Broker Check

May Newsletter


May 18, 2020

“I think I can, I think I can, I KNOW I CAN!”

 As I write this letter on Monday morning, our US equities markets are taking off like a rocket and have gains of over three percent setting a recent look-back, one-day record. Putting that market action in perspective are the following May 15, 2020, comments from the economists at TD Ameritrade:

  • Financial markets optimism faded this past week as economic data continued to show severe damage caused by COVID-19 and social distancing protocols.
  • Closures of non-essential businesses all around the country, coupled with mounting job losses, resulted in retail sales plummeting by 16.4% in April, a record drop. Consumer prices responded accordingly, declining by 0.8% on the month.
  • As states reopen, the economy will improve, but, Chairman Powell noted in a speech this week, it will take Hopefully, April is the lowest point during this crisis.

 Today’s market rally appears to be a direct result of a combination of new comments from Powell indicating that the Fed will do everything necessary to bolster the economy as it recovers and news that there are several promising drug therapies nearing approval by the FDA. In addition, many states are now “open for business”, albeit with safety restrictions. Only time will tell, but that little train struggling to reach the mountain peak has the momentum to reach the other side in the foreseeable future; maybe this year, but certainly in 2021, by all current estimates. To quote the TDA economists again, “If this is any indication for the future path of the U.S. economy (referring to China’s recovery), a recovery is coming, hopefully sooner than later.”

 Now, for the numbers:

  • Looking back one-year (May 15, 2019 to May 15, 2020) our aggregate managed portfolio declined in value by 6.33%. The decline was led by a drop in equity valuations of 12.12% and a small increase in the income side of the portfolio of 0.50%.
  • On a year-to-date basis: May 15, 2020, our aggregate managed portfolio declined in value by 13.15%.  The equities portfolio declined by 21.67% and the income portfolio declined by 5.28%. Our aggregate portfolio at May 15, 2020 was allocated 47.6% to equities and 52.4% to income and cash. The indicated cash flow yield at May 15, 2020 is 5.2%; however, we believe that a five percent yield may be unachievable as dividends are being drastically cut and interest rates continue to fall.
  • Most importantly to us, as portfolio managers, is the trend and potential to recover the market declines from the Virus and its economic impact. To that end, we have made several tactical changes (as previously reported) and we can report where we are as of May 15, 2020 from the market bottom on March 24, 2020. Our aggregate portfolio has recovered by 12.76%. The equities portfolio gained 18.96% and the income portfolio gained 9.34% for the period. Based on today’s market rally, the equities portfolio will gain another three percent on the day.
  • The equity gains from March 24, 2020 break out: Domestic 16.15% (lead by our bio-tech health fund at 35.76%); International 18.55% (lead by our investments in Germany and India at over 23% each); Alternative Equities 27.53% (lead by our REIT investments); Global allocation 19.35% (lead by Royce Global Value at 42.75%).
  • The income gains from March 24, 2020 break out as follows: Bond/CD ladder 2.65%; Alternative Income 19.69% (lead by our infrastructure fund at 30.79%).
  • The gains from March 24, 2020 are certainly dramatic; however, the gains reflect just how far down the portfolio was taken as a direct result of the Virus. It appears from today’s market activity that the markets may have the momentum to rebuild the portfolio valuations. Clearly, there will be some losers at the “end of the day”, but once again, the winners will be in greater number as our fund manager partners skillfully navigate the path of returning prosperity.

When you see your May 31, 2020 monthly statements from TDA you will notice that we continued our rebalancing efforts. In a nutshell, you will see that we “sold high” from the Alternative Income category and “bought low” in the Domestic Equity category. We reported that planned action previously and the Domestic Equity category is now just over twenty percent of the aggregate total portfolio, with some client portfolios over twenty-five percent based on their determined risk tolerance.

You will also notice that our Bond Ladder now includes newly acquired positions in both Boeing and Disney bonds; both positions are highly rated credits which add additional security to the income portfolio. Both positions have maturities between 2026 and 2030 which provide needed maturities in portfolios where cash will be required to fund planned-for withdrawals. On an aggregate portfolio basis, the Bond/CD ladder now holds almost thirty-one percent of the portfolio. The interest yields are lower than uncertain dividend yields, but in these uncertain times, the relative certainty of receiving the interest payments is a much-needed security blanket.

All-in-all, we can see that “The Little Train that Could” will reach its destination. There may be some speed bumps along the way because of renewed Virus activity, but our dedicated, medical science teams will open closed doors for re-entry into a new and promising world along with renewed economic activity and growth. Certainly, there will be adjustments to be made; but all for the better in the long run. In the meantime, we will continue to stay the course with our time-tested investment management strategies.

Over the years you have heard us say: As CERTIFIED FINANCIAL PLANNER™ professionals, we are held to the highest requirements in the industry in terms of ethics, education, experience and exam. Including the ethically based “Fiduciary Standard” that is part of everything we do to “Put Our Clients Interests First”. Not all investment managers have been held to such a high standard; particularly when commissions and proprietary products inherently create conflicts of interest (both real and perceived). After much discussion and public debate, our industry (with a majority of large brokerages and commission-based fee structures), has recently been required by new regulations from the Securities and  Exchange Commission (SEC)  to abandon the old “Suitability Standard” (a relatively low-bar) and adopt the new “Best Interests” standard. It is unfortunate that our industry was unable to rise to the higher “Fiduciary Standard” by which the CFP® is bound. Never-the-less, the new regulations are a step in the right direction. Intelligent Investment Management, LLP will continue to operate at the highest ethical standard of being a fiduciary for our clients. As such, we will continue to manage all client portfolios by putting your interests first.

In these challenging times, Intelligent Investment Management, LLP (as well as many independent advisers) obtained a Payroll Protection Program loan through the Small Business Administration to increase our capacity to “weather the storm” that has severely impacted all global securities’ markets and our managed client portfolios. Coupled with owner capital, having the loan proceeds available ensures that Intelligent Investment Management, LLP will have adequate resources to keep all our staff fully engaged in the new “work-at-home” stage of our Business Continuity Plan. We are committed to maintaining adequate levels of capital and borrowing capacity to continue operating at “full-throttle” for the benefit of both our clients and our staff; to that end, we have “stress-tested” our capital requirements and believe that we can operate without impairment for the foreseeable future. We have amended our Form ADV, Part 2 (or Disclosure Brochure) to reflect these disclosures and it is posted on our website: for your review, at the bottom of the homepage.

We are all well and trust that you and yours are staying well and safe. Please call if you would like to just talk or if you have any specific questions about your portfolio.  We are always happy to help you in any way we can. 


Intelligent Investment, LLP