Public markets continued to trend steeply downward in Q2, as hawkish central bank policy and higher interest rates sent investors running for safety. News headlines about geopolitical conflicts, like the war in Ukraine, were replaced by recession talk and uncertain financial guidance from corporate executives. Some of the hardest hit stocks were those that carried the market to new highest only a few months ago (Tesla, Facebook, Apple and Microsoft to name a few). Bonds prices also continued to fall with rate hikes, causing significant headwinds for traditional Balanced investors. Notably, the largest mutual fund in Canada, the RBC Select Balanced Fund* returned -10.29% between March 31st and June 30th.
In this type of environment, indiscriminate selling is commonplace, and typically creates opportunity for the most prudent and patient investors. Our focus during Q2 was not to sell, rather to offset some these declines by adding inflation protected assets like commodities, and to look for opportunities within the list of high-quality names that we own.
Meanwhile, our Private Investment Pools held their ground nicely in the 3 months since March 31st. The Rockridge Private Debt pool returned 1.56% in the first quarter; the Forsyth Private Real Estate portfolio returned 3.07%; and the Laurier Private Equity Pool returned 0.16%. Our thesis that private investing is a critical component of investment strategy remains intact during one of the worst quarters for public markets in recent history.
Looking forward the economic picture remains unclear. GDP in the United States was surprisingly positive in July, and inflation remains untenable. In this scenario Central Banks will continue to pursue aggressive monetary policy while corporations and individuals alike will be forced to tighten their belts and accept that for the first time in years money is simply no longer cheap.
Few would argue that recession is likely on the horizon. That said, stock markets do not tend to function in perfect tandem with the economy. They typically move in advance, leading us into recession and back out again. We are currently in the midst of earnings season and getting a great look at exactly who has been impacted by rising costs thus far. This gives us a great opportunity to understand what we own, and position ourselves for the next phase of this market cycle.
Have an excellent summer.
-The Gilman Deters Team
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