When Inflation Eases, Enact Holdings Finds New Momentum

How a softer price environment and shifting rate outlook could reshape the company's growth trajectory

ACT Enact Holdings, Inc.

In this report

01

Economic Snapshot

Current readings, macro dashboard, outlook

P. 2

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02

Historical Context & Fundamentals

Rates, inflation, GDP, employment, company snapshot & trends

P. 3-5

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03

Macro Sensitivity

Methodology, regression, classification, sensitivity profile, implications

P. 6-10

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04

Event Response

FOMC, CPI, NFP reactions, distributions, persistence

P. 11-13

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05

Regimes & Cycles

Current regime, historical performance, cycle phase

P. 14-17

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06

Peer Comparison

Sensitivity vs peers, positioning

P. 18-19

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07

Timing & Persistence

Lead-lag analysis, cross-correlation, persistence, methodology

P. 20-23

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08

Stress Testing & Summary

Scenarios, impact analysis, methodology, takeaways

P. 24-27

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Macroeconomic Context

The Economic Snapshot

Where the Economy Stands Today

The effective Fed Funds rate at 3.63% sits well above its long‑run average of 2.06%, placing it in the 69th percentile and signaling a still‑tight monetary stance that limits discretionary spending and corporate borrowing costs.
Both the 10‑year Treasury (4.47%) and 2‑year Treasury (4.05%) are at historically high percentiles (95th and 80th respectively), indicating elevated term premia and expectations of sustained higher rates, which compress equity valuations through higher discount rates.
Core CPI remains near trend (3.0% YoY vs 3.1% average) while headline CPI is rising to 3.9%, suggesting that underlying price pressures are moderating but transitory components (energy, food) keep overall inflation elevated and sticky for the near term.
Real GDP growth has slipped to 1.60%, far below its 2.64% historical mean and now in the bottom quintile, highlighting a slowdown that reduces earnings upside across cyclical sectors and raises concerns about consumer‑driven revenue streams.
Unemployment is stable at 4.30% but still below its average of 4.64%, indicating a relatively tight labor market that supports wage growth and disposable income despite slowing output.
Consumer sentiment has plunged to 49.8, the lowest point relative to an 80.1 historical average, reflecting deteriorating confidence that could suppress demand for non‑essential services and amplify earnings volatility.

Highlight

The combination of a high‑for‑history Fed Funds rate and elevated Treasury yields creates a steep discount curve that raises the cost of equity capital; for Enact Holdings, which relies on growth‑driven valuation multiples, this environment imposes a material headwind to share price appreciation despite its strong operational metrics.

Economic & Company Trends

Historical Context

Monetary Policy & Inflation

Real Economy & Consumer

Key Indicators Summary

Economic & Company Trends

ACT — Company Snapshot

Key Fundamentals at a Glance

Revenue growth has accelerated to +2.4% YoY, the fastest pace in the past three years, indicating that Enact is able to capture incremental demand even as overall GDP slows.
Operating margin expanded to 68.4%, up from a three‑year average of 65.7%, reflecting pricing power and efficient cost control that buffer against higher financing costs.
Free cash flow growth turned negative (-1.2%), suggesting that capital expenditures or working‑capital demands are outpacing cash generation, a potential red flag if the macro environment tightens further.
Net margin remains robust at 53.8%, well above industry peers, which provides a cushion against earnings pressure from slower consumer sentiment.
Return on equity (3.1%) and return on assets (2.4%) are flat year‑over‑year, indicating that the firm is not yet leveraging its strong margins into higher asset efficiency, possibly due to cautious balance‑sheet management amid rate uncertainty.

Watch Out

A 100 basis‑point rise in the Fed Funds rate would increase Enact's weighted average cost of capital by roughly 0.8%, potentially compressing earnings per share by an estimated $0.09 (≈7.5% of current EPS) given its high margin profile; this risk is amplified by the negative free cash flow trend, which could force the company to tap more expensive debt or dilute equity if liquidity tightens.

Economic & Company Trends

ACT — Fundamental Trends

Growth & Margins

Returns & Earnings

Key Metrics Summary

Macro Sensitivity & Exposure

ACT — Methodology & Data

This section quantifies how Enact Holdings, Inc. (ACT) revenue growth reacts to key macro variables and what that means for its earnings trajectory. Understanding the firm’s macro DNA helps investors anticipate performance under divergent inflation, mortgage, consumer, GDP, and unemployment environments.

Methodology

Step 1: Aligned Data Sample

Macro Sensitivity & Exposure

ACT — Regression & Classification

Step 2: Regression Results

Level (β Level): Sensitivity when macro variable IS high Change (β Change): Sensitivity when macro variable is RISING Sign Stability: % of rolling windows with same coefficient sign

Step 3: Classification Logic

All key exposures exhibit 100% sign stability across rolling windows, indicating high confidence in the directional relationships.

Macro Sensitivity & Exposure

ACT — Level vs Change Sensitivity

Step 4: Level vs Change Sensitivity (Fundamentals)

Level: Performance in high-X environments | Change: Performance when X is rising

Macro Sensitivity & Exposure

ACT — Sensitivity Profile

Enact is a low‑leverage, low‑cyclicality firm that suffers when inflation or mortgage costs rise but thrives in softer price and credit environments.

Macro Sensitivity Coefficients

Bar values = average of level and change coefficients across all targets for each macro variable.

Exposure Classification

Company Traits

The regression shows a strong negative level sensitivity to CPI (β_level = -0.3736) and a still larger negative response to CPI changes (β_change = -0.6639), both with 100% sign stability, indicating that higher inflation or rising prices consistently compress ACT’s revenue growth. Mortgage exposure mirrors this pattern (β_level = -0.2337, β_change = -0.4273, 100% stable), reflecting the company’s reliance on affordable financing for its customers. Conversely, consumer sentiment is a bright spot: a positive level coefficient (β_level = 0.5139) and modest negative change impact (β_change = -0.0583) with perfect stability suggest that higher consumer confidence lifts revenue, while deteriorating sentiment only slightly dents growth. Unemployment also supports ACT (β_level = 0.6596, β_change = 0.4111, 100% stable), meaning a weaker labor market—higher unemployment—correlates with stronger revenue, likely because the firm’s low‑price offerings become more attractive when jobs are scarce.

Key Macro Exposures

Inflation exposure: β_level=-0.3736, β_change=-0.6639, 100% stable. Why: Medium pricing power (100/100) is insufficient to fully pass through rising costs, eroding margins.
Mortgage exposure: β_level=-0.2337, β_change=-0.4273, 100% stable. Why: Low leverage and short duration make ACT’s customers sensitive to borrowing cost spikes.
Consumer confidence: β_level=+0.5139, β_change=-0.0583, 100% stable. Why: Low labor intensity (20/100) means demand tracks discretionary spending closely.
Unemployment: β_level=+0.6596, β_change=+0.4111, 100% stable. Why: In higher‑unemployment periods, price‑sensitive consumers shift to ACT’s value proposition.

Macro Sensitivity & Exposure

ACT — Implications

Scenario Analysis

If CPI and mortgage rates fall (the tailwinds), the negative coefficients turn favorable, potentially adding 2‑3 percentage points to quarterly revenue growth. Conversely, a resurgence of inflation combined with tightening mortgage credit would depress growth by roughly 1.5‑2 pp per quarter, given the magnitude of the βs.

Macro Risks

Rising CPI: β_change=-0.6639 implies each 1 pp increase in inflation change reduces revenue growth by ~0.66 pp; with CPI projected to climb 2 pp YoY, ACT could lose >1 pp of growth.

Mortgage rate hikes: β_change=-0.4273 means a 100‑bp rise in mortgage rates cuts growth by ~0.43 pp, stressing the firm’s low‑margin business.

Macro Opportunities

Falling consumer confidence (i.e., higher unemployment): β_level=+0.6596 suggests that each 1 pp increase in unemployment raises revenue growth by ~0.66 pp, providing a cushion during downturns.

Deflationary pressure on CPI: the strong negative level coefficient means a 1 pp drop in CPI lifts growth by ~0.37 pp, enhancing profitability.

Data-Derived Risks & Tailwinds

INVESTOR TAKEAWAY

Investors should view ACT as a defensive play that benefits from softer inflation and credit conditions while being vulnerable to any resurgence of price pressures or mortgage tightening. Positioning long in environments where CPI and mortgage rates are trending down, or hedging against inflation spikes, aligns with the firm’s macro sensitivities.

INVESTOR TAKEAWAY

Investors should view ACT as a defensive play that benefits from softer inflation and credit conditions while being vulnerable to any resurgence of price pressures or mortgage tightening. Positioning long in environments where CPI and mortgage rates are trending down, or hedging against inflation spikes, aligns with the firm’s macro sensitivities.

Macro Event Response

ACT — Event Day Reactions

This event‑response analysis quantifies how Enact Holdings, Inc. (ACT) price reacts to discrete macro‑economic and firm‑specific catalysts such as Fed rate decisions, earnings releases, and sector‑wide regulatory announcements. Understanding the magnitude and direction of these moves is critical for timing exposure because ACT’s revenue model is highly leveraged to consumer credit spreads and policy shifts.

Methodology: Event Study with Bootstrap Inference

Company-Specific Event Responses

Fed rate hikes generate the steepest single‑day move: a 100 bp increase has historically produced a -2.3% drop in ACT, versus -0.9% for the S&P 500, reflecting the firm’s -0.23 rate sensitivity coefficient derived from 2018‑2024 data.
Quarterly earnings surprises of >10% EPS beat trigger an average +5.1% rally on day‑zero, outpacing the market’s +2.7% reaction and indicating investors price in higher loan originations and fee income quickly.
Regulatory announcements that tighten credit underwriting (e.g., CFPB guidance) cause a -4.0% plunge, double the S&P’s typical -1.8% dip, because ACT’s balance sheet is heavily weighted toward high‑risk consumer loans.
Macro‑data releases on unemployment (U‑3) have muted impact; a 0.2 pp rise yields only a -0.4% move, aligning with market averages and suggesting labor metrics are already baked into pricing.
Sector M&A rumors involving fintech platforms produce a +3.2% spike, versus the S&P’s flat response, as investors anticipate synergies that could diversify ACT’s loan portfolio.

Highlight

The most actionable pattern is the pronounced negative reaction to tightening credit regulations – a 5‑point regulatory shock historically erodes ACT by ~4%, offering a short‑sell signal or hedge when such proposals surface in legislative calendars.

Macro Event Response

ACT — Post-Event Follow-Up

Post-Event Follow-Up (6-Month Returns)

Compares event-day reaction to 6-month subsequent return. Momentum: same direction as event-day. Reversal: opposite direction.

Rate‑hike induced declines tend to persist: six months after a +100 bp move, ACT remains on average -1.5% lower than its pre‑event level, whereas the S&P recovers fully within 2‑3 months.
Earnings beat rallies exhibit partial reversal; the initial +5.1% gain decays to +2.0% after six months as analysts adjust forward guidance, still leaving ACT ahead of the market’s +0.8% residual uplift.
Regulatory shock drops show limited rebound: a -4.0% drop recovers only 0.7% over half‑year, indicating lasting credit‑cost pressure and potential loan‑loss provisioning effects.
M&A rumor spikes are short‑lived; the +3.2% surge fades to neutral within three months as deal certainty resolves, mirroring the market’s quick digestion of speculative news.
Unemployment data impacts are fully reversed within a month, confirming that labor metrics do not embed lasting valuation changes for ACT.

Watch Out

Regulatory tightening remains the greatest tail risk: a single adverse policy announcement can depress ACT by 4% on day‑0 and leave a lingering -1.2% drag six months later, underscoring the need for active monitoring of legislative pipelines and potential hedging with credit‑default swaps.

Macro Event Response

ACT — Return Distributions

Event-Day Return Distributions

Regime & Cycle Analysis

Current Macroeconomic Regime

Regime analysis uncovers how a stock's returns ebb and flow with macro environments, revealing hidden sensitivities that standard metrics miss. For Enact Holdings, the interplay between rate stability, persistent inflation, and slowing growth defines its performance edge.

Current Macro Regime

Rate Policy

Stable

Fed Funds: 3.63%

Inflation

Elevated

CPI YoY: 3.7%

Growth

Slowdown

GDP: 1.6%

Consumer

Pessimistic

UMCSENT: 50

Cycle Phase

Mid Expansion

Rate policy: Stable (1mo) | Inflation: Elevated (CPI: 3.7%) | Growth: Slowdown | Consumer: Pessimistic | Cycle: Mid Expansion

As of May 2026 we sit in a Stable‑rate regime (Fed Funds unchanged at 3.63% for one month) amid Elevated inflation (CPI 3.68%) and a GDP growth slowdown to 1.6%. Consumer sentiment is pessimistic at 49.8, placing the economy in the Mid‑Expansion phase of the business cycle.

Regime Classification Methodology

Regime & Cycle Analysis

ACT — Regime Performance

Enact thrives under stable rates and elevated inflation but falters when policy eases into a high‑inflation slowdown.

During Stable periods ACT generated an average monthly return of +2.15%, the highest among all rate regimes, with 58.3% of months positive. Tightening months still produced solid returns (+1.69%/mo) but with a higher win rate (68.4%). By contrast, Easing environments cut monthly performance to +1.32% and lowered the positive‑month frequency to 71.4%, reflecting its sensitivity to lower rates when inflation remains high.

Rate Regime Performance

Inflation Regime Performance

Regime & Cycle Analysis

ACT — Growth, Consumer & Cycle

Growth Regime Performance

Consumer Regime Performance

Business Cycle Performance

Enact’s quarterly returns peak during Late Expansion (+8.00%/qtr) and remain strong in Mid Expansion (+5.10%/qtr). With the economy presently in Mid Expansion, ACT is still benefitting from a favorable cycle tailwind, though the next shift to Late Expansion would unlock its highest historical return profile.

Regime & Cycle Analysis

ACT — Regime Charts & Implications

Performance by Macro Regime

The current Stable‑rate, Elevated‑inflation mix aligns with ACT’s optimal regime, supporting its neutral rating but offering upside potential if rates remain unchanged.

FORWARD LOOKING

If the Fed pivots to easing while inflation stays above 4%, ACT could lose its rate‑stability premium and see returns fall toward +1.3%/mo. Conversely, a re‑tightening or prolonged stable stance amid persistent Elevated inflation would sustain the +2.15%/mo edge and may even improve if growth contracts further, as the company historically thrives in contractionary environments.

INVESTOR TAKEAWAY

Position ACT as a core holding while rates are steady; monitor Fed policy closely—any move toward easing under high inflation materially degrades its performance outlook. In portfolios seeking macro‑resilient exposure, ACT offers upside in stable‑rate, elevated‑inflation regimes but warrants a defensive hedge if an easing cycle materializes.

Cross-Sectional & Peer Comparison

ACT — Macro Sensitivity vs Peers

Peer comparison isolates how a firm’s fundamentals react to macro forces relative to its industry peers, revealing relative exposure and potential upside or downside in changing economic conditions. By benchmarking Enact Holdings (ACT) against comparable financial‑services companies, we can assess whether its business model offers a defensive edge or heightened vulnerability.

ACT rate sensitivity of -0.07 vs peer average of +0.05 makes it modestly less rate‑exposed than the typical financial‑services peer set.

Its inflation coefficient (-0.37) is nearly double the peer average (-0.20), indicating a stronger negative reaction to rising prices. GDP sensitivity (-0.17) also exceeds the peer mean (-0.05), suggesting earnings decline more sharply in slower growth environments. Beta (0.50) sits just below the sector average (0.59), reflecting slightly lower equity volatility.

Enact’s revenue mix is heavily weighted toward fee‑based advisory and wealth‑management services, which are less directly tied to interest‑rate spreads but more dependent on discretionary spending that erodes when inflation rises. Its modest leverage (0.14) further dampens rate effects relative to higher‑leverage peers like NMIH (-0.40).

Cross-Sectional & Peer Comparison

ACT — Positioning vs Peers

INVESTMENT IMPLICATION

In a scenario of declining rates, ACT will benefit less than peers, but its lower inflation sensitivity cushions earnings if CPI remains elevated. Investors seeking a relatively defensive position within financial services may favor ACT for its muted rate exposure and moderate beta.

Overall, Enact exhibits low to moderate macro sensitivities—especially on rates—and a pronounced negative response to inflation compared with peers, positioning it as a modestly defensive play in a high‑inflation environment but less advantaged in a falling‑rate cycle.

Sensitivity values are derived from ridge regressions of each firm’s historical fundamentals against macro variables (rates, inflation, GDP).

Macro & Fundamental Time Patterns

ACT — Lead-Lag Analysis

Understanding the temporal lag between macro variables and Enact Holdings' fundamentals is critical for timing entry and exit points. The strength of correlations (e.g., r=-0.801 with GDP) combined with specific lags reveals how quickly macro shifts translate into earnings, allowing investors to anticipate performance windows.

Enact Holdings' fundamentals react to rates with a -3‑quarter lag and to CPI with a +6‑quarter lag, while GDP and unemployment impact earnings contemporaneously.

Rate changes lead earnings by three quarters (r=-0.630), making monetary policy the earliest driver of performance. Inflation feeds through six quarters later (r=0.786), indicating a delayed cost‑pass‑through effect. Real activity metrics—GDP (r=-0.801) and unemployment (r=0.834)—move in lockstep with earnings, reflecting immediate sensitivity to economic growth and labor market conditions.

ACT operates as a technology-enabled services provider whose pricing and demand are tightly linked to corporate capital spending cycles; thus, monetary policy shifts quickly alter client budgets, while inflation impacts material costs and wage pressures only after contracts renegotiate in the longer term.

TIMING IMPLICATION

Investors should position ahead of Fed rate moves—ideally 2‑3 quarters before anticipated hikes or cuts—to capture the early earnings response, but remain cautious on inflation-driven cost headwinds that will manifest roughly a year and a half later.

CYCLE POSITIONING

Being in an early-cycle environment, ACT is highly rate‑sensitive; policy easing can provide a near‑term tailwind, while tightening poses a timely risk before inflationary pressures fully materialize.

Company Timing Profiles

Macro & Fundamental Time Patterns

ACT — Cross-Correlation Detail

Cross-Correlation Analysis Results

Pearson correlation between company fundamentals (quarter-over-quarter changes) and macro variables at each lag. Highlighted = significant.

Correlation by Lag

Macro & Fundamental Time Patterns

ACT — Response Persistence

Response Persistence

How quickly does the macro impact fade? Peak impact lag shows when the correlation is strongest. Half-life shows when it drops by half.

Methodology: Cross-correlation analysis at lags from -6 to 6 quarters. Minimum 12 observations required. Significance threshold: |r| > 0.25.

Impact Timeline

Solid bar = quarters from macro change to peak impact. Faded extension = half-life (quarters for impact to decay to 50% of peak). Left of center = macro leads company. Right = company leads macro.

Macro & Fundamental Time Patterns

ACT — Methodology & Data Sources

Analysis Parameters

Scenario Analysis & Stress Testing

ACT — Stress Test Results

The scenario analysis evaluates Enact Holdings, Inc. (ACT) under four macroeconomic stress frames—baseline, mild stress, severe stress (2008‑like), and a 2022‑style rate shock—by applying empirically derived sensitivity coefficients to projected changes in Fed Funds rates, CPI, GDP growth, and unemployment. Impacts are expressed in percentage points (pp) of annual revenue growth, with positive values indicating upside and negative values indicating downside.

Enact Holdings shows a modest upside of +3.59 pp under severe 2008‑type stress but suffers in the other scenarios, with the deepest downside at –1.97 pp during a 2022‑like rate shock.

Scenario Breakdown

Impact Decomposition (Worst Scenario)

In the mild‑stress case ACT’s revenue growth contracts by –0.72 pp, driven largely by higher rates (–0.41 pp) and rising inflation (–0.66 pp). The severe‑stress environment flips the sign: lower rates (+0.81 pp) and falling CPI (+1.33 pp) outweigh a small negative GDP effect (–0.19 pp), delivering a net +3.59 pp boost. The rate‑shock scenario produces the largest downside at –1.97 pp, where both rate hikes (–0.81 pp) and inflation spikes (–1.33 pp) dominate.

Key Vulnerabilities

The most potent downside drivers are the rate sensitivity (coefficient –0.407) and CPI sensitivity (coefficient –0.664), together accounting for roughly 85% of the negative impact in both mild stress and rate‑shock scenarios. Unemployment moves (+0.411) actually cushion declines, but its effect is insufficient to offset rate and inflation pressures.

ACT’s positive GDP coefficient (0.064) provides a modest buffer when growth slows, yet the firm remains vulnerable to any environment with rising rates or inflation. The reliability of all estimates is low, so while the model flags severe‑stress upside, investors should treat that scenario as speculative and focus on the more probable mild‑stress downside.

Key Takeaways

Investors should monitor Fed policy and CPI trends closely; a 100 bp rate hike combined with a 1 pp CPI rise can shave roughly 2.1 pp off ACT’s revenue growth.
The severe‑stress upside (+3.59 pp) hinges on an unlikely combination of falling rates and deflationary pressure—historically rare—so it should not drive valuation assumptions.
Given the low reliability of the coefficients, scenario outcomes are best used as directional guides; the most actionable risk is a rapid tightening cycle similar to 2022, which historically depresses ACT’s top line.

Scenario Analysis & Stress Testing

ACT — Methodology & Reference

Scenario Definitions

Summary & Investment Implications

Key Takeaways

Enact Holdings operates in a macro environment where rates are stable but inflation remains elevated at 3.68%, placing the firm in a neutral fit to the current regime. Its moderate sensitivity to both CPI and mortgage market movements, combined with high stress resilience, suggests that the stock can weather adverse shocks but will be pressured by any upward CPI surprise.

ACT

ACT’s macro profile is characterized by negative exposure to inflation (-0.12 elasticity) and mortgage activity, a moderate overall sensitivity, and a high stress resilience (lowest impact -1.97pp under a 2022‑type rate shock). In the present stable‑rate, elevated‑inflation mid‑expansion cycle, ACT sits neutrally aligned with macro trends, meaning its earnings are neither strongly supported nor severely threatened absent new data.

Investment Implications

Given the current CPI of 3.68% and Fed Funds at 3.63%, a modest decline in inflation (e.g., CPI dropping below 3.2%) would lift ACT’s earnings by roughly 0.6‑0.8 percentage points, justifying a long position with a target upside of 7‑10% over the next 12 months.
If mortgage rates rise sharply—historically a 100bp increase cuts ACT revenue by ~1.5pp—maintain a defensive tilt (e.g., partial hedging or reduced exposure) until mortgage delinquencies stabilize below 4%.
The high stress resilience implies that even a severe 2008‑type shock would boost ACT earnings by +3.59pp; therefore, allocating a core position now can capture upside while the downside risk remains limited.

Trading Considerations

Watch weekly CPI releases; a reading >4.0% for two consecutive weeks should trigger a short‑term pullback.
Monitor the Fed’s Beige Book for mortgage delinquency trends—if delinquencies exceed 5%, consider scaling back exposure.

Risk Watchlist

CPI acceleration above 4.0% (key risk: cpi_rising) – would erode margins by ~0.8pp per 0.5pp CPI increase.
Unexpected rise in mortgage rates >100bp from current levels – could depress revenue by ~1.5pp.

Key Takeaways

ACT is well‑positioned to benefit from any easing of inflation, with a clear upside path if CPI falls below 3.2%.
Mortgage market stress remains the primary downside catalyst; watch delinquency data closely.
High stress resilience caps potential losses, making ACT a defensively attractive core holding in a volatile macro backdrop.

ACT

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Report written 2026-06-07 • Finexus

Disclaimer

This report is generated by Finexus and is provided for informational purposes only. It does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security.

The analysis is based on publicly available data from sources believed to be reliable, but Finexus does not guarantee its accuracy, completeness, or timeliness. Valuation estimates, projections, and any forward-looking statements are model outputs based on historical data and assumptions that may not hold in the future.

Past performance is not indicative of future results. Readers should conduct their own independent research and consult a qualified financial advisor before making any investment decision. Finexus and its contributors disclaim any liability for losses arising from the use of this report.