Investor Concerns are Back

Michael Rudd, CFA | President, CEO & Portfolio Manager

Readers who have been following the stock markets will have noticed a turn in sentiment this month. Increased tensions in the Middle East have created headlines in the press and market volatility has increased. We discussed this in our morning desk chat today, and while a negative narrative could be written (i.e. a missile fired at an oil tanker to close the Strait of Hormuz could cause some serious recession concerns), we believe the issue is currently contained. In our opinion, the cause of this recent volatility is a more boring topic (as is usually the case): a mismatch of investor expectations against actual events. We see this in two areas right now.

  • Technology stocks. The rosy outlook analysts and investors have expected of chip makers for recent quarters has been too high. This quarter, several great quality companies have missed those lofty expectations. We view this as a short-term issue and remain very comfortable with our positioning. However, stocks in general have taken a hit so far this month (please see green lines in Figure 1).
  • Rate Cuts. Investors had clearly baked in multiple rate reductions from central banks around the world, and in particular the United States. So far, economies generally remain strong, and inflation appears to be sticky. Central bankers have not been as dovish as investors otherwise would have hoped for and recent inflation data seems have confirmed this (Figure 2, red circle). We also note the increased US 10-year treasury rates, which we attribute to sticky inflation expectations, similar to other US Treasury terms (blue line Figure 1).

“This means that” we continue to feel confident in our portfolio positioning. Our outlook for the individual companies that we own in our funds and portfolios continues to be strong. There is potential that investor expectations move ahead of actual business operations, which leads to market volatility, but we remain focused on, and confident in, the long-term operations of the companies that we own.

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

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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.