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STA - Strategic Tactical Account

2-29-24

2-29-24

12-31-23

12-31-23

12-31-22

12-31-22

Commentary

2023 was a year of transitions for our aggressive Strategic Tactical Account. Following a very rough 2022 for stocks across the globe, 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. Not only did the Fed's aggressive rate hikes lead to the worst year for bonds in history of the bond market in 2022, as interest rates rose sharply in response, the volatility in the bond market caused much of the volatility in the stock market in 2022 as the market was heavily discounting expectations for a recession in 2023.

In anticipation of the Fed ultimately winning the inflation battle, particularly with steady signs of progress by the end of 2022 of reducing the rate of inflation towards the Fed's 2% target, coupled with stronger-than-expected economic growth and continued low unemployment, stock markets around the globe began recalibrating those recession risks to prospects for a soft-landing and stocks soared to start the year. 

Ultimately, the diversified stock portfolio of the Strategic Tactical Account provided strong gains in 2023 and a welcomed rebound from a rough 2022. However, it wasn't all smooth sailing in 2023 and there were many off-ramps for investors. It took discipline, resolve, and a long-term focus to reap the rewards of solid returns.

Concerns about a mini-banking crisis raised volatility in early spring as well as ongoing threats of a government shutdown. Nonetheless, the market surged until the end of July and was led by technology and large-cap growth stocks (the worst performing groups in 2022).  Concerns about interest rates staying "higher for longer" threw cold water on the rally and led to a three month correction for the stock market from August through October. However, when the Fed pivoted in early November following its FOMC meeting, 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, while unemployment remained low and below 4% all year and continued the longest stretch in 50 years. Those stock gains extended overseas as well. We bumped up our International exposure 1.5% in 2023, in two separate moves in May and November. We have been slowly moving towards a Neutral International allocation in our Strategic Tactical Account 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.

The second transition in 2023, was the historic process of converting Strategic Tactical Account from mutual funds to Exchange Traded Funds (ETFs) along with our other WAM Accounts, which began in November 2022. It was a scheduled monthly process that went very smoothly, and we completed the transition at the end of June 2023. A direct benefit of our conversion to 100% ETFs is a big reduction in investment expenses. Low investment expenses have always been a priority in our WAM accounts, giving our clients access to Institutional and Advisor mutual fund shares. ETFs will further our low-expense mandate and as a result, we've put a weighted expense cap at 0.25% for our WAM accounts. This means a 31% weighted average savings in investment expenses for our clients! At year-end 2023, our Strategic Tactical Account Model Weighted Expense Ratio was 0.09%, which is a 76% savings from the previous mutual fund portfolio! The Strategic Tactical Account Weighted Expense Ratio will fluctuate with allocation changes over time with a max cap of 0.25%.

With our conversion to ETFs, we were still able to maintain the integrity of our Strategic Tactical Account account by providing diversification, Multi-Manager access, and also Active and Passive (Index) management. ETFs are the future of investing for Registered Investment Advisors (RIAs) like NSI and we are proud to be on the cutting-edge for our Managed Account Clients. 

The third transition in 2023, was the merger of TD Ameritrade and Charles Schwab, which was completed September 5, 2023. Charles Schwab is now your Custodian and we will continue to manage your Strategic Tactical Account as usual.  

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 appreciation for our Strategic Tactical 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.