Quarterly Commentary

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MARKET COMMENTARY

 

Markets receded in the first quarter of 2021, with the most severe pullbacks experienced within growth-oriented sectors
such as technology, healthcare and communication services. Isolating just the Nasdaq, from its peak in mid-November 2021
to its trough in mid-March 2022, it experienced a pull-back of -21% compared to the S&P 500 down -10% over this same
timeframe, with many instances of underlying companies that were previously COVID beneficiaries retracing back to pre-
COVID levels as the market sharply re-adjusted expectations for future growth. Russia’s invasion of Ukraine initiated a
decoupling of a nation from the global economy, sparking fears around export reliance for critical resources including crude
oil, nickel, palladium, fertilizers, wheat and natural gas. During the quarter, WTI crude peaked at $124/barrel in early March,
pushing inflation higher with a March CPI print of 8.5% (Core CPI 6.5%), the highest year-over-year inflation rate observed
since the 1980s. The disparity between the outperformance of energy names and broader markets continued to widen.
In 2021 alone, the Energy Select Sector Index was up 53.4% and has already posted a gain of 39.1% in Q1 2022, with
utilities being the only other sector to post a positive return during the quarter.
During the March meeting, the U.S. Federal Reserve officially implemented its first Federal Funds rate hike since the onset
of COVID of 25bp, and also provided indication that the unwinding of its balance sheet holdings would need to occur
at a more rapid pace compared to 2017-2019 due to elevated inflation levels and tight labor market conditions. As future
rate movement has been priced into the market, fixed income wasn’t spared from negative performance during the quarter,
providing less ballast for traditional 60/40 portfolios. Both the Bloomberg U.S. Aggregate Index and U.S. Investment Grade
Corporates were down -5.9% and -7.7%, respectively, compared to lower quality and shorter duration U.S. High Yield
Corporates and floating rate U.S. Leveraged Loans which fared better during a quarter of rising rates, down -4.5% and –
0.1%, respectively.
The S&P 500 and Dow ended the Q1 2022 period down -4.6% and -4.1%, respectively, whereas the Nasdaq and Russell
Midcap Growth Index ended the quarter down -9.1% and -12.6%, respectively. The MSCI World Index was down -5.2%
for the quarter, versus the MSCI Emerging Market Index which was down -7.0% and more exposed to both the ramifications
of the Russia/Ukraine war and selling pressure of Chinese equities over the quarter. High yield bond spreads increased by
33bp during the quarter, and treasury yields saw upward movement across the curve compared to the end of last year, with
the 2-year increasing from 0.73% to 2.28% and the 10-year increasing from 1.52% to 2.32% by the end of March.

 

ALTERNATIVE INVESTMENT COMMENTARY*

Hedge funds posted a negative return to start the year as the HFRI Fund-of-Funds Composite index fell 2.7% in the first
quarter of 2022. Global markets experienced heightened volatility during the quarter as equities declined and bond yields
rose following Russia’s invasion of Ukraine. The invasion of Ukraine also increased investors existing concerns over
inflation pressures, specifically through food and energy. High beta ‘Equity Hedged’ and ‘Event Driven” strategies were
among the worst-performing strategies as the HFRI Equity Hedge (Total) Index and HFRI Event Driven (Total) Index fell
by 3.8% and 1.2%, respectively. Conversely, Macro strategies experienced an outperformance during the quarter as these
strategies greatly benefited from rising commodity prices. The HFRI Macro (Total) Index closed the quarter with a 7.7%
gain. Similar to the various indices, there was a dispersion of performance across the Family Management platform. We
were pleased that the majority of our core managers were able to manage through the volatility and protect investor capital
during the quarter.
*Data taken from HFRI (Hedge Fund Research Indices) as of April 7th, 2022