Market Commentary: A Love it or Leave it Kind of Story


By Rob Edel, CFA

Highlights This Month

Nicola Wealth Portfolio

Returns for the Nicola Core Portfolio Fund were +0.7% in the month of June.  The Nicola Core Portfolio Fund is managed using similar weights as our model portfolio and is comprised entirely of Nicola Pooled Funds and Limited Partnerships.  Actual client returns will vary depending on specific client situations and asset mixes.

The Nicola Bond Fund returned 2.8% in June. Overall there was a broad-based spread tightening across term, industry and rating for corporate bonds with the energy sector leading the way due to the recovery in oil prices. Energy tightened about 35 bps to end the month with a spread of 203 bps after hitting a wide of 315 bps while REITs continue to be a laggard in the recovery after widening out to 272 bps, REITS currently sit at 221 bps spread.

Our Nicola Bond Fund continues to have limited duration exposure and thus has not benefitted from the drop in interest rates. 30 year Government of Canada bonds yields moved from 1.12% to 0.99% during the month, providing a further tailwind to long-duration bonds. We believe that North American central banks are unlikely to target negative interest rates and thus Government of Canada bonds, particularly on the short end, have limited upside going forward.

The Nicola High Yield Bond Fund returned 0.8% in June. Performance for our Nicola High Yield Bond Fund was relatively robust even with currency detracting -0.7%. Overall, the high yield market was more stable for the month after several months of a strong recovery.  Although the Fed recently started buying high yield bonds and credit directly, we believe there is a limit for the Fed so that they do not create a moral hazard where people chase higher returning assets believing that they would not suffer undesirable outcomes because of Fed support.

Overall the market is slightly overvalued and thus several of our managers and strategies have taken a proactive approach to source better risk adjusted returns. Picton Mahoney and Apollo had strong months with lower overall market exposure by focusing on event-driven opportunities including investing in bonds with companies undergoing merger/acquisitions as well as complex situations such as Apollo shorting Hertz car rental which has since gone bankrupt.

The Nicola Global Bond Fund returned 0.4% during the month of June.   The performance was driven by the Nicola Global Bond Fund’s credit exposure to risk assets as the economic data showing a rebound in activity was beneficial to both investment grade and high yield bonds as credit spreads compressed during the month.  The currency was a detractor in Templeton Global Bond Fund.

We have initiated new investments in BlackRock Securitized Investor Fund (BSIF) and Morgan Stanley TALF 2.0.  These funds are investment vehicles that plan on using the U.S. Federal Reserve’s Term Asset-Backed Loan Facility (TALF).  The TALF program allows eligible institutions the ability to borrow directly from the Federal Reserve with non-recourse loans and favourable rates to invest in TALF eligible securities (commercial mortgages backed securities, private student loans, credit cards, auto loans/leases, etc).

We are currently 30% drawn with Blackrock and fully drawn with Morgan Stanley TALF products.  Our managers have been patient to deploy capital in the month of June as TALF eligible securities have generally seen tighter credit spreads.  Blackrock’s mandate allows them to also invest in non-TALF securities which they may look to do if attractive opportunities present themselves. Performance in descending order was: PIMCO Monthly Income Fund +1.3%, Manulife Strategic Income Fund +0.8% (as of June 15th) and Templeton Global Bond Fund -0.5%.

The returns for the Nicola Primary Mortgage Fund and the Nicola Balanced Mortgage Fund were +0.9% and 1.14% respectively in June. The economic impacts of COVID-19 have affected four loans in the Nicola Primary Mortgage Fund and four loans in the Nicola Balanced Mortgage Fund, however, there were no new payment relief requests in June.

New loan origination volume has increased and preliminary quotes have been provided for several new loan opportunities.  Current yields, which are what the Nicola Primary Mortgage Fund and the Nicola Balanced Mortgage Funds would return if all mortgages presently in the Nicola Primary Mortgage Fund and the Nicola Balanced Mortgage Fund were held to maturity and all interest and principal were repaid and in no way is a predictor of future performance, are 4.0% for the Nicola Primary Mortgage Fund and 5.6% for the Nicola Balanced Mortgage Fund.  The Nicola Primary Mortgage Fund had 14.5% cash at month-end, while the Nicola Balanced Mortgage Fund had 11.9%.

The Nicola Preferred Share Fund returned 4.0% for the month while the BMO Laddered Preferred Share Index ETF returned 4.4%. The returns for the month matched the profile of equity markets as names benefitted from strong returns in the first week of the month with a risk on tone before drifting lower and then being range-bound last few weeks. The returns came as credit spreads continue to narrow which offset technical headwinds coming from continued selling pressures on preferred ETF’s. Brookfield preferred shares continue to lag the market and overweight in the Brookfield complex and BCE hurt relative returns. Although rate resets remain attractive on a relative valuation basis, we marginally increased our position in perpetuals as the 5 year Government of Canada appears to remain low and ranged bound for the foreseeable future.

The S&P/TSX was up +2.5% while the Nicola Canadian Equity Income Fund was +2.1%. The largest positive contributing sectors to Index returns in June were Information Technology and Financials. Energy was the biggest drag on the S&P/TSX. The underperformance of the Nicola Canadian Equity Income Fund was mainly due to the fund being underweight Technology where Shopify, in particular, has driven returns. The top positive contributors to the performance of the Nicola Canadian Equity Income Fund were Cargojet, Canwell Building Products, and Interfor. The largest detractors were Enbridge, Shaw Communications and Onex. There were no new additions to the portfolio in June. We sold our positions in Rogers Sugar and Great Canadian Gaming.

The S&P/TSX was up +2.5% while the Nicola Canadian Tactical High Income Fund underperformed with a return of +2.0%. The Nicola Canadian Tactical High Income Fund is underweight relative to the TSX Index in the Information Technology sector which was the largest positive contributing sector to the Index’s return in June. The Nicola Canadian Tactical High Income Fund benefited from strong performance in Consumer Staples, Consumer Discretionary and utilities. Currently, we view the opportunities in the Nicola Canadian Tactical High Income Fund as very attractive as volatility remains elevated and as a result, we feel that we can generate strong returns and income from the portfolio with our option writing strategies.

The Nicola Canadian Tactical High Income Fund has a Delta-adjusted equity exposure of 77% and the projected cash flow yield on the portfolio is over 10%. In the month, we added Brookfield Renewable Partners LP and sold our positions in Transcontinental Inc and Westshore Terminals.

The Nicola U.S. Equity Income Fund returned +0.2% vs +2.0% for S&P 500.  The Nicola US Equity Income Fund’s positive performance was driven by select stocks within Consumer Discretionary (Amazon & Tractor Supply) and Info Tech (Microsoft & Accenture) but was offset by energy and healthcare names.   The benchmark’s strong return was driven by IT (27.5% weight vs Fund at 15%), consumer discretionary (i.e. Amazon is close to a 40% weight in the sector) and industrials (airline related stocks).

The Nicola U.S. Equity Income Fund took advantage of heightened volatility by writing 5 covered-calls.  The Nicola U.S. Equity Income Fund ended the month 11% covered.  The delta-adjusted equity exposure is 94%.  Current annualized cash flow is 3.6%.  During the month we added Blackrock and sold Hormel Foods.

The Nicola U.S. Tactical High Income Fund +1.2% vs +2% for the S&P 500.  The Nicola U.S. Tactical High Income Fund had a strong performance in the first week of the month as cyclicals (Financials & Industrials) led the market higher but most of this was given back by month-end as there was a rotation back into Info Tech and Consumer Discretionary (i.e. Amazon)  names.  The Nicola U.S. Tactical High Income Fund ended the month having 83% of long positions covered with a record 48 Call options written at attractive premiums.  Put options were actively relatively muted, with only 5 options written on average 10% out-of-the-money generating 15% annualized premiums.  We would expect much more Put writing activity near July month-end as we are expecting a significant amount of expired Put options in July.

Market volatility spiked above 40 on June 11th and remained elevated (above 30) at month-end which provided good option writing opportunities. The delta-adjusted equity decreased from 65% to 58%. Added high-quality consumer staple (Pepsi) and trimmed/sold names more exposed to dining out/bars (Molson Coors and Middleby).

The Nicola Global Equity Fund returned +1.7% vs +1.8% for the MSCI ACWI Index (all in CDN$).  The Nicola Global Equity Fund slightly underperformed the benchmark due to our relative underweight in Information Technology, the strongest performing sector during the month, and our regional overweight to Japan.

Performance was marginally offset by country/region mix (underweight US, overweight Asia) and our underweights in Utilities and Energy sectors which were laggards in June. Performance of our managers in ascending order: ValueInvest -0.45%, Lazard +0.5%, EdgePoint +1.7%, Nicola Wealth EAFE +2.0%, C Worldwide +2.7%, and BMO Asian Growth & Income +4.9%.

The Nicola Global Real Estate Fund return was -0.5% in May vs. the iShares S&P/TSX Capped REIT Index (XRE) +3.0%. Currency was a slight headwind as the C$ was relatively strong in June and over 50% of the Nicola Global Real Estate Fund is denominated in non-Canadian currency. YTD, the publicly-traded REITs have lagged the broader Canadian market by a wide margin as the iShares S&P/TSX Capped REIT Index was down -21.5% vs. S&P/TSX Index -7.5%.

Volatility for the REIT complex will likely remain elevated in the near term as investors weigh the positives as the country eases lockdown measures versus the possibility and potential impact of a second wave of the virus. Longer-term we like the risk/reward setup for publicly-traded REITs and view valuations as very attractive. We continue to favour the Industrial and Multi-family sectors and are overweight in those areas in the portfolio. There were no new additions in the month. We sold our position in Brookfield Property Partners LP.

The Nicola Sustainable Innovation Fund returned +3.7% (USD)/ +2.3% (CAD) in June and has returned +3.4% (USD)/ +8.1% (CAD) year-to-date. BYD Co, Ameresco, Pinnacle Renewable, and TPI Composites were the top contributors to performance while NextEra Energy, Brookfield Renewable, and Xylem were slight detractors. During the month we topped up a number of existing positions including Vestas, NextEra Energy, Orsted, Xebec Adsorption and Alstom. Mid-month we made a formal $5M USD commitment to Ares Climate Infrastructure Partners LP which currently represents just over 14.5% of the Nicola Sustainable Innovation Fund today if we were fully drawn on our commitment.

The Nicola Alternative Strategies Fund returned 0.2% in June.  Currency detracted -0.9% to returns as the Canadian dollar continued to rebound and strengthen through the month. In local currency terms since the Nicola Alternative Strategies Fund was last priced, Winton returned -5.4%, Millennium +3.8%, Renaissance Institutional Diversified Global Equities Fund -5.5%, Bridgewater Pure Alpha Major Markets +2.4%, Verition International Multi-Strategy Fund Ltd +2.7%, RPIA Debt Opportunities +3.3%, and Polar Multi-Strategy Fund +1.6%.

Strong reversals of trend and high volatility companies outperforming lower volatility companies continue to be a drag on returns for Winton and Renaissance respectively while corporate bond spreads continue to narrow, driving returns higher for RPIA.

The Nicola Precious Metals Fund returned 7.6% for the month while underlying gold stocks in the S&P/TSX Composite index returned 4.4% and gold bullion was up 1.5% in Canadian dollar terms. We remain constructive on precious metals, particularly over the long term. Despite strong recent returns, we are emerging from a nine-year bear market where the industry restructured. Due to restructuring and reducing costs, higher gold prices have led to higher margins. Additionally, RBC continues to focus in the small and mid-cap space which is up to 1/3rd cheaper than large-cap names, providing valuation support.

June in Review

Strong investment results in June capped off a stellar second quarter for stocks, with the S&P 500’s 20.5% gain the highest three month gain for the large-cap US equity index since 1998. For June, the S&P 500 was up a shade under 2%, but is still down 3.1% so far in 2020.

While investors who held tight through the COVID-19 sell-off now find themselves near even for the year, traders who were unfortunate enough to be on the sidelines during the five best days for the S&P 500 would still be down 30% for the year.  The technology orientated NASDAQ index experienced an even stronger rebound, gaining 6.1% last month and an eye-watering 30.9% in Q2.

The NASDAQ actually ended the first half of the year in positive territory, gaining 12.7%.  US stocks, and technology in particular, outperformed most global markets in the first half of the year, including those north of the border, where the S&P/TSX gained 2.5% in June and 17.0% in Q2, but is still down 7.5% year to date.

Returns can be described as nothing short of exceptional.

While the overall market returns could be considered exceptional given the environment, returns for certain individual names can be described as nothing short of breathtaking.  Over 95% of the S&P 500’s upside attribution year to date can be attributed to just three companies; Amazon, Microsoft, and Apple, which were up 49.0%, 29.8%, and 24.9% respectively.  For the NASDAQ, Amazon and Tesla combined to account for over 35% of the indexes return, with Telsa up nearly 160% year to date (end of June). And no, Telsa did not announce it had found a cure for cancer, or a vaccine for the coronavirus for that matter.

Tesla makes electric cars, just like they did at the end of 2019 when their stock was trading at $591.02 a share, less than the $1,009.35 they closed on June 30th. Back in October, Tesla’s market value was less than GM’s.  Now Tesla is worth a multiple more than GM, Ford, and Fiat Chrysler combined. So, they must be selling a lot more of those electric cars, right?  Well no, in the second quarter Tesla delivered 90,650 cars, more than the 83,000 expected by analysts, but less than Q2 last year.  To say Telsa is a controversial stock is an understatement.

Automotive companies are all over the place.

In early July, Morgan Stanley upped its price target to $2,000 a share.  JP Morgan also increased their target, but by only $20 to $295 per share.  But that’s just Telsa, which along with its Ironman like CEO Elon Musk has always been a love it or leave it kind of story. It’s an exceptional case.  Well, no, not quite.

According to GaveKal’s Anatole Kaletsky, another electric vehicle manufacturer named Nikola, also named after inventor Nikola Tesla, came to market in early March with a market cap valued at around $300 million.  By mid-June Nikola’s value had soared to nearly $30 billion, and the company doesn’t even have any revenue.

Not a fan of car companies, well how about car rental companies.  Due to the fallout of the COVID-19 pandemic, Hertz filed Chapter 11 last month, but rather than its stock plunging to zero, traders started to bid the stock higher.  Sensing an opportunity they could not pass up, Hertz management decided to go to market with a $1 billion equity issue to raise cash, despite clearly disclosing the possibility shares issued in the offering could ultimately be worthless.  SEC concerns prevented the sale from proceeding and Hertz’s stock price has since collapsed.  Apparently, saving investors from themselves is part of the SEC’s mandate.  Retail buyers were likely behind the unusual price action, with a recent spike in Robinhood trading accounts giving a new generation of day trader’s power to move the market in certain stocks.  It underlines, however, this is not a normal market.

The two factors displacing the market from reality.

Not only do stocks like Tesla, Nikola, and Hertz appear to be badly mispriced, but the entire market appears to be getting displaced from reality.  Valuations are not reflecting the macro fundamentals in what Bloomberg Businessweek is calling “The Great Disconnect”.  We believe the disconnect can be attributed to two factors.

First, much of the upside in stocks is being fueled by growth companies, especially in the technology sector.  In a slow-growth economy, technology has been one of the few areas in which investors have been able to find rising revenues.  The pandemic/stay at home world has only magnified this trend.  Technology outperforming is actually a sign investors don’t believe in an economic recovery.  A broader rally that includes more cyclical names would give us more confidence investors are starting to discount a recovery.

The second factor fueling the disconnect has been the Federal Reserve and the huge amount of stimulus and liquidity injected into the markets.  The money has to go somewhere, and the result is financial assets have been bid higher.

What the second half of the year may look like.

While the market so far this year has presented itself to investors as somewhat of a puzzle, understanding the drivers helps piece together what the second half may look like.  Of course, there are always a few important pieces that need to fall into place in order to get a clearer view, and according to investors and strategists, the biggest remains the future path of the virus and how soon we get a vaccine.

This will have a material impact on the economy and corporate earnings, and more specifically the pace in which they recover.  At some point, this should start to impact investment returns again.  In the meantime, the Federal Reserve and Government aid is what we believe is keeping the market moving higher, and as long as this continues, the economy and the market should be just fine.

Longer-term, however, someone has to pay the price for the virus, and President Trump could be the first victim come November 3rd.  Unwinding the damage done by the pandemic and the impact of excessive money printing and government debt will prove challenging, however, no matter who is in power.  We’ll touch on all these issues in this month’s comment.

One of the key questions facing investors has been what the recovery will look like. 

Will it be V-shaped (quick recovery), U shaped (delayed recovery), or L shaped (no recovery).  Some other popular options include a Nike Swoosh shaped recovery (gradual recovery), a backward square root recovery (only a partial recovery), a W shaped recovery (another recession caused by a second wave), and what some have referred to as a Volkswagen recovery, meaning a V followed by a W.

Markets were hoping for a V-shaped recovery, and certainly, the rebound in the jobs market has indicated this is possible.  After shedding 20.7 million jobs in April, the US added back 2.7 million jobs in May and a much higher than expected 4.8 million in June.  While these gains certainly look very V-shaped, 40% of the new jobs, were in the hard-hit leisure and hospitality industry, which would be expected to be the first industry to rehire workers once social distancing measures are relaxed.

More disturbingly, however, the employment data for June was collected near the middle of the month, and new infection rates have since ramped higher.  If social distancing measures are reintroduced, jobs recently added could quickly disappear again.

Virus reproduction numbers in the US are now greater than one.

In fact, according to Strategas, 75% of US GDP is now in states with a virus reproduction number greater than one, which means new cases are accelerating.  Not surprisingly, Goldman Sachs estimates states containing 60% of the US population have now reversed or at least paused reopening plans with economic activity starting to roll over as small businesses in virus hot spots start locking down again.

While there was always a concern of a second wave, most believed it would take place this fall, not in June.  In reality, it’s more of a continuation of the first wave rather than a second wave with regions in the West and South East that largely escaped the initial outbreak now being hit.

The good news is while new cases have inflected higher, so far the fatality rate has not, leading some (like President Trump) to claim the higher number of cases is due to more testing.  While this may be partially true, more testing will inevitably lead to more reported cases, especially given the CDC estimates the actual number of COVID-19 cases is 10 times the number being reported, the lower fatality rate is more likely due to a higher percentage of younger people getting infected.

Another metric used to determine whether infection rates are rising because there is more of the virus present in the community rather than just more testing is the percentage of tests that are positive.  If the percentage of positive tests are rising, it is likely the infection rates is also trending higher, and unfortunately, this was the case in many US states last month.  Also, hospitalization rates have turned higher, which would not be the case if the rise in cases was only due to more tests being conducted.

Why are we seeing  US Coronavirus reproductive rates rise? 

According to Gallop, American social distancing has plateaued.  It is also likely many States eased restrictions too early before they had flattened the curve.  One more disturbing factor could be that the virus has mutated and is now more infectious.  According to some scientists, though still not confirmed, a more infectious strain of COVID-19 is now dominant, and while it doesn’t make those infected sicker, it does make it easier to spread.

A faster spreading virus is not good for the economy and makes finding viable treatment options even more imperative.  While hospitals have become better at treating COVID-19, another reason fatalities have declined is approved treatment options have been found.  A couple of repurposed drugs, Remdesivir and Dexamthsome, a steroid that has been around since the 1960s that has been shown to help patients on ventilators recover, have been approved for emergency usage, but there is still no drug approved specifically for COVID-19, and certainly no cures.

A vaccine is what everyone’s waiting for, but according to a Stifel survey of 50 healthcare executives and investors, 78% don’t expect a vaccine until at least late 2021.  The Trump Administration has accelerated the process with project “Warp Speed” in the hopes of getting a vaccine to market by the end of 2020, but the key will be how quickly the trials (expected to be at least 30,000 people) can be enrolled and how long it will take before the trials are able to reach their endpoints and satisfy the FDA so it will at least authorize an emergency use approval.  Perhaps it can be accomplished by year-end, but some believe the FDA could require six months of data before making any vaccine available to the general public.

So what happens in the meantime?

If many US states are already losing control of infections and having to reintroduce containment measures, what will happen if we have another six months or more to go?  Last June, both Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin pledged in a congressional hearing to provide additional relief in order to prevent more damage from the economic effects of the virus.

From a market perspective, this is vital.  As long as traders believe the Federal Reserve and Government will carry the economy through the pandemic, the timeline for a vaccine becomes a little less vital.  The importance of monetary support can ben seen by the inflection point in equity indices once the Fed stepped in with support.  Once the Fed cut rates to zero and started buying bonds, stocks quickly stopped their decline and started to recover.  Same for credit spreads.

Interestingly, equity markets have stalled recently as money growth has slowed. If markets were to roll over, it is likely Chairman Powell would make good on his word and come to the rescue with more money printing and asset purchases.   As for fiscal support, with most voters both Republican and Democrat, supporting an extension or the Cares Act beyond the current July 31 expiration date, it appears a mere formality more government aid will be approved by Congress and President Trump.

We think the recovery will look like a market swoosh.

It could get a little rockier over the coming months as the shape of the recovery begins to become more clear, however.  We think it will end up looking more like a reverse square root sign or a Nike swoosh as the initial V-shaped recovery gives way to the reality of a pre-vaccine world where isolated outbreaks prevent a full recovery for the economy.  We don’t see a L or W, however.  Going back to a full lockdown is economically unfeasible.  The Feds (Federal Government and Federal Reserve) will get us through to the other side, and while markets will continue to be volatile, ample liquidity and support should prevent another major meltdown.

We caution, however, the uncertainty created by the virus has been extreme, thus our conviction level with any forecast is low at this point.  Never has a diversified investment portfolio made more sense than right now. Maintain allocations to risk assets, but remember to build some defence into your portfolio as well.   Now is not the time to be a hero.  Oh, and wear a mask for crying out loud!

The Coronavirus might outlive Trump’s time in office.

Unfortunately for President Trump, however, the virus might outlive his time in office, with most polls now showing  Joe Biden with a sizable lead.  Trump’s performance in handling the pandemic has been questionable at best and recent books by former security advisor John Bolton and niece Mary Trump certainly haven’t helped with his brand.

A disastrous rally in Tulsa last month left the Donald looking tired and beaten.  Markets would prefer a Trump victory, but Joe Biden would bring stability, which would be welcome after four years of Trump and mayhem.  A Biden victory at this point would likely be tolerated, as long as the Republicans keep control of the Senate that is.

A Democratic sweep with a progressive agenda would be more problematic, with Goldman Sachs estimating a partial reversal of the 2018 tax cuts would trim S&P 500 earnings by about 12%.  While the Senate looked safely in Republican hands before the pandemic, recently the betting odds have shifted in favour of a Democratic sweep.  An optimist would point out the market’s initial reaction to a Trump victory was also negative.  Also, a free-spending Democratic administration could be good for economic growth, especially if spent on productive investments like infrastructure.

Longer-term, however, we have some concerns. 

Fiscal and monetary policy can be easier to implement than wind down.  They also tend to distort markets.  The twin pillars of capitalism and free markets are the efficient allocation of capital and price discovery.  If the government decides where capital should be allocated, we would suggest efficiency goes out the window.

If interest rates are zero, how can an asset be fairly valued?  Already so-called “Zombie Companies”  are being kept alive with free money, companies that creative destruction would dictate should go out of business.  Because of the Fed, many companies have been able to raise capital in order to survive the lockdowns, despite the overall market-facing higher defaults and uncertain earnings.  There is no question the Fed’s (Federal Reserve and Federal Government) needed to act, but the longer their support is needed, the more they will distort the market, and the harder it will be to unwind the stimulus.  As they say on Wall Street (not really), it’s all fun until someone loses an eye.  More on that next month.

 

This material contains the current opinions of the author and such opinions are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information presented here has been obtained from sources believed to be reliable, but not guaranteed. Returns are quoted net of fund/LP expenses but before Nicola Wealth portfolio management fees. Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Please speak to your Nicola Wealth advisor for advice based on your unique circumstances. Nicola Wealth is registered as a Portfolio Manager, Exempt Market Dealer, and Investment Fund Manager with the required provincial securities’ commissions. This is not a sales solicitation. This investment is generally intended for tax residents of Canada who are accredited, investors. Please read the relevant documentation for additional details and important disclosure information, including terms of redemption and limited liquidity. For a complete listing of Nicola Wealth Real Estate portfolios, please visit https://realestate.nicolawealth.com. All values sourced through Bloomberg. Effective January 1, 2019, all funds branded NWM was changed to the fund family name Nicola. Effective January 1, 2019, the Nicola Global Real Estate Fund adopted a new mandate and changed its name from NWM Real Estate Fund.