Inspire Portfolio Strategy Insights

As of
June 30, 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 continued their descent in June, with most asset classes and sectors in negative territory for the year.  
  • The broad fixed income market (BB US Agg) returned -1.6% in the month as rates increased across the curve.  YTD, the Agg is down over 10.4% as bonds are on course for their biggest yearly loss since the 1920s.      
  • The equity markets continued their volatility in June, driven primarily by investor concerns about the economy and inflation.  The US large cap market (S&P 500) declined 8.3% in the month and is down nearly 20% YTD. Growth stocks modestly outperformed their value counterparts in the month but have underperformed almost 20% YTD.  Energy stocks finally underperformed in June (-17%) but are up over 31% YTD.  US small and mid-cap stocks performed in line with US large-caps in June and are slightly ahead YTD.  
  • International developed and emerging markets equities have significantly outperformed their US counterparts (in local terms) for the month and YTD.  However, given the dollar’s strength, the returns have been similar from a US investor perspective.  Chinese shares continued resurgence in June (+9.5%) but are down 13% YTD.  After returning 8% in May, Latin American stocks declined 17% in June but are only down 0.6%YTD due to the surge in commodity prices.
(Source: Bloomberg)
(Source: Bloomberg)

2. Global & Select Portfolios

  • All diversified portfolios posted negative returns with the continued market declines in June.
  • All of our Global ETF and Select strategies underperformed their respective benchmarks in the month, with the Select strategies underperforming more.  For the three-month period, all of our diversified strategies suffered negative returns, although all outperformed their benchmarks, with the Select strategies outperforming by an even wider margin.
(Source: Bloomberg; returns generated using Bloomberg Model Performance may not match the performance of any specific account.)

(Source: Bloomberg; returns generated using Bloomberg Model Performance may not match the performance of any specific account.)
  • All five asset class sleeves underperformed their benchmarks in June, with the Emerging Markets and International Developed sleeves underperforming the most.      
  • Over the trailing three months, all of our asset class equity sleeves posted negative returns. The International Develop and Large Cap sleeves modestly underperformed their benchmarks, while our Mid and Small Cap sleeves outperformed.  Our Emerging Markets sleeve underperformed by nearly 6%, given the recent weak performance of Latin American stocks (for which we have an overweight) and the strong performance of Chinese stocks (for which we have no exposure).
(Source: Bloomberg; returns generated using Bloomberg Model Performance may not match the performance of any specific account.)
(Source: Bloomberg; returns generated using Bloomberg Model Performance may not match the performance of any specific account.)

3. Asset Class Model in the Spotlight: US MidCap Sleeve

The US Mid Cap Sleeve underperformed the S&P MidCap 400 in June by about 1% but is ahead by over 1% for the quarter.  The main contributors in the quarter were the portfolio’s stock selection within the energy, materials, and consumer discretionary sectors.  Contributors within energy included HF Sinclair (+14.3%) and EQT Corp (+0.3%).  Within materials, the main contributor was Ashland Global Holdings (+5.0%), and within consumer discretionary, the main contributor was Installed Building Products (-1.2%).  Stock selection and an overweight position in consumer staples (which outperformed the overall index) also benefitted results.

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

  • Geopolitical Risks and Volatility – With the Russian/Ukrainian war past the 4-month mark, it remains unclear how long the conflict will last or how it will end.  However, since our last commentary, 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.  Despite the increased sanctions and military aid from the West, 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.  The critical question seems to be what will a post-Russian victory look like, and how will the West respond?  With so much geopolitical, fiscal, and monetary uncertainty, volatility (in both directions) will remain elevated in the coming weeks and months.
  • Inflation, Employment, and the Federal Reserve – The May CPI numbers remained elevated with a month-over-month reading of 1.0%.  Over the past 12 months, inflation hit 8.6%, higher than the 8.3% reading analysts predicted and showing the Fed is still behind the inflation curve.  The US job market continues to show improvement with lower readings on initial and continuing jobless claims and unemployment remaining at 3.6% in June, essentially matching the pre-pandemic low of 3.5%.  With elevated inflation and strong employment, the Fed has indicated it will focus on curtailing inflation, even amid geopolitical turmoil and negative 1q2021 GDP.  It raised the Federal Funds rate by 0.25% in March, 0.5% in May, and 0.75% in June (the largest increase since 1994).  Based on Chair Powell’s recent comments, we should expect a rate hike in July 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.
  • Yield Curve, the Consumer, and GDP – First-quarter economic growth figures surprised most economists as real GDP declined at a 1.6% annual rate versus the consensus growth of 1.0%.  The most significant drivers of the negative growth were the widening trade deficit (imports surged and exports fells) and the decline in inventories.  In previous commentaries, we had mentioned the rapid build-up of inventories that had propelled growth in 2021, which would likely be a drag on growth in 2022.  We will closely monitor consumer confidence, spending, and growth.  With many pundits saying we are technically already in a recession (two consecutive quarters of negative GDP growth), it wouldn’t be a surprise to see a rebound in the second quarter, given that consumer spending and business fixed investment remain strong.  
  • 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 and are watching earnings reports very closely going into the second quarter.  Since our last commentary, with all of the companies in the S&P 500 now reporting, we are seeing negative earnings surprises, particularly in the consumer discretionary, communication services, and utility sectors.  The market hasn’t punished negative earnings surprises this much in years and has even punished positive ones.  We will continue to 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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