Galbraith's twist on the German "gewiss" (certain) reminds us that certainty is elusive in markets, necessitating preparedness for surprise outcomes.

The events of April 2024 in the capital markets again reminded us that certainties are few and surprises are inevitable when investing.

• Who could have predicted that emerging market equities would significantly outperform developed counterparts?

• Or that bonds would lose nearly as much value as stocks, despite expectations of lower interest rates?

The very notion that interest rates would spike over 0.3% in April represented a jolting surprise that defied expert forecasts.

Even at the sector and asset class level within equities and commodities, the upending of traditional patterns persisted. Utilities incredibly stood as the sole positive performer in the S&P 500. And industrial metals eclipsed the returns of that traditional safety play, gold.

Markets revealed their sense of humor by rewarding the very regions and countries – the UK and China – that many investors had largely disregarded or discounted.

Truly, April's flower bloomed brightest in areas where few expected any growth.

Understanding the Unpredictability of Markets

Galbraith’s assertion underlines a fundamental principle of financial investment: markets are inherently unpredictable.

Despite the advanced algorithms and sophisticated models that analysts use to forecast market trends, the reality is that these predictions are merely educated guesses.

Markets are influenced by an array of unpredictable factors ranging from geopolitical events and economic changes to psychological factors and natural disasters.

This unpredictability means that what seems like a sure bet today can turn into tomorrow’s loss, a concept that even the most seasoned investors must grapple with.

The Illusion of Control

Investors often fall into the trap of believing they can control or accurately predict market outcomes.

This illusion of control can lead to overconfidence, where investors take on excessive risk based on the belief that their understanding of the market will protect them from losses.

Galbraith's perspective invites investors to acknowledge this illusion and approach market decisions with humility and an open mind knowing that the possibility of loss is always present.

Strategies for Navigating Uncertainty

To navigate this uncertainty, diversification becomes a key strategy.

By spreading investments across various asset classes, sectors, and geographies, investors can mitigate the risk of severe losses if one investment fails.

Moreover, maintaining a long-term perspective is crucial. Short-term market fluctuations can be alarming, but a well-considered long-term investment strategy can smooth out these bumps and provide more stable returns.

April's spate of surprises reinforces crucial investing principles.

First, diversification across asset classes, geographies, and sectors remains invaluable when future uncertainties inevitably arise.

Second, maintaining a long-term perspective proves wise, as many of these short-term zigs and zags are likely temporal aberrations that could revert course.

• For instance, the outperformance of utilities over other economic sectors seems ripe for a potential reversal, especially if the Federal Reserve holds back on cutting rates.

• Similarly, the dynamics that drove industrial metals to trounce gold's returns could flip if economic growth concerns take center stage again.

However, other April surprises could portend more meaningful shifts starting to take root.

• The spike in interest rates may be the opening salvo in a new rate normalization cycle by central banks determined to finally conquer stubbornly high inflation. If so, the historic losses in bond markets could unfortunately persist.

• Likewise, the relatively strong performance of emerging market equities may reflect smart money positioning ahead of those economies turning a corner and removing some of the valuation gap vis a vie developed markets.

While frustrating in the moment, shocking market movements remind us that the only true constant is change itself.

Some of April's surprises will likely prove fleeting, while others presage bigger inflection points.

Preparing portfolios for the unexpected - through diversification and maintaining a long-term perspective - may be the best tonic when April's showers ultimately give way to May flowers.

Asset Allocation Performance Review

High-Level Observations:

• 2024 is shaping up as a tough year for multi-asset class investors with a conservative bent.

• All of the GF asset allocation portfolios are up year-to-date with higher-risk portfolios exhibiting commensurate higher returns.

• Conservative portfolios with a heavier allocation to bonds are being wiped-sawed. The expectation that the Fed would lower rates thus boosting fixed-income returns has not materialized. It’s unlikely that rates will be cut given recent inflationary trends.

• Over the last three years, the GF Low-Risk strategy is only up 0.4% (on an annualized basis and before fees and transaction costs). Going back 5 years the annualized performance improves to 4%.

• Unfortunately, most investors especially those already in retirement will not find such returns sufficient to maintain their purchasing power.

• Equity-heavy allocations have outperformed more conservative allocations thanks largely to the performance of US large-cap equities and Commodities.

• The GF High-Risk strategy is up 2.1% on an annualized pre-cost basis over the last three years. In the previous 5 years, the strategy is up a respectable 6.7%.

• The bear market of 2022 is dampening the returns to all of the asset allocation strategies. Our long-term expected returns are all higher than the realized trailing performance of the GF strategies.

• Year to date, commodities have provided a nice boost. A big reason is higher oil prices. Most recently, precious and industrial metal prices have joined the party providing a further boost.

• International fixed income remains a disappointing asset class for US investors. Yields are lower than in the US and the unexpected strength of the US dollar has resulted in negative performance. Not much changed in April.

Weekly Performance Attribution

Long-Term Asset Allocation Portfolio Characteristics

Expected Returns:

Risk:

Equity Risk:

A Bit of Wisdom Never Hurts

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