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Fast growing companies and non-financial small cap stocks provided superior returns in Q1 2023. In the growth equity category, technology stocks including many in the software and semiconductor industries led market gains. Meanwhile, our smaller cap opportunity stocks continued to bounce nicely off last October’s lows.
During Q4, the LOM Innovation and Opportunity Fund rose 9.12%. Over the same time period, the S&P 500 rose 7.03%. The widely followed ARK Innovation fund rebounded sharply in the quarter but continues to lag over the trailing one-year period.
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.
During the period, we continued to stay with our investment discipline of opportunistically adding to companies having an attractive risk/reward profile while eliminating those position which either reach our price targets or are showing signs of materially weaker fundamentals.
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.
