Monthly Active Strategy Review & Insights

As of
October 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?

Our Core Satellite strategies delivered positive returns between 2.17% and 3.96%, depending on the version of the strategy invested in. But although returns were positive, they were less positive than their benchmarks in October. On a year to date basis, however, all versions of the Core Satellite strategy continued to exceed benchmarks by over 3%, delivering continued strong value to our clients.

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

Following solid outperformance in the month of September, the financial and healthcare sectors, which Core Satellite is currently overweighted in, took a breather and allowed the broader market to play catch up, resulting in slightly lower positive returns for Core Satellite verses it’s broad based benchmark.

Our current satellites are focused on the financial and healthcare sectors, which continue to exhibit above average return potential in our opinion, as indicated by our special blend of technical analysis signals, including Relative Strength, Money Flow, and MACD.

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

We do expect that the overall market will continue to experience price declines, possibly leading to a bear market in Q4 or Q1, and we will be watching the technicals closely for signs that our current sector selections are still the right choices, or if there are other sectors that begin exhibiting more resilience in the face of the expected continuation of market declines.

Tactical Risk Management
Prepared By
Robert Netzly, CEO

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

Tactical Risk Management strategies underperformed their benchmarks in the month of October, delivering roughly flat returns between -0.20% and 0.13%, depending on the version of the strategy invested in, while the broader market bounced off of the September lows and managed to break through overhead resistance and post new highs. However, on a year to date and since inception basis, TRM continues to have respectable performance relative to benchmarks, though as of the end of October the more aggressive version of TRM has fallen slightly behind.

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

Risk levels in the market remained elevated throughout the month of October, and as the objective of TRM is to move assets into defensive positions during times of heightened market risk, TRM was largely on the sidelines throughout October as the broader market staged a rally off of the lows from the September selloff. Risk continues to be elevated, and so TRM continues to be defensive. In fact, the rise in prices to new highs has actually served to elevate the risk in the long term, even if in the short term there has been positive gains. TRM’s strategy does not attempt to “pick tops and bottoms” in the market, rather it is designed to take the temperature of the market and gauge the level of risk at a given time, and attempt to increase or decrease exposure to risk assets based on that analysis.

While market risk remains elevated, our technical analysis is suggesting that a low-risk entry point may be on deck over the short-term if prices can pull back closer to previous all time highs, which should act as support (at least over the short term). Given such an opportunity, TRM would likely invest back into risk assets (ie: stocks) in expectation of at least one more leg higher in the current rally. However, our analysis of the market structure continues to favor the verdict that we are in the end stages of the run up off of the COVID lows from March 2020 and as such our expectation is that we would see TRM return to defensive positions in the coming weeks or months after the possible next/last leg higher in the rally. That said, it is also quite possible that the market has completed that final leg and prices could turn lower in a significant fashion should the support level of the previous all time highs be invalidated.

Source: TC2000
CW Active Strategies
Prepared By
Robert Netzly, CEO
Inspire Faithward Large Cap Momentum ESG ETF (NYSE: FEVR)
Prepared By Matt Melott

How did the strategy perform compared to expectations/benchmarks? Are there any adjustments you plan to make?

It was another great month for FEVR, with 10.10% return for the month vs 7.02% S&P 500 (SPY) and 8.59% Momentum (MTUM) benchmarks. An outsized portion of the performance was Cloudflare, which is an edge-computing software company going toe-to-toe with the likes of Amazon and their AWS platform. Other tech companies were strong as well, alongside good financials’ performance. Healthcare performance was a headwind due to the moderate-to-highly volatile Novavax, which is still focused on providing COVID treatment to developing countries and locales. These are the kinds of opportunities we look for with our FEVRR process. We look for companies that pass our BRI screening, have positive impact goals, and an attractive risk/reward profiles.

As the end of the year approaches, we want to maintain this trajectory. We will do this by sticking to our FEVRR process, regardless of what is to come. Spending season will be interesting this year, and we are carefully watching the FED’s speech vs. actions. Sector rotation will be key should the sands shift.

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

China's Policy

China has given the market a wild ride this year, which is especially impactful after being included in indices, like the MSCI. Evergrande is still being figured out, and new tech regulations and crackdowns are coming in with increasing frequency. This has a ripple effect in markets. If Evergrande’s debt goes sour, the housing market will falter, and that has an immediate impact on imports of lumber and industrial metals.

FED Policy

The FED continues wanting to not cause a policy error, and in doing so, may commit one. They could also thread the needle where markets and economies return to plotting their own course after support is reduced. Some would argue if they had raised rates as the economy came back online after ’08, then rates could have been lowered during COVID to alleviate pressure. Unfortunately, we cannot go back in time to see if that would have worked. The more likely outcome is that those higher rates would have created other repercussions, COVID or not.

What matters now is liquidity and expectations vs. reality. If the FED’s open market operations subside, liquidity is reduced. If the expectations do not line up with actual mechanics, volatility could increase (upside or downside) which would be exacerbated with less liquidity. Therefore, the FED has a very difficult job over the next two months.

Earnings Season – Q4 Expectations

The market really cares about the top-line of companies (their revenue). Revenue can be impacted by both price and volume of goods sold, called the price/vol mix. This relationship will have the bull and bear case dueling until January, as consumers decide how much the increase in prices will have on the volume of things they buy. Therefore, we’re watching, in totality, how much insight companies are giving us into their expectations for the remainder of the year.

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

How did the strategy perform compared to expectations/benchmarks? Are there any adjustments you plan to make?

While April through August were sleeper months for midcaps, GLRY ended October on an upswing of 5.81% vs. 5.88% for the S&P Midcap 400 index and 3.34% for the S&P 600 Smallcap benchmarks. Industrials provided the biggest boost, due to their weighting, and our real estate and communication companies returned double digits. Energy and consumer discretionary were headwinds this month.

As the end of the year approaches, we will be focused on continuing October’s growth via risk management and sector rotation. The last “R” in our FEVRR process stand for “Risk,” which is our way of comparing all prior inputs to see if the investments make sense. Additionally, being in the right sectors, by following consumer spending and FED policy, will have the biggest impact in the near term.

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

China's Policy

China has given the market a wild ride this year, which is especially impactful after being included in indices, like the MSCI. Evergrande is still being figured out, and new tech regulations and crackdowns are coming in with increasing frequency. This has a ripple effect in markets. If Evergrande’s debt goes sour, the housing market will falter, and that has an immediate impact on imports of lumber and industrial metals.

FED Policy

The FED continues wanting to not cause a policy error, and in doing so, may commit one. They could also thread the needle where markets and economies return to plotting their own course after support is reduced. Some would argue if they had raised rates as the economy came back online after ’08, then rates could have been lowered during COVID to alleviate pressure. Unfortunately, we cannot go back in time to see if that would have worked. The more likely outcome is that those higher rates would have created other repercussions, COVID or not.

What matters now is liquidity and expectations vs. reality. If the FED’s open market operations subside, liquidity is reduced. If the expectations do not line up with actual mechanics, volatility could increase (upside or downside) which would be exacerbated with less liquidity. Therefore, the FED has a very difficult job over the next two months.

Earnings Season – Q4 Expectations

The market really cares about the top-line of companies (their revenue). Revenue can be impacted by both price and volume of goods sold, called the price/vol mix. This relationship will have the bull and bear case dueling until January, as consumers decide how much the increase in prices will have on the volume of things they buy. Therefore, we’re watching, in totality, how much insight companies are giving us into their expectations for the remainder of the year.

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 October, the Inspire Tactical Balanced ESG ETF (RISN) outperformed the S&P Target Risk Moderate Index by 3.73% (according to Morningstar.com).
Year to date, the Inspire Tactical Balanced ESG ETF (RISN) has outperformed its benchmark (S&P Target Risk Moderate Index) by 13.67% according to Morningstar.com.

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

We attribute this performance to the 80% exposure to the large cap US stock holdings. The US stock market increased in October, recovering most of the price declines experienced during September. Our small allocation to long-term US treasuries added to the returns, increasing by 1.80% for the month.

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

Whole US Large Cap Market

We continue to monitor the US large cap stock market to see if the trend/momentum remains in an upward direction. The loose monetary policy and continued “re-opening” of the economy from the pandemic, coupled with higher spending in the upcoming holiday season, all point to a potential increase in the US large cap indices throughout the end of the year.

Gold Price Movements

We continue to monitor the price movements of gold. We decided to remove our gold allocation during the month of September and add to the Long-Term Treasury allocation. This helped the fund in October as the Long-Term Treasury holding outperformed the price increase in gold by 0.32%.

Long-Term US Treasuries

The long-term US treasury holding is continually being monitored as the potential for higher interest rates and higher inflation may impact the performance of this holding in the future; at which point we would consider moving back into intermediate-term treasuries for that portion of the fund. Intermediate-term treasuries have a very low volatility historically, but due to their lower duration, have not helped to offset price declines in the US stock market as much as long-term treasuries have. We will continue to try and keep an intelligent mixture of these two based on the current trend of interest rates and inflation. However, our goal is to always keep a small portion in these asset classes to help minimize the overall volatility of the fund.

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 gained 2.64% in October, outperforming the IQ Hedge Multi-Strategy Index benchmark return of 0.99%. October started weak (invested in cash) but finished strong (90% invested), and we believe we could be headed higher in a seasonally strong November and December. The fund plans to do more buying as growth stock opportunities are found.

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

Short sellers were hitting growth stock pretty hard at the end of September, which put the fund on defense (100% cash), then the buyers stepped up to the plate and started swinging. Earnings came in better than expected, and growth stocks were again under accumulation, so the fund started buying. The Issachar Fund believes it is positioned to benefit from the recent resistance line breakout of the indexes on above-average volumes. There seems to be institutional accumulation in a lot of growth names, which is a good sign.

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

10-Year Treasury Bond Yield

The 10-year Treasury bond has turned back down, telling us that inflation may not be an issue. Declining yields give us the conviction needed to get more invested.  Rising yields would likely not be good for growth names, so we welcome the decline in yields. The 30-year (1.93%) is now lower than the 20-year (1.98%), and that is not normal because the longer the duration, the higher the yield. Maybe the market tells us we may be headed for "stagflation," where the economy declines and inflation rises. We hope that does not happen, but monitoring closely.

Monitoring Major Indexes

Now that the S&P 500 and NASDAQ Indexes have broken out above resistance on above-average volumes, we are watching to see if institutions keep buying. We suspect they will continue because the volume is strong, indicating buyers are in control. A lot of money on the sidelines will be forced to get in if the indexes continue to advance. Equities have historically been an excellent place to invest in inflationary environments. Bonds would likely not be a good investment in a rising rate inflationary period.

Fed's Balance Sheet

We watch the Fed's balance sheet weekly totals, which is near an all-time high with no signs of slowing down. If the Fed were to taper, as they have whispered, it would show up on their balance sheet. Pay more attention to what they do instead of what they say. We believe the Fed has provided the liquidity in the market that has kept the stock market in a bull phase since the COVID crash last year. If Jay Powell wants to keep his job, he will likely keep rates low and provide the market with plenty of liquidity to support the bull running until his reappointment next year. Praise Jesus the He is still in control and not man!

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

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