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Fast-growing companies continued their upward trajectory in the second quarter of 2023, building upon the progress made in the first quarter. Leading the market gains in the growth equity sector were technology stocks, particularly those in the software and semiconductor industries. Notably, chipmakers Nvidia and Marvell witnessed substantial increases of 52.3% and 38.1%, respectively, during the quarter.
During Q2, the LOM Innovation and Opportunity Fund advanced by 8.81%, following a 9.39% increase in the first quarter. The fund’s year-to-date gain of 19.03% represents an outperformance of 312 basis points against the S&P 500. Another widely followed fund, the ARK Innovation fund, showed a strong rebound in the first half of 2023; however, its performance over the past year has been comparatively lagging.
Throughout the second quarter of 2023, ongoing increases in central bank interest rates, coupled with aggressive credit tightening through initiatives such as quantitative tightening (QT), continued to exert pressure on economic growth. In Q1, U.S. GDP rose by 1.8%, with a projected overall growth rate of 1.3% for the entire year. However, although the economy remains weak, concerns about an imminent recession have diminished since the beginning of the year, thanks to a relatively stable housing market and a recovery in demand for various goods and services from pandemic-induced lows.
In May, the purchasing managers index (PMI) came in at 46.9, which was slightly lower than both the previous month’s reading of 47.1 and the anticipated 47.0. A PMI below 50.0 indicates a slowdown in economic growth. On the other hand, despite the unemployment rate climbing to 3.7% in May from a 53-year low of 3.4%, the U.S. labor market has remained relatively robust, with nonfarm payrolls increasing by 339,000, surpassing expectations following an upwardly revised 294,000 advance in April.
Despite the backdrop of rising interest rates and sluggish economic growth, global equity markets continued their upward momentum this year as concerns over inflation gradually eased. The U.S. Bureau of Labor Statistics’ Consumer Price Index revealed a decline in U.S. inflation from 7.1% to 6.0% between November and February, and similar trends were observed globally, albeit with some variation among countries. In May, we adjusted the portfolio allocation to increase the weighting of innovative growth stocks compared to small caps. This tactical shift proved timely, as the demand for artificial intelligence (AI) stocks surged following our well-timed purchases, bolstered by Nvidia’s impressive earnings report. Our current portfolio allocation stands at approximately 57% in innovative stocks and 43% in small-cap opportunities.
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.
