DIARY OF A PORTFOLIO MANAGER
It is hard to believe, but 2023 is coming to an end. Fortunately, both global equity and bond markets appear to be finishing the year on a strong note. This strength can be attributed primarily to two factors. First, the rate of inflation continues to show signs of moderating, raising expectations that central banks are at the end of their rate hiking cycles. And second, while growth has slowed – in some areas more than others – economies have generally handled the challenges better than expected.
As we all look ahead to 2024, you may find the firm’s flagship investment publication to be of interest: The Global Insight 2024 Outlook.
2023
While 2023 had its ups and downs, it has proven to be a year of economic and market resilience. On the economic front, growth has slowed but there have been positive surprises, especially in the U.S. where the consumer has been stronger than elsewhere. The inflation backdrop has meaningfully improved, transitioning from an accelerating rate last year to a decelerating one currently. This led to a better investing experience this year as volatility declined, as it historically does when inflation falls from high levels. Lower inflation and volatility have been welcome developments in the bond market, where returns have been more normal and favorable compared to last year. Equities have returns, with some markets performing better than others, driven particularly by large cap technology stocks. It is worth noting that the breadth of stock market gains improved towards the year’s end, suggesting more stocks have been participating in the rally of late.
2024
What’s in store for 2024? Our firm’s investment team believes the combination of high rates and restrictive lending standards is a recipe for a recession, particularly in regions like Canada and Europe where growth figures have been underwhelming. There is the chance the U.S. and other regions avoid a recession, and instead experience a “soft landing”, where growth slows but does not outright decline. In such a scenario, earnings would not decline, but would keep growing, more modestly, and help the equity market generate further gains. Nevertheless, the range of potential outcomes for equities over the next year remains wider than normal. Meanwhile, bond yields are significantly higher than they have been in some time which has re-established their role in portfolios. More specifically, bonds of high-quality issuers such as governments and highly rated companies now offer reasonably attractive levels of income combined with the potential to shield portfolios to some degree from any resurgence in volatility should a recessionary scenario develop.
Our approach to managing portfolios in 2024 will be consistent with this past year: treading more cautiously than normal given the range of potential outcomes. We expect to remain patient with the equity allocations in our portfolios, believing that the window of vulnerability that lies ahead will prove to be temporary. On the fixed income front, we continue to look for opportunities where appropriate to take advantage of higher yields that are available.
Reading List
The title should definitely not be called “Recommended Reading” as I am not sure what I’d recommend. I read a lot of books in 2023. Lots more fiction than usual. Perhaps it is because I found many non-fiction books underwhelming. Seemed to take a lot of time to not say a lot. A couple books, I was 100 pages in and had no real take away. Given the lack of recommendations (and I read a lot of business books that I would not recommend at all), I decided to look at a theme. That theme is books that were made into movies or TV series recently. These probably won’t appeal to everyone but then what does? I figured if the story is good enough for Amazon or Netflix to pump a bunch of money into and produce then it is probably good enough for me.
The Gray Man
Netflix made a movie based on the first book. Presumably more to come. Quick reads. Main character seems somewhat invincible and does not seem to develop much throughout the series. For a lone wolf, seems to put himself in bad situations to help out people that he really doesn’t need to help. Ok, perhaps there is some character development after all…
The Terminal List
Made into an Amazon Prime series. Story of a Navy SEAL who is wronged, his family is killed, and he decides to do something about it. Author is a former Navy SEAL, so his writing is accurate. He gets it vetted before publishing to ensure no secrets are released. The blacked-out items are left in the books but blacked out, of course. Makes me wonder what those items were.
The Lincoln Lawyer
Michael Connelly is a prolific writer and many of his books are turned into movies or series. Jurassic Park is probably most well known. The Lincoln Lawyer was a movie about 10 years ago and now a series on Netflix. I have not watched the series yet as I want to get through books first.
Midnight In the Garden of Good and Evil
I happened to be in Savannah Georgia in April and this is where this book is set. It is a true story and I visited several of the locations mentioned. Interesting group of characters that seem too strange not to be real.
American Prometheus
One of the big summer movies of 2023, Oppenheimer, the book, went deep into the man behind the making of the atomic bomb. It is a big book – and not light reading. Almost went into too much detail. Just because you have the info on the family tree does not mean to have to incorporate it into the story.
Enzo Ferrari
Again, very detailed. Sometimes I wonder if we need all the minute details of every conversation at every race. Ferrari was a complicated person. Rarely traveled to attend races. Preferred to stay close to home. The movie which came out Christmas Day focused more on his illegitimate family over the engineering and racing.
Have yourself a great New Year!
