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Over the first quarter of 2023, the LOM Balanced Fund rose 4.15% as risk markets rebounded
from the sharp 2022 sell off on hopes of a soft landing for the global economy.
Ongoing central bank interest rate increases combined with aggressive credit tightening through
government programs such as quantitative tightening (QT) continued to pressure economic
growth over the first quarter of 2023.
History shows the Federal Reserve typically tightens credit conditions until something breaks. In
this case, Silicon Valley Bank and Signature Bank in New York were abruptly declared insolvent
last month, representing the second and third largest bank failures in American history. Meanwhile in Europe, banking stalwart Credit Suisse was forced into a shot gun merger with competitor UBS as the 166-year old bank teetered on the edge of bankruptcy.
In the last weeks of the quarter, financial regulators and other lenders stepped in with measures
to stem a fallout from the worst banking crisis in fourteen and a half years. The government
response helped investors regain their risk-on appetite going into quarter as markets rallied in the
last week of the quarter. The Senate Banking Committee also held a hearing on the recent bank
closures, which shone a spotlight on failures in the overall regulatory system.
Despite setbacks in the banking sector, global equity markets rallied over Q1 as inflation fears
steadily eased. The Bureau of Labor Statistics Consumer Price Index, showed U.S. inflation fell
from 7.1% to 6.0% (November to February). Global inflation, while varied by country, followed
similar trends.
Reversing last year’s “flight to safety” trend, in Q1 we saw risk aversion abate and riskier assets
disproportionately benefiting so far this year. Information Technology (+21.82%), Communication
Services (+20.50%) and Consumer Discretionary (+16.05%) sectors saw the largest gains.
Financials (-5.56%), Energy (-4.71%) and Health Care (-4.31%) were the weakest sectors. The
Euro Stoxx gained 14.32%, Japan’s Nikkei index was in line with the broader market at 8.45%,
while China’s Hang Seng lagged at +3.51%.
As of quarter-end the Balanced Fund asset allocation was approximately 72% equities, 26% fixed
income and 2% cash reserves. Strategic positions in the Fund include exposure to healthcare,
semiconductors, high yield and Europe.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
