Q1 QUARTERLY REVIEW & 20 COMMENTARY - Inspire Investing€¦ · Quarterly Review 2 & Commentary Q1...
Transcript of Q1 QUARTERLY REVIEW & 20 COMMENTARY - Inspire Investing€¦ · Quarterly Review 2 & Commentary Q1...
QUARTERLY REV IEW & COMMENTARY
Q1 2020
Prepared by
Darrell W. Jayroe, CFA, CFP®, CKA®CHIEF INVESTMENT OFFICER
Economic SummaryInitially, the first quarter of 2020 gave every indication
of continuing the record-breaking expansion run for
the U.S. economy. Many of the on-going prior
concerns that were hindering economic growth--
China trade tensions, Brexit, Presidential
impeachment, etc.--were being resolved and were
moving into the economic rear-view mirror. Most
market participants expected the economy to
continue its upward march. Alas, that was not to be.
Starting in late 2019, there was a growing number
of news reports about a rare, deadly
Coronavirus outbreak emanating from China. This risk
was initially viewed as being largely contained
within that region of the world. However, in early
March it became starkly evident that this was a
global pandemic with unprecedented health,
economic, and market repercussions. Adding
unfortunate fuel to the economy already on
fire, Russia and Saudi Arabia commenced an oil
price war, sending devasting shocks through the
already-struggling energy industry. As it came to a
close, the first quarter of 2020 was quite evidently
not one of "business as usual;" instead, it was to be
one for the history books.
From an economic perspective, the Coronavirus
pandemic is both a demand-shock and a supply-shock.
As opposed to a significant hurricane or blizzard or
even the 9/11 terrorist attack, this exogenous event
will not simply postpone economic activity but rather
will actually destroy it. Therefore, while not yet
official, it is a foregone conclusion that the global
economy has entered a recession. The question at
hand is whether or not an economic depression can be
averted.
The final two weeks of March saw Weekly Initial
Jobless Claims, which was trending around 200,000
per week, soar to more than 10 million. Further, the
monthly unemployment report jumped from an
historical low of 3.5% to 4.4% in March, with many
expecting that subsequent months will show levels
well in excess of 10%. While the numbers are not
yet in for quarterly Gross Domestic Product (GDP)
economic output, forecasts for the U.S. economy
indicate that the First Quarter of 2020 grew 1.0%.
That, however, does not yet represent the full
impact of the current economic slowdown. Early
estimates for the Second Quarter of 2020 are
that the U.S. economy could retract by more than
10% and continue to decline into the Third Quarter,
with a rebound coming in the Fourth Quarter.
Going forward, the wide-open monetary and fiscal
stimulus are critical components for an economic
recovery and for staving off an economic depression.
They must be done. However, in and of themselves
these economic policy levers are not enough. The new
health concerns that have emerged must be
addressed over the coming months, into the next flu
season, and for years thereafter. Further,
consumer and business confidence must be
restored. This will simply take time and with no
short-cuts around it. Lastly, while we all long for a
return to “normal,” it is likely that when we do
emerge from this crisis (and we will!), life and the
economy will be much different than it was before.
Despite all the uncertainties of this present age,
however, Christians can stand confident in that which
does not change . . . our Abba Father.
The name of the Lord is a fortified tower; the
righteous run to it and are safe.
-Proverbs 18:10
Dr. Erik H. Davidson, CFA Chief Economic Advisor
Quarterly Review& Commentary2 Q1
2020
The Stock MarketAs I mentioned in last quarter’s newsletter - “It would be prudent to curb your enthusiasm for returns to see those levels (double digit gains) in 2020. These stellar returns are likely to
Quarterly Review& Commentary3 Q4
2019
Darrell W. Jayroe, CFA, CFP®, CKA® Chief Investment Officer
be followed by a “reversion to the mean” by the US equity markets. If we have equity returns this year in the 5-7% range, we should consider that a "win.“ I stand by that hope today. The world and the global stock markets have all been stricken by the Corona Virus Pandemic, known as COVID-19, and if we see positive returns in the markets by the end of December, we should consider that a big win. Whether you are a new advisor or one that has seen bear markets before, what you have witnessed in the past quarter is the worst performance for stocks since the 2008-2009 financial meltdown. The Dow Jones Industrial Average (DJIA) was down -23.20% for the quarter and the S&P 500 Index was down -20%. But to really see the historical significance, the DJIA and the S&P 500 both experienced their worst March since the Great Depression.
Although the daily moves we saw in the S&P 500 Index were jaw-dropping, both on the downside as well as the upside, they are not unprecedented. Similar daily moves have happened several times since 1950.
predominately due to the fact that BLES is equally weighted and the index is market cap weighted, resulting in a meaningfully smaller average market cap compared with the benchmark.
(Source: Ultimus Fund Solutions)
Inspire Global Hope ETF [NYSE: BLES]
Inspire Global Hope ETF [NYSE: BLES]
E T F R E V I E W
Since Inception
Quarterly Review& Commentary4 Q1
2020
6M Since Inception2/28/2017
-2.86%
-1.94%
2.99%
3M
-29.54%
-28.94%
-20.71%
-22.62%
-22.19%
-13.66%
-29.54%
-28.94%
-20.71%
-21.14%
-20.23%
-9.46%
-10.62%
-9.47%
-2.93%
Performance data as of 3/31/2020. You cannot invest directly in an index. The S&P Global 1200 Index is a free-float weighted stock market index of global equities from Standard & Poor's. The index covers 31 countries and approximately 70 percent of global stock market capitalization. Inspire Global Hope Large Cap Equal Weight Index tracks the stock performance of 400 of the most inspiring large cap companies from around the globe. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.52%.
Inspire Global Hope Large Cap Equal Weight Index
S&P Global 1200 Index - TR
Inspire Global Hope ETF - NAV
-3.04%-29.98% -23.00% -29.98% -21.78% -11.34%Inspire Global Hope ETF - Market Price
-3.40%
-2.60%
2.68%
-3.94%
3Y
After a positive 4th quarter where the international developed and emerging markets outpaced the US markets, the whole world came down with virus pandemic called COVID-19. The Inspire Global Hope ETF (NYSE: BLES) was down -29.54% in the 1st quarter compared with the S&P Global 1200 TR Index that was down -20.71%. The underperformance is
1st Quarter -32.52%, outperforming the S&P 600 Equal Weight Index which had a return of -36.37%.
(Source: Ultimus Fund Solutions)
E T F R E V I E W
Inspire Small/Mid Cap Impact ETF [NYSE: ISMD]
Inspire Small/Mid Cap Impact ETF [NYSE: ISMD]
Performance data as of 3/31/2020. You cannot invest directly in an index. The S&P SmallCap 600 Index measure the small-cap segment of the U.S. equity market. The Inspire Small/Mid Cap Impact Equal Weight Index tracks the stock performance of 500 of the most inspiring small and mid cap companies in the U.S. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.64%. Net expense ratio for the fund is 0.60%. The Fund’s adviser has contractually agreed to reduce fees and/or absorb expenses until at least March 31, 2021.
6M Since InceptionSince Inception2/28/2017
-6.58%
-6.84%
-8.83%
3M
-32.52%
-34.31%
-36.37%
-27.39%
-28.79%
-31.29%
-32.52%
-34.31%
-36.37%
-26.95%
-28.28%
-31.74%
-12.93%
-13.93%
-16.72%
Inspire Small/Mid Cap Impact Equal Weight Index
S&P 600 Equal Weight Index - TR
Inspire Small/Mid Cap Impact ETF - NAV
Quarterly Review& Commentary5 Q1
2020
-6.21%-31.75% -26.48% -31.75% -25.98% -12.44%Inspire Small/Mid Cap Impact ETF - Market Price
-6.34%
-6.61%
-8.55%
-6.00%
3Y
In the 1st quarter, the small cap and mid cap markets suffered more than the large cap markets during the transition from the longest bull market to the current bear market. The Inspire Small/Mid Cap Impact ETF (NYSE:ISMD) was down in the
Inspire 100 ETF [NYSE: BIBL]
return of -19.60%. The past 12 months returns came in at -6.98% for the S&P 500 TR Index compared to -8.48% for BIBL.
(Source: Ultimus Fund Solutions)
E T F R E V I E W
2020 started with great potential and cautious optimism for the US Large Cap market, but suffered the worst quarter since the 2008-09 financial meltdown. This past March was the worst March since The Great Depression. The Inspire 100 ETF (NYSE: BIBL) was down -18.59% in the 1st quarter outperforming the S&P 500 TR Index with a
Inspire 100 ETF [NYSE: BIBL]
Quarterly Review& Commentary6 Q1
2020
Performance data as of 3/31/2020. You cannot invest directly in an index. The S&P 500 is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. The Inspire 100 Index is a rules based, passive index which tracks the stock performance of the one-hundred highest Inspire Impact Scoring companies in the United States with market capitalizations above $20B. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investoror’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.57%. Net expense ratio for the fund is 0.35%. The Fund’s adviser has contractually agreed to reduce fees and/or absorb expenses until at least March 31, 2021.
6M Since InceptionSince Inception10/31/2017
0.96%
1.24%
2.22%
3M
-18.59%
-19.29%
-19.60%
-10.68%
-11.41%
-12.31%
-18.59%
-19.29%
-19.60%
-8.48%
-8.78%
-6.98%
-1.11%
-0.88%
0.92%
Inspire 100 Index
S&P 500 Index - TR
Inspire 100 ETF - NAV
1.09%-18.40% -10.48% -18.40% -8.45% -1.09%Inspire 100 ETF - Market Price
Inspire International ESG ETF [NYSE: WWJD]
Inspire International ESG ETF [NYSE: WWJD]E T F R E V I E W
321.44
Performance data as of 3/31/2020. You cannot invest directly in an index. The S&P International 700 measures the non-U.S. component of the global equity market through an index that is designed to be highly liquid and efficient to replicate. The Inspire Global Hope Ex-US Index intends to track the price movements of a portfolio of 200 of the most inspiring, biblically aligned large cap companies outside of the United States. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.80%.
Since InceptionSince Inception9/30/2019
-19.75%
-20.38%
-15.72%
3M
-27.55%
-31.57%
-22.45%
-27.55%
-31.57%
-22.45%
Inspire Global Hope Ex-US Index
S&P International 700 - TR
Inspire International ESG ETF - NAV
Quarterly Review& Commentary7 Q1
2020
-19.95%-28.14% -28.14%Inspire International ESG ETF - Market Price
6M
-19.75%
-20.38%
-15.72%
-19.95%
The Inspire International ESG ETF (NYSE: WWJD) was down -27.55% in the 1st Quarter compared to the S&P International 700 TR Index being down -22.45%. For the six months ending 3-31-2020,WWJD was down -19.75% compared to -15.72% for theS&P International 700 TR Index. The underperformanceis most likely attributable to the fact that WWJD is
equally weighted and the index is market cap weighted, resulting in a meaningfully smaller average market cap compared to the benchmark. Another factor to keep in mind is that WWJD has less than 150 positions and the index has 700 positions.
(Source: Ultimus Fund Solutions)
US Treasury Yield Curve
Quarterly Review& Commentary8 Q1
2020
economy a jolt in the face of the growing Coronavirus outbreak. That was the first unscheduled, emergency rate cut since 2008. Then on Sunday, March 15th the Fed announced that it was dropping the Fed Funds Rate 100 bps to the new target of 0%-0.25%. The size of this rate cut and being so close on the heels of their action two weeks prior is unprecedented. With interest rates now, for all intents and purposes, at 0% the Federal Reserve will have to rely on additional QE (Quantitative Easing) actions to help stimulate the US economy when this COVID-19 led recession is over.
(source: Bloomberg)
The Bond MarketAfter the most recent rate cut by the Federal Reserve in the 1st quarter, the yield curve has finally transitioned to a normal slope pattern with the short end falling below the intermediate rates.
As of the end of first quarter the 1 Year US Treasury yield had fallen to 0.162% from 1.582%. vs the 10 year US Treasury yield which fell to 0.67% from 1.91%. The 2 year US Treasury yield fell from 1.561% to 0.248%, the 3 year US Treasury yield fell from 1.592% to 0.295%, the 5 year US Treasury yield also fell from 1.683% to 0.382% and the 30 year Treasury fell from 2.377% to finish the quarter at 1.324%.
The Federal Reserve made two dramatic rate cuts in March. Cutting the rate by 50 bps to a target of 1%-1.25% on March 3rd as an attempt to give the US
Inspire Corporate Bond ETF [NYSE: IBD]
Inspire Corporate Bond Impact ETF [NYSE: IBD]E T F R E V I E W
321.44
Performance data as of 3/31/2020. You cannot invest directly in an index. The Bloomberg Barclays US Intermediate Credit Index measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with less than ten years to maturity. The Inspire Corporate Bond Impact Equal Weight Index is comprised of 250 investment grade, intermediate term corporate bonds issued by some of the most inspiring large cap “blue chip” companies in the United States. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by visiting www.inspireETF.com. Total annual operating expenses are 0.50%.
6M Since InceptionSince Inception7/10/2017
1.12%
2.12%
2.93%
3M
-5.15%
-5.15%
-2.35%
-4.32%
-4.23%
-1.40%
-5.15%
-5.15%
-2.35%
-0.40%
0.76%
3.28%
1.95%
2.83%
4.13%
Inspire Corporate Bond Impact Equal Weight Index
Bloomberg Barclays U.S. Intermediate Credit - TR
Inspire Corporate Bond Impact ETF - NAV
Quarterly Review& Commentary9 Q1
2020
1.22%-5.00% -4.47% -5.00% -0.74% 2.29%Inspire Corporate Bond Impact ETF - Market Price
The Inspire Corporate Bond ETF (NYSE: IBD) was down -5.00% in the 1st quarter compared to the fixed income benchmark of the Bloomberg Barclays US Intermediate Credit Index which was down -2.35%.
This underperformance appears to be attributable to the economic fears brought on by the COVID-19 induced market sell-off in March, which caused
corporate bonds in the mid to lower investment grade range of BBB- to BBB+ to suffer more downside volatility than the corporate bonds rated A to AAA, which held their value much better.
(Source: Ultimus Fund Solutions)
Darrell W. Jayroe, CFA, CFP®, CKA® Chief Investment Officer
Things to watch in Q2 and the remainder of 2020
• Federal Reserve Meetings – It’s expected that the Fed will do whatever is necessary to supply liquidity to themarkets to fuel the recovery in the economy during the 3rd and 4th quarters.
• Recession 2020 – The bad news is that we will (most likely) see a recession in the 2nd and 3rd quarters of thisyear. The good news is the markets already have this priced in–with the expected recovery to be wellunderway in the 4th quarter. Expectations are for US GDP to shrink by -10% or more in the 2nd quarter dueto the economy being in a virtual standstill across the nation. The shrinkage should be less in the 3rd quarterbut that will depend on how fast the US can get the economy fully operational following the “stay at home”orders in March and April.
• COVID-19 – It is highly likely, and I pray, that the number of confirmed cases and deaths in the US will start toslow in the 2nd quarter as various treatments, medicines and “social distancing” start to pay-off.
Quarterly Review& Commentary10 Q1
2020
Closing RemarksThe times we are in as a nation, and as a planet, are unprecedented,
and many people are fearful of what the future holds. However, we
remain committed to having faith instead of fear because our Heavenly
Father and our Savior Jesus Christ are still in control.
“And we know that in all things God works for the good of those that
love him, who have been called according to His purpose.” - Romans
8:28 (NIV)
For financial professional use only. All opinions expressed within it are those of the author and are subject to change.
Important Risk InformationEquity and fixed income securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs' net asset value. Brokerage commissions and ETF expenses will reduce returns. There is no guarantee that the ETFs will achieve their objective. Securities in the Index or in the ETFs' portfolio may underperform in comparison to the general securities markets or other asset classes. Investments in foreign securities could subject the ETFs to greater risks including, currency fluctuation, economic conditions, and different governmental and accounting standards.
Before investing, consider the ETFs’ investment objectives, risks, charges and expenses. To obtain a prospectus which contains this and other information, call 877.658.9473, or visit www.inspireetf.com. Read it carefully. The Inspire ETFs are distributed by Northern Lights Distributors, LLC, Member FINRA/SIPC. Inspire and Northern Lights Distributors, LLC are not affiliated. NLD Code: 3480-NLD-4/15/2020 Inspire Literature Code: CIO200415