In the aftermath of dismal year 2022 due to the well known reasons (FED, Ukraine, Covid/supply chains) and of the end of year tax selling we observed a strong reversion towards the mean long term returns The ACWI appreciated by 7.4 pct. The NASDAQ outperformed the S and P 500 and the barely positive DJI as the battered growth style and tech stocks recovered strongly and outperformed value.
The consensus view at the end of last year was indeed pessimistic for the first half of 2023 but the surprises came on the positive side. We are happy that our contrarian opinion was justified after the extreme moves of 2022 and that we stood our course. It was not psychologically easy as several coherent strategists were very pessimistic
The recent problems of the banking crisis were like a blessing in disguise. If the banking crisis remains contained, in its aftermath lending by banks will probably be curtailed and some further increases in interest rates could be avoided. Growth stocks recently benefited from drops in interest rates. Surprised market participants were caught underinvested in growth and tech.
Nobody knows the short term market future performance and whether the market’s rather pessimistic assessment will materialize. As always, future exogenous shocks will play their role .
At present, we feel more confident by :
A ) strategically, staying consistently In the medium/ long run well invested in the market to enjoy the equity premium,
B) Keeping the core investment holdings : good growth companies especially in tech, diversified in the various sectors and internationally.
C) tactically, taking advantage of range trading using a smaller part of the portfolio mainly through options while keeping at the same time the long term strategic investments (*)
D) Avoiding excessive abrupt changes in the portfolio holdings in an attempt to enhance performance. In addition, we are not interested in following most participants in emphasizing the successful investment style of the recent past. Instead, we will be continuing to focus on our strategic decisions.
Our effort is to continue to have the courage to act marginally in the short run against the consensus views, especially when we consider them as being extreme.
(*) short term option tactics : Trying to Buy lower and sell higher with the use of options for a small part of portfolio. Readjustments of the trading range take place. Of course the market can go lower or higher than the specified range. Practically we are more concerned by losses of the short put options (buying lower) rather than by losses from calls (selling higher). In the case of selling calls the appreciation of the portfolio more than compensates the losses of short calls. Of course overall option profits constitute a separate target aiming to assist the overall portfolio performance.