LOM Stable Income Fund Manager’s Report Q4 2019

Positioned constructively in front of positive market trends, the Stable Income Fund achieved a net total return of 3.66%, including dividends during Q4 2019. For the year as a whole, the Fund provided a total return of 18.75% which exceeded the return on its stated benchmark by 3.96% as strong stock selection combined with good sector bets boosted both absolute and relative investment performance. Income-producing assets continued to win favor among investors throughout the period as interest rates fell across the curve on the back of three Fed Reserve interest rate cuts in 2019 while credit spreads ground tighter over the course of the year.

Equity markets caught a strong bid during Q4 and high dividend-paying stocks also benefitted, although to a lesser extent. For example, while the Dow Jones Dividend Select stock index rose by 4.59%, the index lagged the S&P 500 index return of 8.53% by 3.94% in U.S. dollars. Typically higher yielding equities such as real estate investment trusts (REIT’s) and electric utilities were the worst performing equity sectors in Q4. On a worldwide basis, the Dow Jones Global Dividend Select stock index lagged the broader MSCI World Equity index by 78 basis points during the quarter.

During Q4, non-U.S. dividend payers staged a comeback after several years of relative underperformance. The Dow Jones Global Dividend stock index outpaced the U.S.-centric Dow Jones Dividend Select stock index by 4.38% for the period as the greenback fell from the summer highs while Pound Sterling and the Euro rose sharply.

As of the end of quarter, the Fund’s asset allocation was approximately 51.0% equity and 48.0% fixed income, with the fixed income component of the Fund invested mostly in hybrid securities which possess characteristics of both debt and equity instruments. Over the latest period, our longer duration hybrid positions benefitted from both falling interest rates and tighter credit spreads. On the equity side, we continued to find opportunities to add to some of our core positions while also adding a few new equity-income positions as fixed income yields became increasingly slim.

In the fixed income markets, we saw the Treasury yield curve begin to un-invert during the second half of 2019 while risk premiums ground tighter. Lower interest rates in other developed countries, along with risk averse sentiment among investors have driven up demand for US investment grade bonds, U.S. dollar denominated baby bonds, preferred stock and other hybrid securities. The spread between BBB rated bonds and 10-year Treasuries reached its lowest level of the year in December. Going forward, we believe security selection will continue to be increasingly important for driving both absolute and relative investment performance.

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.