Cayside Review: 2024 Q4
This newsletter includes our 2024 year-end review, global market update and outlook, key numbers, and announcements.
"For last year's words belong to last year's language. And next year's words await another voice."
T.S. Eliot, 1942 from the Little Gidding
As we close out 2024, each New Year brings fresh opportunities and new perspectives. For investors, it is a chance for us to reflect on the lessons of the past—both our successes and challenges—and to use those insights to craft our strategy for the year ahead. A new year, a new administration, and likely major changes to fiscal and monetary policy - it’s a time to align investment strategies with emerging trends and to embrace the possibility of growth and opportunity as we move forward into 2025.
Global Market Update & Outlook
U.S. equity markets reached historic highs in 2024, driven by the robust performance of technology and AI-driven sectors and P/E expansion. U.S. Equity Markets delivered strong returns during the year with the S&P500 (SPY) up +24.9%, the Nasdaq (QQQ) surged by +25.6%, and the Dow Jones Industrial Average finished up +14.5%. Market gains were dominated by a handful of mega-cap stocks creating large single position concentrations within these stock market indexes. We continue to find intriguing performance and valuation differences between major factors across U.S. equity markets including Small cap companies versus Large cap companies, and Value versus Growth. For example, US Small Cap equities, as measured by Russell 2000 Index, were up 11.4% and the Equal-Weighted S&P 500 Index (RSP) was up 12.8%. We will further discuss the implications of these wide performance dispersions across equity markets and how investors might capitalize on opportunity going forward.
Bond markets faced headwinds with inflationary concerns and changes in interest rate policy, resulting in subdued performance. Despite these challenges, our preference for short-duration assets like U.S. Treasury Bills offered attractive risk-adjusted yields, providing investors with a defensive positioning amidst a volatile credit environment during the year. Gold (GLD) and Silver (SLV) posted remarkable gains in 2024, up +26.7% and +20.9% respectively, bolstered by inflation concerns and geopolitical tensions. Meanwhile, Bitcoin (BTC-USD) reached new highs during the year at over $108,000/USD and returning a 121.9% gain for 2024. Performance is attributed to the availability of new products to own digital assets, better access for institutional capital, and continued retail and institutional adoption.
Source: Yahoo Finance
Source: The Wall Street Journal, Federal Reserve, Bankrate, Bureau of Labor Statistics, Yahoo Finance
Important Topics
INVESTMENT OPPORTUNITIES & RISKS
EQUITY PERFORMANCE DISPERSION AND PERFORMANCE: The historical performance dispersion of certain value-oriented strategies relative to growth and the underperformance of small-cap equities and large-cap equities creates a compelling investment opportunity over the near term. Over the past few years, markets have rewarded companies with high growth expectations and momentum, often at the expense of those with strong fundamentals, robust cash flows and more modest valuations.
This divergence has created a valuation gap that we believe is unsustainable in the long term. Small-cap equities, which have underperformed their large-cap counterparts, now trade at record-level valuation discounts, offering potential for outsized returns as market dynamics normalize. Historically, small-cap companies have outperformed in declining interest rate environments and during periods of domestic economic expansion, given their ability to capture growth through favorable financing and increased demand for goods & services.
Similarly, value-oriented strategies—often anchored in companies with strong earnings quality, wide economic moats, and consistent profitability—are positioned to benefit as markets shift focus from speculative momentum to more sustainable fundamentals.
We see these areas as fertile ground for long-term investors seeking to capitalize on the market’s eventual recognition of undervalued opportunities. Our approach focuses on identifying high-quality companies within these segments that are well-positioned to weather short-term volatility while delivering strong risk-adjusted returns over time.
As we expect more volatility, we believe investors should reevaluate and balance their equity risk given the performance growth of many passive strategies in the marketplace and exposure to certain factors that may be overvalued.
CREDIT: We continue to favor short-duration Treasury bills as a cornerstone of our fixed income strategy. These instruments provide a combination of safety, liquidity, and attractive yields in today’s elevated interest rate environment. Treasury bills offer a reliable way to preserve capital while capturing higher returns compared to recent years. This positioning allows us to maintain flexibility, dry powder for more compelling risk taking and opportunities, and adaptability in uncertain market conditions – while still being compensated with favorable interest rates relative to riskier areas of the credit market.
At the same time, we are actively identifying opportunities in private credit markets and higher yielding municipal bond markets. The loan market has seen significant repricing, creating attractive yield opportunities for investors willing to take on slightly more risk in exchange for enhanced returns. Private credit, particularly in well-structured loans with strong covenants and robust underwriting standards, offers the potential for compelling income generation and portfolio diversification.
This dual barbelled approach—anchoring portfolios in safer, liquid Treasury bills while tactically deploying capital into higher-yielding private credit—enables us to balance risk and return while avoiding poor risk/return areas that have lower credit quality and meager relative interest rates. In the event of broader stress or distress in credit markets, we find active portfolio management in credit markets can effectively maximize return outcomes in this component of asset allocation.
UNCORRELATED STRATEGIES: To diversify away from traditional strategies that have become increasingly overlapped in terms of owning similar securities, Cayside has been recommending allocations to active managers and strategies that have the potential for a differentiated investment return profile. We view certain uncorrelated hedge fund strategies, including diversified, macro and quantitative trading strategies as an effective way to gain portfolio diversification. One such strategy we have been actively allocating to the past few months is a Long/Short Equity strategy specifically focused on winners and losers in artificial intelligence.
REAL ASSETS: We continue to favor an allocation to a basket of real assets (Gold, Silver, Bitcoin, REITs and Real Estate). We believe the potential for persistent inflation and changes to monetary and fiscal policy should be addressed as a risk to portfolios and protecting wealth. Real assets and real estate strategies continue to be an important component in portfolio management for these reasons.
2025 OUTLOOK: As we look forward into 2025, we continue to evaluate the risk and opportunities that arise from a constantly changing world. A few areas of focus for us as we manage risk while exploring potential investment opportunities include:
Persistent inflation in early 2025 but with the potential to subside as energy and food policies increase supply.
Geopolitical tensions and risks decreasing including potential ceasefires in Ukraine and the Middle East.
Food processing, Medical/Pharma, Insurance, and consumer credit companies challenged with more regulatory and political risk
Certain companies show margin and earnings improvements because of Artificial Intelligence strategy and execution within their operations
Companies that have US-centric supply chains and the ability to use CAPEX productively may outperform and justify improved earnings
Creative destruction and an M&A cycle boom around Artificial Intelligence, Quantum, and Data Center companies
Broader adoption of blockchain and traceable commerce and banking
Business Updates & Personnel News
2024 has been a transformative year for Cayside Partners. We exceeded several major growth milestones including our assets under management and advisement surpassing $400 million, reflecting the trust and confidence of our clients.
INDUSTRY RECOGNITION: Last month, Cayside Partners moderated a panel at the ALTSMIA conference in Miami. ALTSMIA is an education-focused alternative investment event developed and led by the CAIA Association, CFA Society Miami, CFA Society South Florida. ALTSMIA is specifically designed to provide relevant, education-focused content for individuals who manage, advise, allocate to, or oversee alternative investments. We discussed the growing demand for alternative investments, including digital assets, in portfolio construction.
BUSINESS UPDATES: During the year we made substantial investments and upgrades to our IT infrastructure. We are constantly looking to enhance our technology, operations, service providers, and ability to service our clients in the most optimal way leveraging the latest technology.
Additionally, we welcome the New Year with a new employee, Joseph Mariani. Joseph (“Joe”) previously served as an Accounting Specialist and served in the Operations department at Popstroke Holdings. Prior to Popstroke, Joe worked for a boutique financial services firm in New York City. He graduated from the Fordham University and Gabelli School of Business while a student-athlete on the Football team. We look forward to having Joe on the team!
We appreciate your support and confidence in our process and are excited to keep adding value for each of our client families. Cheers to a prosperous and successful year ahead!
Disclosures: Cayside Partners, LLC ("Cayside") makes no warranty as to the accuracy or completeness of any data herein. Information presented in this report is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Past performance is not indicative of future results. This report is intended for the recipient(s) only and not for further distribution without written consent. Investment advice offered through Cayside Partners, LLC, a Securities and Exchange Commission registered investment advisor able to provide investment advice in states where it is registered, exempt, or excluded from registration. Content contained herein should not be construed as an offer or solicitation for investment advice or for the purchase or sale of any security, insurance, or other investment product. Investments involve the risk of loss, including possible loss of principal. Please consult with a qualified financial, tax, accounting, or legal professional before implementing any ideas or strategies discussed here. Content provided is obtained from sources believed to be reliable but cannot be guaranteed as to its accuracy or completeness. The AUM figures disclosed herein are as of June 30th, 2024, and may be subject to change. Our firm's AUM figures are reported on a gross U.S. Dollar basis and may include assets managed on a discretionary and non-discretionary basis. Past performance is not indicative of future results, and AUM figures are subject to change. For further information regarding our firm's AUM or to obtain a copy of our most recent Form ADV, please contact us.