New Opportunities, Hedging Inflation and Seeking Yield

 
Asset Management, Companies and Industries, Fixed Income, Investment Themes January 19, 2022

New Opportunities, Hedging Inflation and Seeking Yield

During the last quarter of 2021, Nelson Capital made small adjustments to holdings in both the equity market and the fixed income market.

In the healthcare sector, we trimmed our position in Illumina, Inc. (tkr: ILMN) to purchase a position in Progyny, Inc (tkr: PGNY), a specialized fertility benefits provider. According to the CDC, approximately 1 in 8 women in the U.S. between the ages of 15-49 have used infertility services. Infertility is one of the only high-prevalence medical conditions with limited or non-existent medical insurance. Cost of care can be upwards of $60,000 but only a small percentage of employers provide a benefit plan that helps offset these costs. A recent study by Reproductive Medicine Associates of New York found that approximately 50% of people suffering from infertility do not seek treatment, often due to cost. Additionally, many couples are delaying parenthood, opting to advance their education and careers prior to raising a family, further driving the demand for Assisted Reproductive Technologies. Progyny partners with the top fertility specialists in the U.S., resulting in superior clinical outcomes for patients. Each patient is provided personalized concierge-style support to help get through this difficult time in their lives.  Furthermore, the company offers Progyny Rx, an integrated pharmacy benefits solution to provide patients with access to necessary medications during their treatment. Surprisingly, Progyny experienced relatively little disruption throughout the pandemic despite fertility treatments falling into the category of “elective care.” Given the tight labor market, many companies are seeking to offer more robust benefits to attract employees which should further benefit Progyny.

In the materials sector, we added a position in a gold mining company. Historically, gold has been an effective inflation hedge as the cost of each ounce of gold typically rises as the value of the dollar falls. As we discuss in our most recent post, Not Yet Normal, high inflation is now here, with the December Consumer Price Index (CPI) hitting 7% year-over-year, the fastest pace since 1982. We recently purchased a position in Kirkland Lake Gold (tkr: KL), a pure-play senior gold miner and is headquartered in Toronto, with operations in Canada and Australia. Its net margins surpass those of its peers, as the company has the lowest all-in sustaining cost (the unit cost to mine one ounce of gold), at just $785 per ounce. In September 2021, Kirkland Lake and Agnico Eagle (tkr: AEM), another Canadian gold miner with a similar profile, announced a merger of equals, which will create the third-largest gold miner in the world. The merger is expected to close in the first quarter of 2022.

We made some changes to our fixed income model for both taxable and tax-exempt accounts in order to increase overall fixed-income yield within client portfolios. With yields at record lows, we reduced our exposure to U.S. Treasuries by trimming our position in SPDR® Portfolio Short Term Treasury ETF (tkr: SPTS). We increased our credit exposure slightly, purchasing a position in JPMorgan Short Duration Core Plus ETF (tkr: JSCP). JSCP is an actively-managed strategy that primarily utilizes investment grade short-term fixed income securities and incorporates a small portion of riskier fixed income securities (such as emerging market debt and other high yield securities) to achieve additional yield while keeping overall duration low. Taking on additional credit risk allows us to generate a more meaningful yield during a time where balance sheets are strong, and defaults are trending down. JSCP has an expense ratio of 0.33% and its 30-day SEC yield is 1.60%. Lastly, we added Vanguard Ultra-Short Bond ETF (tkr: VUSB) as a substitute for JPMorgan Ultra-Short Income ETF (tkr: JPST) to diversify ETF managers/providers after initiating a position in JSCP.

 

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

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