Broker Check

October Newsletter



“Health, Science, Technology”….That’s It.”


With autumn in the air, the view from almost anywhere in beautiful Durango is breath-taking and provides us all with the glimpse of a future positive outlook.  In this “New World” affected by the on-going pandemic with the challenges it brings to all people and to all economies; the primary focus at Intelligent Investment Management is managing client portfolios to meet a myriad of individual goals. We also wish only the best for those of us who have lost loved ones and for our Country’s leaders and scientists who work feverishly to conquer the beast that is Covid-19.  And, please remember all those on the front lines that are keeping our economy operating.

Now that we are six months down the road from the initial shock of February and March of this year, we can look back upon our portfolio’s amazing resilience and say that our decisions since February have resulted in favorable returns, conservation of principal values and preparedness for the growth that will come after the Virus has been controlled. In the process of managing the portfolio, we have made several tactical changes to both protect and to grow all portfolios to meet client goals.  Underlying our performance is the strong rebound for an economy which saw massive unemployment and business closures. This rebound can be attributed to the fiscal and monetary measures made by our government to keep the economy afloat. It now seems clear that additional government help will be needed to keep the recession from deepening as we continue to fight the Virus and grow out of its clenches, despite the expected future inflation and growing deficits.

 Here is how our aggregate managed portfolio performed looking back from September 30, 2020:


Of note in the one-year returns, the Domestic Equity portfolio returned 11.95 percent; the International Equity portfolio lagged as foreign economies struggled (-2.61%); Alternative Equity portfolios experienced recognized losses from moving out of all energy positions in favor of more real estate allocations (-15.82%); and the Global Equity allocation shined as the managers of those positions were able to maximize returns from “momentum” plays in large-cap technology companies that used the pandemic to their advantage in the new “work-at-home” world, with one-year returns of 15.75 percent.

As you review your individual portfolio’s performance in the enclosed reports, please keep in mind that the Equity returns will generally correspond with the above aggregate Equity returns; as will the Income returns. However, the Total Portfolio returns for each client will reflect each client’s individual Investment Policy Statement and the respective allocations between Equity and Income categories, as well as each client’s needs for cash reserves and regular distributions. What this means, is that over most time periods, an over-weighting to Equities (with a correspondingly lower allocation to Income) will result in larger returns (all from taking more risk with Equities than with less-risky Income allocations).  Furthermore, in the current period of extreme volatility, many client portfolios saw significant reductions in Equity allocations as defensive measures were taken pending the outcome of the Virus (and its vaccines), the current election cycle, a clearer picture of geo-political tensions and an end to the civil unrest.

Now, let’s look forward. First, and foremost, the last six month’s extraordinary returns from the depths will NOT be duplicated in the next six months (or mostly likely over the next several years). Economies remain in recession with significant unemployment, business closures and bankruptcies, and the potential for further “spikes” in the infection rate (pending approval and distribution of successful vaccines).  In addition, our election is a choice between fundamentally differing philosophies with different economic results expected. Putting that in perspective, the economists at TD Ameritrade (noticeably working from their Toronto Dominion Bank Offices in Canada) are projecting Real GDP Growth in the last quarter of 2020 and the first quarter  of 2021 to be 2.8 percent, “Without Fiscal Package” (which now looks problematic). Real GDP has declined by 4.3 percent as of September 30th.   When applying their projection of GDP expectations to the results of the pending presidential election, the TDA economists are projecting a long-term decline in GDP of one and one-half percent from a Democratic party sweep; effectively cutting growth in GDP in half. The economists are also projecting that emerging economies will lag advanced economies in their recoveries, resulting in more equity risk internationally.

With that backdrop, our job is to have a long-term view and make allocations that favor future growth with minimal risk to principal. To that end, we have been busy rebalancing all portfolios by selling under-performing positions in all categories and reinvesting in an unconstrained strategy of favoring domestic equities, selective alternative real estate equity investments and income-producing alternative income positions in preferred stocks and high-dividend paying real estate funds.  We are currently focusing on the opportunities inherent in the growing number of companies that are focusing on the “New-World, Work-At-Home” economy which appears to be the business model for the future growth of all economies.

Even though we believe the transitions may be volatile, the long-term outcomes are bound to be plentiful. As we advance into the New Economy, we can look back on the three previous Industrial Revolutions:


  • 1760-1840 with railroads leading the way.


  • Late 19th to early 20th centuries with combustible engines, assembly lines, telephones and antibiotics being commonly used.


  • 1960 to the present with digital media, semiconductors and the internet, where real economic output doubled every 32 years throughout the 20th century.


We are now poised for a fourth industrial revolution coming from the many “SMART” technologies that are popping up and coming to the equity markets regularly (despite the Virus-induced recession).     

Jeannie and I came up with the following list of Smart technologies that are becoming a part of our daily lives: lightning fast medical breakthroughs and therapies to fight the Virus,  Smart phones that can run most systems in your home, Smart TVs that find our favorite entertainment, Smart cars that tell us if we are being unsafe, Smart homes with thermostats, ovens and  doorbells that anticipate our actions and needs, virtual shopping and doctor visits, Zoom meetings and DocuSign technologies plus daily deliveries of everything! And the list goes on!   While many of our long-term equity positions hold significant positions in Health, Science and Technology companies that have been with us for years now; we believe that we can now “double down” in these areas for both future growth and current income.

To take advantage of these long-term opportunities, we have added (or increased) portfolio positions in two funds that are actively managed to create long-term wealth from the accelerating innovation revolution. Although we shied away from the “dot-goners” of the late 1990s; we now see new opportunities for investing in technologies that have both proven products and capable managers. 2020 has now seen the largest number of new companies going public in recent memory; despite the challenges of the Virus and its recession. These two funds (and their managers) are focusing on Genetic breakthroughs, Global E-commerce in many industries (logistics warehouses), Artificial Intelligence (Smart everything), Access to new Business Capital (currencies backed by algorithms), and Exponential Data being maximized in almost every aspect of each of these innovations (think cloud computing and cell towers with 5G). 

There are now two names that most clients will see in their portfolios to reflect these innovations. First, Tekla Healthcare Investors (HQH) with investments in a broad range of sub-sectors including Biotechnology, Pharmaceuticals, Life Science Tools, Health Care Equipment and Providers (with names that include Vertex Pharma, Amgen, Regeneron Pharma, Gilead Sciences and others. HQH has a reported one-year return of 22.55 percent and it pays a current annual dividend of almost eight percent. The one-year return in our aggregate managed portfolio at September 30 was 24.23 percent (combination of growth and income). Depending on each individual client’s needs and goals, most clients will see between one and two percent reflected in the domestic portfolio equity category.

The second innovation fund now included in most portfolios is BlackRock Science and Technology Trust II (BSTZ). Although new to our portfolio, most clients will easily recognize the BlackRock name from our long-time positions in its Global Allocation fund (MALOX). We have been impressed with the capable team of managers at BlackRock and we were easily drawn to its relatively new fund which formed in 2019. The fund “takes a unique approach to investing in the technology sector by blending “next generation” technology stocks and private investments along with a tactical single-stock option-writing strategy”. The fund has an annualized distribution rate of 4.68 percent as of September 30. Also, it has reported a one-year total return of 55.26 percent as of August 31 and an annualized return from inception in 2019 of 45.52 percent. Significant positions reported as of August 31 included Tesla, Twilio, Kakao, Livongo Health and Shopify (among many others).

From the above discussion, you will notice significantly different allocations in your portfolio from previous reporting: Innovation has been increased; domestic allocations are now favored over international allocations; alternative real estate investments have been increased as a percentage of the total equity allocation for both cash flows and inflation protection; and alternative income positions have been increased for improved cash flows which ultimately contribute significantly to the portfolio’s total performance. All-in-all, we believe that these changes will contribute to meaningful returns as our economy works through the many speed bumps (hopefully no mine fields!) we see down the road.

Lastly, I would be remiss if I did not emphasize the importance of the pending elections. As your investment advisor, we must point out that your future financial security is also on the ballot. As best you can, try to look beyond the personalities and focus on the Fundamentally Differing Philosophies and the Democratic Process and our Country’s Fundamental Rights and Obligations to its People. No matter the outcome, we will continue to manage the portfolio to meet your individual goals and objectives. PLEASE EXERCISE YOUR CIVIC DUTY AND VOTE!

Be Safe and Stay Well!


Intelligent Investment Management, LLP