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@www.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@www.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@www.schenleycapital.com elliegenter@www.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

{“type”:”inserter”,”blocks”:[{“clientId”:”d3f0d115-3d5d-4ee0-a6d2-87d3e70d3a42″,”name”:”core/image”,”isValid”:true,”attributes”:{“alt”:””},”innerBlocks”:[]}]}

It is different this year… 

1. Start a Donor Advised Fund at The Pittsburgh Foundation or Community Foundation –  

In 2021 you can donate Cash to your donor advised funds or a gift of cash to any NON-Profit organization  and you will be able to deduct up to 100% of your income.  Usually it is up to 60% of your income!! 

• Do you have low-cost stock in your portfolio or large capital gains?    A charitable donation of low-cost stock or any type of stock in 2021 will significantly reduce your  taxable income for 2021!!! 

• The Pittsburgh Foundation is a wonderful Community Foundation (TPF). TPF is one of the nation’s largest community foundations and they have been helping individuals and families make contributions for 75 years!! 

• A gift of cash or low basis stock would greatly reduce your 2021 taxable income. 

*As a Donor, you can choose which non-profit organizations to give to; the Pittsburgh Foundation will quickly approve the charitable gift and send it directly to a church, school, or non-profit of your choice. They approve of gifts on a weekly basis! 

• There is a $10,000 minimum to establish your Donor Advised Fund 

• Schenley Capital is an approved money manager by The Pittsburgh Foundation; we manage many donor advised funds for individuals, families, and organizations! 

• You can appoint your kids to be the successor for the donor advised fund to get them involved in philanthropy early in life! 

     2. Max out your retirement plans – 401(k), SEP(pre-tax) and or Individual IRA(after tax).  You can also contribute to an IRA for you and your spouse; $6,000 each, or if you’re +50 Yrs Old then you may contribute an additional $1,000.  Everyone over age 50 may contribute $7,000 per-each-person, per-each-year.  Therefore, you could make your contribution for 2021 now, and your 2022 contribution on January 1st, 2022!!   

          a. You can contribute to your 401(k) annually at the 2021 level of $19,500 +50 yrs Old +$6,500 = total of $26,000!!! 

     3. Tax Harvest – Review your Stock Portfolio and sell stocks at a loss, to match them against your gains. Take some gains to trim your portfolio and rebalance your large positions! Remember, there are no capital gains tax in retirement accounts. 

     4. Pay all estimated Taxes in 2021 – A way to reduce your taxable income in 2021. 

     5.Business Owners – Should defer income to 2022.  Owners should also accelerate deductions or make purchases of equipment and invest in business expansion items. Anything which will be a business deduction. Office or plant equipment, computers, furniture things which will expand the business. 

These tax saving strategies will bring large opportunities in 2021.  It is all about lowering your taxable income and strategies to create useful deductions for individuals and business owners..   

     Recently, Johnson & Johnson has released that they will be splitting into two publicly traded companies. The pharmaceutical segment will hold onto the name J&J, while the consumer product segment has yet to be named. This split will allow J&J to focus on their more profitable segments, pharmaceuticals, and medical devices. The pharmaceuticals and medical device division will generate $77 billion in revenue while the consumer products are estimated to generate $15 billion. After the split, the two companies are slated to be more profitable and will maintain the considerably high dividend of $4.24 a share or a 2.55% dividend yield! 

     Johnson & Johnson’s consumer products segment (which has yet to be named) include household products such as: Band-Aid bandages, Aveeno, Neutrogena skin care products, Listerine, etc. The yet-to-be-named company will also acquire litigation, claiming that its baby powder causes cancer, an allegation that has been fiercely denied. 

     Pharmaceutical and medical device segment are the faster-growing and higher-revenue generating segment of J&J; generating about 34% of the company’s overall sales from 2020. This sector is comprised of prescription drugs, medical devices, robotics, and the COVID-19 vaccine.  

    Additionally, news of the split spiked the price of the stock by 3% and it hovers at about $162.37. Another bit of good news for shareholders is that J&J will maintain its dividend; although, not much can be said for its consumer product segment. Overall, the split will unlock more value for shareholders and allow the company to focus on rapidly growing pharmaceutical and medical devices segment.  

    Other companies in the same sector as J&J, such as Pfizer and Merck are reorganizing to focus on more profitable segments of their businesses. Their earnings have been weighed down in recent years due to its consumer healthcare business. This does not appear to be the case with J&J, as both sectors (pharmaceuticals/medical device and consumer products) provide a healthy profit. 

The Johnson & Johnson split will unlock significant shareholder value as J&J will be known as the top performer in each sector.  

Contact Schenley Capital Inc. if you have any questions  

Phone: 412-479-9256

Email: info@www.schenleycapital.com

     An IPO (Initial Public Offering) and a DPO (Direct Public Offering) are both when a company directly offers its stock to the public by listing it on an exchange, like the NASDAQ. What is the difference?

     During an IPO, a company will issue new shares, which are backed by big banks and institutions. This is often referred to as a primary offering.  These big banks and institutions will usually help set the initial price of the stock and buy shares of that company. When a company initially goes public, one can purchase the stock at the price of the Initial Public Offering.  IPOs are considered a primary offering because it is the first issuance of stock from a private company for public sale (new shares).

     A Direct Public Offering (or DPO) is also a primary offering because the company offers its securities directly to the public, like an IPO.  However, a DPO differs because it is traded over the counter, rather than a public exchange (such as the NYSE (New York Stock Exchange)).  This way of offering a security in the over-the-counter market, allows the employees, investors, and anyone that holds the stock to cut out the intermediaries from the public offering, essentially lowering price of the stock.  This is attractive to small companies because they can directly sell shares to the public without any lockup period. Raising money independently allows a firm to avoid restrictions of capital funding because the terms are established solely by the issuing company.

     Recently, some well-known companies have gone public by releasing their primary shares (IPO and DPO) to the public.  Coinbase, Duolingo, and Robinhood have been some of the most renowned IPOs in the past couple of months and you can now buy and sell those stocks in the secondary market. 

     Now, the big question is whether you should invest on the first day of the offering or wait to see if the shares sell at a cheaper price. In the past year, Affirm (a company that helps create payment plans for consumer items) doubled in price the first day after the IPO; going from $49.99 per share, up to $97 per share. Almost 1 month later, Affirm’s stock hit an all-time high of $146 per share. After hitting all-time highs, the stock started to decrease in value.  Over the next few months, the stock lost over 50% of its value, and is currently sitting around $60 per share. The same can be said about Coinbase. It was originally listed with a DPO and after it opened; the price went from $381 to $429 in a matter of minutes, only to decline for the next few weeks as the price started to correct itself down to the $225-$245 price range.  Based on the recent IPOs and DPOs in the past year, we can see that the price of the stock increases substantially for the first couple of days, however, the price seems to correct itself as the IPO excitement around the stock wears off and secondary market trading begins.

Call us if you have any questions about past or future initial public offerings!  We are happy to help!                                                                                

Written by: Jack McCormack

*Disclaimer: We do not recommend any cryptocurrencies; we do not hold cryptocurrencies at Charles Schwab and Co. institutional through Schenley Capital, Inc.; this is an extremely volatile asset class; at this time there is little to no backing; cryptocurrencies are not for everyone. Let us know if you have additional questions about cryptocurrency.

     We have received a ton of questions lately from people asking about Cryptocurrency.  What is it?  How can I purchase it?  If you’re trying to wrap your head around what Bitcoin, Ethereum, and Dogecoin are and how you can get them, don’t worry, you’re not alone. First, I’ll start by explaining what cryptocurrency is, and then get into how to purchase it on the various platforms that are currently available.

     Cryptocurrency is an asset that is digital and can be stored on your computer, or any other digital device. These digital assets, or what most people call “coins”, are verified through a process called the blockchain. The blockchain is a process in which there are multiple computers on a network verifying transactions and coin ownership by communicating with each other, making sure that the network is correct and secure. Let me give you an example that is easy to understand.

     If you and another person are playing a game like tic tac toe, and you have been keeping score on a scorecard, your opponent could change their scorecard and claim falsely that he/she won. With blockchain, it is as if there are multiple people writing down on their own scorecards what happened; coming to a consensus to verify that you are indeed the winner. If the majority of the scorecards say that you’ve won; however, your opponent is saying you lost, then you know that their scorecard isn’t true. The same can be said about blockchain with cryptocurrency.  When people talk about mining Bitcoin, what they are essentially doing is verifying the transactions the same way the people in the example were checking their scorecards.

     This process is very secure because there are thousands of people mining and verifying the transactions by the minute. Nobody has been able to counterfeit bitcoin successfully on the bitcoin network. The only way to counterfeit and compromise the network is to take over 51% of the total mining power, which is almost impossible, given the tens of thousands of miners that there are in the world. The network rewards miners with bitcoin for verifying the transactions; thus, incentivizing the miners to continue mining and verifying.

     Next, let’s talk about how you can go about buying and storing cryptocurrency. To get started with buying cryptocurrency, the first thing that you need to do is register on a cryptocurrency exchange that buys and sells crypto. Some of the safest crypto exchanges include Binance, Kraken, Coinbase, and Gemini. This is where you can connect your bank account or credit card to buy and sell cryptocurrency.

     The next thing is a wallet. There is a unique set of numbers and letters that can be used to send and receive crypto on the networks. Every crypto has its own network and wallet address. You cannot send someone Ethereum to their Bitcoin wallet because the two are on different networks; you are only able to buy and sell Ethereum on its own unique Ethereum address. The exchanges automatically create a wallet for you, and you can easily make a storage wallet on your smart device or hard drive to safely store your crypto assets. Some even put their cryptocurrency into their own wallet because it is a much safer option than keeping it on an exchange, with the potential to be hacked. However, the downside to keeping it on a physical hard drive, or wallet, is that you could lose it or have it stolen.

     There are some companies like BlockFi, that offer interest for keeping your crypto in an account. Just make sure to do your research and double-check before you deposit your virtual currency just anywhere, because there is a risk that you could send it to the wrong address or risk that you could be scammed.

     Overall, there is still so much potential for cryptocurrencies being used in the real world, either as a better alternative than paper money, or being used as a store of value to hedge against inflation because of its limited supply.  If you have any questions or concerns about cryptocurrency, don’t hesitate to reach out to us at Schenley anytime.

Written by Jack McCormack

Summer Intern

(412)-749-9256

Schenley Capital, Inc.

     People buy a 2^nd home for several reasons.  As we head into summer, it sounds fantastic to have a lake house in Maine, a condo in Aspen, or a beach house in North Carolina.  You may be thinking of a 2^nd home as an investment property until you are ready to retire, or a place for your children to live while at school, or maybe just a way to diversify your assets; although, there are several things to think about before you jump into purchasing a piece of real estate! 

     Vacation Home V.S. Investment Property – How you treat your home financially might be dependent on the purpose of your purchase.  If you see the house as a place to vacation with your family, you might significantly upgrade the exterior and interior of the property.  On the other hand, if you intend to buy the property for the purpose of an investment property, you might view it as a means of generating rental income.  The rental property may also create tax deductions and provide you with passive income.  There are rules designated by the IRS; for example, you must occupy the home for 14 days (or 10% of the days), or it would otherwise be rented out to maintain your eligibility for the mortgage interest deduction.

     Pros & Cons of Owning a Second Home – As you explore the options of purchasing a 2^nd home, you should be cognizant that there are many advantages and drawbacks.  You may want to consider purchasing a condo or townhouse V.S. a home, as the maintenance and upkeep would be much less.

     Pros – Buying a 2^nd Home

A designated Vacation Spot – your family may be skiers, or love being near the beach or lake.

     A place to retire – If you plan to move after you retire, it would be smart to start early.  Learn about the community by creating a place that you love, thus providing you with a vacation home now, and a retreat when you retire in the future.

     Diversifying your assets – Real Estate tends to appreciate in value, especially in popular vacation spots.  You could use the home as a means of diversifying your portfolio away from liquid stocks & bonds.  Tangible assets give you the Ability to choose whether you want to keep or sell the property in the future.

     Rental Income – If you decide to rent your home to a tenant, you can earn rental income to help offset the expenses, like property taxes and maintenance.  If you would like to vacation at your home, you can still rent it out for short-term rentals during the time you’re not using it. 

    Cons of Buying a 2^nd Home

     Added Responsibility – Owning a 2^nd home is double work in both homes.  Such as upkeep, maintenance, insurance, decorating, landscaping.  You should consider how you will maintain the property grounds and manage the financial burden of taking care of an extra property.

     Risks of Security and Property Damage – You cannot be in two places at once; therefore, you may need to consider the security of your unoccupied property, such as a caretaker or maintenance person.

     Additional Expenses – if you live in Pittsburgh and your property is in Florida or South Carolina, there will be expenses in car or air travel.  Updating your new property by replacing a new roof, updating the appliances, and renovating kitchens and bathrooms can all be very expensive.

Four things to Consider before Buying:

1. Location – choose a place not too far away or central to where your family member(s) live.
2. Affordability – ensure you have budgeted for ownership of two houses.
3. Maintenance – if you are by the beach, there are hurricanes; this means constant maintenance such as repainting each year.
4. Financing – you could pay with a bridge loan or a loan against your portfolio assets. Interest rates are at an all-time low; meaning, it is a good time to borrow!

     You could also place the 2^nd home into a QPRT – a Qualified Personal Residence Trust.  This is a very intelligent estate strategy.  The purpose is to remove the value of the property from your estate; therefore, no estate tax and the property’s value is left to your family or chosen beneficiaries.

     There are many aspects to consider when buying a second home for vacation, whether it’s for an investment or a personal property!