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Over the first quarter of 2023, the LOM Stable Income Fund rose 0.22% as modestly rising equity
markets offset a decline in securities backed by financial institutions, including many hybrid
securities.
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. The Bloomberg consensus for Q1 growth is 1.6%, but that
is expect to decelerate to less than one percent through the end of the year.
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.
The fallout in banking stocks had a knock effect to hybrid securities as many issues in the $25
par market are backed by banks and other financial companies. During the last month of the
quarter, the iShares Preferred and Income Securities ETF (ticker PFF) declined by 4.53%.
At the end of the quarter, the Fund was allocated 65% in high dividend paying equities, 4% fixed
income and 29% hybrid securities, including preferred stock and $25 par notes. We continue to
use our investment discipline to uncover value and yield against the backdrop of a highly volatile
market and weakening economic conditions.
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.
