Most investment markets generated positive returns to start 2024, following two reasonably turbulent years in 2022-2023. Public equity markets and private markets both delivered positive returns, while fixed income had mixed results with strong yields offset by slight price declines.
Interestingly, some of the strongest public market sectors began to see wide divergence. For example, the “Magnificent Seven,” high growth tech companies, shifted from all being strongly positive in 2023 to much more varied results in Q1/2024. For example, Nvidia and Meta generated Q1 returns of 82% and 37% respectively, while Apple declined 11%, and Tesla fell almost 30% (see Chart I below).
Chart I – Returns from Magnificent Seven Stocks (Source: Yahoo! Finance)
Take a read through Stephanie’s Public Market Update to gain more insight into how public markets performed and how LotusGroup portfolios were positioned. Additionally, take a peek at Louis’ Private Market Update to learn more about which sectors we are choosing to invest in during this higher interest rate environment. He also provides an update on an investment we made in whiskey barrel aging for our second diversified alts fund.
We hope you all are beginning to enjoy the spring season ahead and are knee deep into your 2024 personal and career pursuits!
Cheers Raph & The Entire LGA Team
P.S. Private investments often take a while to post Q4 returns due to year-end reconciliations and audits. As a result, Q1 client returns are often understated on reports until Q2, when two quarter’s worth of returns are posted for private investments.
Public Market Update – Q1 / 2024
Stephanie Schlemeyer: Partner & Public Markets PM
I hope everyone has had a great start to the year!
To begin, let’s start by reviewing our LGA public market gauges as we end the first quarter of the year, heading into Q2.
US Equity:
Our US Equity Gauge ended Q1 as we started, remaining moderately bullish throughout the entire quarter. On the positive side, momentum remained strong from the 2023 rebound, while on the negative side, sentiment was overheated.
Additional Q1 challenges included:
Stronger than expected inflation.
2024 rate cut expectations dropping from five drops (starting in March) to three drops (expected to begin in June).
Increasingly high stock market valuations.
Despite these challenges, the US stock market held strong and ended Q1 in positive territory.
LotusGroup portfolios were positioned with 75% exposure and participated in most of the gains, albeit in a slightly muted way relative to full market exposure.
Global Equities:
Returns for Foreign Equities lagged US Equities in Q1.
LotusGroup portfolios include exposure to both Foreign Developed and emerging market equities, with a heavier weighting to developed countries.
Foreign Developed equities were up 5.3% and Emerging markets were up 4.0%, both adjusted to US dollars.
Consequently, having an overweight in the US vs Global equities proved to be helpful during Q1.
US Fixed income:
There were no changes to our fixed income positioning, which remained bullish with a strong preference for shorter term duration.
We expect to continue with the current positioning until rates begin to meaningfully decline or if there is another spike higher in inflation / rates (lower probability scenario).
Summary:
As always, we urge clients to take a longer view than just one quarter to not miss the forest for the trees. Below is an aggregate of a LotusGroup Moderate Risk Portfolio with Private, starting at the end of 2021 when the current cycle began:
Chart II – LGA Tactical Moderate with Private Composite Q1/2024 (Source: LotusGroup)
LotusGroup portfolios have continued to be focused on providing protection, lower volatility, and meaningful returns, as illustrated above in Chart II over the past 2+ year cycle.
Private Market Update – Q1/2024
Louis Frank: Partner, Private Market PM
Private investments for LotusGroup clients continued to perform during early 2024.
While interest rates remained higher than previous years, banks continued to tighten their underwriting.
As a result, we have been helping fill the banking void with investments in specialty finance, private credit, and select real estate lending.
Examples of our investments include whiskey barrel finance, diamond-backed lending, and real estate mezz debt.
Most investments are currently performing in line with underwritten expectations and in some cases outperforming.
We highlight one of these investments below (investment was made in our second diversified fund):
Whiskey Barrel Finance (Update)
LotusGroup initially invested due to attractive supply/demand drivers in the industry, downside protection, and strong targeted returns.
As a reminder, our investments provide capital to distilleries to buy barrels (at cost), age them (2-4 years), and then sell for a gain.
Investments have benefited from meaningful price increases as the barrels aged over the past two years, with whiskey becoming more valuable over time.
I recently had the opportunity to do a site visit with one of our distillery partners in February (please see below picture):
LotusGroup Site Visit to Partner Distillery
It was great to spend time with one of our operators and review the robust growth of their business, and the industry.
The manager reported a 15%+ increase in our barrel value during 2023, and we believe this trend will continue in the years ahead.
We also appreciate bourbon’s uncorrelated nature and its recession-resilient consumer base.
Net-net, we have been pleased with the solid returns and low volatility of this investment.
The information contained herein, including but not limited to research, market valuations, calculations, estimates, and other material obtained from LotusGroup, and other sources, are believed to be reliable. However, LotusGroup does not warrant its accuracy or completeness. These materials are provided for informational purposes only and should not be used or construed as an offer to sell or a solicitation of an offer to buy any security. Past performance is not indicative of future results.
This blog expresses the views of the author(s) as of the date indicated, and such views are subject to change without notice. Investment advisory services are offered through LotusGroup Advisors, LLC, a federally registered investment adviser. LotusGroup transacts business only in states where it is appropriately registered, excluded, or exempted from registration requirements.The information contained within is believed to be from reliable sources. However, its accuracy, completeness, and the opinions based thereon by the author(s) are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect the authors’ judgment now, are subject to change without notice, and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein. LotusGroup’s advisory clients will be required to execute an Investment Advisory Agreement and related Account opening documents (collectively, “Agreements”). If any of the terms or descriptions in this presentation are inconsistent with the terms of the Agreements, such Agreements shall control. Prospective investors should maintain the financial capability and willingness to accept the risks associated with any investments made, should consult the relevant investment prospectus or legal documents, and should their Advisor Representative before making investment decisions (including but not limited to an examination of the investment objectives, risks, charges, and expenses of any investment product(s) considered).
Extracted performance in this presentation is representative of a subset of investments extracted from a portfolio. Such performance is depicted in this presentation based on accounts that match the following criteria: Tactical 100 model held at Schwab with Moderate Agg risk that includes private investments. LGA employee accounts are excluded from this extracted performance. LGA will provide full performance information promptly upon request. The performance data provided herein is for information and discussion purposes only. The performance of an individual account may vary substantially based on various factors, including, but not limited to, initial account management start date, risk profiles, cash allocation, and investment restrictions, among many others. This information is unaudited. Please refer to an account’s brokerage statement for individual account information. Past performance does not guarantee future results.
To better understand the nature and scope of our advisory services and business practices, readers are encouraged to review via the SEC’s website @ www.adviserinfo.sec.gov, the adviser’s Form ADV Disclosure(s), and the Form ADV 2B Brochure Supplement of each LotusGroup Investment Professional (Click on the link, select “Investment Advisor firm,” and type in the firm name. Results will provide you both Part 1 and 2 of the LotusGroup ‘s Form ADV.).
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US Equity:
Our US Equity Gauge ended Q1 as we started, remaining moderately bullish throughout the entire quarter. On the positive side, momentum remained strong from the 2023 rebound, while on the negative side, sentiment was overheated.
Additional Q1 challenges included:
