1. Report to the Chief Investment Officer
At Close 06.3.2016
Haw River Financial
Adam Iskandar
Augustus Corwin
Hamzah Karimi
Stephen Folwell
Taran Casper

2. Overview
1) Week In-Review
2) Performance Summary and Holdings
3) Summary of Activity
4) Outlook
Week In-Review
Employment
New non-farm payroll jobs only grew by 38,000 this month. The number accounts for the
smallest growth since 2010 and the worst start for average growth since 2009. The number was well
below what was forecasted level of 158,000. The number also displays a slowing of growth over time
with the last three months seeing an average growth of 116,000 and the year prior seeing an average
growth of 219,000. This job report has driven down the chance of a June interest rate increase by the
Central Bank. The odds of a June rate increase fell from 21% last month to 4% this month.
Housing
As mortgage rates decline new homes sales rose in April’s annualized rate to 619,000 (shown in
Figure below), the highest reading since January of 2008, along with upward adjustments of 39,000 to
two previous months. This massive 16.6% percent surge on the monthly report is the largest since
January 1992. This new homes sales report results in an increase in the FHFA house price of 0.7%
outdoing predictions. Mortgage applications for the May 20 week increased 5% as purchase applications
are 17% higher than this time last year. These increases across the board indicate continuing strength

3. for a housing market that has been very strong as of late. Median home sales are also reaching record
highs, reaching $321K in the last reporting period. These great numbers can be attributed to a strong job
market that shows no signs of slowing down.
Energy
Oil prices continue their resurgence, climbing to $49 which matches the price from November of
last year. Demand for gasoline remains high, while distillate demand decreases slightly from last week’s
report. Overall inventories are down 4.2 million barrels for crude oil, up 2 million barrels for gasoline,
and down 1.3 million barrels for distillates. The EIA Natural Gas report shows a similar trend and a
continuation of the increases we’ve seen over the past few weeks, up another 71 billion cubic feet, to
2,825 bcf 36.5% higher than this time last year. Lastly, the Baker-Hughes North American Rig Count
continues its steady decline, dropping another a rig on the past week, however the slowing of these
losses can be attributed to the revived oil prices as producers may be trying to re enter the market.

4. Performance Summary and Holdings:

5. Comments: As shown above, daily and total return have both stabilized within the past two
weeks to be much closer to the IVV, and finished the last week slightly overtaking it.

6. Rel
ativ
e
Vol
atilit
y -
Vari
anc
e at
Clo
se -
6/3
Evaluative Metrics - Measured From Close - 6/3
Evaluative Metrics
Risk Free Rate (Daily Adjusted) 0.000073
Average DSR (Daily Simple Return) 0.002249
Standard Deviation 0.011977
Sharpe Ratio 0.1817
Covariance (portfolio,IVV) 0.000133

7. IVV Variance 0.000034
Beta 0.887
Comments: Our volatility has dropped this past week following our returns to be much closer to the
benchmark’s value, though it remained above. Our diversification into foriegn markets via shorts, as well
as exiting from highly volatile gold etfs aided in this. Risk adjusted return relative to last week’s value is
higher 5%. The beta value also improved to indicate lower volatility than the market for our portfolio.
Correlation - From Close - 6/3
GSG IYC IEZ HEWJ HEZU IVV
GSG 1 - - - - -
IYC 0.15381 1 - - - -
IEZ -0.38509 -0.953513 1 - - -
HEWJ 0.871091 0.00278319 -0.12993 1 - -
HEZU 0.085844 -0.9653495 0.843588 0.154776 1 -
IVV 0.440618 0.95251161 -0.99165 0.234567 -0.84193 1
IVV Portfolio
IVV 1 -
Portfolio 0.042644 1
Comments: IEZ correlation with GSG is negative as seen above, which is notable given GSG is highly
invested in Oil and oil supply sectors. This week's correlation with the benchmark is much lower,
compared to last week’s value..
Summary of Activity:
Detail of Transactions:
- No transactions were completed during this period. All assets were held from week open to
close.

8. Explanations of Transactions/Actions:
- GSG - Our original entry thesis for this asset was based on the draw of commodities as a slightly
more stable area of investment compared to equities. This remains an important draw for us.
Events like a potential rate hike and the recent labor market report caused caused shocks, and
in both cases our GSG asset value was affected relatively minimally. With Janet Yellen scheduled
to speak the next week, we made the decision to remain in this commodities ETF in order to
buffer against events. Due to its relative stability, and to avoid transaction costs in this last
week, we plan to sell shares of this asset only if we see a strong downturn being indicated, but
this is not likely. If only a slight change is seen, we will hope that it will hold its value better.
- IYC - Our faith in strong economic growth was the initial reason for entry into this asset, as well
as seasonal factors since summer consumption should strengthen it. As the recent drop in the
investment market from the Fed’s rate hike talk showed, this asset is highly sensitive to market
expectations, though this also yields higher returns when expectations are good. We remained
in the asset because we predicted continuing strength, thanks to the Fed’s announcement of a
rate hike implying the same thing. But, given the last weeks labor report, and the Fed’s new
plan, we will be watching closely this week for the Fed’s new assessment. If it remains less
positive than before, we intend to decrease investment in this asset.
- IEZ - We continue to believe in overall upward pressures on oil prices as overall oil supply
continues to shrink. This is based on the thesis that current low prices will discourage oil
producers to open new wells until the conditions improve. We predict this to spill over to our
asset value as well. The June 1st report on decreased oil inventories bolsters this belief. But
given it is relatively volatile as well, and the price rise is on a relatively long term horizon, we
intend to leave the asset if the share price falls to 0.5% lower than the buying price later in the
week.
- HEWJ - Last week, we considered going long on this ETF despite previously shorting it, based on
a prediction the Japanese economy would weaken. We decided to wait on that call after seeing
an early-week spike, holding our short position and fortunately seeing a nearly 6% plunge in
HEWJ. Weak borrowing demand in Japan’s turbulent economy led to Japanese Government
Bonds seeing a 5.5% decrease in April, with reserves rising 3.4%, according to a Bloomberg
report published today. We will continue to monitor the situation in Japan to see if the delayed
consumption tax plan and negative interest rates implemented by Prime Minister Shinzo Abe
will have any real effect. If we see Japanese economic indicators such as consumer sentiment
and benchmarks for their equity market showing weakness, we may consider shifting to a long
position or leaving altogether.
- HEZU - Our belief that the Eurozone economy would weaken due to the ability of a possible
British exit from the EU. Due to the Fed showing confidence in the US economy by announcing a

9. rate hike, positive ripples were sent to multiple connected foreign economies. This is what we
believed was the primary reason for HEZU’s growth for part of last week. DUe to the size of the
loss, we held our asset with hopes that it would regain some value is it rebounded from the
positive sentiment shock. This proved effective. We will continue to watch factors surrounding
the Brexit scenario and the fiscal policy of the ECB (they have been favoring lower interest rates
lately, but this may change). To accommodate for another possible rebound, given our
remaining investment term is fairly short, we intend to leave if the price continues to rise into
tomorrow morning, and shift to a long position.
Outlook:
We wrote in our previous week's outlook that the easing of the UK Brexit situation combined
with a newly expected Fed rate hike would increase investor confidence in the Eurozone. The Brexit
situation remains uncertain from last week, and a there is no surefire way of predicting what will
happen when the referendum to leave the European Union goes to a vote on June 23rd. However, the
Brexit isn’t the only thing impacting the European market. We saw a sharp downturn in Eurozone ETF
HEZU after a grim U.S. Employment Situation report was released last Friday. Given this is likely another
expectation based shock, we intend to watch the price closely. If it shows signs of rapid growth over
time early on, we will likely leave. If it seems to stabilize at a low value, we may leave the short in place.
We are less optimistic that a near future Fed rate hike will happen. Job growth saw its weakest
performance in nearly six years in May, and the Fed Gov. Lael Brainard indicated they weren't in a rush
to raise rates. We will be watching Chairman Yellen's speech tomorrow to see exactly how she plans to
mitigate the May employment downturn, which will almost certainly not include the implementation of
a June rate hike. This surprised investors, as "Only a few days ago, analysts thought Fed Chairwoman
Janet Yellen would use her speech in Philadelphia Monday to put the final exclamation point on the U.S.
central bank’s plan to hike interest rates on June 15. With the Fed no longer raising the interest rate, as
well as the negative labor market report, faith in the economy will likely fall and with it market values
within this week. We intend to watch closely to both factors and consider leaving or decreasing shares in
our more volatile ETFs, mainly IYC and IEZ, which are more closely affected by market outlook factors.
(MarketWatch)".
While Senator Bernie Sanders has been largely counted out of the Democratic Nomination for a
few months now, there has been a strong rally around his candidacy going into Tuesday’s six state
primaries. His nomination is considered by many to be mathematically impossible. However, new
rumors of changes of allegiance among superdelegates are starting to pick up, and Sanders is neck-and-
neck with Clinton in California. We will be monitoring Tuesday’s results to see if Clinton does “lock up”
the nomination. If she does, Clinton and Trump’s polarizing views on foreign trade will come into play
and certainly impact the market. In the case of a Sanders win, shorting something like the iShares Global

10. Financials ETF, which focuses on financial institutions, would prove valuable as Sander’s is very
outspoken in his war against Wall Street.