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LGA Advisor Insights – Q2 2024

Raphael Martorello — Fri, 31 May 2024 20:28:46 +0000

You’re sitting at a coffee shop when your phone buzzes with a text message you’ve been nervously awaiting all morning. “Everything is signed. Congratulations!” fills the screen—a windfall event has just occurred.

Perhaps you’ve just sold your company, or a significant investment is finally paying off. In many cases, these events are years in the making. Rarely do these things come as a surprise, yet for many, two words dominate their thoughts next: ‘Now what?’

The ink is dry, and your world is different from what it was just moments ago. You may have no idea what comes next, but how this event impacts you, your friends, your family, and your community is entirely up to you now.

If money is a microphone for your values, then a windfall is your chance to deliver a ‘State of the Union’ to those in your orbit.

The reality is that much of what happens next should have already been decided with planning done before this event. Your financial and life priorities going into the event should have played a factor in the negotiations.

Post-windfall, it’s important to know: do you want to go back to work in another field? What hobbies are you interested in pursuing: mountaineering, golf, travel, or cooking in earnest? Knowing what you want from your life after your company sale is just as important as knowing how to pay for it. Those conversations begin months or even years before any business sale, as compensation structures, terms, and strategies to improve your company’s attractiveness to buyers are pillars of our wealth management offerings.

The biggest question, and one only you can answer: how much do you need for your dream lifestyle? That’s a question for your financial plan and loved ones. No one can answer “How much is enough?” without knowing what you want. That process can take years and isn’t something you determine after a sale or after a prospective buyer appears. Knowing your goals is fundamental to determining if a sale makes sense, regardless of the number being offered.

While every situation is different, one of the highest priorities, when a windfall is coming, should be consulting your advisor and tax professional beforehand.

I spoke with Kelly Rangel, CPA, with Calvetti Ferguson in Houston, TX, who has worked with dozens of clients through company sales and executing stock options. She has a few tips and questions for you to consider if you think you could be looking at a windfall in the coming year.

Kelly and her team consider all tax tools available before a liquidity event. It’s situation-specific, but their approach even considers halting the generation of ordinary taxable income that would be subject to the highest marginal tax rate, currently 37%. Additionally, from an estate tax perspective, if the value of the shares is expected to eventually push a taxpayer’s estate over the lifetime exemption (currently about $13 million per person), her clients may consider gifting the shares outside their estate before the transaction to a trust with their children or spouse as beneficiaries. The critical value to understand in this case is how much control the owner wants to keep as they manage the potential 40% estate tax that could apply down the road.

In summary, it’s crucial that your entire financial team, especially your advisor and tax professional align on a solid strategy before a liquidity event occurs.

At LotusGroup, it’s our job to ensure the right conversations are happening from beginning to end. We believe that to ‘Make Life Count,’ you should make every decision count toward your ultimate goals.

The post LGA Advisor Insights – Q2 2024 appeared first on Lotus Group.

Q1 2024 Investment Review – Continued Gains But Leadership Divergence

Raphael Martorello — Thu, 11 Apr 2024 02:53:57 +0000

Hyperlinks below:

CIO Insights

Public Market Update

Private Market Update

CIO Insights

Raph Martorello: Managing Partner & CIO

Most investment markets generated positive returns to start 2024, following two reasonably turbulent years in 2022-2023. Public equity markets and private markets both delivered positive returns, while fixed income had mixed results with strong yields offset by slight price declines. Interestingly, some of the strongest public market sectors began to see wide divergence. For example, the “Magnificent Seven,” high growth tech companies, shifted from all being strongly positive in 2023 to much more varied results in Q1/2024. For example, Nvidia and Meta generated Q1 returns of 82% and 37% respectively, while Apple declined 11%, and Tesla fell almost 30% (see Chart I below).

Chart I – Returns from Magnificent Seven Stocks (Source: Yahoo! Finance)

Take a read through Stephanie’s Public Market Update to gain more insight into how public markets performed and how LotusGroup portfolios were positioned. Additionally, take a peek at Louis’ Private Market Update to learn more about which sectors we are choosing to invest in during this higher interest rate environment. He also provides an update on an investment we made in whiskey barrel aging for our second diversified alts fund. We hope you all are beginning to enjoy the spring season ahead and are knee deep into your 2024 personal and career pursuits! Cheers Raph & The Entire LGA Team P.S. Private investments often take a while to post Q4 returns due to year-end reconciliations and audits. As a result, Q1 client returns are often understated on reports until Q2, when two quarter’s worth of returns are posted for private investments.

Public Market Update – Q1 / 2024

Stephanie Schlemeyer: Partner & Public Markets PM

I hope everyone has had a great start to the year!

To begin, let’s start by reviewing our LGA public market gauges as we end the first quarter of the year, heading into Q2. US Equity: Our US Equity Gauge ended Q1 as we started, remaining moderately bullish throughout the entire quarter. On the positive side, momentum remained strong from the 2023 rebound, while on the negative side, sentiment was overheated. Additional Q1 challenges included:

Stronger than expected inflation.
2024 rate cut expectations dropping from five drops (starting in March) to three drops (expected to begin in June).
Increasingly high stock market valuations.

Despite these challenges, the US stock market held strong and ended Q1 in positive territory. LotusGroup portfolios were positioned with 75% exposure and participated in most of the gains, albeit in a slightly muted way relative to full market exposure. Global Equities: Returns for Foreign Equities lagged US Equities in Q1. LotusGroup portfolios include exposure to both Foreign Developed and emerging market equities, with a heavier weighting to developed countries. Foreign Developed equities were up 5.3% and Emerging markets were up 4.0%, both adjusted to US dollars. Consequently, having an overweight in the US vs Global equities proved to be helpful during Q1. US Fixed income: There were no changes to our fixed income positioning, which remained bullish with a strong preference for shorter term duration. We expect to continue with the current positioning until rates begin to meaningfully decline or if there is another spike higher in inflation / rates (lower probability scenario). Summary: As always, we urge clients to take a longer view than just one quarter to not miss the forest for the trees. Below is an aggregate of a LotusGroup Moderate Risk Portfolio with Private, starting at the end of 2021 when the current cycle began:

Chart II – LGA Tactical Moderate with Private Composite Q1/2024 (Source: LotusGroup)

LotusGroup portfolios have continued to be focused on providing protection, lower volatility, and meaningful returns, as illustrated above in Chart II over the past 2+ year cycle.

Private Market Update – Q1/2024

Louis Frank: Partner, Private Market PM

Private investments for LotusGroup clients continued to perform during early 2024. While interest rates remained higher than previous years, banks continued to tighten their underwriting. As a result, we have been helping fill the banking void with investments in specialty finance, private credit, and select real estate lending. Examples of our investments include whiskey barrel finance, diamond-backed lending, and real estate mezz debt. Most investments are currently performing in line with underwritten expectations and in some cases outperforming. We highlight one of these investments below (investment was made in our second diversified fund): Whiskey Barrel Finance (Update) LotusGroup initially invested due to attractive supply/demand drivers in the industry, downside protection, and strong targeted returns. As a reminder, our investments provide capital to distilleries to buy barrels (at cost), age them (2-4 years), and then sell for a gain. Investments have benefited from meaningful price increases as the barrels aged over the past two years, with whiskey becoming more valuable over time. I recently had the opportunity to do a site visit with one of our distillery partners in February (please see below picture):

LotusGroup Site Visit to Partner Distillery

It was great to spend time with one of our operators and review the robust growth of their business, and the industry. The manager reported a 15%+ increase in our barrel value during 2023, and we believe this trend will continue in the years ahead. We also appreciate bourbon’s uncorrelated nature and its recession-resilient consumer base. Net-net, we have been pleased with the solid returns and low volatility of this investment.

The information contained herein, including but not limited to research, market valuations, calculations, estimates, and other material obtained from LotusGroup, and other sources, are believed to be reliable. However, LotusGroup does not warrant its accuracy or completeness. These materials are provided for informational purposes only and should not be used or construed as an offer to sell or a solicitation of an offer to buy any security. Past performance is not indicative of future results.

This blog expresses the views of the author(s) as of the date indicated, and such views are subject to change without notice. Investment advisory services are offered through LotusGroup Advisors, LLC, a federally registered investment adviser. LotusGroup transacts business only in states where it is appropriately registered, excluded, or exempted from registration requirements. The information contained within is believed to be from reliable sources. However, its accuracy, completeness, and the opinions based thereon by the author(s) are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect the authors’ judgment now, are subject to change without notice, and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein. LotusGroup’s advisory clients will be required to execute an Investment Advisory Agreement and related Account opening documents (collectively, “Agreements”). If any of the terms or descriptions in this presentation are inconsistent with the terms of the Agreements, such Agreements shall control. Prospective investors should maintain the financial capability and willingness to accept the risks associated with any investments made, should consult the relevant investment prospectus or legal documents, and should their Advisor Representative before making investment decisions (including but not limited to an examination of the investment objectives, risks, charges, and expenses of any investment product(s) considered).

Extracted performance in this presentation is representative of a subset of investments extracted from a portfolio. Such performance is depicted in this presentation based on accounts that match the following criteria: Tactical 100 model held at Schwab with Moderate Agg risk that includes private investments. LGA employee accounts are excluded from this extracted performance. LGA will provide full performance information promptly upon request. The performance data provided herein is for information and discussion purposes only. The performance of an individual account may vary substantially based on various factors, including, but not limited to, initial account management start date, risk profiles, cash allocation, and investment restrictions, among many others. This information is unaudited. Please refer to an account’s brokerage statement for individual account information. Past performance does not guarantee future results.

To better understand the nature and scope of our advisory services and business practices, readers are encouraged to review via the SEC’s website @ www.adviserinfo.sec.gov, the adviser’s Form ADV Disclosure(s), and the Form ADV 2B Brochure Supplement of each LotusGroup Investment Professional (Click on the link, select “Investment Advisor firm,” and type in the firm name. Results will provide you both Part 1 and 2 of the LotusGroup ‘s Form ADV.).

Additional important disclosures can also be found at http://lgadvisors.redfernmediadevelopment2023.com/disclosures/ by calling us at 720.593.9861, emailing us at info@lgadvisors.com or visiting us at our offices located at 1005 S. Gaylord Street, Denver, CO, 80209.

This blog, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part in any form without our prior written consent.

The post Q1 2024 Investment Review – Continued Gains But Leadership Divergence appeared first on Lotus Group.

2023 Year End Investment Review – The Pause that Refreshes

Raphael Martorello — Mon, 15 Jan 2024 20:32:00 +0000

Hyperlinks below:

CIO Insights

Public Market Update

Private Market Update

CIO Insights

Raph Martorello: Managing Partner & CIO

Managing investment strategies for our diverse clientele is an enjoyable and meaningful job for our entire team here at LotusGroup. Our advisors continuously assess financial plans, manage client emotions, and behaviorally advise on appropriate investment strategies. Meanwhile, our investment teams are constantly evaluating the macro landscape, monitoring our investment indicators, and building potential scenarios that we see ahead. Rather than getting fixated on a single forecast, we stress test different possibilities to position portfolios accordingly. Here are a few areas we are reviewing today:

US equity valuations indicate a reasonably high likelihood of either muted returns in the decade ahead or a one-time major market sell-off.
Global equity valuations seem to indicate a reversal from US outperformance to global outperformance in the mid-term future, with the catalyst for such event currently TBD.
Fixed income has resurfaced as an investable asset class in the 5%+ yielding range, after nearly a decade of very low returns.
High-flier private alts in the venture capital, private equity and real estate equity areas have been suffering from higher rates.
LGA-type private alts in the specialty finance and credit spaces have been benefiting from higher rates.

Providing additional detail to the first bullet point above, 2021-2023 could possibly be the start of a decade of muted returns. This type of scenario has occurred three other times over the past ~100 years as seen on the left-hand side of the chart below, before giving way to strong secular bull markets illustrated on the right side:

Secular Market Returns and Starting Valuation Metric Shiller PE from 1929 – 2021

For the sideways scenarios with a 0% return, they started from an average Shiller PE valuation level = 32. Considering this metric was 38 in late 2021, there is a strong possibility that we could be facing a decade of muted returns ahead while valuations come back down to earth (“The Pause that Refreshes”). This metric has declined from 38 to the current level of 32 over the past two years, while equity market returns were 0% (down in 2022 with 2023 rebound back to the same level they started 24 months ago) …so it is possible that this process of refreshing has already begun. There are lower probability scenarios we are reviewing as well, but we wanted to at least highlight one strong possibility and the underlying data that goes into our forecasting. We will also save for another time all the details we review for each of the other high-level areas I mentioned earlier in this post (global equity, fixed income, private alts, etc). For now, take a read through Stephanie’s Public Market Update to see additional detail on the 2021-2023 public investment markets and how we performed. Additionally, take a peek at Louis’ Private Market Update to learn more about the private investment sectors we are avoiding and where we are pressing our bets. Louis also includes an interesting example of a recently sourced deal that we believe is in the sweet spot for today’s sideways and higher interest rate environment. We hope you all had a great holiday season and have started off the New Year with gusto. It’s a great time to be alive and pursuing our interests in life (sure beats the alternative)! Cheers Raph & The Entire LGA Team

Public Market Update – Q4/2023, FY/2023, and Two-Year Results

Stephanie Schlemeyer: Partner & Public Markets PM

US Equity: We ended Q4 as we began with portfolios positioned moderately bullish (75% beta to market), albeit with a couple months mid-quarter in a fully bullish position (100% beta to the market). We’ll first look at how the market performed in 2023 and then review how we were positioned throughout the year. The US stock market had a strong performance in 2023. The performance across the different sectors varied greatly: some sectors had very strong performance (tech), some flat (energy), and some negative (utilities). The return dispersion from the highest return (tech) to the lowest (utilities) was above average compared to years past. The below chart shows the S&P’s (light pink line) overall performance was mainly driven by a few sectors.

Chart I – US Equity Asset Class Performance Q4/2023 (Source: LotusGroup)

Around midyear, the market increase was driven by only a few mega cap tech stocks, illustrated by an average 16% market return (S&P 500 returns) while the median return was only 3.8%. This phenomenon in investment terms is called having unhealthy “breadth,” meaning that the returns were driven by very few sectors, instead of a healthier scenario where many sectors drive the returns. By year end, breadth improved moderately, but the median return was still only half of S&P 500 average returns. Now that we’ve looked at how the S&P 500 and its various sectors performed throughout 2023, let’s review how your LGA portfolios were positioned:

Chart II – LotusGroup Tactical Portfolio Adjustments During Year 2023

Client portfolios began the year with a 50% beta to markets given our continued focus on asset protection after the 2022 major declines. In Q2, our investment indicators confirmed the end of the previous bear market, and we moved portfolios to a fully bullish 100% beta position. Thereafter, we made three different changes to moderately decrease, increase, and again decrease market exposure as illustrated in Chart II above. Each specific move helped add to 2H/2023 relative outperformance to benchmarks. When we put the previous two years together (bear market in 2022 and bull rebound in 2023), we can see how our models perform over time vs focusing on a single quarter or year’s return. Please see Chart III below for an example of our “Tactical Strategy – Moderate with Private Allocation” portfolio (the green line is client performance and other lines are benchmarks). You can see a muted decline during the bear market of 2022 when we protected portfolios and then a subsequent participation in the 2023 rebound for a net-net outperformance relative to benchmarks.

Chart III – LGA Tactical Moderate with Private Composite 2024 (Source: LotusGroup)

Our goal with clients in the “Global Strategy – Moderate with Private Allocation” is to participate more heavily in markets but to dampen volatility during downturns. Chart IV below illustrates how this worked over the past two years, with a similar market return to benchmarks along with a lower drawdown during the bear market of 2022 (same returns + lower volatility).

Chart IV- LGA Global Moderate with Private Composite 2024(Source: LotusGroup)

Looking forward, we envision a few scenarios:

Scenario 1 (highest likelihood): The market continues to chop sideways, and we adjust portfolio exposures up (75-100% beta) and down (0-50% beta) according to our models.
Scenario 2 (possible): Equity markets breakout to new bullish highs and we participate at 75% beta while 25% of our allocation remains in treasuries yielding 5%+ right now.
Scenario 3 (possible): A major bear market appears; in which case we will once again protect portfolios with 0-50% beta positioning based on the client’s chosen strategy.

Global Equities We remain overweight US equities vs Global equities. This overweight proved to be helpful for 2023 relative to global benchmarks as the US once again outperformed. On an absolute basis, even having a small foreign exposure (vs only US) added some drag 2023 performance. We continue to monitor this very long-in-the-tooth dynamic for a reversal in the years ahead, especially given much lower valuations outside the US and long-term diversification benefits. If we see a catalyst and material change in this trend, we will consider increasing our global allocation from the current underweight positioning. Fixed income Our fixed income gauge remains the same, bullish / full exposure with a major tilt toward shorter term duration and to US treasuries. For our UHNW clients in high-tax states, mid-duration municipals are also currently offering tax-adjusted yields. The dot plot from the Dec Fed meeting projects rate cuts to 4.6% later in 2024 which supports our thesis for riding the higher yielding opportunities for the time being until we see more dramatic shifts in rates.

Private Market Update – Q4/2023

Louis Frank: Partner, Private Market PM

The rising rate environment in 2023 created an opportunity set in private markets. This disruption proved to be detrimental to some asset classes, while creating opportunities in others. For example, private equity, venture capital and real estate equity all experienced major stresses. Consider an expected $182B of commercial real estate loans that are set to mature this year (source: Moody’s Analytics, Inc) and need to be refinanced, likely at 2x the rates they had previously been paying. LotusGroup private investments have largely avoided these asset classes both in our diversified fund offerings as well as direct investments for clients. On the positive side, rising rates have resulted in opportunities for the specialty finance and credit sectors, two areas that LotusGroup has focused on heavily in recent years. Deal flow has been steady, and we have remained disciplined as we underwrite our pipeline. We walk through an income-generating opportunity below. Telecom Invoice Factoring Investment Highlights:

Senior secured credit facility to specialized lenders backed by Telecom Companies (Sony, ATT, Verizon, etc.).
75% of the factored invoices are covered by an A- insurance policy written by Allianz (the other 25% are publicly traded TelCo’s)
SOFR + ~9.50% = Approx. 14.8% current total yield as of this writing
1st loss tranche on our investment

Investment Overview: The business is a specialized lender providing liquidity to general contractors servicing telecommunications towers. Cell tower sites are commissioned and maintained by networks or by site management companies, tower companies (such as Crown Castle and American Towers), or original equipment manufacturers (OEMs) such as Nokia or Ericsson. These companies typically sub-contract installation, maintenance, upgrading, and decommissioning to specialized general contractors (GCs). GCs are asset and staff-intensive businesses holding substantial inventory in warehouses. Investment Structure: This was structured as a co-investment to LotusGroup’s diversified fund program.

The information contained herein, including but not limited to research, market valuations, calculations, estimates, and other material obtained from LotusGroup, and other sources, are believed to be reliable. However, LotusGroup does not warrant its accuracy or completeness. These materials are provided for informational purposes only and should not be used or construed as an offer to sell or a solicitation of an offer to buy any security. Past performance is not indicative of future results.

This blog expresses the views of the author(s) as of the date indicated, and such views are subject to change without notice. Investment advisory services are offered through LotusGroup Advisors, LLC, a federally registered investment adviser. LotusGroup transacts business only in states where it is appropriately registered, excluded, or exempted from registration requirements. The information contained within is believed to be from reliable sources. However, its accuracy, completeness, and the opinions based thereon by the author(s) are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect the authors’ judgment now, are subject to change without notice, and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein. LotusGroup’s advisory clients will be required to execute an Investment Advisory Agreement and related Account opening documents (collectively, “Agreements”). If any of the terms or descriptions in this presentation are inconsistent with the terms of the Agreements, such Agreements shall control. Prospective investors should maintain the financial capability and willingness to accept the risks associated with any investments made, should consult the relevant investment prospectus or legal documents, and should their Advisor Representative before making investment decisions (including but not limited to an examination of the investment objectives, risks, charges, and expenses of any investment product(s) considered).

Extracted performance in this presentation is representative of a subset of investments extracted from a portfolio. Such performance is depicted in this presentation based on accounts that match the following criteria: Tactical 100 model held at TD Ameritrade with Moderate Agg risk that includes private investments. LGA employee accounts are excluded from this extracted performance. LGA will provide full performance information promptly upon request. The performance data provided herein is for information and discussion purposes only. The performance of an individual account may vary substantially based on various factors, including, but not limited to, initial account management start date, risk profiles, cash allocation, and investment restrictions, among many others. This information is unaudited. Please refer to an account’s brokerage statement for individual account information. Past performance does not guarantee future results.

To better understand the nature and scope of our advisory services and business practices, readers are encouraged to review via the SEC’s website @ www.adviserinfo.sec.gov, the adviser’s Form ADV Disclosure(s), and the Form ADV 2B Brochure Supplement of each LotusGroup Investment Professional (Click on the link, select “Investment Advisor firm,” and type in the firm name. Results will provide you both Part 1 and 2 of the LotusGroup ‘s Form ADV.).

Additional important disclosures can also be found at http://lgadvisors.redfernmediadevelopment2023.com/disclosures/ by calling us at 720.593.9861, emailing us at info@lgadvisors.com or visiting us at our offices located at 1005 S. Gaylord Street, Denver, CO, 80209.

This blog, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part in any form without our prior written consent.

The post 2023 Year End Investment Review – The Pause that Refreshes appeared first on Lotus Group.

Q3 2023 Investment Review – An Autumn Story > Letting go of the old and ushering in the new

Raphael Martorello — Thu, 12 Oct 2023 19:45:38 +0000

Hyperlinks below:

CIO Insights

Public Market Update

Private Market Update

CIO Insights

Raph Martorello: Managing Partner & CIO

Large rises in interest rates typically drive major economic shifts, albeit they can take time to fully affect the status quo. A lag effect tends to occur as investors are remiss in letting go of previously high-returning asset classes. Additionally, investors are often slow to recognize which new winners will emerge from the sea change. With a Fed Funds rate now 5%+ higher than it was just a little over a year ago, the effects are starting to take hold. For example, small-to-mid-sized tech companies with no or low profit have had meteoric declines after many years of attractive returns. Long-term fixed income was also hammered as rising rates caused a major revaluation of 10, 20, and 30yr bonds that were fixed to low rates. Finally, the “always goes up” real estate sector saw declines, first in the commercial office space, and now in a broader swath of sectors, including residential homes (see declining values on Zillow). As you take a read through Stephanie’s Public Market Update, we remind you of our conservative positioning over the past couple years to avoid these downtrends. While hindsight is 20/20, as of a couple years ago, there were massive cheerleaders for all of these “hot” investment areas. On the positive side, opportunities have emerged in multiple areas. Public short-duration fixed income is now paying over 5%, the highest rate we have seen in over a decade (16 years to be exact)! Additionally, private credit and real estate senior debt are presenting as double-digit return opportunities. Please read through Louis’ Private Market Update to learn more about the opportunities we are aggressively pursuing with our qualified and accredited clientele. During major bull markets, many want to keep chasing after the fastest growing ideas…which can work for a while, but often end in tears. However, during longer-term bear markets, many want to batten down the hatches and sit in cash. Today’s 4%+ CD and money market environment strongly calls to that mindset. To some extent, we agree with having an allocation to high-yielding cash until the “new bull market” versus “continued bear market” debate is further resolved. However, too large of a cash allocation risks a high tax bill, as CDs, money markets and Treasuries are taxed at the highest income tax rate. For now, we will continue to be slightly cautious in public equity markets, take advantage of higher 5%+ fixed income rates on a growing allocation, and aggressively pursue double-digit return opportunities in the private credit and specialty finance spaces through our private diversified funds. We wish you all a fantastic autumn and hope you get some time to enjoy and reflect with your family in the holiday season ahead. Cheers Raph & The Entire LGA Team

Public Market Update – Q3/2023

Stephanie Schlemeyer: Partner & Public Markets PM

US Equity: The US Equity market had a weak third quarter, marked by declining stock prices and subdued investor confidence. 9 out of the 11 market sectors were negative this quarter.

Chart I – US Equity Asset Class Performance Q3/2023 (Source: LotusGroup)

LotusGroup portfolios entered the quarter with reduced exposure to these markets, resulting in lower volatility. Q3 returns for a typical LotusGroup tactical public + private portfolio is illustrated below (green line), as compared to the global benchmark (gray) & US market benchmark (purple). This chart illustrates the generally lower volatility of LotusGroup portfolios throughout Q3, as well as a slightly smaller decline relative to benchmarks.

Chart II – LGA Tactical Moderate with Private Composite 13/2023 (Source: LotusGroup)

The above notwithstanding, we slightly increased our US allocation towards the end of the quarter, as technicals improved and sentiment cooled off. This increase moved our current US equity allocation from neutral, to moderately-bullish. Looking back since late 2021, we had been protecting portfolios against the downturn, while more recently have been increasing our exposure as a potential new bull market emerges.

Chart III – LGA Tactical Moderate with Private Composite YTD 2023 (Source: LotusGroup)

We will continue to monitor our market indicators to help determine whether we are in a renewed bull market or if the early 2023 gains were just a bounce within a longer-term downtrend. As the evidence unfolds, we will look to either go all in with a 100% bullish position or reduce exposure once again for protection. Fixed Income We ended Q3 as we began, with a bullish view on short-duration US fixed income and money market instruments. LotusGroup portfolios included positions now yielding 5%+ for the first time in a decade! Simultaneously, long-term fixed income suffered its worst quarter on record, as rapidly rising rates contributed to declining values. Positively, LotusGroup’s short-duration positioning helped client portfolios to miss most if not all of these declines. Global Equities We continued to favor US vs global in LotusGroup portfolios. This once again proved helpful, with both foreign developed and emerging markets underperforming the US for Q3.

Private Market Update – Q3/2023

Louis Frank: Partner, Private Market PM

Our private market pipeline continues to be robust, with multiple attractive risk-adjusted opportunities in the pipeline. As higher rates, stricter credit parameters, and reduced liquidity sets into the market, our deal pipeline seems to grow weekly. We remain extremely selective regarding deal quality and focus on partners with best-in-class track records. With the launch of our 3rd diversified fund in July, we are actively raising and deploying capital to take advantage of our deal pipeline. We believe that the next 24-36 months should provide returns in certain asset classes that we have not seen in nearly a decade. Below is an example deal that we recently sourced through a preferred partnership of ours: Investment Highlights:

Investment into a diversified portfolio of high-profile patient infringement cases
Cases are sourced by a leading litigation finance originator
Target IRRS of 25%+
The downside is capped due to an insurance policy on investment principal.

Investment Overview: The program works on behalf of patent owners and investors, with defendants including well-capitalized technology giants. These cases are sourced and structured by a reputable litigation finance originator, further diligence by lead investors, and vetted with scrutiny by the insurance carriers. The potential for substantial settlements and damages along with capped losses through insurance coverage, creates a compelling risk/return profile. Investment Structure: This was structured as a co-investment with reduced fees to LotusGroup investors. The opportunity is structured such that the investment vehicle pays a portion of case legal fees & expenses on behalf of the patent owner as plaintiff, with the vehicle receiving a percentage of the damages or settlement proceeds from the case. Our downside is capped to 87% of the investment principal value as the vehicle has an insurance wrapper.

The information contained herein, including but not limited to research, market valuations, calculations, estimates, and other material obtained from LotusGroup, and other sources, are believed to be reliable. However, LotusGroup does not warrant its accuracy or completeness. These materials are provided for informational purposes only and should not be used or construed as an offer to sell or a solicitation of an offer to buy any security. Past performance is not indicative of future results.

This blog expresses the views of the author(s) as of the date indicated, and such views are subject to change without notice. Investment advisory services are offered through LotusGroup Advisors, LLC, a federally registered investment adviser. LotusGroup transacts business only in states where it is appropriately registered, excluded, or exempted from registration requirements. The information contained within is believed to be from reliable sources. However, its accuracy, completeness, and the opinions based thereon by the author(s) are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect the authors’ judgment now, are subject to change without notice, and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein. LotusGroup’s advisory clients will be required to execute an Investment Advisory Agreement and related Account opening documents (collectively, “Agreements”). If any of the terms or descriptions in this presentation are inconsistent with the terms of the Agreements, such Agreements shall control. Prospective investors should maintain the financial capability and willingness to accept the risks associated with any investments made, should consult the relevant investment prospectus or legal documents, and should their Advisor Representative before making investment decisions (including but not limited to an examination of the investment objectives, risks, charges, and expenses of any investment product(s) considered).

Extracted performance in this presentation is representative of a subset of investments extracted from a portfolio. Such performance is depicted in this presentation based on accounts that match the following criteria: Tactical 100 model held at TD Ameritrade with Moderate Agg risk that includes private investments. LGA employee accounts are excluded from this extracted performance. LGA will provide full performance information promptly upon request. The performance data provided herein is for information and discussion purposes only. The performance of an individual account may vary substantially based on various factors, including, but not limited to, initial account management start date, risk profiles, cash allocation, and investment restrictions, among many others. This information is unaudited. Please refer to an account’s brokerage statement for individual account information. Past performance does not guarantee future results.

To better understand the nature and scope of our advisory services and business practices, readers are encouraged to review via the SEC’s website @ www.adviserinfo.sec.gov, the adviser’s Form ADV Disclosure(s), and the Form ADV 2B Brochure Supplement of each LotusGroup Investment Professional (Click on the link, select “Investment Advisor firm,” and type in the firm name. Results will provide you both Part 1 and 2 of the LotusGroup ‘s Form ADV.).

Additional important disclosures can also be found at http://lgadvisors.redfernmediadevelopment2023.com/disclosures/ by calling us at 720.593.9861, emailing us at info@lgadvisors.com or visiting us at our offices located at 1005 S. Gaylord Street, Denver, CO, 80209.

This blog, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part in any form without our prior written consent.

The post Q3 2023 Investment Review – An Autumn Story > Letting go of the old and ushering in the new appeared first on Lotus Group.

LGA Advisor Insights – Summer Triumphs and Milestones: Celebrating Achievements at LotusGroup

Raphael Martorello — Thu, 31 Aug 2023 17:11:34 +0000

At LotusGroup, we are consistently inspired and impressed by our clients’ achievements, and this summer was no exception. We witnessed families growing, dream houses being built or purchased, companies being launched, creative projects coming to fruition, and everything in between.

Here are a couple of highlights:

Our friend and client, Tyler Weston, sold his landscaping business last year and recently embarked on his new venture: GWP, a real estate investment firm. The exciting part is that he co-founded GWP with another LGA client, Scott Kilkenny. Tyler and Scott have been our clients for years and are dear friends of ours. We eagerly anticipate what Scott & Tyler will accomplish next and are thrilled to assist them during these business transitions!

Juli & Bud had a dynamic summer, utilizing their new e-bikes for bike tours. They recently completed a 190-mile ride around the Niagara Falls region of Ontario, a 150-mile journey from Pittsburgh, PA to Cumberland, MD, and another one around Quebec! Their high level of activity and ongoing enjoyment of biking in incredible places continue to bring us immense joy, especially as they savor retirement.

Lastly, we celebrated a significant milestone within our team: our very own Raph Martorello’s eldest child is heading off to college! After careful consideration, Jackson chose Texas A&M, where he was granted a full academic scholarship. He will be joining the engineering school and also intends to play club golf. Congratulations to the Martorello family!

P.S. – We are aware of a few other remarkable accomplishments that we might have missed. If you have one to share, we would be delighted to include it in our next update.

The post LGA Advisor Insights – Summer Triumphs and Milestones: Celebrating Achievements at LotusGroup appeared first on Lotus Group.

Q2 2023 Investment Review – Is It Really All About A.I.?

Raphael Martorello — Mon, 17 Jul 2023 17:39:31 +0000

Hyperlinks below:

CIO Insights

Public Market Update

Private Market Update

CIO Insights

Raph Martorello: Managing Partner & CIO

Artificial Intelligence (“AI”) is all the rage these days, with positive affirmations of how it will transform a variety of industries, and negative affirmations of how it will usher in the end of humanity. While AI is the current talk of the town, it has been around for quite some time already, powering scientific breakthroughs, optimizing business performance, and permeating countless other areas around us. So why all the current buzz? First, engineers are starting to let computers talk to each other and make decisions that previously required human intervention. For example, rather than requiring a human to search for information and make an interpretation, AI can now search across multiple linked-up databases and provide an interpretation of such information in the form of an output. Second, a variety of leading companies have put out easy to use interfaces so the common person / public can start using these tools in an open-source manner. This open-source approach has created an immense amount of curiosity and usage, ranging from hard-core scientific and business uses, to students having computers write history papers and computer programs for them. Kidding aside, it is estimated that in coding alone, an order of magnitude of productivity improvement is right around the corner, with tech startups no longer requiring large budgets for 100s of engineers, but rather more manageable budgets with 10s of engineers and their AI sidekicks helping them to write the code. How many new ideas will be pursued with a lower startup cost requirement? Likely, this will be transformational for the tech VC community, with positive and negative repercussions. Finally, and a more cynical view, is that tech stocks were in the doldrums and needed a significant new boost of enthusiasm. As interest rates rose rapidly, many low, or no profit tech businesses experienced 50-90%+ declines or simply went out of business. The era of focusing on product growth, rapidly increasing revenues, but zero profits quickly came to a crashing end when money was no longer “free.” Investors suddenly demanded a profit, new rounds of fundraising tightened dramatically, and a massive crash occurred. With that said, AI has been a marketing bonanza for the top companies in the sector and has single-handedly pulled the S&P 500 out of its bear market (see below for the 6 month returns of the S&P 500 with and without the AI boom stocks). As you can see, without the AI stocks in the S&P 500, the index would have posted a slightly negative return for 2023, staying in the 20%+ bear market from 2022. With that said, the question going forward will be whether this very narrow sector strength will continue to power the S&P 500 forward, whether other sectors will begin to catch up, or whether it will all peter out and restart the bear market that began in 2022. We have turned cautiously optimistic on public markets, after positioning client portfolios conservatively over the past 18-24 months of this rolling bear market. Of specific note is our move to a fully bullish position in fixed income, albeit we remain very short duration to “have our cake and eat it too.” Read more about this in Stephanie’s Public Market Update section. We also remain very bullish on our asset-backed private alternative portfolio positions. These assets consistently delivered positive returns during the difficult bear market of 2022 and earlier during the COVID-19 market scare of 1H/2020. Read more about the upcoming launch of our 3rd diversified fund as well as an interesting case study of an attractive recent deal in Louis’ Private Market Update section. Wishing everyone a wonderful summer! Cheers Raph & The Entire LGA Team

Public Market Update – Q2/2023

Stephanie Schlemeyer: Partner & Public Markets PM

US Equity: S&P 500 returns continued to rebound during Q2, boosted by a surge in a small group of familiar tech companies (Google, Microsoft, Amazon, Apple, etc.). While the bounce higher has been impressive, in most cases these stocks have yet to recover from their previous highs 18-24 months ago, while experiencing volatility of 30%, 50% and even 80% drawdowns along the way. More specifically, the near-term bounce has been driven by tech stocks that are focused in the Artificial Intelligence (“AI”) sector. There are many other previously popular growth and tech stocks that have not seen the same recovery and remain down meaningfully (Peloton still down 95% from peaks, Zoom still down 85% from its peak, etc.). LotusGroup portfolios have been positioned in a neutral weight to US equities, participating in the market with a 50% beta positioning. As a reminder, “beta” represents the approximate relative return to a benchmark, so a “50% beta” would be the equivalent of experiencing half of the upside and half the downside of a specific benchmark. For perspective, the chart below shows our green composite results relative to benchmarks since the bear market began in late 2021 (using our avg Tactical portfolio with a Moderate risk profile and an allocation to Private Investments). While our initial focus was on protecting portfolios against the downturn, we have more recently turned towards partially participating in the recovery.

Chart I – LGA Tactical Moderate with Private Composite 1H/2023 (Source: LotusGroup)

The jury is still out on whether a renewed bear market will materialize (perhaps driven by far tighter financial conditions) or whether we have skirted a recession and begun a new bull market. We will continue to monitor the markets and our models and make necessary adjustments to portfolio beta. Fixed Income We have moved the fixed income dial from neutral to bullish this quarter. For clarification, we are not bullish on all fixed income, for example we still think there is risk in longer duration securities. However, short duration fixed income assets are now far superior in their risk/return characteristics relative to liquid fixed income alternative positions. While liquid alts like “merger arbitrage” and “managed futures” served us well over the past 5 years, and helped portfolios almost completely avoid the fixed income carnage in 2022, we have now moved fully into short-term treasuries and other fixed income. Specifically, LotusGroup portfolios are currently allocated to core fixed income, some strategic fixed income, short-term treasuries and short-term corporates. In market news, after 10 consecutive rate hikes, the Fed finally rested this quarter, leaving rates unchanged. Projections as of today are that two more rate hikes are on their way. See below for the most recent dot plot from the June 2023 meeting:

Chart II – FOMC participants’ assessments of appropriate monetary policy (Source: FederalReserve.Gov)

What does this mean for your portfolio? We remain focused on shorter duration assets, which in today’s market allow us to “have our cake and eat it to.” With an inverted yield curve, short duration assets are paying out the highest yields along the curve. Additionally, since short-term securities self-liquidate very quickly, they don’t participate in value declines like longer duration assets do if rates continue to rise. So, for the time being, being in short-duration fixed income is the place to be, generating maximum yields and protecting against price depreciation. Global Equities We ended the quarter as we began, with a small tilt toward US equities vs Global equities. This positioning has proven to be correct as US equities have produced approximately double the return of global equities year-to-date. As mentioned above, we remain cautiously optimistic and will continue to diligently monitor our models and the markets, with a goal of allocating in a disciplined manner to meet each investor’s unique set of portfolio goals.

Private Market Update – Q2/2023

Louis Frank: Partner, Private Market PM

Our private market pipeline is as robust as ever, and we are sourcing several attractive risk-adjusted opportunities. Last quarter we touched on the growing opportunity within the “specialty finance” area. This space continues to grow as regional banks tighten credit standards, and many small businesses struggle with liquidity issues. With banks out of the picture and demand for alternative financing growing, specialty lenders can charge “take it or leave it” financing terms. We have consistently seen rates in the mid-teens, very secure 30-60% LTVs (loan-to-value), senior preference rights, and strong personal guarantees. This dynamic has created above equity-like returns in the specialty lending space, and we continue to selectively fill our pipeline with partners we trust. Below is an example deal in this specialty lending space. Investment Highlights:

Senior Secured Loan Collateralzied by three pieces of real estate
$100MM+ Personal Gurantor
40% Loan-to-Value (60% 1st loss equity in front of our position)
4% Origination Fee
12% Annualized Cash Pay

Investment Overview: A UHNW individual was looking to make a solar tax credit investment and was willing to collateralize personal residences to receive funding. He chose to work with our sponsor due to a lack of bank funding and our sponsor’s ability to close quickly. Investment Structure: This was structured as a co-investment with zero fees to LotusGroup. We have collateralized stakes in all three of the pledged properties and a personal guarantee from the borrower. The borrower will have 12 months to repay the principal with the option to extend 90 days twice. The borrower would pay a 1% extension fee per each extension option.

The information contained herein, including but not limited to research, market valuations, calculations, estimates, and other material obtained from LotusGroup, and other sources, are believed to be reliable. However, LotusGroup does not warrant its accuracy or completeness. These materials are provided for informational purposes only and should not be used or construed as an offer to sell or a solicitation of an offer to buy any security. Past performance is not indicative of future results.

This blog expresses the views of the author(s) as of the date indicated, and such views are subject to change without notice. Investment advisory services are offered through LotusGroup Advisors, LLC, a federally registered investment adviser. LotusGroup transacts business only in states where it is appropriately registered, excluded, or exempted from registration requirements. The information contained within is believed to be from reliable sources. However, its accuracy, completeness, and the opinions based thereon by the author(s) are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect the authors’ judgment now, are subject to change without notice, and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein. LotusGroup’s advisory clients will be required to execute an Investment Advisory Agreement and related Account opening documents (collectively, “Agreements”). If any of the terms or descriptions in this presentation are inconsistent with the terms of the Agreements, such Agreements shall control. Prospective investors should maintain the financial capability and willingness to accept the risks associated with any investments made, should consult the relevant investment prospectus or legal documents, and should their Advisor Representative before making investment decisions (including but not limited to an examination of the investment objectives, risks, charges, and expenses of any investment product(s) considered).

Extracted performance in this presentation is representative of a subset of investments extracted from a portfolio. Such performance is depicted in this presentation based on accounts that match the following criteria: Tactical 100 model held at TD Ameritrade with Moderate Agg risk that includes private investments. LGA employee accounts are excluded from this extracted performance. LGA will provide full performance information promptly upon request. The performance data provided herein is for information and discussion purposes only. The performance of an individual account may vary substantially based on various factors, including, but not limited to, initial account management start date, risk profiles, cash allocation, and investment restrictions, among many others. This information is unaudited. Please refer to an account’s brokerage statement for individual account information. Past performance does not guarantee future results.

To better understand the nature and scope of our advisory services and business practices, readers are encouraged to review via the SEC’s website @ www.adviserinfo.sec.gov, the adviser’s Form ADV Disclosure(s), and the Form ADV 2B Brochure Supplement of each LotusGroup Investment Professional (Click on the link, select “Investment Advisor firm,” and type in the firm name. Results will provide you both Part 1 and 2 of the LotusGroup ‘s Form ADV.).

Additional important disclosures can also be found at http://lgadvisors.redfernmediadevelopment2023.com/disclosures/ by calling us at 720.593.9861, emailing us at info@lgadvisors.com or visiting us at our offices located at 1005 S. Gaylord Street, Denver, CO, 80209.

This blog, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part in any form without our prior written consent.

The post Q2 2023 Investment Review – Is It Really All About A.I.? appeared first on Lotus Group.

Spanish Wines’ Unmatched Value in the Wine World – A Lesson in Economics

Raphael Martorello — Tue, 30 May 2023 18:19:10 +0000

LotusGroup recently hosted a wine-tasting fundraiser for a local school. The sommelier wanted to focus on value wines, so instead of France, Italy, or Napa, the sommelier chose Spain to showcase what he thought is the best bang for the buck in the wine world. After participating in the tasting, I can confidently say that the sommelier is absolutely correct. Spanish wines are equally delicious as their peers and are sold at a steep discount.

What I found most interesting is why Spanish wines have such excellent value and the lesson it teaches in basic economics. First, Spain doesn’t have the same prominence as Italian or French wines, which command 2 to 3 times the price of Spanish wines per bottle. Second, Spain produces and sells significantly more wine than France or Italy. Therefore, with lower perceived quality but higher supply, a Spanish wine offers a better deal (let’s not call it cheap, but rather high value!).

Next time you’re in search of a bottle, try walking past the Napa Cabs, Willamette Valley Pinots, the Bordeaux, and Piedmonts and treat yourself to an incredible Rioja at a fraction of the cost. Enjoy and cheers!

To better understand the nature and scope of our advisory services and business practices, readers are encouraged to review via the SEC’s website @ www.adviserinfo.sec.gov, the adviser’s Form ADV Disclosure(s), and the Form ADV 2B Brochure Supplement of each LotusGroup Investment Professional (Click on the link, select “Investment Advisor firm,” and type in the firm name. Results will provide you both Part 1 and 2 of the LotusGroup ‘s Form ADV.). Additional important disclosures can also be found at https://lgadvisors.redfernmediadevelopment2023.com/disclosures/ by calling us at 720.593.9861, emailing us at info@lgadvisors.com, or visiting us at our offices located at 1005 S. Gaylord Street, Denver, CO, 80209.

This blog, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part in any form without our prior written consent.

The post Spanish Wines’ Unmatched Value in the Wine World – A Lesson in Economics appeared first on Lotus Group.

Q1 Investment Review – Green Shoots

Raphael Martorello — Tue, 11 Apr 2023 04:38:52 +0000

Hyperlinks below:

CIO Insights

Public Market Update

Private Market Update

CIO Insights

Raph Martorello: Managing Partner & CIO

Whew!

What a quick start to the year, with continued public market volatility, an ongoing Fed Reserve tightening cycle, and a few large bank failures thrown in for good measure. While public markets staged Q1 relief rallies, they remain rooted in longer-term bear market declines. The above notwithstanding, the last 18 months of market movements were large enough for our investment teams to start making some meaningful portfolio updates. As you will see in Stephanie’s Public Market Update section, we began adding back into fixed income allocations, after many years of a near 0% allocation. Following 2022’s record-breaking decline in fixed income, corresponding yields rose to the current 4-5% annualized levels. Consequently, we began replacing market neutral holdings with traditional fixed income such as US Treasuries, money markets, etc. We still remain short duration, given the potential risk for further interest rate increases, but portfolios are now positioned to capture this attractive yield. You will also see the affects of interest rate changes in Louis’ Private Market Update section. Notably, for the past 18 months, we have been underweighting investments that are heavy users of revolving debt to leverage their portfolios, as they will continue to be harmed when going through debt refinances to higher rates. Instead, we have been overweighting investments benefiting from higher interest rates, essentially focusing on “being the bank” and charging higher rates. See Louis’ section for a recent example in the Government Contract Lending space. As always, our team will remain vigilant to ongoing market conditions and will manage your portfolios accordingly. Additionally, while the likelihood for a recession continues to build, there are always places to find green shoots from within the rubble. We will do our best to avoid most of the pain, while seeking out these new opportunities for growth. Cheers Raph & The Entire LGA Team P.S. We wish you a joyous spring and early summer as the warm weather starts showing up on a more regular basis. We hope you have some productive and enjoyable plans ahead!

Public Market Update – Q1/2023

Stephanie Schlemeyer: Partner & Public Markets PM

LotusGroup increased US equity exposure from bearish to neutral during Q1 2023, moving from the grey to black dial above. Additionally, we increased fixed income from slightly bearish to neutral while keeping our global positions at a slight US overweight. Markets remained volatile during early 2023, with continued high inflation, rate hikes, and the second & third largest bank failures in US history. Markets are still in a long-term bear market, and consequently, LGA portfolios remain conservatively positioned to minimize potential downside risks. Below is a chart of this longer-term bear market and the composite returns for one of our more common client portfolios since the beginning of 2021 (see the green line below for composite returns of our LGA Moderate-Aggressive Tactical Portfolio with Private). As illustrated, LGA portfolios were positioned to minimize downside risk starting March of 2022, relatively outperforming all benchmarks. LGA portfolios also exhibited lower volatility compared to the larger swings of the various market benchmarks. As always, we continue to monitor our equity market indicators to decide on positioning moving forward (bearish, neutral, bullish). On the fixed income side, as rates continue to inch higher, we are seeing more opportunity to lock in higher yielding investments. For example, the 3-month treasury rate is at it’s highest level since 2007, yielding just shy of 5% annualized (see Chart II below)

Chart II – 3 Month Treasury (source: CNBC)

One of our major moves in fixed income was to swap out some of our long-held liquid alternative positions, such as multi-hedge and merger arbitrage, moving into government treasuries and investment grade credit. In both cases, we kept investments in the short duration space, given uncertainty around the ultimate peak in interest rates. If rates continue to rise meaningfully, the team will then seek out longer duration investments. The final change included moving the vast majority of portfolio cash into 3-month treasuries and money markets, yielding ~4.5% annualized as of the end of Q1. For the first time in many years, portfolio cash is generating meaningful returns while we wait to deploy the remaining equity portion into a more bullish posture. Your LotusGroup team will continue to remain disciplined, monitor the markets closely, and make portfolio changes as risks and opportunities arise.

Private Market Update – Q1/2023

Louis Frank: Partner, Private Market PM

Public market performance, geopolitical turmoil, inflation, and interest rate hikes continue to add stress to traditional investors. Conversely, most LGA portfolios include a healthy allocation to asset-backd private investments with a degree of recession resilliency. Our underlying private investment mix also rotates as market conditions change. For example, we have been rotating out of private investments that are heavy users of debt and may be struggling with higher interest rates. Simultaneously, we are rotating into areas that benefit from the rising rates such as Specialty Finance (moving from being a net borrower to being a net lender). With banks further tightening their credit underwriting, many of the strategies we have rotated into function as “the bank.” LGA also remains meaningfully allocated to sectors that are non-cyclical and less correlated to the broader economy. Lending against recession resilient assets such as aged whiskey barrels, diamonds, and government contracts have been highlights of our sourcing pipeline over the last 15 months. We dive into one of these new opportunities below! Government Contract Lending Investment Highlights:

Senior Secured Loans (being the “bank”)
US Government as Credit Off-Taker
High-Yield Profile
Low Loan-to-Values
Full Cash Dominion

Investment Overview: The federal government awarded $560B of contracts in 2021, $136B of which went to SBA designated “small businesses.” Awarded government contracts offer unique counterparty risk to investors as the end “off-taker” of these contracts is the AAA-rated US government. Working capital gaps are a common issue for small businesses and our chosen manager looks to fill the void that banks historically have underserved. By providing these businesses collateralized loans against their awarded government contracts, our manager fills a major need in the government contracting space. The compelling case for this product is that all loans are secured against awarded US Government Contracts. There are several statutes that protect the underlying borrowers and it is historically rare for a government contract to be pulled once awarded. Even in this situation the US government is likely to settle with the underlying company. Investment Structure: LotusGroup has negotiated a structured note to the underlying business providing these loans. The note is backed by the underlying contracts and pays a contractual 12% annualized yield. The business has made all contractual payments to note holders over its ~10-year operating history. As always, we will continue to underwrite a multitude of private opportunities, only select the ones that best fit our client’s financial goals, and monitor performance over the life of the investment. As mentioned previously, we intend to launch our 3rd diversified fund in this space and will look forward to speaking with you all privately about the opportunity to invest.

The information contained herein, including but not limited to research, market valuations, calculations, estimates, and other material obtained from LotusGroup, and other sources, are believed to be reliable. However, LotusGroup does not warrant its accuracy or completeness. These materials are provided for informational purposes only and should not be used or construed as an offer to sell or a solicitation of an offer to buy any security. Past performance is not indicative of future results.

This blog expresses the views of the author(s) as of the date indicated, and such views are subject to change without notice. Investment advisory services are offered through LotusGroup Advisors, LLC, a federally registered investment adviser. LotusGroup transacts business only in states where it is appropriately registered, excluded, or exempted from registration requirements. The information contained within is believed to be from reliable sources. However, its accuracy, completeness, and the opinions based thereon by the author(s) are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect the authors’ judgment now, are subject to change without notice, and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein. LotusGroup’s advisory clients will be required to execute an Investment Advisory Agreement and related Account opening documents (collectively, “Agreements”). If any of the terms or descriptions in this presentation are inconsistent with the terms of the Agreements, such Agreements shall control. Prospective investors should maintain the financial capability and willingness to accept the risks associated with any investments made, should consult the relevant investment prospectus or legal documents, and should their Advisor Representative before making investment decisions (including but not limited to an examination of the investment objectives, risks, charges, and expenses of any investment product(s) considered).

Extracted performance in this presentation is representative of a subset of investments extracted from a portfolio. Such performance is depicted in this presentation based on accounts that match the following criteria: Tactical 100 model held at TD Ameritrade with Moderate Agg risk that includes private investments. LGA employee accounts are excluded from this extracted performance. LGA will provide full performance information promptly upon request. The performance data provided herein is for information and discussion purposes only. The performance of an individual account may vary substantially based on various factors, including, but not limited to, initial account management start date, risk profiles, cash allocation, and investment restrictions, among many others. This information is unaudited. Please refer to an account’s brokerage statement for individual account information. Past performance does not guarantee future results.

To better understand the nature and scope of our advisory services and business practices, readers are encouraged to review via the SEC’s website @ www.adviserinfo.sec.gov, the adviser’s Form ADV Disclosure(s), and the Form ADV 2B Brochure Supplement of each LotusGroup Investment Professional (Click on the link, select “Investment Advisor firm,” and type in the firm name. Results will provide you both Part 1 and 2 of the LotusGroup ‘s Form ADV.).

Additional important disclosures can also be found at http://lgadvisors.redfernmediadevelopment2023.com/disclosures/ by calling us at 720.593.9861, emailing us at info@lgadvisors.com or visiting us at our offices located at 1005 S. Gaylord Street, Denver, CO, 80209.

This blog, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part in any form without our prior written consent.

The post Q1 Investment Review – Green Shoots appeared first on Lotus Group.

Advisor Insights > Using the Anchoring Bias in Your Next Negotiation

Raphael Martorello — Thu, 01 Sep 2022 16:17:57 +0000

Whether you’re negotiating a business deal, a home sale or purchase, a salary, or bedtime with your toddler, you can use a cognitive bias we all have, the Anchoring Bias to your advantage.

The Anchoring Bias is simply our tendency to use an anchor point to make a decision. Typically, people put too much weight on pre-existing or early information that they “anchor” on to make a decision. That early information can either be incorrect or in negotiations, it can be the other party’s starting number.

For example, if you are purchasing new golf clubs, and find a set for $2,000, and the next one you find that is comparable is $1,500, you are likely to see the second set for $1,500 as a good deal. This may, or may not be true, but certainly, your analysis will be affected by your initial anchoring price of $2,000. Listing prices of homes and salary ranges on job offers are attempts to control the anchoring point.

You can leverage this cognitive bias in negotiations by controlling the anchoring point, which means getting your offer out first. Then, the best strategy tends to be to stay silent. Do not say the next word, let the other party sit, process, and respond. This forces them to absorb your anchor number and use it as the basis to make their counter.

We recommend trying this out with a toddler before a business setting but give it a try!

The post Advisor Insights > Using the Anchoring Bias in Your Next Negotiation appeared first on Lotus Group.

How to help Ukraine

Raphael Martorello — Thu, 10 Mar 2022 23:02:41 +0000

Dear Client, Investor, or Friend of LotusGroup,

We are heartbroken viewing the images and videos pouring in from Ukraine. Our core mission at LotusGroup is to Maximize Human Potential, and watching lives being taken needlessly and savagely hurts us to our core. Our entire team wholeheartedly rejects this extinguishing of human potential as unnecessary and vile. While we have the privilege to live safely in the USA, we believe it is our duty to lead by example in valuing life and its plethora of potential accomplishments.

What can make this conflict especially anguishing is sometimes feeling individually powerless to help. To address that emotion, we have identified a few phenomenal charities that help the refugees of Ukraine. We have donated our own money, and if you would like to donate as well, here are our top picks:

https://www.projecthope.org/: Committed to transforming lives & uplifting communities by empowering healthcare workers to expertly implement & teach innovative solutions, in times of need & into the future.

https://www.unicefusa.org/: To support programs through fundraising, advocacy and education that provide lifesaving medicines, better nutrition, clean water, quality basic education and emergency relief to children, women, and communities in over 190 countries and territories; partners, in coordination and planning, with voluntary agencies engaged in child relief to create a better world for children.

https://www.rescue.org/: Responds to the world’s worst humanitarian crises and helps people whose lives and livelihoods are shattered by conflict and disaster to survive, recover, and gain control of their future.

Additionally, we have doubled down on our commitment to valuing and enriching all our cherished relationships. We look forward to our next conversation together.

With love & gratitude,

The Entire LotusGroup Family

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