NEWSLETTER

Before I get to the business of the newsletter, I would like to highlight a major firm achievement – Blue Bell Private Wealth Management surpassed $1 Billion in clients’ assets under management. Managing over $1 Billion in assets is not only time-consuming but a tremendous responsibility. We truly appreciate your continued trust and support. Many thanks to our partners, advisors, and administrative assistant team for our continued substantial growth.    

Since our first-quarter newsletter, excitement has certainly been in the air. The lazy, hazy, crazy days of summer are here, but I must say, I wasn’t prepared for the ‘lazy’ part! Back in March and April, our year-end 2024 analysts’ forecast looked quite grim. However, the losses from those months have not only been recovered, but as you know, we’ve recently reached a new high in the S&P 500. As of June 30, 2025, the S&P stands at a record high of 6,205, reflecting a year-to-date increase of 5.5%. The Dow Jones average also closed today up 4.41%, which is up 3.56% since the beginning of the year. The Russell Small Cap Index (IWM) is down 2.34% for the year, at a closing price of $215.79. The iShares S&P 500 Value ETF index (IVE) closed at $195.42 up 3.37% for the year. 

Our investment strategy, which incorporates downside protection, helped keep nearly all of our clients calm during the 18% correction we experienced in mid-April. Thankfully, once again staying invested proved to be the correct decision.  While the stock market is inherently uncertain, especially in the short term, it is always forward-looking.  My experience over the past 50+ years has shown that it ultimately reaches new highs. We hope our approach instills confidence in our clients, allowing them to stay invested, diversified, and composed. I firmly believe that our research services and strategies—utilizing Closed-End Funds, structured ETFs, option writing, and a unique pricing model—enable us to navigate uncertainty, particularly in light of the past six months. Let’s review why we focus on some of the investment areas we do. 

Closed-End Funds 

I have been investing in CEFs since my very early years in the investment business. I have always favored Closed-End Funds over mutual funds as they provide substantial advantages. Frankly in the 70’s, 80’s and 90’s mutual funds provided large commissions to the brokers who sold them without commensurate advantages in my opinion.  

Some of the major reasons to include CEFs in your investment portfolio, is the ability to purchase shares at a discount relative to their net asset value. Put another way, there are several Closed-End Funds where you can invest $10,000 worth of the Closed-End Funds portfolio at a price of $9,000 or less. This may sound too good to be true, yet I have been purchasing these shares since 1972. Closed-end funds were available before mutual funds existed. I personally own 4 funds which were issued before the Great Depression. 

Unlike mutual funds, CEFs have a set number of shares so when you purchase or sell their shares this does not affect the management of the fund in any way. With mutual funds a large purchase or sale could alter the manager’s decisions. 

Many Closed-End Funds offer extremely generous distributions. These distributions are not necessarily just dividends but may include, capital gains and return of capital. If you had purchased shares at 90 cents on the dollar these distributions pay you $1 on the dollar. 

Use of leverage (borrowing money to buy stocks) while I am personally not wild about using leverage many excellent fund managers use this, to potentially increase their shareholder’s returns. Naturally, this works against the shareholder and manager when markets go the other way. 

We have a unique investment pricing model for our Closed-End Funds, dating back to before Excel sheets were invented. I believe this gives us a substantial advantage over many who are invested in Closed-End Funds. 

Activist investors who we follow closely have been around for many years; however, as of this writing, activism is more aggressive than ever. The activist investor’s goal is to keep the fund companies acting in the best interest of their shareholders, if not they could possibly lose control of the funds to the activist.  

Writing (Selling) Covered Calls -  A call option gives the buyer the right but not the obligation to buy a specific security at a set price for a set period of time, for that right they would pay the seller of the option a negotiated amount of money. 

When the Chicago Board of Option Exchange was founded in 1973, I quickly realized selling covered calls offered the best risk-reward of any investment area I was aware of. While still active today, covered calls are not as lucrative as in the past yet still offer investors various advantages that other investment areas may not provide. At BBPWM, we use covered calls most often in uncertain times, for several unique advantages. 

Covered calls may offer positive returns without any movement in the underlying investment. They also offer some downside protection. This strategy works best during flat or moderately bullish markets. 

Partial downside protection- the amount you receive when selling covered calls, known as the premium, provides a cushion against potential declines in the stock market. The premium you receive is yours to keep. Some decisions we may make at or close to the maturity date could be: 

1. Sell the stock or ETF at the price agreed upon
2.  The option could also expire worthless, if the stock is below the strike price which would allow us to sell another covered call. 
3. Finally if the company’s stock is above the agreed upon price an investor can purchase the call they previously sold and roll it to a new date at whatever strike price they choose. 

Flexibility and tax advantages- selling covered calls does not lock you in! Any time before the expiration date you have the ability to change your mind and close out your position. In many cases, we may do this to potentially enhance your return and often for tax purposes. There are several option strategies which we employ for your benefit. Options can be simple to implement, purchasing an individual stock or ETF is obviously straightforward. One can sell options at the time of purchase or anytime they choose. One important thing to remember if you sell one covered call you are required to hold 100 shares of the underlying security. 

Structured Investments/Notes 

My belief is our competitive advantage over “prepackaged” structured investments is an area I am truly proud of. A number of years ago I was asked and debated a very fine Harvard professor at the annual meeting of the Structured Product Association of America. This gentleman had written a white paper * suggesting structured products are stuffed with unnecessary fees and expenses. He was correct, yet we did not have a true debate as I fully agreed with him. Fortunately, he also agreed with me. How do we eliminate as many fees and expenses as possible you may ask. We use a competitive bid process. This process rests on the fact that we go to as many investment banks as possible and have them bid on a specific investment possibly, the S&P 500. Choosing the best overall terms at the time allows us the confidence that we are receiving the best value for our clients. 

How do structured investments work? There are many different types of notes. Typically, the notes that we put out for competitive bid offer 10% downside protection on a specific index. Normally these notes are over 12 months long, so we receive long term tax advantages. These notes are guaranteed by the underwriting bank. Presently we owned structured notes through JP Morgan, Citibank, Goldman Sachs, Morgan Stanley, Jefferies & Co., Royal Bank of Canada, UBS, Bank of America, Bank of Montreal, Barclays, TD Bank, among others in the past. 

Many times we choose two times the upside of a specific index for example the S&P 500. If the index rises by 2% at the maturity of the notes, we would earn 4%, or two times the upside. If the index rises by 4% at the maturity of the notes, we would earn 8%, etc. We have also been rather successful recently with digital notes. These notes provide a specific return, if the index remains the same or rises with any increment. We will earn the agreed upon return. Both of these structures have a full downside 10% protection built in. If the index, falls by 10% we would receive 100% of our principal returned. If the index falls by 12% for example we would only lose 2%. On any downside below 10% we will always receive the 10% improvement over the index. 

These notes may sound too good to be true. Two of the most important things to remember is that there is a cap or maximum that we can earn on these notes which we negotiate. Second and equally as important, we are mindful of the financial institution we purchase these notes from. Simply put while these notes are guaranteed by the issuing bank, if the bank fails we certainly lose some, if not all, of the principal invested with that bank. 

Looking ahead, there are reasons for optimism for the remainder of the year, though we must remain cautious of elevated risks and uncertainties. The AI sector of the market has performed brilliantly since the April lows. The remarkable advancements in AI and the growing number of companies adopting these technologies should continue to positively impact the market as the years progress. Additionally, the recent agreements on new tariff policies, moderate employment figures, and improving inflation data are all factors we’re closely monitoring. The dovish shift among several Federal Reserve governors and the easing of tensions between Israel and Iran have contributed to the S&P 500 reaching new heights. The discussions surrounding recession and stagflation have subsided, and recent corporate earnings have been favorable, this usually bodes well for stock prices. I do have some concerns regarding stock market valuations, particularly with the current price-to-earnings (P/E) ratio hovering around 23 times earnings. This figure stands out to me, especially since in 1971 and 1972 I was taught that a P/E ratio of 10 times was a comfortable benchmark. 

At our recent 20th year anniversary gathering it was wonderful to see so many clients from many years in the past. One lovely lady actually had an account with me, before I was married in 1974. We are committed to serving our clients and truly appreciate your trust and support. Please never hesitate to call with any questions you may have regarding your account. We hope you have a safe and enjoyable summer! 

*A white paper is a comprehensive document used to educate readers, promote a particular methodology, explain a financial product or service, or advocate a business strategy. It aims to build credibility and often persuade the reader toward a conclusion or solution.