Thomas G. Plumb, CFA
Lead Fund Portfolio Manager
President, CEO, Chairman

The tumultuous 2021 has finally come to an end. Though the year was wracked with political infighting, pandemic closures, supply disruptions, inflation rearing its ugly head and rising interest rates, most major world stock market indices recorded meaningful advances. In the U.S. the strongest sector in the S&P 500 was the energy sector despite (or maybe because of) the new Biden administration and Congress carbon control rhetoric. After energy, real estate and financials were very strong as both sectors benefitted from the increase in inflation and interest rates. Though contribution to market performance broadened out from previous years, Big Tech stocks Microsoft, Alphabet (the parent of Google), Apple and NVIDIA contributed of 25% of the S&P 500’s return.

Public companies’ earnings advanced even faster than their stock prices as our economy staged an incredible rebound from the pandemic fueled recession. But not all stocks benefitted by this rebound. Many of the prior year’s best performers are significantly below their peak prices as evidenced by famous hedge funds like Cathie Wood’s Ark Innovation fund actually declining over 22% for the year. Many of prior years’ disruptors were displaced by new companies and a shift in investor sentiment to cyclical recovery and inflation stocks. We saw evidence of this in your portfolios as a number of financial technology leaders dramatically underperformed our expectations.

As we begin the new year, we see short-term concerns that are offset by the continued rebound in significant parts of the economy. First the concerns:

1. Persistent inflation will erode purchasing power, challenge profit margins and contribute to the economic divide between the “haves” and the “have ”
2. Political divides will cause continued uncertainty in tax policy, federal initiatives, and international
3. Federal Reserve policy will begin to limit the liquidity in the economy and cause unforeseen disruptions. We know that the search for yield last year dramatically reduced the incremental yield on junk bonds and led to a proliferation of products that supported speculation that dramatically impacted the economy in the

The offsets that we see are:

1. We are continuing to see strong manufacturing demand around the world as purchasing managers report orders outstripping current production. This implies continued world economic
2. Stock prices relative to current earnings and expectations are actually below where they started last year and, in many cases, have already seen significant correction, thus reducing future
3. The federal Reserve has continued to be the adult in the room and will monitor the reduction of stimulus as to have the least negative impact on the
4. And finally, the disruptive innovation we have seen the last few years continues unabated as big data is used to make cars more energy efficient, companies transition to cloud enabled software, financial processing less burdensome, improve building and product design processes and supply chains become better

As we discussed in our recent Bloomberg interview, many of these last factors have had disruptive deflationary affects and will temper the Federal Reserve’s moderation efforts.

We welcome 2022 with the same cautious optimism that we enter into each year. We wish you and your loved ones well and want to thank you for the confidence you have placed in us.SPXT-S&P 500 Total Return Index. S&P 500 is an unmanaged index which is widely regarded as the standard for measuring large-cap U.S. stock market performance. Calculated intraday by S&P based on the price changes and reinvested dividends of SPX with a starting date of Jan 4, 1988.

It is not possible to invest directly in an index.

The Fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained on www.plumbfunds.com or by calling 1- 866-987-7888. Read it carefully before investing.

Past performance does not guarantee future results.

Opinions expressed are those of the author as of December 31, 2021 and are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

Earnings growth is the annual rate of growth of earnings from investments.

Mutual fund investing involves risk. Principal loss is possible.

The fund may invest in small and mid-sized companies which involve additional risks such as limited liquidity and greater volatility. The funds invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. Because the funds may invest in ETFs, they are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a discount to its net asset value (“NAV”), an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a fund’s ability to sell its shares. The fund may also use options and future contracts, which have the risks of unlimited losses of the underlying holdings due to unanticipated market movements and failure to correctly predict the direction of securities prices, interest rates and currency exchange rates. The investment in options is not suitable for all investors. The Plumb Balanced Fund will invest in debt securities, which typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities.

Fund holdings are subject to change at any time and should not be considered a recommendation to buy or sell any security.

Click here for Plumb Equity Holdings and here for Plumb Balanced Holdings as of 12.31.2021

Diversification does not assure a profit nor protect against loss in a declining market. Plumb Funds are distributed by Quasar Distributors, LLC, distributor.