Broker Check

January Newsletter 2024




January 2, 2024


“And Happily, Yes, Virgina, there is a Santa Claus.”


2023 started off right where 2022 left off: In the doldrums:

The Fed raised interest rates faster than at any time since the ‘80s; regional banks began failing; the war in Ukraine raged on; and unspeakable travesties led to a new war in the Middle East. Despite these (and other) global events, the securities’ markets rallied in November and kept on climbing right through December. Market indices soared on the backs of “The Magnificent Seven” and the AI explosion.

In other good news, we are living in the Golden Age of medicine with life changing medical breakthroughs in mRNA technology and AI advances that progress genetic mapping.  These advances are welcome news for those families dealing with dementia and disabling genetic diseases that rob families of their loved ones and their life savings.  Also, the Endangered Species Act put into law in 1973, is one of the most successful environmental acts of all time, reporting at the end of 2023 that over 90 percent of previously endangered species have been taken off the list.  And happily, “Yes Virginia, there is a Santa Claus”!


As a picture tells a thousand words, Laura has prepared the following graphics to illustrate how our Aggregate Managed Portfolio of Equity and Income positions performed in 2023.  Starting with the Domestic Equity Portfolio of Large, Mid, and Small-Cap funds:


The Santa Claus rally led this equity category to a total return (growth and dividends) of over twenty percent for the year. The regular dividends received by all client portfolios kept this equity category “in the green”. The “winners” continued to be a technology driven fund with a full-year return of over fifty percent; followed by two tech-heavyweights focused on “The Magnificent Seven”, with total returns of more than twenty-five percent for the year. The rally was clearly driven by the Fed’s announced plan to cut market interest rates throughout 2024 and into 2025. The anticipated cuts should result in “normalized” rates in the four percent range; allowing the economy to grow and expand. As that expectation “becomes real”, the entire Domestic Equity Portfolio will benefit as small and mid-sized companies participate in the growth of all industries. Technology improvements from the adoption of new AI applications will certainly have a “domino” effect. On December 31st, the Domestic Equity Portfolio on an aggregate managed portfolio basis approached thirty percent of the total managed portfolio. Each individual client’s allocation continues to be based on its goals-based risk profile.


The Alternative Equity Portfolio of positions in REITs, energy, agriculture, and venture capital opportunities produced a total return of just under six percent for the year. The category was negative for much of the year as a direct result of a combination of the Fed’s raising of interest rates and inflationary impacts. The one shining star remained the REIT Portfolio of cyber-security facilities which experienced impressive increases in demand despite the general economic slump. Iron Mountain returned over forty-seven percent for the year. And the entire REIT portfolio continued to produce meaningful dividends from the steady rents being received throughout the year. We expect this entire category will benefit from the underlying value increases of the properties from lower interest rates. Historically, real estate investments have resulted in long-term total returns rivaling the returns from the Domestic Equity Portfolio. On December 31st, the Alternative Equity Portfolio represented just over twenty-five percent of the total portfolio.


On an Aggregate Managed Portfolio basis, clients’ CD/Bond Ladders totaled over thirty percent of the total portfolio; reflecting the significant number of clients either approaching, or in, retirement distribution mode. Those individual client portfolios generally include CDs and bonds maturing serially over roughly the next ten years. As the portfolios have been managed on this basis over the last ten years, the portfolios include many individual investment-grade issues that were originally accumulated when market interest rates were very low. As the Fed increased interest rates to tame the Covid-driven inflation, the values of the old issues dropped to reflect their lower rates (even though the positions would mature and pay out at full face value). Well, now that rates are expected to fall, the underlying values of all positions are rising accordingly. The resulting impact on this year’s performance is a return (value increases and interest receipts) of almost seven percent, with a positive return throughout 2023 for the CD/Bond ladder.


Unlike the CD/Bond Ladder, the Alternative Income Managed Portfolio positions do not mature. Even with the generally higher dividend rates earned on preferred stocks, loan companies and utility funds, this Alternative Income Managed Portfolio turned negative in November before turning positive for the year, returning over eleven percent for the full year. The cash-flow yield in this category continues to lead the entire portfolio with a current indicated yield of over eight percent. As of December 31st, this category represented just over eleven percent of the total portfolio.



When we look at the total managed portfolio of equities, income and cash, of the hundreds of accounts James and I manage daily, the combined 2023 total return on the Equity Portfolio was just under fourteen percent. On the same basis, the combined total return on the Income Portfolio was nine percent. The bottom line 2023 return (net of fees) for the overall portfolio was just over ten percent. The results of your individual portfolio are included in the attached Portfolio Review.  Each client’s portfolio return may be more or less than the average return based on risk profile and allocation decisions.

It is noteworthy that over the last twenty-seven years we have been managing client portfolios (with a variety of long-term goals and risk profiles) reporting 2023 returns are in line with our long-term averages. On a similar basis, when looking back on the broad US stock market to the nineteen-twenties, the long-term annualized return of the stock market is also in the ten percent range. We are proud of the fact that our portfolio strategies produce long-term stock market returns with (on average) only fifty-six percent of the total portfolio currently invested in the broad equity market. The generally less risky income allocation is currently forty-one percent of the total; with cash rounding out the total portfolio at three percent.


Clients with a taxable account will get two sets of 2023 IRS Form 1099s, one from TD Ameritrade and one from Charles Schwab.

With all best wishes for a Healthy, Happy and Prosperous New Year!



Intelligent Investment Management, LLP