Commentary

 

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
construction.

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

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.

Nottingham’s Chief Investment Officer Larry Whistler, CFA was highlighted in The Wall Street Transcript on May 8, 2017, discussing how Nottingham manages risk in our portfolios through the use of a factor based approach. Click below to read the interview.

Managing Risk Through Factor-Based ETFs

Click below and register to hear the webinar replay with Nottingham’s Senior Portfolio Manager, Matthew Krajna, CFA, as a panelist on the S&P Dow Jones Indices webinar for financial advisors.

Despite continuous innovation in the investment landscape, a majority of global ETF AUM is still concentrated in core strategies. Why? … Because they work.

15 years of SPIVA® (S&P Indices vs. Active) data shows the persistent success of indexing core equities and fixed income in both bull and bear markets.

While it’s no secret that a strong core reinforces portfolio foundations efficiently, allowing more time to address individual client goals – the range of effective core strategies could be even broader than you think.

Join us and leading industry practitioners to explore:

  • Strategic and tactical index-based core allocation solutions to match individual goals and risk tolerance levels
  • Building a cost-efficient core with ETFs to pave the way for more scalable growth of your business
  • The role that core indices play in meeting fiduciary standard requirements

Click here and register to listen to the webinar replay.