ALLOCATION UPDATE
Bonds – Our bond holdings remained unchanged.
U.S. Financials, Materials, and Industrials – All three benefit from rising rates, a falling dollar, and rising commodity prices (caused by massive U.S. deficit spending). Those holdings corrected significantly and hit our capital preservation stops, they were sold and moved into the cash account; preserving gains.
Note: Last week saw a large drop in interest rates (the 10 year treasury) signaling slower growth around the corner. It is expected that the weaker political strength in Washington D.C. means that the large spending bills are a thing of the past. Less money flowing through the system translates into lower future growth (which is what the drop in interest rates signaled), lower consumer spending, and less inflation.
Developed International and Emerging Markets – We shifted some of the cash generated by the capital preservation stops into international stocks, increasing foreign holdings by 3% to 5%. We will likely add more, the fiscal mess in the United States (and the sky high valuations) should continue to pressure the dollar and translate into gains for foreign holdings.
Commodities – Central Banks are working to stomp out inflation, which has been steadily advancing at accelerating rates in 2021. In the short term their efforts are working. Selling pressure broke the trend for these holdings, triggering our capital preservation stops. These holdings were sold, preserving gains.
Light Now Shining On Quality Growth - The party is likely over for what Wall Street is calling ‘The Reflation Trade’, where the reopening of the economy is resulting in higher interest rates, commodity prices, and demand to restock inventory. This past Monday we shifted cash into investment holdings that are expected to be in demand by investors, generally large cap growth stocks with stable earnings and what Wall Street describes as having a ‘wide moat’.
Don’t Count Inflation Out – The Federal Reserve has a long and storied track record of putting too much stimulus into the economy (think the Technology Bubble and the Housing Bubble). In my opinion there is good evidence to be considered that the Federal Reserve Bank has already put too much stimulus into the economy and those investments that got smoked recently might be on the buy list again.
The Bottom Line – Our Global Ranked Momentum and Capital Shield disciplines work together to trim investments that break trend (move from a bull trend to a bear trend) and position client portfolios in investments that are in high demand by investors globally. Time periods such as this result in changes to portfolios.
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DEFINITIONS
Capital Shield – Highcroft Investments Advisor’s Capital Shield program is a rules-based discipline that has capital preservation as its’ primary objective. Using technical analysis the program exits investments that have broken trend, shifting those investments into cash. The discipline helps to lock in past gains and prevent further declines. Capital Shield acts as a brake when investments break a bull trend.
CRB Commodities Index - Thomson Reuters/Core Commodity CRB Index is calculated using arithmetic average of commodity futures prices with monthly rebalancing. The index consists of 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, RBOB Gasoline, Silver, Soybeans, Sugar and Wheat. Those commodities are sorted into 4 groups, with different weightings: Energy: 39%, Agriculture: 41%, Precious Metals: 7%, Base/Industrial Metals: 13%.
Global Ranked Momentum – Highcroft Investment Advisor’s Global Ranked Momentum program is a rules-based discipline that has capital growth as its’ primary objective. Using fundamental and technical analysis, provided by institutional service providers, the rules-based system ranks the price momentum of all assets globally. Asset allocation is constructed from the top 50% of those assets. Resulting portfolios are then positioned in the top 25% to top 50% of assets globally, those which are in the highest demand by investors.
NASDAQ Index - The NASDAQ-100 is a modified capitalization-weighted index. The stocks' weights in the index are based on their market capitalizations, with certain rules capping the influence of the largest components. It is based on exchange, and it does not have any financial companies. The financial companies were put in a separate index, the NASDAQ Financial-100.
S&P 500 Growth Index - The index measures growth stocks using three factors: the ratios of book value, earnings, and sales to price. S&P Style Indices divide the complete market capitalization of each parent index into growth and value segments. Constituents are drawn from the S&P 500®.
Trailing Stop - The term trailing stop refers to a general strategy whereby investors desire to limit declines of their investment holdings. The strategy does not eliminate the possibility of loss, it is designed rather to cut short the trend of continued declines. The discipline can limit losses and lock in gains.
IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. This memorandum is being made available for educational purposes only and should not be used for any other purpose.
The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Investing involves risks including possible loss of principal. Past performance does not guarantee future results. Any investment or investment strategy outlined herein are not suitable for all investors, readers should conduct their own review and exercise judgment prior to investing. Wherever there is the potential for profit there is also the possibility of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein and may be subject to change without notice. Neither Highcroft, Inc., Gerald Asplund, nor LPL Financial, has no duty or obligation to update the information contained herein.
To the extent you are receiving investment advice from a separately registered independent investment advisor or broker, please note that Highcroft, Inc., Gerald Asplund, and LPL Financial are not an affiliate of and makes no representation with respect to such entity.
Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources. The economic forecasts set forth in this material may not develop as predicted.
Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer.
The sources from which information has been obtained is assumed to be reliable; the accuracy of such information is not guaranteed, and the accuracy and completeness of such information has not been independently verified.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results. Investing in the index would require investors purchase an investment product, which would involve fees and expenses.
The fast price swings in commodities and currencies can result in significant volatility within an investor's holdings.
ABOUT US
Highcroft Investment Advisors provides retirement planning, investment management, financial planning, fiduciary investment management, and lifetime income planning. Certified Financial Planner. Working with business owners, individuals, and wealthy families near Wayzata, Minnetonka, Plymouth, Orono, Minnetrista, and Minneapolis Minnesota (55402, 55391, 55447, 55364, 55428).
Highcroft Investment Advisors serves as a 3(21) and 3(38) Investment Advisor and fiduciary for labor union supplemental 401(k) and pension plans and corporate 401(k) plans. Highcroft works with the union's counsel, recordkeeper, administrator, and the plan's trustees. United Association, Plumbers, Pipefitters, Steamfitters, IBEW, and Carpenters. Serving Wisconsin and Minnesota. 401(k) investment management provided through LPL Financial's corporate RIA - offering 3(21) and 3(38) services.
Working with business owners, individuals, and wealthy families near Wayzata, Minnetonka, Plymouth, Orono, Minnetrista, and Minneapolis Minnesota (55402, 55391, 55447, 55364, 55428). As independent financial advisors we are not driven by certain products or services, instead we focus on your needs as an individual. Services include fiduciary fee only, retirement and divorce financial planning, life insurance, capital preservation, lifetime income planning, bonds, stocks, ETF, income, IRA, brokerage, rollover IRAs. Financial advisor near me, financial planner near me, independent planner near me.