Written by: Matthew J. Krajna

With the reopening of the U.S. economy fully underway, pent-up demand has far outstripped COVID-related supply shortages of most major goods causing prices to surge in nearly all categories. Couple that with a labor shortage that remains stubbornly persistent and consumers are facing price increases from multiple fronts. Record low-interest rates and high levels of personal savings have created a backdrop that clearly stokes fears of an inflation problem.

Last week’s Federal Open Market Committee (FOMC) meeting press conference Fed Chair Jay Powel upgraded the Committee’s view of the economy. Gross Domestic Product (GDP) in the U.S. is now expected to rise +7.0% this year, up from +6.5% prior.

Inflation, as measured by the Personal Consumption Expenditure (PCE) Index is now set to rise 3.0% in 2021, up from 2.4% prior. Even as FOMC projections see the unemployment rate falling, it’s likely going to be impacted by an estimated 2.6 million retirements during the pandemic, which is more than one-third of the 7.6 million jobs that were lost. Put differently, as the Federal Reserve sees the unemployment rate falling to 4.5% by year-end (down from 5.8% last month) wage pressures may persist, adding fuel to the inflationary fire impacting consumers. The median dot projects that FOMC members see the benchmark interest rate to rise to 0.60% from 0.00% by the end of 2023, on the back of above-trend inflation and the economic output gap closing.

For clients and advisors looking for an inflation hedge, there are various tilts that one can make to their investment portfolio: adding commodities, inflation-protected bonds, real assets, etc. For those looking for a one-stop shop, consider the Nottingham Advisors Real Return strategy.

Nottingham’s Real Return strategy seeks to deliver positive real returns over a business cycle, targeting +300bps above the Consumer Price Index (CPI) through dedicated exposures to Equities, Commodities, Fixed Income, and Alternatives via exchange-traded funds (ETFs). This four-quadrant approach incorporates both strategic and tactical allocations to assets that may hedge inflation, provide a pass-through mechanism, or have historically performed well during bouts of rising prices. Nottingham’s Investment Policy Committee (IPC) is tasked with over or underweighting each of the four quadrants, and selecting the appropriate allocations within each.

  • Equities – From a strategic standpoint, stocks have traditionally served as an ideal inflation hedge, with companies able to pass on price increases to consumers. Companies growing dividends at a rate above inflation have historically been attractive, as have value-oriented sectors that tend to perform well when the economic backdrop is favorable and interest rates are rising. Tactically speaking, companies that are able to pass along price increases to consumers while maintaining or expanding margins may also perform well (i.e. Homebuilders), and represent a timely example of a case in which the builders themselves see costs being pushed to buyers while their profit margins expand.
  • Commodities – Intuitively, commodities tend to perform well in inflationary environments as prices are increasing due to demand and a weaker base currency. For most commodities, their base price is in U.S. Dollars, and as inflation erodes the value of the base currency, prices tend to adjust accordingly.
    • In the current boom economy, both a surge in demand and expectations for inflation to climb further have led to a surge in all types of commodities, from agriculture to energy and precious and industrial metals. Investors can gain exposure to commodities primarily in two ways: to the commodity directly (most ETFs hold futures contracts offering exposure to broad commodities) or through select equities (i.e. miners, pipelines, agribusinesses, upstream natural resource producers, etc.).
  • Fixed Income – Historically speaking, floating rate bonds with resetting coupons are the ideal type of bond to own when rates are going up (price and yield move inversely with each other) whereas an investor would otherwise be stuck with a fixed rate bond whose value may erode with rising rates. Treasury inflation-protected securities (TIPS) have also been a go-to source of purchasing power protection in lieu of their fixed-rate counterparts.
  • Alternatives – These types of investments come in many shapes and sizes, and Nottingham’s IPC primarily focuses on traditional alternatives (as opposed to alternative strategies) such as Real Estate that tends to have inflation escalators built into long-term contracts with tenants. Tactically, the IPC has favored growth REITs such as Industrial REIT companies involved in warehousing and logistics that both benefit from a secular trend towards e-commerce and a built-in inflation pass-through.

Nottingham’s Real Return strategy can be thought of as an all-weather type strategy fit for a standalone portfolio allocation or as a “sleeve” in a larger allocation where the underlying assets are fixed (i.e. traditional bond portfolio). Given its unique four-quadrant approach and strategic-tactical construct, the Real Return strategy is both dynamic and flexible enough to adapt to current market conditions and prepare for any coming inflation spikes.

Nottingham Advisors offers both institutional and individual clients experience, sophistication, and professionalism when helping them achieve their goals. With over 40 years of serving Western New York and clients in more than 30 states, Nottingham tailors each solution to fit the specific needs of each client.

For more information about Nottingham’s offerings, visit www.nottinghamadvisors.com or call 716-633-3800.

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Nottingham Advisors, Inc. (“Nottingham”) is an SEC registered investment adviser with its principal place of business in the State of New York.  Registration does not imply a certain level of skill or training. For information pertaining to the registration status of Nottingham, as well as its fees and services, please refer to our disclosure statement as asset forth on Form ADV, available upon request or via the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). The information contained herein should not be construed as personalized investment advice or a solicitation to buy or sell any security. Investing in the stock market involves the risk of loss, including loss of principal invested, and may not be suitable for all investors. Past performance is no guarantee of future results. This material contains certain forward-looking statements which indicate future possibilities. Actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that any views and opinions expressed in this material will come to pass. Additionally, this material contains information derived from third party sources. Although we believe these sources to be reliable, we make no representations as to the accuracy of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without prior notice.

Nottingham News

On the heels of our latest CIO Letter, Transitory, the Federal Reserve’s Federal Open Market Committee concluded its latest policy meeting today with no change to short-term interest rates. The Fed will continue buying $120 billion of Treasury and mortgage-backed securities per month. While acknowledging the recent rise in inflation, once again the term transitory was used to describe the current rise in prices. References continue to be made to the pandemic and the risks to the economy that a resurgence would pose, clearly aligning future economic prospects with the path of the virus. Lastly, the FOMC reiterated its tolerance for above-target inflation, with the goal of realizing once again “maximum employment”.

The current Fed Dot Plots show the potential for a rate hike in late 2022, followed by one or two more in 2023. Monetary policy continues to be highly accommodative at this point, and should remain a tail-wind for risk assets for the near future. Both bonds and stocks initially sold off on the announcement, but quickly recovered some of their declines.

Please reach out to Nottingham Advisors with your questions or comments.

Read the newsletter – Transitory

Written by: Matthew J. Krajna, CFA

The state of the housing market nationwide can be best described as nothing short of robust.  Demand remains intense, and supply remains, well, in short supply.  According to the National Association of Homebuilders (NAHB), homebuilder sentiment hit 83 in May, remaining elevated at above-average levels.  Each of the past nine months has shown readings above 80, after hitting a record high of 90 back in November. Traffic also remains robust, with the Traffic sub-index hitting 73, also remaining elevated, with eight of the past nine months posting readings above 70.  Readings above 50 signal builders view conditions as favorable. Average monthly inventory stands at 2.4 months’ worth of supply according to the National Association of Realtors, not far off of the record low of 1.9 months hit in December, down from 4.2 months in March 2020.  These dynamics have led to higher prices, with existing home sales rising +19.1% year over year in April, with an average selling price of $341,600. Homes are selling at a break-neck pace, with the typical home sold last month spending barely 17 days on the market.

Stimulus checks and pent-up savings continue to bode well for the entire housing-related supply chain as homeowners continue to reinvest in their homes, both with added savings and stimulus, as well as for prospects of higher home values. Positive dynamics stem from more than just supply and demand imbalances.  Low-interest rates should continue to persist for some time, even if they creep up slightly.  According to Freddie Mac, the latest 30-year fixed-rate mortgage rate of 3.0% remained below the pre-pandemic high of 3.72% on January 2, 2020.  Even if rates were to rise 0.75%, they would be just getting back to their pre-COVID highs.

mortgage rates remain below the pre-pandemic high
Source: Nerdwallet, https://www.nerdwallet.com/blog/mortgages/current-interest-rates/; Data shown from 06/2020 to 03/2021

A broad measure of housing, the S&P Homebuilders Select Industry Index has been a strong performer year to date, handily outpacing the S&P 500.  As of May 19. 2021, the S&P Homebuilders Select Industry Index ETF had returned +26.22% versus +10.25% for the S&P 500 ETF. Strength in the Homebuilder Index has been broad-based, coming from all sub-industry groups.

S&P homebuilders index sub-industry weights
Source: SSGA, Nottingham Advisors, May 19, 2021


With quarterly earnings season nearing a close, we’ve effectively heard from the entire supply chain within the Homebuilding ecosystem.  Demand remains robust for inputs (i.e. home furnishings, appliances, materials, etc.) and outputs (i.e. new homes). Inflationary pressures are generally being passed along to consumers, through higher prices and smaller square footage of new homes. Many companies are expecting margin expansion this year due to strong demand, lesser COVID related costs, and operating leverage. As such, we’ve seen a significant amount of index constituents increase their revenue and earnings per share (EPS) guidance for 2021, which continues to bode well for the entire homebuilding related category. Couple this with relatively attractive valuations and strong secular tailwinds, and homebuilding remains a favorable tactical exposure in client portfolios, not to mention a potential inflation hedge moving forward.

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Source: Nottingham Advisors, Bloomberg, SSGA. S&P 500 ETF (ticker: SPY) and Homebuilders Select Industry ETF (ticker: XHB).
This information is included for informational purposes only and does not reflect past recommendations by Nottingham or actual trading in any individual clients’ accounts. Nottingham makes no representation as to whether investment in any security or strategy mentioned herein was profitable or would have been profitable for any person in the past.
This blog does not constitute current recommendations by Nottingham for any individual client or prospective client to buy or sell any security or engage in a particular investment strategy and Nottingham makes no representation as to whether investment in any security or strategy mentioned herein will prove profitable in the future.​
All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. ​ Nothing in this piece should be interpreted as personalized investment advice.

As the social responsibilities of corporations receive more attention, and stakeholders hold companies liable for any negative externalities borne by society, business executives have begun paying more attention to outside concerns over how their companies should be run.

Read the full article ESG Highlights- September 2019

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Nottingham’s investment philosophy is designed to deliver superior risk-adjusted returns over a business cycle when compared to a strategy’s respective benchmark. Our philosophy has been consistently implemented through a core-satellite, or strategic-tactical approach to portfolio

Read the full article Reducing Portfolio Volatility and Adding Return Using Global Minimum Volatility Strategies

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Nottingham Advisors’, Tim Calkins, Director of Fixed Income, was a panelist with S&P Dow Jones Indices regarding the positive performance in ESG strategies and more specifically, green bonds. Watch the full video below:

Going Green Without Seeing Red

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Written by Portfolio Manager Matthew Krajna, Select Managers review is issued to provide color to both strategy and individual fund performance and highlight any portfolio changes that have been made throughout the period.

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Below you will find Nottingham’s annual privacy letter for 2018.

Annual Letter 2018

Privacy Letter 2018

Allocations Which Mitigate Equity Risk

The video explores how index data, research, and new factor-based strategies are influencing allocations.


Reconciling Long Term Views and Equity Allocation 

The video explores how index data, research, and new factor-based strategies are influencing allocations.