Broker Check

April Newsletter

April 7, 2021

“Inflation Is…”

Still working from my home office, I can see the beautiful world we live in with a clear blue sky and all the signs of Spring in the air. A “New Beginning” or “Renewal”, is clearly in sight as the throes of winter are melting right before our eyes. Flowers are starting to bloom; the grass is greening and the birds are singing. Just this morning I awoke to the “gobbling” of a rafter of wild turkeys pecking their way through the yard outside my bedroom window; and just as I sat down to put pencil to paper, I looked out the window in my office to see a pair of bald eagles flying down the river in search of their breakfast. It is with these thoughts of optimism that I review our portfolio’s performance and our outlook for the foreseeable future.

On Monday, our broad securities markets climbed to record highs on signs of an economic recovery, right on the heels of last Thursday’s market gains.  These gains pushed the S&P 500 index over 4000 for the first time ever as volatile tech stocks rose, even as the yield on 10-year US Treasuries rose above 1.7 percent (one year ago the ten-year treasury bond paid just 0.5 percent).  Much of the gain has been attributed to the current “gambling” and “speculation” brought on by increasing numbers of new individual investors hoping to “strike it rich” from the MEME and SPAC frenzy. We can only hope that the positive news on the Virus front and the large numbers of workers re-entering the labor market will drive the economy forward and make the “strike it rich” blip a REAL gain for the rest of us long-term investors.

In the meantime, we are pleased to report the one-year and five-year performance results for our aggregate managed and broadly diversified portfolio, as of March 31, 2021:

 Of note, the aggregate portfolio results reflect a managed portfolio invested 49.7 percent in four equity categories and 50.3 percent in two income categories. The one-year results reflect the dramatic rebound from the March 23, 2020 Virus lows to the March 31, 2021 highs referred to above. The one-year results also reflect the re-balancing efforts from “protecting” downside risk early by adding new positions in health, science and technology to take advantage of new innovations emerging as a result of the Virus and the work-at-home business model.

We also added to the Alternative Equity category additional REITs to capture a combination of real estate inflation protection and higher dividend yields. Knowing that the one-year results will most likely be an anomaly, you should consider the five-year results as an indicator of future expected returns as our economy continues to transition from the doldrums of the Virus-driven recession.

The graph below illustrates the cumulative results of our active management for the overall managed portfolio for the last five years. Needless to say, we are very proud of our results during the turbulence that occurred over the last five years. If our active management approach stays on course we will undoubtedly meet our clients’ goals, as stated in their Investment Policy Statements.

Moving forward, we believe that our portfolio is positioned to benefit from the “opening up” of our economy as the Virus is tamed and new economic policies stimulate further economic activity.  

Having said that, our concerns are now focused on the impending threats of out-of-control inflation and increased taxes on all of us (direct and indirect) that come from the massive amounts of new money being printed to “rescue” us. After-all, every time a new dollar is printed, yesterday’s dollar loses value. Only time will tell if the new policies being implemented  can really drive sustained economic growth. Stay tuned!

   As you review your enclosed portfolio reports, you will notice several new names in the  Domestic Equity, Alternative Equity and Alternative Income categories.  Of particular note is the addition of BlackRock Innovation and Growth Trust to the Domestic Equity portfolio, with an emphasis on innovation found in small-cap and mid-cap companies with “attractive business models” and access to IPOs (Initial Public Offerings). Our long association with the managers at BlackRock gives us confidence in their ability to “outperform” in these volatile times. You will also notice the addition of Stag Industrial, Inc. to our REIT portfolio in the Alternative Equity category. STAG is uniquely  positioned to grow with the continued growth in consumer internet purchases from companies requiring logistic warehousing to meet buyers’ short-term delivery requirements. We are now looking at a new REIT, Apple Hospitality REIT, Inc., that owns a number of mid-market hotels that should benefit from the pent-up demand by all of us to get back on the road and see the world. We expect that APLE will both rise in value (inflation hedge) and produce a meaningful dividend as travel once again becomes a regular part of our lives.

I hope that you are enjoying this Spring weather as much as I am and you are getting outside for some much-needed fresh air and sunshine!

As always, please contact us if you have questions about your enclosed reports or need to discuss any recent life changes that might require a change to how we manage your individual portfolio.


Intelligent Investment Management, LLP