| Inflation Protection Model Portfolio |
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| Monthly Portfolio Review: October 2026Publication date: November 2, 2026 |
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| | | Current portfolio holdings |
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| | FOR SUBSCRIBER USE ONLY. DO NOT FORWARD OR SHARE. |
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| | | In October, we saw a sharp rotation away from the AI theme, as elevated oil prices continued to shape the inflation outlook. While the S&P 500 declined 0.9% and the NASDAQ Composite fell 5.3%, most sectors outside of Technology performed well. Energy stocks led the market, and defensive stocks benefited from lower long-term interest rates. The Inflation Protection portfolio significantly outperformed in October, delivering a 4.9% total return. On a year to date basis, the portfolio's total return is 20.7%, versus 11.8% for the S&P 500. Permian Resources (PR) led the portfolio with a 23% gain, while several other holdings generated double-digit returns. Precious metals positions generally struggled, with Wheaton Precious Metals (WPM) declining 13%. We remain constructive on real assets, critical commodities, and businesses with strong pricing power, which we believe offer important protection against persistent inflation and currency debasement.
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| | | The Inflation Protection portfolio returned 4.9% in October, versus the S&P 500 Index return of -0.9%. On a year to date basis through the end of the month, the portfolio has generated a total return of 20.7%, versus the 11.8% return of the S&P 500.
The portfolio’s top performing stocks this month were Permian Resources (PR), which returned 23%; Visa (V), which returned 15%; and Vulcan Materials (VMC), which returned 15%.
The largest portfolio detractors were Wheaton Precious Metals (WPM), which returned -13%; Circle Internet Group (CRCL), which returned -12%; and Freeport-McMoRan (FCX), which returned -11%. |
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The Anti-AI Trade
For much of 2026, including September, a relatively small group of large technology companies has dominated stock market performance, propelled by enormous enthusiasm surrounding the AI revolution.
That dynamic reversed dramatically in October.
The S&P 500 declined 0.9%, while the tech-heavy NASDAQ Composite fell 5.3%, its worst monthly performance since March 2025.
Yet most stocks actually performed quite well.
The S&P 500 Equal Weight Index, which assigns the same importance to every company rather than weighting them by market capitalization, gained approximately 4.9%.
This represents an extraordinary divergence of nearly 6% between the two versions of the same index.
September had produced almost precisely the opposite outcome. Technology stocks rallied, while the equal-weighted S&P 500 declined 4.8%.
In October, investors shifted capital away from mega-cap tech and back toward a much broader range of industries that the market had largely abandoned the month prior. |
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S&P 500 vs. NASDAQ, S&P 500 Equal Weight(Total Return - 8/31/2026-10/31/2026) |
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| The reversal is particularly striking when we examine performance at the sector level.
Back in September, Technology was the only S&P 500 sector to generate a meaningfully positive return.
In October, nine of the eleven sectors advanced, while Technology and Communication Services were the only two to decline.
It is worth highlighting that, within the Communication Services sector, Alphabet (GOOGL) has a nearly 20% weighting. GOOGL declined 18% in October, which weighed heavily on the sector result. |
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| Energy was the top performer, benefiting from additional strength in oil prices.
Defensive sectors like Consumer Staples, Utilities, and Health Care also delivered double-digit returns, aided by a meaningful decline in long-term interest rates.
Meanwhile, the two sectors most heavily exposed to the largest AI-related technology companies suffered substantial losses.
The AI spending debate intensifies
Concerns over the enormous sums being committed to AI infrastructure became particularly acute toward the end of October, as the big AI hyperscalers reported third quarter earnings.
In addition to GOOGL, companies likes Amazon (AMZN), and Meta Platforms (META) continued to demonstrate impressive earnings growth. Yet their share prices came under pressure as investors focused on their aggressive capital spending programs.
The central question is whether these companies will ultimately earn attractive returns on their massive investments in data centers, computing infrastructure, and other AI-related assets.
As we discussed in our recent 76report (The Great AI Free Cash Flow Debate), high levels of capital expenditure can depress free cash flow even as earnings continue to grow.
Declining free cash flow does not necessarily indicate deteriorating business fundamentals. Investments intended to create new sources of earnings can require substantial cash expenditures years before they generate meaningful revenue.
But there is a legitimate risk that companies will spend too aggressively, misjudge future demand, or discover that maintaining their competitive positions requires more ongoing investment than originally anticipated.
The critical issue is not simply how much these companies are spending, but what economic returns those investments will ultimately produce.
Despite the sentiment shift, we remain optimistic about the long-term opportunity presented by AI.
Current demand for AI compute is overwhelming, which explains why the hyperscalers are pursuing the opportunity so aggressively. They do expect high returns as they become the world’s leading providers of this computational power.
At the same time, given the vast scale of the investments being made and uncertainty around how they will turn out, it is not surprising to see the market push back from time to time, especially when free cash flow turns severely negative.
Long-term rates finally retreat
Another important (and somewhat related) development in October was the reversal in long-term Treasury yields.
In September, rapidly rising interest rates created a major headwind for most areas of the stock market. The yield on the benchmark 10-Year Treasury climbed to approximately 5.3% by the end of September, reflecting persistent inflation, resilient economic activity, and renewed monetary tightening by the Federal Reserve.
October brought a significant change.
The 10-Year Treasury yield declined to approximately 4.9%, representing a drop of roughly 35 basis points over the course of the month. |
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10-Year Treasury Yields—Last 12 Months(Source: FactSet) |
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The 30-Year Treasury yield also moved meaningfully lower, declining from approximately 5.6% to 5.3%.
Interestingly, this happened even as the Federal Reserve maintained a relatively hawkish posture. At its October 28 meeting, the Fed left its target interest rate unchanged at 3.75%–4.00%. Two members actually favored another rate hike.
Inflation also remains elevated. The Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation measure, increased 3.6% over the twelve months ending in September.
Nonetheless, bond investors have begun to reassess whether the relentless upward movement in long-term interest rates is sustainable.
Part of the decline may reflect investors seeking the relative safety of government bonds amid tech volatility. But there is also the possibility that long-term yields had simply moved too far, too quickly.
As we have previously discussed, higher borrowing costs eventually create their own economic consequences, discouraging investment and weakening demand for credit.
The decline in long-term yields was particularly favorable for many of the stocks that suffered most during September's sell-off.
Real Estate, Utilities, and other income-producing businesses are especially sensitive to interest rates because investors frequently compare their expected returns with those available on government bonds.
Lower Treasury yields make their earnings and dividends relatively more attractive, while also reducing the discount rates investors apply to future cash flows.
Many of these businesses had experienced substantial valuation declines despite generally resilient operating fundamentals. As we signaled last month, this pressure on valuations set the stage for a potentially sharp recovery once rates stabilized or reversed.
October demonstrated how quickly market sentiment toward such companies can improve when the direction of interest rates begins to change.
Oil remains a major complication
While the reversal in Treasury yields is encouraging, the inflation picture remains complicated by persistently elevated energy prices.
Oil prices were generally higher in October as the conflict with Iran continued to disrupt global energy markets. Brent crude ended the month at approximately $113 per barrel. |
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Crude Oil($/barrel - Year to Date) |
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| High oil prices have added to inflationary pressure and created a difficult political environment for the Trump administration.
As we discussed earlier in the 76report (Midterms and the Stock Market—How Worried Should We Be?), there has been some encouraging progress in the physical oil market.
Regional producers have managed to restore a substantial portion of their export volumes through alternative pipelines, shipping arrangements, and other logistical adaptations.
Yet the recovery in physical supply has not translated into normalized prices. Shipping costs, insurance premiums, security risks, and shortages of certain refined petroleum products—particularly diesel—continue to create substantial additional costs.
The important question is whether the global energy system can continue adapting to these disruptions and eventually reduce the enormous risk premiums embedded in oil prices.
We remain cautiously optimistic that these pressures will eventually ease.
A sustained decline in energy prices could materially improve the inflation outlook, potentially giving the Fed more flexibility and creating additional downward pressure on long-term interest rates.
Midterms are now imminent
Another major source of uncertainty is political.
The November 3 midterm elections could shift control of Congress, with Democrats widely expected to make gains, particularly in the House of Representatives.
This has implications for the Trump administration's legislative agenda, as well as regulation and oversight affecting individual industries. Yet we believe investors should be careful about placing too much emphasis on the election itself.
As we discussed in our recent midterm-election analysis, the two most consequential forces driving the stock market—AI and oil prices—are largely independent of which political party controls Congress.
AI investment will ultimately be determined by technological progress, commercial demand, and the economic returns available to companies deploying capital.
Similarly, the resolution of the Iran conflict and the resulting trajectory of global oil prices will depend primarily on geopolitical and economic developments rather than congressional majorities.
The election could certainly influence market sentiment, particularly if the results differ materially from expectations. But significant Democratic gains are already widely anticipated.
Historically, markets have often performed well following midterm elections, regardless of which party wins, as political uncertainty begins to fade.
The more important determinants of longer-term stock market performance will remain economic growth, inflation, interest rates, and corporate profitability.
A healthier market beneath the volatility?
Despite the sharp decline in technology stocks, October brought several reasons for optimism. The broader economy continues to demonstrate considerable resilience.
Real U.S. GDP expanded at an annualized rate of 3.4% in the third quarter, accelerating from 2.2% in the second quarter.
Corporate earnings generally remain strong, and investment in AI infrastructure continues at a robust pace (although resistance from the equity market could lead to some moderation).
Meanwhile, the recent decline in long-term interest rates has begun to provide relief to many high-quality businesses whose valuations were severely pressured in September.
Most importantly, the stock market is no longer relying exclusively on a handful of technology companies to generate positive returns. The extraordinary divergence between the NASDAQ and the equal-weighted S&P 500 suggests that market leadership is broadening in a constructive way.
There are certainly reasons to remain cautious. AI-related capital spending must ultimately generate attractive financial returns. Oil prices remain elevated, inflation is still too high, and the political environment is uncertain.
But October also demonstrated the benefits of maintaining exposure to a diversified collection of fundamentally attractive businesses.
We remain confident in the long-term economic transformation driven by AI, while recognizing the journey has been and will likely continue to be volatile.
At the same time, many high-quality companies outside the largest technology names offer compelling opportunities to participate in continued economic growth.
If long-term interest rates stabilize or decline further, these businesses could benefit from both improving operating performance and a meaningful recovery in valuations.
October was a difficult month for the AI theme, but it may also have marked an important and constructive shift toward a broader, more balanced stock market. |
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The top performing stocks in the Inflation Protection portfolio this month were Permian Resources (PR), which returned 23%; Visa (V), which returned 15%; and Vulcan Materials (VMC), which returned 15%.
The worst performing stocks in the portfolio in October were Wheaton Precious Metals (WPM), which returned -13%; Circle Internet Group (CRCL), which returned -12%; and Freeport-McMoRan (FCX), which returned -11%. |
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| | PR led the portfolio in October, benefiting from continued strength in oil prices and growing investor confidence in the company's ability to generate substantial free cash flow.
The company is one of the largest independent producers in the Permian Basin, with a concentration of high-quality assets in the Delaware Basin of West Texas and New Mexico.
PR has distinguished itself through operational efficiency, disciplined capital allocation, and an aggressive strategy of acquiring attractive drilling acreage at favorable prices.
Second quarter results demonstrated these strengths, with oil production reaching approximately 198,000 barrels per day and adjusted free cash flow of $751 million.
Management subsequently raised its full-year oil production guidance to approximately 199,000 barrels per day, representing nearly 10% growth from 2025, while maintaining a capital spending budget of approximately $2 billion.
Third quarter earnings will be reported after the market closes on November 4. Expectations are favorable, with production anticipated to exceed 200,000 barrels of oil per day and potentially surpass the upper end of management's guidance.
PR has been particularly effective at responding to higher oil prices by accelerating high-return projects, including workovers that increase production from existing wells without requiring substantial additional drilling investment.
Meanwhile, the company continues to expand its inventory of attractive drilling locations through smaller acquisitions. During the first half of 2026, PR announced approximately $1.05 billion of transactions, adding valuable acreage and royalty interests within its existing operating footprint.
These investments should support production growth and capital efficiency for years to come.
Despite its expansion, PR maintains a strong balance sheet, with net leverage of approximately 0.5 times annualized adjusted EBITDA at the end of the second quarter.
At prevailing oil prices, the company is positioned to generate substantial excess cash flow, with estimates suggesting an annual free cash flow yield in the mid-to-high teens.
This creates considerable flexibility to pursue additional acquisitions, repurchase shares, reduce debt, and support its dividend.
While the eventual resolution of the Iran conflict could put downward pressure on oil prices, we believe PR's low-cost operations and disciplined management provide important protection against a less favorable commodity environment.
We continue to view PR as one of the most attractive operators in the U.S. energy sector, combining significant exposure to elevated oil prices with strong underlying economics and a shareholder-oriented capital allocation strategy. |
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| | V performed well in October, supported by strong quarterly earnings and growing investor confidence in the company's ability to benefit from emerging payment technologies.
V reported fiscal fourth quarter revenue growth of 13% to $12.1 billion, while adjusted earnings per share increased 13% to $3.48, exceeding expectations.
Underlying payment activity remained healthy, with U.S. payment volumes increasing approximately 10% and cross-border volumes advancing 14%.
Management reported resilient consumer spending across income levels, with little evidence of deterioration among lower-income consumers.
One of the most important growth drivers is its rapidly expanding Value-Added Services (VAS) business, which provides fraud prevention, cybersecurity, analytics, and other services to financial institutions and merchants.
VAS revenue increased 31% in the quarter to approximately $4 billion. Management expects growth in the low-to-mid 20% range in fiscal 2027, providing an increasingly important source of revenue beyond traditional payment processing.
V is also positioning itself to participate in major technological changes within the payments industry, particularly stablecoins and agentic AI.
The company is expanding its integration with blockchain networks and stablecoins, which could significantly improve the efficiency of cross-border transactions and commercial payments.
Similarly, as AI agents increasingly execute transactions on behalf of consumers and businesses, V's extensive network, transaction data, and fraud prevention capabilities could become even more valuable.
The company also continues to expand Visa Direct, which facilitates payments between individuals, businesses, and financial institutions. Transaction volume reached approximately $1.5 trillion in fiscal 2026, representing 23% growth.
Looking ahead, management expects low-double-digit revenue growth in fiscal 2027, supported by continued expansion in electronic payments, value-added services, and commercial transactions.
We continue to view V as a highly attractive long-term compounder, combining powerful network effects, extraordinary profitability, and substantial free cash flow generation.
Its investments in emerging payment technologies should allow the company to capture new sources of transaction volume while reinforcing the competitive advantages of its global network. |
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VMC benefited from the broader rotation into economically sensitive stocks and growing optimism that long-term interest rates may have peaked.
The nation's largest producer of construction aggregates has faced a challenging environment as elevated borrowing costs have constrained construction activity and sharply higher diesel prices have pressured margins.
Third quarter revenue declined approximately 5% to $2.18 billion, while adjusted EBITDA fell 4% to $707 million. Aggregates shipments declined 3%, but mix-adjusted selling prices increased 5%.
Importantly, cash gross profit per ton actually increased slightly despite significantly higher fuel costs, demonstrating VMC's pricing power and operational efficiency.
Management now expects approximately $2.4 billion in adjusted EBITDA for 2026, with renewed earnings growth anticipated in 2027.
A critically important element of the investment thesis is VMC's considerable pricing power.
Aggregates are essential inputs into roads, bridges, and building construction. Because transportation costs are substantial and new quarries are difficult to permit, established producers enjoy powerful competitive advantages within their local markets.
Management anticipates mid-to-high single-digit pricing gains in 2027, supporting profitability even if construction volumes remain relatively subdued.
Meanwhile, VMC continues to generate substantial cash flow, which it is deploying through acquisitions and share repurchases. The company repurchased $350 million of shares in the third quarter and completed two acquisitions in Tennessee and Ohio.
We also see potential for a meaningful recovery in construction activity if long-term interest rates continue to decline. Lower financing costs could stimulate residential and commercial development, while infrastructure investment should provide a durable source of demand.
Elevated energy costs remain a near-term risk, but an eventual reversal in oil prices could provide an additional boost to margins.
We continue to view VMC as a high-quality business with scarce, difficult-to-replicate assets and substantial pricing power. Following the significant valuation correction earlier this year, we believe the shares offer compelling upside as the construction environment improves. |
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WPM declined in October, as a sharp correction in precious metals prices weighed heavily on gold and silver-related equities.
Gold declined approximately 7% during the month, while silver fell nearly 19%, reflecting persistent inflation concerns, restrictive monetary policy expectations, and broader market volatility.
Despite the recent weakness, we remain optimistic about WPM's long-term prospects, particularly given its attractive business model and significant production growth opportunities.
Unlike traditional miners, WPM operates as a precious metals streaming company, providing upfront financing to mine operators in exchange for the right to purchase future gold and silver production at predetermined prices.
This provides exposure to precious metals prices without the direct operating expenses, capital requirements, and cost inflation risks associated with conventional mining.
An important recent development involves the Goose gold mine in Nunavut, Canada, operated by B2Gold.
Following operational challenges earlier this year, including a fire that damaged processing equipment, the mine is progressing toward a significant production ramp-up. Additional processing improvements are expected to bring the operation to full capacity by mid-2027.
WPM holds a long-term gold streaming agreement at Goose, providing exposure to increasing production and potential mine-life extensions through additional exploration.
While Goose represents a relatively small portion of WPM's portfolio, it illustrates the attractive economics of the company's streaming strategy. Across its diversified portfolio of more than 20 producing mines, WPM is positioned to increase gold-equivalent production by approximately 40% through 2030.
This should support substantial cash flow growth even without a meaningful recovery in precious metals prices.
The company also maintains a strong financial position, providing flexibility to pursue additional streaming agreements.
WPM is scheduled to report third-quarter earnings on November 5. Results may reflect some quarterly variability in metal deliveries, but the longer-term production outlook remains attractive.
We continue to view WPM as one of the most compelling ways to maintain precious metals exposure, combining significant upside potential with a highly profitable, capital-efficient business model and attractive long-term growth prospects. |
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CRCL shares declined in October on renewed weakness across the cryptocurrency market, culminating in a major security breach at Binance, the world's largest cryptocurrency exchange.
On October 29, hackers stole approximately $6.3 billion in digital assets from Binance, triggering a sharp sell-off in cryptocurrencies and related stocks. Bitcoin briefly fell below $77,000 as investors reacted to the largest reported theft in the industry's history.
CRCL was directly involved in the response, freezing more than $800 million in USDC (the company’s stablecoin) that was associated with the attack in coordination with law enforcement.
Importantly, the incident did not represent a breach of CRCL's own infrastructure. In fact, its ability to freeze stolen assets demonstrates an important advantage of regulated stablecoins over less controlled digital assets.
Nevertheless, the episode reinforced concerns about security risks within the cryptocurrency ecosystem and contributed to a broader deterioration in investor sentiment.
CRCL is particularly sensitive to cryptocurrency market conditions because circulation of USDC, which determines the size of its interest-earning reserves, remains closely tied to digital asset trading activity.
Despite the earlier recovery in cryptocurrency prices, USDC supply has been relatively stagnant, limiting growth in CRCL's reserve income.
The company also faces questions about competition from emerging stablecoins and the growing interest of traditional financial institutions in developing their own blockchain-based payment systems.
We believe these concerns overlook the considerable competitive advantages CRCL has established through USDC's liquidity, regulatory credibility, and extensive integration across exchanges, wallets, and payment platforms.
CRCL is also expanding its business beyond reserve income through the development of Arc, its blockchain network designed to support stablecoin payments, settlement, and other financial applications.
Over time, transaction-related revenue could become a much more significant component of CRCL's business, reducing its dependence on interest rates and cryptocurrency market cycles.
We continue to view the broader adoption of stablecoins as one of the most compelling long-term opportunities within digital financial infrastructure.
Near-term volatility and competitive pressures remain significant, but we believe CRCL is well positioned to benefit as stablecoins become increasingly integrated into mainstream payments, commerce, and financial markets. |
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| | FCX lost ground in October, despite reporting strong third quarter earnings, as investors reacted to operational challenges and concerns about the outlook for global copper demand.
FCX reported revenue growth of 8% to $7.5 billion, while adjusted earnings per share increased 76% to $0.88, exceeding expectations. Higher realized copper and molybdenum prices supported profitability despite some production disruptions.
The most encouraging development was continued progress at the company's massive Grasberg mining complex in Indonesia, which has been recovering from operational disruptions.
Mining activity at Grasberg exceeded expectations during the quarter, and management reaffirmed its expectation that the operation will reach approximately 80% of capacity by mid-2027 and nearly full capacity by year-end.
This recovery represents a major opportunity for earnings growth, with copper sales volumes expected to increase approximately 20% in 2027 and another 10% in 2028.
Meanwhile, FCX faced unusually difficult weather conditions at its U.S. operations, prompting a modest reduction in copper production guidance. These setbacks highlight the challenges facing the global mining industry as producers attempt to maintain and expand output.
Looking ahead, FCX is advancing several important growth initiatives, including a potential expansion of its Bagdad mine in Arizona, which could add 200 million to 250 million pounds of annual copper production.
The company is also developing innovative leaching technologies that could significantly increase copper recovery from existing mineral deposits without requiring major new mining operations.
We remain particularly optimistic about the long-term outlook for copper, given its essential role in electrical infrastructure, AI data centers, renewable energy systems, and the broader electrification of the global economy.
New copper mines are increasingly difficult and expensive to develop, creating the potential for persistent supply constraints as demand continues to grow.
With the Grasberg recovery progressing and multiple opportunities to expand production, we believe FCX is positioned for substantial earnings and free cash flow growth over the coming years. |
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| | Mid-America Apartment (MAA) |
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| | Circle Internet Group (CRCL) |
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| | Diamondback Energy (FANG) |
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| | Floor & Decor Holdings (FND) |
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| | WESCO International (WCC) |
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| | Wheaton Precious Metals (WPM) |
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| | The 76research Inflation Protection Model Portfolio emphasizes business models that benefit from inflationary pressure. Holdings are typically selected from industries based on supply constrained real assets, including commodity and energy businesses, or companies that otherwise demonstrate superior pricing power. Drawing from an investable universe of expected inflation beneficiaries, specific holdings are chosen based on valuation and general business quality, growth and risk considerations. |
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| | FOR SUBSCRIBER USE ONLY. DO NOT FORWARD OR SHARE. |
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