Broker Check

March Newsletter 2022


 February 28, 2022


“…He Who Loses the Least Wins”

By all accounts, our 2022 securities markets have struggled with the impacts of inflation, rising interest rates, continuing Virus infections, and most recently the invasion of Ukraine by Russia. My first thoughts are of the courageous people of Ukraine, fighting like David against Goliath. Their strength and determination is certainly awe- inspiring! Although it has been  hard to focus on the markets when watching the endless Ukraine war news cycles, our job in such times is to protect your portfolio as best we can; knowing that in the end that eleven out of the last twelve military actions saw the markets rebound to pre-action levels and then continue to grow on the back of fundamental economic growth periods. And, as we reported to you on February 14th: We Are Prepared.

So, here is where we now stand:

  • On February 23rd, The S&P 500 index fell into “correction” status as Russia marched on Ukraine; dropping more than ten percent from its recent highs reached in January.
  • The next day, the Dow Jones Industrial and The NASDAQ indices also fell into correction status as oil prices climbed to highs over $100 per barrel, not seen since 2014 when Russia invaded Crimea.
  • As I write this letter, Russia is poised to invade the capital of Ukraine; just as the people of Kyiv continue to repel the invaders.
  • For the worst market days on February 22nd and 23rd following the invasion into Ukraine, the four broad market indices ( Dow -2.78%, S&P -2.84%, NASDAQ -3.77%, and Barclay Bond -1.29%) averaged losses of 2.67 percent. Please keep in mind that we do not manage our portfolio based on market indices; however, we are now pointing out the numbers only for reference. Our broadly diversified aggregate actively managed portfolio performed much better: Equity Portfolio declined 2.41 percent; Income Portfolio declined 1.11 percent; Total Portfolio (net of fees) declined by 1.72 percent. Once again, our portfolio has declined by significantly less than the broad market as a direct result of our active management. And, over time our portfolio has continued to meet our clients’ goals without the wild rollercoaster ride seen in the broad market indices.
  • The last two trading days of the month saw wild swings: ending with relatively minor changes on the two days as investors bought up over-sold equities.
  • By the close of trading today, the S&P 500 had regained enough ground to be down only 8.2 percent Year-to Date; barely avoiding the ten percent “correction” moniker.

The events in Ukraine will certainly have an impact on global economies as countries around the world impose significant and harsh sanctions on Russia and Putin. Market observers around the globe are now warning of more aggressive military tactics by Russia that could result in even further market declines; even to the point of a recession and a “Bear” market. Even though we believe that our economy is basically “sound” and growing, it could take into 2023 before the expected rebound takes place. There is even talk of the Fed NOT raising interest rates as aggressively as first thought in 2022 to allow the economy to weather the effects of the global turmoil. In fact, the Fed’s GDP model was adjusted in February to show a decline in first quarter GDP to 0.6 percent; down from 1.3 percent in January.

As illustrated above, our total equity portfolio is allocated to minimize the downside risk in broad market equities (roughly 19% of portfolio) by an allocation to Alternative Equities (roughly 20% of portfolio) ; with REITs and energy securities resisting the declines seen in the Domestic Equity allocation. In fact, one of our REIT positions is now trading at near its 52-week highs and we will be selling it to add cash to the portfolio to be used to either “buy low” or increase cash balances, where appropriate. We will continue to maintain the Alternative Equity and Alternative Income allocations at historically high levels throughout the turmoil to both add protection from the inflation that impacts us all and to generate higher levels of cash flows from dividends and interest payments. And, if there is a bright side to all of this, the valuation of all broad market equities has been reduced to valuations that are very attractive going forward as PE multiples are now below 20 in many cases. When we see that the geo-political struggles have been worked out, we will again rebalance all portfolios to their preferred levels to meet clients’ long-term goals.

In closing, it has been a testament to our processes and strategy that we have not received even one call from a client raising doubt over how we are managing the portfolio in these very trying times.

James points out that:  “Unfortunately, when we experience disasters, it is not uncommon for unscrupulous people to try to profit off such tragedies.  If you see or are approached by someone wanting you to contribute to a charity benefiting those in Ukraine, please carefully evaluate the veracity of such organizations.  We see in times like these, organizations that spring up to help, but you must vet them out carefully.”

Our hopes and prayers are with the brave people of Ukraine!



Intelligent Investment Management, LLP