Inspire Portfolio Strategy Insights

As of
July 31, 2022
Inspire Global Equity Portfolio
Inspire Select Equity Portfolio
Inspire Global Aggressive Portfolio
Inspire Select Aggressive Portfolio
Inspire Global Moderate Portfolio
Inspire Select Moderate Portfolio
Inspire Global Conservative Portfolio
Inspire Select Conservative Portfolio

1. Capital Market Returns

  • The markets had an amazing reversal in July, with most asset classes and sectors experiencing significant gains except emerging markets.
  • The broad fixed income market (BB US Agg) returned 2.4% in the month as rates decreased across most maturities.  YTD, the Agg is still down 8.2%.        
  • The equity markets had a spectacular month, with stocks rallying in the latter half of the month as investors digested news about the economy, inflation, and central bank response.  The US large cap market (S&P 500) returned 9.2% in July, bringing the YTD performance to -12.6%. Growth stocks outperformed value by over 5%, although they are still underperforming by over 12% YTD.  Energy stocks rebounded strongly in the month (+9%) after being down by over 17% in June.  US small and mid-cap stocks outperformed US large-caps and are ahead by nearly 1.8% YTD.  
  • International developed and emerging markets equities significantly underperformed their US counterparts for the month.  Emerging market stocks were especially weak, pulled down by poor performance from Chinese shares (-6.2%).  On the other hand, Latin American stocks were up 4.3% and are up 3.7% so far this year due to the surge in commodity prices.
(Source: Bloomberg)
(Source: Bloomberg)

2. Global & Select Portfolios

  • With the strong rebound in July, all diversified portfolios posted positive returns.  The higher the allocation to equities, the stronger the absolute performance.  
  • All of our Global ETF strategies outperformed their respective benchmarks for the month and three-month periods.  The Global strategies outperformed their Select counterparts over these time periods but have underperformed for the twelve-month period.
(Source: Bloomberg; returns generated using Bloomberg Model Performance which may not match the performance of any specific account.)
(Source: Bloomberg; returns generated using Bloomberg Model Performance which may not match the performance of any specific account.)
  • Most of our asset class sleeves outperformed their benchmarks in July, with the Emerging Markets and International Developed sleeves outperforming by the widest margin.      
  • Over the trailing twelve months, all of our asset class equity sleeves have significantly outperformed their secular benchmarks.
(Source: Bloomberg; returns generated using Bloomberg Model Performance which may not match the performance of any specific account.)
(Source: Bloomberg; returns generated using Bloomberg Model Performance which may not match the performance of any specific account.)

3. Asset Class Model in the Spotlight: Emerging Markets Sleeve

  • The emerging markets sleeve significantly outperformed the MSCI Emerging Markets Index in July (4.1% versus -0.3%) and over the last twelve months (-7.4% versus -20.1%).  The main contributors to the outperformance were the portfolio’s overweight position to South America and no exposure to China relative to the index.  The portfolio was overweight Brazil, Chile, Colombia, and Peru, which all posted stronger returns than the overall benchmark due to their economies’ dependence on commodities.  Having no exposure to China relative to roughly 30% exposure to the index also contributed as Chinese companies continued to underperform in 2022 (-6.2% for July and -18.5% YTD).  We exclude state-owned enterprises (like those in China) where significant human rights abuses are known to occur.  Security selection also added to the powrtfolio’s outperformance.  Main contributors included Telkom Indonesia (+32% over the last twelve months), Telefonica Brasil (+17%), Tata Motors (+45%), Hypera (+64%), and Petroleo Brasileiro (+86%).

4. Outlook and items we are monitoring in the coming month(s):

  • Geopolitical Risks and Volatility – As mentioned in our last commentary regarding the Russian/Ukrainian war, it seems apparent that the balance of power is now decidedly in Russia’s favor as efforts to take over strategic regions in the eastern part of Ukraine have proven successful.  The focus of the fighting has now shifted to the south, which could mark a decisive phase of the conflict.  Russia seems to have plenty of revenue from high oil prices to finance the war and economic relief packages to keep its citizens appeased with the conflict, while Ukraine is on the verge of defaulting on its debt obligations.  Russia also has plenty of leverage to deal with European sanctions.  It has recently cut the amount of natural gas it sends to Europe by closing the Nord Stream 1 pipeline. It has also been strengthening ties with China and other BRIC nations behind the scenes while cutting reliance on the Western financial system.  The critical question seems to be what will a post-Russian victory look like, and how will the West respond?    With so much geo-political, fiscal, and monetary uncertainty, volatility (in both directions) will remain elevated in the coming weeks and months.
  • Inflation, Money Supply, Employment, and the Federal Reserve – The June CPI numbers remained elevated with a month-over-month reading of 1.3%.  Over the past 12 months, inflation hit 9.1%, higher than the 8.8% reading analysts predicted and showing the Fed is still behind the inflation curve.  Is inflation finally peaking?  Probably, but to answer that question more definitively, we are keeping a very close eye on the growth of the money supply (M2) as that tends to be a leading indicator of inflation.  The next M2 reading is out on August 23rd.  The US job market continues to hold steady, with unemployment remaining at 3.5% in July, matching the pre-pandemic low.  With elevated inflation and strong employment, the Fed has indicated it will focus on curtailing inflation, even amid geo-political turmoil and negative 1q2021 and 2q2022 GDP.  It raised the Federal Funds rate by 0.25% in March, 0.5% in May, and 0.75% in June and July (the largest increases since 1994).  Based on Chair Powell’s recent comments, we should expect a rate hike in September in the 0.50% to 0.75% range.  The Fed Funds rate is now expected to finish the year above 3.0%.  We will continue to monitor monthly inflation readings closely, and the Fed’s response as this will undoubtedly impact capital market returns and volatility in the months and years ahead.
(Source:  Bloomberg)
  • Yield Curve, the Consumer, and GDP – First half economic growth figures caught most economists by surprise as real GDP declined at a 1.6% annual rate in the first quarter and 0.9% in the second quarter.  Although two consecutive quarters fit the rule-of-thumb definition of a recession, it would not be a complete surprise if the NBER (National Bureau of Economic Research, the official arbiter of calling recession dates in the US) does not declare a recession for this time period given strong employment and other factors.  In fact, it is possible that one of the first two-quarters of GDP growth is revised positive as more economic data comes in.  Regardless of whether or not we are in an official recession, the GDP numbers clearly show that growth has slowed.  We will keep a close eye on consumer confidence, spending, and growth figures going forward.
  • Corporate Profits – Much of the strong equity results in 2021 were driven by remarkable corporate profitability (the S&P 500 profits rose 45%, an all-time high).  We mentioned that we didn’t expect to see such a rise in profits in 2022.  Corporate earnings are still rising in 2022, and we will keep a close eye on profitability going forward, particularly given the impact of higher interest rates and potentially slowing consumer demand.

Darrell W. Jayroe, CFA, CFP®, CKA®

Senior Portfolio Manager

Darrell Jayroe, CFA, CFP, CKA, serves as Inspire’s Senior Portfolio Manager responsible for leading the firm’s Investment Committee, as well as serving as Lead Portfolio Manager for Inspire’s ETFs and SMA strategies. Darrell has been with the firm since 2016.

Prior to joining Inspire, Darrell was a Vice President and Sr. Portfolio Manager for the Bank of Oklahoma trust department for 12 years where he was responsible for managing accounts for high net worth families, trusts, foundations and institutions. Darrell started his career as an investment advisor in 1994 with PaineWebber in Oklahoma City.

Darrell received a B.A. and Masters degree from Southern Nazarene University in Bethany, Oklahoma. He is a CFA (Chartered Financial Analyst) charter holder and is a CFP® (Certified Financial Planner®) licensee. He is a member of the CFA Institute and a member and Past President of the CFA Society of Oklahoma. He is also a member of Kingdom Advisors and holds the CKA® (Certified Kingdom Advisor®) designation.

Darrell and his wife, Beth, have been married since 1982 and have two daughters, a son in law and two grandchildren.

Tim Schwarzenberger, CFA

Portfolio Manager

Tim Schwarzenberger, CFA is a Portfolio Manager with Inspire Investing and has over 17 years of experience. Tim previously served as the Managing Director at Christian Brothers Investment Services where he was responsible for implementing the firm’s overall investment philosophy through manager selection as well as strategy and product development.

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.

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