Are we still making the right choices? Overview RVM Systems October 2022

Dear investors,

UPDATE RVM STRATEGY AND RVM RETIREMENT

October was a good month for the AEX, with + 4.67%.

RVM Strategy did + 0.94%, RVM Retirement + 4.39%.

RVM Strategy set a new all time high, but if we look at it from the start of both systems in January 2019, RVM Retirement still has a better return. That is because of the choice of fixed interests: they were well chosen and have had higher returns than indices such as the AEX or the S&P 500.

THE QUESTION IS WHETHER WE ARE STILL MAKING THE RIGHT CHOICE

So even though October was a good month for RVM Retirement, we will have to look at whether what appears to have been the right thing to do for three years is still the best long-term idea.

Our choice of fixed interests does not work out as well as we expected in 2022.

Still within our parameters for our investments we have the signal on green, because we are really looking at long-term parameters. These are not classical parameters, but criteria that we have worked out ourselves.

But we must also think ahead. The past is not the future.

So we have to ask ourselves what investments are the future, and then whether we are still right with our current investments.

THE CHANGE OF THE ECONOMY

We can recognize all kinds of major cycles in the stock markets. These are usually very long periods of price appreciation for a general market, and relatively short but intense periods of price decline. We're talking about the benchmarks, the indices, such as Dow Jones and the S&P 500, and our own AEX.

The up market of the 1990s was driven by financials. For example, Aegon, listed on the AEX, reached an all-time high of EUR 20.90 per share in January 1999. Today, 23 years later, that leaves EUR 4.694 per share. What is true for Aegon is roughly true for the entire sector; it is not the market leader in the new economic cycle from 2009.

In the downward part of the earlier cycle, between 2000 and 2009, everything landed back on earth. In fact, the downturn in the US lasted shorter, there the all time high was set in 2007, and the 2000 - 2003 decline was still part of the bull market, led by the financials. Between 2007 and 2009, the financials really collapsed.

The corporate stocks that investors had been holding en masse because they had been responsible for a large increase in value over a very long cycle, those very stocks collapsed.

In 2009, it appeared afterwards that a new economic cycle had started, which we are still in today.

Which industry was leading this time? It was no longer the financials.

Already at the beginning of that cycle, it could be seen which companies at the bottom of 2009 for the market as a whole, made no new lows below the low of 2002 or 2003. Many of those companies became the outliers of the upward cycle from 2009.

A RANDOM LIST OF COMPANIES THAT SET A HIGHER LOW IN 2009 THAN IN 2003

Apple; Wolters Kluwer; Lotus Bakeries; LVMH; Nike; ASML; Amazon.com;

Akzo Nobel; Amgen; Coca-Cola; Nestlé; Johnson & Johnson; Automatic Data Processing; Adobe; Ahold Delhaize; McDonalds; Chevron; Exxon Mobil; Honeywell; Randstad

This is a more or less random sample, but of course more research has been done. From this we can conclude that the survivors of the Nasdaq crash between 2000 and 2003, such as Amazon.com and Apple, have become the great outliers of the next economic cycle. A matter of survival of the fittest. The defensive sectors of food, beverages, personal care, health care, recruitment also did relatively well, but any industry that was able to take advantage of automation and digitization and be very inventive in it could grow even faster. Wolters Kluwer is a good example; from a publisher of textbooks and legal books, the company has managed to transform itself into a specialized database of legal information and a specialized software provider.

In addition, of course, companies listed on the stock exchange were added after 2003, which did great in the economic cycle that started in 2003.

The question now is: After 13 years in this new economic cycle, have we come to the end of the leading role of technology and technological innovation? Because it is clear that in 2022, the major global technology leaders are going to have it course by course.

Our view is that it is too early to comment on that at this point. It is only about one year of weakening, coming from new all-time highs in 2021. Normally, when a long-term top is formed, it takes more time. And it also remains to be seen whether that top is formed at all.

THE ROLE OF ENERGY IN PORTFOLIOS AND INDICES

But what we do believe: the role of the energy sector will grow within the market as a whole.

This year, fossil fuel companies and their suppliers have been very lucrative for many equity portfolios, if they were present in them.

And this is not so much a development due to Russia's attack on Ukraine; this trend essentially started as early as 2020, and became very clear in 2021.

Some renewable energy companies have also done well, but by no means all.

This has to do with the aggressive interest rate hikes by the Fed and ECB. Companies that do not pay dividends but invest all their profits in further innovation are less interesting to investors when interest rates are higher.

This is only one year's observation, but in our opinion, this economic cycle that has been going on since 2009 will have to be reinvigorated by further energy innovation. The leading indices such as the S&P 500, of these we assume that the share in them of companies that are part of the energy sector will start to grow. So for investors, we believe it is wise to put a focus here.

This involves looking in the classic way: is the price-earnings ratio low enough, is the dividend yield high enough, is earnings large enough to support the dividend.

We use other criteria at RVM Retirement, but these two are certainly important.

Right now, this means that investors will still end up with fossil fuel companies and suppliers especially - at a time when we really need to move the world toward renewable energy.

Our idea is that eventually the fossil energy companies will not just disappear the moment the role of oil and gas diminishes; these companies will "buy into" the most interesting technologies and thus turn into overall energy suppliers. That's the vision, even if we don't see much of that so far. But in our view, that will change when it becomes more financially attractive to make this change.

THE IMPACT OF THE VISION ON INVESTMENT POLICY AT RETIREMENT

At RVM Strategy, there are no fixed investments and thus the above considerations do not play a role.

In Retirement, it is different, and we will certainly adjust the investment policy as our criteria indicate.

It does involve truly long-term policies here.

In fact, the fact that so far there has been no reason to sell or change firm holdings means that there is still a good possibility that the weakness we see in the stock market in 2022 may turn out to be an exception, and that long-term trends have not yet changed, despite 2022.

Should our indicators turn, everything changes, of course. Then RVM Retirement will choose other long-term investments, or hold no more long-term investments.

That's it as far as this update is concerned.

If you are not yet a follower of RVM Strategy or RVM Retirement, you are more than welcome.

Many people have gone before you!

Sincerely,

Ruud van Megen