Kovitz Newsletter 2Q23

07-17-2023

MARKET INSIGHTS

At this time last year, financial markets were reeling. People were feeling the pressure. According to a CNN/SSRS poll done twelve months ago, 64% of respondents said the U.S. was currently in a recession. During the past year, US stocks have rallied nearly 20% and are now only 5% below the last market peak in January 2022. The moral of this story is not to poke fun at professional or amateur economic forecasters, but that accurately predicting the short-term direction of financial markets is next to impossible for all who make the attempt. The key, as always, is to not let short-term worries affect long-term plans.

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CORE EQUITY COMMENTARY

While a great deal of buying and selling during a quarter may give the impression we were doing our job, we believe less investment related activity is more in terms of indicating the quality of our decision-making regarding where to invest capital for the long-term. In the absence of extreme volatility (as opposed to the typical ups and downs of the market), constant turnover of the portfolio of a long-term investment manager is generally an indication of poor investment decisions that must be reconsidered. The most recent quarter saw limited market variability, hence most of our actions were largely around the edges, except for one new portfolio position.

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FIXED INCOME COMMENTARY

As fixed income markets take center stage, it is crucial to discuss the best approach to investing in this asset class. Typically, investors first turn to exchange-traded funds (ETFs), which have witnessed remarkable growth in recent years, and for valid reasons. We believe a better approach to managing most fixed income portfolios is through customized, separately managed accounts. This control becomes particularly valuable during periods of market turbulence. Investors owning bonds outright can ride out the storm with confidence that prices will stabilize and bonds will mature at par. Through a fund structure, the stressed selling of others means losses are crystalized for all.

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