Monetary policy in the United States is controlled by The Federal Reserve. The Federal Reserve (Fed) controls the money supply through its three “tools”, open market operations, reserve requirements, and the discount rate. The Fed uses its tools to target the Federal Funds Rate, which is the rate commercial banks borrow and lend their excess reserves to each other overnight. The Fed meets eight times a year to set the target interest rate. 

On Wednesday the 22nd, the Fed concluded a two-day meeting announcing another quarter-percentage-point interest rate increase. This will now bring the benchmark Federal Funds rate between 4.75% and 5%, the highest level since September 2007. This marked the ninth consecutive rate increase in the past year, to tame inflation.  

It was a very delicate decision, as Fed Chairman Jerome Powell hinted that this increase could be the last increase for the time being. Powell said that the U.S. banking system is “sound and resilient” although the central bank needs to strengthen supervision and regulation of the financial sector after the collapse of several banks this month. When questioned further, Powell said the Fed “considered” a rate pause due to the recent banking crisis. However, economic data has come in too strong, and the Fed is very persistent in its actions to bring inflation down to 2%. Powell said that “we have a long way to go, and the ride will likely be bumpy”.  

Whether the Fed would increase the Federal Funds Rate has been a debated topic due to the recent banking turmoil beginning with the collapse of Silicon Valley Bank (SVB). Many have criticized the Fed in the past two weeks, saying the hikes have been hurting the working class. In this meeting, Powell defended the actions of the Fed, saying inflation will hurt more if left untreated. Powell’s goal stands to contract the economy, reduce hiring, and slow economic growth to reduce inflation levels. 

Leading up to the decision, there seemed to be three possible outcomes. The Fed could begin to cut rates, signaling the issues in the markets are more significant than inflation; seemingly admitting they had been too eager in their past increases. Or the more likely scenarios, either a rate pause or a rate hike. Either way, markets could perceive this as negative. A pause would signal severe underlying economic issues that were caused by the rapid rate hikes and stress on banks. A rate hike could be perceived as a relentless attempt to battle inflation.  

In the press conference on Wednesday, Jerome Powell answered many questions about their quarter-percentage-point raise. A big takeaway was the chairman’s language. In past meetings, they have forecasted “ongoing rate hikes”, however, the new language has turned to “may and some” hike(s) in the future, depending on economic data. Future decisions will be taken on a meeting-by-meeting basis. The Fed indicated that rates could pause by year end, around 5.1%. Powell stated, “The question will be how long this period will be sustained,” referring to the current tightening of the economy.  

In sum, the Fed expressed their main concern is still bringing inflation down to their 2% goal. The broad market indexes rebounded this morning with investors perceiving the potential slow-down in rate increases as good news. The Fed will be waiting to see how much the recent events slow the economy, which could help their efforts to cool the economic growth. Powell did not provide clarity on whether a soft landing is still possible.  

Schenley Capital, Inc. 417 Walnut Street Suite 200, Sewickley, PA 15143, (412)-749-9256 (info@schenleycapital.com)

The past week has been strange, to say the least. Within the week, there were two of the largest bank failures in U.S. history since 2008. This has led to the very common question “What does this mean for me?”

March 8^th, 2023, Silicon Valley Bank (SVB) announced they had sold off one of their bond portfolios at a significant $1.8 billion loss. This caused a domino effect of people fearfully pulling their money from SVB, known as a run on the bank. By Friday, March 9^th regulators had taken over the bank and halted trading for SVB stock.

Unlike the 2008 financial crisis, this was not due to extreme fraudulent bank behavior. Other than some poor judgment by management on purchasing longer-duration bonds at low rates, no illegal practices have surfaced. This situation was exacerbated when the rates rose quickly and SVB was forced to sell government bonds before the maturity date, which created losses for the bank. This situation occurs when one sells a bond before maturity when interest rates have risen, making your bond less valuable receiving a lower price at the time of the sale. This resulted in a liquidity issue due to the extreme rate increases brought on by the fed to cool the macro environment. A bit of a perfect storm.

The financial sector, which includes banks and brokerage firms, has experienced a dramatic sell-off due to a massive decline in confidence and fear in the U.S. banking system. Silicon Valley Bank’s weakness began with their customer concentration of venture capital and smaller start-up companies, which are vulnerable and dependent on raising cash continuously. Due to the historic bull market brought on by low-interest rates in 2020, many people looked to diversify outside of the stock market. A popular place was alternative investments, such as venture capital and private equity firms.

When banks receive deposits, they turn around and invest those deposits into safe government-backed securities, helping boost their net interest margin (NIM). Due to the large influx of cash into alternative investments, many of the SVB customers rapidly increased their deposits at the bank. To put into perspective, deposits at SVB skyrocket from $61 Billion at the beginning of 2020 to $175 Billion in 2022.

With rates at exceptionally low levels during the pandemic, Silicon Valley Bank looked for safe places to put their funds, leading them to invest a significant amount into longer-duration government bonds at low rates. Bond prices drop as rates rise. When interest rates began to rise at a record pace, this became an issue. Once larger customers of the bank began pulling their deposits, SVB was forced to realize these bond losses. In a swift and decisive move, the Federal regulators took over the Bank.

These are very isolated situations, as SVB serviced small start-up companies and venture capital firms. Larger banks tend to have significant cash reserves and are carefully monitored by regulators to ensure proper liquidity standards. The Federal Deposit Insurance Corporation (FDIC) insures each account up to $250,000. The Federal Reserve joined the Treasury in saying that they will make sure all depositors in the two large banks are repaid in full.

This time can lead to many financial questions and concerns, at Schenley we recognize and capitalize on opportunities in such a market. Please remember we are here to help navigate these confusing and concerning times. If you have any questions please contact us!

Schenley Capital, Inc. 417 Walnut Street Suite 200, Sewickley, PA 15143, (412)-749-9256 (info@schenleycapital.com)

An “IRA” or Individual Retirement Account is a tax deferred investment account that helps you save efficiently for retirement. Money placed in the account grows tax deferred. Two popular IRA accounts are the Roth IRA and the Traditional IRA. 

Choosing a Traditional IRA, you may get a tax deduction on your contributions for the year that the contribution is made, you then pay tax when you take out the distributions in retirement. There is no income limit to contribute to a Traditional IRA. However, there are income limits to deduct the contributions from your taxes. Phaseouts in 2023 begin for Traditional IRA tax deductions for single filers whose gross income exceeds $73,000 ($68,000 in 2022) and for joint filers with exceeding $116,000 ($109,000 in 2022).  

On the other hand, a Roth IRA has no tax deduction, but distributions in retirement are tax-free, due to the after-tax contributions. There are income limits to contribute to a Roth IRA. The phaseouts in 2023 begin for single filers making more than $138,000 ($129,000 in 2022), and joint filers with more than $218,000 in gross income ($204,000 in 2022). 

So, how does your IRA work? You deposit funds into the IRA each year, allowing you to invest in stocks, bonds, mutual funds, and ETFs. This flexibility to invest differs from most employer sponsored retirement plans, which typically provide a limited number of investment options. How your account grows over time depends on how much you contribute to the account and how well you invest! 

You can contribute to your IRA account each year in addition to contributing to a work sponsored retirement plan, such as a 401(K), 403 (b), and SEP (Simplified Employee Pension). Keep in mind once money is contributed to an IRA, you should not withdraw until after age 59 1/2. However, if you must access these funds earlier, you will pay a 10% penalty and the funds will be included in your gross income to be taxed at your income bracket. For a Roth IRA, you may withdraw the contributions any time, tax-and penalty-free. However, you may have to pay taxes and penalties on any earnings you remove from your Roth IRA. Lastly, owners of Traditional IRAs are forced to begin withdrawing funds the year they reach age 72. More favorably, the Roth IRA does not require you to withdraw money from the account if the account owner is alive.

To contribute to an IRA, you are required to have received taxable earned income. In 2022 you can contribute the lesser of $6,000 or 100% of earned income, with a $1,000 catchup if you are 50 years or older ($7,000 total). Due to inflation, in 2023 you can contribute the lesser of $6,500 or 100% of earned income including a $1,000 catch-up for those aged 50 and older ($7,500 total). If you haven’t made your full contributions to your IRA for 2022, you have until April 18th, 2023.

We realize there are lots of things to remember when planning for retirement. Here at Schenley Capital, we focus on creating strategies that help you maximize your nest egg. Whether it is retirement planning, saving for your child’s future college expenses, or long-term wealth planning. We customize investment plans to help you achieve these goals, along with comprehensive financial planning for all other aspects of your life. Reaching your financial goals is a lifelong project – the sooner you start and more you contribute, the quicker you can enjoy the benefits. We encourage our clients to open tax-advantaged accounts such as Roth IRAs and Traditional IRAs. Call us to set up a meeting! 

Schenley Capital, Inc. 417 Walnut Street Suite 200, Sewickley, PA 15143, (412)-749-9256 (info@schenleycapital.com)

Even though we are Investment Advisors, we feel that it is imperative to discuss Life Insurance as Financial Planners.

     EVERYONE could use Life Insurance at some point during his or her lifetime; often, it is about financial security for someone we care about, protecting one’s income, or even assisting in the cost of final expenses.

Life Insurance protects your investment portfolio and provides your loved ones from potentially devastating financial losses if something were to happen to you.   Financial security could mean that the policy helps to pay off debt; or helps pay living expenses, medical expenses, final expenses, college tuition, or other financial requirements you, or your loved ones, might have in the future.

     Life Insurance can provide cash when you need it most.  It can give peace of mind to have that security in your financial portfolio as a defensive strategy.  If you select the right type of insurance for your needs, combined with a strong investment portfolio (offensive strategy), you could leave a legacy behind.  We call this Portfolio Protection.  Therefore, you do not have to invade your investment portfolio if something happens to you.  Managing this risk is only part of the puzzle that we assist with when we create financial plans.   Imagine building a house; you must start with the foundation first, and then build from the ground up.  We take a holistic approach to financial planning by protecting and growing our clients’ estate through supplementing the right type of life insurance for the investment strategy.

     Many questions arise as to what type of insurance is right for you? There are two major types of Life Insurance.  Think of Term Insurance as renting a house, and Whole Life Insurance as owning your own home.

     Term Insurance typically starts off very in expensive and increases in cost as you age.  Like renting a house, the landlord raises rent as time goes by.  If you do not pass away during the time that you are paying for the Term, then you will NOT receive any cash.

     Whole Life differs because you DO get your money back.  It is more like owning a house; coverage is in force permanently.  You pay a level premium based on your age and health when you purchase the policy. You still get the death benefit; although, unlike the Term policy, Whole Life builds cash value that is available while you are living.  This is wonderful because you may withdraw cash, tax-free, for ANY reason before the death occurs.  As financial planners, we love that a policy can assist with retirement, home improvements or education.

     At Schenley, we typically like to recommend a blend of two types of insurance: Term Life Insurance and Whole Life Insurance.  We suggest a larger amount of 20–30-year term, and a smaller portion of Whole Life.  The Term will provide enough insurance required in the short term at an affordable rate, and the Whole Life policy will continue to grow overtime, building cash value along the way and leaving behind a lifetime legacy.  Depending on the individual’s situation, we could also add Disability and Long-Term Care Insurance into your Life Insurance policy, thus reducing the cost tremendously by combining it with riders.

     We think of life insurance as risk management for families for their entire lifetime, not just until retirement.  Do not hesitate to reach out to us about Life Insurance.  Whether you are a current client of Schenley, or if you are just someone that has questions about your unique financial position, we can assist in making the right choices that work for you.

Schenley Capital, Inc. 417 Walnut Street Suite 200, Sewickley, PA 15143, (412)-749-9256 (info@schenleycapital.com)

     The technology stocks have been hit very hard in this first month of the new year.  Many of the US large growth companies have dropped in price, thus causing the US large cap mutual funds to drop as well.  These US large cap growth companies have been the fastest growers in the past five years.  There have been numerous events that beat down the market this January.  On Wednesday, the Federal Reserve’s Chairman Powell stated that the Federal Reserve will raise interest rates this March; it has been a long awaited and expected event, still leaving the timing of the market volatility impossible to predict. 

     This market volatility is very unsettling.   We have watched the market fall -1,100 points in one day, and then bounce back to close at +101 on the very same day.  The VIX, which is the index with indicates market volatility has been unusually high; it reached +38 on the most volatile days and is hovering around an average of +30.  The V-shaped curves in the market indicates that there is a lot of cash on the sidelines and many investors are still willing to buy on the “dips”, or days when the market drops!  The increased purchasing activity could be a good sign, indicating that investors are hungry for bargains and that the market is resilient. 

     We are very encouraged by the 4th quarter earnings reports by the major technology companies and other US Large Cap companies such as Microsoft, Apple, McDonalds.  Apple had VERY strong earnings last night, as it announced having its largest revenue of any single quarter in history!  Sales are growing at +11%, and the company reported increased sales in every single product category!  The strong earnings illustrate that our US companies are in good shape, their balance sheets are strong, and they have a high cash position.  The very strong GDP numbers at 6.9% in December 2021 also provide the market with some stability. 

     There are detractors within the markets, which we cannot ignore.  The Omicron variant spread rapidly in December, which made many investors nervous worldwide.  During the fourth quarter, there were severe supply chain disruptions.  Our US ports have been in a backlog situation for months.  This issue is not going to be resolved overnight; although, many companies are building factories in the US to mitigate this issue.  This worldwide shortage of electronics, building materials and all types of auto-parts is affecting all sectors of the market. Volatility remains the greatest concern for investors. 

Where do we go from here? 

     We have had a long run in this bull market, and many investors have been attracted to pandemic (or other cloud-type stocks), which have become very expensive.  We have already positioned each of our clients’ portfolios with high quality equities that are mature and typically pay high dividends. Interest rates are rising, as we may see four rate hikes, in 2022.   We believe the high performing stocks in a higher interest rate environment will be financials, consumer staple stocks, and energy companies; therefore, you may witness us replacing your more expensive stocks for the “steady eddy” companies, such as banks, energy and oil companies, and the Proctor & Gambles of the world.  Bonds should also become more attractive as rates rise. 

We are always researching to find additional opportunities for our clients to increase their wealth.

     Another mutual fund company that we wanted to take note of, is Grandeur Peak (GISOX) due to their extraordinary performance throughout the pandemic. We use Grandeur Peak in many clients’ portfolios in the International Small Company category. Considering all the volatility during COVID-19, this fund stands out above the rest as it consistently performed above the benchmark. Grandeur Peak has informed us of the predicted distribution so we can also make our clients aware.

The Distribution this year is predicted to be about $2.25!

This means, for each share of GISOX, you receive 2.25x of income. For example: If you own 100 shares, you receive $225. Since the fund is only trading at $26.40 right now, a $2.25 distribution could be significant!  Once Grandeur Peak releases the distribution, you will automatically own more shares, at a lower cost!

     In contrast, the International Small Company category experienced poor performance during the pandemic.  Consequently, small businesses have struggled to survive during the past year and a half both nationally and internationally. Whether it’s the lack of capacity, technology, financing, or resources, one can argue that small companies have faced the most hardship as large companies have prospered and increased sales during COVID-19. As a result, there have been numerous reports of smaller stores, restaurants, and Mom-and pop businesses closing close to home and across the country. After the steep market drop beginning in March 2020, the International Small Company category is finally starting to come back to equilibrium; the benchmark finally has a positive year-to-date.

     Considering the circumstances, Grandeur Peak (GISOX) has done an exceptional job of maintaining during the bearish drops and continuing to improve as the world persists in the battle with COVID-19. 

Additionally, Grandeur Peak consists of Non-U.S. Equity; mostly small companies that you may have heard of, like Silergy Corp, Wix.com, Lululemon Athletica and many you that aren’t as recognizable.   Headquartered in Salt Lake City, UT, Grandeur Peak (GISOX) invests alongside shareholders, which helps it earn a High People Pillar and Gold Morningstar rating.  The share class maintains a cost advantage over its competitors in the International Small Company category and continues its extremely low expense ratio.  Between the distribution of Grandeur Peak (GISOX), combined with the affordable price, this is a wonderful fund to own or even purchase more of.

     Both Brown Capital, Inc. (BCSSX) and Grandeur Peak (GISOX) are closed for new sales until next year; however, as institutional investors, we can still purchase more for you so do not hesitate to reach out!  Contact us at Schenley Capital, Inc. if you have any questions or concerns about Grandeur Peak (GISOX), Brown Capital (BCSSX), year-end taxes, or anything else that comes up financially!

Written by Derek Green, Investment Advisor

dwgreen@schenleycapital.com

412-749-9256

      A mutual fund company that we particularly wanted to touch on, that we use in a lot of clients’ portfolios, and has performed with extraordinary volatility this year and throughout the pandemic is Ballie Gifford (BGEGX).  Ballie Gifford’s distribution prediction for their annual distribution is here!

The Distribution this year is predicted at $.38!

This means, each share you own of BGEGX will accrue .38x (times) that amount.  Since the share is only $25.02 right now, a $.38 distribution could be significant for you!  Once you receive the distribution, you will automatically own more shares, at a lower cost!

     As we all know, the Emerging Markets category has been getting crushed throughout the pandemic.  The benchmark is still down -4.46% year-to-date, due to the volatile market overseas.  The world’s most vulnerable countries are the ones that are just developing because they lack the capacity, technology, and/or resources to expend the struggle.  After the very steep drop, the Emerging markets category is finally beginning to come back to normal.

     Considering the circumstances, Ballie Gifford (BGEGX) has done an extraordinary job of maintaining during the bearish drops and continuing to improve as the rest of the world dispatches the COVID 19 virus.  Ballie Gifford consists of Non-U.S. Equity; mostly large companies like Samsung and Nestle, but also some small companies, such as Tencent Holdings (which is one of our favorite gaming stocks).  Headquartered in Scotland, Ballie Gifford (BGEGX) has a very sensible philosophy to merit a high process pillar rating.  The fund has consistently maintained an overweight of liquidity exposure and volatility exposure compared with category peers.  The high liquidity exposure is attributed to high trading volu{“type”:”inserter”,”blocks”:[{“clientId”:”eb0b28a6-ba4e-41e5-8f0f-c26a3d11bdfe”,”name”:”core/image”,”isValid”:true,”attributes”:{“alt”:””},”innerBlocks”:[]}]}me during volatile times, choosing the 76 stocks timing very wisely.

Don’t hesitate to reach out to us at Schenley Capital, Inc. if you have any questions or concerns about Ballie Gifford (BGEGX), year-end taxes, or anything else that comes up financially.

info@schenleycapital.com

412-749-9256

Written by Derek Green, Investment Advisor

     We have received many questions from our clients about the dividend this year at Brown Capital Management, LLC (BCSSX). If you are like the rest and are searching everywhere for information about your favorite mutual fund that you own, then you may stop investigating now. On Dec 13, Brown Capital gave a distribution to all its shareholders!

The Distribution for BCSSX this year was $10.85!
This means, each share/unit you own of BCSSX, you will receive 10.85x.  For example: If you own 100 shares, you receive $1,085. If you currently own Brown, you now own more shares/units from the distribution, and it automatically purchased more at a lower cost!

     Brown Capital Management, LLC (BCSSX) is probably one of our favorite mutual funds, and we try to own it for all our clients that we have mutual funds for. Brown Capital is a vastly growing U.S. small company mutual fund with its main office in Baltimore Maryland. Morning star gives it a gold rating, due to its small, but cohesive team with a distinctive process and impressive track record. The fund has been a consistent top quartile rank performer and they invest mostly about 60% in technology stocks, and 40% in healthcare.

This year more than ever, we are excited about the dividend because it has struggled so much in 2021. We can all agree the technology sector has hit some real unforeseen volatility, considering the bullish technology trends could have been the sole reason we were able to get through the hardest times of the pandemic.  On the contrary, this makes Brown Capital Management, LLC (BCSSX) a wonderful time to purchase more shares, due to its lower price.

Don’t hesitate to reach out to us at Schenley Capital, Inc. if you have any questions or concerns about Brown Capital, year-end taxes, or anything else that comes up financially. Send us an email at dwgreen@schenleycapital.com elliegenter@schenleycapital.com or call us at (412)-749-9256

We sincerely appreciate your business and wish you and everyone around you a happy holiday and happy new year!

Written by Derek Green, Investment Advisor

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