7 min read | Central bank policy actions, easing inflationary pressures, and expectations of a “soft” economic landing remained supportive for equities. Market leadership broadened away from a small subset of large-cap growth stocks and deep cyclicals, a trend both overdue and supported by fundamentals. Although a high degree of crowding, complacency, and lofty expectations remain in the areas that have led markets in recent years, elsewhere in global markets there are plentiful investment opportunities offering attractive value with more sustainable and/or improving earnings prospects. From our perspective, the greatest risks currently stem from macro and geopolitical dynamics, as well as corporate earnings disappointments in cyclical segments of the market.
6 min read | We are believers in the AI renaissance and its long-term potential to drive productivity enhancements, but we also believe embedded expectations are excessive. The “obvious” has seldom been more crowded, and this is reflected in high valuations and expectations. We share Jeff Bezos’ view that AI is a horizontal technology that will benefit a wide range of companies. Observing value creation involving other transformative innovations – electricity, light bulbs, railroads, and the internet, to name a few – reveals that the greatest returns were realized outside of the companies that garnered the early excitement.
8 min read | It was a strong quarter for risk assets, with robust gains for equities, tightening high-yield credit spreads, rising oil prices, and a spike in cryptocurrencies. The global economy, led by strength in the US, has demonstrated impressive resilience following sharp interest rate hikes, as economic data generally surprised to the upside. Meanwhile, inflation has moderated but it remains well above levels experienced in recent decades. The resulting "soft landing" narrative, expectations for interest rate cuts, and continued excitement surrounding AI have fueled a powerful rally.
8 min read | Global Equity markets delivered strong gains in 2023, climbing 23.8% for the year and 11.4% in the fourth quarter, as measured in US dollars. These gains marked a reversal of 2022's dismal market performance (-18.1%), as animal spirits returned with vigor. 2023 concluded with the VIX near multi-decade lows, bitcoin up over 150%, global high-yield bond spreads near 15-year lows, and equity investor bullishness near all-time highs.
6 min read | by Rich McCormick | I recently spent two weeks traveling in Japan, meeting with leaders across a range of industries, from banking to real estate to industrials to technology. Over the past several decades, our team has visited the country consistently, helping us find many “diamonds in the rough.” We have noted positive – albeit slow – developments across the corporate landscape, particularly over the past several years. Increasingly, I have heard investors speaking of enormous change underway in Japan, but my trip revealed a more nuanced story of continued incremental progress rather than radical change.
9 min read | The Altrinsic Global Equity portfolio declined 1.6% (-1.8% net) during the third quarter, as measured in US dollars, compared with declines of 3.5% and 3.4% for the MSCI World and MSCI All Country World indices, respectively. Outperformance came amid volatility in stock, bond, currency, and commodity markets, as markets and economies are grappling with an environment transitioning from one flooded with free money to one of rising nominal and real interest rates. This transition, coupled with significant uncertainty around growth, inflation, regulation, technology competition, and government policy, contributes to elevated risk in markets. We believe these factors should support a broadening out in markets with greater attention paid to quality, valuation, and risk.
8 min read | Narrow market leadership by highly priced US growth stocks has been a thorn in our side, and we have written extensively about the combination of factors that would cause markets to broaden out. Despite the most significant of these conditions being well underway (rising rates and inflation uncertainty), the lack of breadth in markets has returned to historically extreme levels, with enthusiasm surrounding generative AI contributing to the surge. AI is a significant technological innovation, but we believe it is being greatly overhyped and overestimated in the short term, as is typically the case with new technologies. Stock prices for leading “AI stories” discount growth rates that will be difficult to achieve, thus impairing their underlying margins of safety. Although there are pockets of excess and exuberance, 68% of global stocks underperformed the MSCI World Index in the second quarter – and 44% actually declined – leaving many companies offering very compelling risk/return propositions. We see opportunity among companies embracing AI in their operations to enhance their business quality and efficiency, most notably in health care, non-life insurance, exchanges, global consumer franchises, industrials, and business services, to name a few.
10 min read | Global equities delivered strong gains during the first quarter as investors shrugged off two of the three largest bank failures in US history and the collapse of once venerable Credit Suisse. The proximate cause for the rally is a belief that inflation risk is vanquished, interest rates have peaked, years of extraordinary financial stimulus can be normalized painlessly, and the global economy will not experience a downturn. This implies a tremendous amount of confidence in policymakers.
In light of the significant developments in the US and European banking industry, we wanted to provide a brief update on our exposures, share some thoughts, and offer some issues to consider.
