OVERALL, HOW DID THE STRATEGY DO? WHAT WAS THE PERFORMANCE COMPARED TO EXPECTATIONS/BENCHMARKS (OVERPERFORM, UNDERPERFORM, ETC.)?
The markets continued their rally in November with most asset classes and sectors experiencing significant gains. The broad fixed income market (BB US Agg) returned 3.7% in the month as rates fell across the maturity spectrum. YTD, however, the Agg is down 12.6%. The US large cap market (S&P 500) returned 5.6% in November, bringing the YTD performance to -13.1%. Value continued to outperform growth in the month and is one of the few indices that has been positive over the last 12 months. Energy stocks significantly lagged for the month (+1.3%), but are up nearly 70% YTD. US small- and mid-cap stocks underperformed US large caps for the month although they are ahead ≈3-5% YTD. International developed equities significantly outperformed their US counterparts, driven largely but the weakness of the US dollar. Emerging market stocks, in a dramatic reversal from the previous month, were up nearly 15%. Mainland Chinese stocks rebounded strongly (13%) even as the country’s economic growth prospects continued to deteriorate. Latin American stocks, on the other hand, barely finished in positive territory (+0.5) in the month, but they remain the only positive EM sector YTD (+13.5%). The US dollar (US Dollar Index) suffered its worst month of the year (-4.8%), yet it is still up 8.2% YTD.
With the strong equity and fixed income performance in November, all of the Core Satellite portfolios posted positive returns. On a relative basis, the strategies underperformed their benchmarks, with the Select strategies outperforming their Global counterparts.
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 “Satellite” portion of the portfolio significantly underperformed as the allocation to UUP (Invesco DB US Dollar Index Bullish Fund, which tracks the performance of the US dollar relative to a basket of six major currencies) underperformed the broader market. UUP was held in the portfolio through mid-November, and during this time period, UUP was down 4.3%, while the broader market was up 4.2%. On November 14, the UUP position was replaced by equal allocations to the Inspire Materials, Consumer Discretionary, and Technology sleeves. These sleeves performed similarly to the MSCI World Index in the latter half of the month. On the fixed income side, the 70/30 strategies have been negatively impacted by rising rates, although IBD was up 2.7% in November. However, on a relative basis, the portfolio underperformed the BB US Agg for the month given its shorter duration to the benchmark (4 versus 6.8 years). On a YTD basis, IBD has outperformed the BB US Agg by over 3.0%.
ARE THERE ANY ADJUSTMENTS YOU PLAN TO MAKE TO CONTINUE OR CORRECT THIS TREND?
As the stock market bounced off it’s recent lows, the ensuing structure and technical character of the rally triggered the sale of our previous, defensively oriented position in US Dollar futures contracts via the UUP fund, and we rotated those assets into technology, consumer discretionary and materials sector sleeves to position portfolios to benefit from the potential of an intermediate or long term trend materializing from current levels.
WHAT ARE 3 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 continued upside in stocks, and there is 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 which 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.
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 strategies delivered positive performance last month, with roughly 2% gains depending on the version of the strategy being considered. These gains were less than the gains of the broader benchmarks given that stocks partially rebounded from earlier losses while TRM remained in a defensive position and benefited from a rally in the bond market, but did not fully participate in the concurrent rally in stocks. Over the past year, however, the defensive posturing of TRM has proven to have benefited investors as TRM outperformed benchmarks by several percentage points. We believe that defensive positioning remains appropriate and as we describe below, risk levels remain elevated and we expect further downside in stocks to come.
TRM looks at a variety of technical indicators, with heaviest weighting given to Money Flow, Elliott Wave structure and traditional chart pattern analysis. Also considered are MACD, Williams %R, moving averages, etc.
TRM is our most conservative strategy and is designed to measure risk. When 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, 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 to achieve with TRM.
In order 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 confirming a bullish divergence at a price bottom (price makes 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 you may have guessed, we have seen none of those three items as of yet, and risk remains very elevated over the intermediate term, despite possibilities for short term rallies in the context of the ongoing downturn. Illustrated by the accompanying chart, the recent rally of the previous couple weeks has only served to bring prices right back to the precise overhead resistance of the downtrend channel that has defined the market slide all year. Prices tagged that line and promptly began selling off. There is currently no evidence to suggest that prices are set to break out into a sustained rally, though we remain alert for such signals, which would give us opportunity to consider moving back into risk assets.
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: +0.11%
· CW Active Balanced: +0.14%
· CW Active Growth: +0.18%
How did the static blended benchmarks perform for the month?
· DJ U.S. Conservative: +3.37%
· DJ U.S. Moderate: +4.35%
· DJ U.S. Aggressive: +5.42%
How did the individual holdings (assets classes) perform for the month?
· US Large Cap Stocks (BIBL): +5.99%
· International Stocks (WWJD): +11.87%
· US Small/Mid Cap Stocks (ISMD): +2.52%
· US REIT Index (USRT): +6.02%
· US LT Treasuries (VGLT): +6.08%
· US IT Treasuries (VGIT): +2.66%
· US ST Treasuries (VGSH): +0.75%
· US ST Treasuries FLT (USFR): +0.25%
· Gold (GLD): +7.40%
· Div. Commodities (GSG): -2.31%
· Mortgage Back Sec. (RISR): -4.03%
What changes were made to the investment strategies during this month?
· No major changes were made to the models this month.
· Previous months recap:
· We decided to allocate the “defensive” portion of the models to two short term floating rate treasury funds.
· We also decided to add an inverse S&P 500 fund to reduce our exposure even further to the stock market without fully selling our entire Inspire 100 stock position. Our plan is to remove this inverse position when our indicators move upward enough to indicate that the trend direction may be changing.
· The underperformance of the models compared to the blended benchmarks is due to our more conservative positioning regarding stocks and real estate. The market continued its “bear market bounce” from October, but due to the negative fundamental economic factors and the fact that the trend has not closed above our long-term downtrend line, we have not decided to move the allocations more aggressive for the time being.
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.
For the month of November, GLRY rose +6.97% vs +6.02% SPDR S&P Midcap 400 (MDY) and +3.47% USA Momentum (MTUM). Industrials provided the most outperformance, with four companies rising double digits. Information Technology was the best performing sector in absolute terms, with Lattice Semiconductor appreciating fifty percent. Consumer Staples and Utilities were headwinds as the market moved to accept more risk. Healthcare companies continued to perform well, but due to BRI restrictions and the FEVRR process methodologies, the sector remains light versus comparable strategies.
Going forward, we are still hopeful for calmer markets with decided direction. Inflation should continue its pace lower, and our expectation is for the FED to slow the speed of rate increases (potentially even pausing). The midterms are behind us now, so the volatility that comes from uncertainty has diminished too. Finally, the wildcard of political tension in Europe and Asia persists, but escalation or de-escalation will provide that clarity markets look for.
Until next year, we wish you the merriest of Christmases.
Overall, how did the strategy do? What was the performance compared to expectations/benchmarks (overperform, underperform, etc.)?
· Inspire Tactical Balanced ETF (RISN): +0.36%
· S&P Target Risk Moderate Index (AOM): +5.45%
· S&P 500 Index (SPY): +6.02%
· Inspire 100 Index (BIBL): +5.99%
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 increase for the month as the “bear market bounce” continued from October into November.
What has been the performance for the past 12 months compared to the benchmark?
· Inspire Tactical Balanced ETF (RISN): -14.67%
· S&P Target Risk Moderate Index (AOM): -11.20%
· S&P 500 Index (SPY): -9.21%
· Inspire 100 Index (BIBL): -15.05%
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, 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.
· Although the markets have increase in October and November, making our short- and long-term performance look underwhelming, our indicators are pointing to more downside to come and for that reason we have not chosen to get more aggressive in our stock allocation and are willing to sacrifice some short-term underperformance for the potential of reducing risk if the markets continue on their longer term down trend direction.
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) to see if the trend/momentum remains in a downward direction. Our indicators seem to be pointing to a continued downtrend in the US Large Cap stock market for the foreseeable future, but we will monitor this allocation to see if an increase in exposure is warranted.
· 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 end of 2022.
Issachar lost -2.69% in November, while the IQ Hedge Multi-Strategy Index gained 4.13%, so Issachar underperformed its benchmark. Issachar added stocks in November, but aggressive daily price swings stopped us out of most positions. Price volatility is a sign of distribution. However, the tide seems to have turned as higher trending growth stocks are under accumulation. It appears the market liked what the Fed had to say about inflation and maybe discounting a slower pace of rate increases. The S&P 500 index has rallied past its 200 DMA of resistance which now serves as support, so I am optimistic that we will avoid a well-forecasted recession in 2023.
We continue to watch the Fed's balance sheet for signs they may crash the economy. The Fed has taken over $380 billion off its balance sheet since peaking around $9 trillion on 4/19/22. The market is pricing a 78% chance of a 50-bps (not 75-bps) rate increase on December 14th. That would be the 7th rate hike in a row to bring the Fed Funds Rate to a new range of 4.25-4.5%. I expect the Fed to continue unwinding its balance sheet, which could be what the Fed uses to tame inflation. Taking its foot off the rate-raising brake could allow the market to avoid a recession the inverted yield curve has been forecasting. The spread between the 10-year and the 1-year Treasury yields moved down to -1.18% on 12-1-22, the most inverted curve since September 1981. The previous eight recessions in the US were all preceded by an inversion in the yield curve relationship. However, not all yield inversions lead to recessions. The Fed could very-well accomplish a "soft landing" and avoid the well-advertised pending downturn. We may have a "white collar" recession instead where companies lay off employees to cut costs and maintain profit margins, but I do not expect it to be an "official" recession.
We are watching growth stocks and junk bonds for indications the uptrend will continue! If growth stocks with accelerating sales and earnings continue to be accumulated, we should do well in a Santa Claus Rally into the new year. If junk bonds continue to trade above their up-trending 50 DMA, that will be a good sign that investors' appetite for risk is increasing, and the higher tide could lift many boats.
Bottom Line: Issachar has its toe in the water, and we hope to get more invested as we are rewarded for taking risk. Price and volume charts are improving as the market discounts future earnings despite recession fears. We have never seen a bull market begin with the Fed still raising rates, but maybe the market knows what the Fed will do before the Fed does. We are optimistic and expect the market to trend higher into the new year. Grace, Peace, and Merry Christmas to Everyone! (If you have questions or comments, please call 337-983-0676 or reply to Dexter@IssacharFund.com)
The Holy Spirit will come upon you, and the power of the Most High will overshadow you; therefore, the child to be born will be called holy—the Son of God. Luke 1:35
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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: 5029-NLD-12/05/2022
