss. Despite
beating earnings after we entered this position
Best Buy’s stock has received negativity, due to
the uncertain retail environment and increased
competition in the e-commerce business from
Amazon. Going forward, it is important to note
that Best Buy reports earnings at the end of
February. We are positive that the earnings will
deliver strong results. With 18% higher Black
Friday foot traffic; Best Buy is signalling a
bullish case. Our position in International
Papers (NYSE: IP) has not experienced much
volatility, sitting at a 3% profit for the month. We
also have a large position in the S&P 500 ETF
(NYSE: SPY) and the S&P 500 3x reverse ETF
(NYSE:SPXS) for hedging purposes.
Company
Symbol Exchange
Name
ETSY ETSY Inc. NASDAQ
York Trading Club
Closed Positions
On the other hand, we did not exit any positions
in January. 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. While our
portfolio returns have moved in the exact
opposite directions compared to the month of
January, earnings announcements for our top
positions are coming up in February including
Loblaw’s (TSX: L) and Best Buy (NYSE:BBY).
Keeping risk management in mind, this will
heavily impact our portfolio in either direction
given the nature of the upcoming earnings.
New Positions
While January was a dormant month for our
portfolio, we managed to open a position in e-
commerce specialist ETSY Inc. (NASDAQ:ETSY).
This company was pitched early in the month by
one of our analysts and was receiving a lot of
attention from the investment community at the
time. This is because not only has ETSY raised
vendor fees, but has also seen increased traffic
and purchases on its website throughout the
holiday season according to the firm itself.
Valuation for this firm sits at a staggering 84x
earnings but we should not forget that its rival
Amazon (NASDAQ:AMZN) was once valued at
270x earnings.

Market Portfolio
Sector Entry Price
Value Allocation
Communicat
ions $2,715.00 $53.42 2.76%
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Macro & Market Outlook

Gulf tensions. Continued tensions between Iran
and Saudi Arabia, further fueled by sustained
U.S. sanctions on companies doing business
with Iran, have roiled the Iranian economy. More
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.
Gold Outlook. Gold prices represent the health
of the economy today where high prices are a
sign of an unhealthy economy and vice versa. In
2019, we can expect to see interplay between
market risk and economics growth. The dollar
strengthened, the Fed continued to hike
steadily while other central banks kept policy
accommodative, and the US economy was lifted
by the Trump administration’s tax cuts. Three
key trends: financial market instability,
monetary policy and the US dollar and structural
economic reforms are most likely to affect
demand for gold. In addition, continental
Europe continues to face internal turmoil.
France is grappling with social unrest; Spain is
fending off secessionism and fragile political
alliance, and Italy's populist government
continues to highlight the inherent instability of
the monetary union. Currently European gold-
backed RTFs had net inflow while a trend of
heavy US outflows reversed in Q4.
York Trading Club
North American trade: The new United States-
Mexico-Canada Agreement (USMCA) was
announced on October 1st as the successor
and replacement for the original NAFTA deal
enacted in 1994. This puts to rest some of the
more exaggerated fears of talks extending
through the U.S. midterm elections and
potentially leaving out Canada. Nonetheless,
the modernized version does have implications
on the $1.2tn in annual trade between the three
partners. As a whole, the North American car
industry could see further investment inflows as
the new deal has a provision now requiring 75%
of parts in a vehicle to be made in the region.
Moreover, Canada dodges the potentially
devastating “national security” tariffs on car
imports. Consumer firms, along with shipping
and e-commerce may benefit from an increase
in duty-free shopping limits.
European Outlook. The European economy
faces a range of risks in 2019 that could make
the outcome worse than we expect. 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, unless financial contagion rises
sharply from here. Populist parties continue to
gain momentum beyond Italy, and governments
in other EU countries are starting to adopt parts
of the Euroskeptic rhetoric to address voter
discontent regarding immigration and the
economy. Migration is the lead cause in this
growing populist sentiment. Anti-European
sentiment is also gaining influence in Eastern
Europe, especially in Poland and Hungary. A
disorderly Brexit also remains a risk, but
parliamentary ratification before March 2019
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remains our base case, which would put the UK
into a status-quo transition phase after Brexit.
Latin American Populism. Similarly, to Europe,
the rise of populism continues to be seen
around the world with specific concerns in Latin
America as several countries host elections.
Voters in Mexico and Brazil favor populist
candidates in upcoming elections. This reverses
a trend toward pro-business, technocratic Latin
American governments and could potentially
scare off foreign investors. A large number of
Venezuelan migrants entering neighboring
countries, adds further complexity to the
political environment. Expect a large number of
risk assets to fall on populist wins. Brazil will
likely be hit the hardest, given the biggest
spotlight it has on the dire need for structural.
GDP Deceleration. There is an expected
economic growth slowdown in 2019 due to
stabilization of the fiscal tariff which was a
major contributor to US economy plugging the
rates to 3.5%+ which will decelerate to 1.75%
potentially by end 2019. Robust job creation
should push the unemployment rate to 3% by
early 2020, well below our 4½% estimate of full
employment, the rate consistent with 2%
inflation. Wage growth should reach 3¼-3½%
in this environment, and firmer wage pressures
coupled with additional tariff rounds should
boost core PCE inflation to 2¼% by end-2019.
History counsels that large labor market
overshoots raise recession risk down the road.
For financial markets, this combination of less
growth, more inflation, and more rate hikes
than priced could be challenging. But a
meaningful deceleration next year would help
to reduce the risk of eventually overheating and
could ultimately extend the life of the expansion
York Trading Club
China Outlook.
The countries are currently in “bid-ask” which
doesn’t seem to come to a comprehensive
agreement in the near future. Uncertainty is
high, and as a baseline we can expect trade
tensions to stay the same or possibly escalate
in 2019 which will affect the real economy and
financial markets. China has slowed quite
sharply in 2018, on the back of slower credit
growth and fears about a more damaging trade
war.
The typical “Catch-22” situation that Chinese
policymakers faced during previous economic
downswings is how to avert a sharp growth
slowdown without exacerbating the debt
buildup. Policy makers need to strike a fine
balance between averting a sharp slide in
growth and preventing a fast debt buildup to
eventually have a growth target “ 6.0 %- 6.5%”
around an estimated growth rate of 6.2% by the
year end. The growth is expected to slow down
due to demographic he adwinds , cle ar
weakness in the economy over the past 6
months even before actual export growth
showed any slowdown at all amid the trade
dispute, and other growth constraints such as
environmental, leverage and property price
issues.
PPI inflation is expected to be broadly stable at
current level of around 3.3%, modestly below
the 2018 average which is close to 4%. Slower
growth in China is generally associated with
lower upstream inflation. A moderate level of oil
prices is another factor which put downward
pressures on PPI.

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Recommendations
Performance and risk characteristics of the portfolio have been respectable. As we could potentially
be nearing the end of the cycle, investment associates are advised to seek counter cyclical or
defensive opportunities due tackle issues regarding 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.

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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