Home Guides & Resources chevron_right Weekly Update New COVID Variant Turns Black Friday Red November 29, 2021 Table of Contents Powell Retains Fed Throne The Outlook for Health Care Investors Ask Us a Question! Chart of the Week: Investing Lessons From a Turkey Advanced Charitable Giving Strategies Strategy Activity Update Adviser Investments in the Media Looking Ahead Please note: This update was prepared on Friday, November 26, 2021, prior to the market’s close. Thanksgiving revelers awoke to a different reason for indigestion Friday morning: News of a potentially troubling COVID-19 variant emerging from South Africa. This prompted fears on Wall Street that a new round of restrictions might hobble the global economy. Stock markets opened in the red early Friday. This morning’s trading pattern reminds us of spring 2020. The Cboe Volatility Index, aka the VIX, was up some 40% as of mid-morning Friday, its biggest jump since February. Leading the way down are travel companies (think airlines and cruise ships) as well as “reopening” sectors like energy stocks (less travel, lower gas demand). On the flip side, health care stocks are generally positive, as are work-from-home stocks like Zoom and Peloton. We’ll see how long this pattern holds or if we end up getting a quick reversal in the days ahead. Either way, we and the managers we invest alongside see volatility as creating opportunity. (For more on our approach, check out Chairman Dan Wiener and Director of Research Jeff DeMaso’s recent podcast on the merits of active management vs. indexing.) The unwelcome wrinkle of a new coronavirus variant has cast a pall over an economy that continues to show steady recovery. New unemployment claims are at their lowest level since November 1969. Shoppers have shrugged off high prices and keep spending, incomes are rising and the housing market remains a pillar of strength, though an expensive one. As we approach year-end, we’re thankful for an accommodative and watchful Federal Reserve, historically low interest rates, a resilient economy powered by able consumers and the resultant robust corporate earnings. And from the entire Adviser Investments team, thank you for your continued trust and confidence. Powell Retains Fed Throne Earlier this week, President Biden announced he would keep Fed Chair Jerome Powell in his seat for a second term while Lael Brainard, his presumed replacement, was tapped to be vice chair. Powell may not be everyone’s top choice, but he is a known entity. For investors, consistency and stability are welcome given that the central bank faces the challenges of managing the highest inflation rate in three decades and an economy still rebounding from the pandemic recession. Powell and his cohorts are hopeful that circumstances will allow them to follow the “script” of the past few recovery cycles: Gradually raise interest rates in a consistent and predictable manner. If inflation doesn’t trend lower in the next, say, two to three quarters, the central bank may be forced to act more quickly. Question of the Week: The Outlook for Health Care Investors This week’s reader question is about investing in health care: Heading into 2022, what’s your outlook for the sector? How are you thinking about investing in health care in the short and long term? Research Analyst Liz Laprade had this to say: The health care sector has been on a rollercoaster the last two years. In 2020, biotechnology stocks took off as the world focused on the race for a COVID-19 vaccine. This year, as we all moved on to a new normal (or tried to, anyways), the sector has lagged. If I had to guess, I’d say investors and traders took gains from pandemic bets and lockdown themes (health care, technology, communications) and moved into sectors poised to benefit from reopening. Given that this feels primarily like a sentiment shift, rather than one based on fundamentals, I don’t see any reason to avoid the health care stocks. Plus, valuations look good on both an absolute and relative basis. Looking ahead, I see a few scenarios that could benefit health care stocks. The first would be a change in investor sentiment. As favor drifts from the “reopening trade,” it may move toward sectors like health care that have the fundamentals for solid performance unrelated to the pandemic. A second tailwind is the changes the pandemic brought in the health care system. Society was largely unprepared for a global pandemic—and lessons were learned. This means buying more PPE, accelerating digitization and earmarking funding for drug development and testing. Support for drug development is a huge boost for biotech companies. Put into context, life-science venture capital funding in 2019 was about $15 billion. In 2020, it jumped to $33.1 billion, and for the first half of 2021 alone it hit $26.7 billion. The more dollars that go into this subsector, the more opportunities there are for companies to succeed by disrupting the medical landscape. The biggest risk to certain segments of the health care sector might be the Build Back Better bill, which includes limits on drug pricing and funding for drug development. It’s been passed by the House, but the bill still awaits Senate approval (with inevitable amendments). So, while we remain aware of this potential headwind, we wouldn’t trim our positioning based exclusively on this type of legislative unknown. Ask Us a Question! We’re always interested in the topics or concerns you might like us to comment on. As much as we try to cover the investment and economic fields every week, we know there’s still more that you might want to hear about. Ask us a question about investing, the markets or financial planning and one of Adviser Investments’ experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY. Chart of the Week: Investing Lessons From a Turkey We monitor a wide range of data to form our outlook on the market and the broader economy—every other week, we’ll spotlight one indicator our analysts have found informative. Sources: Adviser Investments, Nassim Taleb’s The Black Swan. By Director of Research Jeff DeMaso With Thanksgiving and the holiday season here, I’m reminded of a chart inspired by Nassim Taleb’s 2007 book, The Black Swan. In this romanticized scenario, we have a turkey that is fed every day and has come to believe that humans are great… right up until the point it is slaughtered for someone’s dinner table. Three investment takeaways: (1) It’s the risk you don’t see coming that can upend your portfolio, (2) don’t assume the future will look like the past and (3) unlike the turkey, disciplined investors can bounce back from faulty assumptions, bad luck and bear markets to prosper in the long term. Financial Planning Focus Advanced Charitable Giving Strategies Charitable giving allows you to have an impact on the world and reduce your taxable income—both are front of mind as the year draws to a close. Of course, not all giving approaches are created equal. Here are some advanced strategies that can pay dividends to you, your charity and your heirs. 1. Charitable Bequest. The most direct way to donate is through a charitable bequest—you can donate cash, antiques, artwork or other assets to a charity, school, private foundation or donor-advised fund via your will or a revocable trust. Whatever your donation, your taxable estate will be reduced by the value of the gift. Even better: There’s no limit to the deduction. Charitable bequests allow you to maintain control of your assets for the duration of your life and only pass them on once your estate is settled. Of course, to avoid any protracted legal wrangling, it’s vital to communicate your intentions clearly to your estate planning attorney, your loved ones and the recipients of these gifts. 2. Charitable Remainder Trust (CRT). Charitable bequests can reduce your taxable estate, but what if you need the tax deduction now? Enter the CRT, an irrevocable trust that potentially reduces your taxable assets and generates a predefined income stream for the donor or other beneficiaries, with the remainder of the donated assets going to your favorite charity at a specified time in the future. When you transfer cash or other assets into a CRT, you receive an immediate income tax charitable deduction based on the present value amount in the trust that will ultimately go to the named charity. Some things to keep in mind: First, a CRT is irrevocable—you permanently relinquish control of the assets. Next, you’ll need to work with your adviser and estate planning attorney to determine what type of income stream will come from the trust. Most grantors choose either an annuity (a fixed annual amount) or a unitrust (a fixed percentage—for example, 5% of the trust’s value at each year-end). The best choice depends on your income needs going forward. Remember that the income you receive is taxable. A final consideration is how you’ll fund a CRT. Real estate is a good option; rare antiques are less relevant due to the lack of liquidity. Highly appreciated securities or closely held stock can be even better, as gifting them helps reduce capital gains taxes. 3. Charitable Lead Trust (CLT). If reducing income taxes is a main driver for CRTs, a CLT reduces gift and estate taxes. CLTs are also irrevocable, but instead of the grantor receiving income during the term of the trust, the charity does. Another important difference between the two is that the assets inside a CLT are taxed to the grantor. As with a CRT, it’s crucial to have a conversation with your adviser about how to minimize the tax burden of the income stream that’s created, and you will likewise decide between an annuity or unitrust payment and receive a charitable deduction against your income when you fund the trust. A key distinction is that growth on CLT assets (above the Section 7520 interest rate) passes to the beneficiary estate- and gift-tax-free. Thus, with careful planning, you can give generously to your heirs and support a cause. Strategy Activity Update Please see below for a summary of the trades we executed over the week through Thursday and our current tactical strategy allocations. Dividend Income No trades this week. AIQ Tactical Global Growth Sell iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI). Buy iShares Core S&P 500 ETF (IVV). AIQ Tactical Defensive Growth No trades this week. AIQ Tactical Multi-Asset Income Sell iShares Mortgage Real Estate ETF (REM). Buy Real Estate Select Sector SPDR (XLRE). AIQ Tactical High Income Sell iShares iBoxx USD High Yield Corporate Bond ETF (HYG). Sell VanEck Fallen Angel High Yield Bond ETF (ANGL). Sell First Trust Tactical High Yield ETF (HYLS). Sell Xtrackers USD High Yield Corporate Bond ETF (HYLB). Sell Invesco Fundamental High Yield Corporate Bond ETF (PHB). Buy Cash. Adviser Investments in the Media This week, Chairman Dan Wiener appeared in Barron’s discussing his latest thoughts on the enduring active vs. index fund debate as well as in Citywire commenting on a new addition to Vanguard’s board of directors. Chief Investment Officer Jim Lowell spoke to the TDAmeritrade Network about President Biden’s decision to give Jerome Powell a second go as head of the Fed. In this week’s Market Takeaways, Research Analyst Liz Laprade talked about the difficult decisions facing Fed Chair Powell in his second term, while Portfolio Manager Steve Johnson raked and reflected on why investors shouldn’t panic about the new COVID-19 variant. And remember, you can always visit the Adviser in the Media section of our website for the Adviser Investments team’s informative views on the market and the economy. Looking Ahead Next week brings informative reads on home sales and prices, manufacturing, consumer confidence, the Fed’s “Beige Book” of anecdotal reports from around the country, and numerous labor market gauges, including the high-profile November unemployment rate. As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish you and your loved ones a prosperous investment future. About Adviser Investments Adviser Investments is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868. Please note: This update was prepared on Friday, November 26, 2021, prior to the market’s close. This material is distributed for informational purposes only. The investment ideas and opinions contained herein—including but not limited to the Your Question Answered section—should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. Purchases and sales of securities listed above represent all securities bought and sold in each strategy during the period stated. Each strategy’s portfolio generally includes more holdings in addition to the transactions listed above and in some cases the securities listed above may only represent a small portion of the particular strategy’s complete portfolio. Further, the securities listed above are not selected for listing based on their investment performance; thus it should not be assumed that any of the securities listed above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Clients and prospective clients should only make judgements about a strategy’s performance after reviewing the strategy’s composite performance information. There is no assurance that each security listed above will remain in the strategy’s portfolio by the time you have received or read this email. Securities are listed for informational purposes and are not intended as recommendations. Existing investor accounts may not participate in all transactions listed above due to each account’s particular circumstances. Information regarding purchase and sale of specific strategy trades is for selected investment strategies managed by Adviser Capital, a division of Adviser Investments, LLC. 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