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Capital Foundation PLUS (New)

2-29-24

2-29-24

12-31-23

12-31-23

Commentary

eSAM Capital Foundation PLUS was launched in December 2023 and is our newest addition to our eSAM Managed Account line-up! We are very excited about eSAM Capital Foundation PLUS, which fits between our very conservative eSAM Capital Foundation Account (100% Bonds) and our conservative growth eSAM Conservative Account (40% Stocks and 60% Bonds).  eSAM Capital Foundation PLUS is designed for conservative investors seeking both capital preservation and interest/dividend income yield by emphasizing 80% Bonds as well as modest capital appreciation potential from a diversified portfolio of 20% Stocks.  

2023 was a year of transitions and with a late launch in December, our conservative eSAM Capital Foundation PLUS Account benefitted from starting already caught up with our Neutral Bond Allocation transition employed in our other eSAM accounts. Following 2022, the worst year in the history of the bond market, 2023 was going to be a challenge given the Fed's aggressive interest rate policy that began in March 2022 to fight high inflation and end its Covid-19 emergency Quantitative Easing policy. In anticipation of ultimately winning that battle, particularly with steady signs of progress of reducing the rate of inflation towards the Fed's 2% target, we started reducing our rising interest rate defense in our other eSAM accounts in December 2022 and continued into 2023Bond exposure in eSAM Capital Foundation PLUS is strategically targeted at 80% of the portfolio and provides a ballast against stock volatility associated with the remaining 20% in Stocks. In difficult market environments Bonds traditionally provide defense against stock downside risk. 

By the end of 2023, headline CPI inflation declined to 3.4% from its high of 9.1% in March of 2022. The Fed raised policy interest rates four times in 2023 for a total of 1.00%, with the last 0.25% hike in July. The bond market was negative for most of 2023; however, the Fed pivoted in early November following its FOMC meeting and acknowledged it was done with raising interest rates as inflation was trending towards its 2% goal. That messaging put a charge into the bond and stock market, and was the catalyst for a huge rally in November and December. The bond market finished up 5.5% for 2023, as measured by the Bloomberg Aggregate Bond index. 

Stocks provided strong gains for investors in 2023 and a welcomed rebound from a rough 2022. Stock markets around the globe began recalibrating the recession risk that prevailed in 2022 early in 2023 as those risks were reduced dramatically. After a very strong start to the year through July, stocks ran into a rough patch in the summer as the "higher for longer" narrative for Fed policy gripped the markets. However, when the Fed pivoted in early November, as noted above, stocks surged in November and December to cap a very good year for stocks overall. Not only did the widely forecasted recession never come, the US economy outperformed expectations all year and GDP hit all-time highs. Those gains extended overseas as well. We have been slowly moving towards a Neutral International allocation in our other eSAM Accounts since we started raising International exposure in 2017. We are now just one small move away from Neutral International. International markets remain very attractive from a valuation perspective.

Low investment expenses have always been a priority in our eSAM accounts by focusing exclusively ETFs. Since eSAM's inception in 2016, we've put a weighted expense cap at 0.10% for our eSAM accounts. At year-end 2023, our eSAM Capital Foundation PLUS Model Weighted Expense Ratio was 0.06%! The eSAM Capital Foundation PLUS Weighted Expense Ratio will fluctuate with allocation changes over time with a max cap of 0.10%.

The second transition in 2023, was the merger of TD Ameritrade and Charles Schwab, which was completed September 5, 2023. Charles Schwab is your Custodian and we will continue to manage your eSAM Capital Foundation PLUS account as usual.  

To begin 2024, we continued our transition to a Neutral Bond Allocation in eSAM Capital Foundation PLUS by reducing our Short-Term Bond exposure an additional 2.0% by further reducing our iShares 0-5 Year TIPS ETF position, and adding it to Core Intermediate-Term SPDR Portfolio Aggregate Bond ETF and Vanguard Intermediate-Term Bond

Volatility remains in the forecast for interest rates and bond; however, a soft-landing for the economy in 2024 is now the prevailing narrative and we remain cautiously optimistic for 2024. US market indexes like the Dow, S&P 500, and Nasdaq have hit new all-time highs in 2024, as well as the MSCI World All-Cap index. The Fed is forecasting 3 interest rate cuts by the end of 2024, and while the market was expecting more at the end of 2023 it has modified its expectations more inline with the Fed. We will continue to prudently manage those risks with a long-term focus on capital preservation and conservative growth for our Capital Foundation PLUS Account

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Investor Note


ETF (Exchange Traded Fund) investment strategies, which include investing in specific sectors, foreign securities (both developed and developing markets), high yield securities, or small and medium sized securities may increase the risk and volatility of the ETFs. Changes in interest rates may affect the performance of fixed income (bond) ETFs; if rates increase, bond values decrease and vice versa. Investors should consider the investment objectives, risks, and charges and expenses of the ETF carefully before investing.

The ETF prospectus (and summary prospectus, if available) contains this and other information. Please read carefully before investing. An ETF prospectus can be obtained by calling your Nelson Rep at 800-345-7593 or the ETF company directly.

Publisher: Nelson Securities, Inc.

Managed Account Insight is published semi-annually by Nelson Securities, Inc., a Registered Investment Advisor. All rights reserved. It is a violation of U.S. copyright laws to duplicate or reproduce any commentary, charts, allocations, or portion of this publication without the written permission of the publisher.

Information and historical market data contained within this newsletter are taken from sources we believe to be reliable but, we can not guarantee its accuracy. Nelson Securities, Inc., or the publisher, will not be held responsible for actions taken based wholly or partially on information contained herein. Recommendations are of a time-sensitive nature and not a substitute for a comprehensive plan for investing. Each investor must consider suitability with regard to risk prior to investing.