Monthly Active Strategy Review & Insights

As of
September 30, 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 outperformed their benchmarks in the month of September, returning between -1.93% and -3.10% for the month, 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 5%, delivering continued strong value to our clients.

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

The overall stock market was down in the month of September, having declined from a peak early in the month and continuing it’s slide lower into early October (and likely beyond). While Core Satellite strategies returned modest, single-digit losses in September, the broader market was down even more. The reason for this outperformance is primarily attributed to the satellite focus in the Inspire Select Financial sector which delivered positive returns during September, serving to buoy returns as other sectors lost during the month.

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, 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?

The Tactical Risk Management strategies underperformed their benchmarks in the month of September as the overall market rolled over from it’s peak early in the month, delivering negative returns between -3.20% and -4.39%, depending on the version of the strategy invested in. However, on a year to date and since inception basis, TRM continues to have strong performance relative to benchmarks.

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

Underperformance during the first leg down of a new market downtrend is common and to be expected from the Tactical Risk Management strategies. TRM is designed to move assets to a defensive position when market risk is elevated to undesirable levels; however, oftentimes the risk level in the market does not exceed normal levels until shortly after the initial downturn off of a peak. 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.

That said, as the market sold off from the peak early in September, TRM remained invested in it’s normal risk-on allocation of global stocks and experienced some losses. However, on September 21st, the technical analysis triggers that we use to measure risk flashed the red warning light and we movedTRM to a defensive position. Since that time, the market has continued to trend lower, while TRM has not participated in the brunt of the ongoing market decline, instead allocating assets mostly to bonds and cash. We believe that this defensive positioning should deliver strong outperformance during the month of October as the market selloff devolves further into what we believe will ultimately be a bear market.

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

In last month’s update we wrote that “the bearish divergence between stock prices (as represented by the S&P 500) and Money Flow indicator continued throughout August…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.” Our analysis and expectation of an impending selloff proved prescient and we did indeed move TRM assets to a defensive positioning on September 21st. (see chart below)

stockcharts.com

We continue to watch the technical analysis closely, in particular the shape and structure of the decline which can give us strong clues as to the potential depth and severity of the ongoing selloff. Eventually, the market will bottom out and prices will again turn higher. Similarly to how we watch for increases in market risk to inform us to move defensively, we will be watching for signs of market risk decreasing back to normal or below normal levels as a signal for us to move TRM back into risk-on assets and seek to benefit from a stock market rally once the current selloff runs it’s course. When risk has abated to acceptable levels, we stand ready to reallocate TRM assets to a bullish footing and seek to participate in the stock market gains of a new uptrend.

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?

What a month for markets. While it was not a great time for assets, this kind of volatility keeps us engaged in the market and excited to find future opportunities. FEVR returned -4.89% vs benchmarks -4.66% (S&P 500) and -3.47% (MTUM) in September. Over half of the negative performance was due to the tech selloff, and much of that loss was due to two great YTD performers, Zebra Tech (ZBRA) and Docusign (DOCU).

To correct this action, we are continuing to take balance sheet risk off the table. Technology names have been very exciting over the past decade, but we want to be selective in financial fundamentals and stories we can hang our hats on. We will remain true to our momentum style, but we will continue to utilize the FEVRR process to add a level of fundamental analysis to our selection.

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

Consumer Spending

We see this holiday season spending as a major wildcard and are keying in on it during earnings season. While some supply chains are flowing, albeit not perfectly, others are at complete standstills. The question is, will those constrained supply chains contain the majority of what shoppers are looking for soon? Additionally, prices have been steadily rising, as everyone has felt. With government assistance also starting to wind down, we will see how much buying power the national consumer actually has.

US Dollar

The US Dollar remains on our watchlist. The dollar has rallied a fair amount from its recent low, as rates start to rise. A bit more on the market practitioner side, but investors will be watching if outside buyers look to buy treasuries, hedged or unhedged, from USD movements. These movements could have a direct impact on inflation, as well as a support on import spending.

Fiscal Policy

The debt ceiling is on everyone’s minds, and we are in a holding pattern for what comes next. Both parties understand the implications of an official default (missed payment) on treasuries, therefore, our base case is for something to be passed. There is certainly a tail risk of default which would have serious implications, specifically on collateral. Additionally, taxation and spending plans have a shorter and shorter window to be passed in 2021, but how those plans could be passed will hinge on the decisions regarding the debt ceiling.

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?

Though equities were down as a whole in September, GLRY was down only 2.59% vs. the benchmarks returning -4.26% (S&P Mid Cap 400) and -3.64% (MTUM). While the performance was still red, some protection of downside is even more impactful than some upside. The protection came from mostly what we did not own in the industrial and technology sectors. Some names did outperform, like Brooks Automation and Vicor Corp.

To continue this momentum, we are being selective in how to play a potentially rising rate and US Dollar environment in the face of employment challenges. Our FEVRR process will look for business models that have been adaptable in different environments, such as financial industries that can benefit from higher rates and be less impacted by potentially slower growth outlooks.

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

Consumer Spending

We see this holiday season spending as a major wildcard and are keying in on it during earnings season. While some supply chains are flowing, albeit not perfectly, others are at complete standstills. The question is, will those constrained supply chains contain the majority of what shoppers are looking for soon? Additionally, prices have been steadily rising, as everyone has felt. With government assistance also starting to wind down, we will see how much buying power the national consumer actually has.

US Dollar

The US Dollar remains on our watchlist. The dollar has rallied a fair amount from its recent low, as rates start to rise. A bit more on the market practitioner side, but investors will be watching if outside buyers look to buy treasuries, hedged or unhedged, from USD movements. These movements could have a direct impact on inflation, as well as a support on import spending.

Fiscal Policy

The debt ceiling is on everyone’s minds, and we are in a holding pattern for what comes next. Both parties understand the implications of an official default (missed payment) on treasuries, therefore, our base case is for something to be passed. There is certainly a tail risk of default which would have serious implications, specifically on collateral. Additionally, taxation and spending plans have a shorter and shorter window to be passed in 2021, but how those plans could be passed will hinge on the decisions regarding the debt ceiling.

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 September, the Inspire Tactical Balanced ESG ETF (RISN) underperformed the S&P Target Risk Moderate benchmark index by 3.31% (according to Morningstar.com), but outperformed the filtered US stock market (Inspire 100 Index). Year to date, the Inspire Tactical Balanced ESG ETF (RISN) has still outperformed the benchmark index by 9.19% according to Morningstar.com.

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

We attribute this underperformance to the 80% exposure to the large cap US stock holdings which track the Inspire 100 index. The US stock market declined in September and our protective holdings, namely the long-term US treasuries, helped to limit the downside, but still ended the month down 2.87%. We have not yet seen assets move from the stock market to these more protective asset classes. We believe that most people are keeping the funds they sold in a cash position for the time being as they await what the Fed and the government decide to do with respect to interest rates and stimulus. At this time, our indicators are still 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 defensive portion of the fund.

Gold Allocation

We are also still monitoring the price movements of gold. We decided to remove our gold allocation during September and add to our long term treasury allocation which proved a good move as the gold price declined more than long term treasuries did for the month of September.

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 holdings 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. The current market declines have not yet triggered our models to get more conservative, but we are monitoring them closely and may see a shift in our overall allocation to equities if the current correction continues. Our goal is to sell towards the top and buy towards the bottom, to help our investors retain as much of their earnings as possible and reduce overall volatility and risk.

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 lost 3.85% in the month of September, while the IQ Hedge Multi-Strategy Index benchmark only lost 1.38%. This underperformance compared to the benchmark in September was an expectation breaker because growth stocks were expected to continue to outperform, which did not happen.

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

Growth stocks were under accumulation until yields rose. This started rounds of profit-taking, leading to massive distribution. Once the leaders get crushed under steep price deterioration on above-average volume, risk elevated indicating it was a time to step aside. The Issachar Fund then went to all cash as stops were hit.

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

10-Year Treasury Bond Yield

The fund is watching the yield on the 10-year treasury bond as it flirts with the 1.55% area of resistance for where the market may be headed. If rates climb higher, growth stocks will likely continue to decline and value may take the lead, but we suspect we may drift sideways. Either way, the fund will be looking for stocks to break out of sound bases on above-average volume to give us a clue where we may be headed next. For now, cash is an excellent place to wait for the next opportunity patiently.

Monitoring Major Indexes

The fund is closely watching the S&P 500, NASDAQ 100, and Russell 2000 Indexes as they all trade below their 50-DMA. They have all broken below this historical support area on above-average volume, which is a significant concern. The fund follows big money, which right now is telling us they are concerned about the future. It could be the irresponsible deficit spending and proposed record tax increases that are spooking the market. No one knows for sure, but there are signs of caution that cannot be ignored.

Fed's Balance Sheet

The Fed's balance sheet weekly totals are being watched because we believe they have held the key to the market. The Fed has been talking about tapering its bond purchases, and the market may be trying to get ahead of the Fed by selling bonds, causing rates to rise. Jay Powell said that inflation was transitory, but now he thinks inflation may be here to stay for a while. The market does not seem to like higher inflation since that could lead to higher rates and borrowing costs, ultimately leading to slower economic growth and recession. It appears that the Biden administration plan is not what the market needs or wants at this time. If the Fed buys more bonds, it could create more inflation, hurting the market, putting them in a difficult position. Thank God we have a Father who loves us unconditionally, holding the Kingdom's keys and not some bureaucrat politician seeking world power. Praise Jesus!

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

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