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During Q2, the LOM Stable Income Fund achieved a total return of 3.77% which compares favorably to the 2.51% on its stated benchmark and is inclusive of its 3.03% annualized dividend yield which is paid out monthly.
Global economic growth prospects brightened over the second quarter as the world continued to slowly reopen. In the U.S., progress has been surprisingly strong with the Atlanta Fed recently forecasting Q2 growth to come in at a very robust +10.0% annualized pace. At June’s Federal Open Market Committee (FOMC) meeting, the Fed’s updated Summary of Economic Projections placed the median estimate of calendar 2021 real gross domestic product (GDP) at +7.0%, a half point increase from the prior projection. Economic output had nearly achieved pre-pandemic levels this spring and is expected to go higher, but in a more volatile fashion.
Global growth is now expected to be 5.8% this year after a series of sharp upwards revisions from earlier projections. The vaccine rollout in many of the advanced economies has been driving the improvement as has America’s massive fiscal stimulus. World GDP growth is expected to be 4.4% next year but total global income could still be about three trillion less by end 2022 than was expected before the crisis hit.
In the fixed income markets, the U.S. Treasury yield curve flattened in the second quarter, driven mainly by longer-date issues experiencing falling yields. After reaching its one-year peak at March month end, the ten-year Treasury yield has been on a downward trend, decreasing by about 30 basis points to 1.4% by the end of June. Meanwhile. the 30-year yield declined 40 basis points to 2%.
At both the April and the June FOMC meetings, policymakers unsurprisingly maintained the Fed Funds target rate at the zero to 25 basis points range. Fed Chair, Jerome Powell acknowledged that the latest inflation data is higher than expected, but he still thinks any recent spike in inflation will only be transitory.
As of quarter end the fund was positioned at approximately 61% in dividend-paying equities and 36% in fixed income. The income component of the Fund includes an approximate 30% position in $25 par bonds and preferred stock issues earning relatively high rates of income, paid out quarterly. Approximately 6% of the portfolio is invested in individual higher-yielding bond issues. Despite the current ultra-low interest rate environment, we have not had to cut or reduce the dividend on the Fund.
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.
