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March Commentary

What Happened:

· While March ended the month positive across all major US equity indexes, Q1 was still negative, more accurately representing the tone of 2022 so far. Many uncertainties in the economy and geopolitics shaped the year thus far, resulting in the YTD performance: S&P 500 at -4.6%, the DJIA -4.1%, NASDAQ -8.94% & MSCI EAFE -5.77%. These Q1 ending numbers reflect an improvement from the low point which saw the S&P down -12.5%, as an effect of inflation, raising rates and the Russian invasion of Ukraine, this last point further complicating an already upturned global supply chain.

· Credit markets offered no shelter for those looking to escape the woes of the equity markets, as we witnessed short term yields spike, causing a brief inversion to the yield curve. Bonds prices across all sectors have been depressed as reflected by the Barclay Aggregate Bond Index, down over -5.9% on the year. March began the Fed’s campaign to combat inflation by raising the target range by 25 basis points. This hike from the Fed was the first of many, as it has signaled its intentions for six more rate hikes this year with four additional hikes in 2023.

· Globally there was no place to hide. Inflation, the Russia-Ukraine war, supply chain limitations, and even resurgence of the infamous lockdowns (this time heavier in China) caused a strange “flight to safety” from market participants.

What we Did:

· Proxy’s portfolio management team made few changes in the month of March. The tactical adjustments made in the prior months showed to add safety and value to clients of all risk profiles.

· The Growth portfolio, keeping true to its investment objective, continues to hold and look for new opportunities in companies with significant future earnings potential. Our overweight towards companies with stronger current earnings helped results, as investors fled from the growth theme. The portfolio’s significant exposure to Mid and Small cap companies has been an even greater detractor. For example, the Russell large cap growth indexes are down just over 9% YTD while Mid and Small growth cap indexes are both down more than 12.5% YTD. With our current overweight towards cash, we continued to seek opportunities with strong companies now trading at discounted prices. While we did not initiate any new positions in March, we deployed some of the cash reserves into companies that are now presenting much more reasonable price entry points.

· The Proxy Global Equity strategy, while experiencing less volatility than the broad market, has not expected the global sell off. US equities, International developed and Emerging Markets have all been down on the year. We had adjusted the model with a lean towards

value and global dividend paying companies as well as an increased position in gold via IAU. The shift away from EM was made last year, however the overweight towards developed Europe has become a detractor following the impacts of the Russian invasion of Ukraine and the economic disarray this has caused in continental Europe.

· Proxy’s Value strategy, a Dividend Income portfolio, holding true to the “flight to safety” theme, ended the quarter with positive returns. Our exposure to energy and precious metals led the way in performance. The addition of TC Pipelines LP (TRP) and Wheaton Precious Metals (WPM) at the start of the year had proven to be a solid value. We had an annualized average yield of 3.6% and continue to seek out quality companies that will help sustain that level of income.

What we are Watching:

· The Fed and policy makers will have to deal with unprecedented times. The US is close to what’s called “full employment”, the global supply chain is still in a chaotic mess from the pandemic, inflation is partying like it’s the 80’s and a war that’s happening in continental Europe.

· As the Fed continues to push rates in response to growing inflation, we will also closely be looking at the direct effects on the credit market as well equity markets. As short-term rates increase, the risk-free rate of return, as represented by US treasuries become more attractive. The continued market volatility, inflation and overall uncertainty may start to shift investors away of riskier investments and towards a more attractive “guaranteed rate”.

· Russia’s invasion of Ukraine grinds on not only to the devastation of people of the Ukraine. With no clear end in sight and sanctions on Russia expanding, the Russian economy will be in serious distress. The surrounding European countries, including many of US’s large economic partners, dependent on Russian commodities, are also feeling the sting of this sense war.

· As risk managers, we at Proxy will continue to look for opportunities which are often created in times of uncertainty. We will also continue to minimize risk whenever possible during these volatile times.

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