Finding Value in Today’s Market Environment

Where is the Value?

Investments with meaningful intrinsic value remain scarce with public markets still overvalued and a recent influx of volatility.

International public equities have had lackluster returns during the past five years while US markets appear to have stalled out as well over the past twelve months.

Our investment team continues to see pockets of value in both alternative private assets and select publicly-traded categories  (see public update below).

In several sectors,  private assets can still be purchased at significant discounts to their public market counterparts while also offering some recession-resilient characteristics.

Of course, due diligence for alternative investments can be complex, including both standard baseline questions as well as quantitative analytical assessments.

Outside of the many hours of due diligence on a fund’s operations, investment strategy, etc…… we have found that the biggest success factor may lie within the fund’s management team.

Management team background checks, site visits and reference checks have always been important steps in our process.

We have recently added steps to evaluate a potential management team’s character, transparency, accountability, ethics and integrity.

Even if the ship looks great… someone still has to sail it through good times and bad.

Public Investment Update

On the public side, we continue to position non-indexed portfolios as follows:

  • Lower-risk / lower-volatility equities (e.g. utilities, insurance)
  • Diversification into gold as a hedge against global currency depreciation
  • Select emerging markets with deep value (e.g. Hong Kong as it decouples from China)
  • Yield opportunities in real estate sectors

This conservative positioning results in a reduced beta for portfolios (e.g. lower volatility relative to public market indexes) and would be deemed as defensive.

Occasionally, we also receive signals to hedge our positions against volatility in tactical portfolios, with the objective of further blunting major potential declines.

While there have been periodic tremors (e.g. Q4/18), market participants appear to have forgotten that equities do indeed have dark periods.

As such, we are prepared for when those declines occur, and subsequently will be ready to pounce on lower valuation opportunities as they arise.

Private Investment Update

Our private program continues to grow and develop:

  • Continued focus on cash flows and payouts – in contrast to extensive public market volatility
  • Positive growth of internal capabilities and offerings
  • Addition of a Policy Underwriting Manager to our LotusGroup Capital team

The majority of our client’s private investments continue to generate positive returns despite public market volatility.

For two that recently struggled, we have been working towards the launch of a mass-action lawsuit on one and continue to monitor a hopefully improving situation with the other.

Finally, our investment team recently finished up a site-visit in Portland and is planning to introduce our first private interval fund recommendation (private investing with improved liquidity).

Thank you for the continued to trust in our work and efforts on your behalf.

By |2020-09-15T21:13:35-06:00September 1st, 2019|Investment Strategy, Lotus Club|

About the Author:

Louis Frank