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Over the first three quarters of 2024 the LOM Fixed Income Fund gained 4.88% as our managed fixed income portfolio outperformed the broader market. Over the past year, the Fund provided a total return of 8.11%.
The global economic outlook continued to stabilize in Q3 despite increased uncertainty in the geopolitical landscape. Most economists expect the global economy to grow modestly over the next year while anticipating lower inflation levels which will allow the Federal Reserve to reduce the federal funds rate and support an ongoing economic expansion of around two percent for both the second half of 2024 and for 2025.
An easing of inflation and evidence of global commerce resilience are positive signs. However, policy-makers face the challenge of driving faster economic growth while also trying to influence its structural character. Furthermore, public debt burdens represent a challenge to macroeconomic stability in both advanced and developing economies.
In the third quarter of 2024, the US Treasury yield curve shifted downward significantly. The move was most notable on the one and two-year maturities, which decreased by more than 110 basis points. The risk premium for investment-grade bonds ended the quarter at around the same level as the beginning of the quarter.
At the Federal Open Market Committee (FOMC)’s September meeting, policymakers voted for a 50 basis point rate cut, bringing the Fed Fund target rate to a range of 4.75% – 5.00%. An easing of inflation and a slightly higher unemployment rate drove Fed Reserve members to reduce rates for the first time since 2020. According to the FOMC dot plot, a survey of policymakers’ rate projections, most FOMC members expect the Fed Funds rate to end the year at 4.37%. The Fed funds future market predicts the rate will end the year at 4.32%.
In this environment, we continue to invest selectively in investment grade bonds with an eye towards opportunistically extending duration. We also continue to hold approximately ten percent of the portfolio in hybrid securities paying up to 7% on a current yield basis.
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.
