MWM_Shulman_8_28_23

Joel Shulman CIO, CEO, Founder, EntrepreneurShares Market Update (08/28/23)

EntrepreneurShares — First Thematic Investment Strategy in Entrepreneurial, Disruptive, Innovative Stocks

AUGUST PEELS BACK MARKET GAINS AS SUMMER WINDS DOWN AND INVESTORS LOOK TO WEAK SEPT o Equities have experienced a difficult August o The fall has coincided with a rise in the long bond yields (rising by 50bp since June 1) o September is usually most challenging month of the year (falls by 0.7% on average) o Speculative, loss producing, high debt equities are the most vulnerable o September is shaping up as another difficult month o CPI continues to decline — eye on labor costs and real estate sales levels and price changes (Mortgage rates 7.23%--22 year high) o Next Catalyst will be Sept 19-20 Fed meeting — Fed likely to pause o Next Major Catalyst will be Oct 31/Nov 1 Fed meeting — Fed likely to indicate an end to rate hikes NVDA CONTINUES TO RISE, BUT NO LONGER A “BARGAIN” AFTER EARNINGS ON 8/23 o Entrepreneur Shares has owned this stock since 2005 o NVDA was a $5 stock on 12/31/2014 (stock is now $435--increased 90X in last 10 years) o NVDA is a tremendous company but has appreciated 260% since last October o Valuations are now stretched to limits o Stock has modest potential to rise further w/speculative trading and passive indices pushing stock higher o Stock appreciated approx. 20% from last earnings to recent highs then returned to same levels as last earnings report (approx. $400) o Stock is back to all time highs, but is no longer fueling broader AI Market push o EntrepreneurShares has had a long term overweight, but has recently placed stock as an underweight

o YIELD CURVE HAS INCREASED AT LONG END — BUT NO EXTREME DANGER YET o Most of the recent action related to the yield curve (Fitch & PPI) has been to long-end of the curve o 5yr, 10 yr and 30 yr rates have all increased o Rates have increased approx. 50 basis points from June o 30 yr rates at 4.3% are still well below historical levels (e.g. 8/31 2007 — 4.85%; 8/31/1981 — 14.8%) o Long Term treasuries may be overbought — hedge funds are shorting (offset risk on equities) o Speculative stocks will need to adjust with higher rates (most of impact is over) o Economy is resilient — no major danger yet o Fiscal policy needs to be addressed — Fitch highlights systemic problems with National Debt

RESILIENT ECONOMY HAS, SO FAR, AVOIDED DISASTER o Inflation is under control and continues to (generally) decline o Unemployment rate is low and has recently dropped (3.6%) o Long term rates, though rising in recent days, are still well below historical averages o Rising 30 year bond rates can cause problems for regional banks that invested long-term o Mortgage rates above 7% should slow down real estate market o Mortgage rates (30 yr fixed) are now at highest levels since July 2001 (22 yr ago)

INVESTORS SHOULD AVOID THE FOLLOWING AREAS: o Long term bonds — rising interest rates will cause bond prices to fall further o Commercial real estate — rising interest rates, falling occupancy levels and soft prices will continue to cause problems o Regional banks — rising interest rates, coupled with potential cash run, increases exposure to liquidity risk on LT bond investments o Highly speculative stocks with long-term horizon — as interest rates rise, future cash flows have lower value CONCENTRATION RISK AMONG MAJOR INDICES IS NOW GREATER THAN EVER • Russell 1000 Growth Index has generated 50% of returns YTD from 3 stocks (AAPL, MSFT and NVDA) • Russell 1000 Growth Index has generated 75% of returns YTD from 6 stocks (AAPL, MSFT, NVDA, AMZN, TSLA, GOOGL) • Many funds also generate most of their returns from 5-10 concentrated positions • Concentration risk in major indices is now among the highest ever • Investors are exposed now, more than ever, to a handful of stocks that could plummet. • Investors should examine that concentration risk of their investment portfolios and reduce the weight that is generated by only a few stocks • Investors should try to spread out their holdings to many stocks or investments to improve safety

WHERE WE ARE INVESTING NOW o

Entrepreneurial companies — with diversification across many holdings o Reduce concentration risk — more equity positions o Entrepreneurial companies with shorter duration o Entrepreneurial companies with low debt (bank exposure to companies that have refinancing needs) o Entrepreneurial companies that do NOT have elevated Market Cap/Rev or relative valuations o Markets will recalibrate with new interest rate scenario — stock pickers market o Pockets of optimism still exist, earnings have provided mixed results, short term horizon is less bullish o September/October will remain choppy o November/December may end year on higher note (compared to September) o CPI continues to drop o Fed may FINALLY signal rate hike end on Oct 31/Nov 1 meeting

US UNEMPLOYMENT RATE IS STILL NEAR A 50 YEAR LOW – SOFT LANDING STILL MORE LIKELY THAN A RECESSION Despite Federal Reserve tightening, the US unemployment rate is still extremely low @ 3.5% • Unemployment rates are among lowest US has experienced in 50+ years • Technology companies continue to announce 100,000+ layoffs o Most layoffs are coming at the expense of H1B foreign workers o H1B foreign worker layoffs do not appear in unemployment statistics o US has 80m baby boomers which have started to become eligible for retirement since 2012 o 4.3m are becoming eligible per year (5.8m workers are unemployed as a basis of comparison — 3.5%) o As more baby boomers retire, the unemployment rates will drop even lower o The Federal Reserve is worried about wage inflation — this could become a problem in the future as companies rehire tech o There may be pent up demand for retirees to leave work force o If we had more retirees this could drop appreciably more o Unemployment will likely stay low due to seniors leaving workforce (eventually)

• ETF Fund Flows in US Market

During the past week, US market is showing stronger interest in US Equities.