1. Money Market Fund Flows Point to an Active 2024.

• Money market funds reached a total AUM fresh high as of November 21st and are now on the cusp of +$1 trillion inflows YTD – a 3 to 1 ratio vs. equity ETFs.
• We believe the lack of conviction elsewhere has flows continuing into mega cap names, with the 5 largest names in the S&P 500 accounting for over 25% of the index’s weight.
• Search for diversification in the new year could lead investors to seek out active ETFs, particularly if performance of mega caps stalls or money market rates dip.

​

Source: Strategas Securities and Bloomberg LP , as of November 21, 2023

Strategas Asset Management provides investors seeking active ETFs with two options - the Strategas Global Policy Opportunities ETF (ticker: SAGP) and the Strategas Macro Thematic Opportunities ETF (ticker: SAMT). Both actively managed funds employ thematic rotation within their products, providing investors an opportunity to remain invested in lieu of trading in and out of a single themed product.

2. Watching the Impact of Rising Interest Costs on 2024 Earnings.

• Historically, interest expense as a percent of sales averaged about 3.8% from 1994 – 2007 compared to just 2% from 2008 to 2021.
• Ultimately, the pace of the interest rate rise will determine the impact on profits largely because companies, broadly speaking, termed out their debt.
• Our analysis shows that a basket of companies with the highest interest expense as a percentage of sales underperformed those with the lowest interest expense as a percentage of sales during 2023.
• Contrary to what we have witnessed year to date, the constant tug of war between multiple expansion and earnings growth usually results in lower multiple expansion given where the current levels of inflation and interest rates are.

Source: Bloomberg LP and Strategas Securities, as of November 22, 2023

3. 2024: The Year the Election and Restrictive Policy Collide.

• Current Federal Reserve policy remains restrictive, albeit on a pause.
• History shows that a recession less 2024 is vital for Biden’s re-election campaign.
• What to watch: Normally once rate cuts occur, the recession is upon us, and the market has begun to sell off: both could be detrimental to a re-election campaign and could add to normal policy uncertainty should the current administration attempt to juice the economy in the short term.

Source: Economic Policy Uncertainty and Strategas Securities, as of November 15, 2023

 

For additional information on Strategas Asset Management, how to access our research or our other investment solutions please visit our website: https://www.strategasasset.com/ or reach out to Patrick Rista, prista@strategasasset.com / (646) 292-7984.

 

Past performance is not indicative of future results.

Shares of any ETF are generally bought and sold at market price (not NAV) and are not individually redeemed from the fund. Brokerage commissions will reduce returns.  Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index.

This communication was prepared by Strategas Asset Management, LLC ("we" or "us" or “our”).  This communication represents our views as of 11/24/2023, which are subject to change. The information contained herein has been obtained from sources we believe to be reliable, but no guarantee of accuracy can be made. This communication is provided for informational purposes only and should not be construed as an offer, recommendation, nor solicitation to buy or sell any specific security, strategy, or investment product.  This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry, or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. Past performance does not guarantee future results. All investments carry some level of risk, including loss of principal.

Strategas Asset Management, LLC is an SEC Registered Investment Adviser affiliated with Strategas Securities, LLC, a broker-dealer and FINRA member firm, and an SEC Registered Investment Adviser. Both Strategas Asset Management, LLC and Strategas Securities, LLC are affiliated with Robert W. Baird & Co. Incorporated ("Baird"), a broker-dealer and FINRA member firm, and an SEC Registered Investment Adviser, although the firms conduct separate and distinct businesses.

Investing involves risk, including possible loss of principal.

Holdings are subject to change. Current and future holdings are subject to risk. 

Strategas Asset Management Portfolio Managers Courtney Gelman and Dan Clifton discuss why now might be a good time to consider a policy ETF in the finale of our six-part series, Investing Through a Policy Lens.

 

 

 

 

The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and could increase the amount of taxes you owe by generating short-term gains, which may be taxed at a higher rate. The linked video represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the fund or any security in particular. This research is provided for educational purposes only. Strategas claims no responsibility for its accuracy or the reliability of the data provided. This information is not intended to provide legal and/or tax advice. Please consult your financial advisor for further information. For fund holdings and standard performance click here https://strategasetfs.com/sagp. Holdings are subject to change. Information on non-Strategas funds is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares, other than the Strategas Fund, that is described in this video.

 

 

Strategas Asset Management Portfolio Managers Courtney Gelman and Dan Clifton discuss why now might be a good time to consider a policy ETF in the finale of our six-part series, Investing Through a Policy Lens.

 

 

 

 

The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and could increase the amount of taxes you owe by generating short-term gains, which may be taxed at a higher rate. The linked video represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the fund or any security in particular. This research is provided for educational purposes only. Strategas claims no responsibility for its accuracy or the reliability of the data provided. This information is not intended to provide legal and/or tax advice. Please consult your financial advisor for further information. For fund holdings and standard performance click here https://strategasetfs.com/sagp. Holdings are subject to change. Information on non-Strategas funds is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares, other than the Strategas Fund, that is described in this video.

 

 

Strategas Asset Management Portfolio Managers Courtney Gelman and Dan Clifton discuss how lobbying data can be an asset when investing, in our third installment of Investing Through a Policy Lens

The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and could increase the amount of taxes you owe by generating short-term gains, which may be taxed at a higher rate. The linked video represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the fund or any security in particular. This research is provided for educational purposes only. Strategas claims no responsibility for its accuracy or the reliability of the data provided. This information is not intended to provide legal and/or tax advice. Please consult your financial advisor for further information. For fund holdings and standard performance click here https://strategasetfs.com/sagp. Holdings are subject to change. Information on non-Strategas funds is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares, other than the Strategas Fund, that is described in this video.

Strategas Asset Management Portfolio Managers Courtney Gelman and Dan Clifton discuss how lobbying data can be an asset when investing, in our third installment of Investing Through a Policy Lens

The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and could increase the amount of taxes you owe by generating short-term gains, which may be taxed at a higher rate. The linked video represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the fund or any security in particular. This research is provided for educational purposes only. Strategas claims no responsibility for its accuracy or the reliability of the data provided. This information is not intended to provide legal and/or tax advice. Please consult your financial advisor for further information. For fund holdings and standard performance click here https://strategasetfs.com/sagp. Holdings are subject to change. Information on non-Strategas funds is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares, other than the Strategas Fund, that is described in this video.

Economic headwinds, elevated market valuations, and tight credit conditions have us on alert again for a slowing economy, or, at the very least, a repricing lower of the overall equity market.  In this light, we have adjusted our portfolio to a more defensive posture with the below summary of recent actions:

Summary of changes

• Deployed a recession protection theme.
• Reduced weight to our AI theme
• Maintained weights to our De-Globalization and Cash Flow Aristocrats theme.
• Maintained an elevated cash level.

                 Entering 2023, we were of the opinion that tighter monetary policy would eventually filter into demand (and thus the labor markets) to slow economic growth enough to present a recessionary environment.  What we did not count on was a reversal of tighter policies like we witnessed in March following the collapse and subsequent bailout of Silicon Valley Bank.  We believe the reduction in the Treasury General Account injected liquidity into the system and added to the subsequent buoyed consumer spending and a resilient labor market to help propel equity prices higher, forcing our hand into a barbell approach whereby we added our Artificial Intelligence theme and moved out of our more defensive positions.        

                 However, we now find ourselves at a crossroad, with the still elevated market valuations combining with tighter fiscal and monetary policies, upcoming economic headwinds, and an uncooperative treasury market.   To be sure, we find ourselves of the opinion that artificial intelligence will continue to have an impact on productivity in the long run and thus, should remain a part of the portfolio.  But with the liquidity impact of the Bank Term Funding Program waning, consumers savings accounts dwindling, fiscal support on the decline, and energy prices elevated, can the consumer continue to spend at the pace witnessed during the first 3 quarters of the year?  We believe that ultimately the fiscal bill will come due and the impact of such, will have a negative impact on economic data and equity prices.  This transition has us adjusting the portfolio by reducing (though not eliminating) our AI weights and adding a Recession Protection theme. In this mindset, we favor shorter duration equities, or those well-established companies which produce high levels of current cash flow, during this period in which we believe inflation and by extension, long-term interest rates, may remain elevated. 

Economic Headwinds

• Tight monetary policy historically leads to weaker demand.
• Consumer savings ebbing post COVID relief.
• COVID aid programs down $48bn in the third quarter
• Higher energy prices eating up more of consumer’s wallet.
• Student loan payments resuming
• West coast individuals paying delayed taxes from April.
• Consumer confidence measures moving lower.
• Banks tightening lending standards which historically hits manufacturing.,
• The UAW strike (along with other strikes) impacting labor and supply.
• Panama Canal disruptions impacting supply chains.
• Global economies faltering:
  1. Europe has been mixed (and continues to see pressure from regional geopolitical issues).
  2. China, in contrast, has been weaker than expected this year.
• Government Shutdown on hold but not resolved.
• Labor market imbalance keeps the central bank restrictive.

Source: Energy Information Administration (EIA) and Strategas Securities as of October 2, 2023

Elevated Market Valuations

• Earnings expectation revisions on the street for 2024 have moved lower but are still showing an 11% increase.
• The current level of inflation historically suggests an index level much lower than the current price.
• The lagged impact of tight monetary policy would suggest a notable drop in net income from the current level.
• Operating Margins this negative has coincided with recessions in the last 4 recessions.
• Valuation measures are all near their historical highs.

Source: FactSet and Strategas Securities as of October 2, 2023

All Historical Valuations near all-time highs

Source: FactSet and Strategas Securities as of October 2, 2023

P/E = price-to-earnings  ratio relates a company's share price to its earnings per share; Enterprise value-to-sales (EV/Sales) = a company's total value (in enterprise value terms) divided by its total sales revenue; Earnings per share (EPS) = a company's net profit divided by the number of common shares it has outstanding; Enterprise value-to- earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) = a company's total value (in enterprise value terms) divided by its earnings before interest, taxes, depreciation, and amortization; Shiller/Cape= is calculated by dividing a company’s stock price by the average of the company’s earnings for the last ten years, adjusted for inflation. The CAPE ratio is a valuation measure that uses real earnings per share (EPS) over a 10-year period to smooth out fluctuations in corporate profits that occur over different periods of a business cycle; Price/Book = A company’s market price per share divided by its Book Value per share; P/Free Cash Flow = A company’s market value divided by its cash flow from operations; TTM P/E = Trailing Twelve Months Price to Earnings Ratio; NTM P/E =Next Twelve Months Price to Earnings Ratio; P/Free Cash Flow = A company’s market value divided by its cash flow from operations; CPI = the Consumer Price Index which measures the overall change in consumer prices based on a representative basket of goods and services over time; CY = calendar year

Tight Credit Conditions

• Monetary Policy acts with a lag.
• Interest Rate levels surging higher.
• Rare bear steepening is an “end of business cycle dynamic” indicator.
• Recognition on the part of holders of Treasury securities that the Federal Reserve is likely to keep short-term interest rates higher for longer than previously anticipated.
• Fiscal spending could feel squeeze from higher rates and maturing debt.
• Net interest costs, % of tax revenue now at 14.2% - its highest level since the late 90’s.
• Banks continue to tighten lending standards.