Page 3 - ISQ Outlook 2023

INVESTMENT STRATEGY QUARTERLY

“ These natural shifts in the investment landscape present
new situations to adapt to, but that also means there are

new opportunities to discover. ”

vices have already started to falter, and the pressures on food and evolving. The competitive advantages are still intact: cost and pro-
shelter costs should decompose in the months ahead. But although duction efficiencies, scalability, and workforce growth—just to
the Fed is battling the inflation beast, a weakening labour market, name a few. And as a result of this new species of globalisation, our
and excessive speculation, that does not mean it has the appetite bias for large domestic multi-national companies is heightened.
for rate cuts just yet. After pushing rates to an ~5% peak, the Fed is Whether it’s smartphones or fast-food chains, Western brands are
more likely to pause the pursuit than pivot by year end. leading across the globe. World leading companies with niche mar-
keting outside home markets are experiencing superior earnings
Our Chaos Theory: Reduced Volatility Ahead growth.

On a tour of Jurassic Park, pessimist Dr. Malcolm shares his belief in Seeking Safety: Carbon Dating
chaos theory. In short, he suggests that things happen in an unpre- the Security Era
dictable fashion and that the next unpredictable event is just
around the corner. Between a pandemic and a war, the last few Jurassic Park was seemingly well-equipped with security meas-
years feel like the epitome of this dizzy thesis. Not to mention the ures—from electric fences to cameras and armed doors. But once
COVID flare at the start of the year, economic troubles in China, the carnivores escaped their compounds, the park creators quickly
and, of course, inflation and the risk of a recession. It’s no wonder wished more precautions were in place. After the last three bruising
the S&P 500 saw the most 1%-point swings since 2008 and the years, enhanced security will be at the forefront of 2023 and
60/40 portfolio had its most volatile year since 1987. But the worst beyond. Governments, companies, and investors have learned
case scenario for many risks has already been priced in. The Rus- painful lessons. Look for carbon-based security, like protecting oil
sia-Ukraine war is no longer a daily front page story, the midterm and natural gas sourcing following the fallout with Russia. Or
elections are behind us, and China appears set to dismantle its shifting the most critical supply chains, such as semiconductors
zero-COVID policy. Therefore, it’s likely that some positive develop- and healthcare products, back to domestic sources. Or protecting
ments will help put the volatility monster back in the cage in 2023. power and internet grids from hackers. And, of course, replenishing
our (and our allies') military capabilities will be a top priority.
Endangered or Extinct: Globalisation Won’t
Go the Way of the Dinosaurs Fixed Income Feast: Bonds Worth Sinking
Your Teeth Into
What killed the dinosaurs? Was it an asteroid? Disease? Either way,
we won’t be debating the fate of globalisation anytime soon. The The Tyrannosaurus Rex had 60 eight-inch-long serrated teeth with
supply chain disruptions throughout the worst of the pandemic a jaw so powerful it could crush a car. While fixed income investors
had some market pundits trumpeting that a multi-national aren’t so aggressive, they still are ready to feast on the higher rates
approach to business would soon be extinct. But there is evidence they haven’t had in years. Although rates seem to have reached
proving otherwise. First, it is worth noting that the headlines make their peak, yields are still attractive. And there’s less risk! In fact,
the economic impact of reshoring seem more sizable than it is. investors can obtain nearly as much yield on a 3-month Treasury
More importantly, we’d counter that globalisation isn’t ending but bill today as they could on a high yield bond at the beginning of
2022.

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