McGowanGroup Wealth Management
Q1 2024 Client Update
January 4th, 2024
2 Years in the Desert
The large equity gains in the financial markets of 2023 essentially returned the major indexes to the same levels as the close of 2021, no progress for 2 years. Overall, our managed accounts performed above the indexes with great resiliency during the declines.
A 2024 Magic Carpet Ride?
One of the primary factors over the past 2 years, of course, was the Federal Reserve interest rate tightening cycle, which corresponded to the bear market of 2022. Future cash flows are worth less when cash rates are relatively high. The Federal Reserve’s most recent projections show a return to a more normal 2.5% over the next 3 years for the Federal Funds Rate and corresponding rates on Treasury Bills. For high cash flow assets, a lower discount rate increases the net present value of future cash flows.
Recession?
The Federal Reserve economic growth projections are 1.4% for 2024. Goldman Sachs forecasted growth over 2% in their 2023 year-end update.
Energy Infrastructure
As of December, Recurrent Advisors estimated that energy infrastructure companies are trading at about 6 times cash flow. Of that estimated 16%, 8% roughly represents current dividends and direct share buybacks about 8%. The resulting increase in assets under control per share would equate to about 40% over a five year period in addition to the cash dividends.
Global High Yield
Our four primary high yield managers delivered an impressive 2023. The current yield, equally weighted is above 9%1. While that is an impressive cash dividend, the estimated discount to par value under control per share, is over 20%. The resulting appreciation potential during declining interest rates could be quite impressive assuming bonds drift back towards par values.
Blue Chip Additions
The McGowanGroup Wealth Management investment committee successfully added positions in nuclear, utility assets, pharmaceuticals, and AI related technology during 2023 dips.
Our Next Steps?
Equity market rallies provide the opportunity to raise tactical safety for future resilience especially as valuation targets are harvested.
A Cautionary Note
Election years provide equal opportunities for rejoicing and lamentations. The temptation to let politics drive portfolio decisions often leads to distraction and mistakes. Let not your heart be troubled as we are on the case and grateful to serve.
We wish you and your family a happy and prosperous new year!
The Team That Cares,
McGowanGroup Wealth Management.
- Your specific accounts could be higher or lower than the stated percentage rates & your specific return could be different depending on your contribution/distribution rates of your accounts.
