Q2 2022 – Annandale Capital Quarterly Commentary

2022 is proving to be an extremely challenging year for investors. Losses in financial markets are to be expected, but rarely do we see losses accrue to all types of financial assets simultaneously. Simply put, we have been investing in a bear market with nowhere to hide. Global (and domestic) equities are down 20.0%, marking the worst start to a year since 1962. For most equity investors, the reality is far worse. The Nasdaq Index, loaded with popular technology stocks, has fallen 29.2%, and the losses on hyper-growth stocks are startling. Cathy Wood’s infamous ARK Innovation Fund, a favorite among retail investors, has wiped out three-fourths of its peak value. Just to get back to breakeven it will have to return 289.1%. Many cryptocurrencies, an area we do not traffic in, are proving worthless, and worse, some of their offshoots, like certain stablecoins, appear to be Ponzi schemes. The holdings of many venture capital and private equity growth funds face dire straits, even though the funds’ marks may not yet reflect that reality. Across the real estate industry, capitalization rates are moving higher, resulting in property valuations falling. But the most surprising results have stemmed from the fixed income markets. Investment-grade bonds, the “safety-net” for retail and institutional investors alike, have fallen 10.3% year to date. While this decline is less than that of other asset classes, it has no historical precedent, and it is a devastating blow for individuals counting on the predictability of fixed income returns in retirement. Our portfolios have weathered the storm better than the overall market because we avoided stocks and bonds trading at precarious valuations. We have also benefited from our investments in private markets, principally oil and gas, which have appreciated in value this year. That said, we have lost money this year and we find it hard to celebrate losing less than the market. Despite the challenging start to the year, there is reason to be more optimistic about the future. Download Q2 2022 Commentary