COVID-19 Response
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COVID-19 Response

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April 14, 2020

 

Subject: COVID-19 UPDATE & QUARTERLY REVIEW

 

These are unprecedented times. We, as individuals, find ourselves restricted and separated because of the unseen enemy named COVID-19. This is a battle we will win, but not without a cost in human life and our active lifestyles. All of us at KPCM extend our sincere hope to you, your family and friends that this note finds everyone safe and well.

 

Our firm has acted in the past few weeks to ensure that all staff and their families are appropriately quarantined. We are properly set up in our homes to remain safe, while effectively functioning as a cohesive unit. This allows our firm to remain focused on dealing with the needs of our clients during this stressful period.

 

Please find our first quarter review and outlook here. Please reach out to any of us if you wish to discuss any thoughts regarding your account.

 

 

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April 3, 2020

 

Subject: CARES Act

 

On behalf of all of us at Kings Point Capital Management, we extend our unwavering support to all who have been affected by the recent pandemic outbreak of COVID-19. As your financial advisors and fellow community members, we stand by all of you and are here to help in any way that we can.

 

On March 27, 2020, the CARES Act “Coronavirus Aid, Relief and Economic Security Act” was signed into law in order to provide emergency assistance and health care response for individuals, families and businesses affected by the COVID-19 pandemic. As your dedicated wealth advisory team, we would like to ensure that you and your family have been made aware of pertinent sections of the newly passed bill which amend IRC Section 410(a)(9) to provide targeted financial relief provisions for IRAs, SEP IRAs, Simple IRAs, 401(k)s, 403(b) and 457(b) plans.

 

Section 2203 of the CARES Act allows for the suspension of Required Minimum Distributions from retirement accounts for year 2020. More specifically, if investors have not taken their withdrawal yet, they are no longer obligated to do so for 2020. This waiver has application to both owners of retirement accounts and owners of inherited retirement accounts.

 

Retirement account owners who are classified as “affected individuals” under the CARES Act may also receive waivers for 10% early withdrawal penalties along with a special 3-year spread tax treatment on IRA withdrawals. In addition, 401k loan restrictions have become more lenient for these same individuals.

 

In addition to changes in retirement account withdrawals, the CARES Act postpones the due date for prior year IRA contributions to July 15, 2020.

 

We understand that every client’s situation is unique and encourage you to speak with us in combination with your tax advisors to better understand how this new legislation applies specifically to you.

 

Please stay safe.

 

 

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March 19, 2020

 

Subject: COVID-19

 

All of us at KPCM want to express our sincere hope that you, your family and friends emerge from this global health crisis with little to no ill impact from the COVID-19 outbreak now spreading rapidly throughout the world. These are indeed very unusual times. The virus has galvanized governments, businesses and people to move aggressively to try to contain and reduce the spread of this threat. Never have populations moved to self-containment so quickly for what may be weeks or months at a time.

 

We don’t think it is enough to say that we have lived through many vicious bear markets and that we plan to stay the course, protect our clients as best we can and emerge stronger than before.  We do believe that over the next 12-18 months, we will look back at these difficult days in the market and view them as uniquely attractive valuations for long term investors.  We saw it in 1980-82, 1987, 2001 and, most recently, 2008-09.  The emergence of high frequency program trading, ETFs, hedge funds and other programs to speed up trading liquidity in the last ten years have created unique periods of daily volatility even when compared to historical data.  This has forged the descent into a bear market in a matter of weeks, not months.

 

The current market downturn literally came out of the blue. This decline into bear market territory (a 20% or more decline from its prior peak) reflected the expected impact from the rolling closedown of global commerce and job losses for a period due to the virus.

 

However, we should also point to some important developments as they are in the process of unfolding.

 

  1. The Federal Reserve and now other foreign government agencies are quickly moving to provide lower interest rates and monetary liquidity to the global financial markets.  We believe more positive moves will be rolled out shortly.  Over most periods of time, the old saying of “don’t fight the Fed” tends to be proven out.
  2. Large U.S. financial institutions are in solid shape with strong balance sheets.
  3. The U.S. economy has been in good shape with rising consumer spending.  Europe was also in the early stages of growth again, as were the emerging markets.
  4. The global scientific healthcare community is laser focused on developing a vaccine for this new virus.  This is a coordinated global effort to deal with the outbreak as fast as possible.
  5. The U.S. government is preparing a huge fiscal policy program to directly inject cash and cash equivalents to consumers.
  6. We expect the government to financially support aerospace, travel and other industries directly impacted by the self-containment efforts.
  7. Corporate America is marshaling its powerful organizations to protect employees and adjust to the common threat.  This gives us confidence that when the recovery begins, America will lead the way.

 

The scope of the drop-off in commerce and personal income for many working people is unprecedented.  We do not know the time or speed of the restoration, but the programs are falling into place daily to aid in recovery as fast as possible.

 

Finally, we want to discuss your portfolio in a little bit of detail to underscore our investment philosophy.  On the equity side, we seek strong cash flow companies that generate superior rates of return on investment long term.  Simply stated, we like companies that can generate a lot of excess cash.  We pursue category dominant corporations and strong management teams.

 

As such, let’s look at Accenture (ACN).  ACN is a global behemoth in the business consulting world, spanning technology, healthcare, financial and other industries.  Another part of ACN is business process outsourcing for the government, healthcare and other industries.  The company just reported quarterly earnings this morning (3/19) and, while it reduced its outlook for 2020, it still expects moderate growth this year.  Accenture was one of our earliest investments when KPCM started some 11 years ago and have held it in accounts throughout the years.  The short and long term returns from this outstanding company have been nothing short of impressive.  They constantly generate huge positive cash flow. They are globally dominant is almost every business they serve.

 

Our focus on quality and cash flow extends to our bond investments as well. We examine interest coverage, quality of business, balance sheet leverage and cash flow in order to analyze current holdings and credit risk.  We select our bonds based on company metrics not macro factors.

 

Put another way, we like what we own.  Your investments are selected for the individual merits of each company we buy.  This gives us confidence in the overall approach to your investments.  We think we will emerge from this very difficult period in our economic history in a similar fashion to the past periods of severe global economic stress.

 

Finally, we want you to know that we have taken steps to ensure that all employees at KPCM can work at home during this period of self-containment.  The health and well-being of our staff also remain a key focus for us during these troubling times.

 

As always, we encourage you to reach out to any of us to discuss the issues of the day.