To our Clients and Friends:
We want to pass along a brief update on CrossGrainFI and our view of the markets.
First, the proverbial good news. As expected, the SEC approved our application for registration. We anticipate TD Ameritrade will complete their registration and update process in the next few days. Once we are up and running there, we will send out via DocuSign our new advisory agreement for your signature. There is NO change (other than firm name) from the terms of your prior agreement with Kimble Advisory. All of this will ensure a seamless investment and relational experience.
Next, the not-so-good news on the markets. As of last week, we had a nice reprieve from the relentless January selling. All three averages were well off their lows with the Dow ending approximately 3% points from breaking even on the year. Then, inflation numbers for last year came in at 7.5% annualized rate which is, in a word, horrible. The Fed has been trying to get inflation over 2% for the last ten years and we can finally declare Mission Accomplished. This higher-than-expected inflation number has a direct impact on bond yields with the 10 year Treasury now yielding over 2%, a level not seen since 2019. And to top all off, we have growing tensions in the Ukraine with warnings of war being issued by the White House. Unsurprisingly, both the stock and bond markets have reacted poorly, and we do not expect this to be the end of market volatility for the year.
We believe it is too soon to panic, but you have likely noticed that we are holding a larger amount of cash than normal in anticipation of continued market selling over the next few months. Indeed, for the moment we do not believe we are moving towards an extended Bear Market but instead an extended correction within a longer term Bull Market.
In addition to raising cash, we reduced allocation to the Growth portfolio with a partial sale of Neuberger Small Cap Growth Fund, AMZN, 1/2 of our MSFT holdings, and a portion of AKRIX (in most cases, locking in substantial gains). We continue to hold and invest in natural resources and energy opportunities which have done very well amidst the economic and political chaos. We continue to rotate towards less volatile Value stocks over traditional Growth stocks by selectively adding to the Northern Trust Quality Dividend Growth ETF and the Neuberger Berman Institutional Value Fund. If we get an expected further pull back, we will barbell our Value exposure with renewed small cap Growth with our goal of bringing the Neuberger Small Cap Growth Fund back to target weight. And we continue to keep our eyes out for new real estate, private credit and other inflation- and rising rates-resistant investment opportunities.
As we mentioned in our last note to you, we still think it will be hard for the Fed to increase rates more than 2-3 times this year. The risk of a recession is gaining speed (retail sales are weakening, inventory is growing, commodities continue their torrid inflationary spiral, a Ukranian conflict may harm the global economy, etc.) which will eventually make it hard for the Fed to raise rates into a slowing economy. This would be bullish for equities. In addition, it appears that our fearless political leaders at the State and National levels are ready to allow the economy to fully re-open. This re-opening may help our labor shortage issue and add to sustainable growth. Time will tell, but we are cautiously encouraged.
Overall, we are reminded that there are times in the Market when not chasing the sell-off (buying the dips, for example) and sitting on one’s hands is prudent. We believe the next few weeks / months will be that time. We are confident that we will not pick the ultimate bottom of the market to reinvest your capital (aka “market timing” does not work), but we are determined to monitor and implement these investment plans over time to achieve your longer term investment objectives.
On an administrative front, our new Form ADV has been posted to all client portals, which we remind you have all sorts of important and great information on your accounts, investments, estate plans and the like. Check out your portal at https://main.yhlsoft.com/auth/users/webportal/CrossGrainFI.
As always, we are grateful for our relationships with you and the trust you place in us at CrossGrain Family Investments. Our goal, really our dream, is to have a boutique family office-type practice where your family goals and our relationships with you are the primary foci. To that end, we continue to keep our client and co-investment group small while selectively taking on new families to work with. Should you have anyone within your world who would be great fit with us, we would be happy to meet them.
Warmest regards,
Jeff & Biff