MARKET COMMENTARY
After three quarters of negative returns, stocks and bonds posted their first positive quarterly return in Q4 2022.
Nevertheless, 2022 was marked as one of the most challenging years of the last 3 decades for a traditional 60/40 portfolio
invested broadly across stocks and bonds. The 60/40 ended 2022 down -16.9%, with stocks (S&P 500) and bonds
(Bloomberg U.S. Aggregate Index) down -18.1% and -13.0%, respectively.
A consistent theme throughout the quarter was the strength of the job market, having added 4.3 million jobs during the year
through November, the unemployment rate remained low at 3.6% with more job openings available than people looking for
work. Headline inflation slowed for a fifth straight month to 7.1% in November, the lowest level since December 2021. At
the final meeting in December 2022, Fed Officials hiked the policy rate by a down-sized 50 bps which followed the previous
four consecutive 75 bps hikes. The message delivered still carried a hawkish tone, downplaying the recent progress on
inflation with the Federal Reserve maintaining its higher-for-longer stance on monetary policy, signaling plans to lift rates
through the beginning of 2023, though likely in smaller increments.
High yield bond spreads narrowed by 62 bps during the quarter, and though treasury yields ended higher compared to the
end of September, rates peaked in early November reversing course for the remainder of the year. Investors remained
skeptical that the Fed will maintain rates above 5% for a sustained period of time, with futures pricing in rate cuts for the
second half of 2023 as recession worries remained top of mind. The 2-year increased from 4.22% to 4.41% (peaking at
4.72%) and the 10-year increased from 3.83% to 3.88% (peaking at 4.25%) by the end of December. Fixed income posted
positive total returns in Q4 2022, with U.S. Investment Grade Corporates up 3.63%, U.S. High Yield Corporates up 3.98%,
and U.S municipal bonds up 4.10%. The Bloomberg U.S. Aggregate Index gained 1.87%, though 2022 marked its worst
year on record.
US earnings released during the quarter showed positive sales and EPS growth though continuing to slow quarter-overquarter,
as companies highlighted the growing pressure on everything from corporate IT budgets to digital ad spending with
estimates and forward-looking expectations weakening as a result. The S&P 500 and Dow ended the Q4 2022 period up
7.6% and 16.0%, respectively, whereas the Nasdaq and Russell Midcap Growth Index ended the quarter down -0.8% and
up 6.9%. Non-US equities represented by the MSCI EAFE Index and MSCI Emerging Market Index were up 17.4% and
9.6%, respectively, benefiting from the dollar weakening throughout the quarter.
ALTERNATIVE INVESTMENT COMMENTARY*
Hedge funds ended the year on a positive note, as the HFRI Fund-of-Funds Composite index rose 2.43% in Q4 2022,
trimming full year losses to -4.7%. Optimism within global markets rose as global economic data points showed inflation
falling from its peak, as well as relaxed Covid policies in China. “Macro” and “Relative Value” strategies were the worstperforming
strategies in the quarter as the HFRI Macro (Total) Index and HFRI Relative Value (Total) Index fell by 1.0%
and 0.9%, respectively. Conversely, “Equity Hedge” and “Event Driven” strategies experienced an outperformance during
the quarter as these strategies greatly benefited from inflows in equity markets and a positive economic outlook. In the
fourth quarter, the HFRI Equity-Hedged (Total) Index and HFRI Event-Driven (Total) Index rose 3.98% and 2.93%,
respectively. Similar to the various indices, there was a dispersion of performance across managers on the Family
Management platform. We are pleased that the majority of our core managers were able to manage through the volatility
and protect investor capital during the quarter and throughout 2022.
*Data taken from HFRI (Hedge Fund Research Indices) as of January 10th, 2023
This material contains the current opinions of Family Management Corporation and its affiliates (collectively, “FMC”), which may change without notice. This material is distributed for informational purposes only. It is not a recommendation or offer of any investment or strategy. Nothing herein shall be considered a solicitation to buy or sell, or an offer to buy or sell, to or from any persons in any jurisdiction where such solicitation, offer, purchase, or sale would be unlawful. Information contained herein has been obtained from sources believed to be reliable, but are not guaranteed. FMC provides no guarantees regarding the performance of any investment or strategy. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future performance and individual client results will vary. No part of this material may be reproduced in any form, or referred to in any publication, without the express written permission of FMC.
