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U.S.

Currencies Commodities Bonds Stocks

Andrew D.W. Hill President & Co-Founder, CFA

Andy Hill has more than 25 years of portfolio management experience.

Andy holds an MBA from Syracuse University and a Bachelor of Science degree from Canisius College. Andy often contributes to Investor’s Business Daily, Naples Daily News, and Fort Myers News Press. He has also appeared on CNBC and FOX.

Highlights: 1. 2019 Was a Bounce Back Year 2. Financial Market Outlook for 2020 3. Top Holdings 4. 2nd Annual ESG Event Supports Local Charities 5. Year-End Spending Bill Provides Gifts to Savers for Retirement 6. AHIA Sponsoring 2020 Naples Zoo Speaker Series 7. Firm Updates 8. Melvin joins AHIA

Jennifer R. Figurelli Managing Director & co-Founder

Jennifer Figurelli has 18 years of experience in the trust administration field. Jennifer has a Bachelor of Arts degree in Business Administration from Florida Southern College and a Legal Assistants Certificate from Florida Atlantic University. She also is a graduate of the Florida Bankers Association Graduate Trust School and holds a Series 65 license and Life, Health and Variable Annuity designations.

4081 TAMIAMI TRAIL NORTH, SUITE C-105, NAPLES, FL 34103 - ANDY HILL (239) 777 – 3188 - JENNIFER FIGURELLI (239) 777 – 3129 - WWW.RESPONSIBLEADVISORS.COM

2019 Was a Bounce Back Year for the Financial Markets After a rough 4th quarter in 2018, the SP500 jumped ahead by 31% and bond market also gained a solid 8.7%. Commodities gained led by gold and oil.

Investment Returns 2017 - 2019 Asset Class Index 2019 2018 2017 Alternative Assets BLMBG COMMODITY TR COMT 7.7% -11.2% 1.7% Alternative Assets

DOW JONES UBS PRECIOUS MTL IDX TOTAL RETURN 17.0% -4.6% 10.9%

Cash & Equivalents 90 DAY TREASURY BILL 2.1% 1.9% 0.9% U.S. Equities S&P 500 TOTAL RETURN INDEX 31.5% -4.4% 21.8% Intl Equities MSCI DEVELOPED EAFE (USD) (TRG) 22.7% -13.4% 25.6% Intl Equities MSCI EMERGING EM (EMERGING MKTS) (USD) 15.4% -16.6% 34.3%

Fixed Income BLOOMBERG BARCLAYS AGGR BOND INDEX COMPOSITE INDX 8.7% 0.0% 3.5%

Fixed Income BLOOMBERG BARCLAYS MUNI BOND INDEX COMPOSITE INDX 7.5% 1.3% 5.4%

The key factor behind the advancement was that the Federal Reserve changed its plan from raising interest rates to cutting interest rates .75% by year-end. While the economy continued to grow, it was carried by consumer spending as the business sector stalled out due to trade war concerns, the GM strike and the cutbacks in production of the Boeing 737 Max.

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Offsetting these negative factors, government spending accelerated which usually occurs in pre-election years. In November, there was government construction spending of 12%. Southwest Florida was a beneficiary of this trend and finally received $200 million to complete the Everglades restoration of the large project in South Naples which will dramatically help water quality. Finally, a strong pre-election year was capped off with a verbal trade agreement with China to be signed on January 15th. While the terms were not as significant, it has helped reduce the fear that the trade war could worsen helping fuel the year-end run-up in stocks.

Financial Market Outlook for 2020 Rather than provide clients with bold predictions of potential winning strategies, we prefer to discuss our investment process and analysis. As most clients appreciate, we partition investment risk based on the timing as to when funds will be needed. Funds earmarked for distributions in five years or less are invested with low risk and predictability. Usually high-grade bonds fulfill this objective. Conversely, funds for the long-term can be invested for capital appreciation. Generally, this portion of the portfolio is invested in equities. According to First Trust’s research, there is a 92% likelihood that stocks will gain over a five-year period. Our investment philosophy is derived from the life insurance industry which historically has done an excellent job in matching their investments with their projected future cash distributions. Much like the NFL coaches are preparing for playoffs by analyzing their team’s skills and their opponent’s capabilities, we are doing the same by evaluating the investment landscape of the four major financial markets. Currencies, commodities, fixed income and equities. Generally, we finished 2019 over-weighted in equities and under-weighted in fixed income as we positioned portfolios for the seasonal strength in the stock market. We will be watching in early January market trends to gauge when we will bring asset allocation back toward’ s a client’s targets. Apollo Providing His Thoughts on the Markets for 2020

As the Chart from Bloomberg shows, manufacturing activity slowed dramatically in 2019.

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Currencies: Tide is Starting to Fall for the U.S. Dollar The U.S. dollar tends to influence the other financial markets and the character of the sectors’ performance. Similar with an orchestra in a musical performance, you may not see their performance, but you can hear their influence in the production. As the chart below shows, the U.S. dollar has traded higher in recent years before more recently sliding sharply lower.

US Dollar Maybe Topping out. Chart Courtesy of StockCharts, John Murphy

The trend of the U.S. dollar is usually influenced by global interest rates and trade. With the Federal Reserve’s interest rate cuts during 2019, now the short-term interest rate difference between the U.S. and other nations has declined significantly, a major factor in decreasing the demand for the U.S. dollar. Longer term, the dollar’s position as the leading currency for international trade may be losing its leadership as the Trump administration has implications for the bond market and financing our budget deficit

Commodities: Will This be the Year for a Rally in Metals? With the possibility of a lower U.S. dollar, moderate economic trends globally could push up commodities, especially industrial metals. China will need more electric vehicles as its new government incentive will kick in as well as quickly expanding the lineup of EV’s and hybrids hitting the market. Since EV’s have significantly fewer parts than a composition engine, the demand for commodities will trend from steel and iron to lithium and copper.

In agriculture, the trade war with China has permanently changed trading partners. China and Brazil are growing their commerce as Brazil is now supplying soybeans while China is providing infrastructure to Brazil.

The oil markets may see an up year within the trend of a long-term decline. Predominately a transportation fuel, oil will continue to lose customers to better options of EV’s and hydrogen. While the uptick in turmoil in the Middle East will push oil higher in the short term, surplus production of oil will cap any material rise in crude prices. Ample worldwide supplies make oil an unprofitable business long- term. The oil industry continues to be the top sector of bankruptcies and is becoming off limits to bank lending.

Gold may see a good year as demand growth from India’s economic development and possibly a weaker dollar. Further, gold serves as an insurance policy against financial market turmoil.

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Gold breaks higher on drone strike on Iranian Military Officers, Chart Courtesy of StockCharts.com

Fixed Income: Setting the Stage for Long-Term Rates to Inch Higher

Inflation is beginning to creep higher as the consumer price index and others are indicating a moderately higher pace of price gains. Furthermore, higher commodity prices and a tight labor market which pay raises are both gaining momentum to provide the opportunity for higher interest rates.

The Federal Reserve has been providing liquidity to boost the economy after cutting short-term interest rates .75% in 2019. The Federal Reserve is now most likely “on hold” for any policy changes between now and through the election. The treasury market is also losing demand from foreign countries. The big question is whether there is enough demand from investors to keep long-term interest rates from climbing higher from 1.9% where the 10-year treasuries finished in 2019?

Skipper is bullish on Gold too, as she is hoping for a 14-karat gold collar.

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10-year Treasury Bond Yield. Should yields pierce 2% the next level maybe 2.5% or more. Chart Courtesy of StockCharts.com.

Given the expectation of higher long-term yields with stable short-term yields, we may tweak the laddered maturity structure to favor floating rate issues. Further, we may be less interested in high yield bonds as the additional yield does not justify the risk. In addition to the core high grade corporate and municipal bonds that make up the core of clients’ fixed income holdings, we continue to increase preferred stocks which have attractive yields.

Stocks: History Suggests Continued Gains in 2020, but….

Following up 2019’s exceptional returns of +30% in the SP500, historically, momentum tends to continue in the subsequent years. Also, 2020 is an election year which is usually bullish for stocks as the in-command President tends to “juice” the economy, which is evident with the upticks in government spending on discretionary items. The economy should continue to grow at a moderate pace, not too hot, not too cold. Corporate earnings should benefit from the economy with earnings per share possibly advancing 5% to 8%, with stock buy backs adding a percent or two. The multiple of earnings “P/E” ratio that investors are willing to pay, will be interesting to watch. Heavily influenced by investor sentiment, interest rates, and various other factors, P/E ratio is unlikely to materially increase from the moderately rich 18x where stocks are currently valued.

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Stocks are rich, but nowhere near the 2000 peak, Chart Courtesy of JP Morgan Asset Mgt., Chart Book 1/2/2020

Considering reasonable earnings growth and P/E ratios staying at current levels, we expect the SP500 to return between 5% to 10% in 2020 as the most likely outcome. However, meaningful higher interest rates could materially decrease the outlook for stocks and investor sentiment is very optimistic, usually a negative indicator. Specifically, put – call ratio measures traders’ interest in hedging is very low. On the positive side, increased investor demand could push the SP500 higher. One factor investor’s often overlook is the supply and demand for a financial asset. Due to mergers and acquisitions and fewer IPO’s; the number of publicly traded stocks has dropped by about half over the last 20 years. Further, stock buy- backs also are continuing to reduce the number of shares outstanding. Last year, it is believed that the number of shares of the SP500 fell by about 4% due to buy backs. While the supply of equity investment options has decreased, the pool of investment dollars from pension plans and IRA’s continues to increase. Still, individual investors are seeking attractive long-term returns. In summary, the supply of stocks is decreasing while the demand of investors is increasing thus, there is a long-term bullish bias in place. Digging deeper in our equity strategy, we will continue to seek companies with revenue and earnings growth, stable to improving margins and leadership in the segments they compete in. We also look for opportunities where investor sentiment is significantly negative. Garmin, Bristol Myers and CVS Health shared the characteristics of being hated by investors prior to significant appreciation. Amazon, Columbia Sportswear and Albemarle offer similar opportunities in 2020. As a result of the improved outlook for commodities and potentially higher interest rates, we are shifting sector weighting toward positions with lower valuations. Some energy and materials companies offer attractive potential. After a rough 2019, the lithium market may become the “fuel” of the future as it’s a key material used in batteries. Albemarle is a leading provider of lithium and other materials. Also, Oneok is a large and growing natural gas pipeline system that brings fuel to power plants and avoids the release of methane gasses into the atmosphere. Also, natural gas and renewables are now the lowest cost of producing electricity. As the chart below shows, electricity is a beneficiary of innovation. Some futurists are expecting electricity to be free once solar panels are painted onto buildings and any flat surface.

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Cost of electricity per megawatt hour is getting cheaper due to renewables and natural gas. Chart Courtesy of Bloomberg Intelligence New Energy

Sectors overweighed relative to the SP500 + Healthcare, Consumer Discretionary, Materials, Utilities, & Real Estate

Sectors underweighted relative to the SP500 • Technology, Financials, Industrials, Communications services, & Staples

Our top positions as of January 3, 2019 include:

Microsoft Office 365 and cloud applications will drive consistent growth NextEra Energy One of the best managed utilities in the nation that has grown faster than the

industry by investment in renewables. Also serves as a safe holding during market down turns.

Visa Visa is riding the trend from paper currency to electronic commerce. Significant barriers of entry limit new competition from eroding 30% return on equity.

Bristol Myers We added Bristol last year on the eve of the acquisition of Celgene. The combined entity has several leading drugs and numerous promising products in late state clinical trials.

Garmin Garmin is the leading GPS company. Planes, boats, cars, bikes, or on foot, Garmin has product for you to travel safely to your destination. Despite sold growth in sales, earnings, and stock price, no analysts are recommending the purchase of Garmin’s shares which may be actually good.

Amazon 2019 was an investment year with billions being spent on one day shipping and numerous other initiatives. Amazon’s stock underperformed in 2019 but may be a leader this year.

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JP Morgan A recent addition to the portfolio, JP Morgan is a well-run financial institution that has invested in technology, its people and the communities it serves.

Newmont GoldCorp Newmont is the largest and most responsible gold miner in the world. Newmont’s is a hedge against a lot of negative factors such as war, inflation, and financial concerns.

Columbia Sportswear

Columbia is a leading provider of outer wear for rain, heat, cold or just looking good. Columbia strong performance did not translate to the stock performance due in part the passing of Gert Boyle, the Chair of the Board who held about 15% of stock. Charitable beneficiaries of her estate have been selling.

CVS Health CVS is attempting to create a new healthcare delivery system to care to the masses. Starting with halting the sale of cigarettes several years ago, CVS is positioning with insurance, drug delivery, care clinics and retail.

2nd Annual ESG Event Supports Local Charities

In November, we held our second annual ESG event. Our firm provided grants to NAMI (National Alliance on Mental Illness) for their work with the Collier County Sheriff’s Department on crisis intervention training: Florida Gulf Coast University for a student scholarship at the Water School; and the Southwest Florida Healthcare Network for their work with infant dental disease. We had more than 100 clients, friends, and professional colleagues join us to celebrate the good work that these non-profit organizations provide in our community.

Year-End Spending Bill Provides Gifts to Savers for Retirement. The SECURE Act

At year end, the normal crisis to avert a government shutdown included a few holiday gifts for retirement savers. There were a few minor improvements to help small businesses from pension plans and include part time workers in 401(k) plans, thanks to The Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”). The most significant changes from the Act for our clients are the extension of IRA RMD’s to age 72, the 10-year withdrawal period for inherited IRA’s and IRA contributions after age 70 1/2. Given the massive tax deferred assets held in IRA’s and pension plans, the U.S. treasury is looking to tax these funds at some point as opposed to leaving as a “long-term family trust.” Thus, the Stretch IRA”, a strategy that extends the tax-deferred status of an inherited IRA when it is passed to a non-spouse beneficiary, is gone. The IRA tax law changes are effective for deaths occurring after December 31, 2019. One tax change of interest to our clients who may be considering a move to a retirement community or those who will have high medical expenses is the change in the threshold amount in order to deduct medical expenses as a

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percentage of adjusted gross income for itemized deductions is now reduced to 7.5% from 10%. This small change will help several of our clients, so keep track of your medical expenses. The implication of the changes favor retirement savers and those with high medical expenses, however; the cost will come at a higher Federal deficit and increased burden upon future generations to self-fund their own retirement rather than relying upon inheritance. Below are the key changes to retirement accounts under the SECURE Act:

• The Act raises the age to 72 from 70.5 for IRA Required Minimum Distributions (“RMD’s).  This only applies to individuals who reach age 70.5 after 2019.  If you will turn age 70.5 in 2020 or later, you won’t need to start taking RMD’s until after you reach age 72.   

  • Previously, IRA owners could not make contributions to a traditional IRA once they reached

age 70.5.  For tax year 2020 and beyond, the Secure Act allows individuals working past age 70.5 owners to make contributions beyond after reaching 70.5. 

  • Most non-spouse beneficiaries of IRA’s are now subject to a 10-year payout, so the “Stretch

IRA” is gone.  Current stretch IRA’s are grandfathered, but only until the beneficiary dies; so, any payouts to a successor IRA beneficiary must be limited to 10 years.  Inherited Roth IRA’s are subject to the same 10-year payout rule, except that the distributions are generally income tax-free. 

  • The Secure Act makes no changes as to the date at which individuals may begin to use their

IRA’s to make Qualified Charitable Distributions (“QCD’s”).   This provision allows individuals who are age 70.5 to donate up to $100,000 tax free from their IRA each year.  However, if an IRA owner requests a QCD in the same tax year when making a deductible IRA contribution, the amount of the QCD is decreased by the amount of the deductible IRA contribution.       

With the above-mentioned changes, now is the time to start considering how the Act will impact your planning.   We will be working closely with our clients and their legal and tax professionals to review their beneficiaries and estate plans to determine if any changes should be made.   AHIA Sponsoring the 2020 Naples Zoo Conservation Lecture Series.

We are excited to take part in sponsoring the 2020 Conservation Lecture Series hosted by the Naples Zoo. There will be five lectures covering various topics about protecting and rescuing African wildlife. Each lecture will be directed by acclaimed speakers at the top of their field of study. It will be a great opportunity for all to contribute to our environmental platform and have some fun learning about the African safari. There will be a small private event before each presentation which will be

attended by the speaker. To view the upcoming speakers and dates of the events, please visit www.napleszoo.org/speakers.

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Other updates and tidbits…. There is plenty of time to make a 2019 contribution to a Traditional IRA to get the tax-deduction.   The limit is $6,000, and if you are over the age of 50, you are eligible to make an additional $1,000 in catch-up contributions.    The deadline for contributions is April 15, 2020.  Fidelity now offers a Health Savings Plan for eligible individuals who are covered under a High Deductible Health Care Plan.   For individual coverage, the 2020 limit is $3,550 and $7,100 for family coverage.  The catch-up contribution limit for those over age 55 will remain at $1,000.          We have an updated and improved Client Portal via BlackDiamond Portal that allows you to view your account transactions, performance reports and store important documents.  It’s a lot more informative than the Fidelity reports and is just the beginning of the technology that clients will be served with in the future.  We will be discussing this new feature with clients during their scheduled quarterly meetings.   

New Additions to our Team Within the past year, a new member has joined our Firm. If you have recently been in our office, you may have met our new employee. If not, we would like to introduce Melvin. He keeps us on our toes and is the first to welcome our guests. He is the center of attention for those walking by and enjoys having his photograph taken, as evidenced by the below illustrations. Melvin takes his position very seriously and arrives to work every day as a sharp dressed man. He looks forward to meeting as many clients as possible in the 2020 year.

Disclosures: Information sources used to prepare this report include Argus Research, JP Morgan Asset Management, CFRA, Forbes, Zacks, Barron’s, Kiplinger’s, Fidelity, and Decision Economics. Founded in 2010, Andrew Hill Investment Advisors, Inc. is registered as an investment advisor with the state of Florida and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Andrew Hill and clients of AHIA hold positions in the investments mentioned in this report. Please contact Andrew Hill Investment Advisors, Inc. if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Our current disclosure statement is set forth in Part 2 of Form ADV and is available for your review upon request. Tax and estate planning advice is general in nature and the firm is not engaged in the practice of law.