LOM Innovation and Opportunity Fund Manager’s Report Q3 2022

Fast growing companies continued to experience a challenging environment in Q3 2022 as investors faced the prospect of tighter U.S. monetary policies and higher interest rates. High growth companies are typically more sensitive to changes in longer-term interest rates as their valuations rely more heavily on future earnings.

Over Q3, the LOM Innovation and Opportunity Fund fell 10.38%. During the same time period, the widely followed ARK Innovation Fund fell 8.47%. Since inception, on March 19, 2021 the Fund declined by 39.50% compared to -68.91% for the ARK Fund.

Regional lockdowns in China continue to plague the country’s production capacity. Global companies have been responding by shifting their supply chains from a “just in time” to a “just in case” model. The shift is more expensive for consumers but more resilient to supply chain shocks. Inflation remained stubbornly high throughout the third quarter, falling from 9.06% to 8.20% year-over-year.

With the unemployment rate at pre-pandemic lows, the Federal Reserve has been raising rates aggressively to tackle inflation. While most assets tend to be hurt by higher interest rates, growth companies are more sensitive because their value is more closely tied to future earnings. Analysts have revised the likelihood of a U.S. recession in the next 12 months from 33% to 50%. The International Monetary Fund is predicting global growth will slow to 2.7% in 2023.

The fund retained it’s 60% small cap / 40% innovation tactical allocation throughout the quarter, with some minor rebalancing within the respective strategies. The rising interest rate environment continues to be challenging for capital markets. Interest rates are expected to peak in 2023.

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