Monthly Active Strategy Review & Insights

As of
August 31, 2021

Internal Use Only
Core Satellite
Prepared By
Robert Netzly, CEO

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks?

After lagging just a bit in July, our Core Satellite strategies picked up the pace and tracked nicely along with their benchmarks, returning between 1.72% - 2.72% for the month of August depending on the version of the strategy invested in. On a year to date basis, all versions of the Core Satellite strategy have exceeded benchmarks by over 4%, delivering continued strong value to our clients.

Why did we see this performance, and are there any adjustments you plan to make?

As anticipated in the previous update, market action in August triggered our technical analysis driven approach to rotate out of the consumer sector and into the healthcare sector, alongside our continued overweight position in the financial sector. Our Inspire Select Healthcare and Financials concentrated stock sleeves both outperformed their overall sector benchmarks, contributing to solid performance.

Our special blend of technical analysis signals, including Relative Strength, Money Flow, and MACD, suggested to us that the consumer sector was losing steam relative to other sectors - also anticipated in last months update. As such, we initiated a rotation out of consumer sector and into the healthcare sector, while maintaining our existing allocation to the financials sector. Healthcare sports a strong uptrend and improving indicators suggesting that it is coming into increased favor and could provide enhanced returns relative to the broad market going forward, in our opinion.

What are 3 things you are monitoring right now for these strategies and why?

We continue to watch our dashboard of technical analysis inputs to measure the relative strength of various sectors, increasing and declining momentum signals and where the money is flowing to alert us to opportunities for outperformance by favoring certain sectors over others in our Core Satellite portfolio weightings.

Tactical Risk Management
Prepared By
Robert Netzly, CEO

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks?

After trailing slightly in July, our Inspire Tactical Risk Management (TRM) strategies picked up momentum and delivered some outperformance relative to their benchmarks in August.

Why did we see this performance, and are there any adjustments you plan to make?

There have been no tactical adjustments in TRM this year, and as such the portfolios have been fully allocated to their maximum exposure to our globally diversified portfolio of equities. We believe that the outperformance YTD has been driven by our Inspire Impact Score methodology which informs the security composition within our Inspire ETFs, and in our TRM Select models, additional benefit was delivered by the unique multi-factor Inspire Select security selection process which seeks to focus our stock portfolios on a smaller group of names which we see as poised for outperformance.

What are 3 things you are monitoring right now for these strategies and why?

As in last month’s update, the bearish divergence between stock prices (as represented by the S&P 500) and MoneyFlow indicator continued throughout August. The divergence is still relatively small, but if the trend continues could become more troubling for the outlook on stock prices. Should this divergence increase to problematic levels, and if there are confirming signals from other indicators, it is likely that Tactical Risk Management strategies would be moved to either 50% or 100% defensive positions to protect from the heightened probability of a stock market correction.

We expect that stocks still have some room higher left to travel, but there are cracks beginning to show in the infrastructure of the rally. We will continue to monitor the relative robustness or fragility of the stock market and when our signals indicate that risk has elevated to concerning levels, we stand ready to tactically shift TRM’s asset allocation to a defensive footing.

CW Active Strategies
Prepared By
Robert Netzly, CEO
Inspire Faithward Large Cap Momentum ESG ETF (NYSE: FEVR)
Prepared By Matt Melott

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks? 

FEVR returned 5.24% during the month of August, outpacing the S&P 500 index benchmark return of 2.98%. This was done via solid performance in the tech, health care, industrial, and materials sectors. Financials were a slight headwind, with underperformance coming from what we did not own vs. what we did own. Pressing forward, we are interested in the energy space and finding good risk/reward allocations. The “F” in our FEVRR methodology stands for financial health, so waiting for the right energy allocation is worth it. With earning season around the corner, that opportunity might come sooner rather than later.

What are 3 things you are monitoring right now for these strategies and why?

Inflation

Still on the topic of inflation, the FED is sticking with inflation being transitory, and they don’t see jobs where they need to be yet. The JOLTS report has job quit rate at the highest rate since inception. This certainly raises alarms on cost-push inflation due to wage competition, but we are still standing with the H1 2021 call of transitory inflation. Our favorite indicator is the “China Credit Impulse,” which has a great, lagged correlation with actual inflation metrics. Additionally, lumber prices are near October 2020 lows, hopefully giving housing disinflation/deflation a fighting chance.

Geopolitics

The recent events in Afghanistan are horrifying due to the loss of life. Regardless of whether withdrawal was right or wrong, or executed correctly, the world is watching the United States’ actions and inferring what would happen in other scenarios. Rather than absolutes, this raises the probability of similar actions on other fronts, such as Taiwan.

China Crackdown

Even more news and regulations are coming out from Chinese regulators. US IPOs might be stopped, either by Chinese or US authorities, and access to Western capital could dry up. Chinese tech companies are being squeezed for more personal data divulgences. This goes beyond the intellectual property fights in years past into private data. With the pullbacks in Chinese stocks, there are ripple effects that will be felt by the international marketplace.

You can learn more at www.inspireetf.com/fevr.

Inspire Faithward Mid Cap Momentum ESG ETF (NYSE: GLRY)
& Inspire Faithward Large Cap Momentum ESG ETF (NYSE: FEVR)
Prepared By
Matt Melott
Inspire Faithward Mid Cap Momentum ESG ETF (NYSE: GLRY)
Prepared By Matt Melott

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks? 

GLRY returned 2.90% during the month of July, outpacing the S&P MidCap 400® Index benchmark return of 2.01%. This was achieved via the real estate, consumer staples, health care, and materials sectors. Industrials and tech were headwinds as troubles persist within the economy and employment situation. Looking ahead, we are most attracted to companies that can stand on their own two feet without concentrated, large-cap company exposure (like many do). The "E" in the FEVRR process looks at earnings trends. In a dynamic, uncertain world this includes comparing not only year-over-year growth, but also the growth patterns from 2019 to 2021. Companies that deserve more attention will be able to compete in a variety of economic situations.

What are 3 things you are monitoring right now for these strategies and why?

Inflation

Still on the topic of inflation, the FED is sticking with inflation being transitory, and they don’t see jobs where they need to be yet. The JOLTS report has job quit rate at the highest rate since inception. This certainly raises alarms on cost-push inflation due to wage competition, but we are still standing with the H1 2021 call of transitory inflation. Our favorite indicator is the “China Credit Impulse,” which has a great, lagged correlation with actual inflation metrics. Additionally, lumber prices are near October 2020 lows, hopefully giving housing disinflation/deflation a fighting chance.

Geopolitics

The recent events in Afghanistan are horrifying due to the loss of life. Regardless of whether withdrawal was right or wrong, or executed correctly, the world is watching the United States’ actions and inferring what would happen in other scenarios. Rather than absolutes, this raises the probability of similar actions on other fronts, such as Taiwan.

China Crackdown

Even more news and regulations are coming out from Chinese regulators. US IPOs might be stopped, either by Chinese or US authorities, and access to Western capital could dry up. Chinese tech companies are being squeezed for more personal data divulgences. This goes beyond the intellectual property fights in years past into private data. With the pullbacks in Chinese stocks, there are ripple effects that will be felt by the international marketplace.

You can learn more at www.inspireetf.com/glry.

Inspire Tactical Balanced ESG ETF (NYSE: RISN)
Prepared By
Jacob Chandler

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks?

For the month of August, the Inspire Tactical Balanced ESG ETF (RISN) performed better than expected. We compare this active US large cap strategy to the S&P Target Risk Moderate Index. The fund outperformed the Index by 2.17% (according to Morningstar.com) for the month. Year to date, the Inspire Tactical Balanced ESG ETF (RISN) has outperformed its benchmark (S&P Target Risk Moderate Index) by 13.93% according to Morningstar.com.

Why did we see this performance, and are there any adjustments you plan to make?

We attribute this outperformance to the large cap US stock holdings which track the Inspire 100 index. This makes up approximately 80% of the funds allocation and outperformed the overall US large cap stock market (S&P 500) for the month by almost 1%. The fund will continue to stay the course for now as the strategy is performing as expected and our indicators are not telling us any changes need to be made.

What are 3 things you are monitoring right now for these strategies and why?

Long Term US Treasuries

We continue to keep our eye on the long term US treasury holding as the potential for higher interest rates may impact this holding, at which case we would consider moving back into intermediate term treasuries for that portion of the fund.

Gold Allocation

We are also monitoring the 5% allocation to gold within the fund as we anticipate higher than expected inflation to arise in the near to mid term future. However if this does not come to fruition we may reduce this allocation. This has proved a good addition, helping to limit the overall volatility of the fund.

Whole US Large Cap Market

We are also monitoring the US Large Cap stock market as a whole to see if the trend/momentum begins to change direction. If this should happen, we anticipate that the long term treasury and gold positions will help to offset any initial losses in the equity allocation within the fund. If the momentum continues in a downward direction, we will begin to reduce our allocation to equities and reposition those assets into more defensive asset classes. At the moment, we do not see any reason to reduce our equity exposure, and will continue to ride the trend until a catalyst hits the market and sparks a change in direction.

You can learn more at www.inspireetf.com/risn.

Issachar Fund
Prepared By
Dexter Lyons

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks?

The Issachar Fund outperformed its benchmark, the IQ Hedge Multi-Strategy Index, by a wide margin in the month of August: 2.42% to 0.40% respectively. The fund benefited from being invested in growth stocks which outperformed value this past month. The Issachar Fund manages risk and lets the market decide the return, but I do expect the fund to continue to do well in this growth-favored environment.

Why did we see this performance, and are there any adjustments you plan to make?

We are currently in a "risk-on" environment which is where the Issachar Fund has previously performed the best. The fund has been selling the laggard stocks and buying leaders that seam to be under institutional accumulation, which has been working well so far. The fund will continue this trend until the market no longer rewards shareholders for taking this kind of risk. The Fed has kept the liquidity flowing, and I do not see any signs of that slowing in the near future. I ultimately rely on God's wisdom to manage His fund and rest knowing that He is in control.

What are 3 things you are monitoring right now for these strategies and why?

S&P 500 and NASDAQ 100 Index trends

The S&P 500 and NASDAQ 100 Index trends are monitored because about three out of four stocks are influenced by the direction of those indexes. If the major indexes decline on above-average volume, stops are tightened in preparation to reduce exposure. The indexes are currently trading near all-time highs, so the fund is "all in" expecting the trends to continue while never ignoring risk.

Actions of current leading stocks

The fund focuses on how the current leading stocks are acting because they tell us what the big institutional money is thinking. If the leaders are being accumulated, the funds exposure increases. If the leaders are being sold on big volume, the fund is less likely to add to its current positions and instead looks for reasons to sell. The big liquid leaders are the "tell" as to what the market may be thinking, so cues are taken from the action of the leaders. 

Fed's balance sheet

The weekly totals on the Fed's balance sheet is monitored because I believe they hold the key to this bull market. The Fed's balance sheet went from $4.1 trillion on 2/28/2020 to over $8.3 trillion today! That money has to go somewhere, and most of it has found its way into the stock market, boosting prices. I am very bullish, but that could change if the Fed decides to remove the punchbowl of liquidity too soon. I do not see the Fed tapering its bond purchases anytime soon, but the fund plans to take advantage of the opportunity by shorting stocks and indexes when they do. For now, let's thank Jesus for His amazing grace and love and share His love with our neighbors. 

You can learn more at www.issacharfund.com/performance/.

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