Active Strategy Review & Insights

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

The markets posted mixed results in the month of October.  Most equity markets rebounded strongly as investors adjusted their inflation expectations, while most bond markets continued their descent. The broad fixed income market (BB US Agg) returned -1.3% in the month as rates ticked up across the maturity spectrum.  YTD the Agg is down 15.7%. The US large cap market (S&P 500) returned 8.1% in October, bringing the YTD performance to -17.7%. Growth underperformed value by nearly 4.5% in the month and is one of the worst performing asset classes so far this year (-26.6%). Energy stocks surged nearly 25% in the month and are up nearly 65% YTD. US small- and mid-cap stocks outperformed US large caps for the month and are ahead ≈4% YTD. International developed equities underperformed their US counterparts but still posted positive returns, while emerging markets equities declined over 3%. Mainland Chinese stocks were pummeled (-9.5%) as the country’s economic growth prospects continued to deteriorate. Latin American stocks, on the other hand, continued their dominance and were up 9.7% in the month.  The US dollar (US Dollar Index) was roughly flat for the month but is up nearly 14% YTD. 

With the strong equity rebound in October, 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 FDLS, ISMD, and BIBL relative to the MSCI World Index. This was partially offset by weaker performance from BLES and WWJD. 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 down 0.4%, while the broader market was up 7.2%). On the fixed income side, the 70/30 strategies have been negatively impacted by rising rates. However, on a relative basis, the portfolio outperformed 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 3.8%.

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

Though the stock market rebounded during October, our analysis suggests that this is only a corrective bounce and will be short lived. The strength in stocks produced some underperformance for Core Satellite models’ defensive position, but we expect another wave down to materialize in stocks soon and as such will continue to hold a defensive stance, which should benefit portfolios as the market slides lower.

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

Our technical analysis is indicating that stocks are likely in for another steep decline, possibly equal to the entire decline we have experienced thus far in the year. There is significant technical weakness in the price charts for equities and bonds, so we advise investors to prepare themselves mentally to weather another sharp drop in asset prices – and also prepare themselves to take advantage of low prices as a buying opportunity when risk abates, trends flip positive, and the market rebounds from an oversold position. We will continue to monitor the market structure closely for such an opportunity, and until then we will keep as much of our powder dry with allocations to asset classes and sectors which we believe should fare better during the next expected leg down in the market.

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)

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Tactical Risk Management strategies delivered a mostly flat returns of approximately -0.50% for the month of October. After a sharp drop in the beginning of the month, the stock market continued the bounce that started at the end of September and made October an overall positive month for stocks, though it was negative for bonds as interest rates continued to be problematic for fixed income investors.

Last month’s update mentioned, “Going forward, we anticipate a continuance of that downward slide in stocks, likely after a modest relief rally or possibly side-ways chop that serves to work off some of the oversold indicators in the market. But once the oversold condition is sufficiently reduced, we expect stocks to resume a sharp downward trend as they enter the steep middle section of an Elliot Wave Theory third-wave down.” That relief rally took most of the month of October to work off the oversold condition, and as stated above the market seems ripe for another leg downward as the Elliot Wave structure plays itself out.

There is a lower probability option at this juncture that the corrective bounce in October could take a more complex form of a “double retrace” and extend somewhat higher or at least delay the onset of the next robust wave down. There is little in the charts to give any confidence to a scenario that would suggest the ultimate bottom is in and the stock market’s woes are over.

Money Flow confirmed the recent bottom in stocks without a bullish divergence, which suggests the overall trend lower is still intact. Likewise, momentum has reached a typical inflection point where corrective bounces are often rejected and begin to head lower once again. Moving averages are still steeply negative in their slope and there has not been a bullish crossover to indicate that might change any time soon. Taken as a whole, the technical analysis points strongly to the probability of lower prices being in the near future for stocks.

With risk measurements such as these remaining elevated, TRM will continue to hold its defensive position until further notice. We will continue to watch closely for signs of risk abating, but it is our current analysis that such a change would not likely occur until the stock market takes another leg down, possibly to revisit the levels of the COVID bottom of March 2020.

The good news is that once we do see a change in risk temperature and a bottom forming in prices, the opportunity to reinvest in risk assets could present a phenomenal opportunity to take money off the sidelines and seek to benefit from a the steep moves higher of a new bull market.

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: +0.20%
· CW Active Balanced: +0.20%
· CW Active Growth: +0.16%

How did the static blended benchmarks perform for the month?

·   DJ U.S. Conservative: +0.39%
·   DJ U.S. Moderate: +4.37%
·   DJ U.S. Aggressive: +8.82% 

How did the individual holdings (assets classes) perform for the month?

·   US Large Cap Stocks (BIBL): +7.71%
·   International Stocks (WWJD): +6.19%
·   US Small/Mid Cap Stocks (ISMD): +10.60%
·   US REIT Index (USRT): +4.80%
·   US LT Treasuries (VGLT): -5.20%
·   US IT Treasuries (VGIT): -0.73%
·   US ST Treasuries (VGSH): -0.14%
·   US ST Treasuries FLT (USFR): +0.23%
·   Gold (GLD): -1.78%
·   Div. Commodities (GSG): +6.17%
·   Mortgage Back Sec. (RISR): +2.13% 

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

No major changes were made to the models this month.

Last month 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 out-performance of the models compared to the blended benchmarks is due to our more conservative positioning regarding stocks and real estate. The market staged another “bear market bounce” similar to what we saw in March and August, and we are waiting to see if it holds or is just a blip in the longer-term bear market.

What are our expectations for the month ahead?

There are not changes to our expectations at this time from previous months.

We will keep our eye on the current trend direction and see if any asset classes change direction enough to warrant an increase in our allocations. Due to higher-than-expected inflation, interest rate increases (which we still believe will be higher than the FED is predicting), and possible recessionary pressures due to rising rates; we do not anticipate high returns for the more growth focused assets classes the remaining part of 2022.

We are researching other items to possibly add the models that would do well in rising interest rate situations as well as increasing inflation scenarios. If we find something that our team believes offers a good risk/reward opportunity, we will add it to the models in proportion to their expected risk offset potentials.

For the month of October, it was more treat than trick, as FEVR rose +8.47% vs +8.10% S&P 500 and +12.55% US Momentum (MTUM).  GLRY appreciated +10.51% vs +10.48% S&P 400 MidCap and +12.55% US Momentum (MTUM).  The rebound was welcomed with open arms after a challenging August and September for markets.  FEVR saw great gains from Energy and Consumer Staples exposure, with challenges in Financials, notably from one bank.  GLRY however experienced the majority of returns from Financials and Energy, with no sectors providing negative returns in totality.

As mentioned last month, this is a challenging time for momentum, as the trends are changing rapidly.  For example, oil has been in an aggressive downward trend since June.  However, October saw a strong reversal of this trend by more than +10%.  Other commodities saw similar reversals, such as lumber, or downward reversals, like coal and iron.  Broad markets rallied while inflation expectations rose, which is the exact opposite of the performance just months ago.  Following the results of elections and consumer sentiment shows during the spending holiday season, we hope that uncertainty is reduced in markets and trends can return.

Through it all, we are excited for what we get to do and to be stewards of God’s resources.  We will continue uncovering opportunities with our FEVRR process, and we hope for more green months like October!

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

·   Inspire Tactical Balanced ETF (RISN): +0.85%
·   S&P Target Risk Moderate Index (AOM): +2.08%

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·   S&P 500 Index (SPY): +8.13%
·   Inspire 100 Index (BIBL): +7.71%

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.  
·   Last Month Recap: The management team diversified the “defensive” allocation of the fund into two different floating rate short term treasury funds, and we removed Gold for the time being.

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

·   Inspire Tactical Balanced ETF (RISN): -16.48%
·   S&P Target Risk Moderate Index (AOM): -16.46%

·   S&P 500 Index (SPY): -15.15%
·   Inspire 100 Index (BIBL): -22.19%

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

We attribute this performance to 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.

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 gained 0.48% in October, while the IQ Hedge Multi-Strategy Index gained 1.31%, so Issachar underperformed its benchmark. Issachar held mostly cash positions and purchased a few stocks near the end of the month, which look promising. The market experienced a lot of price volatility in October, which shows distribution. It appears big money is moving out of the "clouds" and into new leaders like energy, medical and telecom stocks that Issachar has been buying. Institutional money has to stay invested, so the money has to go somewhere, and we try to follow their big footprints in the sand. We are optimistically bullish and believe the 10-13-22 bottom is in, expecting a year-end rally.

We are watching the Fed's balance sheet reduction experiment for potential accelerated unwinding that could derail the economy and the market. The Fed announced an unwinding of its balance sheet to reign in inflation, and they are getting the results they expect. However, they could break something in the process if they unwind too much or raise rates too fast. Our eyes are on the Fed!

We are watching the dollar as an early sign the Fed may be taking its foot off the brakes. The dollar could know what the Fed will do before the Fed is aware. Higher rates tend to point to a stronger currency, but the dollar has been in a downtrend since peaking on 9/27/22. The market could tell us that the Fed may be forced to raise its 2% inflation target higher as part of their "surrender." If that is the case, I expect to get more invested because I see a lot of fundamentally/technically sound stocks breaking out on strong volume and holding their gains. In the recent past, stocks were breaking out, and the "shorts" were taking them out, but they seem to be more "sticky" this time. I am optimistically bullish about what I see in the charts and believe we could participate in a nice year-end rally.

Bottom Line: We are 35% invested as of 11/4/22 and plan to get more invested if our stocks continue to work. Our watch list of "merchandise" to buy is growing, which could signify higher stock prices ahead. Stock leadership continues to flow out of the "cloud" names into the oil, gas, and coal "energy" plays since the "green new deal" is being exposed as a failed ideology. God created everyone and everything, and only He can "save the planet." Amen!

Instead of asking God "why" bad things are happening, ask "what" He wants me to do about it.

God is love, and all who live in love live in God, and God lives in them. 1 John 4:16

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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: 5971-NLD-11/07/2022