Saturday, January 20, 2018

Last week KFC Canada briefly accepted Bitcoin as payment for $20 bucket meals – demand was exceptional!

Add KFC Canada to the list of companies that is looking to capitalize on the frenzied interest in cryptocurrencies
KFC Canada, the fast-food retailer, offered to accept Bitcoins as payment for a $20 meal in a bucket last Thursday, only for a limited time. For a paltry 0.001156 bitcoin you got fried chicken - and sides.  Sound good? Well, the thought of using your bitcoin right now to buy chicken is moot - since the Bitcoin Bucket sold out on KFC's website in less than 30 minutes last Friday.

The Bitcoin Bucket, which included 10 tenders, waffle fries, a side, some gravy and a pair of dips, costed the going rate of the cryptocurrency at the time of the purchase (depending also on the exchange rate of $20 Canadian). That was the equivalent of about 0.001167 bitcoin at the time, but by the time your read this - $20 Canadian in bitcoin is likely to have swung wildly (up or down). Given bitcoin's meteoric rise and fall, however, buying chicken with that fraction of currency now could mean forfeiting value if the cryptocurrency's value skyrockets higher.
KFC says it plans to offer more bitcoin promotions, although it should be pointed out that fees associated with bitcoin transactions could double the price of the meal for some people.   
Given bitcoin's meteoric rise, however, buying chicken with that fraction of currency now could mean forfeiting value if the cryptocurrency's value skyrockets higher.

Motherboard pointed out it might not be the wisest idea to blow your Bitcoin stash on fast food:
  • In 2010, Laszlo Hanyecz spent 10,000 Bitcoin to buy two Papa John’s pizzas. That poor chap’s stash would be worth around $143 million today.  “It wasn’t like Bitcoins had any value back then, so the idea of trading them for a pizza was incredibly cool,”  he told the New York Times in 2013. “No one knew it was going to get so big.”

The cryptocurrency is already accepted by a range of major companies including Microsoft, Expedia.com, Overstock.com, as well as at a number of fast-food franchises globally. 
Like it or not --- cryptocurrencies are here!




Thursday, January 18, 2018

Dan Fuss, Distinguished Marquette Alumnus, Spoke at the CFA Society of Milwaukee Luncheon on January 17, 2018


This week Dan Fuss Presented his “4 Ps of the Bond Market” to the Milwaukee CFA Society

On Wednesday, January 17, 2018, the CFA Society of Milwaukee hosted its annual Dan Fuss luncheon event at the Milwaukee Athletic Club. Similar to past presentations, Mr. Fuss spoke about his “4 Ps” and gave his bond market outlook. Marquette's AIM program was again represented at the luncheon.
Mr. Dan Fuss with Marquette AIM students
 
 Daniel Fuss, CFA, is the vice chairman of Loomis, Sayles & Company and manager of the Loomis Sayles Bond Fund. He has won numerous awards for his outstanding performance as a fixed income manager and SmartMoney magazine in July 2008 called him one of the world's best investors. He earned his bachelors and MBA degrees at Marquette University and he is a former U.S. Navy lieutenant. Dan Fuss is one of the early supporters and advocates behind Marquette’s Applied Investment Management (AIM) program.




Wednesday, January 3, 2018

The Enormous Potential of Blockchain and Cryptocurrencies!

The Future of Blockchain and Cryptocurrencies Explained 
Dr. David Krause, Marquette University
January 2018

Image result for images duke campbell harvey
Campbell Harvey
In his Innovation and Cryptoventures class at Duke University, Campbell Harvey states, “Blockchain is a distributed ledger that provides proof of ownership and allows for the efficient, secure exchange of ownership. It is called blockchain because transactions are grouped together in blocks. Each block is cryptographically linked to the previous block. A public blockchain is transparent and distributed and anyone can put it on their computer. It requires no trust; however, you cannot change any entry in the blockchain. It is immutable.”

Avie Tevanian, tech-industry legend, recently was interviewed about blockchain and cryptocurrencies by Barron’s, “Many people say, ‘I don’t know about bitcoin, but I believe in blockchain.’ That’s a cop-out because most people still can’t explain blockchain. They don’t really believe in bitcoin, but want to say something positive about it. Yes, blockchain is a distributed public ledger, but what we’re really talking about is strong cryptography based on mathematics that is being used to create the distributed ledger of bitcoin transactions. Bitcoins don’t exist in a material way. Nothing is actually mined, computers are being paid in bitcoin for adding transactions to this distributed ledger.”

Tevanian continues, “So this is one of the world’s biggest collaborative math projects. But is it creating something of value?  We know that only 21 million bitcoins will be created. They have a value somewhere between zero and a very large number. Some people say bitcoin has no value; you can’t do anything with it. In fact, there are technical reasons why it doesn’t make sense to use bitcoin to pay for small transactions. But bitcoin makes sense as an asset for people who want to store a value of something that can be traded for something else in the future.”

Image result for images Avie Tevanian
Avie Tevanian
Continuing the Barron's interview, he said, “Say you don’t trust the banks or you’re worried about a natural disaster and want to have some cash available. Some people put cash in a mattress, or a safe. Or you can put it in something attributed to you that shows you have something of value that you can use in the future. The simple comparison is to gold, and it’s not a bad one. Gold is a store of value. Similarly, people can convert currencies or energy into bitcoin. This is what bitcoin miners are doing: using energy for mining, and being paid in bitcoin for their work. You can keep bitcoin safely from others, and transfer it without being easily tracked. These features can be put to use for nefarious but also good purposes. In due time—I don’t know if it is five years, or 10, or 20—bitcoin’s value will be extremely high.”

The interview continued, "You are assuming that people will come around to recognizing that the bitcoin database can be a store of value?  Tevanian responded, “Yes. They aren’t going to figure out the math, but they will figure out that the doomsday scenarios don’t make sense. Under one scenario, the government bans it. That can’t happen, although the government can tax and regulate it. But that only slows it down, allowing other countries to take better advantage of it. China has tried to clamp down on bitcoin by not allowing people to buy it, but China has the biggest bitcoin-mining operations in the world. If you want to buy bitcoin in China and can’t use your bank account to do it, you can buy energy and convert that to bitcoin.”

He further stated with Barron's, “Blockchain technology is separable from bitcoin. It has other uses that are just starting to take off. Blockchain could be used to record real estate titles, for instance. The information is public; it is securely encrypted, and you would have a permanent ledger of all real estate records. But it is probably too early to invest in blockchain.”

Bianco Research’s economist, Jim Bianco, recently posted on his blog, “The following is a simple explanation of the blockchain which we have heard and like. Right now anything put on the internet is a “copy.” That includes this post. Anyone can copy and paste an exact replica of it. This destroys intellectual property. The blockchain allows files to remain original without the option of being copied, but can be transferred when permission is granted via a distributed ledger and a private key (aka “the blockchain”). A cryptocurrency is just a different type of property that is unique to its owner and cannot be copied. Again, it can be distributed to other parties via the blockchain.”


Bianco suggests viewing the 2016 Ted Talk “How the blockchain is changing money and business” by Don Tapscott to better understand the basics of blockchain and the potential impact on the financial industry. 

He continues with an example of how the blockchain/bitcoin can save newspapers. “To explain in more detail, consider the following example. You write an article. You offer the first 50 words as a teaser. To read more, enter your private key and for some nominal fee of a few cents you can access the rest. There is no registration, no monthly fee, no passwords. It can be as effortless as reading it for free. In this example the author gets paid and is protected. The person that bought that copy cannot copy and paste it and send it to others via email. What they can do is “transfer” it to someone else. But then it is gone from their computer.”

Image result for jim bianco
Jim Bianco
Bianco wrote, “Currently, microtransactions like this are too expensive because the standard credit card swipe fee is 30 cents plus 2% of the transaction. The hope of a cryptocurrency is the fee for transaction payments is essentially zero. This happens because there is no intermediary (like a bank or credit card company) standing in the middle demanding payment.  This is what the internet is missing – a way to instantly and safely send a few pennies to someone without being charged an exorbitant fee.”

He continued, “Why will you happily pay 3 cents (or 5 or 10) to read an article? Think of all the monthly charges you pay for intellectual property. Start with video (cable, Netflix), then go to newsletters/newspapers (WSJ, NYT) and end with sites you pay for access (i.e., ESPN). If you are like many, you are overpaying, probably in excess of $300 or $400/month. The blockchain can help solve this by allowing sites to piecemeal out their intellectual property.”

According to Bianco, “This can also benefit content providers. When their work goes viral, they will get tens of thousands, or hundreds of thousands to pay them 3 cents. Netflix can allow users to stream video for 1 cent a minute. So when everyone says Netflix’s “Stranger Things” is really good, you don’t have to worry about setting up an account and password and entering a credit card. Just click your private key and in 2 seconds you start watching for 1 penny a minute. If you don’t like it after 25 minutes, turn it off and you’re out a whole quarter! By making things more efficient, users (like us) pay less and content providers (like Netflix and The NY Times) get a lot more. It restores the value of intellectual property and stops pirating.”

He concludes, “That is just one example of why cryptocurrencies/blockchain have so much potential. It can make transactions so much smoother and cheaper. This could fundamentally rewrite many business models, especially banking and financial services.”




***

Sunday, December 31, 2017

Preliminary Performance Report of the AIM International Equity Fund for 2017 – The Student Managed Fund Returned Nearly 23%

Marquette’s AIM International Equity Fund posted strong returns in 2017!

Marquette AIM students manage three funds. In a previous blog we reported on the oldest and largest portfolio - the AIM Small Cap Equity Fund. Both the AIM International Equity Fund and the Small Cap Fund had outstanding performance in the 2017 calendar year. 

The AIM International Equity Fund is more difficult to benchmark which is why two are reported below: the S&P ADR Index and the Russell Global xUS Index.

As the table below shows, the Marquette AIM International Equity Fund out-performed one the primary benchmarks for 2017. The 2-, 3-, and 5-year period returns lagged the benchmarks – which is in part to the performance of the US Dollar relative to international currencies.




(Click on any of the graphics to enlarge)



Additional risk-adjusted performance measures will be posted within the next week which will show strong risk-return performance for the fund over the past 10 years. The following charts are a quick snapshot of the Marquette AIM International Equity Fund as of 12/31/2017.






Preliminary Performance Report of the AIM Small Cap Fund for 2017 – The Student Managed Fund Exceeded the Benchmark by Over 10%

Marquette’s AIM Small Cap Equity Fund returned 24.9% in 2017!

Marquette AIM students manage three funds. The oldest and largest is the AIM Small Cap Equity Fund - which posted a preliminary total return of 24.91% for the 2017 calendar year. 

This represents a return of over 1000 basis points in excess of the primary benchmark – which is the Russell 2000 Index - which posted an impressive total return of 14.65% for the year.

As the table below shows, the Marquette AIM Small Cap Fund has now out-performed the primary benchmark for the past 1-, 2-, 3-, and 5-year periods.  The 10-year annualized return of 8.01% still trails the Russell 2000 Index.



(Click on any of the graphics to enlarge)


Additional risk-adjusted performance measures will be posted within the next week which will show strong risk-return performance for the fund over the past 10 years. The following charts are a quick snapshot of the Marquette AIM Small Cap Equity Fund as of 12/31/2017.







Monday, December 18, 2017

Forget Bitcoin - Here's the Marquette AIM Class of 2018 Stock Picks (as of 12/18/2017)

Top 20 Stocks Picks from the AIM Class of 2018

The AIM Class of 2018 has posted excellent stock returns over the past year. As a part of their final assignment of the semester, the students had to create a 10 stock portfolio and indicate their highest conviction stock pick. The follow list contains the top 20 stock picks (as of 12/18/2017) for the students in the AIM Class of 2018. We'll monitor this portfolio over the next semester versus the world stock index. Merry Christmas, Happy Holidays, and Happy New Year!



AIM Class of 2018 Stock Picks (as of 12/18/2017) Ticker Industry Sector Domicile
Albemarle Corp ALB Specialty Chemicals Basic Materials United States
American Woodmark Corp AMWD Home Furnishings & Fixtures Consumer Cyclical United States
Baidu Inc ADR BIDU Internet Content & Information Technology China
Bed Bath & Beyond Inc BBBY Specialty Retail Consumer Cyclical United States
Blackbaud Inc BLKB Software - Application Technology United States
BWX Technologies Inc BWXT Aerospace & Defense Industrials United States
China Lodging Group Ltd ADR HTHT Lodging Consumer Cyclical China
Chipotle Mexican Grill Inc Class A CMG Restaurants Consumer Cyclical United States
DBS Group Holdings Ltd ADR DBSDY Banks - Regional - Asia Financial Services Singapore
Gannett Co Inc GCI Publishing Consumer Cyclical United States
Healthcare Services Group Inc HCSG Business Services Industrials United States
Insulet Corp PODD Medical Instruments & Supplies Healthcare United States
Intercontinental Exchange Inc ICE Financial Exchanges Financial Services United States
KUKA AG ADR KUKAY Diversified Industrials Industrials Germany
Mastercard Inc A MA Credit Services Financial Services United States
Orbotech Ltd ORBK Scientific & Technical Instruments Technology Israel
Proto Labs Inc PRLB Tools & Accessories Industrials United States
Quidel Corp QDEL Diagnostics & Research Healthcare United States
Transportadora de Gas del Sur SA ADR TGS Utilities - Regulated Gas Utilities Argentina
Visteon Corp VC Auto Parts Consumer Cyclical United States

Click on the picture below for more detail.





A current AIM International Fund Holding: Astec, Inc. (ASTE) by Stephen Arcuri. "Cemented in Place"

                                 Astec, Inc. (ASTE, $53.75): “Cemented in Place”

By: Stephen Arcuri, AIM 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

Astec, Industries (NASDAQ: ASTE) is a global leader in the manufacturing of equipment and materials for asphalt road building, aggregate processing, oil, gas and water well drilling and wood processing, and other services. Astec offers over 220 products that help to service infrastructure and construction firms through three segments: the Infrastructure Group, the Aggregate & Mining Group, and the Energy Group. The company is headquartered in Chattanooga, Tennessee.

The Trump Administration’s failure to pass an infrastructure plan is directly correlated with Astec’s falling stock price. This looks more plausible post tax reform, but still remote.

America’s deteriorating infrastructure will provide a steady source of sales, but no near term catalyst.

Key points: The Trump Administration originally listed a trillion dollar infrastructure spending bill as one of their 100-day priority items. However, as the year has gone on and the legislative agenda has stalled and the incremental revenues that investors had priced in failed to materialize, Astec’s share price fell to a more realistic level. Confusion over what the plan will eventually look like makes pricing in any projects difficult. While Speaker Ryan proposed that for “every $1 of federal dollars, there [would be] $40 of private sector spending,” the President ruled out private-public partnerships.

Despite the lack of a national spending plan, American infrastructure is in need an upgrade; The American Society of Civil Engineers gave the United States a “D+”, or failing grade in 2017. This grade has remained little changed for the last 16 years, however, so there is little reason to believe that this report will have a meaningful change. While a real fix has yet to materialize, Astec is poised to continue to provide products to the firms working on these types of projects, and there is clearly enough work to be done.

What has the stock done lately?

Past Year Performance: Astec outperformed the Russell 2000 through most of 2016 as both presidential candidates discussed trillion dollar infrastructure plans that would have driven sales. Beginning in February, the realization that the spending would be a lower priority for the Administration caused prices to fall until they stabilized at their current price. A disappointing Q3 caused prices to fall almost 18% due to a disappointing quarter.

Source: FactSet

My Takeaway

Astec’s industry positioning gives them significant exposure to the kind of spending that would come out of an infrastructure plan. While tax reform will be a tailwind, it will not provide the same kind of price movement that sales growth would. Astec faces little downside risk and little upside without a bill to sign. It is worth review should the Administrations fiscal policies change in the coming months.

A current AIM International Fund Holding: IHS Markit (INFO) by Kevin Blank. "The Information Powerhouse"

IHS Markit (INFO, $45.13): “The Information Powerhouse”

By: Kevin Blank, AIM Student at Marquette University



Disclosure: The AIM International 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

IHS Markit (NASDAQ:INFO) delivers information services to over 50,000+ customers in business, finance, and government. The company was created in July 2016 in all stock merger between IHS Inc. and Markit and has become a global leader in critical information, analytics, and solutions for major industries and markets.

• INFO’s business model creates a cycle of profitable growth and reinvestment capacity through a recurring sales model, profitable incremental growth, strong cash flow, and multi-billion share repurchase capacity.

• Merger cost synergies over $125M provide financial flexibility for targeted investments to realize further value from assets. Projected EBITDA margin expansion into mid-40%.

• In the financial services sector, regulatory landscape, changing investment behavior, changing market structure, and technology advancement are contributing to overall sector opportunity. IHS Markit can strengthen and expand information, processing, and solutions offerings.

• Recent announcement of acquisition of automotiveMastermind (aMM) in Q3, expanding automotive segment.

Key points: IHS Markit maintains ~83% recurring revenue that delivers strong and resilient growth. IHS Markit reaffirmed 2017 guidance for revenue trending above high end at ~$3,560 million (~4% organic revenue growth) and adjusted EPS trending at midpoint ~$2.05. IHS Markit introduced 2018 guidance revenue ranging from ~$3,770 - $3,830 million and adjusted EPS ~$2.17 - $2.23.

Merger synergies are allowing IHS Markit to manage dilution and drive higher adjusted EPS and free cash flow per share. Since the merger, INFO has been able to return capital through an attractive share buyback program. IHS Markit is committed to continue the program in 2018 and beyond. INFO’s balanced revenue offers 4-6% long term organic growth.

Regulations, such as MiFID II, drive further investment in best execution, compliance, risk management, market data and data management. INFO is a leading pricing and index provider. INFO also offers platforms for derivatives, FX, and loan trade processing. INFO’s processing investment is delivering more for customers such as increased functionality and workflow tools. Expansion opportunities exist in the quality and scope of data allowing for more complete regulatory solutions. The financial industry has a need to solve regulatory requirements and reduce costs. IHS Markit has the expertise, technology, and proprietary data that enables best-in-class data delivery and solutions. IHS Markit is also a leading platform for economic and country risk analysis. Providing a global perspective in over 200 countries, from over 400 data specialists, economists, country risk analysts, and consultants across various industries.

The acquisition of automotiveMastermind (aMM) complements and strengthens IHS Markit’s automotive franchise. The acquisition enhances ability to improve organic revenue growth. AutomotiveMastermind provides auto dealers in the U.S. with online tools, predictive analytics, and marketing services to help drive new sales. This will expand IHS Markit’s automotive sales and marketing business from the OEMs to the dealer market and expands overall addressable automotive market. IHS Markit purchased 78% of aMM for $392 million and the remaining 22% to be acquired over the next five years based on a valuation tied to underlying EBITDA performance.

What has the stock done lately?

Over the past month, INFO has risen ~5.65% compared to the Russell Global ex US 1-month total return of 0.51%. There has been a clear recovery of the stock price after falling September 26, 2017 after beating Q3 EPS estimates by 7.5% and revenue beating 1.5%. The EPS surprise was driven by an aggressive buyback of $324 million worth of shares during Q3.

Past Year Performance:INFO has increased 28.09% year-to-date, compared to the Russell Global ex US total return of 25.07% YTD. The 52-week range is $34.20 - $48.53.

Source: FactSet

My Takeaway

IHS Markit is a leader in offering information, processing, and solutions diversified across industries and customers. Revenue breakdown from financial services (~34%), transportation (~26%), resources (~25%), and consolidated markets and solutions (~15%). INFO’s high margins and recurring revenue model is strengthened by the need for efficient and reliable information solutions. I recommend that IHS Markit remain in the AIM International Equity portfolio.


Source: FactSet