LinkedIn
Twitter
Reddit
Facebook
Email
Print

2024.Q2 PERFORMANCE

2nd Quarter Recap

We are pleased to present the quarterly investment report for the second quarter of 2024. The Team at Andrew Hill Investment Advisors, Inc. has been diligently monitoring the markets and adjusting our strategies to capitalize on emerging opportunities, particularly in the realm of Artificial Intelligence (AI).

Highlights

  • Strong performance in most client portfolios in 2nd Quarter and YTD
  • Economy growing at a moderate rate led by consumer spending
  • Rate of inflation is moderating at a slow pace
  • Equity market trend watch, may lower equity exposure for fixed income
  • Healthcare stocks are starting to look interesting

Nvidia's new Blackwell chip is significantly more powerful
than its Hopper predecessor

Equity Performance Highlights

During the second quarter of 2024, our clients’ portfolios have shown remarkable performance, significantly outperforming their benchmarks. This success is primarily attributed to our strategic investments in companies at the forefront of AI technology.

Notably, our holdings in Nvidia, Apple, Dell, and Constellation Energy have yielded substantial returns, surpassing the S&P 500 Index.

The S&P500 Index is near all-time highs but short-term trends look trepid.

 

Small Cap Success Story

A standout achievement this quarter was our investment in American Superconductor, our sole small cap holding, which saw an impressive 78% increase in value. The company’s rapid growth is a testament to the rising demand for its innovative energy grid products.

 

Fixed Income Overview

While our fixed income holdings experienced a slight downturn, they remained resilient in the face of market fluctuations. Our preferred stocks lagged slightly behind the Bloomberg Bond Index, but we are confident in their potential for recovery and high dividend income. Our holdings in corporate and municipal bonds did appreciate as interest rates fell during the quarter as investors reacted positively to the moderation of inflation.

10-Year Treasury Yield is trending low, bond price up, but trend looks weak.

Economy Showing Signs of Slowing

The economy grew by 1.3% in the 1st quarter as measured by Gross Domestic Product (GDP), lower than 3.4% in the 4th quarter of 2023.  The most recent estimate for the 2nd quarter is 2.0%, according to the Bloomberg economists’ estimates.

Consumer spending is showing signs of moderation as the impact of higher interest rates on inflation may be impacting the overall economy. Consumer spending accounted for 68% of GDP, a growing percentage of the overall economy.   Retail sales grew 0.1% in May.

The employment market remains tight, although the demand for labor and available workers is improving.  From a long-term perspective, the demographic challenge of too few workers to replace new retirees poses a major economic and social challenge.  Immigration and productivity growth, possibly aided by AI, offers hope to fill the gap.

Inflation is moderating, but the rate of decline remains stubbornly slow.  The public is frustrated by the increase in the cost of services and products compared to pre-Covid prices. For people with homes that have doubled in value and investors with portfolios that have soared in value (like many AHIA clients), inflation is manageable. However, for the persons who lack ownership of a home or financial assets, the wealth gap has grown making the cost of basic living necessities a challenge. Incidentally, tariffs on imported goods will only increase the cost borne by the consumer.

The Federal Reserve’s preferred inflation index,
Personal Consumption Expenditure (PCE), is trending lower

Another factor making inflation sticky at high levels is the global disruption from military conflicts and climate change. Brazil is experiencing both draught and flooding in different regions, which is reducing crop production. Also, the terrorists impeding ship traffic in the Red Sea is increasing shipping costs and delivery times. These factors increase the cost of goods by tightening the supply, which ultimately increases inflation.

Methane Gas Emissions, a greenhouse gas, as monitored by NOAA
Methane gas is a primarily contributor to climate change.

The Federal Reserve has a tough job steering the economy towards full employment while maintaining stable prices (often defined as 2% inflation).

The tools to combat inflation are best used for excessive demand, not weather or war interruption of the production of goods. As a result, we expect few, if any, interest rate cuts for short-term borrowing until unemployment materially rises. The political and social pressure on the Federal Reserve as people are losing their jobs will be the most important factors in changing monetary policy to lower interest rates.

Fixed Income

Expecting Rates to Trend Lower; Someday

Interest rates are an important factor influencing the value of stocks, real estate and most directly bonds.  At present, short-term interest rates are yielding more than long-term interest rates. When the Federal Reserve changes monetary policy to reduce short-term interest rates (Fed Funds), we anticipate the 2-year Treasury yield would fall from 4.75% to 4.0% while the 10-year Treasury yield may creep lower from 4.3% to possibly 4.2%. The timing of the Fed’s next move will require better inflationary data. Our concern is that by the time the data necessitates a cut, the economy may already be in economic decline.

In positioning fixed income portfolios, the first allocation is to match expected distributions over the next five to seven years subject to clients’ specific needs.  Residual fixed income allocations will migrate to longer term bonds given the improved interest rate of the market outlook.  For taxable accounts clients with a high tax burden, longer-term municipal bonds are the best option for maturities over ten years.  For IRA accounts, high grade corporate bonds yield over 5% for high-grade long-term issues, an attractive and predictable return.  In addition, we continue to invest in high quality preferred stocks that offer yields above 6%, which also often receive favorable tax treatment.

Equity Portfolio Positioning

Although most portfolios are similar, there are some differences since we manage client portfolios individually.  Across all clients’ accounts we hold about 30 core positions with the top 10 positions accounting for 45% of assets. The AI theme is the most prevalent with holdings from the enablers to the users.

The top core holding Nvidia has 92% of the data center semiconductor market share.  At present, Nvidia has significant competitive advantages that would take years for market competition to catch.

Microsoft has developed AI for the masses under its Copilot product that works alongside their Office 365 suite of productivity apps. AHIA has been using Copilot for a few months with great success.

Apple has recently presented their AI strategies and branded it as “Apple Intelligence”. Recently, we increased our exposure to Apple in most portfolios.

With all the incredible tasks being accomplished with AI, the data must flow quickly from the data center to the user. This is the mission for Arista Networks, a leading data networking provider.

To complete our AI investment theme, none of these systems would function without electricity. Constellation Energy, the largest fleet of carbon free electricity generation in the US, has been a major beneficiary of the data center energy needs.

Core Equity Positions Across Client Portfolios

The AI growth story appears to have the potential to continue. The current and rapidly growing cases for AI offer profitable applications.  Research of simple to complex issues has been the initial AI experience. Over time, there is an expectation that AI will help fill the employment gap. While AI has significant interest, the largest investors have billions in capital to deploy.  Microsoft, Meta, Amazon, and Apple are significantly expanding their capital budgets to stay ahead of competition.  The combination of a need and capital deployment suggests the AI bandwagon has a long journey.

Outside of holdings in the technology space our positions (tied the consumer continue to do well). Garmin reported first quarter earnings up 40% and significantly above analysts’ estimates.  Chipotle Mexican Grill reported another steady quarter with same store sales up 7%.  Amazon is slowly increasing profit margins on their retail operations that is driving their stock price to all-time highs while Costco’s niche of being the bargain store for the upper middle-class continues to drive earnings growth.

New holdings this quarter include Duke Energy, Highwoods Properties, and American Superconductor. Duke, with a 4% dividend yield, projects growth from a growing commercial base as data centers and reshoring of manufacturing bring new customers.  Highwoods is a REIT with an 8% yield. They own high-end office properties in the sunbelt. The only small company in client portfolios is American Superconductor, which is rapidly growing, and their products are used in the energy grid and protecting military ships.

One sector of client portfolios we are looking to increase is in the healthcare sector.  The earnings outlook is improving across the sector as medical procedures are increasing due to demographics and increasing physician visits post Covid.  The largest healthcare holding in client accounts is Eli Lilly.  Lilly has the best portfolio of new drugs in comparison to the other major pharmaceutical firms.   Lilly’s GLP-1 drugs, Mounjaro and Zepbound, used for weight loss and Type 2 Diabetes, accounted for $2.3 billion in sales in the first quarter 2024, leading to consolidated sales growth of 26% over the first quarter of 2024. In addition, we continue to hold Vertex Pharmaceuticals which is the leading provider of drugs to cystic fibrosis, while developing treatments for sickle cell disease and several other related drugs.

Intuitive Surgical continues to experience healthy demand for their DaVinci surgical system. A new advanced generation console began selling this year that may increase the demand for upgrades and new system sales. Since most medical schools’ educate residents on the DaVinci system, Intuitive surgical has one of the largest barriers to entry in the medical industry. Also, we have taken a small position in Johnson and Johnson, who has been in the “penalty box” for years dealing with legal issues that now appear to be close to a resolution.

While our comments provide our optimistic views of our core holdings, the equity market analysis does have risks.  First, the calendar is moving into the 3rd quarter that tends to have large ups and downs as the light summer trading often has greater price movements versus when a full team of traders are present.  Second, sentiment in the short-term appears to be too enthusiastic. The Put/Call ratio is at a very low level, indicating option traders are betting on stocks heading higher, which is a contrarian indicator, suggesting caution is warranted.  Third, the election “noise” will start to be echoed louder.  Generally, the emotions of fear will dominate the greed opportunities of the candidates. Offsetting these concerns corporate America is generating record profits and is leading the AI investment.  Earnings are expected to continue to grow despite a slowing economy that bodes well in the long term for stocks.

We will continue to monitor changes in stock sectors and core holdings as the first hints of a change in trend usually start with the stock price trend, not an earnings report.

Apple’s Leap into AI & Succession Planning with Legacy Contacts

On June 10th Apple hosted their biggest event of the year, World Wide Developer Conference, where they unveiled new features and shared their plan to incorporate Artificial Intelligence in their products. Their AI named “Apple Intelligence” will be available on iOS18 when it is released. This new feature will piece together information across your device and apps to make planning, communication, and everyday use more convenient. We increased exposure to Apple in client accounts leading up to the event which proved to be a positive catalyst for the stock.

Another feature that may be of use to iPhone users is adding a “Legacy Contact”. This feature allows you to add one or more of your contacts and give them access to your phone in the event you are incapacitated or pass away. This is a great way to share photos, documents, or anything else you have on your phone with a family member. Read our article with a step-by-step guide on how to add a Legacy Contact.

The Perils of Delinquent Property Taxes

Homeowners who are delinquent in property taxes may not realize that they are unintentionally “listing” their home for sale to investors who are looking to purchase real estate at a deal.

Property taxes for single family homes in Florida have increased to 35% over the last five years. Collier County has one of the highest property taxes in the country, with an average yearly tax   equivalent to approximately 3.6% of one’s annual income.    It’s not uncommon for people who own their home outright with no intention to move or sell and are on fixed incomes to fall behind in property taxes.  Unfortunately, these homeowners are at risk of losing their homes to real estate investors who are actively searching for tax liens as a very inexpensive way to invest in real estate.

Here is a summary of how it works in Collier County, Florida:

  • When a homeowner does not pay their property taxes, the amount due becomes a lien on the property. The Tax Collector is required to put the homeowner and the public on notice of the amount of delinquent taxes, including a statement that a Tax Certificate may be sold if the taxes are not paid.
  • An investor who is interested in the possibility of owning the property will pay the tax lien and receive a Tax Certificate which gives them the right to collect tax, including interest, from the homeowner.
  • The homeowner has a 2-year redemption period in which to pay the tax to redeem the property, otherwise the holder of the Tax Certificate can force a sale of the property through a Tax Deed Sale via public auction.

According to the Collier County Clerk of Court, there were only 20 Tax Deed Sales that occurred in 2023. However, with the increasing costs of homeowner’s insurance, assessments, expenses, and real estate taxes, it is possible that Tax Deed Sales may be on the rise over the next few years.

Florida provides certain property tax benefits to property owners. An additional homestead exemption up to $50,000 for homeowners ages 65 and older, subject to the limitation on annual household income.  Veterans ages 65 and older who meet certain requirements who are partially or totally permanently disabled may receive a discount from tax on property owned as homestead.  Under the Fallen Heroes Family Tax Relief Act, a surviving spouse of a first responder who died in the line of duty may receive a total exemption on homestead property. Real estate used and owned by totally and permanently disabled persons may be exempt from taxation subject to gross household income limitations.  Eligibility for property tax benefits and discounts depends on certain requirements based on the property appraiser’s office in the county where the homeowner owns a homestead property.

Firm Updates

Temporary Office Closure: Due to extensive water damage, our office space in C-105 is closed until further notice.
Thanks to Chris Lynch, the building manager, we immediately relocated to a temporary office upstairs in C-201.
We will be glad to visit with you in our temporary office, just don’t mind the folding table that is our new conference table.

New Advisory Content on YouTube

Spend a minute with us to learn about the need for financial organization in a bite sized video! Follow along as we discuss more of what our firm offers.

New videos will be posted weekly covering topics such as our investment strategies, Artificial Intelligence, and more. You can find the videos by visiting our website or on our YouTube channel.

New Addition to the Team

In early June the firm added Sean O’Brien as a full-time Associate Portfolio Manager. In this newly created role, he will assist the firm’s partners with expanding market research, financial planning and wealth advisory services. Sean will be working remotely from Buffalo, NY and will make frequent visits to the Naples based office.

Sean O’Brien
Associate Portfolio Manager
(716) 526-4089

Andrew Hill Investment Advisors
Sponsors Local Charity

On June 28, 2024, the Firm participated in a golf tournament to benefit Trinity Life Foundation Naples, a non-profit organization dedicated to improving the lives of at-risk youth who have been involved in the juvenile justice system.

For more information on this cause, visit their website.

OUR TEAM

Andrew Hill

Andrew “Andy”
D. W. Hill, CFA

President and
Co-Founder

Jennifer Figurelli

Jennifer R.
Figurelli, CTFA

Managing Director
and Co-Founder

Elicha D.
Moore

Client Concierge
Representative

Sean
O'Brien

Associate
Portfolio Manager

Andrew Hill

Andrew “Andy” D. W. Hill, CFA

President & Co-Founder

Andrew (“Andy”) D.W. Hill has more than 30 years of portfolio management experience. He currently serves as the President of Andrew Hill Investment Advisors, a Naples-based boutique investment advisory firm that he co-founded in 2010 with long-time business partner Jennifer Figurelli. Since its inception, the firm has steadily grown to more than $180 million in client assets under management.

Prior to forming his own firm, Andy was a Senior Portfolio Manager and regional Chief Investment Officer with two regional Trust banks. While working at both institutions, Andy served in various nationwide investment strategy capacities, including forming asset allocation recommendations and political research.

Andy holds an MBA from Syracuse University and a Bachelor of Science degree from Canisius University and has earned the Chartered Financial Analyst (CFA) designation. He is a Past President of the Chartered Financial Analysts Society of Naples. Andy has been honored with induction into the Sigma Beta Delta International Honor Society and induction into the Canisius University DiGamma Honor Society.

Frequently interviewed by the media on the financial markets, Andy’s comments are often quoted in Investor’s Business Daily, Naples Daily News and Fort Myers News-Press. He also has appeared on CNBC and FOX.

In addition to his responsibilities with Andrew Hill Investment Advisors, Andy is a frequent speaker on sustainable investing strategies. In 2023, he was re-appointed by Governor Ron DeSantis to serve on the Big Cypress Basin Board. Andy also currently serves as officer of the Executive Finance Committee of the Greater Naples Chamber of Commerce.

Andy is married to Dr. Susan M. Liberski and they have a German Shepherd dog, “Ranger”. In his spare time, Andy enjoys spending time with family, playing hockey, fishing on his boat and relaxing at his second home in Chokoloskee, Florida.

Jennifer Figurelli

Jennifer R. Figurelli, CTFA

Co-Founder & Managing Director

Jennifer R. Figurelli, CTFA, has more than 25 years of experience in Trust and Estate Administration. She currently serves the Managing Director of Andrew Hill Investment Advisors, Inc., a Naples-based boutique investment advisory firm that she co-founded in 2010 with long-time business partner Andrew Hill. Since its inception the firm has steady grown to more than $180 million in client assets under management.

Prior to forming the firm, Jennifer was a Vice President and Senior Trust Officer with a national Trust bank. A native Floridian, Jennifer has lived in Naples since 1976. She has significant experience working with individuals who are undergoing a transition, such as retirement, death of a spouse or loved one, divorce, college expense planning, and special needs situations.

Jennifer received her Bachelor of Arts degree in Business Administration from Florida Southern College and holds a Legal Assistants Certificate from Florida Atlantic University. She is a graduate of the Florida Bankers Association Graduate Trust School and has earned the Certified Trust and Fiduciary Advisor (CTFA) designation. Figurelli also is a licensed Investment Advisor Representative in the State of Florida (Series 65).

Outside of her responsibilities with Andrew Hill Investment Advisors, Jennifer is actively involved in her community. She has volunteered with various organizations, including The David Lawrence Foundation, Youth Haven, Habitat for Humanity, Ave Maria University and St. Peter the Apostle Catholic Church. Currently, she serves on the Board of Directors for Trinity Life Foundation of Naples, Inc. and is a Committee Member for Southwest Florida Council of Boy Scouts of America in Troop 165. Jennifer also is a graduate of the Greater Naples Chamber of Commerce’s Leadership Collier Class of 2015.

Jennifer has been married to Michael Figurelli for 20 years and they have two children, Dante and Ginger, as well as a Shih-Poo dog “Popeye” and a domestic cat “Lovey “Dovey”. In her spare time, Jennifer enjoys spending as much time as possible exploring the great outdoors.

Elicha D. Moore

Client Concierge Representative

Elicha Moore joined Andrew Hill Investment Advisors in July 2017, bringing several years of professional experience to the financial firm. Most recently, she served as an office manager at Cinnabar Design. Previously, she worked as an administrative associate at Leo Jr. Landscaping, as an executive assistant at La Mer and as an administrative assistant at Taylored Food Concepts in Champaign, Illinois.

Sean graduated from Canisius University with a bachelor’s degree in Finance in 2023 and an MBA in 2024.

Sean discovered his interest in investing through the Golden Griffin Fund, a student-managed investment portfolio at Canisius. This rigorous program gives students practical experience as equity analysts and is recognized worldwide.

Sean worked part time as a Research Analyst for AHIA during his MBA year and is now the firm’s Investment Analyst. In this role, Sean conducts thorough market research on stocks and bonds for client portfolios.

In addition to the analytical work, Sean also communicates with clients and assists in the financial planning process.

WEBSITE DISCLAIMERS & DISCLOSURE

Business Continuity and Succession Plan Disclosure Statement

Andrew Hill Investment Advisors, Inc. (“AHIA”) maintains a Business Continuity and Succession Plan (“BCP”) that has been developed with the goal of protecting the health and safety of our employees and maintaining continuity of service for our clients. Our Plan is designed to ensure that we are prepared to operate through significant business disruptions, so that our clients can access their accounts without significant interruption under most circumstances.
Key elements of our BCP include the following:

  • Critical data from our computer systems is backed up daily to geographically remote, secure facilities.
  • All AHIA employees can access its computer data remotely via secure connection. If AHIA’s primary network is not accessible, AHIA maintains replicas of all files and database servers in a geographically remote disaster recovery network available to all employees over a secure connection.
  • We maintain an office evacuation plan and emergency procedures in the event of a disaster affecting our primary office facilities or surrounding area.
  • We maintain an emergency contact list and procedures updated and distributed on a regular basis.


If your account requires servicing during a significant business disruption and we are unable to assist you, please call Fidelity Investments at 1-800-523-1203 and a dedicated team member will be able to assist you. It is impossible for us to anticipate every potential problem that may occur, but we believe our BCP will enable us to conduct business in the event of a variety of possible business disruptions. We review and test our BCP at least annually and it is subject to modification based on changing circumstances and assessment of need.

As a fiduciary, AHIA has certain legal obligations, including the obligation to act in client’s best interest. AHIA seeks to avoid a disruption of service to clients in the event of an unforeseen loss of key personnel, due to disability or death. To that end, AHIA has entered into a succession agreement with The Colony Group, LLC, effective May 24, 2019. AHIA can provide additional information to any current or prospective client upon request to Andrew D.W. Hill, President at 239-777-3188 or [email protected].

Andrew Hill Investment Advisors, Inc.
Privacy Notice

Andrew Hill Investment Advisors, Inc. (“AHIA”) believes it is essential that we maintain the privacy of the nonpublic personal information provided to us and that we obtain in connection with providing our products and services to clients.  AHIA views protecting its customers’ private information as a top priority subject to the requirements of the Federal Gramm-Leach-Bliley Act.  AHIA has instituted policies and procedures to ensure that client information is kept private and secure. 

AHIA limits the use, collection, and retention of such information to what we believe is necessary or useful to conduct our business and to provide and offer clients quality products and services, as well as other opportunities that may be of interest. Information collected may include, but is not limited to name, address, telephone number, tax identification number, date of birth, employment status, annual income, and net worth. 

In providing products and services, we collect nonpublic personal information about our clients from the following sources: 

  • Information we receive from clients on applications or other forms (e.g. investment/insurance applications, new account forms, and other forms and agreements);
  • Information about client transactions with us or others (e.g. broker/dealers, clearing firms, or other chosen investment sponsors); and
  • Information we receive from consumer reporting agencies (e.g. credit bureaus), as well as other various materials we may use to put forth an appropriate recommendation, or to fill a service request.


AHIA does not disclose any nonpublic personal information about its clients or former clients to any non-affiliated third parties, except as permitted by law.  While servicing a clients’ account, AHIA may share some information with its service providers, such as transfer agents, custodians, broker-dealers, accountants and lawyers.  Additionally, we will share such information where required by legal or judicial process, such as a court order, or otherwise to the extent permitted under the federal privacy laws.  

AHIA restricts internal access to nonpublic personal information about clients to those associated persons of AHIA who need to access that information to provide services.  As emphasized above, it has always been and will always be AHIA’s policy never to sell information about current or former clients or their accounts to anyone.  It is also AHIA’s policy not to share information unless required to process a transaction, at the request of a customer, or required by law.

AHIA places strict limits on who receives specific information about client account(s) and other personally identifiable data. As a rule, we do not disclose nonpublic personal information we collect to others. However, because we rely on certain third parties for services that enable us to provide our advisory services to clients, such as our attorneys, auditors, other consultants, brokers, and custodians who, in the ordinary course of providing their services to us, may require access to information, we may share nonpublic personal information with such third parties. 

AHIA may also disclose such information to others upon a client’s written instructions.  Such written instructions may be amended, and/or rescinded at any time in writing.  If a client prefers that we not disclose confidential personal information about them to non-affiliated third parties who provide a product or service that we feel would benefit them, the client may direct us not to make disclosures to such non-affiliated third parties via an opt-out provision.  We restrict access to nonpublic personal information about clients to those persons associated with AHIA, who need access to such information in order to provide our products or services to clients.  We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard clients’ nonpublic personal information. If a client decides to close his/her account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. 

AHIA reserves the right to change these Privacy Principles, and any of the policies or procedures described above, at any time without prior notice. However, clients will be promptly provided with a current copy of our privacy notice upon material changes or upon request.  Active clients will receive a current copy of our privacy notice at least annually. These Privacy Principles are for general guidance and do not constitute a contract or create legal rights, and do not modify or amend any agreements.   If you have questions about this privacy policy, or if you wish to amend or rescind your written instructions with us at any time, please call us at (239) 777-3188.