On this episode of KayneCast, Jordan Greenhouse, Managing Director of Kayne Anderson Rudnick, is joined by Chris Wright, Portfolio Manager and Senior Research Analyst for the KAR Long-Short Strategy. Together, they explore how heightened volatility in Q3 2022 impacted the Long-Short portfolio and what to expect as the market moves through Q4 2022 and into 2023.
Inflation, Interest Hikes, and Geopolitics Impact Long-Short Equity Strategy
Early signs of market recovery in Q3 proved short-lived as the market grew concerned about high inflation and the Fed’s continued hawkish interest rate policy.
Wright notes that Communication Services, Real Estate, and Materials were the sectors hardest hit by these trends. Higher interest rates negatively impacted Communication Services and Real Estate. At the same time, the Materials sector was affected by “the continued negative impact inflation and supply chain challenges are having on corporate profit margins.”
The Energy sector performed well in Q3. Wright explains Energy “remains in a goldilocks environment wherein supply is limited,” especially given the impact of the ongoing Ukraine/Russia war on the sector.
Long-Short Investing Outlook as Q3 Ends
Moving into Q4, Wright emphasizes the importance of monitoring interest rates, consumer spending, and inflation’s impact on profit margins. Macroeconomic forecasting, always tricky to predict successfully, has become even more difficult given the volatility of 2022. Wright recommends remaining mindful of the economic environment impacting Long-Short strategies and owning a “small but diversified collection of businesses that can be successful over a full economic cycle.”
Listen to the podcast above to learn more about Long-Short investing in Q3 2022, and join us in Q4 for another stock market performance review.
This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein. Past performance is no guarantee of future results.