Investment Update

Tom Hamilton & Ryan Czamara |

We recently made a few changes in our investment models at Hamilton Wealth Management. These changes affected most client portfolios – of course I believe in a positive way, or else we wouldn’t have made the investment changes, but time will tell, as always. I wanted to provide a bit of a window into my mind on one of these changes, what the reasons were and why now.

One investment we recently sold was an ETF named “Vanguard Extended Market Index Fund”, (Symbol: VXF), a low-cost ETF that owns companies in the small-Cap and mid-cap arena.  We owned a relatively small position in VXF in the portfolios to provide a low-cost exposure to the small and mid-Cap size companies in the U.S.  These asset classes, I believed, showed better risk/reward metrics than large Cap companies alone – better diversification.

We sold VXF recently because I think the economy is going to get a lot tougher for many smaller companies in the next half year due to MUCH higher borrowing rates for these companies and the resumption of Student Loan payments sucking money out of consumers’ hands. The higher borrowing rates issue is self-explanatory sort of; if companies are paying a much higher interest rates for the money they borrow to expand and run their businesses, it costs them a lot more to operate.

Then, with inflation having been so high for so long, younger people with student loans now have another $200-$500 PER MONTH expense that they haven’t been paying for two years. They are already tapped out financially with rents being WAY up, food, gas.. you know the story.

Many Small and Mid-cap companies sell products and services to U.S. consumers. I think a significant segment of U.S. consumers are going to be more than tapped out financially, leaving less money to spend on anything but food, shelter. Student loans, and other necessities. Hence, we do not want to own an ETF investing directly in small and mid-cap portfolios now, so we sold VXF.

In addition, we do have some exposure to small and mid-sized companies through several loan funds we own, which I think benefit from loaning money to these companies at much higher rates than over the past decade. So, we would rather have our exposure here on the loan end, not owning the stocks for now.

We replaced VXP with another low-cost ETF that invests in short term U.S. Treasuries (SGOV). Short-term treasuries are yielding around 5% now so we are happy to get a decent yield while we wait to re-deploy this part of our overall allocation. I’m a very patient investor, so I will wait until another investment opportunity looks like both an excellent investment and provides us with some more diversification.

That’s all for now – time for me to get back to doing what I do, looking for opportunities to better manage your investments


Thomas M. Hamilton, AAMS

Private Wealth CFO

President, Hamilton Wealth Management