For now, the markets continue to benefit from fiscal and monetary stimulus. However, the cost associated with massive deficit spending and maintaining interest rates near zero for an extended period of time will present future challenges. We believe that over the next five years, the impact from the removal of fiscal and monetary stimulus currently supporting the economy is likely to be significant. The potential for a government pullback on spending programs, along with a rise in inflation and/or real interest rates due to the explosion in government borrowing could be problematic for the economy, as well as for the markets.
Given the market environment and rapid market appreciation, our expectation is for below average equity returns over the next five years. In the credit markets, the rebound in corporate profitability, higher net equity issuance and lower net debt issuance has led to an improvement in corporate credit quality. However,much of this improvement is already reflected in the prices of corporate bonds through the rapid tightening of credit spreads. On the margin, we have continued to add to more defensive sectors like consumer staples and healthcare, where we are finding attractive valuation opportunities. We continue to emphasize multi-national companies with strong brand franchises and worldwide competitive advantages. Our long-term secular thesis for energy remains intact, due to the continued tight conditions in worldwide supply and demand for oil.
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Fund performances:
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Given the market environment and rapid market appreciation, our expectation is for below average equity returns over the next five years. In the credit markets, the rebound in corporate profitability, higher net equity issuance and lower net debt issuance has led to an improvement in corporate credit quality. However,much of this improvement is already reflected in the prices of corporate bonds through the rapid tightening of credit spreads. On the margin, we have continued to add to more defensive sectors like consumer staples and healthcare, where we are finding attractive valuation opportunities. We continue to emphasize multi-national companies with strong brand franchises and worldwide competitive advantages. Our long-term secular thesis for energy remains intact, due to the continued tight conditions in worldwide supply and demand for oil.
Read the complete shareholder letter
Fund performances:
(Inception date: 12/30/05)
(Inception date: 6/29/01)
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