Viewpoint 2022 by sequoiafin

Viewpoint 2022

Opening Letter to Clients Tom Haught, CFP®, President + CEO

Client Experience Annie McCauley, CFP®, Executive Vice President

Growth Focus Norm Cook, Executive Vice President

Introducing Kevin Myeroff Kevin Myeroff Principal, Senior Strategic Advisor

Reviewing 2021 Through the Lens of Valuation and Speculation Jack Zhang, CFA®, Vice President, Chief Investment Strategist

Wealth Planning Heather Welsh, CFP®, AEP®, MSFS, Vice President, Wealth Planning

Market Review & Outlook Chad Roope, CFA®, Chief Investment Officer

“

The past year has been one of growth and development. Its defining characteristic may in fact be its open challenge to our firm and to us all - will you harness the power of change to propel yourself forward? We have chosen the path less traveled - the path of innovation. And we will continue to choose it in everything we do.” Tom Haught, CFP®, ChFC President + CEO

OPENING LETTER TO CLIENTS Tom Haught, CFP®, ChFC President + CEO

“

Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference.” -Frost, “The Road Not Taken” (18-20)

Standing on the cusp of a brand-new year, we find a largely blank slate waiting to be filled by those who wish to leave their mark upon it. The entire human community finds themselves in that same place at the turn of each new year, in the figurative forest of Robert Frost’s “The Road Not Taken.” Each one standing, both singularly, and collectively, as two roads diverge; we must choose a path forward. We inhabit a world that is constantly changing, while that reality might offer apprehension, it can also present incredible opportunity. Instead of being defined by the circumstances of our lives, it might be better said that our lives are defined by the actions we take and the decisions we make within those circumstances. The past year has been one of growth and development, its defining characteristic may in fact be its open challenge to our firm, and to us all: will you harness the power of change to propel yourself forward? As a firm, we have decided that we will not be a victim of circumstance. We have chosen the path less traveled, the path of perseverance and innovation, and we will continue to choose it. At Sequoia, we measure our success by the success of our clients. We are deeply committed to our mission to Enrich Lives™, striving to fulfill that mission by reaching forward to innovate, to hone our craft, and to stay ahead, evolving to meet the needs

of our clients. That mission serves as a catalyst, compelling us forward toward an innovative future, employing our strategies in creative, cutting-edge ways to help every client create the future they’ve imagined. Far from dissuading us, the challenge calls us forward to the next evolution of our firm, a future of growing talent and expansive service. We are continuing to become Sequoia. While no one can predict what may come our way in 2022,

we are dedicated to our mission to Enrich Lives. We will strive to honor the trust you place in our team by serving you with Integrity, Passion, and Teamwork. We are deeply grateful for the privilege of partnering with you in accomplishing your financial goals and thank you for your relationship with Sequoia. Thank you for your ongoing support and collaboration.

“Failing to plan is planning to fail.” -Benjamin Franklin

CLIENT EXPERIENCE Annie McCauley, CFP® Executive Vice President, Chief Client Experience Officer

“

It has been my experience that presence is a more powerful catalyst for change than analysis.” -Rachel Naomi Remen

Client Experience is the lifeblood of Sequoia. It informs the services we provide. It shapes our strategy for the future. It is our most important measure of success. We hope that our commitment to Client Experience shines through in every interaction we have with you. We are actively seeking to understand how our clients experience their relationship with Sequoia and striving to elevate that experience by expanding the depth and breadth of the service we offer. Everyone we serve should feel like our most important client and should feel like this company was built specifically to meet your unique needs. We are committed to serving a broad spectrum of clients from all walks of life, and our goal is to serve each of you as individuals. Everyone on our team, from advisors to operations to technology to administrators, has a single, shared obsession, to become your ideal partner in the pursuit of what matters most to you. We’re evaluating everything, from our processes to our technologies to help our team of professionals work more efficiently so they can do what they are most passionate about – thinking about you and planning proactively for you and your families.

GROWTH FOCUS Norm Cook Executive Vice President, Corporate Development Norm Cook shares some of the exciting things happening at Sequoia now and into the future as we continue to grow. We continue to grow and adapt to serve each and every one of our clients with greater expertise, investment capabilities and planning.

INTRODUCING KEVIN MYEROFF Kevin Myeroff Principal, Senior Strategic Advisor On January 1, 2022, NCA Financial joined forces with Sequoia Financial Group. Their President and CEO, Kevin Myeroff is now part of the Sequoia Leadership Team, serving as Principal, Senior Strategic Advisor. We are thrilled to welcome him and the NCA staff to the Sequoia Team.

NCA Financial Planners, LLC is now Sequoia Financial Advisors, LLC. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC registered investment advisor. Registration as an investment advisor does not imply a certain level of skill or training. Securities offered through Royal Alliance Associates, Inc. (RAA), Member FINRA/SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. RAA does not provide tax or legal advice. Sequoia Financial Group is not affiliated with RAA.

REVIEWING 2021 THROUGH THE LENS OF VALUATION AND SPECULATION Jack Zhang, CFA® Vice President, Chief Investment Strategist

“

I am personally convinced that one person can be a change catalyst, a ‘transformer’ in any situation, any organization. Such an individual is yeast that can leaven an entire loaf. It requires vision, initiative, patience, respect, persistence, courage, and faith to be a transforming leader.” -Stephen Covey

The year 2021 will go down in the history books as another strong year and raise questions about valuation and speculation. We saw another year of expansionary fiscal and monetary policy, culminating in the highest inflation readings since 1982.i We believe we are at a crossroads in financial markets, and the range of outcomes has expanded because the very mechanism of price discovery has been distorted by artificially low cost of funding driven by government and Central Bank action. Rampant liquidity has caused increased valuations across risk assets, and low rates seem to have driven investors up the capital markets risk spectrum. Through the end of November, private equity firms announced a record $944.4 billion worth of buyouts in the US, more than double the previous peak in 2007.ii Global venture capital investments hit record levels of funding in the first half of 2021 alone, outstripping the previous record set just a year earlier.iii The boom in private markets has then led to a record pace of public listings, driven largely by SPAC mergers, as the number of US-listed IPOs shattered the previous peak during the Dot-Com Boom.iv As with any lucrative financial instrument on Wall Street, incentives can become misaligned, and the quality of SPAC issuance has deteriorated considerably as

sponsors are incentivized to close deals. We have now reached a new peak in the number of zerorevenue companies valued at $1billion+, driven overwhelmingly by SPAC mergers.v Based on the above, it is no surprise that valuations in private and public markets continue to climb. A common question is what is the alternative? Investment-grade bonds are trading near all-time low yields and all-time high duration.vi The asset class is clearly different than where it has been historically. The yields on traditional 60/40 portfolios have also collapsed to record-lows as valuations in equities climb in combination with bond yields falling. However, it is precisely in periods like this where we recommend sticking with your investment strategy. Much like the way we used the COVID selloff in 2020 as a buying opportunity, we recommend not getting too exuberant in 2022 and over-risking portfolios. We have seen significant pockets of opportunity in various parts of the market. Value stocks are trading near record cheapness relative to growth stocksvii, which makes sense in the broader context that low interest rates lead to lower discount rates,

which boosts the value of future earnings. Thus, growth stocks have continued their outperformance, and the composition of equity sectors that are interest rate sensitive have increased.Profitable companies have consistently outperformed unprofitable stocks throughout history, though in recent years that trend has not held as speculative growth stodcks have been among the best performers.These trends typically do not persist over the long-term, so ultimately, our multi-factor portfolios are tilted towards smallcap, value, and profitability investments, which we think offers strong opportunity in the current environment. Lastly, we have spent significant time researching alternative investments and have multiple initiatives for 2022. We believe these initiatives will benefit all clients, regardless of whether or not direct investments are made. The market ecosystem is more intertwined than ever, and we believe there are significant positive externalities to these initiatives and look forward to continued discussion as we build them out.

https://www.wsj.com/articles/us-inflation-consumer-price-index-november-2021-11639088867 Source: Dealogic, WSJ. https://www.wsj.com/articles/buyout-boom-gains-steam-in-record-year-for-private-equity-11638095402 iii https://www.reuters.com/business/finance/global-venture-capital-investments-hit-record-high-2021-07-21/ iv https://www.wsj.com/articles/ipos-keep-jumping-higher-how-long-will-the-ride-last-11637339845 v https://www.wsj.com/articles/spac-frenzy-emboldens-silicon-valley-startups-to-forgo-venture-funding-11614344154 vi Source: Bloomberg. Yields and duration are of the Barclays US Aggregate Bond Index. vii Source: Bloomberg.Russell 3000 Value and Russell 3000 Growth are proxies for value and growthfactors. i

WEALTH PLANNING Heather Welsh, CFP®, AEP®, MSFS Vice President, Wealth Planning A question can serve as a catalyst. Those nearing retirement agemay be wondering, “There is a lot of new stress associated with my job – can I retire even though it’s earlier than I originally anticipated doing so?” Parents expanding their family might be asking, “Can we afford to move to a bigger house in the current real estate market?” For the business owner, it might be, “Should I take the unexpected

offer I received to sell my company?” Prompted by your catalyst question, the financial planning process offers clarity by addressing what sparked you to seek guidance and framing it in the broader context of your overall goals and objectives. While you may begin with a single question, goals are often intertwined. Retiring earlier might bring happiness and more time with friends and family, though certain budget items may need to be adjusted. In addition to potentially buying a bigger house, welcoming a new child may tie to balancing college and retirement savings targets. Beyond implications

for financial independence, the sale of a business may impact your legacy goals, considerations you have for key employees, and what other passions you choose to pursue as you step away from running your company. As Michael Dell noted, “There is no better catalyst to success than curiosity.” More questions will arise as you are presented with unexpected opportunities and encounter challenges. Coming back to your financial plan and updating it to address these new questions can provide you with the answers you seek to move forward with confidence.

“There is no better catalyst to success than curiosity.” -Michael Dell

“

Progress is impossible without change, and those who cannot change their minds cannot change anything.” -George Bernard Shaw

MARKET REVIEW & OUTLOOK Chad Roope, CFA® Chief Investment Officer

KEY POINTS REMAIN

2021 REVIEW

•

Tailwinds from highly supportive monetary and fiscal policy are likely to diminish

•

The pandemic, inflation and the Fed, Washington, China, and earnings are key focus areas moving into 2022

•

Most Sequoia strategies remain generally neutral equities/ fixed income, with modest tilts toward higher quality U.S. equities, U.S. Small Cap, and lower fixed income duration than broad indices

“Transitory” was the financial word for 2021. The Federal Reserve insisted for most of the year that clearly rising inflationary pressures were transitory and would go away rather quickly. They did not, and inflation rates on many measures hit highs not seen since the early 1980s1. As a result, the Fed was playing catch-up in Q4 by quickly “retiring” the word transitory, reducing the amount of quantitative easing significantly, and signaling the potential for 2-3 interest rate hikes in 2022. Delta and Omicron were two other important words in 2021. Many, including our team, expected vaccines to be widely accepted across the globe and the beginnings of the end of the Coronavirus pandemic to appear. Delta and Omicron have shown the resilience of the Coronavirus and how unpredictable pandemics

INDEX NAME Q4 20212

YTD2 (SORTED)

1YR2

3YR2

5YR2

S&P 500 TR USD

11.03%

28.71%

26.07%

18.47%

NASDAQ Composite TR USD

8.45%

22.18%

34.26%

24.97%

DJ Industrial Average TR USD

7.87%

20.95%

18.49%

15.51%

MSCI ACWI IMI NR USD

6.10%

18.22%

20.20%

14.12%

Russell 2000 TR USD

2.14%

14.82%

20.02%

12.02%

MSCI EAFE NR USD

2.69%

11.26%

13.54%

9.55%

MSCI EM NR USD

-1.31%

-2.54%

10.94%

9.87%

ICE BofA US High Yield TR USD

0.66%

5.36%

8.57%

6.10%

Bloomberg US Agg Bond TR USD

0.01%

-1.54%

4.79%

3.57%

Energy

7.97%

54.64%

4.67%

-1.45%

Real Estate

17.54%

46.19%

22.65%

14.87%

Financials

4.57%

35.04%

20.60%

13.26%

Information Technology

16.69%

34.53%

42.76%

32.13%

Materials

15.20%

27.28%

24.17%

15.12%

Health Care

11.17%

26.13%

20.02%

17.58%

Consumer Discretionary

12.84%

24.43%

28.51%

21.35%

Communication Services

-0.02%

21.57%

25.87%

11.49%

Industrials

8.64%

21.12%

20.28%

12.80%

Consumer Staples

13.31%

18.63%

18.80%

11.76%

Utilities

12.93%

17.67%

14.32%

11.76%

Equity

Fixed Income

S&P 500 Sectors

can be, but we are still holding out hope we will see a significant reduction in the rates of infection and more normal life patterns emerge in 2022. It was also a year of excessive speculation (in our view) with things like SPACs, IPOs, meme stocks, cryptocurrencies, and many others garnering demand from excessive liquidity from the Fed and Fiscal Authorities. Yet, in the face of rising inflation, surges in the pandemic, and excessive speculation, the US economy was resilient with strong GDP growth and significant job creation. It appears U.S. GDP growth will come in around 6% for 2021, which will be one of the highest rates since 19841. Given this strong

economic backdrop, stock markets performed remarkably well as corporations generated record earnings growth1. The S&P 500 was up 28.71% for the year and our global equity benchmark, the MSCI ACWI IMI was up 18.22%, which are clearly fantastic gains2. Cyclical sectors that typically perform well in a strong economy like Energy, Real Estate, and Financials led the pack in the U.S2. However, Emerging Markets equities had a tough year in 2021 with the MSCI EM Index down -2.54%2. This was heavily driven by poor equity performance in China as the MSCI China Index was down -21.18% in 2021 as geopolitical and slow economic data emerged

KEY U.S. TREASURIES RATES3

Tenor

12/31/21 Close

9/30/21 Close

Quarter Change

12/31/20 Close

YTD Change

3 Mo

0.06%

0.04%

0.02%

0.09%

-0.03%

2 Yr

0.73%

0.28%

0.45%

0.13%

0.60%

5 Yr

1.26%

0.98%

0.28%

0.36%

0.90%

7 Yr

1.44%

1.32%

0.12%

0.65%

0.79%

10 Yr

1.52%

0.00%

0.93%

0.59%

20 Yr

1.94%

2.02%

-0.08%

1.45%

0.49%

30 Yr

1.90%

2.08%

-0.18%

1.65%

0.25%

throughout the year2. Government bonds had a volatile year, however, as the 10 Year US Treasury yield rose from 0.93% to 1.52%3 over the course of the year, which led the Bloomberg Aggregate Bond Index to a loss of -1.54%2. This was the worst loss for the Index since 2013. While a tough year for high-quality fixed income, we will remind investors that this was only the 4th calendar year loss for the Aggregate Bond Index since its inception in 19761. We still think bonds are an important risk management tool in diversified portfolios. A summary of major asset class and sector performance as well as changes in key rates are at the end of this document. 2022 OUTLOOK As we look forward into 2022, we think economic activity is likely to slow but remain robust which is likely to continue supporting earnings growth for corporations. However, many of the other tailwinds that supported financial markets in 2021 are likely to start becoming headwinds. We are therefore focused on the following five key areas to start 2022: The Pandemic: The Omicron Coronavirus variant is unfortunately spreading rapidly across the globe as we enter 20221. The surge in cases was felt by consumers as the University of Michigan Consumer Sentiment Index weakened in Q44. However, we do think we are learning to deal with the virus better as a society so broader economic shutdowns appear much less likely. We also think newer treatments will emerge such as the recent news about Pfizer and Merck’s antiviral pill, and perhaps even a vaccine that more people are comfortable with will become

available. However, the pandemic is still a key risk for the economy and financial markets as we move into 2022. We will be monitoring how it continues to impact consumer behavior and supply chains in the new year. Inflation & Fed Policy: The Federal Reserve’s extraordinarily accommodative monetary policies that were instituted in the depths of the economic lockdowns in early 2020 have been vastly stimulative for risk assets like stocks, corporate bonds, real estate, and speculative areas such as cryptocurrencies. In most commentaries we’ve written, we’ve highlighted that higher trajectories for both the economy and inflation would likely warrant a reduction in the amount of large-scale monetary accommodation as 2021 progressed. In our opinion, with the Consumer Price Index running at rates not seen since the early 1980s1, large supply side disruptions in many materials and labor1, and risk assets near all-time highs1, the Fed has little choice but to become much less friendly to investors. Further, the demand functions in the manufacturing sector, typically a leading economic indicator, remain mostly robust according to the Institute for Supply Chain Management1. Without question, the economy has slowed somewhat with the pandemic surge, but aggregate demand in the economy still appears quite strong thereby necessitating little monetary accommodation. The Fed has clearly been a key supportive force for equities and other risk assets, but we are now moving into a period where the Fed will be significantly reducing accommodation given much stickier inflation than expected. We expect reduced Fed support to create volatility as financial markets adjust in 2022. How much and how quickly

the Fed must move in reducing asset purchases and raising interest rates will be something we watch closely. Washington: We think Congress and the Executive Branch will likely act on a bill that will offer a decent measure of infrastructure spending (needed to improve productivity and thereby help combat inflation) in 2022. We think the bill will likely be much smaller than the proposals in 2021. As with monetary policy, fiscal policy was decidedly supportive of the economy and financial markets in 2021. Also, like monetary policy, and regardless of the infrastructure bill, we think fiscal policy will be much less supportive to the economy and financial markets in 2022. Adding to this, mid-term election years are typically more volatile leading up to the elections, so this is another potential issue we will be following closely in 2022. China: China’s economy has slowed quite rapidly over the last few quarters. The Manufacturers Purchasing Managers Index (PMI) fell into contractionary territory (below 50) over the last several months of 20211. Further, stresses are showing with real estate developers such as China Evergrande1. The real estate market, as with most other nations, is a large portion of China’s economy. For perspective, it is estimated that China spent about 10% of GDP on real estate development in 20205. This all led to weak equity markets in China in 2021 as mentioned. We think China’s leadership will likely turn to stimulative measures and support for these issues in the short run but worry the slowdown may start to spill over to the global economy. As the world’s second largest economy, a slowing China can have large ramifications on financial markets. Should

we see a disorderly unwind of China Evergrande and continued data prints like the recent PMI data, we would become more concerned that it could become contagious for the global economic system. We do not think this is the likely scenario presently, but something that was a tailwind (an improving Chinese economy in 2020 and early 2021) now appears to be more of a headwind. Earnings: Earnings growth was stellar in 2021 given strong monetary and fiscal stimulus along with economic reopening assisted by vaccines. The estimated earnings growth rate for 2021 was an astounding 45% for S&P 500 companies according to FactSet6. In 2022, we will be focused on what executive teams discuss during conference calls regarding inflation, supply chains, and labor shortages this year. Also, getting a better idea how executives view aggregate demand in the US and Chinese economies prospectively will be top of mind. Strong earnings growth was been a major tailwind for markets in 2021, but we may start witnessing that support turning into headwinds as earnings growth is likely to slow in 2022. BOTTOM LINE While we are still optimistic that the US economy will to continue to perform quite well, we do worry financial markets may be in for a much bumpier ride in 2022 as recent tailwinds start to fade into headwinds. As such, most Sequoia strategies remain broadly balanced (neutral) relative to equity/ fixed income targets, with modest tilts toward US higher quality equities, U.S. Small Cap, and lower fixed income duration than broad indices.

For example, our 70% equity/30% fixed income strategies are generally in-line with these “neutral” points (i.e., not materially greater than or less than 70% equity). Also, within fixed income allocations, several strategies hold managers that have flexibility to adjust duration and search for sectors and bonds that are positioned relatively well and backed by wellcapitalized assets. This is the same positioning and conclusions we drew at the start of 2021 and each quarter since. In Q4, we maintained an overweight to U.S. smaller companies which typically do well in rising inflationary environments. We also maintained exposure to equities in Europe and many developed nations that offer compelling valuations relative to the U.S. as they continue to reopen their economies. We do think international markets may offer value to investors if the pandemic doesn’t get materially worse, so we may reduce our U.S. overweight as we progress in the new year. Generally, our asset allocation decisions allowed us to perform reasonably well compared to our benchmarks net of fees, while not taking on excessive risk in an increasingly

uncertain environment. Our goal is to provide diversified, long-term focused strategies that fit well into our clients’ financial plans and objectives. In the current environment, we think it is paramount to be patient and disciplined. We also suggest investors temper expectations for future stock market performance after a strong 2021. As markets price how the pandemic continues to impact the economy, and we witness developments in inflation and Federal Reserve policy, fiscal policy from Washington, China’s economic slowdown, and monitor commentary from executives during earnings season, we think markets may be more volatile than we’ve experienced in quite some time. If so, we think opportunities to rebalance portfolios and find bargains may emerge as we progress in 2022. As always, thank you for your confidence in our team, Asset Management Department Sequoia Financial Group

Bloomberg 2 Morningstar Direct 3 Treasury.gov 4 NY Times COVID Tracker 5 https://www.wsj.com/articles/chinas-evergrande-debt-crisis-sizing-up-a-big-mess11633253402?mod=searchresults_pos4&page=1 6 FactSet Earnings Insight 10/8/21 1

DISCLOSURES The views expressed represent the opinion of Sequoia Financial Group. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Sequoia believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sequoia’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Past performance is not an indication of future results. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training. © 2022, Sequoia Financial Group, all rights reserved.