Q3 2022 / Strategy Update

Stocks opened the third quarter on a strong note, but largely because investors grew too confident that the interest rate cycle was nearing a peak. WestEnd’s portfolio responded strongly to the upside during the rally, which effectively gave us a preview for how our portfolio would respond during a sustained market rebound.

Bear markets in general tend to punish good companies as investors shun risk. In this cycle, the downturn has largely been driven by multiple contraction (versus earnings declines), which has pulled many solid companies with strong business fundamentals, cash flow margins, and balance sheets down to attractive valuations on a forward-looking basis. We think this bolsters the forward return outlook for stocks in our portfolio, which positions us solidly for the turn in the cycle—which we do not see as far off.

The first few months of a new bull market almost always deliver above-average returns, so positioning correctly for it is our top priority.