July 30, 2024                                                                                                                                                                                          Second Quarter 2024

Our View

As of this writing we have seen our former president convicted of federal crimes, our current president fumble during the first debate, Democrats circling the issue of the fumble like starving sharks (with a sense that their opinion matters), and Trump being shot at during a pre-convention rally. Not good. In anticipation of a continuation of these dynamics, we analyzed the historical impact that elections have on financial markets. Based on the past, we could expect short-term volatility and then back to business as usual. However, this is not a “typical” election. Obviously, if Trump is elected, the potential long-term effects of the values and policies of his administration are deeply concerning. This is no surprise to any of you.

While it is impossible to ignore what is happening, we do need to carry on. It is our responsibility to tackle investment selection and our approach to company engagement with a long-term view. We are actively engaged in research and conversations in the context of our long-term view. With so much uncertainty and complexity, we find it helpful to envision possible scenarios. We consider a broad range of factors, including:  environmental deregulation vs. our focus on ecological limits and regenerative agriculture; draconian abortion and birth control limitations vs. our focus on aging demographics and access to healthcare; the unregulated advancement of AI, social media, and blockchain vs. access to transformative progress for emerging entrepreneurs; racist policies vs. our work on fair chance employment and income equality; abusive and harmful immigration policies vs. our concern for human rights and democracy; anti-LGBTQ rights vs. our perspective on gender; and limits on shareholder rights vs. our commitment to creating meaningful change through shareholder activism.

As we maneuver through all of the above, I am reminded of what keeps us moving forward—our North Star. As I was growing up and reflecting on the chaos in the universe, it was indeed the actual North Star that grounded me; it was always there regardless of atmospheric conditions. The other part of my life that has been the backbone of our work at NorthStar is my musical upbringing. The monotony of the metronome, methodically tracking every musical phrase that I practiced on my cello, regardless of the emotional intent of the composer, required a steady forward movement. I could interpret the music in a way that felt appropriate, but it had to be played with the same monotonous rhythm. This trick of steadily moving forward while making sense of complex dynamics is exactly how we navigate the numerous factors impacting financial markets and the portfolio management decisions that we make for you. Our thorough and methodical approach to asset allocation and investment selection helps us in striving to meet your North Star, even while we are surrounded by the chaos and emotion surrounding us.

Update on Economic Outlook and NorthStar’s Strategy

Q2, 2024: Moderation in economic growth

Moderation in key U.S. economic indicators, including inflation and job growth, has continued over the first six months of 2024. The unemployment rate ticked up to 4.1% in June from the all-time low of 3.4% in January 2023. The latest quarterly results from consumer and retail-focused publicly listed companies indicate a moderation in consumer spending and a pushback against rising prices. Quarterly earnings reports from large U.S. listed corporations (S&P 500) exceeded market expectations, increasing by an average of 8%. However, there is a vast divergence: earnings for the “Magnificent Seven” stocks grew by 29% compared to 5% for the rest of the S&P 500[1].

Europe showed modest improvement in economic activity and inflation continued to ease. As a result, the European Central Bank reduced three benchmark interest rates by 25 basis points (.25%). The Bank of Canada and Sweden’s Riksbank also joined in cutting interest rates. Japan, on the other hand, is closer to exiting its zero-interest rate policy as labor unions successfully negotiated 5% wage increases for 2024, including 3.5% for base pay. Differences in monetary policies across the globe continue to show up in currency markets, with the U.S. dollar weakening versus the Euro but reaching a 34-year high against the Yen.

As has been the case since early 2023, the bond market continues to fluctuate in anticipation of the Federal Reserve Board’s next move. The yield on the 10-year government bond declined from an intra-quarter high of 4.7% in April to finish the quarter at 4.4%, only modestly higher than the 4.3% on March 28, 2024.

The real action in 2024 continues to be in political outcomes across the globe. People in France, the UK, Mexico, and India have voted for change. Back home in the U.S., we are facing unprecedented challenges. Several decisive rulings from the Supreme Court over the last few years have already jeopardized decades of progress on protecting the planet and people, and the political climate continues to be volatile.

As we have often noted, our approach to navigating these treacherous moments is to ensure that we understand your financial needs and objectives and establish an appropriate target asset allocation and liquid reserves. Secondly, we remain disciplined and committed to strategic asset allocation, maintaining appropriate diversification, and managing risk.

Adding higher yielding bonds to portfolios

Since 1980, interest rates have declined, but now that cycle is reversing. We believe there is a high probability that interest rates will remain at these or higher levels over the mid-to-long term, as our government and others will need to fund Social Security, Medicare, and Defense programs while grappling with challenges related to ecological limits and socio-political upheaval.

Higher interest rates provide an opportunity to boost yield in fixed income portfolios. Where appropriate, we will continue to diversify across duration and add government bonds in the one to ten-year maturity range to our clients’ portfolios. We believe that bonds in this maturity range offer an optimal combination of flexibility, higher income returns, and stability for the portfolio.

High quality stocks with low debt can still provide long-term growth

Over the mid-to-long term, companies with low financial debt and that make products or sell services that we believe are beneficial to human life and that solve or mitigate some of the most pervasive problems of our time should continue to thrive, in our opinion. We focus our research on companies providing solutions and products to cope with:

• Ecological Limits: Our planet’s resources are increasingly under threat from ecological imbalances and decades of extractive growth.
• Aging and changing demographics: The world’s population aged 60 and over is growing faster than all younger groups and is expected to reach 1.4 billion by 2030, up from 1 billion in 2020.[2]
• Leveling the playing field: Digital transformation and new business models are enabling small businesses and entrepreneurs to compete with big business.

We aim to own and add stocks that offer competitive returns and diversification while also providing opportunities to create the greatest impact by changing corporate behavior via our shareholder activism work.

As a refresher, our investment strategy for the global equity portfolio involves significant independent research into each company’s growth prospects and financials combined with diligently examining the ethics of management and company behavior. The resulting portfolio, we believe, is more resilient, sustainable, and stable because of our broad-based focus. In addition, we follow our systematic quarterly rebalancing strategy in which we trim individual stocks that are well past their target weights and reallocate to stocks that are under their target levels. Of course, past performance is not an indicator of future performance!

Outside Investments ³

It’s summertime, and the living is hot! As climate realities swirl around us in the form of heat waves, hurricanes, flooding, and power outages, we can’t resist comparison with the world in general. It’s certainly a time of elevated uncertainty and suffering, making it all the more important to celebrate beacons of sanity and good work.

We are conducting our annual reviews of the Community Development Financial Institutions (CDFIs) and private funds/companies whose loan funds we recommend to our clients. Our goal is to verify and update both mission-related and financial viability of these organizations. This is a team effort that is part of ongoing professional development for our valued staff.

It’s also a time to appreciate the good work of the groups with which we engage. Most of the CDFIs we recommend have long histories in activism and social justice. Originating as more flexible, patient, full service financial partners than commercial banks, CDFIs have been boosted by the Community Reinvestment Act which incentivizes banks to meet their CRA requirements by providing debt and equity capital to certified CDFIs.

Most CDFIs are 501c3 organizations that also seek grant funding from government entities, banks, other corporations, foundations, and individuals. Grants are essential in that CDFIs can provide services and technical assistance to their clients without needing to loan funds at high rates to break even financially. Some investors consider this a weakness, insisting that self-sufficiency is the holy grail. We, however, reject this approach and instead seek CDFIs that acknowledge and embrace the need for grants and philanthropic dollars to avoid placing high-cost burdens on poor or struggling populations. Examining audited financial statements and annual reports allows us to evaluate this important balancing act between earned income (mostly interest) and grants and donations that empower these CDFIs to do right by their borrowers.

These annual reviews are important and especially timely this year in that they are a direct and tangible way to remember and recognize the good work that is going on despite all that is swirling around us.

Shareholder Activism Update

We wrapped up the 2024 proxy season after successfully presenting all seven of our shareholder proposals and voting over 210 different company proxies.

Of note this season were our Equal Shareholder Voting proposals presented at Alphabet and Meta Platforms. 2024 marks a decade of presenting these proposals, which call for the initiation and adoption of a recapitalization plan for all outstanding stock to have one vote per share. For the Alphabet proposal, we partnered with the Alphabet Worker’s Union who presented on behalf of NorthStar at Alphabet’s Annual General Meeting. Proposals at both companies garnered enough support to be refiled next year.

This quarter we also published our 2023-2024 Social Change & Activism Report. For this year’s report, we analyzed the decades long impact NorthStar has had across the shareholder activism space as a catalyst for social change. NorthStar’s intersectional approach to our five pillars is what allows us to dive deeply into the most pressing social issues of our time. We are already looking ahead to the 2025 proxy voting season where we will focus new shareholder proposals on company water use along with our refilings.

Community Outreach

For the past eight years, we’ve had the privilege of participating in Apprentice Learning’s City Summer Internship program—an enriching five-week paid career exploration program for Boston girls entering ninth grade in the fall. This program blends weekly seminars and career field explorations to build career knowledge, self-confidence, and awareness of diverse career opportunities available in Boston’s rapidly growing downtown neighborhoods.

Each summer, our staff members prepare an interactive financial literacy workshop for the interns. We cover all facets of NorthStar’s work, including financial planning, investment management, and shareholder activism. Our initial session provided an overview of our services at NorthStar, focusing on budgeting and goal setting. In the first week of August, we have planned a second workshop to educate interns about shareholder activism and the stock market.

Sincerely,

Julie N.W. Goodridge                                                    Nimrit Kang

Founder & Chief Executive Officer                                                                                                           Chief Investment Officer

Important Disclosures

Advisory services offered through NorthStar Asset Management, Inc., a registered investment adviser.  Registration does not imply any level of skill or training.  This communication is for educational purposes only.  It is neither an offer to sell nor a solicitation of any offer to buy any securities, investment products, or investment advisory services.

This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual results will not be materially different from those described here.

Past performance is no guarantee of future results.  All investment portfolios carry risk, including the risk of loss. No assurances can be given that NorthStar will attain its investment objective or that an investor will not lose invested capital.

This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation of or solicitation of any particular security, strategy, or investment product.  The forecasts, opinions, and estimates expressed in this report constitute our judgment as of the date of this letter and are subject to change without notice based on market, economic, and other conditions. The assumptions used in our forecasts concern future events over which we have no control and may turn out to be materially different from actual experience.

NorthStar does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice. Although NorthStar believes the data presented here to be reliable, we do not guarantee the accuracy of third-party data.  Links to third party sites are provided for your convenience and do not constitute an endorsement. These sites may not have the same privacy, security or accessibility standards.

Indices are presented herein for illustrative and comparative purposes only.  Such indices may not be available for direct investment, may be unmanaged, assume reinvestment of income, do not reflect the impact of any trading commissions and costs, management fees, or performance fees, and have limitations when used for comparison or other purposes because they, among other things, may have different strategies, volatility, credit, or other material characteristics. In considering performance results discussed here, prospective clients should note that equity portions of individually managed accounts may differ from the results shown here because of client-specific restrictions, client circumstances, client legacy positions, different fee and expense structures, actual trading, tax considerations, and other reasons.

[1] All references to financial data are sourced from Bloomberg

[2] Source: United Nations Department of Economic and Social Affairs, World Population Prospects 2022

[3] Outside Investments are privately placed with various types of entities, as described above.  Privately placed investments generally carry higher risk and are not publicly traded.  In addition to the risks of equity, (which include, but are not limited to, changes in revenue, margins, earnings, dividends, cash flow, balance sheet, leverage, liquidity, solvency, legal matters, negative publicity, brand image, and general market volatility) and the risks of fixed income investing (such as credit risk, interest rate changes and the yield curve, inflation, default, monetary policy changes, government instability, and other risks), Outside Investments are typically illiquid and may not be sold easily. More information on the risks of Outside Investments may be found in the applicable product offering materials or in our ADV 2A brochure, located at: https://northstarasset.com/wp-content/uploads/2024/04/2024.0321-NSAM-FYE-2023-FYE-ADV-Part-2A.pdf.