Active Strategy Review & Insights

As of
December 31 2022

Internal Use Only
Core Satellite
Prepared By
Robert Netzly and Tim Schwarzenberger
Robert Netzly, CEO

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks (overperform, underperform, etc.)?

The markets reversed course in December, with most asset classes and sectors experiencing losses. The broad fixed income market (BB US Agg) returned -0.5% in the month as rates modestly rose across the maturity spectrum. For the year, the Agg is down 13%, capping one of the worst years on record for bonds. The US large-cap market (S&P 500) returned -5.8% in December, bringing the 2022 performance to -18.1%. Value continued to outperform in the month and exceeded growth by nearly 22% for the year. Energy stocks modestly outperformed the broad market for the month and finished the year up 65%! US small- and mid-cap stocks performed similarly to US large caps for the month, although they are ahead ≈2-5% for the year. International developed equities continued to outperform their US counterparts, driven largely by the weakness of the US dollar. Emerging market stocks also outperformed for the month but were down 20% for the year. Mainland Chinese stocks once again posted positive returns (2.0%) in December; however, they finished the year down by over 25%. Latin American stocks, on the other hand, declined in the month, but they were the only positive EM sector for the year (+8.9%).  The US dollar (US Dollar Index) declined against most other currencies, but it ended the year up by 6.2%.   

With the weak equity and fixed-income performance in Decembxer, all Core Satellite portfolios posted negative returns. On a relative basis, the strategies modestly underperformed their benchmarks, with the Select strategies underperforming their Global counterparts. For the trailing year, the 100% Equity Core Satellite portfolios performed in line with their benchmarks, while the 70/30 portfolios outperformed by 1-4%.   

Why did we see this performance?

The “Core” portion of the portfolio outperformed for the month due to strong performance from BLES and WWJD relative to the MSCI World Index. This was partially offset by weaker performance from ISMD, FDLS, and BIBL. The “Core” portion also outperformed for the year, with strong relative performance coming from BLES (-16.0%), WWJD (-14.6%), and ISMD (-13.7%) versus -18.1% for the MSCI World, which overcame the weaker performance from BIBL (-23.4%). However, the “Satellite” portion of the portfolio underperformed for the month as all three sector sleeves trailed the MSCI World Index. On the fixed income side, the 70/30 strategies have been negatively impacted by rising rates, although IBD was up 0.3% in December versus -0.5% for the BB US Agg.  IBD has outperformed the BB US Agg by over 3.5% for the year, given its shorter duration (4 versus 6.8 years).

Are there any adjustments you plan to make to continue or correct this trend?

The stock market is currently attempting to decide whether it will continue the heretofore short-lived rally off the lows of last year’s brutal decline or whether the current pop in prices will lose steam and reverse course. We believe that our most recent shift into Consumer Discretionary, Technology, and Materials sectors should benefit our investors as those sectors seem best poised to outpace the broader market during this current period of positive price momentum. However, we are closely monitoring the market for signs of a turn, in which case it would be likely our technical indicators would signal a move into more defensive sectors, such as Healthcare or Consumer Staples. For now, we like our current bullish allocation setup and are expecting to generate positive returns to start off the New Year.

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

While the short-term action of the market has been bullish, we also continue to see many headwinds to the continued upside in stocks, and there is a danger of a renewed downturn in the broad market. As an aggressive strategy, Core Satellite is designed to position for upside potential rather than primarily seeking to avoid downside risk, and our current exposure to tech, materials, and discretionary put us in what we believe to be the three sectors exhibiting the most upside potential at this current time.

If the market should break out above previous resistance and put together a sustained rally, these allocations should serve our investors well. In the event that prices stall and turn lower in a new leg down, Core Satellite will seek to rotate assets into sectors that are displaying more resilience to that decline than the broad market. If there are no favorable sectors based on our analysis, then we will consider reallocating to a different asset class, such as we did with US Dollar futures recently, which benefited our investors by helping to shield them from the extensive market declines of previous months.

Source: Inspire Investing, Bloomberg - 12 weeks of dataas January 5, 2023

Quadrant Interpretation

  • Strengthening: Performance < benchmark but momentum is UP
  • Leading: Performance > benchmark, relative strength is UP
  • Weakening: Performance > benchmark, relative strength is DOWN
  • Laggard: Performance < benchmark and momentum is DOWN
  • Benchmark: S&P 500 (S&P 500 Sectors)
Tactical Risk Management
Prepared By
Robert Netzly, CEO

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks (overperform, underperform, etc.)? 

Why did we see this performance?

Tactical Risk Management delivered a solid outperformance relative to benchmarks and the broader market in 2022. With stocks down double digits and the bond market suffering one of the worst years it has ever experienced, TRM was able to shield our investors from the full extent of the price declines, outperforming by over 5% compared to benchmarks.

Currently, TRM is still positioned very defensively. As I wrote last month:

TRM is our most conservative strategy and is designed to measure risk. When the risk is elevated, we move defensively. When risk abates, we move back into risk assets. TRM is not an attempt at picking tops and bottoms in the market because, as we know, risk can remain elevated for some time, and prices may continue to inflate. Likewise, risk could be normal, and prices could go down, as they do in normal market activity. However, the elevated risk is a precondition for a significant market drop, and so moving defensively in elevated risk environments reduces our chances of participation in significant market declines while allowing for standard market participation during times of normal risk levels, which is what conservative investors seek to achieve with TRM.

For TRM to go back into risk assets, we would need to see all or at least some of the following:

  1. Elliot Wave structure tilted toward a higher probability for upward price movement;
  2. Money Flow confirms a bullish divergence at a price bottom (price makes a new low while Money Flow does not);
  3. And preferably some accompanying confidence from bullish readings on Williams %R, upward-sloping moving averages, and breakouts above chart pattern resistance.

As of year-end, none of these three criteria have materialized; however, there are some bright patches beginning to show that suggests we might be getting close to the end of a decline – maybe. While the indicators above have not flashed green yet, they are not quite as deeply red as they were.

I believe we are entering an important inflection point for the financial markets here in Q1 2023, and it is time for the market to decide whether it is time for at least an intermediate-term relief rally, or if there is still room to fall before risk assets see some relief. We will continue to watch for indicators of risk abatement and the accompanying opportunity to enter back into stocks, but if risk remains elevated as determined by our TRM technical analysis, we will continue to hold our defensive position which has served us so well over the past year.

CW Active Strategies
Prepared By
Jacob Chandler

At Inspire Advisors – The Chandler Team, we focus on three main strategies that are diversified and actively managed “in house” by The Chandler Team. Below is an overview of how the strategies performed, what changes were made during the month, and what our expectations are for the month ahead.

How did the CW Active strategies perform for the month?

  • CW Active Protection: +0.29%
  • CW Active Balanced: +0.25%
  • CW Active Growth: +0.20% 

How did the static blended benchmarks perform for the month?

  • DJ U.S. Conservative: -1.77%
  • DJ U.S. Moderate: -3.70%
  • DJ U.S. Aggressive: -5.82%

What changes were made to the investment strategies during this month?

  • No major changes were made to the models this month.
  • The overperformance of the models compared to the blended benchmarks is due to our more conservative positioning regarding stocks and real estate. The markets continued their downtrend in December and our conservative allocation helped with our performance in the month.

What are our expectations for the month ahead?

We will keep our eye on the current trend directions and see if any asset classes change direction enough to warrant an increase in our allocations. The two assets classes that we feel are most likely for us to add in the near term, would be the international stocks (WWJD) and possibly some gold (GLD). These two assets’ classes are showing the most promise according to our technical indicators and may be added to the models in the near future.

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

For December, GLRY returned -6.13% vs -5.53% S&P Midcap 400 (MDY) and -3.93% USA Momentum (MTUM).  Versus the broad market, the biggest challenge to GLRY was Consumer Discretionary and Information Technology names, specifically in the semiconductor and automotive industries.  The Industrials sector had the most negative impact on the challenging month, as attention shifted to a slowing economy.  Health Care was a positive for the month and, alongside Financials, was buoyed by strong selection.

This past year was certainly a challenge for investors, as multiple outlets reported 2022 as the worst year for 60/40 portfolios since being tracked.  FED policy and geopolitical uncertainty stunned us all again and again.  Thankfully, we serve a big God, and He makes it easier to embrace the investing ideal of being long-term investors and big picture thinkers.  We can invest and work through times of uncertainty, especially by investing in companies that honor Him.  With the past behind us, we are excited to see what 2023 holds, and we will stand true to our long-term, momentum, and BRI framework.

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

Overall, how did the strategy do? What was the performance compared to expectations/benchmarks (overperform, underperform, etc.)? 

  • Inspire Tactical Balanced ETF (RISN): -0.14%
  • S&P Target Risk Moderate Index (AOM): -3.04%
  • S&P 500 Index (SPY): -5.69%
  • Inspire 100 Index (BIBL): -5.80%

What do we attribute the under/over performance to, compared to the benchmark for the month?

  • We attribute this performance to the very conservative allocation that the fund held for the month with regards to the percentage of stock compared to treasuries and other protective asset classes. Since the benchmark held a higher stock allocation it captured more of the stock market decrease for the month as the downtrend continued for the month of December.

What has been the performance for the past 12 months compared to the benchmark?

  • Inspire Tactical Balanced ETF (RISN): -18.06%
  • S&P Target Risk Moderate Index (AOM): -14.54%
  • S&P 500 Index (SPY): -18.80%
  • Inspire 100 Index (BIBL): -23.26%

What do we attribute the under/over performance to, compared to the benchmark for the past 12 months?

  • We attribute this performance to the continued defensive position held by the fund so far in 2022. We are currently not capturing much of the market increase when the stock market stages a rally (as it did in October and November), and we anticipate this to continue to be the case until our longer-term trend indicators improve. Additionally, since the stocks that we hold are based on the Inspire 100 Index, when we are allocated to stocks, the underperformance of the Inspire 100 compared to the S&P 500 has added to the underperformance compared to the benchmark.
  • Although the markets have increase in October and November, making our short- and long-term performance look underwhelming, our indicators were pointing to more downside to come so we held our positioning through December, which proved helpful as our gap in performance closed by roughly 3% in December alone.

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

  • Item #1: We continue to monitor the US Large Cap stock market (Inspire 100 Index)
  • Item #2: We continue to monitor the price movements of gold. We removed gold from the fund allocation as gold has been in a downtrend according to our charting system. If the trend reverses, we will consider including gold back into the fund.
  • Item #3: We continue to monitor the US Treasury holdings within the fund. We anticipate holding reduced duration or floating rate treasuries for the foreseeable future as the trend of raising of interest rates seems to be something that will remain through the beginning of 2023.
Issachar Fund
Prepared By
Dexter Lyons

Issachar lost -0.20% in December, while the IQ Hedge Multi-Strategy Index lost -0.97%, so Issachar outperformed its benchmark. Issachar traded lightly in December as risk continues to be elevated. We took small positions in Muni-bond ETFs and energy. The market was not rewarding us for taking risk, so we cut our losses small and returned to an all-cash position. We are in a down-trending Bear Market, and the Fed is not on our side.

The S&P 500 lost over -18% (the largest loss since 2008), and the NASDAQ 100 lost over -32%, while we lost less than -8% in 2022. January is when institutional money typically repositions itself for the new year, so I will study where big money flows to gain an edge. When "big money" buys or sells a stock, they do so by leaving "footprints in the sand" that we like to follow. Big mutual funds and pension plans create the trends we want to follow. Ships can't turn as quickly as a kayak, and kayaks can get out of the water when it is unsafe. The water is not safe currently. However, there will be another incredible opportunity once the market bottoms and a new uptrend begins, but we should protect capital until then. Buying the dips has worked every time, but one!

The Fed reduced its balance sheet by another $33 billion last month as they continue to drain liquidity! The Fed is expected to raise rates again on February 1st, which is fundamentally bad for stocks and bonds. Higher rates cause P/E ratios to contract, and growth stocks typically fall the hardest. TSLA crashed over -65%, AAPL fell more than -26%, and AMZN dropped over -49% in 2022. I do not see these former leaders returning anytime soon. The next bull market will have new leaders, and we expect the charts to pull us in and push us out.

Bottom Line: Issachar is in Cash, keeping our powder dry for the next opportunity! The Fed is still fighting inflation by raising rates and decreasing its balance sheet, which drains liquidity, making it hard for stocks to advance. The market is a forward-looking discounting system; if the price/volume charts look like "big money" is coming back, we will put our opinions aside and follow the money. Sometimes we win by not losing. Grace & Peace to everyone, and Happy New Year!

For it is by grace you have been saved, through faith, and this is not from yourselves, it is the gift of God not by works so that no one can boast. Ephesians 2:8-9

Financial professional use only. Do not distribute to the public.

IMPORTANT RISK INFORMATION

Mutual Funds involve risks, including the possible loss of principal. An investment in the Fund may not be appropriate for all investors. The Adviser's judgment about the attractiveness, value, and potential appreciation of particular asset classes and securities in which the Fund invests may prove incorrect and may not produce the desired results. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.

Investors should carefully consider the investment objectives, risks, charges, and expenses of the Issachar Fund (LIONX). This and other important information about the Fund are contained in the prospectus, which can be obtained by calling 1-866-787-8355. The prospectus should be read carefully before investing. The Fund is distributed by Northern Lights Distributors, LLC, member FINRA/ SIPC. Horizon Capital Management Inc. and Inspire Investing are not affiliated with Northern Lights Distributors, LLC. NLD Review Code: 5002-NLD-01/03/2022

National Admin Office: 3597 E Monarch Sky Ln, Suite 330 Meridian, ID 83646; Phone: (877) 859-6383 Investment advisory services offered through Inspire Advisors, LLC, a Registered Investment Advisor registered with the SEC.

© Copyright - Inspire Advisors, LLC