The Issachar Fund (LIONX), is about 40% invested in a diverse group of 21 Leading growth stocks hedged with a 35% SHORT in a Large-Mid Cap Value Index. In theory, we are about 5% net long stocks going into Monday. The market took a little wind out of our sails this past week as the corona virus infected the stock market. Some stocks were immune to the virus, but I believe they will likely fall if the corona virus fears are not contained in short order. The corona virus was not getting better and the stock market responded in panic selling on Friday. I considered selling all stocks but decided to not overreact and instead put on a hedge seeking to minimize further declines. A hedge seeks to reduce the risk of adverse price movements and normally consists of taking an offsetting position in related securities. The three major indexes are negative for the year after reaching about 3% by mid-January, so the market was due for a “pull-back”. The small-cap index is down over 5% from its peak in mid-January so the smaller stocks are taking more of a beating than the large-mid caps. If the market determines that the corona virus is not as bad as expected, then I would expect the market to resume its bullish advance and I would likely remove the hedge. If the market uncertainty increases, then I will consider keeping the hedge while the market digests the ramifications of more fear being spread. If this “pull-back” turns into a “correction” then I will likely sell all positions and sit in cash until I get a clearer picture of where the market is headed. In summary, I will do my best to manage the risk-seeking to avoid life-changing losses. The market controls the return and I attempt to control the risk. LIONX Performance (Portfolio holdings are subject to change at any time and should not be considered investment advice.)
The Fed increased its balance sheet by about $5 billion last week and is down $25 billion from the January 21, 2020 peak! I am very concerned that the Fed may be taking its foot off the QE pedal and that may be enough to allow the market to go through a serious correction. I believe the Fed and other central banks have been providing massive liquidity injections to support higher stock prices while creating a massive thin-skinned debt bubble just waiting to be pricked. The corona virus could be the pin that pricks the bubble so strap your seatbelts and get ready for a potentially wild and scary ride. On the other hand, central banks see what we see, and they can print unlimited amounts of money hoping to calm fears and shore up confidence so keep that in mind as well. Cash is a position and we may be there by the time you read this Blog.
The market’s character is changing! Since the Fed started aggressively expanding its balance sheet on September 1, 2019 ($390 Billion), the market has been trending higher at about a 65% annualized pace. However, that uptrend has been broken and we are now in a downtrend defined by two declining peaks in the last half of January. The Fed could inject a ton of liquidity on Monday and that could abort the downtrend but that may be short-lived if fear is still in the air and selling begets more selling. Caution reigns!
Alternative currencies: Apple, Google, Facebook, Microsoft, and Amazon! I believe these five companies have received a large amount of the liquidity (free money) the Fed has created as this money must find a home. These five companies are in all the major indexes so accumulating positions in these big-stock names may be a fast and easy way to put large sums of money to work, i.e. “alternative currencies”. Massive buying in these stocks has historically tended to create the slow and steady uptrends we have been seeing in the major indexes since September, but that could be coming to an end. The concern I have is four of these five “alternative currencies” have been seeing massive amounts of high-volume distribution selling in recent days and that is one more reason to raise the caution flag. Cash is indeed a viable position!
Tidbits: Market psychology can be more important than earnings and sales and most of the metrics that most of the fund managers use. The Chinese plan to inject about $176 billion of QE into the market hoping to minimize panic selling when their markets open Monday after being closed for the Chinese New Year. Junk bonds are flashing a “risk-off” caution signal as investor’s appetite for risk seems to be diminishing. Crude oil prices are down over 15% YTD. If global growth declines as a result of the corona virus spreading, oil demand may decline further than expected and oil prices could decline even further. The Fed reported they would continue buying T-bills until the 2nd quarter. However, a $22 billion decline in their balance sheet since January 1st speaks louder than their words. Consequently, the reduced balance sheet coincides with a flat to negative return in major stock market indexes YTD. Caution lights are flashing, and I would not “speed up and run through the lights”.
Bottom line: The corona virus could be the contagion that brings the house of cards down so please do not buy the lie that “the market will always come back”. It could be different this time and when it is “different” how will your portfolio survive? Either way, I will do my best to manage the risk every day seeking to avoid life-changing losses for myself and all shareholders in LIONX. Thanks for Your Trust and I wish You a Blessed and Profitable Week!
LIONX is a BRI, Trend Following, Liquid-Alternative, Tactical Allocation Mutual Fund that is Actively Managing Risk like a Hedge Fund seeking low-correlation/beta/risk to the stock indexes. When my Strategy identifies a low-risk environment, I seek to invest in growth stocks/junk bonds with sound fundamentals and strong technical chart patterns. During high-risk environments, I seek to avoid Life-Changing losses. The Issachar Fund seeks moderate capital appreciation consistent with capital preservation. The Fund’s Adviser (HCM) is Celebrating 30 Years of Actively Managing Risk! 99% of my liquid net worth is invested in LIONX, so I have a lot of incentive to manage risk and avoid life-changing losses when the next recession/bear market occurs.
Here is a link to the latest 4th Quarter Issachar Fund Fact Sheet.
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Before June 2019, I was not honoring God by investing in companies that support abortion, pornography, human trafficking, etc. God touched my heart and revealed to me how to make Issachar a BRI Fund. I stopped pretending that God was not concerned with how I invested His money and decided to try and honor Him instead. Biblical Responsible Investing (BRI) is the term used to describe the activities of Christian investors who purposely align their investment choices to support their Christian values. LIONX is ESG (Environmental Social Governance) conscious, pro-life and pro-family and will not invest in securities with a negative InspireImpact Score.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Issachar Fund. This and other important information about the Fund are contained in the prospectus, which can be obtained by calling 1-866-787-8355 or visiting https://www.LIONX.net. The prospectus should be read carefully before investing. The Issachar Fund is distributed by Northern Lights Distributors, LLC., member FINRA/SIPC. Horizon Capital Management Inc., (HCM) is not affiliated with Northern Lights Distributors, LLC.
Important Risk Information:
Mutual Funds involve risks including the possible loss of principal. The Fund may hold cash positions when the Adviser feels that the market is not producing returns greater than the short-term cash investments in which the Fund may invest. There is a risk that the sections of the market in which the Fund invests will begin to rise or fall rapidly and the Fund will not be able to sell stocks quickly enough to avoid losses or reinvest its cash positions into areas of the advancing market quickly enough to capture the initial returns of changing market conditions. If the Fund uses hedging instruments at the wrong time or judges market conditions incorrectly, the hedge might be unsuccessful, reduce the Fund’s investment return, or create a loss. The use of leverage can magnify the effects of changes in value of the Fund and could cause investors in the Fund to lose more money in adverse environments. The Adviser’s judgment about the attractiveness, value and potential appreciation of particular asset classes and securities in which the Fund invests may prove to be incorrect and may not produce the desired results. If the Fund uses hedging instruments at the wrong time or judges market conditions incorrectly, the hedge might be unsuccessful, reduce the Fund’s investment return, or create a loss. The use of leverage can magnify the effects of changes in value of the Fund and could cause investors in the Fund to lose more money in adverse environments. Past performance is no guarantee of future results. The Inspire Impact Score is a faith-based ESG (environment, social, governance) security selection methodology that seeks to identify the most inspiring, biblically aligned companies in the world. The Inspire Impact Score utilizes both positive inclusionary and negative exclusionary screens in the scoring process. The result is a rules-based system of finding companies that are operating as blessings to their customers, communities, workforce and the world and excluding companies that are operating at odds with biblical values. NLD Review Code: 3169-NLD-2/3/2020 This Blog is written by Dexter P. Lyons, Portfolio Manager (LIONX) on Sunday, February 2, 2020.