INVESTMENT STRATEGY NOTES

Stocks

We are almost completely out of stocks in almost all accounts right now because the trend in the market is sharply lower and I think it could continue to drop quite a bit. This is just the fourth time in my career of nearly 40 years that I almost completely exited the stock market.

The only three stock market positions of any size across client accounts are JP Morgan Large Cap Value (-2.9% YTD), JP Morgan Equity Income (-6.9%) and Ecofin Sustainable and Social Impact Term Fund (+0.38%).

This compares to the S&P 500 Stock Index Fund (-18.5% YTD) and the NASDAQ Composite Stock Market Index (-28.6%).

Bonds

We are also out of bonds in nearly all accounts. However, when the Federal Reserve gets done raising interest rates, maybe sometime later this year, I hope, we will probably find some values in bonds.

I am following some closed end funds trading at close to historic discounts and already paying out 5% – 6% tax free. I do occasionally buy closed end funds when they get to big discounts because usually those discounts will narrow again at some point and we get not only a good income but some appreciation as the fund trades closer to the underlying value of their holdings.

This is what we did when I bought Kayne Anderson (KYN) and that paid off handsomely for all those that got in early as we doubled our money in a year (past performance is no guarantee of future results). I don’t think the closed end bond funds will go up nearly that much but hey, the chance to get 6% tax free income with some potential appreciation sounds pretty good when we are talking income investments.

Real Estate

Blackstone Real Estate Income Trust (BREIT) continues to exceed my expectations and is the only investment I know aside from commodities to be up nicely so far again this year. As an aside, I think residential real estate prices will slow their rate of inflation some as fewer people qualify for mortgages at higher rates, now nearly double what they were in January.

Blackstone Real Estate Income Fund does own some residential real estate but 100% of it is on lease-purchase agreements with the homeowners. In fact, they are doing this usually with the existing occupant rather than buying houses and renting them out. They also restrict the price at which the occupant can buy the house to an increase of 4% – 5% per year, far lower than the average annual increase in home prices nationwide the last few years. They do not buy and flip residential real estate in the investment we own.

Commodities

As I wrote previously, for the first time in many years I am actually buying a bit in funds that invest in a broad range of commodities. Most accounts now have 10% in those funds. These should continue to go up with inflation, and while I expect inflation to slow down some as rates keep going up, I think the rise in commodity prices has a long way to go after many years of falling. In other words, I expect this to be a long-term trend worth having in our portfolios.

Bitcoin and Crypto Currencies

I cannot buy crypto currencies in Schwab accounts. However, I can buy BITO, an exchange-traded fund that tracks the price of bitcoin. It continues to fall in price and we will need to wait for a turnaround in order to buy. That will probably happen concurrently with stocks and probably provide a bigger return, so that is on hold for now.

Limited Partnerships

Strategic Partners told me yesterday that they are coming out with a sequel to the Wireless Infrastructure partnership some clients are in that will have lower fees, monthly income and monthly liquidity similar to BREIT. The business of owning cell towers is a very good one and I am considering investing some client money in this new offering.

Other Alternative Investments

I continue to closely follow several funds with historically low volatility and 3% – 7% average annual total returns. Again, this does not guarantee future returns. These can be appropriate as bond substitutes and that is the way I have used them in the past.

Referrals

Just a quick note here. I almost never ask for referrals because I figure if you are happy with our relationship and how I have done for you, you will naturally mention that to people you know if they ask. That said, those people almost never actually call me. So, if that comes up, the best thing to do is ask them if I can call them and that will happen.

Two things I think are important are that I am an experienced and trained investment fiduciary who must act in my clients’ best interest and I am strictly fee-only. People are increasingly looking for those today, and as always, they are looking for someone they can trust, which is why they are asking you.

Questions

Please ask me if you have any questions or concerns. Thanks.

Dave

Leave a Reply

Your email address will not be published. Required fields are marked *