Reasons For Gratitude

November 30, 2021

I would maintain that thanks are the highest form of thought; and that gratitude is happiness doubled by wonder.

—G.K. Chesterton

“What’s there to be grateful for?” Given the steady supply of negativity experienced over the last few years, this is a rational and too-often-asked question. To many, gratitude does not come naturally.

However, just like successful investing, having a process for practicing gratitude makes all the difference. Research shows that having such a process consistently produces benefits, from enhanced immune systems to improved sleep.

In this Co-Founders’ Monthly Note, we take part in the practice of gratitude. We are grateful for the inherent features and benefits that come from our rules-based process. But most of all, we are grateful for our advisor partners and their clients for their trust, kindness, and commitment to the Blueprint process.

But first, here’s a summary of our take on what transpired in the markets in November.

Asset-Level Overview: Market Talking Points for Financial Advisors

Equities & Real Estate

Up until the Thanksgiving holiday, equity markets in November looked very much like they have throughout most of 2021. Nearly all segments were enjoying positive months, with U.S. large caps leading and international markets positive though underperforming slightly. The emergence of the Omicron variant of COVID-19 quickly changed that. Equity markets across the globe dropped sharply, temporarily pushing monthly returns into the red. In the case of emerging markets, returns are now negative for the year.

Though jarring, the decline in U.S. equity prices is not enough to impact trends, which remain positive. Hence, allocations to U.S. stocks will not decrease and will actually increase due to taking on exposure from emerging markets, which have formed a long-term downtrend. Both emerging and foreign developed markets continue to have intermediate-term downtrends. Overall, international markets exposure is now near minimum allocation levels due to our process favoring their much stronger U.S. counterparts.

Real estate securities also declined on the news of Omicron, but like the rest of the U.S. equity landscape, the asset class remains locked in uptrends. As a result, there is no change to exposure. This segment continues to have the strongest performance of 2021.

Our Asset Allocations

Fixed Income & Alts

The flight to safety stemming from the Omicron news benefited nominal fixed income instruments, but outside of long duration bonds, the overall asset class remains weak. An intermediate-term uptrend in long duration U.S. Treasuries will cause the fixed income allocation to shift slightly in that direction, away from short duration, but the average duration of portfolios remains very low.

Inflation-protected bonds continue to fare much better, as might be expected, and thus allocations remain overweight. Conversely, downtrends dominate for international bonds and gold.

Our Asset Allocations

3 Potential Catalysts for Trend Changes: Giving Clients the Context

On One Hand: Workers in the U.S. resigned from a record 4.4 million jobs in September, according to the data released earlier this month. The wave of resignations hasn’t been uniform. States in the West, including Hawaii, Montana, Utah, and Oregon saw the largest growth in quits in September. Eighteen states broke or tied their records for quits levels in September. Quits in the education sector — which accounts for a larger share of employment in Northeastern states than many others — have risen at the fastest pace of any industry since January.

On the Other Hand: The economy is showing broad-based signs of acceleration heading into the end of the year, with consumers ramping up spending, businesses stepping up investment, and jobless claims falling to historic lows. Household spending rose 1.3% in October compared to a month earlier, while personal income increased 0.5% last month. Consumers are benefiting from a strong labor market. And they are spending at a faster pace than inflation, which recently hit a three-decade high.

Fed Still Concerned: Federal Reserve officials expressed greater concern at their meeting earlier this month about how long inflation would stay elevated. They also discussed whether they should prepare to raise interest rates in the first half of next year in an attempt to rein in inflation. The Fed closed a chapter on its aggressive pandemic policy response when it approved plans at the Nov. 2-3 meeting to shrink its $120-billion-a-month asset purchases by $15 billion each in November and December, a pace that would end the program by next June. However, they reiterated that this approach would be flexible and subject to change. Currently, the Federal Reserve wants to end the asset purchases before they lift interest rates, which remain near zero.

Reasons For Gratitude & Thanksgiving

Acknowledging the good that you already have in your life is the foundation for all abundance.

—Eckhart Tolle

At Blueprint Investment Partners, gratitude is of the utmost importance. As an example, we have a weekly team call each Tuesday morning to review priorities, track key metrics, and identify/discuss/solve (IDS) issues. Before we get to any of that however, we start by taking a few moments for each participant to share something for which they are thankful. Besides the dose of perspective and reality, it is also a great way to learn more about what each team member values and brings them joy.

Sharing does not always come naturally, but like most things, it becomes more fruitful (and easier) the more repetitions you have. As it relates to our own firm, we hope you will oblige us as we mention a few things that stood out to us this year.

First, we are thankful for having a process for making allocation decisions that is impervious to the prevailing news cycle. Although we are 20 or so months into a global pandemic that has caused unprecedented levels of social and economic lockdown in the United States and upended one of the longest running bull markets in history, the systematic rules we developed nearly a decade ago continue to work by keeping us invested in the strongest segments of the market. There is tremendous peace and comfort in knowing that we don’t have to predict what is going to happen in the future because we have a process that will automatically respond to dynamic market environments.

All we must know is what is knowable – and then act as the trends prescribe. The Omicron variant news is an example. International markets have so far been the most negatively affected, but it was trend – not our intuition or a crystal ball – that led us to underweight this asset class. Likewise, it is trend that allowed us to have high allocations to real estate, which has been the leading performer in 2021. Finally, it is trend that moved us into very low duration across our fixed income allocations.

For advisors and their clients, the good news is not so much that trend got it right yet again in 2021, but that we can all rely on it going forward since it is based on the one factor that always reflects market behavior: PRICE.

Similarly, we are thankful for the inherent tax friendliness of a trend-based process. After the run-up in U.S. equity prices, one might assume that a chunk of those gains within a tactical process would incur significant realized gains. In fact, Morningstar recently released a report signaling that mutual fund investors should prepare for double-digit percent capital gains distributions, with some approaching 20% or even 30%! Fortunately, that is not the case for Blueprint at all. In fact, most of our continuous accounts have realized very few gains and, in many cases, have harvested net losses that can be used to offset future gains.

Last, and most important, we are thankful for our partnering advisors. Our process means nothing without advisors who believe in it enough to incorporate it in their portfolios and advocate for it among their clients. For our strategies to work, our story has to become their story. It is humbling and exciting to realize that we get to participate in the relationships that advisors have built over many years and through much effort.

We wish our advisor clients, as well as their clients, the best during the upcoming holiday season. The last couple of years have had some dark moments, but hopefully we can all think of many things for which we are thankful and try to live each day a little better as we move ahead.