Good morning,

 

Now that the calendar has turned to July, I think I can wipe the sweat off my brow after a rather ugly first half of 2022 from an investing perspective. We knew that inflation and the subsequent rising interest rates would be on the brain after the COVID related effects of the last two years but the war in Russia added another level of concern to markets. No asset class was left unscathed – bonds fell nearly as much as equities in the first six months of the year – rate hikes take no prisoners in the short term. That said, our portfolios are down anywhere between 10% and 16% to start the year, depending on the amount of exposure one had to equities and growth-related assets. It didn’t help that my portfolios are significantly underweight the energy sector, which happened to be the one bright spot so far this year (although lately that lack of exposure has helped more than it has hurt, as that sector has pulled back significantly from its highs).

 

I (of course) remain optimistic. Recently my family went away to celebrate a milestone birthday for my mom and it gave me a chance to reflect with my dad on past cycles that might have looked something like what’s happening today. In those cases from the early 80s and even the 70s, there was certainly a pullback in markets. But each time, things recovered and subsequently moved higher. And in the end, the best protection against inflation and the rising interest rates that are used to combat inflation is exposure to the common shares of high quality growth companies. Valuation is important – when rates are higher, people are less willing to buy stocks that are trading at high prices, relative to their earnings growth. That said, we are now seeing multiples on companies we love reduced to levels that I haven’t seen for a very long time.

 

I don’t think things will snap back the way they did after the financial crisis and COVID. It will be a grind, and it will take the continued execution of management teams on the companies we own to prove themselves worthy of that recovery. I would expect (and hope) that we’re near the bottom of this recent weakness but also expect a slow climb back to old highs. I thank you for your patience in this regard. I know it’s easy to be frustrated if you perceive there being a lack of activity in portfolios but when the shares of the companies we own are down in price, it doesn’t make them any less attractive to me to own. In fact, as we continue to receive real data through earnings reports, you can expect moderate changes as we add to the strongest companies in our stable.

 

I’ve had a chance to catch up with many of you in the last few months and would encourage you to continue to reach out with any questions or concerns you might have. As always, we thank you for your continued support of our team and certainly appreciate it more when things are as difficult as they have been lately.

 

Best regards,

George Wright, CIM, FMA | Senior Wealth Advisor, Portfolio Manager