August Newsletter 2025

July 31, 2025

“What’s the Alternative?”

Dear Valued Clients and Friends:

The financial news is riddled with questions and opinions about the health of our economy and the stock market’s reaction to the latest on-again, off-again tariff negotiations and expectations for a reduction in the Fed’s interest rate based on observations of employment and inflation data. Powell must have a hard time sleeping these days! The stock market is generally considered a “leading economic indicator,” and it has been on fire since the market lows from Liberation Day in April. Our managed portfolio of diversified positions in both equity and income categories reflects the broad market performance. Using mine and Jeannie’s retirement portfolio as a proxy for a fully invested growth and income risk profile account, the “key” categories for today’s discussion have returned on a year-to-date basis, through July 30th, 2025 (before management fees) the following results:

 Looking back to the beginning of April and the market’s negative reaction to proposed efforts to reduce the national debt and shrink the size of government, the following categorical results from April 8^th through July 30^th reflect the extreme “over-reaction”:

 In line with our time-tested portfolio strategy to “buy-low” in times of turmoil, we invested all available cash into quality positions in the above three listed categories. The results speak for themselves! Looking forward, we can expect continued growth through year-end. Earlier this week, the Atlanta Fed reported in its “GDP Now” report that the economy grew by 2.9 percent in the second quarter of 2025 (a growth rate that exceeded most economists’ projections). That growth rate is supported by the recently reported operating results of many major companies; along with their expectations for continued growth (although still with some reservations). Businesses remain cautious but are now empowered by expectations of lower interest rates. In fact, in almost unheard-of fashion, at this week’s Fed meeting, two Fed governors dissented on the decision to keep rates unchanged for now. All signals are pointing to rate cuts before year-end.

Keeping with our strategy of broadly diversifying the portfolio over four major categories, we have recently added four new individual positions to the Alternative Equity and Alternative Income categories. The funds needed to accomplish this goal were primarily obtained from “selling high” several of the Domestic Equity positions that were propelled by a combination of growing corporate profits and the FOMO reaction by many investors left on the sidelines after Liberation Day selloffs (not a pretty picture!). James reported last month on the additions of Blackstone, Inc. and Albemarle Corporation to the Alternative Equity category. 

Despite the reported growing GDP and corporate profits, lurking in the background is the ugly head of our ever-expanding National Debt and the annual interest cost consuming the budget and debt limit. The interest cost now approximates the entire defense budget! And the cost for Social Security and Medicare consumes most of the remaining available resources. We are not alone in this quagmire, as Central Banks around the globe have been buying up massive amounts of gold for “protection” from what may come. At home, our major money banks, as well as large financial institutions, are joining the fray. The result is that many investors are turning to precious metals and crypto currencies as a hedge. In fact, gold recently reached a new all-time high, in the $3,300 range. It almost looks like the Wild West all over again. From an emergency fund standpoint, we often advise clients to put some coins (gold and mostly silver) in their home safes “just in case”. Owning precious metals goes against our time-tested portfolio rule of “not investing in anything that does not have revenues, profits or that pays dividends”.

Nevertheless, we have again analyzed the current situation and have decided to add an investment in a proven company that invests in gold mining companies needing added capital to increase production to meet the growing demands for gold. In exchange for its investment, Franco-Nevada Corporation (FNV) takes back a royalty from the new production and sales that are secured by the gold produced. FNV has a long history of growing revenues and dividends paid to investors. We have added FNV to the Alternative Equity category and is now included in most client portfolios.

With growing Equity category values, we have added a new position to the Alternative Income category to increase diversification and added cash flows from dividends needed to cover distributions to clients and funds for additional investment throughout the portfolio. In July, we added Blue Owl Capital Corporation (OBDC) to the mix. OBDC is a Business Development Company (BDC) that provides secured loans to primarily middle-market companies needing access to funding that is not always available from banks. OBDC has a proven BDC business model that produces an attractive dividend of roughly ten percent.

At the time of this writing, the Alternative Equity category has roughly twenty positions that run the gamut from energy plays, diversified real estate investments, farms, private companies approaching their IPOs, industrial commodities, data centers, and precious metals. Not all clients have positions in all the investments, depending on the size of portfolio and risk tolerance considerations.  Most client Equity portfolios are now allocated roughly equally between Domestic Equity and Alternative Equity positions. The total Equity category currently has a projected dividend rate of almost five percent. The Alternative Income category includes positions in as many as five investments across primarily utility and infrastructure companies, in addition to the recently added BDC. The projected dividend rate of this category is now more than six percent. As noted above, the total return (growth and income) of these two categories continues to impress and adds significant diversification to the total portfolio.  This is needed in times of high volatility that are becoming increasingly regular as our world turns in many different directions.

James and I continue to be very busy actively managing all client portfolios to meet our clients’ financial expectations. Please give our name to anyone you believe could use our unique style of investment management. And as always call anytime with questions or observations.

Please go outside and enjoy this beautiful world we call home.

Sincerely,

Intelligent Investment Management, LLP