The last quarter saw markets delivering yet another period of pain to investors. A surge in risky assets saw many market participants being caught out by extremely bearish positioning and rush to add to risk assets, only to see equities falling by ~7% since July. Rather than chase the rally, we leaned into our conviction and sold into strength. This episode has amply demonstrated the importance of discipline in portfolio construction and staying invested. Coming in the year, we were underweight risk as sharp interest rates hikes by the Federal Reserve often led to financial accidents. The bank failures in March lent credence to this view. However, being underweight risk is very different position from having no risk within portfolios, as such a positioning may leave one vulnerable to the follies of market timing. Hence, our portfolio construction was focused on underweighting risk assets while anchoring portfolios within relative value so that clients can still benefit from equity rallies. Our security selection paid off as we realized gains on multiple equity positions ranging from ~15%-20%, against the benchmark’s returns of 7% year to date.

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