March 31, 2023 | portfolio managers' brief

Portfolio Managers’ Brief: March 2023

BY: Jason Ayres
A brief review of market conditions and how they are impacting the management decisions of our Investment Review Committee (IRC).



Initial Optimism Turned Cautionary:

The year 2023 kicked off on a positive note; however, by February, investor sentiment dimmed. Despite favorable economic data, the consistent inflation kept Central Bankers on their toes, and investors began exercising caution in anticipation of policy adjustments.

Silicon Valley Bank Debacle:

March was dominated by concerns surrounding the Silicon Valley Bank collapse and potential global contagion risks. However, swift interventions by Central Bankers, supported by reassuring statements from the U.S. Treasury Secretary Janet Yellen, mitigated immediate fears.

Central Bank’s Stance on Inflation and Banking Liquidity:

Expectations rose that Central Bankers might adjust rate policies due to the banking events. However, Fed Chair Powell signaled a distinction between the bank crisis management and the ongoing fight against inflation.

Rate Hike Decision and Market Reaction:

The U.S. Central Bank’s 25-basis point rate hike on March 22nd was mostly anticipated. Yet, Janet Yellen’s hint that deposit insurance boosts weren’t a guaranteed measure raised some eyebrows and slightly dampened the initial positive market reception.

Equity Market’s Health:

By the year’s progression, major indices like the TSX Composite and S&P 500 remained positive, while the tech-centric Nasdaq showed impressive growth despite ongoing volatility.

Bond Market Dynamics:

Falling treasury yields seem to be aiding the Nasdaq. With both U.S. and Canadian 10-year Treasury yields dropping, bonds are witnessing a rise. This trend has been particularly positive for conservative investors, given the impact on bond portfolios in the past year.

U.S. Economic Indicators: 

U.S. inflation remains stubbornly high, though the labor market is holding strong, hinting at the possibility of prolonged higher rates.

Fed’s Language Evolves:

While the Fed remains focused on economic data, there’s a discernible shift in their language from the last meeting, reflecting their multifaceted challenges.

Canadian Economic Scene: 

Canada’s inflation rates show a promising deceleration, which may guide the Bank of Canada’s future rate decisions. Nevertheless, the stance remains tied to economic progress.

Investment Strategy Amidst Uncertainties: 

Given the unfolding events, while re-evaluating strategies was essential, the belief in the resilience of Central Bank actions and the modest U.S. rate hike encourages a continued approach of active management, with a focus on good equities, bonds, and fixed income products.

Portfolio Management Insights: 

Cash allocation in high-yielding money market funds remains a risk-free value addition. Active stock management, combined with strategic option strategies, seeks to navigate and capitalize on the ongoing market turbulence.

Final Word: 

Markets, inherently forward-looking and volatile, demand a balanced approach of patience, investment commitment, and agility to adapt to changing scenarios and headlines.

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