The bulk of our positioning towards value-oriented names occurred during the second quarter of 2022, though we made a few changes in the third quarter to better position our portfolio amidst high inflation and rising interest rate environment.

We added to the Vanguard Utilities Index Fund ETF (tkr: VPU) to bring our exposure to the utilities sector up to a market weight. Utility companies are known to have stable cash flows and perpetual demand, resulting in pricing power. We opt to invest in an exchange-traded fund (ETF) within the utilities sector as it gives more diverse exposure to the types of utilities across broader geographic regions. VPU yields over 3% and has a low expense ratio of just 0.10% while the average expense ratio of similar funds is 0.87%.

We bought Merck (tkr: MRK) in order to gain exposure to big pharma, a key industry in the healthcare sector. Merck is a leading pharmaceutical company that creates products to treat cardiometabolic disease, cancer and infections. Merck’s biggest growth driver over the past several years has been Keytruda, a checkpoint inhibitor that successfully treats several types of cancer. Merck also has a substantial vaccine business and animal pharmaceutical business. Merck is a cheaper pharmaceutical company relative to peers, pays a solid 3% dividend yield and has a low debt load.

We sold Progyny (tkr: PGNY) due to concerns over the implications of the overturning of Roe v. Wade which removed access to abortions as a federal right. Although Progyny offers access to a network of top fertility specialist through fertility benefits, this change presents operating challenges as regulations could change on a state-to-state basis. The level of uncertainty and potential litigation risk was huge and difficult to predict how things will play out. Progyny is also more of a growth stock, with increased volatility and an elevated price-to-earnings ratio, so the sale of Progyny was aligned with our pivot to value.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.