I am pleased that we are enjoying another strong year on the investment side. Over the past twenty-one months, the equities in our flagship CEA product are up 58.0% net of fees. Over the last twenty-one months, the CEA composite is up 54.0% net of fees (this includes the return of the cash held in CEA accounts). More on this later.

This will be my last newsletter. It has been a privilege to write to you every quarter. I have written these quarterly missives for twenty-two years. In the advent of Sandhill, these quarterly letters were our best piece of marketing material. I have received a lot of feedback on the letters over the last two decades. I repeatedly heard that the letters exhibited common sense, allowed clients to gain a better understanding of how their money is invested, and delivered complete transparency with regard to Sandhill’s investment performance and operational capabilities.

Most of all, I believe the letters highlighted what is important. What is not important. Information – often complex – was made consumable. I also believe the letters gave a true sense of Sandhill’s capabilities and the lengths we go to in order to generate market beating returns and protect our clients capital. Competence and trust. A powerful combination.

It is time for a new voice. That voice will be Rick Ryskalczyk. Rick is as capable as they come. A true talent and Sandhill is lucky to have him. He is a co-managing partner and has recently been promoted to co-portfolio manager. Rick has worked for Sandhill for fourteen years and been a partner for eleven years. He came up through our ranks as an equity analyst and has one of the best knowledge sets of the U.S. capital markets of anybody that I have met in our industry. You will enjoy what he has to say. Rick is a meaningful equity owner of Sandhill and has every interest in driving this business forward successfully.

I will remain lead portfolio manager. I will also remain the largest equity holder of Sandhill. I remain committed to the firm and serving you – our clients. That said, there is a lot of talent running around Sandhill and it is time that we bring some to the fore.

For the first nine months of the year (1/1/24–9/30/24), Sandhill’s CEA composite returned +18.6% net of fees vs. the Russell 3000 Total Return Index of +20.6%. The return for 2024 year to date is on top of the CEA composite return of +29.9% net of fees in 2023. The companies in our CEA portfolio are best of breed and of the highest quality. The portfolio turnover has been very low (a good indicator we like our books).

For the first nine months of the year (1/1/24–9/30/24), Sandhill’s Corporate Bond composite returned +4.9% net of fees vs. +5.9% for the BOA Merrill Lynch 3-5 Year Corporate Bond Index. The return for 2024 year to date is on top of the Corporate Bond composite return of +7.1% net of fees in 2023. Our performance this year is lagging a touch as we own shorter term bonds than the BOA Merrill Lynch benchmark. We have no current credit problems.

For the first nine months of the year (1/1/24–9/30/24), Sandhill’s Large Cap Yield composite returned +15.0% vs. the Dow Jones Industrial Average return of +12.3%. The return for 2024 is on top of the Large Cap Yield composite return of +10.7% in 2023. The current yield on the LCY product is 2.4%.

For the first nine months of the year (1/1/24–9/30/24), Sandhill’s Preferred Equity composite returned +8.5% net of fees. Good result here. When the product was launched, we bought all of our positions at a discount to par. Two have already been called which has helped drive returns. Importantly, all dividends are qualified.

For the first nine months of the year (1/1/24–9/30/24), the Private REIT composite we distribute and follow returned +5.3% net of fees and continues its solid year in, year out performance. A declining interest rate environment helps REITs. The fifty basis point rate cut by the Federal Reserve in September lowers the private REIT’s cost of capital. Additional good news is 75-80% of the REIT’s dividends are tax deferred.

For the first nine months of the year (1/1/24–9/30/24), Sandhill’s Municipal Bond composite returned +2.4% net of fees vs. the Bloomberg Municipal Bond NY Tax Exempt Index return of +2.1%. The muni product is off to a good start.

The American economy remains very healthy. Unemployment is low, interest rates have fallen a bit and normalized, the consumer is still spending, and corporate profits remain robust.

There are two issues on my radar screen. First, our budget deficit is spiraling out of control. Our national debt is approximately 123% of our Gross Domestic Product. We are digging a hole that we may not be able to get out of. Concerning. There are many economists and presidential advisers who say deficits don’t matter. The reason – the U.S. dollar is the largest reserve currency in the world and we can print money. Well, those advisers are wrong.

If we keep this up, there will come a day when countries around the globe don’t want to buy our bonds. Interest rates will then rise meaningfully. The cost of interest on our debt will rise meaningfully. This will result in a massive drag on our economy.

Second, yesterday morning 45,000 members of the International Longshoreman’s Association walked off the job – a strike for significantly higher wages. This could possibly close the United States’ largest fourteen ports for import and export. An extended strike would be crippling to the U.S. economy and would severely disrupt U.S. supply chains (remember when you couldn’t find anything during Covid). Consumers will bid up what they need/want. This could reignite inflation. Americans would once again lose purchasing power relative to their income and savings.

It remains a dynamic and dangerous world. The Ukraine War drags on. The Middle East War is spreading with dangerous repercussions. China apparently is drawing up plans to invade Taiwan by 2027. The Russia China Iran axis appears strengthened in an ongoing effort to dismantle U.S. hegemony around the world.

Yet – don’t forget innovation and the power of people to innovate and create in order to solve the world’s problems.

Against this background, you, our clients, hold a terrific set of assets that will generate returns long after the current set of geopolitical issues are solved. The companies you own power our electrical grid, air condition commercial buildings, power large commercial and military aircraft, help surgeons perform robotic surgery to deliver better outcomes and shorter hospital stays, and perfuse organs of the deceased to allow many more successful and much needed transplants which save many lives. These are the innovators and leaders in your portfolio that will generate returns going forward to solve the world’s problems and make life better. The game is played at this level – finding the companies who are solving the problems of today and tomorrow.

Rick Ryskalczyk has been promoted to co-portfolio manager. Currently, Rick is our Chief Equity Analyst and runs the team of analysts that find and follow the companies we purchase in your portfolios. As a portfolio manager, Rick will move from thinking about one company in our portfolio to thinking holistically about the construction of our client portfolios and the weighting of all our holdings. This is a well deserved promotion.

Aaron VandeGuchte has been promoted to Chief Equity Analyst. Aaron slips into Rick’s current chair and will run the team of analysts. Aaron has shown a great talent for finding companies to invest in (what we call idea generation) with business models that are sustainable and growth oriented. Aaron has worked at Sandhill for seven years and has been a partner for three years.

Amanda Theriot has been promoted to Director of Human Resources. While still small, Sandhill is of a size where it needs full time attention to the recruitment and well being of our employees. Amanda has demonstrated a knack for solving issues quietly and effectively. I believe she will blossom in this role. Amanda has worked at Sandhill for three years.

Max Wojtczak has been promoted to Director of Operations. Max has done an incredible job constructing and maintaining the information technology that underlies our business. We work in a very data intensive business and manage three thousand accounts set across forty-four states. Max makes sure that our data is secure, our accounts are properly administered, client service has the best tools to respond to the needs of our clients, and the performance that we report is accurate and GIPS compliant. Max has worked at Sandhill for four years.

Peter Kazmierczak joined Sandhill in July as an Investment Advisor. Peter comes to Sandhill from another wealth manager in Western New York. Peter has a solid grounding in the capital markets. I spent a fair amount of time with Peter during his recruitment process and was impressed by his common sense, focus, and the very astute and thoughtful questions he asked in the hiring process. Peter, along with other Sandhill employees, will be attending Sandhill’s newly minted Advisor University which starts in October. I am teaching the first class and can’t wait! It is paramount that our advisors understand the root of what we are doing and trying to accomplish for our clients.

Although not technically a new hire, I would like to highlight that Pat Collins is now an Investment Advisor. Pat has a great way with people and has done a very good job in creating and developing our marketing materials. Pat worked in the client service area, as well. Pat will be attending Sandhill’s Advisor University.

Megan LaRue joined Sandhill in August as a member of our client service team. Megan comes from the real estate industry. Megan has impressed so far and is in the midst of her training before she takes on a “live” role and is directly client facing. Megan will be attending Sandhill’s Advisor University.

Selwyn Raman joined Sandhill in August as a member of our client service team. Selwyn came from another wealth manager in Western New York and has a solid background in the client service area. Selwyn is just starting to go live with clients. Selwyn will be attending Sandhill’s Advisor University.

Sandhill’s assets under management and advisement were $2.44 billion as of 9/30/24. Assets under management and advisement have grown $243 million year to date. Asset growth has been driven by investment performance and new accounts.

I expect it to be an interesting fourth quarter for a number of reasons. You – our clients – own a set of assets that will withstand volatility and dislocation should that occur. A few years from now, the fourth quarter of 2024 will be a distant memory and we expect our companies will be bigger, stronger, and continuing to innovate as they prepare for the next decade.

With that, I will hand the pen over to Rick.

With warm regards,

Edwin M. “Tim” Johnston III
Founder, Partner

Annualized Performance Summary (Net of Fees) As of 9/30/2024

CEA (Master): 1 Year: 37.0% | 3 Year: 9.0% | 5 Year: 11.9% | 10 Year: 12.8%

Russell 3000 TR: 1 Year: 35.2% | 3 Year: 10.3% | 5 Year: 15.3% | 10 Year: 12.8%

Corporate Bond: 1 Year: 10.0% | 3 Year: 1.5% | 5 Year: 2.2% | 10 Year: 2.9%

B of A ML 3-5 Year: 1 Year: 11.3% | 3 Year: 1.1% | 5 Year: 2.3% | 10 Year: 2.9%

Large Cap Yield: 1 Year: 29.1% | 3 Year: 9.3% | 5 Year: 10.2% | 10 Year: 8.7%

Dow Jones Industrial Average: 1 Year: 26.3% | 3 Year: 7.7% | 5 Year: 9.5% | 10 Year: 9.5%

Preferred Equity: 1 Year: 14.2% | Inception: 9.3%*

B of A ML 3-5 Year: 1 Year: 11.3% | Inception: 7.2%*

*Please note: Inception date is 11/30/2022

Municipal Bond (Cumulative): 6.6%**

Bloomberg Municipal Bond – New York Exempt: 6.7%**

**Please note: Inception date is 11/07/2023

RO REIT: 1 Year: 6.8% | 3 Year: 7.9% | Inception: 9.2%***

***Please note: Inception date is 8/14/2020

This report has been prepared for informational purposes only and is neither a solicitation to buy or sell securities. Third-party information in this report has been obtained from sources believed to be accurate; however, Sandhill makes no guarantee as to the accuracy or completeness of the information.  Sandhill Investment Management (“Sandhill”) is a registered investment adviser with the Securities and Exchange Commission that is not affiliated with any parent company. Individual results may vary. Investments may not be suitable for all investors. Performance may be materially affected by market and economic conditions. Investment strategies have the potential for profit or loss. The U.S. dollar is the currency used to express performance. Performance presented net-of-fees is reduced by investment management fees, trading expenses, and administrative fees. Interest, dividends, and capital gains in these Composites are not immediately reinvested. The Concentrated Equity Alpha Composite includes all discretionary non-wrap fee paying accounts in the all-cap core strategy which may hold large, mid, and small capitalization U.S. common stocks, American Depositary Receipts (A.D.R.’s), domestic ETF’s, sector ETF’s, and cash. The Russell 3000 TR Index is a market cap-weighted index of 3000 of the largest US common stocks which represents 98% of the US equity market. The Large Cap Yield Composite consists of all discretionary non-wrap fee accounts invested in U.S. common stocks, American Depositary Receipts (A.D.R.’s), domestic ETF’s, sector ETF’s, and cash in solely large capitalization companies. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The Corporate Bond Composite consists of all discretionary non-wrap fee paying accounts invested solely in individual Corporate Bonds and cash equivalents. The Corporate Bonds will generally be rated single B to single A and will have maturities of three to nine years. The Bank of America Merrill Lynch 3-5 year Corporate Bond Index is a subset of the Bank of America Merrill Lynch US Corporate Master Index tracking the performance of US dollar denominated corporate debt publicly issued in the US domestic market. The New York State Municipal Bond Composite includes all fully discretionary, fee-paying portfolios that primarily invest in tax-exempt municipal bonds issued by the state of New York or its municipalities. The primary objective of these portfolios is to provide income exempt from federal and New York state taxes while preserving capital. The primary benchmark is the Bloomberg Municipal Bond – New York Exempt Index which covers the USD-denominated long-term New York tax exempt bond market. The index includes state and local general obligation bonds, revenue bonds, insured bonds and prefunded bonds.  The Preferred Income product’s primary goal is to provide current income with secondary objectives of total return and tax efficiency. The Preferred Income product will primarily buy Preferred Equity but maintains the flexibility to hold other hybrid instruments such as Convertible or Baby Bonds. Holdings may be either investment grade or high yield.  For a full performance presentation and/or the Firm’s list of composite descriptions, please call 716-852-0279.

Private REIT Disclosure: Accredited investors only: Non-Traded Private REIT is only offered and sold to individual investors and certain entities which are “accredited investors” under the Securities Act and the rules of the SEC, and who provide us with information we require to verify their status as accredited investors. Individuals are accredited investors only if they meet certain minimum net worth or sustained annual income thresholds. Entities are accredited investors only if they hold sufficient assets or are completely owned by accredited investors. Limited Liquidity: Investors may need to hold their shares for an indefinite period. REIT’s dividend is comprised of ordinary income (taxable) and return of capital (tax deferred). For income tax reporting via form 1099, real estate investments benefit from certain non-cash tax deductible expenses (i.e. depreciation). You should obtain financial and tax advice and conduct diligent investigation of information material to you before making any investment decision.