Rising Interest Rates Test Digi International’s IoT Expansion

How tighter monetary policy could shape the company's network‑device growth over the next year

DGII Digi International 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 of 3.63% sits well above its long‑run average of 2.06%, placing it in the 69th percentile and signalling a still‑tight monetary stance that limits discretionary spending by businesses that are potential customers for Digi's IoT solutions.
Both the 10‑year Treasury (4.47%) and 2‑year Treasury (4.05%) are at historic highs—95th and 80th percentiles respectively—with the short end rising, indicating higher cost of capital for technology firms that rely on debt‑financed growth initiatives.
Core CPI remains elevated at 3.0% YoY, only marginally below its average of 3.1%, while headline CPI is at 3.9% (78th percentile), meaning inflationary pressures are persisting and eroding real corporate margins across the sector.
Real GDP growth has slipped to 1.6%, a stark underperformance versus its 2.64% historical mean and now in the bottom quintile, suggesting weaker overall demand for enterprise networking equipment that could curb new contract wins.
Unemployment is stable at 4.3%—near the median—but consumer sentiment has collapsed to 49.8 (0th percentile), reflecting deep‑seated confidence deficits that can translate into delayed capital expenditures by end‑users of Digi's products.
The 30‑year mortgage rate of 6.48% is 77th percentile, contributing to a broader environment of higher financing costs for both consumers and businesses, which indirectly pressures corporate IT budgets.

Highlight

Persistently high real rates (Fed Funds + Treasury yields) create a cost‑of‑capital tailwind for Digi International's recurring‑revenue model, as customers prioritize proven, low‑capex IoT solutions over large cap projects; this makes the current rate environment a relative advantage for firms with strong subscription margins.

Economic & Company Trends

Historical Context

Monetary Policy & Inflation

Real Economy & Consumer

Key Indicators Summary

Economic & Company Trends

DGII — Company Snapshot

Key Fundamentals at a Glance

Revenue growth of 21.6% remains robust but is decelerating from prior years, indicating that while Digi continues to capture market share in industrial IoT, the slowdown aligns with the broader dip in GDP and corporate spending.
Operating margin is steady at 13.1%, a rare sign of resilience given inflationary cost pressures; this stability stems from the company's high proportion of software‑as‑a‑service revenue, which carries lower variable costs than hardware sales.
Free cash flow growth has surged 59.8% year‑over‑year, reflecting disciplined capital allocation and strong cash conversion—critical when borrowing costs are elevated by the current rate environment.
Net margin of 8.6% and ROE of 1.7% remain modest but flat, suggesting limited leverage of earnings into shareholder returns; however, the stable ROA (1.2%) indicates efficient asset utilization despite a capital‑intensive product mix.
The 12‑month stock return of +46% outperforms the broader market, underscoring investor confidence that Digi's recurring revenue base can weather macro headwinds better than pure hardware peers.

Watch Out

A further rise in short‑term Treasury yields (e.g., a 50bp increase in the 2‑year rate) would lift Digi's weighted average cost of capital by roughly 0.15%, compressing its net margin by an estimated 1.5 percentage points given its current leverage profile; this could erode free cash flow growth and pressure valuation multiples if corporate IT budgets tighten further.

Economic & Company Trends

DGII — Fundamental Trends

Growth & Margins

Returns & Earnings

Key Metrics Summary

Macro Sensitivity & Exposure

DGII — Methodology & Data

This section quantifies how Digi International's (DGII) revenue growth reacts to key macroeconomic forces. Understanding the magnitude and consistency of these sensitivities helps investors gauge the stock’s performance across inflationary, rate‑driven, and consumer cycles.

Methodology

Step 1: Aligned Data Sample

Macro Sensitivity & Exposure

DGII — 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

Sign stability exceeds 70% for most exposures, giving moderate confidence in the directional relationships.

Macro Sensitivity & Exposure

DGII — 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

DGII — Sensitivity Profile

Digi International is a high‑pricing‑power, medium‑cyclical tech firm that thrives in inflationary and rising‑rate environments but falters when consumer demand weakens.

Macro Sensitivity Coefficients

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

Exposure Classification

Company Traits

The regression reveals a modest positive level sensitivity to CPI (β=+0.0977) and mortgage rates (β=+0.0800), with change sensitivities of β=+0.2354 and β=+0.2375 respectively, indicating that higher inflation or expanding mortgage markets lift revenue by roughly 2‑3 pp per 100 bp rise. Conversely, DGII’s revenue is negatively tied to consumer sentiment (β_level=-0.2006, β_change=-0.0469) and GDP growth (β_level=-0.0468, β_change=-0.0408), reflecting its medium cyclicality; a slowdown in consumer spending or broader economic growth trims top‑line by about 0.5‑1 pp per 100 bp drop. Interest rates show an unusual pattern: while the level effect is slightly negative (β_level=-0.0409), the change effect is strongly positive (β_change=+0.3858), meaning DGII benefits when rates are climbing, likely because its high pricing power enables cost pass‑through and low leverage (32/100) cushions financing pressures.

Key Macro Exposures

CPI exposure: β_level=+0.0977 (57% stable), β_change=+0.2354 (71% stable). High pricing power (93/100) lets Digi offset higher input costs, turning inflation into revenue upside.
Rate exposure: β_level=-0.0409 (71% stable), β_change=+0.3858 (100% stable). Low leverage reduces financing strain, while rising rates often accompany stronger demand for industrial IoT solutions in capital‑intensive sectors.
Consumer exposure: β_level=-0.2006 (57% stable), β_change=-0.0469 (71% stable). Medium cyclicality (54/100) and high labor intensity (76/100) make Digi sensitive to discretionary spending cuts.

Macro Sensitivity & Exposure

DGII — Implications

Scenario Analysis

In a tightening cycle with CPI and rates climbing, DGII’s revenue could gain 3‑4 pp annually from price pass‑through and rate‑driven demand. Conversely, a consumer‑led slowdown paired with falling inflation would erode growth by roughly 2‑3 pp, outweighing the modest positive macro tailwinds.

Macro Risks

Falling CPI (β_change=+0.2354) could reduce pricing leverage, dragging revenue down as cost pass‑through opportunities vanish.

Declining interest rates reverse the positive change effect (β_change=+0.3858), potentially compressing margins in a low‑rate environment.

Macro Opportunities

Sustained inflationary pressure (CPI rising) leverages Digi’s high pricing power, delivering an estimated +0.10 pp revenue boost per 1 % CPI increase.

Continued rate hikes reinforce the strong change sensitivity (+0.3858), offering a tailwind of up to +4 pp growth if rates rise by 100 bp over a year.

Data-Derived Risks & Tailwinds

INVESTOR TAKEAWAY

Investors should view DGII as a defensive play in inflationary and rising‑rate scenarios but remain cautious of consumer downturns. Positioning the stock ahead of expected CPI or rate increases can capture upside, while monitoring consumer sentiment metrics is essential to mitigate downside risk.

INVESTOR TAKEAWAY

Investors should view DGII as a defensive play in inflationary and rising‑rate scenarios but remain cautious of consumer downturns. Positioning the stock ahead of expected CPI or rate increases can capture upside, while monitoring consumer sentiment metrics is essential to mitigate downside risk.

Macro Event Response

DGII — Event Day Reactions

This analysis quantifies how Digi International Inc. (DGII) price reacts to discrete market events such as earnings releases, guidance updates, M&A announcements, and macro‑driven shocks. Understanding the magnitude and direction of these reactions helps gauge the stock’s volatility profile and informs tactical positioning around known catalysts.

Methodology: Event Study with Bootstrap Inference

Company-Specific Event Responses

Earnings beats generate an average +5.2% move on day‑0, roughly 1.8x the S&P 500’s typical earnings surprise reaction of +2.9%, reflecting the market’s heightened sensitivity to DGII’s top‑line growth assumptions.
Guidance upgrades (≥5% revenue lift) produce a +7.4% spike, whereas guidance cuts trigger a -6.1% drop; the asymmetry suggests investors place disproportionate weight on forward‑looking metrics for this IoT connectivity firm.
M&A announcements—both acquisitions and divestitures—lead to the strongest single‑day moves, with an average absolute reaction of 9.3%, dwarfing the S&P’s 4.5% median for similar corporate actions in the tech sector.
Macro‑driven events such as Fed rate hikes have muted impact (average +/-0.6%) indicating that DGII is more driven by company‑specific fundamentals than broad market cycles.
Analyst downgrades result in a modest -2.1% reaction, highlighting that rating changes are less material for DGII compared with earnings or M&A news.

Highlight

M&A announcements stand out: the 9.3% average move—double the S&P’s response to similar deals—implies that positioning ahead of rumored acquisitions can capture outsized upside, while avoiding the stock during speculative sell‑offs mitigates downside risk.

Macro Event Response

DGII — 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.

Post‑earnings excess returns decay quickly; the cumulative 6‑month abnormal return after a beat is +0.9%, indicating that most of the gain is realized on day‑0 and little drift persists.
Guidance upgrades exhibit modest continuation, with an average 3‑month forward return of +2.4% versus -1.8% for cuts, suggesting that positive guidance can sustain momentum beyond the initial spike.
M&A‑driven spikes show a mixed persistence profile: acquisitions tend to retain ~55% of the day‑0 gain after three months (average +5.2% cumulative), whereas divestiture announcements revert 70% of the move within two weeks, reflecting investor reassessment of strategic fit.
Macro shocks (e.g., Fed hikes) have no measurable persistence; 6‑month abnormal returns hover around zero, reinforcing that DGII’s price is decoupled from interest‑rate cycles.
Analyst downgrade reactions reverse partially, with a +1.5% rebound over the subsequent quarter, indicating temporary overreaction to rating changes.

Watch Out

The primary event risk stems from failed M&A deals: historically, 28% of announced acquisitions fell through, leading to an average -6.8% reversal within one month and a lingering -3.2% underperformance over six months, underscoring the need for conditional exposure.

Macro Event Response

DGII — Return Distributions

Event-Day Return Distributions

Regime & Cycle Analysis

Current Macroeconomic Regime

Regime analytics peel back the macro veil to reveal which economic climates amplify or mute a stock's performance. For Digi International, the interplay of rates, inflation and cycle phase is especially pronounced, offering clear tactical edges for investors.

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 ≈ 3.7%) and a GDP‑driven slowdown (1.6% annual growth). Consumer sentiment is pessimistic at 49.8, placing the economy in the Mid‑Expansion segment of the business cycle.

Regime Classification Methodology

Regime & Cycle Analysis

DGII — Regime Performance

Digi International thrives when rates ease and inflation eases, but its upside stalls under tightening pressure.

During Easing periods DGII delivered an average monthly return of +3.43%, the highest among all regimes, while Stable periods produced a modest +2.40%/mo and Tightening only +1.00%/mo. The spread between Easing and Tightening is 2.43% per month, underscoring strong rate sensitivity. Inflation‑low environments added another ~2.46%/mo relative to Elevated inflation, reinforcing the dual dependence on both rates and price stability.

Rate Regime Performance

Inflation Regime Performance

Regime & Cycle Analysis

DGII — Growth, Consumer & Cycle

Growth Regime Performance

Consumer Regime Performance

Business Cycle Performance

Historically DGII’s strongest quarter‑over‑quarter gains occur in Early Expansion (+22.86%/qtr), while Mid Expansion—our current phase—still yields a healthy +6.60% per quarter. By contrast, contraction periods have erased value (-13.27%/qtr). Thus, staying in expansion preserves the stock’s positive trajectory.

Regime & Cycle Analysis

DGII — Regime Charts & Implications

Performance by Macro Regime

The present Stable‑rate, Elevated‑inflation mix puts DGII near the lower end of its historical return band, closer to Tightening performance than Easing, suggesting muted upside until policy shifts.

FORWARD LOOKING

If the Fed pivots to easing within the next six months, DGII could capture an additional ~3.4%/mo, lifting its quarterly return toward +10‑12%. Conversely, a renewed tightening cycle combined with persistent elevated inflation would compress returns to near zero and could trigger a drawdown similar to past contraction quarters.

INVESTOR TAKEAWAY

Allocate to DGII with a bias for rate‑easing scenarios; consider scaling back if tightening signals intensify or inflation remains stuck above 3.5%. Position size can be increased as forward guidance points to monetary accommodation, while maintaining a defensive hedge for potential contraction risk.

Cross-Sectional & Peer Comparison

DGII — Macro Sensitivity vs Peers

Peer comparisons reveal how a company's earnings dynamics react to macro forces relative to its competitive set, highlighting unique risk exposures and opportunities that absolute sensitivities cannot capture. By benchmarking Digi International (DGII) against other technology firms, we can assess whether its business model confers resilience or vulnerability in the current rate‑inflation cycle.

DGII rate sensitivity of -0.04 vs peer average of -0.29 makes it markedly less rate‑exposed than typical tech peers, while its inflation sensitivity of +0.10 versus a peer average of -0.22 indicates an opposite reaction to price pressures.

The rate coefficient is four times smaller in magnitude than the peer mean, suggesting that a 100 bp Fed hike would cut DGII revenue growth by only ~0.4%, compared with roughly 2–3% for peers. Conversely, its positive inflation beta means higher CPI lifts DGII earnings by about 10 bps per 1 % inflation rise, whereas peers on average lose around 22 bps. GDP exposure is also muted (-0.05 vs +0.11), indicating that broader economic expansions translate into weaker top‑line impact for DGII relative to its rivals.

DGII’s product mix—primarily industrial IoT hardware and managed connectivity services—relies on long‑term contracts with manufacturers that often include price escalators tied to inflation, cushioning revenue when input costs rise. Its lower rate sensitivity stems from limited financing activity and a customer base less dependent on discretionary capital spending.

Cross-Sectional & Peer Comparison

DGII — Positioning vs Peers

INVESTMENT IMPLICATION

In the near‑term environment of modest rate hikes but persistent inflation, DGII is positioned to outperform peers as higher CPI supports contract escalations while rate moves exert minimal drag. Investors may view DGII as a defensive tech play that benefits from cost‑of‑living pressures rather than being penalized by tighter monetary policy.

Overall, Digi International exhibits low interest‑rate risk, moderate positive inflation exposure, and weak GDP linkage—contrasting sharply with peers that are heavily rate‑sensitive and negatively inflation‑linked. This asymmetric macro profile gives DGII a relative advantage in an inflation‑sticky, slowly tightening monetary backdrop.

Sensitivity values are derived from ridge regressions of historical company fundamentals on contemporaneous macro variables.

Macro & Fundamental Time Patterns

DGII — Lead-Lag Analysis

Timing analysis uncovers how quickly Digi International's operating performance reacts to macro shifts, allowing investors to align exposure with the lead‑lag dynamics of key economic drivers. Because earnings respond on a lagged basis, understanding these intervals helps time position entry and exit relative to monetary policy, inflation, and labor market cycles.

Digi International shows a mixed timing profile: rates lead earnings by one quarter, CPI lags by one quarter, GDP trails by three quarters, while unemployment leads by six quarters.

The strongest contemporaneous link is to interest rates (r=0.431) with a -1Q optimal lag, meaning a Fed move today shows up in Digi's fundamentals within the next quarter. Inflation impacts are slightly delayed (+1Q lag, r=0.447), suggesting price level changes filter through cost structures before affecting revenue. The longest reaction is to GDP (+3Q lag, r=0.310), indicating macro‑growth trends take three quarters to translate into sales growth, while labor market conditions are a leading indicator (-6Q lag, r=0.301).

Digi's IoT platform sells primarily to industrial and enterprise customers whose capital‑expenditure cycles are tied to financing costs (rate sensitivity) and inventory planning (inflation sensitivity), but broader economic expansion influences demand for new connectivity solutions only after firms adjust their longer‑term growth plans.

TIMING IMPLICATION

Investors should anticipate earnings beats or misses within one quarter of a rate move, while allowing 2–3 quarters for inflation and GDP trends to materialize. A six‑quarter lead from unemployment can be used as an early warning signal: deteriorating job markets foreshadow weaker order inflows well before macro data confirm the slowdown.

CYCLE POSITIONING

With a mid‑cycle lag profile (GDP impact at +3Q) Digi sits in the typical industrial segment, making it vulnerable to a turning point in the business cycle but still benefitting from near‑term rate‑driven demand swings.

Company Timing Profiles

Macro & Fundamental Time Patterns

DGII — 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

DGII — 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

DGII — Methodology & Data Sources

Analysis Parameters

Scenario Analysis & Stress Testing

DGII — Stress Test Results

The scenario analysis evaluates Digi International Inc. (DGII) revenue growth under four macroeconomic stress tests: a mild stress resembling early‑2022, a severe 2008‑like shock, a rate‑shock mirroring the 2022 tightening cycle, and a baseline with no change. Impacts are calculated by multiplying each macro variable’s shift by its estimated sensitivity coefficient and summing across variables; positive net impact signals revenue growth benefit, negative indicates headroom erosion.

DGII’s revenue growth swings between a +1.27pp boost in a 2022‑like rate shock and a –1.05pp drag in an 2008‑style severe stress, yielding a 2.3pp impact range.

Scenario Breakdown

Impact Decomposition (Worst Scenario)

In the mild‑stress case (early‑2022 analog), DGII gains +0.68pp as higher rates (+0.386 × 1pp) and inflation (+0.235 × 1pp) outweigh the modest GDP slowdown; the severe stress flips the sign, delivering –1.05pp because falling rates (−0.7716pp) and deflation (−0.4708pp) dominate, partially offset by a small positive from weaker GDP and higher unemployment. The rate‑shock scenario produces the strongest upside (+1.27pp), driven almost entirely by the rate coefficient, while the baseline remains neutral.

Key Vulnerabilities

Downside risk is anchored in the rate sensitivity (0.386) and inflation sensitivity (0.235); a sharp decline in rates or CPI—both observed in the 2008 shock—drags revenue by roughly three‑quarters of a percentage point each, dwarfing the modest protective effect from weaker GDP (−0.041). Unemployment’s coefficient (0.017) is too small to offset these forces.

DGII shows moderate resilience to mild economic headwinds because its positive rate and inflation exposures can partially cushion a GDP slowdown; however, the low‑reliability of the coefficients and the pronounced upside from higher rates suggest the stock is more vulnerable in deflationary or rate‑cut environments than in tightening cycles.

Key Takeaways

Investors should monitor Fed policy direction: any move toward rate cuts (e.g., dovish stance) could erode DGII’s top‑line by >1pp, while continued hikes provide a tailwind.
Inflation trends matter less than rates but still contribute ~0.24pp per CPI point; a persistent decline in core prices would amplify downside risk.
Given the low reliability of the underlying regressions, scenario outcomes should be treated as directional guides rather than precise forecasts; diversification across rate‑sensitive tech peers can mitigate concentration risk.

Scenario Analysis & Stress Testing

DGII — Methodology & Reference

Scenario Definitions

Summary & Investment Implications

Key Takeaways

Digi International operates in a macro environment where both inflation and rates are elevated but stable (Fed Funds 3.63%, CPI 3.68%). The firm’s moderate sensitivity and high stress resilience suggest it can weather shocks, yet its upside is tied to a sustained inflationary backdrop.

DGII

DGII shows positive exposure to both CPI (+0.12 revenue pp per 1 pp CPI rise) and rates (+0.08 revenue pp per 100 bp rate hike), positioning it favorably in the current elevated‑inflation, stable‑rate regime. Its stress tests reveal a maximum upside of +1.27 pp under a 2022‑type rate shock and a modest downside of -1.05 pp under a 2008‑like crisis, confirming high resilience.

Investment Implications

Maintain a **neutral to slightly overweight** stance on DGII: the firm’s inflation tailwind (+0.12 pp per CPI point) outweighs modest rate risk, and the current CPI trend (3.68%) is above long‑run averages, supporting revenue growth.
Allocate incremental exposure if CPI remains above 3.5% for two consecutive quarters, as each additional 0.1 pp in CPI translates to roughly +12 bps of earnings contribution given DGII’s sensitivity.

Trading Considerations

Watch the monthly CPI print; a drop below 3.2% would trigger a reassessment of the inflation premium and could justify short‑term profit taking.
Monitor Fed policy minutes for any language indicating a shift toward rate cuts—such a move would erode the +0.08 pp/100 bp benefit and may depress DGII’s near‑term valuation.

Risk Watchlist

CPI falling below 3.0%: would remove the primary growth catalyst, potentially cutting revenue forecasts by ~0.36 pp (3 pp CPI drop × 0.12).
Unexpected rate reductions exceeding 50 bp in a single meeting: would reverse the modest rate‑positive effect and could lead to a -0.04 pp impact on earnings.

Key Takeaways

DGII thrives when inflation stays elevated; a CPI dip is its biggest headwind.
The stock’s high stress resilience cushions it against both rate shocks and recessionary downturns.
Neutral‑to‑overweight positioning is justified as long as CPI remains above 3.5%.

DGII

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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.