Rise of the Quarantined Day Trader

In October of 2019 Charles Schwab, the online stock trading broker, cut commissions to zero on
all stock and ETF trades. In the ensuing days and weeks, almost all online brokerages dropped
commissions to zero, creating ideal conditions for frothy trading activity and higher volatility
once COVID forced shelter in place. This created a perfect storm to form a new class of retail‘day-traders.’

Daily Average Revenue Trades (DARTs)
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000

E-TradeMar-20Jan-20Nov-19Sep-19Jul-19

May-19Mar-19Jan-19Sep-18

Nov-18

Jul-18May-18Jan-18Mar-18

Nov-17

Jul-17

Sep-17May-17Mar-17Jan-170

TD Ameritrade

Source: Companies' 10kTrading activity has exploded since the implementation of zero cost commissions in October 2019

Unfortunately for the 64% of Americans who gamble on sports, shelter in place scraped theregular distraction as seasons were cancelled or pushed out, leaving a void to be filled by otherrisk-taking endeavors. According to Forbes, almost 30% of Americans used at least some oftheir $1200 stimulus checks to buy stocks. The daily volatility, in which the market was moving
2% or more in either direction, created an unprecedented environment for those looking to fill
the void of sports gambling. Many of the higher beta names were seeing daily moves of 10% ormore on a regular basis. This is a tactical day trader’s market, not a strategic investor’s market.
Attempting to navigate these wild swings is a losing proposition over the long term. Envestnet
reported that approximately 90% of smaller online brokerage accounts made transfers induring the first quarter of 2020.

Increase in transfers to Online Brokerages by
Income Bracket
100%

93%

90%

90%

82%

80%
70%
<60%

60%

46%

50%
40%

30%
20%
10%
0%
$35k-$50K$50K-$75K$75K-$100K$100K-150K$150K+

Stimulus Checks are being spent playing in the stock market, source: Envestnet.

Further, Robinhood, the original online zero commission trading platform, and their tool
Robintrack provides account holders for any stock graphed over time. This is an alternative data
source we reference to check investor base (investor type buying/selling) to better understandinvestor sentiment in certain stocks. We see the largest changes in ownership in stocks thathave low per share values (<$5 per share) and have widely known consumer facing
businesses.

Robinhood Free online trading accounts holding
HTZ vs HTZ pricing
25

70000
60000

20

50000
1540000

10

30000
20000

5100000

HTZ Price

6/2/2020

4/2/2020
5/2/2020

2/2/2020
3/2/2020

1/2/2020

11/2/201912/2/2019

9/2/2019
10/2/2019

8/2/2019

6/2/2019
7/2/2019

4/2/2019
5/2/2019

2/2/2019
3/2/2019

1/2/2019

11/2/201812/2/2018

9/2/2018
10/2/2018

8/2/2018

6/2/2018
7/2/2018

5/2/20180Robinhood HTZ holders

Source: Robintrack

The blue line shows the number of Robinhood accounts holding HTZ, while the orange line shows the share priceWe have noticed a peculiar trend in recent months, namely situations where the outcome takes
on a ‘black/red’ payoff structure, similar to gambling. For example in the case of Hertz, wherethe number of Robinhood accounts owning HTZ shares have increased by 29% since thecompany filed for bankruptcy! While Hertz may emerge from bankruptcy, we doubt the newly
minted shareholders from Robinhood fully understand the implications bankruptcy has onvaluations on each class of security. Nor have they done the analysis to determine both theprobability of survival and amount of residual equity value typically involved when investing incompanies after bankruptcy declaration. They seem to be chasing a buy low/sell high day
trading philosophy based on little more than hope and good fortune.
For us, this increases our confidence that a portion of the recent rally is a function of retailtrading dollars, opposed to institutions ‘buying the dip.’ Consistent with that thesis, recent cash
levels among institutional investors is near all-time highs at 5.7%, according to Bank of America.
Statestreet’s Behavioral Risk Scorecard (BRS) to Cash ratio for institutional investors has
diverged to levels not seen since the financial crisis. This is indicative of a level of skepticism weascribe to broad market valuations here at Brookmont.

What does this mean for the market going forward? We believe that the development of zero
cost trading platforms will continue to amplify volatility. Since online brokers dropped
commissions to zero, the average closing value of the Volatility Index (VIX) has been 39%
higher than the average over the last 16 years, and since January 1, that number jumps to 79%.
For momentum and trend following strategies this is a dangerous dynamic, signals become
blurred, increasing the risk of overtrading. Fortunately for us, here at Brookmont, our strategies
are the antithesis to those of trend followers. As a function of our proprietary Dividend Scoreand enduring Investment Process, Brookmont portfolios tend to exhibit lower volatility than themarket.

Disclosures:This letter may contain "forward-looking statements" which are based on Brookmont’s beliefs, as well as on a numberof assumptions concerning future events, based on information currently available to Brookmont. Current andprospective clients are cautioned not to put undue reliance on such forward-looking statements, which are not aguarantee of future performance, and are subject to a number of uncertainties and other factors, many of which areoutside Brookmont’s control, and which could cause actual results to differ materially from such statements.
All expressions of opinions are subject to change without notice. A complete description of Brookmont's performance
calculation methodology, including a complete list of each security that contributed to the performance of thisBrookmont portfolio is available upon request.
Certain economic and market information contained herein has been obtained from published sources prepared byother parties, which in certain cases has not been updated through the date of the distribution of this letter. While
such sources are believed to be reliable for the purposes used herein, Brookmont does not assume any responsibility
for the accuracy or completeness of such information.
These individual securities do not represent all of the securities purchased, sold, or recommended for this Brookmont
portfolio and the reader should not assume that investments in the securities identified and discussed were or will beprofitable.
The firm maintains a complete list and description of composites, which is available upon request. Results are basedon fully discretionary accounts under management, included those accounts no longer with the firm. Composite policy
requires the temporary removal of any portfolio incurring a client initiated significant cash inflow or outflow of at least
15% of portfolio assets. The temporary removal of such account occurs at the beginning of the month in which thesignificant cash flow occurs, and the account re- enters the composite at the beginning of the month which follows thecash flow by at least 30 days. Additional information regarding the treatment of significant cash flows is available
upon request.
Brookmont's returns do not include reinvestment of dividends and are shown gross-of-fees. All transaction costs areincluded. The Russell 1000 cumulative return includes reinvestment of dividends and capital gains. During a risingmarket, not reinvesting dividend could have a negative effect on cumulative returns.
There is no representation that this index is an appropriate benchmark for such comparison. You cannot invest
directly in an index, which also does not take into account trading commissions and costs. The Volatility of this index
may be materially different from the performance of the Strategy.
Gross returns will be reduced by investment advisory fees and other expenses that may be incurred in themanagement of the account. Net-of-fees performance was calculated using actual management fees. Additional
information regarding the policies for calculating and reporting returns is available upon request.
Your account returns might vary from the composite's returns if you own securities that are not included in theStrategy or if your portfolio dollar-cost averaged into the Strategy during the reporting period.
Brookmont Capital Management claims compliance with the Global Investment Performance Standards (GIPS®). To
receive a complete list and description of Brookmont's composites and a presentation that adheres to GIPS
standards, please contact Suzie Begando at 214-953-0190 or write Brookmont Capital Management, 2000 McKinney
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Past performance is not indicative of future results