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S T. J A M E S I N V E S T M E N T A D V I S O R S COMM ITTE D TO VALUE I NVES TING I N V E S T M E N T A D V I S O R ’ S L E T T E R A P R I L 2023 414 M A I N S T R E E T , S U I T E 2 0 5 P O R T J E F F E R S O N , N Y 1 1 7 7 7 W W W . S T J A M E S I A . C O M

St. James Investment Advisors, Page 2 F I R S T QUA R T E R L E T T E R MARKET COMMENTARY After a challenging year in 2022, stocks and bonds posted first-quarter gains. Nonetheless, it was a back-and-forth ride as the banking crisis flipped expectations for Federal Reserve policy. The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. Recently, the Federal Reserve raised the federal funds rate by 25 basis points, which was widely expected. The federal funds rate is now within a range of 4.75% to 5%. The question is what the central bank will do next. The Federal Reserve is trying to thread a needle in balancing the threats associated with the banking crisis and the need to combat still-high inflation. We expect market volatility going forward primarily due to interest rate policy adjustments from the Federal Reserve and central banks worldwide. We are actively monitoring developments in the financial sector and their potential impact on the broader economy. While we do not believe that Silicon Valley Bank and Signature Bank's failures indicate broad-based systemic risks, recent events have put financials under pressure. The Federal Reserve was forced to reverse some of its current

St. James Investment Advisors, Page 3 financial tightening due to developments in the financial sector when it announced a commitment to backstop over $17 trillion in deposits with $128 billion of FDIC capital. WI L L TH E FED E R AL RE SERV E S TAY T HE C O URSE TO FI G HT INF L ATI O N As a central bank, let’s remember that it is the Federal Reserve’s goal to maintain maximum employment, stable prices, and moderate long-term interest rates, which are the three objectives for monetary policy as specified by Congress. Source: Federal Reserve Board of Governors At the March Federal Open Market Committee (FOMC) meeting, which sets monetary policy, Chairman Powell indicated that the Federal Reserve “did consider a pause in rate hikes in the days running up to the meeting.” Given the rapid rise in interest rates, any decision to pause may have been influenced by recent news of SVB Bank and Signature Bank, and the concern about other potential regional bank failures. However, the committee did approve an interest rate increase because signs from several information data points indicated that inflation remained stubbornly high. Consumer and business demand slowed down at the beginning of this year, helping inflation moderate since the Federal Reserve started tightening monetary policy. Although fewer jobs and higher unemployment might help lower inflation, it is not necessarily good for long-term economic growth. Recent developments around stresses in the banking system, impacts on the labor market, OPEC's decision to cut oil production, and the potential for an economic recession in the U.S., have the Federal Reserve now trying to thread a needle with its monetary policy. What does this mean going forward for investors? “The end of the rate hiking cycle is in sight. The Federal Reserve is trying to navigate the very narrow path between defeating inflation and destroying the economy with blunt force rate hikes – even they now know the latter is a very real risk.”, says Jamie Cox, Managing Partner at Harris Financial Group. As we move into the second quarter of 2023, the Federal Reserve will face challenges in balancing its monetary policy with concerns about banking financial distress that could lead to tightening Jerome H. Powell, the Federal Reserve chairman, said in March before the Senate Banking Finance Committee: “The process of getting inflation back down to 2 percent has a long way to go and is likely to be bumpy. The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”

St. James Investment Advisors, Page 4 lending conditions and businesses slowing their hiring and capital spending because of increased recession worries. Source: JP Morgan Asset Management If the Federal Reserve remains aggressive, investors may reset their earnings expectations. Rising interest rates, higher costs, less available capital, and decreased consumer spending would continue to affect company earnings forecasts. We maintain that paying attention to company fundamentals and valuations instead of market sentiment is the best course for navigating market volatility. We believe that the markets require time to adjust to the rapid increase in interest rates, and there will be occasions when the markets will not behave as anticipated. In the most recent quarter, investors rotated back into beaten-down tech giant stocks, resulting in enormous price gains on many of the same names that caused investors' portfolios to suffer massive losses last year. Unexpectedly, growth stocks recouped while value and dividend-paying stocks declined, despite the latter's historically superior performance during rising interest rates. Recently from Doug Kass, Real Money author, this chart shows the S&P 500 YTD and the following: When observing the narrowness of the recent rally, please remember one of Bob Farrell's lessons - Lesson #7: Markets are strongest when they are broad - and weakest when they narrow to a handful of blue-chip names. As the graph to the right shows, futures markets are pricing in interest rate cuts for the second half of 2023, given a concern that the economy could tip into a recession due to overly aggressive monetary tightening. Market participants remain worried about slowing growth and its potential impact on corporate earnings and stock prices should the Federal Reserve continue an aggressive path.

St. James Investment Advisors, Page 5 A larger narrative will continue to be told in the coming months and quarters, despite the current emphasis on banks. The era of easy money, which fostered capital misallocation, a record number of poorly managed companies barely surviving, and a great deal of speculative excess and risk-taking, has ended. “Over the past 12 months, short-duration (value) stocks have outpaced the overall market by seven percentage points and acted as a hedge against the losses in the overall market by holding their value… Since interest rates began to climb in August 2020, investors have favored companies with stronger near-term cashflows. This was the opposite of the investing cycle of 2009-2020 when companies with little to no earnings or cashflow were among the best performers due to abundant, low-cost funding”.1 We believe that higher quality companies with competitive advantages, pricing power, and robust and sustainable cash flow will do well across various economic environments – including within a sustained higher "new normal" interest rates or a slightly lower interest rate environment. WH Y DO W E OW N S O M E G O L D I N O U R P ORT F OLI O S Gold has been considered one of the most precious metals on earth for centuries. It symbolizes wealth, prosperity, and a way to preserve value. In recent history, gold and other precious metals 1 Revisiting Short-Duration Stocks: Michelle Gibley, CFA®, Director of International Research, and Heather O'Leary, Senior Global Investment Research Analyst, April 10, 2023 – www.schwabassetmanagement.com

St. James Investment Advisors, Page 6 have established themselves as an asset class that many investors seek exposure to in their portfolios. From Wikipedia, "A picture is worth a thousand words" is an adage in multiple languages where complex and sometimes numerous ideas can be conveyed by a single still image, conveying its meaning or essence more effectively than a mere verbal description.

St. James Investment Advisors, Page 7 Investing in gold can contribute to the long-term success of a diversified portfolio. CONC L USI O N We have been through many difficult times. Patience and persistence in turbulent markets, in our experience, are frequently rewarded in the long run. Market volatility may come and go in the coming months. However, it is critical to remember to concentrate on what we can control. "In the short run, the market is a voting machine. In the long run, the market is a weighing machine." — Benjamin Graham, Intelligent Investor An investment philosophy dictates how one should consistently make decisions. However, even an intelligent investment philosophy is only helpful if the investor can exercise discipline and patience. We have learned as portfolio managers that maintaining a consistent and disciplined investment approach is critical to long-term investment success. As always, we appreciate your thoughts and comments. Sincerely, Brian Mark John Spicciatie, Jonathan Reid St. James Investment Advisors

St. James Investment Advisors, Page 8 ST. JAMES INVESTMENT ADVISORS We are professional portfolio managers Committed to Value Investing. We are an independent, fee-only, U.S. Securities and Exchange Commission registered investment advisory firm, providing customized portfolio management services to individuals and their financial advisors. Our investment methodology blends a combination of fundamental analysis, discipline, and patience with the goal of creating long-term returns based on the time-proven principles of value investing. As thoughtful value investors, our sole focus as a firm is to manage private investment accounts for individuals and financial advisors throughout the United States. IMPORTANT DISCLAIMER The information contained herein has been obtained from sources believed reliable but is not necessarily complete, and accuracy is not guaranteed. This information is intended for educational purposes only. It is not intended to provide any investment advice or provide the basis for any investment decisions. You should consult your financial adviser prior to making any decision based on any specific information contained herein. Past performance does not guarantee future results. Redistribution is prohibited without permission. 042023