Asset Management

The Bailard Technology & Science Composite (the “Composite”) posted a total return of 1.56% net of fees for Q4, slightly lagging the peer benchmarks’ Morningstar U.S. Open End Technology return of 1.74% and the Lipper Science and Technology Fund Index return of 1.93%. The Composite was in line with the top-heavy S&P North American Technology Index’s return of 1.54%, and outpaced the mega-cap Nasdaq 100 by 1.61% for the quarter. Over longer measurement periods of 3, 5, and 10 years, the Composite’s net returns continue to lead the competitive peer group benchmarks.

Q4 performance was generally strong and helped to take at least some of the sting out of a bad year for domestic stocks. Persistent inflation, a hawkish Federal Reserve and a weak economy all combined to make 2022 a period that most equity investors would prefer to forget.

Value stocks were the place to be in Q4 and for the full year, as interest rates remained elevated after rising sharply for the first ten months of 2022, keeping investor time horizons short.

The threat of a weakening economy persists, with the Wall Street consensus putting the odds at 65% for a recession within the next 12 months.  At the same time, valuations, at least for small caps, appear to be discounting a substantial downturn already.

Global and U.S. stocks turned in their worst annual results since 2008, as several major central banks abandoned zero interest rate policies with some of the most rapid rate increases in the past thirty years.

Markets welcomed cooler US inflation: October’s US CPI reading of 7.7% year over year was the lowest since January. Inflation continues to run hot in the Eurozone and UK, yet their equity markets managed to outpace the US.

Non-U.S. equity investors continued to be pummeled by geopolitical anxieties and economic forces unseen since the 1980s. Russian aggression may be the proximate cause for a new wave of populism in Western Europe, leading to a far right-wing leader in Italy and a rightward shift in Swedish politics over the quarter. Liz Truss’ disastrous forty-nine days as UK Prime Minister sent shockwaves through global debt markets that led to fears of a GFC-style unraveling. Fortunately, bond yields, which had risen dramatically after her botched tax reform, have largely reverted to previous levels with her ouster. Chinese leader Xi Jinping’s ever-tighter control over his nation’s institutions may mean a more militarist and less mercantilist China moving forward.

Europe led developed markets higher in October, after having led the way down for most of the year. It was welcome relief for beaten down exchanges but probably driven more by expectations for the Fed than by local developments. Europe still contends with record inflation, growth pressures, energy security concerns, and a belatedly aggressive ECB.

Investors continued to exhibit polarized behavior in the 3rd quarter, alternating between “risk on” and “risk off” investment preferences as hopes for evidence of lower inflation and a Fed pivot toward lower interest rates were repeatedly dashed by serial, stubbornly high CPI reports.

The Bailard Technology & Science Composite (the “Composite”) posted a total return of -6.51% net of fees for Q3, lagging the Morningstar U.S. Open End Technology (“OE Tech”) return of -6.01% as well as the Lipper Science and Technology Fund Index (“Lipper Sci &Tech”) return of -5.43%. The Composite also slightly trailed the top-heavy S&P North American Technology Index (“NA Tech”) by 0.19% for the quarter. Over longer measurement periods of 1, 3, 5, and 10 years, the Composite’s returns continue to lead the peer group benchmarks.

For central bankers, the path to avoid recessions narrowed to a knife’s edge during the month. All major central banks (excluding the BoJ) aggressively raised rates, even as prospects for global growth whither.