August Newsletter 2024
August 1, 2024
“Our Motto: when the going gets tough…”
As we enjoy the competitive spirit of the XXXIII Olympiad, complete with tough athletes and intense competition, we see countries coming together on the global stage. This provides us with the opportunity to see how global events impact the world, also illustrating how global events impact economies, the stock market and our overall portfolio.
Reflecting on the past twelve-month period ended July 31, 2024, our aggregate managed portfolio has delivered positive returns of 11.6 percent. (The current allocation in the aggregate portfolio is roughly sixty-one percent Equities and thirty-nine percent Income and cash.) This result is driven by a return of 15.6 percent on the Equity portfolio and 9.3 percent on the Income portfolio. This surge in market activity has been exhilarating, prompting discussions about what will happen for the remainder of the year. As we navigate market conditions, our approach remains the same and that is to capitalize on market growth by selling high and buying low to rebalance portfolios. We have taken gains from the Equity portfolio and added high-quality corporate bonds and CDs with rates near five percent to both the short and long ends of the CD/Bond Ladder.
Recent economic news has created expectations of possible interest rate cuts. This week Federal Reserve Chairperson Jerome Powell stated: “The economy is moving closer to the point where it will be appropriate to reduce our policy rate”. However, he did not commit to a rate cut in September.
Our Equity Portfolio strategy has traditionally been based on the noncorrelated differences between the stock market intensive Equity category and the Alternative Equity category that favors “real assets”, such as Real Estate Investment Trusts and energy positions. In short, when the stock market goes up, interest sensitive positions do not participate in the staggering growth and when interest rates fall Alternative Equities such as REITs add value based on those lower interest rates.
The anticipation of lower interest rates in the month of July has dramatically impacted interest-sensitive investments like Real Estate Investment Trusts (REITs) within our portfolio. REITS shot up such as Tower Corporation (AMT) 14.3%, Gladstone Land Corporation (LAND) 8.8%, Iron Mountain Inc. (IRM) 15.3%, Prologis Inc. (PLD) 12.2%, Realty Income (O) 9.2%, Stag Industrial Inc. (STAG) 13.5%.
The Alternative Equity category (including REITs) as a whole returned 5.7 percent for the month of July. The total return on the Equity side of the portfolio was up 3.4 percent for the month. This underscores the importance of diversification and strategic portfolio design, which allows us to capture results when shifts in changing market environments occur.
As we anticipate a decline in interest rates, this shift will create favorable conditions for small cap investments. Lower interest rates enhance the ability of smaller firms to raise capital, improving future growth projections, because they can leverage more attractive financing rates for new projects. We have seen our two largest small cap positions, Royce Micro-Cap Trust (RMT) and Royce Value Trust (RVT), increase in the month of July by 8.1 percent and 10.6 percent respectively.
This year, market dynamics have been shaped by many factors, from the persistent influence of Artificial Intelligence (AI), its impact on markets, central bank policy, geopolitical events and the volatility of our own domestic political landscape. While AI promises transformative economic impacts, we maintain a cautious and prudent stance on high-growth tech sectors. Our portfolio strategy emphasizes balance, combining established firms with proven track records alongside up and coming investments poised for growth.
As we look forward to the remainder of 2024, the market landscape will have its twists and turns much like the exciting outcomes of the Olympic games. For the rest of this year, we expect to see continued market volatility where we can again use the “Buy Low -Sell High” process.
The 2024 Olympic games in France create excitement: cheering for your favorite athletes, following your favorite events and witnessing examples of positive sportsmanship. We encourage you to enjoy the display of athletic excellence and support Team USA! From all backgrounds and walks of life, our youth should inspire both young and old alike to “Dream Big”! We are seeing the future unfold right before our eyes and in the eyes and smiles of each of those athletes that have given so much and worked so hard to make us proud. Their spirit clearly burns bright and gives us eternal hope of a future filled with bigger and better accomplishments.
Your feedback and questions are invaluable to us as we continue to refine your portfolio and tailor it to meet your evolving financial goals. Please keep in mind the importance of personal security.
Sincerely,
Intelligent Investment Management, LLP
