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Optivest Updates

Alpha (beyond average market returns) will now come from active security selection and emphasis must be given to credit analysis. Passive investing will inevitably expose investors to zombie companies. Expect mandates to not be fully invested at times setting up for tactical nimbleness to take advantage of dislocations ahead.

There are good times ahead for investors who have prepared for the risks and opportunities ahead. Beyond the pandemic and the election, the low-interest rate environment and likely negative real yields for years to come will drive the unprecedented and massive $4.3 Trillion currently held in money market funds back to the markets seeking returns from the only places it can safely be sourced – actively managed equity funds, stable cash flowing real estate and private lending to high credit borrowers when banks won’t be able to lend because they find themselves laden with defaults, loads of lower credit borrowers and diminished spreads.

We are excited for the future and we look forward to guiding you to achieve your long-term goals.


Leslie, Matt & Ryan

The bear market of March 2020 has been the quickest to recover to bull market in history. The market has rebounded from its lows in March and the technology-heavy NASDAQ is hitting new all-time highs in the midst of the pandemic. This recession was not caused by over-exuberance or by a bubble but rather by an exogenous event. While the landscape coming out will look different, we believe that we will enter a new paradigm in the economy where strong and innovative companies will thrive, over-indebted and weaker businesses will fail and there be a greater push than ever for US-domiciled supply chain independence and nationalism. Staying invested with minor tactical modifications will prove the best method for generating steady returns and upside participation as the good times, we all so dearly look forward to outweighing the bad. At least in the stock market.

Stay healthy and stay optimistic. Long-term goals are still achievable.


Leslie, Matt & Optivest’s Investment Department

No one knows how quickly public-health officials will contain the coronavirus. The situation remains very fluid as rescue checks to taxpayers and loans to small businesses and self-employed parties are still in the works. There is likely another round of fiscal stimulus coming and we hope it works to assist borrower workouts with lenders.

Our strategy for the next couple of months is to reenter the stock market with the cash we raised early in the market drop as well as proceeds coming in from recent real estate sales. We have gotten a technical signal that we are in the clear for the market to recover. We already see a great recovery on NSA which we added to in the mid-’20s during this bear market and the preferred stocks we nibbled at. Gold has done really well to date. Going forward, we are buying individual stocks with strong credit and healthy balance sheets and are well equipped to thrive in a normalizing economy and have solid cash positions to survive a credit-constrained environment. We are also moving cash into our US-centric growth strategies as we continue our focus that the US is the most innovative and dynamic economy. Some reassuring stats to keep in the front of your mind:

The US will likely lead the charge to create a vaccine against COVID-19 and can look forward to seeing all our loved ones again soon. We will continue with our weekly news blasts to keep you apprised of our thoughts and progress. Through all of this, we encourage all of you to remember your long-term goals, be well and stay healthy.


Leslie, Matt & Optivest’s Investment Department

March 26, 2020

It seems we are in the season of breaking records. From severe daily market movements both to the upside and downside along with now record breaking unemployment, each day seems to bring new unforeseen changes. Along with the extreme measures being taken to combat the disease’s spread, we are all experiencing a new sense of isolation. While importantly prioritizing human health, we have in turn had to shut down large swaths of the economy, closing schools and businesses and limiting human interaction. Having to do so makes it unfortunately clear that a global recession is at hand. Yet despite all the turmoil, looking outside of our country and this short period of time, the possible exit for some from all of this is starting to be realized.

The initial impact of the virus in China resulted in their economy beginning a severe decline in late January. Yet with their extreme virus measures, two months later we have begun to see a rebound in key economic indicators such as home purchasing and transportation. Using this Chinese pattern for the US and Europe, we would hope to begin to see a rebound in the economic data for the US and Europe sometime in late April or May. An argument for a possible faster rebound is the aggressiveness of the monetary and fiscal response in the US and Europe. Albeit, an argument for a slower rebound is the lack of willingness in some countries to aggressively contain the spreading of the virus. Nonetheless we have seen a clear demonstration that we can get to the other side of this period of time.

For some time, we have been estimating the likely impacts of the virus’ spread through a number of channels, including reduced trade, restrictions in supply chains, tighter financial conditions, and, perhaps most significantly, social distancing measures. This latter effect is leading to a profound decline in consumer spending in the “face-to-face” sectors of the economy, namely hotels, restaurants, air travel, and related activities. We expect consumer spending in the months ahead to decline at the sharpest pace since at least World War II, with clear impacts to employment.

As shown in the illustration, real GDP is likely to contract in the coming quarter by nearly 17% on an annualized basis. This would mark the deepest quarterly decline since at least the 1950s. This will be a trying time for all of us, and certainly for the U.S. economy.

We expect, however, that this could also turn out to be among the shortest recessions in our history. Importantly, we assume that the need to significantly restrain activity, such as the closure of non-essential businesses, will dissipate by late in the second quarter. Under such a scenario, and with aggressive fiscal and monetary policy measures, we would foresee a rebound in growth in the third quarter to mark the end of this sharp yet short recession.

A ray of light is that, looking over the next ten years, our stock market outlook is starting to improve. The reason? The role that current valuations, which have contracted in the recent sell-off, play in our long-term forecast. Put simply, the price of most equities has become much lower than it had been, giving equities more room to grow before they reach what we’d consider to be their fair value. The theme broadly holds true for ex-U.S. equities. A similar dynamic also occurred in 2009, when the global economy was in a deep recession and stock prices were low.

We are by no means through this chaotic time. As domestic infection rates rise and the ripple of the closure of the US economy continues, we will continue to feel the impact of that in our daily lives. We are however on the eve of one of the largest fiscal stimulus packages to ever be passed and we continue to see new found ingenuity in both monetary and fiscal policy. We hold true to our philosophy that our diversified portfolios serve us in good times and bad, and over time we will see continued growth and a return to better times. We thank you for your trust in our guidance through these historic times.

March 18, 2020

Today we again witnessed a very volatile market as we anxiously await to see what type of fiscal stimulus we can expect, and as the impact from the Covid-19 virus continues to expand.

Attached below we have included a few key charts that we selected from JP Morgan that highlights the importance of diversification, discipline, and the wisdom of investing.

The first slide, Annual returns and intra-year declines, shows that despite average intra-year drops of 13.8%,the stock market has positive annual calendar returns 3 out of every 4 times. The second slide, Diversification and the average investor, shows the impact over the long run of utilizing a diversified portfolio. Please keep in mind that the diversified portfolio shown here is limited to just equities and bonds. Even in that case, holding just 60% in equities and 40% in bonds recovered to previous October 2007 values after the Great Recession in just three years. While at Optivest our clients diversify more broadly than just stocks and bonds. We also invest in REITs, real estate, gold, longevity contracts, and other alternatives. In slide three, Time, diversification and the volatility of returns, illustrates the dramatic trading range portfolios can experience in a shorter periods of time but that those volatile movements actually smooth out when looking over a longer period of time.And lastly, slide four, …but it’s extremely challenging to time the markets, repeats our advice from an earlier article that despite all the negative emotions, bad news and panic behavior all around us, staying fully invested achieves nearly 5 times the return over the panicked investor who sells out of investments and misses 10 best market snap back days and so on.We stand committed to serving you. We want to thank you for your trust and confidence in these perilous time. Never hesitate to reach us with questions and of course we happily accept gifts of toilet paper if you’re in the neighborhood!

Keep well and stay healthy.

March 16, 2020

We know these times create anxiety so we plan to keep frequent communications coming to you as we see events worth reporting on.

This past weekend, The Fed Reserve made another massive rate cut and committed to buy at least $700 billion in government and mortgage related bonds and the Federal Government continues to float ideas of social and economic aid to help offset the yet to be seen effects of the COVID-19 pandemic. This rocked markets today and markets plummeted further as President Trump warned that the outbreak could last until July or August.

The Coronavirus – The market does not like uncertainty but we can see that China and Korea are already improving as the reported cases has flattened in both countries. Both these countries imposed quarantining on the population so we should assume, other countries can contain if they practice the same whether be it government mandated or self-imposed.

The Market – While dramatic moves are very hard to witness on short-term day-to-day basis, what is really important is how our portfolios will be priced a year and more from today.

Our long-running bull market has ended and we have a lot of unknowns that can be solved quickly when transmission stops, treatments prove successful and vaccines are created.

Portfolio Strategy – We are long-term investors by trade and training. Buy and Hold is absolutely proven to outperform picking tops and bottoms. We have long been tweaking our investment models to stave off market correlation and pullbacks. We have durable investment portfolios that are holding up very well and the value of staying invested is that we get to participate in market snapbacks that will indeed occur when we start to see containment progress coming to a state near you.

March 11, 2020

The impact of the Coronavirus otherwise known as COVID-19 continues to rattle market and world confidence. As new developments in the detection of the virus have continued to lead headlines, the result has been the development of an incredibly emotionally charged environment. Beginning last year and into earlier this year, we took pre-emptive steps to de-risk the portfolio including a shift to more large cap domestic exposure over international equities, increased exposure to gold and self-storage, and the elimination of our floating rate bond positions. These moves have positioned us well for the current volatility.

As a reminder, a diversified portfolio is meant to serve you in good markets and bad. The decrease in equity value is mitigated by our counter-balancing non-correlated Longevity contract hedge funds, low correlation alternatives, and high credit quality/short duration bond exposure. And of course, our niche real estate investments are diversified between self-storage, multi-family, limited service hotels, essential high-credit tenant office and retail, and some legacy retail plazas. Again, the diversity of the investments serves as a counter-balance; there may be supply-chain or travel interruptions but debt service is either lower if floating or refinanced in the current low rate environment.

The markets appear panicked but we are certain algorithmic and program trading make markets much more volatile and can exaggerate the feeling of panic. Analysis says US financial stress is at 2011 levels and 2011 was a flat year for the S&P 500 as evidenced in the next graph.

Our philosophy remains unwavering in the need to have a diversified investment strategy. A diversified portfolio is meant to serve you in both good markets and bad. Our diversification edict is to continue to maintain positions in equities, bonds, real assets, and alternatives. As reflected in the graph below, this is not the time to pick the high of the market or the low.

This is the time to hold fast to our durable and diverse portfolio holdings and allow the COVID-19 virus and resulting issues to be resolved. Although we do not yet have an end in sight to the control of the virus, we do know that in time this too shall pass. We remain vigilant and focused on the ongoing changes in the world and will take action and communicate if anything changes our current approach. Please feel free to reach out with questions, we are here to serve your needs.

February 25, 2020

Needless to say, the last couple of weeks have been a rollercoaster in the stock market. Continued headlines about the Coronavirus have stoked additional fear as the world comes to grips with the prospect of this becoming a global phenomenon. Although this creates anxiety for us individually, and the markets based on anticipated effects on business productivity, this is precisely the time that we stand by our investment allocations.

As a reminder, we believe in and are advocates for diversified portfolios exactly for situations like this. A number of other investment advisors believe diversification is achieved by holding equities and bonds. Optivest is advantaged in that we specialize and can include two additional asset classes: Alternatives and Real Assets. Our Alternatives, such as our Longevity Contract funds, exist to not only provide cash flow but to remain completely uncorrelated to the general stock market. Our Real Assets investment, such as our Real Estate holdings, also continue to provide cash flow with a greatly reduced correlation to the general stock market as well. Furthermore, we do not just relegate ourselves to domestic companies; we look at both equities and bonds on a global scale, providing even more diversification.

The sum of our efforts is to reduce volatility and preserve capital, while still capturing upside potential and income. Our diversified strategies have and should continue to provide you confidence that although there will be market swings, over time our disciplined approach will provide more value to you than trying to predict the tops and bottoms of markets.

If you have any further questions, we encourage you to reach out at any time. Rest assured if we do see an event that would change our opinions, we will communicate our strategy and take action.

A year following the powerful returns of our Optivest models, our prudent advice is to take some of our profits and derisk; invest for tangible returns like stock dividends and real estate with cash distributions and expect this cash to be a greater percentage of your return than last year’s stretched price returns which lacked the earnings return keeping pace. Furthermore,  as the opportunities arise, hard assets like precious metals and value priced cash flowing real estate should be added for downside protection should a mild stock market correction occur or the economy suffer a malaise which could lead to our next recession.


Leslie, Matt, Bart, Letitia & Optivest’s Investment Department