Inspire Portfolio Strategy Insights

As of
May 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 broad fixed income market (BB US Agg) returned 0.6% in the month as rates were relatively unchanged on the longer end of the curve and slightly lower on the shorter end.  YTD, the Agg is down nearly 9% as bonds are on course for their biggest yearly loss since the 1920s.
  • In May, the equity markets continued their volatility; most markets started in negative territory and then rallied at the end of the month to finish relatively flat. The US large cap market (S&P 500) returned 0.18 % in the month but is down nearly 12.8% YTD. Value stocks continued to outperform growth stocks by over 4% for the month and over 17% YTD. Energy stocks had another exceptional month returning over 16%.  US small and mid-cap stocks outperformed US large-caps in May and are also slightly ahead YTD.
  • International developed and emerging markets equities slightly outperformed their US counterparts mainly as a result of dollar weakness in the month, despite the dollar gaining nearly 5% YTD.  Chinese shares rebounded in May (+2.8%) but are down 20% YTD.  After declining 13% in April, Latin American stocks returned over 8% and are up nearly 20% YTD due to the surge in commodity prices.
(Source: Bloomberg)
(Source: Bloomberg)

2. Global & Select Portfolios

  • All of the diversified portfolios posted modestly positive returns in May, which was a welcome reprieve after suffering negative monthly returns for most of the year.
  • Our Global ETF strategies outperformed their respective benchmarks in the month. The Select strategies performed better than their Global counterparts, which all exceeded their bogies.  For the three-month period, all of our diversified strategies suffered negative returns, although all are outperforming their benchmarks, with the Select strategies outperforming by an even wider margin.
(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.)
  • Four out of five of our asset class sleeves significantly outperformed their benchmarks in May, with our Large Cap sleeve only slightly underperforming the S&P 500.    
  • Although most of our asset class equity sleeves posted negative returns over the trailing three months, all are outperforming their benchmarks.  The US and Emerging Markets sleeves are significantly ahead, while the International Developed sleeve is slightly ahead.
(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: International Developed Sleeve

The International Developed sleeve outperformed the MSCI EAFE in May by over 2% and is ahead by nearly 1% over the last three months.  The main contributors in the month were the portfolio’s stock selection within the information technology and materials sectors.  IT's main contributors included Dutch semiconductor manufacturer NXP Semiconductors (+11%) and Swiss semiconductor manufacturer STMicroelectronics (+20%).  Within materials, the main contributors included Australia-based BHP Group (+7.8%) and UK-based Rio Tinto. In addition, underweight positions in consumer staples and healthcare (which were both negative) and overweight in energy (which was positive) 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 3-month mark, it remains unclear how long the conflict will last or how it will end.  Since our last commentary, the Russians have intensified their efforts to take over strategic regions in the eastern part of Ukraine.  Meanwhile, Europe has increased its pressure on Russia by imposing new sanctions on oil imports.  Putin’s resolve remains strong, and Russia seems to have plenty of revenue from high oil prices to finance both the war and economic relief packages to keep its citizens appeased with the conflict.  As outside countries, including the US, become more willing to support Ukraine with military aid and apply further sanctions against Russia, the negative economic and market impacts will continue.  A key question is who will be able to hold out longer – the West, given the political price of higher food and energy costs and mounting recession fears, or Putin, given escalating costs of the war and the economic damage done by the sanctions.  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 April CPI numbers remained elevated with a month-over-month reading of 0.3%.  Over the past 12 months, inflation hit 8.3%, slightly cooling from the previous reading of 8.5% but still remaining at the fastest annual pace in decades.  The US job market continues to show improvement with lower readings on initial and continuing jobless claims and unemployment remaining at 3.6% in May, 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 and 0.5% in May.  Based on Chair Powell’s recent comments, we should expect at least 0.5% increases at each remaining meeting this year, with 0.75% increases off the table for now.  That would bring the Fed Funds rate to at least 2.5%.  In addition, the Fed communicated it will start Quantitative Tightening in June by selling $47.5 billion worth of its $8.9 trillion balance sheet per month and doubling that amount to $95 billion in September.  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 – Economic growth figures caught most economists by surprise as real GDP declined at a 1.5% annual rate versus the consensus growth of 1.0%.  The biggest drivers of the negative growth were the widening trade deficit (imports surged and exports fells) and the decline in inventories.  In previous commentaries, we mentioned the rapid build-up of inventories that had propelled growth in 2021 and would likely be a drag on growth in 2022.  We will continue to keep a close eye on 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 over nearly all of the companies in the S&P 500 now reporting, we are beginning to see negative earnings surprises, particularly in the consumer discretionary, communication services, and financial sectors.  The market hasn’t punished negative earnings surprises this much in years and has even punished positive earnings surprises.  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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