Pratte North American Large Cap Series P Quarterly Review - First Quarter 2024
Before we begin our text, here are two quotes we really like:
-Stock markets are a device for transferring wealth from the impatient to the patient.
-Volatility transfers wealth from those who can't bear it to those who can.
Dear investors,
The economic and financial context of 2024 is already shaping up to be a period of transformations and challenges, marked by growing complexity on global markets.
As indicated in our 2024 economic outlook sent out at the beginning of the year, we anticipate a period defined by moderate economic growth in the USA, potentially slowed by restrictive monetary policies and political uncertainties, notably due to the presidential elections. At the same time, we see significant growth opportunities in emerging markets, notably India and Mexico, which benefit from strong domestic demand and increased export potential.
The technology sector, particularly advances in artificial intelligence, and the healthcare sector should continue to play a catalytic role in market dynamics. This trend underlines the importance of innovation and regulatory support for sustainability, elements we actively integrate into our investment strategy.
Faced with these conditions, our fund remains true to its mission of generating alpha, adjusting our allocations to maximize returns while effectively managing the risks associated with a fluctuating economic environment. This first quarter was an opportunity to readjust our exposure to the most promising assets, while maintaining a diversified approach to protect investments against unforeseen volatility.
In the following sections, we will detail the fund's performance this quarter, the strategic adjustments we have made, and our outlook for the coming months. We thank you for your confidence and remain dedicated to persevering in our commitment to achieving your long-term financial goals.
Performance of the Pratte North American Large Cap Series P Fund - First Quarter 2024
During the first quarter of 2024, the Pratte North American Large Cap Series P Fund delivered outstanding performance, underlining the effectiveness of our focused investment strategy. The fund returned 16.36% over the three months, significantly outperforming its benchmark, which recorded 9.93% over the same period. This outperformance is the direct result of our strategic allocation to large North American companies, particularly in the technology and financial services sectors.
Key performance points :
- Quarterly return: 16.36%, compared with 9.93% for the benchmark.
- Sector contribution: A strong contribution from the technology and financial services sectors, which represent a significant proportion of our portfolio.
- Comparison with category average: The fund also outperformed its category average of 9.37%, demonstrating our ability to navigate volatile market conditions.
- Asset development: The value of assets under management continued to grow thanks to positive net inflows and market performance.
During the first quarter of 2024, the Pratte North American Large Cap Series P Fund made several strategic adjustments to its portfolio to take advantage of emerging market trends and to better align our asset allocation with the current macroeconomic outlook. These adjustments reflect our ongoing commitment to optimizing returns for our investors.
Key portfolio adjustments :
1. Increased technology allocation :
- NVIDIA Corp (NVDA US Equity): We increased our position in NVIDIA due to its sustained growth potential in the artificial intelligence and semiconductor sectors. NVIDIA's performance was exceptional, up 101.11% over six months, reflecting its strong momentum in the industry.
- Spotify Technology (SPOT US Equity): The investment in Spotify has been increased, capturing the benefits of its growth in streaming services, despite a competitive environment.
2. Diversification into new sectors :
- Celsius Holdings (CELH US Equity): A new position has been established in Celsius Holdings, capitalizing on its potential in the fast-growing energy drinks sector.
3. Reducing risky exposures :
- Adjustments have been made to reduce exposure to underperforming or more volatile sectors, in line with our analysis of market risks and opportunities.
Impact of adjustments :
- These strategic changes have not only helped improve the fund's overall performance, but have also strengthened the portfolio's resilience in the face of economic uncertainties. Increased diversification and a focus on companies with strong growth prospects have positioned the fund for sustained long-term performance.
In conclusion, the first quarter saw significant adjustments that align the portfolio with our strategic vision for 2024, emphasizing sustainable growth and effective risk management. We remain vigilant and ready to make further adjustments should market conditions evolve significantly.
Investment Committee and anticipation of the next quarter.
The Investment Committee of Pratte Portfolio Management inc. met on April 3, 2024 to discuss the fund's strategic directions, the current economic environment and the implications for fund management. This section of our quarterly review highlights the key decisions made at this meeting, underscoring our commitment to regulatory compliance and proactive governance.
Summary of committee discussions :
1. Economic analysis :
- US economy: continued GDP growth despite high interest rates. The anticipated recession did not occur, testifying to the resilience of the US economy.
- Consumption and inflation: Stable US household consumption and signs of falling inflation, which could indicate a future interest rate cut.
2. Canadian market :
- Discussion of the Canadian economy, less diversified and heavily dependent on the energy sector. Stable unemployment rate indicating economic strength, despite potential interest rate cuts by the Bank of Canada.
3. Investment strategies and fund management :
- Increased allocations: Greater confidence in current investment choices, with increased weightings in strategic positions.
- International diversification: Transition to the "Pratte Global Equity" fund to better exploit global opportunities while managing currency risk, given the predominant US dollar exposure.
4. Legislative and electoral considerations :
- Discussion of the potential impact of elections and regulatory reforms on markets, highlighting the need to adapt strategies accordingly.
Governance commitments :
- Regulatory compliance: Rigorous monitoring of regulatory requirements to ensure ongoing compliance of fund operations.
- Responsiveness to market conditions: Ability to adapt quickly to macroeconomic and regulatory changes to protect and enhance investors' assets.
- Transparent communication: Commitment to maintaining clear and regular communication with investors to report on management decisions and economic outlook.
The Investment Committee has expressed a mixture of caution and optimism about the future, preparing to navigate through a potentially volatile but opportunity-rich economic landscape. Investment strategies for the coming months will be continually assessed to align investors' interests with market realities.
In conclusion and our comments on the start of the second quarter
Last week, the S&P 500 experienced a significant shift after five consecutive months of gains, with a recent period marked by three weeks of losses, including a series of six down days and several failed intraday rallies. This decline of around 5.5% from the all-time high was attributed to a variety of factors, including persistent inflation, expectations that the Federal Reserve would keep interest rates higher for longer than expected, and the seasonal declines typical of election years. In addition, geopolitical tensions and high valuations following an earlier substantial rally also played a role.
The market has seen a notable shift from technology stocks to less favoured value sectors, indicating a broader realignment of investment strategies, particularly evident in systematic trend-following strategies. Market indicators suggest the possibility of a rebound, although caution is advised, as market extremes may intensify, and past patterns of rapid recoveries from 5% declines may not be sustained, especially given the recent tendency of Treasury yields to influence stock market corrections more significantly since 2022.
Overall, current market dynamics reflect a mix of caution, risk reassessment and the potential set-up for a corrective rebound, influenced by broader economic signals and adjustments in investor sentiment.
Get ready, because interesting long-term opportunities will arise in a context where volatility is caused by readjustments in interest rate expectations.
Please let us know if you wish to invest capital for the long term, as opportunities will arise.
