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Thoughts on the reality of conflict- Bahl & Gaynor

Febry 25, 2022

The military conflict in Ukraine involves a terrible loss of human life; this and the displacement such an event causes overshadow the economic impact that will ultimately be felt. Bahl & Gaynor, as a fiduciary, has a responsibility to consider the impact of this event on the welfare of client investors. We provide our thoughts below at a macro level followed by considerations more specifically relevant to our investment approach. Macro-Level Perspective US economic interests are somewhat limited from Russia and Ukraine: · The US and Russia are not meaningful trading partners. · The US possesses energy independence and is not significantly dependent on Russia for energy imports; and, · Domestic financial stability is not expected to be meaningfully disrupted by Russia’s actions (partly explaining the muted market response on the day of invasion). The above fact pattern is not the case for the Eurozone area where: · There is much greater economic interdependence between the Eurozone, Russia, and Ukraine. · Parts of the Eurozone are meaningfully dependent upon Russian-supplied energy commodities such that disruptions to this supply could spread to global markets; and, · Capital markets are understandably more responsive to the geopolitical landscape with respect to Russia (as was reflected in greater Eurozone capital market downside vis-à-vis the US). Historical observations suggest military conflicts typically do not have a durable impact on US capital markets; however, the negative impact on rest-of-world economies should not be dismissed, nor should the potential for negative follow-on effects as a result of more meaningful disruption to major Eurozone-area trading partners with the US.

B&G-Specific Perspective The US market reaction the day of invasion (2/24: Dow Industrials +0.28%, S&P 500 +1.50%, NASDAQ +3.35%) began with a large gap down on the open and a steady recovery throughout the trading day: · Tech, Consumer Discretionary, and Communication Services led the market, represented by many constituents more recently labeled as “COVID winners,” · Consumer Staples, Financials, and Energy lagged the market, also consistent with some of the market dynamics throughout the pandemic. The above action suggests an initial belief among investors that the Fed’s task of tapering is now complicated by this event, bestowing many of the same benefits upon “COVID winners” as the liquidity ramp-up provided at the onset of the pandemic. This narrative appears at odds with the macro-level perspective that the military conflict in Ukraine may be of limited economic impact to the US and therefore would not alter current overarching Fed priorities. In many respects, inflation is a more pressing domestic issue, and to the extent that the Fed may give domestic stakeholder interests more weight, the path of future policy removal likely remains intact.

Bottom Line · The future path of military conflict in Ukraine is unpredictable. · History suggests military conflicts are typically not impactful to longer-term domestic capital market direction. · The current military conflict complicates the Fed’s path toward policy removal but may not overshadow the more domestically pressing matter of high inflation. · Forthcoming trading days will likely continue to exhibit the “tug-of-war” dynamic prevalent so far this year between more optimistic and more pessimistic narratives. · Bahl & Gaynor continues to focus on what it can control: capacity for future dividend growth and quality to backstop this metric ultimately delivering benchmark-competitive risk-adjusted returns. · We strongly believe that risks on the horizon are well-addressed through high-quality exposure and we remain confident in a sustainable dividend growth outlook supported by expansion of our investment opportunity set amid ongoing market downside.

Disclosure: Investment advisory services provided through Bahl & Gaynor Investment Counsel (“B&G”), a federally registered investment adviser under the Investment Advisers Act of 1940. Registration does not imply Information or a certain level of skill or training. More information about B&G can be found by visiting and searching by the adviser’s name. This is prepared for informational purposes only and may not be applicable to your particular situation or need(s). It does not address specific investment objectives. Information in these materials are from sources B&G deems reliable, however we do not attest to their accuracy. Past performance is not indicative of future results. Indices and benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Index return information is provided by vendors and although deemed reliable, is not guaranteed by B&G. No fiduciary relationship exists because of this commentary. If you have any questions regarding the indices or investments referenced in this presentation, contact your B&G investment professional.

The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision, Quantum Private Wealth suggests you seek the advice of a licensed advisor. You should not rely on this information in making purchase or sell decisions, for tax purposes or otherwise.

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