ASCENDInvestment Management, Inc.

Quarterly Investment ReportDecember 31, 2019

610.547.3618 ellen@ascendinvmgt.com www.ascendinvmgt.com

Dear Investor:

CURRENT MOOD

As we enter the last year of this decade and the eleventh year of the bull market, we sense that animal spirits have begun to take control of the narrative. What a difference from the fears going into 2019 as sentiment, while not yet exuberant, has now shifted to a much more bullish stance. Now an inordinate number of economists and stock analysts proclaim that the economy is strong and supportive of continued stock gains and that the “R” word stands for rally not recession. The bull case rests on the facts that corporate earnings are still modestly growing, trade negotiations are moving forward, and, after a complete 180 degree turn by the federal reserve with three rate cuts this year, interest rates and inflation remain reliably low.

We agree that the market probably has more room to run before the proverbial shoe drops. The three biggest enemies of a bull market are higher interest rates, rising oil prices, and stretched stock valuations. Closing out 2019, yields are sharply lower and oil is off its highs for the year. The current trailing 12 month price to earnings (PE) multiple for the S&P 500 is 24 times, which is 50% higher than the historical average of 16 times. While valuations are far from cheap, their expectations are that over the coming twelve months PE multiples will settle down as earnings modestly grow. Though earnings are expected to grow, we don’t expect them to grow to the degree of bringing price multiples back in line with their historical averages.

We expect higher stock prices in 2020, followed by exuberant borrowing and spending for at least several more quarters before the market corrects itself. We know better than to try to predict the timing of such things, but sense that we’re at the beginning of a disconnect between stock fundamentals and their prices. Bull markets typically end with a last burst of energy pushing the market to new highs and significantly stretched valuations.

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610.547.3618 ellen@ascendinvmgt.com

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ASCENDInvestment Management, Inc.

A STRONG 2019

Clocking in more than twenty record highs in the year, stocks climbed 32% on a total return basis with all sectors in positive territory. Economic strength boosted all sectors but especially the growth sectors of Technology followed by Communication Services, Industrials, and Consumer Discretionary. Financial stocks also performed well as the yield curve steepened slightly. Energy stocks were relatively weak due to excess oil and natural gas supplies. Investors clung to relative safety in domestic stocks which outperformed international stocks; and in larger capitalization stocks which outperformed small and mid-capitalization stocks.

As the recap above shows, our domestic market outpaced international markets in 2019. It is also interestingto point out that the disparity is huge between the U.S and international markets going back to the 2007 pre-financial equity peak. Whereas our stocks have gained more than 190% since 2007, the all-world international index (ex-the U.S.) grew close to 90%. With this gap in mind, and in anticipation of an ultimate reversion back to mean returns, we are moderately increasing our allocations to international markets.

A Strong 2019

Clocking in more than twenty record highs in the year, stocks climbed 30% on a total return basis with all sectors in positive territory. Economic strength boosted all sectors but especially the growth sectors of Technology followed by Communication Services, Consumer Discretionary, and Industrials. Finan-cial stocks also performed well as the yield curve steepened slightly. Energy stocks were relatively weak due to excess oil and natural gas supplies. Investors clung to relative safety in domestic stocks which outperformed international stocks; and in larger capitalization stocks which outperformed small and mid-capitalization stocks.

As the recap above shows, our domestic market outpaced international markets in 2019. It is also in-teresting to point out that the disparity is huge between the U.S and international markets going back to the 2007 pre-financial equity peak. Whereas our stocks have gained more than 190% since 2007, the all-world international index (ex-the U.S.) grew close to 90%. With this gap in mind, and in anticipation of an ultimate reversion back to mean returns, we are moderately increasing our allocations to in-ternational markets.

ECONOMIC SECTOR TOTAL RETURN %

Information Technology 49.4%

31.5%Financials

30.8%

S&P 500 31.5%

Industrials 29.2%

Consumer Discretionary 28.2%

Real Estate 27.8%

Consumer Staples 27.3%

Utilities 25.4%

Materials 23.2%

Health Care 20.2%

Energy 11.1%

S&P 500 2019 Market Snapshot

Asset Categories2019 Market Snapshot

CATEGORY TOTAL RETURN %

Large Cap (S&P 500) Stocks 31.5%

Mid Cap Stocks 29.8%

Small Cap Stocks 22.5%

Developed Int’l Stocks 22.1%

Emerging Int’l Stocks 20.5%

Gold 15.6%

Oil 33.5%

Short-Term Corporate Bonds 7.0%

Long-Term Corporate Bonds 17.8%

Short-Term Treasury Bonds 3.4%

Long-Term Treasury Bonds 15.2%

Communication Services

610.547.3618 ellen@ascendinvmgt.com www.ascendinvmgt.com

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WASHINGTON

As long as we remember that the past does not guarantee the future, we can perhaps take some comfort from a few statistics. The fourth year of a President’s term in office has historically been positive. The S&P 500’s average gain has been 7.9% with gains 11 out of 13 times. More importantly, there hasn’t been a down fourth year of a President’s term since Truman in the 1940s! A reason that the fourth year is so strong may be that Presidents’ are campaigning really hard to get reelected and pumping up the economy as much as possible to win. When Congress is split between parties and gridlock is inevitable, the fourth year, though still positive, is weaker than when Congress and the Administration are all one party.

Now we have a special fourth year in that our president is facing an impeachment trial. We don’t have enough historical observations to offer up reliable statistics, but, for fun, we’ll point out that the market fell 25% between the Watergate break-in and Nixon’s resignation and it rose 28% between when the Lewinsky affair broke and Clinton’s impeachment acquittal.

It’s always fascinating to watch how people can interpret the same set of data in completely opposite ways. But, it shouldn’t come as a big surprise as polar opposite conclusions make the world go around. Likewise, though we mentioned earlier that sentiment is shifting towards the bulls, there are, of course, many financial and economic professionals who expect a recession and stocks to soon tumble.

ASCENDInvestment Management, Inc.

610.547.3618 ellen@ascendinvmgt.com www.ascendinvmgt.com

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International Energy Agency, September 2015

Nonetheless, it’s only a matter of time before demand exceeds supply again as, for example, US motorists tend to drive with abandon and China – the world’s second largest oil consumer - likely fills up its reserves at cheaper prices.  

Consistently low oil prices are terrible for about eight oil producing states and great for the rest of the forty-two. About 72% of our US GDP growth is consumer driven and gasoline prices at $2 a gallon puts about $800 a year in consumer pockets. That may not be impactful to someone working in Manhattan but for most of the nation it is meaningful. And, low energy costs for non-energy businesses and manufacturing companies are beneficial.

We take the risks in the current business cycle seriously. But just because the current bull market is admittedly long in the tooth isn’t a reason to ignore the positives in our economy and run for cover. Most of our portfolios have an allocation of 20%-30% in short-term bonds to withstand the full brunt of the intense volatility and recent corrective stock market declines. Furthermore, we are in the business of investing in sustainable businesses for the long-term, not short-term trading stocks.

Sincerely,

Ellen P. Le, CFA President

It’s a vicious cycle as spending curbs accelerate declining rates. This cycle of over production when prices are high and excessive pullback when prices are low is normal business practice for the energy patch. It will take time to adjust to the new supply/demand level. Of course, OPEC has the power to change the dynamic and cut supply, but as the OPEC leader with the lowest cost of production, the Saudi’s continue to choose market share over price for the foreseeable future.

Global Oil Supply Exceeds Demand

For our part we cannot blithely ignore the fact that global growth has materially slowed and that the manufacturing sector has been steadily contracting. But, at the same time, both housing and employment data continue to show strength and the Federal Reserve has no plans yet to raise rates. We tend to interpret the data conservatively and we’ll go out on a limb and say that 2020 will be the year of market exuberance followed by a year of comeuppance in 2021 no matter who wins the White House. Then again, we could very well be dead wrong. As always, we can sleep at night knowing our clients have portfolios comprised of

an individualized mix of high quality stocks and bonds that will continue to enjoy the rewards of the jovial bull while also protected to a degree from the vicious bear.

We wish everyone a heartfelt happy and healthy New Year!

610.547.3618 ellen@ascendinvmgt.com

www.ascendinvmgt.comASCENDInvestment Management, Inc.

Setting Every Community Up for Retirement Enhancement(SECURE Act)

The Secure Act, which was debated in much of 2019 and quietly attached onto the year-end spending bill, makes several substantial changes to retirement planning, effective January 1, 2020.

Here are the major changes related to Individual Retirement Accounts (IRAs) created by the law.

Required Minimum Distributions (RMDs) will start at age 72, not 70.5

Starting January 1, 2020 distributions from traditional IRA’s must begin at age 72. This is a change from the current age 70.5. If you turn 70.5 in 2019 you will still need to take your RMD for 2019 no later than April 1, 2020. If you are currently receiving RMDs, or should be because you are over 70.5, you need to continue to take your RMDs. Only those who will turn 70.5 in 2020 or later may wait until age 72 to begin taking required distributions.

The old 70.5 age was based on life expectancies in the early 1960’s and hadn’t been updated since.

Also, remember that these are the new rules for “required” distributions. You can still take distributions without penalty at age 59.5 and older.

Contributions to Traditional IRAs can be made after age 70.5

Starting with the January 1, 2020 tax year, the new law will allow you to contribute to your traditional IRA in the year you turn 70.5 and beyond as long as you have earned income. Before this new law, contributions were not allowable at all after reaching 70.5.

As we live longer, an increasing number of people are working beyond traditional retirement age.

Inherited Retirement Accounts

Distributions to beneficiaries of a deceased individual’s retirement account must be made within 10 years. Up until now, IRA beneficiaries could “stretch” the distributions over their lifetimes. The amount and timing of withdrawals within this new 10 year period are completely flexible, but the total account must be distributed by the end of 10 years. Exceptions are made for spouses, disabled individuals, and individuals 10 years or younger than the original account owner. Minor children who are beneficiaries of IRA accounts also have an exemption to the 10-year rule, but only until they reach the age of majority.

Uncle Sam is a big winner here getting larger tax payments sooner. IRA conversions to Roth IRAs may get a boost, despite the tax liability, as people decide that conversions could significantly lower inheritors’ future tax bills.

Birth/Adoption ExpensesThe new law allows for penalty-free withdrawals up to $5,000 from retirement plans for birth or adoption expenses.