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Following first quarter’s pandemic-related market plunge, high-dividend paying stocks, preferred issues and hybrids recovered modestly in the second quarter as countries began emerging from lockdown and returned to work. Within this more constructive environment, the Fund gained 18.01% over the period.
In terms of the broader macro environment, the global economic resurgence from March’s lows has been almost as dramatic as its sharp deterioration in Q1. The widely followed purchasing manager index (PMI) has shown strength in both manufacturing and services on a forward-looking basis. In June it was reported that the manufacturing PMI increased by 22.0% to 52.6 from 43.1 in the prior month after tumbling by over 18% from February to April. Similarly, U.S. single family home sales increased by 16.5% from April to May, although sales remain below levels seen at the beginning of the year.
Progress has also been positive but slower on the employment front. The post-World War II record unemployment rate of just 3.53% suddenly spiked to a new high of 14.7% for the month of June – over four percent higher than the elevated level experienced in the depths of the 2008 Great Recession. At the same time, continuing claims for American unemployment insurance hit at an all-time high of 24.9 million in May. However, that number has been gradually improving as the economy slowly reopens.
As of the end of quarter, the Fund’s asset allocation was approximately 50.5% equity and 49.9% fixed income. The fixed income component of the Fund is invested predominately in hybrid securities possessing characteristics of both debt and equity instruments. Over the latest period, our hybrid securities benefitted from tighter credit spreads. On the equity side, we continued to find value in a few overlooked sectors such as pharmaceuticals, financials and electric utilities as investors continue to chase after high growth stocks while ignoring the attractive dividend yields of many high-quality companies in a near-zero interest rate environment.
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.
