HCM News

As always, please call our client service team at (800) 592-7534 if youhave any questions.

Our representatives can also provide you with up-to-date information about your holdings and discuss any changes in your personal financial situation.

July 2016

Maryland Office

20 Wight Ave, Suite 155 Hunt Valley, MD 21030 (800) 592-7534

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Florida Office

169 Indian Mound Trail Tavernier, FL 33070 (800) 592-7534

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Market Review

Market Commentary

Portfolio Activity

Portfolio Discussion

HCM Managing Income

• Equity markets generally underperformed fixed-income markets with the S&P 500 climbing2.25% (including dividends; +3.84% YTD) and the Barclay’s Capital U.S. Aggregate Bond indexincreasing 2.46% (+5.31% YTD).

• Small caps outperformed large cap stocks (S&P 500) as the S&P 600 Small Cap Index returned+3.61% (+6.23% YTD).

• Growth outperformed value during the quarter but underperformed YTD (as determined bythe S&P 1500 broad market index which includes large, mid, and small capitalization stocks).

• Non-U.S. markets generally underperformed U.S. equity markets in both local currency and USdollar terms (MSCI EAFE**: -1.69% in USD; -1.05% in local currency; -4.04% and -6.84% YTD,respectively).

• Emerging markets outperformed non-U.S. developed markets (MSCI EAFE**) butunderperformed U.S. equity markets (in both local currency and USD) as the MSCI EmergingMarkets Index rose 1.14% in USD (+6.6% YTD).

• Japan was notable based on its weak performance during the quarter (-8.28%; -19.33% YTD).Brazil was notable based on its strong gain during the quarter (12.98%; 46.50% YTD). (Allquoted in USD).

• Most U.S. market sectors were positive during the quarter. Consumer Discretionary andTechnology stocks were most distinguishable given their weakness (-1.01% and -2.99%,respectively). Notably, Energy, REITs, Telecommunications Services, and Health Care werestrongest (11.44%, 7.50%, 6.84%, and 6.03%, respectively). Telecommunications Services,Energy, REITs, and Consumer Staples were the largest gainers YTD (+24.85%, +16.10%,+13.56%, and 10.46%, respectively) and Financials was the largest decliner (-3.05% YTD).

• The U.S. corporate bond sector rose 3.37% during the quarter (+7.04% YTD). High yield bondsgained 4.69% during the quarter (+8.73% YTD). 10-Year U.S. Treasury yields fell from 1.83% atthe beginning of the quarter to today’s 1.49% (2.28% at the beginning of the year).

• The U.S. dollar rose 7.48% versus the British Pound (+9.30% YTD), but fell 8.77% and 2.16%,respectively, versus both the Yen and the Euro (-14.72% and +2.27% YTD, respectively).

* Unless otherwise noted, performances stated above reflect data provided by Standard and Poor’s, Russell Investments, MSCI, and Barclay’s Capital.** The MSCI EAFE Index is a large capitalization, developed market benchmark that tracks non-U.S. or foreign equity markets.Past performance is no guarantee of future results. Indexes are not available for direct investment.

Market Review*

By Tim Hai, CFA®What’s Inside

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Bond Index climbed 2.46% during the quarter, perhaps conveying investor unease and desire for safety. Developed international equity markets trailed the S&P 500 in a flight to quality, falling 1.69% during the quarter. Emerging markets, which are typically thought to be more volatile than developed markets, posted better relative performance than most other non-U.S. markets (+1.14%) as lower interest rates globally (especially in the U.S.) are believed to allow for a continued, favorable investment climate.

What difference does a week make? On Friday, June 24, 2016, U.S. stocks (the S&P 500) fell nearly 3% as a majority of British voters passed a referendum to leave the European Union. Stocks would continue lower the following Monday, falling 5.3% during the two-day trading session. Fast forward to July 1, 2016 (a week later) and equity markets would bounce back with four consecutive days of gains and add back 5% from the week’s lows. Despite the volatility following the “Brexit” vote, the S&P 500 would fall a mere 0.50% for the full week period (see chart below with the blue line representing the S&P 500 return for the week).

The last week of trading did little to affect the S&P 500’s second quarter performance (+2.25%). However, the Brexit vote did have several secondary effects that rippled across multiple markets and sectors globally. The U.S. dollar had a historic climb relative to the British pound during the quarter (+7.48%). Interest rates as determined by the yield on 10-year U.S. Treasury bonds fell to 1.49% as investors collectively expect the local U.S. economy to remain pressured and as a result compel the Federal Reserve to leave interest rates unchanged or even lower them in the near future. U.S. bond performance as measured by the Barclay's Capital U.S. Aggregate

Market CommentaryBy Tim Hai, CFA®

Tim Hai, CFA® Portfolio Manager

Past performance is no guarantee of future results. Indexes are not available for direct investment.

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Market CommentaryContinued

As we have mentioned many times in the past (and will continue to do so in the future), we do not consider volatility as the main risk to be concerned with. We reserve that distinction for the risk of a permanent loss of capital (as from a premature sale of a security) or the risk of failing to meet one’s long-term investment/retirement goals. In fact, we view short-term market volatility as an opportunity to be exploited. We will continue to review each of these opportunities separately to determine if any changes or tweaks are necessary and can benefit our clients in the long-run. Please contact us if you have any question or concerns.

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Past performance is no guarantee of future results. Indexes are not available for direct investment. All investing involves risk, including the potential for loss of principal. There is no guarantee that any strategy will be successful.

NEW PURCHASES

Biogen, Inc. (BIIB)Biogen Inc., a biopharmaceutical (bio-tech)

company, discovers, develops, manufactures, and delivers therapies for the treatment of neurodegenerative diseases, hematologic conditions, and autoimmune disorders. The company has come to be known as a leader in the field of multiple sclerosis (MS) research (the company holds a 38% plurality of the $18 billion MS drug market), offering such drugs as TECFIDERA, AVONEX, and PLEGRIDY to treat relapsing forms of multiple sclerosis (MS); TYSABRI to treat relapsing forms of MS and Crohn’s disease; and FAMPYRA to improve walking ability for patients with MS. Shares of Biogen have fallen 36% over the past year and are off approximately 50% from all-time highs reached in March 2015. The company has encountered setbacks to its existing and pipeline drug portfolios, encountering an adverse currency scenario, and is trying to navigate through a period of heightened scrutiny of drug pricing strategies generally. We believe the company has a strong economic moat that at current prices offers an attractive discount to our estimate of intrinsic value which more than compensates us for the underlying risks inherent to the company.

BorgWarner, Inc. (BWA)BorgWarner, Inc. is engaged in the

manufacturing and the supplying of engineered automotive systems and components, primarily for powertrain applications. The company's products are manufactured and sold worldwide, primarily to original equipment manufacturers (OEMs) of light-vehicles, including passenger cars, sport-utility vehicles, vans and light-trucks. Shares have come under pressure most recently due to the passing of the U.K.’s referendum to leave the E.U., which is considered a threat to stability in the local European economies, potentially disrupting automotive purchases. Prior to this, shares were already weakened due to global economic malaise, U.S. dollar exposure, VW’s emissions scandal, and the looming threat of electric cars. We believe all of the underlying risks are overblown and that shares currently sell at such a large discount to our calculations of intrinsic value that we are being compensated more than sufficiently for risks inherent to the shares.

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John G. Heinlein – Chief Executive Officer and Chief Investment Officer

The following discussion mentions stocks that are widely — but not universally — held by clients of Horan Capital Management. Client portfolios are customized, so this commentary may or may not be directly applicable to any given client or account. Our intention is to provide general insight into portfolio holdings and into our overall approach and to highlight situations of interest, both positive and negative. The mention of any stock is neither advice nor a solicitation to buy or sell any particular investment and our opinions regarding securities are subject to change without notice. Investing involves risk of loss. See the legal disclosures at the end of this publication and on our website for more information.

Portfolio ActivityBy John G. Heinlein

Becton, Dickinson and Company (BDX) Becton, Dickinson and Company develops, manufactures, and

Apple, Inc. (AAPL) Apple Inc. designs, manufactures, and markets mobile

communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, education, and enterprise and government customers worldwide.

Fossil Group, Inc. (FOSL) Fossil Group, Inc., designs, develops, markets, and distributes watches and other consumer

fashion accessories including jewelry, handbags, small leather goods, belts, sunglasses, and soft accessories.

Gilead Sciences, Inc. (GILD) Gilead Sciences is a biopharmaceutical

(bio-tech) company that discovers, develops, and commercializes medicines in areas of unmet medical need in North America, South America, Europe, and the Asia-Pacific. The company’s main products offer treatment for HIV and Hepatitis-C.

Merck & Co., Inc. (MRK) sells medical devices (e.g. syringes and needles), instrument systems, and reagents worldwide.

Merck provides therapeutic and preventive drugs to treat multiple ailments and diseases worldwide.

Monsanto Company (MON) Monsanto Co. produces seeds, herbicides,

and develops biotechnology traits that assist farmers in controlling insects and weeds. The company also provides other seed companies with genetic material and biotechnology traits for their seed brands.

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Polaris Industries, Inc. (PII)

Polaris engineers, manufactures, and markets off-road vehicles, snowmobiles, motorcycles, and small vehicles primarily in North America, Australia, and Europe.

Qualcomm, Inc. (QCOM) Qualcomm engages in the development, design, manufacture, and marketing of digital telecommunications, products and services.

Union Pacific Corp. (UNP) Union Pacific operates railroads in the United States and offers freight transportation services.

Wells Fargo & Company (WFC) Wells Fargo is a diversified financial services and bank holding company, providing banking, insurance, investments, mortgage,

and consumer and commercial finance services and products.

POSITIONS ELIMINATED

(Unless otherwise noted, all positions listed in this section were sold in selected non-taxable accounts as we believe they reached full valuation during the quarter and proceeds were used to fund other portfolio purchases.)

Portfolio ActivityContinued

ADDITIONS(Unless otherwise noted, all positions listed in this section were added to selected accounts due to what we believe to be attractive valuations during the quarter.)

Citigroup, Inc. (C) Citigroup is a global financial services holding company that engages in the provision of financial products and services to

consumers, corporations, governments, and institutions.

Portfolio ActivityContinued

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United Parcel Services, Inc. Cl. B (UPS) United Parcel Services, Inc., a package delivery company, provides transportation, logistics, and financial services in the United

Viacom, Inc. Cl. B (VIAB) Viacom, Inc. operates as a global entertainment content company and offers television

programs, motion pictures, short-form content, applications, games, consumer products, social media, and other entertainment content.

REDUCTIONS OF EXISTING POSITIONS

(Unless otherwise noted, all positions listed in this section were trimmed in selected accounts based on price performance and what we believe to be an over-weighted position during the quarter.)

PepsiCo, Inc. (PEP) PepsiCo, Inc. is a global food and beverage company offering Frito-Lay and Quaker Foods

Automatic Data Processing (ADP) Automatic Data Processing, Inc. provides outsourced business services

includnig payroll, benefits administration, and human resources.

products alongside its namesake Pepsi, Gatorade, and Tropicana beverages.

States and internationally.

McDonald’s Corp. (MCD) McDonald's engages in the provision of retail fast food services.

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Portfolio Discussionwith Tim Hai, CFA®, Co-Portfolio Manager

Question: Why don’t I see some of the securities listed above in my portfolio?

Tim: At HCM, each client portfolio is unique and customized. Factors that impact why a security maybe or may not be in your portfolio are due to differing client start dates, constantly changing valuations, taxes, transaction costs, and cash availability.

New clients may see purchases that a fully invested client would not because we are a long-term focused investor and stock turnover (the number of times we buy and sell stocks) is generally low. Since we generally purchase stocks that are what we consider compounders, strong companies that can grow and continually add value to client portfolios, we may continue to hold securities in some accounts even though they are not, in our opinion, priced compellingly enough to add to new accounts.

Question: Where did you see opportunities to buy in the 2nd quarter? Why?

Tim: Over the past several months (if not over the past year), we have seen what we believe to be pockets of opportunity in Industrials (Cummins, Emerson Electric, Fastenal, Union Pacific), Consumer Discretionary (Apple, Polaris, Monsanto, Fossil), Financials (American Express, Citigroup, U.S. Bancorp, Wells Fargo) and Healthcare (Express Scripts, Gilead Sciences, Merck, Pfizer).

These investment sectors have similarities in that they are often swayed by cyclical macro factors or forces outside of the company’s inherent fundamentals, which can create opportunities to buy. Common themes or opportunities that presented themselves throughout the 2nd quarter include:• general economic malaise• interest rates differentials• U.S. Dollar strengthHealthcare encountered additional headwinds from a heightened period of regulatory scrutiny ofdrug pricing.

In addition, Fossil (FOSL) and Qualcomm (QCOM) have an added dimension of risk that is more specific to the industry in which they operate (namely watches and wireless technology). Although they are seeing challenges we still believe that these companies offer a role to play in the years to come. Lastly, for some clients (generally newer ones and only if the valuations allowed it at that point in time), we have also purchased shares of Berkshire Hathaway as a core holding.

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Portfolio DiscussionContinued

Question: Do you have any further insights on the two new stocks purchased this quarter, Biogen and BorgWarner?

Tim: We decided to take a new position in Biogen as shares were hampered due to poor trial results for one of the company’s pipeline multiple sclerosis products. The company is the premier provider of MS drugs (the company has a strong economic moat or set of competitive advantages) and we believe shares were overly punished by the market (themes that you will find very common among our purchases).

We were also able to opportunistically add shares of BorgWarner during the final week of the quarter as “Brexit” related volatility gave us what we believe was a good point of entry for new accounts. The company is a manufacturer and supplier of automotive systems and powertrain products for cars and trucks worldwide. Although the company had been previously unloved by investors (having fallen 50% from its previous highs), it continued to fall another 17% (relative to the S&P 500’s 5% fall) as investors punished it for its exposure to the European economy. Obviously we believe that shares have been more than fairly punished for its sins. However, we believe the company has a good economic moat based on scale and barriers to entry, and has a solid future based on its ability to increase fuel efficiency and emission standards in vehicles. Both Biogen and BorgWarner also shared the same general macro headwinds afflicting the other companies we’ve mentioned.

Question: Why did you sell or reduce positions in some of the stocks?

Tim: Although we are long-term investors, from time-to-time we do have cause to sell or reduce some of our portfolio holdings. The most impactful reason to sell shares of a company includes an adverse and fundamental change to our original buy thesis (e.g. a lowering of a company’s long-term earnings power or a loss of confidence in company management) and/or a loss of conviction in the idea. We sell or reduce exposure to some stocks due to our belief that a valuation has become excessive. If the company is a core holding, we may choose to reduce shares instead of selling it completely. If a stock is fully valued, we may choose to sell the company outright and hope to get antoher opportunity to repurchase shares in the future should they retrace themselves or we find a compelling opportunity that has just become available. We may also sell or reduce a position for tax-loss reasons. On occasion, we make a sale based on a client specific need/request or it is a combination of those listed above.

Above are comments from the two most recent leaders of the Federal Reserve, recognizing that monetary policy largely enacted (and continued) under their leadership had caused hardship for millions of American savers and retirees. On June 15, 2016, the Federal Reserve did not raise interest rates, leading people to believe that the U.S. economy has still not fully recovered from the Great Recession (2008-2010) and that interest rates will remain low (if not fall again) for the foreseeable future.

Typically to meet cash flow needs investors would rely on the interest from safer fixed income vehicles and dividends from equities. Unfortunately, with extremely low interest rates, investors have not been able to meet those income needs using traditional methods, which has caused them to seek higher yielding investments without regard for valuation and risk.

We here at Horan Capital Management (“HCM”) will not invest our clients’ monies in markets we deem to be over bought or fettered with undue risk. And, after years of practical experience and education on the matter, HCM has developed a very simple and cost effective strategy that we believe is in the best interest of our clients and is not a slave to the interest rate environment.

For clients with income requirements, we establish three buckets. Each bucket has an important function in the long term sustainment of your investment portfolio.

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Managing Income Needs In A Low Interest Rate Environment

"My colleagues and I know that people who rely on investments that pay a fixed interest rate, such as certificates of deposit, are receiving very low returns, a situation that has involved significant hardship for some," – Ben Bernanke, Former Federal Reserve Chair

“I understand savers are hurt by this policy,” – Janet Yellen, current Federal Reserve Chair

All investing involves risk, including the potential for loss of principal. There is no guarantee that any strategy will be successful. Please see the end of this presentation for additional disclosures.

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Cash BucketCash equal to one year's worth of the annual withdrawal amount

HCM Managing IncomeContinued

Our income strategy provides four advantages: 1. Eliminates the uncertainty and yield requirements from fixed-income and equity investments2. Does not take on more risk through income sources such as high yield bonds or high yield equity investments

like Real Estate Investment Trusts (REITs”) or Master Limited Partnerships (“MLPs”)3. Compartmentalizes volatility to the growth bucket and allows HCM to optimally manage the overall portfolio4. We are not forced to sell positions prematurely

HCM News is a publication for the clients of Horan Capital management, LLC. While every effort is made to ensure accuracy of the articles published herein, we are not liable for any inaccuracies. Horan Capital Management, LLC, is a registered investment advisor (RIA) with the SEC. The information contained within is neither a solicitation nor an advertisement for any investment. The articles and information provided are for the benefit of our clients and are not an offer to purchase or solicit any mentioned investment. Opinions expressed about any security mentioned in this newsletter may change at any time and Horan Capital Management, LLC maintains no duty or obligation to update information as changes occur. Copyright © 2016 Horan Capital Management, LLC. All rights reserved.

CD BucketLaddered CD's for year's 2 & 3 withdrawal amoutns

Long-Term Investment BucketInvestment portfolio for long-term growth based on each individual client's tolerance for volatility

The long term investment portfolio bucket (Investment Bucket) and CD bucket both “pour” into the Cash Bucket to replenish over time. From the Cash Bucket, CD’s are purchased to replenish the CD Bucket. Example

Mr. and Mrs. Client have an investment portfolio worth $1,000,000 and plan to retire on January 1, 2017. Their annual income requirement is $40,000 in addition to their Social Security benefits. The Cash and CD Buckets for the portfolio would total $120,000 and the Investment Bucket portion would total $880,000. The Cash Bucket would have $40,000 in cash to fund monthly distributions set to begin on January 1, 2017. We would then have CDs invested to mature in December of 2017 and 2018 to fund the future income requirements (in 2018 and 2019), dispensing with the need to prematurely sell securities in the Investment Bucket. The $880,000 Investment Bucket would then be allocated to a mix of high quality equity and fixed income securities designed to meet the long term risk & return goals of the client.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indexes are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk, including the potential for loss of principal. There is no guarantee that any strategy will be successful.