Quarterly Investment Outlook – Q1 2023

Monetary policy is a very blunt tool and may be ill-equipped to deal with all the intricacies of something as large and complex as the US economy. By raising interest rates aggressively to combat inflation, the Federal Reserve runs a high risk of breaking something in the economy as well. While its goal to bring down inflation may be well-intended, we believe it may be unintended consequences that come to dominate. As the events of the past weeks have shown, markets can turn sharply and violently in this environment. Multiple well-known hedge funds with billions under management have had to shut down or suffered staggering losses, as they were caught out in a classic flight to safety. As banks in the US collapsed, the rally in Treasuries was exacerbated by extreme positioning for “higher for longer” trades. Our portfolios have benefited due to prudent and conservative positioning in safe havens and quality assets. We caution investors against overextending portfolios to reach for returns. Returns in risky assets may prove ephemeral this environment, as investors have recently found out to their considerable costs.

We discuss our outlook and the factors we see as key to drive markets going forward below :

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