A Brief Macro Update

Michael Rudd, CFA | President, CEO & Portfolio Manager

Over the years, we have been very measured with our writing to focus on the companies that we own, rather than where we think “The Market” will go. The same can be the said for the economy and geopolitics. Some money managers try to predict the direction of the market, big moves in the economy or how some geopolitical situation will unfold (typically we call this “macro”) but few are good at it consistently. There are, however, no shortage of people that will go on TV and speak what they think. The TV appearances are probably more related to marketing and sales rather than providing actual investment information that someone can use as investment advice…. While we are optimists, in this case, a cynical view is probably most appropriate.

Having said all of that, we actually cannot ignore macro. We think the companies that we own are great, but they do not operate in a vacuum.  A recession, a war, a pandemic, out of control inflation…. all these things can and do directly impact companies that we invest in. To a certain extent, we rely on the managements of the companies that we invest in to navigate difficult waters and identifying world class management is part of what we do. Sometimes, however, even with a great company and stellar management, the macro set up makes it too difficult to operate. Therefore, we must view and adjust our portfolio as that view evolves. We follow many different sources to come to this view: regular data releases, news, commentary, podcasts, company comments, etc. are constantly arriving in our in-boxes.

Right now, we think things are going pretty well. Inflation is moderating, the US economy is doing well, unemployment is low, and major geopolitical tensions seem to be cooling (please see Figure 1). There are pockets of opportunity to investigate. This is a pretty basic analysis, and we will expand more on it in the coming weeks, but as of right now, we believe it will be “more of the same” over the coming year.

“This means that” we will continue to watch the macro situation very closely, even with our somewhat constructive view. There are always risks to our thesis so these need to be reviewed: For example, does the Chinese government manage a potential positive change in their economy? While Japan hit a new high in their stock market, is it now also in a recession? European corporate managers still have a dim view of their future. Will that change?

Pathfinder Asset Management Ltd. | Equally Invested™
1450-1066 W. Hastings Street, Vancouver, BC V6E 3X1
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Sources: Pathfinder Asset Management Limited

National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.

Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.

*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).

Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.