Investment Committee – April 2023


Unforeseen Outcomes: The Ripple Effects of recent Market Events

The Investment Committee of KM cube convened in April 2023 to discuss recent market events and their implications on investment strategies. The Committee analyzed the current market situation and identified key trends, risks, and opportunities for investors.

Notable Market Events

The Committee observed several significant events that occurred in March 2023, including:

  1. Major US bank failures (2nd and 3rd largest US bank failures-of-all-time occurred)
  2. Deposit guarantees for Silicon Valley Bank and Signature Bank
  3. The Federal Reserve added $300billion to its balance sheet, reversing over 2/3rds of the reduction that had taken place through its recent Quantitative Tightening to fight inflation
  4. Credit Suisse receiving liquidity support from the Swiss National Bank and subsequent buyout by UBS
  5. A rapid drop in 2-year yields (fastest rate since the 1980s)
  6. Record usage of the Federal Reserve’s discount window
  7. Rate hikes by both the US Federal Reserve and the European Central Bank, 25bps and 50bps respectively
  8. Stock markets reached a 30-day high despite these challenges

Market Concentration and Dispersion

The Committee highlighted the high concentration of gains in the S&P500, driven by just nine stocks (Apple, Nvidia, Microsoft, Facebook, Tesla, Amazon, Google, Salesforce, and AMD), which contributed 160% of the index’s gains for 2023. This concentration raises concerns about the exit door for these stocks and the potential for significant index declines when dispersion drops.

You can find what is dispersion and how it works here.

Central Banks’ Priorities

The Committee agreed that central banks are likely to prioritize fighting inflation through rate hikes until a market segment faces issues. At that point, the priority will shift to addressing the problem.

Risk Management and Portfolio Positioning

The Committee discussed the increased risk of bank runs due to the digitization of finance and cash flow, and the inherent risk in cash investments with financial institutions. To mitigate these risks, the Committee recommends diversifying between institutions and taking advantage of KM cube’s offering of various custodians.

In terms of portfolio positioning, the Committee advises clients to:

  1. Avoid high-yield investments
  2. Prefer short-term debt from credible companies
  3. Avoid bank debt
  4. Increase exposure to alternatives and commodities for positive carry

The Investment Committee is closely monitoring the market’s developments and adjusting its recommendations accordingly.

Authors: John Couletsis and Kostas Metaxas


Topic: Investment Strategy, Market Analysis
Investment Theme: Risk Management, Diversification
Portfolio Positioning: Cautious
Implied Buy signals: Alternatives, Commodities
Implied Sell signals: High-Yield Investments, Bank Debt
Probability of Stock Market Rally: Neutral