Q4 2023 / Strategy Update

Performance across the stock market in the third quarter could be summed up in single sentence: interest rates went up, and stocks went down. In our Q3 letter to clients, we wrote that “rising interest rates created some short-term volatility in equity markets, but our companies held up well, and the quality of earnings we have in the portfolio allowed us to outperform on the downside.” 

As interest rates pushed higher and equity markets experienced sharp downside volatility in late summer / early fall, many of our competitors dashed for cash and fixed income—even as corporate earnings for solid companies held up relatively well. WestEnd took a different approach. We viewed strong macroeconomic fundamentals and quality earnings as compelling reasons to stay invested. 

That decision paid off. As it turns out, ‘quality of earnings’ attracts capital when market conditions turn favorable again, which is precisely what we saw in the fourth quarter when interest rates quickly reversed course. 10-year U.S. Treasury bond yields fell from 4.37% to 3.88% in December alone, which opened the door for a “risk on” finish for basically all risk assets. Capital poured back into stocks, bonds, gold, and cryptocurrencies, and bolstered WestEnd’s Q4 returns and our annual outperformance over the benchmark S&P 500 for the year.