Volume 13 Number 3
Rarely has the first half of a year been so difficult in the markets. In fact, we have to go back 50 years, to 1970, when the S&P 500 lost 21% of its value in six months. The good news? The index rose 26.5% between July and December of that year.
Note that I am not predicting such a rise, although it certainly can happen. Our portfolios are always positioned very defensively, with a high level of liquidity. Our underweighting of equities and bonds proved effective as we avoided a significant portion of this historic decline, particularly in the U.S. markets.
In this newsletter, we will look back at the last quarter and particularly discuss the Rivemont Alpha Fund, which did well. Finally, as usual, we’ll wrap up with our market outlook and our largest positions.
However, before you read on, I would like to officially announce the launch of the insurance firm Rivemont – Assurances, as well as the hiring of Maxime Angers as financial security advisor. We are adding this string to our bow to better meet the growing needs of our clients. Mr. Angers has many years of experience in the field and shares our approach to insurance: covering temporary needs and providing estate planning. We want to eventually cover all of our clients’ essential services, and this announcement is a bold first step in that direction.
The second quarter
To borrow the famous saying, we believe that two pictures are worth two thousand words. This includes the following charts released by Morningstar on June 30 that illustrate the carnage in the markets.
Over the past 10 years, the U.S. indices have been strongly driven by large-cap technology stocks, the growth approach. And it is precisely this subsector of the market that has been most affected by the decline. For example, it was down 30% in the second quarter and is off close to 40% year to date. Fortunately, we are among those who saw this downturn coming, which is why we added or kept value stocks in the portfolios, including bank and insurance stocks.
One of the particularities of this quarter, and year to date, is the lack of protection normally offered by bonds. Indeed, they are also down sharply because of the rise in interest rates. However, we expect that yields will become more attractive again and that we should, in the short term, be fully invested again in fixed income.
The Rivemont Alpha Fund
The Rivemont Alpha Fund (F) has been the only ray of sunshine in this near-perfect storm with a 4% return for the first six months of the year. It has therefore fully achieved its objective by protecting assets invested in uncertain times. The fund’s annualized average rate of return since inception has, to date, been about 8%.
We sold short many stocks during the current period. This strategy of selling shares and eventually buying them back is, with options, one of the only ways to benefit from a bear market. It is particularly attractive when you are holding stocks for the long term and you don’t want to sell them. The Rivemont Alpha Fund thus makes it possible to reduce the volatility of the overall portfolio while avoiding negative returns. Once again, this is the magic of diversification.
One of the things we benefited from during this period was the decline in Shopify, which returned to its pre-pandemic price.
TradingView, July 7, 2022
You will find below a list of the individual securities with the largest weight in our “growth” portfolio. These stocks were selected based on their respective potential to outperform the stock market. You will find a short description of their activities, the annual dividend, if any, and the total return since their first inclusion in our portfolio.
It’s in times like these that it’s important to have a manager who is responsive to developments and not just watching events unfold. We want to assure you that we’re keeping an eye on all the opportunities that will undoubtedly arise. We’re keeping our powder dry – we have a lot of money on the sidelines ready to invest – so it’s up to us to find the stocks that will be most profitable!
Wishing you a nice, sunny summer,
Martin Lalonde, MBA, CFA
The information presented is dated June 30th, 2022 unless otherwise specified and is for information purposes only. The information comes from sources that we deem reliable, but its accuracy is not guaranteed. This is not financial, legal or tax advice. Rivemont Investments is not responsible for errors or omissions with respect to this information or for any loss or damage suffered as a result of reading it.
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Volume 14 Number 4
That being said, the beauty, if not the benefit, of active management is that it is fortunately possible to remain underweight in certain asset classes. In addition, even when markets are stagnating, there are still opportunities in specific sectors.Read more >
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