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What a difference the data makes! Following on the heels of solid performance in 2023, the biggest question as we entered 2024 was the pace and timing of Fed cuts. When we last wrote our clients, markets had priced in a continued path downward in inflation, allowing the Fed to cut rates multiple times this year. Fed funds futures were pricing in six -25 bps rate cuts, while the Fed forecast was for three. As we sit here today, neither projection seems likely, with 1-2 cuts now the most likely outcome. All of this pessimism has come in April, following the upside surprise in March CPI.
For 1Q24, the S&P 500 rallied by +10.6%, following a 26.3% rise in 2023. Global equities also rose, with the MSCI World returning 9.0% in the first quarter after rising 24% for the full-year 2023. Global equity markets including Japan (+11.2%), Europe (+5.4%) and Emerging Markets (+2.4%) also rose in the first quarter of 2024. Returns for fixed income were mixed, as yields rose on the benchmark 10-year US Treasury rate (UST10) from 3.88% to 4.20% (up 32 bps). Looking at other indicators for 1Q24, both the US dollar index (DXY) (+3%) and WTI oil ($83, +16%) rose.
The key driver for the first quarter was continued strength in the equity markets, despite signs in the fixed income markets that the path to 2% inflation is going to be bumpy ride. We note that a 10% return in one quarter is not sustainable over the long term, and, indeed, markets have already given some of that back through the month of April. We note that in our last report, we emphasized our view that “rates are coming down.” While we still believe that statement holds, we also stated “the pace of rate cuts are unclear” which looks to have been prescient. Now markets are pricing in the first rate cut in 4Q24, a far cry from the markets pricing in first cut in March, which has already proven to be too optimistic. What we believed was shaping up as a “soft landing” scenario is increasingly looking like a “no landing” economy, despite mixed macro signals.
Elsewhere in the world, European equities (+11.1%) also rose for 1Q24, as did Japanese (+8.2%) and emerging markets equities (+7.9%). Despite the still very visible geo-political risks present, we note that equity markets continue to power higher on resilient earnings. Our decision to remove recession from our base case is playing out, with the 1Q24 advance GDP coming in at a solid, though not spectacular, 1.6% annualized rate. This is also as we expected, supporting our investment thesis shifts that embraces a constructive view on fixed income and equities.
As we discussed last quarter, Amerant Investments has partnered with the global investment management firm BNY Mellon to bring their deep research bench of investment professionals to ensure we are utilizing best-in-class funds across all asset classes. We have now completed our transition to the BNY Mellon partnership, and clients have seen various portfolio changes implemented. Some of the portfolio changes include shifting to a better performing high-yield fund across all strategies; for the Growth portfolios, increasing the allocation to small and mid-cap equities; and, for the income portfolios, shifting to less concentrated fund allocations across the board. As we noted previously, Amerant Investments’ investment committee continues to have final decision-making authority over the advisory program. We deeply value the trust you have placed in us to strive for best-in-class returns within our long-term asset allocation portfolios. While the S&P remains highly concentrated in a few large mega cap tech stocks, we believe that a more diversified, balance allocation across funds is the most appropriate long-term investment approach.
In the table below, we update our Amerant Market Views, which represent our investment team’s tactical views for the next twelve months based on investment valuations and macro trends. As a reminder, these are not client-specific recommendations, and clients should consider their financial goals and long-term objectives when determining their asset allocations. We have maintained our views across both equities and fixed income, maintaining an underweight to cash and slight overweights to small and mid-cap equities and emerging markets bonds.
This information is being provided for informational and educational purposes only to support our general market commentary. It should NOT be interpreted as investment advice regarding any specific security or investment strategy. See the disclosures at the end of this presentation for additional important information.
We maintain our slight overweight in Investment Grade and neutral high yield positioning. After a rocky start to 2024, we are once again very constructive on rates, given the 10Y Treasury is back to 4.6% as of this writing. Last quarter, we removed our base case for a recession, and shifted our dynamic portfolios back to the neutral positioning in Income & Growth. This quarter, we maintain the dynamic portfolios in the Income & Growth positioning, as recent data has supported our “no recession” view. As always, we continually review our positioning and will communicate any changes in our views going forward.
Notes: Asset class performance is in USD and refers to the following indices: Equities: US Large Caps (S&P 500), Emerging Markets (MSCI EM), Europe (MSCI Europe), Japan (MSCI Japan). Fixed Income: 10-Yr. US Treasuries (BofAML US Treasury Current 10-Yr.), Emerging Markets Sovereign (USD) (EMB ETF), Emerging Markets Sovereign (LCL) (LEMB ETF), US High Yield (BofAML US HY Master II), US Investment Grade (BarCap US Aggregate Bond). Source: Morningstar. (1) Strategy returns net of mutual fund expenses and Amerant Investments standard management fees.
On this table, you can see the returns for the first quarter of this year as well those for the full year 2023.
The first quarter of 2024 experienced positive returns across equities, while fixed income returns were modest. For the full year 2023, index returns were positive across equities and fixed income.
The positive performance in the 1Q24 was a result of the Fed’s policy pivot in late 2023 that it was likely done hiking rates. We maintain our dynamic positioning in the neutral position, which we shifted to in early 2024 as we removed our base case for a recession.
Our current outlook is for more of a “no landing” scenario, versus a soft landing, although we will see if the Fed pivots to a more hawkish stance in its upcoming meetings, which could further slow the economy. As always, we continually review our positioning and will communicate any changes in our views going forward.
(1) Strategy returns based on the total return of the underlying mutual funds, including reinvestment of dividends and change in NAV. Net of mutual fund expenses and Amerant Investments standard management fees. Returns may vary. Past returns are no indication of future performance.
(2) Monthly returns before February 2010 are those of the offshore corresponding strategies. For the Dynamic portfolio, monthly returns before November 2009 are those of the Income & Growth portfolio, which is the neutral positioning of the Dynamic portfolio. Dynamic portfolio started in November 2009.
During 1Q24, the Income Portfolio returned 1.3%, the Income & Growth Portfolio returned 3.3%, the Growth Portfolio returned 5.8%. The Dynamic Portfolio, positioned in Income, returned 3.4% during the quarter. We are happy with the first quarter performance, as it builds on the positive performance achieved in 2023.
Coming into 2024, we removed our defensive portfolio positioning and shift the dynamic portfolio back to its neutral position in the Income and Growth position. We will continue to monitor our macro signals and adjust this portfolio if conditions warrant.
As always, we take the trust you have placed in us very seriously. In our day-to-day operations, we continue to follow current events and the reactions of the markets closely, and we stand ready to adjust your portfolios accordingly.
To obtain more detailed information on our market views or the performance of your advisory portfolio, please contact your investment consultant at Amerant Investments by calling (305) 460-8599.
Sincerely,
Amerant Investments, Inc.
https://www.amerantbank.com/
The model portfolios offered by Amerant Investments and described herein invest solely in mutual funds. Before investing, you must consider carefully the investment objectives, risks, charges, and expenses of the underlying funds of your selected portfolio. Please contact Amerant Investments to request the prospectus of the funds containing this and other important information. Please read the prospectus carefully before investing. Past performance is no guarantee of future returns. The value of the investments varies, and therefore, the amount received at the time of sale might be higher or lower than what was originally invested. Actual returns might be better or worse than the ones shown in this informative material.
This release is for informational purposes only. Past performance is no guarantee of future results. While the information contained above is believed to be from reliable sources, no claim as to their accuracy is made. Amerant Investments, Inc. provides no advice nor recommendation, or endorsement with respect to any company or securities. Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities. Member FINRA/SIPC, Registered Investment Adviser. Amerant Investments does not provide legal or tax advice. Consult with your lawyer or tax adviser regarding your particular situation.
Not FDIC Insured | Not Bank Guaranteed | May Lose Value | Not Insured By Governmental Agencies | Member FINRA/SIPC, Registered Investment Advisor
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