Cayside Review: 2024 Q3
This newsletter includes our third-quarter review, global market update and outlook, key numbers, and announcements.
Global Market Update & Outlook
'Never, ever invest in the present' is a sentiment that resonates strongly with us as we approach this pivotal moment in the U.S. election cycle. While this may be one of the most polarizing elections in recent history, it's crucial to remember that successful investing requires a long-term perspective. A disciplined investor looks past the immediate noise and uncertainty, keeping a generational focus on owning high-quality, diversified assets. In times like these, patience and foresight are more valuable than ever. We expand more on this sentiment in this letter in our investment opportunities section. The U.S. Equity Market continued to rise in the third quarter, with the S&P 500 +5.4% for the quarter. Through the end of September, year-to-date (YTD) total returns for major U.S. indexes are now as follows: S&P 500 +21.6%; Dow Jones Industrial Average +13.9% and the tech-focused Nasdaq +21.4%.
Bond yields have fallen following a key 0.50% interest rate cut by the Federal Reserve, which reduced the target range for federal funds to 4.75%–5%, down from 5.50% over the past year.
Global commodity prices experienced substantial movement in the third quarter. Gold (as measured by the SPDR Gold Shares ETF: GLD) reached an all-time high, advancing 13.5% for the quarter and 28.6% for the year. As we mentioned in previous letters, we anticipate continued elevated demand and volatility for assets typically influenced by real interest rate imbalances, inflationary or deflationary forces, and geopolitical risks. These dynamics are particularly evident in commodity markets, energy markets and currencies, including digital currencies.
As the following charts and tables illustrate, we’ve experienced significant changes in asset prices over the past 12 months as we head into the U.S. election this quarter. We believe an elevated focus should be placed on investment and family wealth planning oversight as the changing environment warrants additional scrutiny on portfolio management, tax policy, and estate planning among others.
Important Topics & U.S. Election
THE U.S. ELECTION, INVESTMENT OPPORTUNITIES & RISKS
The 2024 Election: As we approach the upcoming presidential and congressional elections, the potential impact on areas such as tax policy, estate taxes, and regulations is becoming increasingly significant. One of the major legislative frameworks in focus is the Tax Cuts and Jobs Act of 2017, which will likely face revisions that may impact individual and corporate tax policy. Estate taxes are also a key issue, with potential changes that will have substantial implications for wealth transfer strategies.
Regulations, particularly in sectors like healthcare, energy, and technology, are likely to be reshaped, depending on the outcome of the elections. For business owners and investors, these regulatory shifts could influence profitability and merger & acquisition (M&A) activity, with policy shifts potentially either encouraging or discouraging deal-making. We encourage our clients and prospective clients to discuss various estate, financial and transaction planning topics with us to leverage our resources and evaluation in these areas.
For long-term investors, it’s important to remember that trying to time markets around election outcomes can be a risky and an often-counterproductive strategy. While market volatility is expected during this period of political uncertainty, we believe that staying focused on long-term investment goals, maintaining a diversified portfolio, and avoiding reactionary moves will ultimately provide the best results for our clients. We will discuss some sectors we are favoring for diversified portfolios at this stage of the cycle. Patience and perspective are key, as short-term political noise should not overshadow the long-term benefits of disciplined investing.
Artificial Intelligence (AI): The AI opportunity set appears to be a long-term secular change that will redefine how businesses, consumers and governments function in an operational and research & development (R&D) capacity. The potential for autonomous knowledge output creates new levels of scientific discovery and improved cost savings amongst businesses and consumers. There are several companies in the market focusing on this secular AI opportunity, however we believe it will take deep resources and expertise to best capitalize on what is likely to be a rapidly changing landscape of creative destruction. We believe allocating to specific equities in addition to active managers in the space is the best way to diversify and maximize an investors exposure to this opportunity. We have identified and performed diligence on a unique hedge fund manager opportunity in this space which we will look to allocate to on behalf of our families in the 4th quarter.
Currencies and Global Change: The past several years has seen a large increase in geopolitical tension and war in multiples areas. Currencies (specifically of Japanese Yen) have depreciated as much as 40% against the USD creating abnormal economic and market behaviors. Due to the potential for volatility amongst global regions and asset classes, we believe diversification into key asset classes is an important endeavor within portfolios at this time.
Asset Class Diversification: After several equity bull markets in U.S. Equities over the past decade, it is important to maintain a balanced approach towards asset classes. Many investors have found success allocating to U.S. Equity markets through the S&P 500 which has performed with exceptional risk-adjusted returns over the past decade. Moreover, the traditional portfolio (60/40 portfolio) comprised of 60% stocks and 40% bonds should be reconsidered as it may not provide thoughtful diversification to asset classes and investment opportunities in today’s market. We believe many investors are under allocated to asset classes that have been out of favor such as Precious Metals, Commodities, Alternative Investments and other real assets that often provide a complementary diversification and return opportunity in a traditional portfolio.
Active Management: At this point in the market cycle, the debate between active and passive management takes on renewed significance, especially with the potential policy shifts that may follow the upcoming election. While passive management has delivered solid returns in the past decade during a prolonged bull market as we previously mentioned, the environment ahead may present more complex challenges. Changes in tax policy, regulations, tariffs, and economic strategy could create both risks and opportunities that are difficult to capture with a purely passive approach. In this context, active management may offer a distinct advantage, as it allows for flexibility in navigating market volatility, identifying undervalued assets, and capitalizing on opportunities that arise from policy shifts. We believe that a well-balanced strategy, incorporating both active and passive elements, is essential in positioning portfolios to thrive amid changing conditions. We have been very active sourcing talented investment managers in small cap equities, non-U.S. markets, credit markets, and alternative investment strategies. Please reach out to us to discuss specific managers in more detail.
Credit Opportunities: Opportunistic credit is compelling right now with the potential for outsized returns if credit becomes more distressed. Middle market credit is often overlooked by large institutions due to limitations on allocation limits, which may create an advantage to active managers with the appropriate size and long-term relationships within the space. By having experts identify credits in defensive spaces that are often overlooked, we believe certain investors may find risk-adjusted returns that complement their portfolio.
Business Updates & Personnel News
We will be hosting an exclusive client event in November for an in-person discussion on Security Strategies for Successful Families. Our guest speakers are former FBI agents that assist clients in handling general investigations, fraud, cyber security and other strategies to protect against these growing threats to business owners and wealthy families. We look forward to this very informative event for our firm.
As part of our commitment to giving back to the community, we are proud to support two important events this October. First, we are supporting the Humane Society of Polk County and their annual golf event at the beautiful Mountain Lake Golf Club in Lake Wales.
Additionally, we are excited to support the Golden Cub event hosted by Nicklaus Children's Hospital at Lost Tree. Nicklaus Children's Hospital plays a critical role in providing top-notch healthcare to children, and this event helps raise funds for vital medical services and programs. Both events reflect our dedication to making a positive impact that align with our values in the community.
We appreciate your support and confidence in our process and are excited to keep adding value for each of our client families. We look forward to a busy fourth quarter and holiday season in South Florida.
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.