To Our Investors and Friends,

A growing number of new challenges that surfaced in September, including the return of COVID-19, inflation fears and a China slowdown, culminated at the end of the month with the major indexes quickly falling a few percentage points. The S&P 500 Index finished the month with its worst performance all year, down 4.8%. Oil increased 10% to almost $75 a barrel, as near-term inflation impacted the energy complex. Inflation fears also drove the 10-year Treasury bond up 22 basis points to 1.52%, and the spread between the 2- and 10-year, widened to 124 basis points, a four-basis point expansion. All major indexes fell during the month -- the most dramatic losses coming in the final few days. The declines were as follows - Bloomberg 2000 Value Index declined 1.1%, the Bloomberg 1000 Value index was down 2.9%, the Bloomberg 2000 Growth Index dropped 3.7%, and the Bloomberg 1000 Growth Index fell 5.4%.

The biggest surprise this fall has been a dramatic resurgence of COVID-19, driven by the rapidly spreading Delta variant in combination with a population that is still not fully vaccinated. In response, many large corporations are delaying mandatory return to the office dates while others are completely rethinking them. According to Joanne Lippman’s recent Time Magazine article, “The Great Reopening”, focused on working from home, many Americans reassessed their priorities while at home and are now quitting their office jobs for ones that allow for greater flexibility. Lippman explains that the modern office position was created after World War II on the assumption that a man went to the office and a woman was largely responsible for caring for the family and home. This antiquated model may now forever be broken, especially given the fact that women now represent 60% of new college graduates and are still largely responsible for raising children.

We believe that entrepreneurship is exploding because the combination of work dissatisfaction (toxic work environments) and new, easy-to-use technology tools make starting a business from home easier than it has ever been. We think that those companies that are either providing these tools or are flexible enough to allow work from anywhere, are at a significant advantage in the post-COVID-19 economy (whenever that happens). Those that are trapped by their physical locations risk seeing margin pressure as they are forced to pay higher wages to attract employees to undesirable jobs. It is especially surprising, therefore, that the market assumes that the world we left pre-COVID-19 will be the same we return to post-COVID-19. This poor assumption likely allows for significant opportunity in new businesses that are not fully appreciated.

At Kingsland Growth Advisors, we spend our time focused on new trends that can create great growth opportunities. The period of the “great resignation,” as coined by an Associate Professor of Texas A&M, Anthony Klotz to describe the post-COVID-19 work culture, should amplify trends that began during COVID-19 and produce great opportunities for patient growth investors.

All the best to you,
Arthur K. Weise, CFA