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KG Advisors Global Market Review & Commentary 2nd Quarter 2021

During our second quarter newsletter, we wanted to pause from the usual global markets and economic updates and use this opportunity to share some important updates about KG Advisors, reiterate our unique investment approach, and provide important updates to our investment framework and the opportunities we seek to take advantage of going forward.

First and foremost, I would like to recognize our team's recent accomplishment.  Please join me in giving a round of applause for the service efforts of Donna, Wendy, and Suzie helping elevate us from State registration to now receiving SEC registration approvals last quarter, an important milestone for becoming what the industry considers a 'large' registered investment advisory firm.

At KG Advisors, our investment approach offers both strategic and dynamic ‘market neutral’ asset allocation models. This means we look for opportunities during market fluctuations and changing trends.  Our Dynamic model trades more frequently during bouts of market uncertainties as we strive to avoid material losses by adding positions that protect, hedge, and even inverse the direction of equity risk exposures, in effect creating an 'all weather' portfolio. Our approach is flexible, adaptive, and utilizes a broad mix of diversified holdings. A clear example of our dynamic management was during the precipitous market declines in the first quarter recession of last year. The broad equity market had one of the worst periods in history, while the average return of the KG Dynamic models ended the quarter safely positive.

Having a dynamic, flexible strategy can translate into new investment opportunities during changing times. We strive to capture these opportunities in various ways including leveraging exposure of traditional exchange traded funds by temporarily investing in inverse funds when we believe markets are at risk.  Or we may purchase stock in publicly traded companies, like we did recently in accounts.  The opportunity cost we see today of using an index fund strategy is under allocation in the most innovative companies in the world, where we believe future returns are more attractive.

In our view, the coronavirus crisis transformed the world significantly and permanently.  During periods of such uncertainty, businesses and consumers adjust, become more willing to change behavior, and embrace innovative products and services that are more productive, cheaper, or faster.   Innovation creates market share after tumultuous times as new leadership emerges. As a result, we believe companies associated with innovation should recover and grow faster than traditional value-based funds or sectors.  

Disruptive innovations can have profound ramifications on industries, and the entire macro economy.  The nonlinear changes we see are coming from robotics, electric vehicles, decentralized financial services, artificial intelligence, DNA sequencing, energy storage, digital assets, and blockchain technologies.  As new progress is made, these products and services will approach tipping points as their prices drop, unleashing new demand across sectors and geographies and spawning network effects for future growth.  We believe the most important investment changes we will be making in the near term will be positioning our model portfolios on the right side of innovation.  These new investment allocations focused on technological transformation seek to outperform broad market indices on an absolute and risk-adjusted basis over time.

Looking forward, volatile markets may bring us more periods of turmoil, reinforcing the need to have a strategy to reduce portfolio risk while keeping the focus long-term.  Our investment management uses rules-based indicators, helping portfolios remain properly balanced among the various positions, providing a broadly diversified solution.  We continue to maintain a prudent investment approach with a sharp focus on risk management. The markets will fluctuate, but we are committed in our focus of helping you reach your long-term financial goals.

If you have questions about your portfolio or financial planning strategy, or would like to discuss any life changes, please contact us anytime at 800-KGA-4916.  We wish you a happy and healthy summer.

Warm regards,

Eric W. Kendrick, CFP

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