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Fast growing companies offered mixed results during Q4 2022 while our smaller cap opportunity positions ticked higher. In the growth equity category, higher quality, profitable companies outperformed those companies which lack current earnings. Meanwhile, our smaller cap opportunity stocks bounced nicely off the October lows.
During Q4, the LOM Innovation and Opportunity Fund rose 9.12%. Over the same time period, the widely followed ARK Innovation Fund fell -17.20%, which, in the short term, supports our strategy of pivoting away from less profitable, higher multiple innovation stocks earlier in the year.
Reacting to the Federal Reserve’s almost unprecedented barrage of restrictive monetary policies during the course of 2022, stock prices slid throughout the year, notwithstanding a recent bounce in Q4.
Fed policy initiatives during 2022 have included 425 basis points of interest rate increases, quantitative tightening and an historic shrinking of the money supply. A recession now appears likely in 2023 as key economic indicators continue to roll over. For example, the leading economic indicators (LEI’s) in the US have been printing lower since March of this year. In fact, with the exception of February, month-over-month LEI’s have been running negative all year long.
The good news for the markets is that at least some of the recession scenario is already baked into asset prices. Indeed, the recession this year will be one of the most widely anticipated ones in modern history and asset prices tend to react more dramatically to unexpected rather than expected events. While markets have the potential to retest their June and October lows, buyers may emerge at more distressed levels.
During the period, we continued to stay with our invest 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.
