MRM Commentary

Commentary

Monthly Investment Commentary

September 2022

      ECONOMIC UPDATE

          • Fed Chair Powell delivered another hawkish speech in Jackson Hole, implying a “higher for longer” mantra even as efforts to rein in inflation come with economic pain
          • August was another painful month in a historically bad year for fixed income investors, and recent labor market and inflation data suggest the Fed won’t let up anytime soon
          • Residential rent prices have surged over the last year, and the lag effect could apply upward pressure on the housing inflation metric of CPI for months to come



      MRM NET COMPOSITE PORTFOLIO RESULTS (As of 8/31/2022)
      MRM Group claims compliance with the Global Investment Performance Standards (GIPS®).
      Please contact MRM Group to obtain a Compliant Presentation and/or MRM's list of Composite descriptions.

      MRM Portfolio

      Rates
      Higher for longer. That is the message from Fed leaders of late regarding the fed funds rate, combating market speculation of a Fed pivot at some point in 2023. The bond market has been swifter to accept this guidance from policymakers, with front-end Treasury yields repricing approximately 50 basis points (bps) higher in August leading up to Jerome Powell’s August 26 Jackson Hole speech. However, there had been a large pocket of equity bulls still holding out hope that Fed leaders’ inner-dove would emerge, but the combination of renewed hawkishness from Powell in Jackson Hole and more hot data on inflation and the labor market has effectively poured cold water on hopes that the Fed is contemplating a pause or 2023 rate cuts at this point.

      Fed Pivot
      Prior to Jackson Hole, Powell had acknowledged that a slowdown in the Fed’s tightening effort may be appropriate “at some point,” and even though he offered no timeframe for the vague observation, it further emboldened the “Fed pivot” camp. With this in mind, Powell delivered a much more concise 10-minute speech, the shortest by a Fed chair at the Jackson Hole conference since 2010, with the likely goal of leaving no room for obscure comments to be misconstrued as dovish. Fed leaders have also made it clearer in recent weeks that price stability is the priority at this point and that a soft landing for the economy is a secondary and unlikely objective.

      Recession
      To that end, the data of late have shown little signs of the recession narrative that emerged in mid-June, at least not yet. In the labor market, job growth remains strong and unemployment low. One metric that has been a clear area of focus for Fed Chair Powell is the number of job openings relative to the total number of unemployed persons. After rising to a 2:1 ratio in March, it appeared to be moving in the right direction in the months that followed, albeit still well above historical norms. However, the ratio unexpectedly rose back near the March peak in July, with more than 11.2 million openings.

      MRM'S VIEW

      August was a painful reminder that financial markets are not out of the woods yet in what has been a historically bad year. As we have noted for several months now, volatility is likely to remain elevated until there is more clarity on inflation turning the corner and heading lower on a sustained basis, and it’s hard for that to happen when the labor market is still burning hot. However we remain bullish on the long term.

      Source: ALM First

      MRM model holdings as of June 30, 2022

      Allocations

      IMPORTANT DISCLOSURES

      MRM Group, Inc. (“MRM”) is a state-registered investment advisor and an independent management firm that is not affiliated with any parent organization. Using quantitative selection methods, each MRM strategy searches within a well-defined universe of securities, using consistent investment criteria to identify attractive investments and create diversified portfolios. MRM seeks to provide long-term capital growth.

      Allocations

      The portfolios do NOT use inverse or leveraged ETFs. Universe vehicles may change, from time to time, when approved by the principal of MRM Asset Allocation Group at its sole discretion.

      BENCHMARK NOTES

      Effective Nov. 1, 2016 the Dynamic Overlay benchmark was changed to Morningstar’s Tactical Allocation. The benchmark was applied retroactively to the beginning of the performance period, January 1, 2008. This change had the net effect of placing the Dynamic Overlay Model Portfolio in a more favorable light than would otherwise have been the case if we used the blended benchmark described below. Although this change had a favorable impact on the comparative effect on the model’s performance but we believe the change in benchmark more appropriately aligns with our Dynamic Overlay Strategy in that it is designed a tactical allocation rather than a static blended benchmark of 75% S&P 500 Index Total Return and 25% MSCI EAFE. Morningstar’s Tactical Allocation Category averages returns for the peer group based on the return of each fund within the group, for the period shown. The S&P 500 Index with dividends is an unmanaged composite of 500 large-capitalization companies whose data is obtained from the Standard & Poor’s website. S&P 500 is a registered trademark of McGraw-Hill, Inc. The MSCI EAFE Gross Index is a free float–adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada, with data from the MSCI website using price with reinvestment of dividends. The performance of blended benchmarks is shown for comparison because MRM uses securities which track indices related to these products. The Dow Jones US Select Dividend Index comprises 100 stocks and aims to represent the U.S.’s leading stocks by dividend yield. An investment cannot be made directly into an index.

      DISCLOSURES

      MRM Group claims compliance with the Global Investment Performance Standards (GIPS®). MRM has been independently verified for the periods January 1, 2008 through March 31, 2022. The verification report is available upon request. Verification assesses whether (1) MRM has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) MRM’s policies and procedures are designed to calculate the present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

      Valuations are computed and performance is reported in U.S. dollars. Client performance may differ based upon the structure of a particular investment program. For example, some programs are structured as wrap fee programs in which trading costs and brokerage commissions are included in one all-inclusive wrapped fee. As such, these costs may be higher than if the client were to pay trading costs and brokerage commissions separately. The standard management fee is 2.0%. Deviation from the model’s diversified structure may result in different risk, return, and diversification characteristics and would therefore not be representative of the models.

      All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice in any state where it would be unlawful. There is no assurance that this platform will produce profitable returns or that any account will have results similar to those of the platform. Past performance is not a guarantee of future results. You may lose money. Factors impacting client returns include individual client risk tolerance, restrictions client may place on the account, investment objectives, choice of broker/dealer or custodians, as well as other factors. Any particular client’s account performance may vary substantially from the program results due to, among other things, commission, timing of order entry, or the manner in which the trades are executed. The investment return and principal value of an investment will fluctuate dramatically, and an investor’s equity, when liquidated, may be worth more or less than the original cost. Investors should consider the investment objective, risks, charges, and expenses carefully prior to investing.

      Investors should not rely on charts and graphs alone when making investing decisions. Investments in securities of non-US issuers involve investment risks different from those of U.S. issuers, including currency risks, political, social, and economic risks. Net-of-fees returns are presented after advisor, management, custodial and trading expenses. The net of fee returns are calculated using actual management fees. The actual fees charged vary and range from .5% to 2.2%, depending on the size of the account and the custodian.

      If you wish to modify or impose reasonable restrictions concerning the management of your account, or if your financial situation, investment objectives, or risk tolerance have changed, please contact your MRM Group investment advisor representative or contact the Manager at (800) 233-1944. We will contact you at least annually to determine if your investment goals, objectives, and risk tolerance have changed.

      All MRM platforms are suitable for long term investing. Please read the fact sheets and disclosures for each platform carefully before investing.

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