Boon Capital Advisors 2023 Outlook

As we enter 2023, markets and the economy are very different from where we have been. As I began to write this commentary, I read a piece from one of the best investors in the modern era, Howard Marks, entitled "Sea Change" (link at bottom). It makes sense to highlight and attach his work rather than recreate the wheel.

As you read this, you might be thinking about what things look like in 2023. Here are my predictions:

1. Market volatility will continue

2. Earnings will come down as well as valuations

3. Dividends will have more of an emphasis than future growth

4. Opportunities in the credit market will be more plentiful

5. The investment strategies that worked best in recent history may not be the ones that outperform in the years ahead.

Marks' piece highlights the reasoning. The primary difference is that the low-interest rates/Fed stimulus era is behind us. Let's quickly revisit the benefits brought on by this environment.

• Strong economic growth and lower interest costs added to corporate profits.

• Stocks increased non-stop for more than ten years, except for a handful of downdrafts that each lasted a few months, from March 2009 until February 2020.

• The markets' strength encouraged investors to take on risk. It also made FOMO – the fear of missing out – the prevalent emotion among investors. 

• Low yields on safe investments drove investors to buy riskier assets.

Where are we now?

• A recession in the next 12-18 months appears to be a foregone conclusion among economists and investors. 

• While some recent inflation readings have been encouraging, the labor market is still very tight, wages are rising, and the economy is growing.

• While the Fed appears likely to slow the pace of its interest rate increases, it's unlikely to return to stimulative policies any time soon.

• Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets.

We will continue to shift portfolios to align with where we feel the markets are going in the next year and beyond and to share the reasoning behind that positioning. We recognize that this information will be interpreted by everyone differently. Some may see an opportunity, some will be content, and some will be uncertain. We will be discussing how you feel about this and how it may impact your plan when we talk next.

Click here for the complete “Sea Change” piece by Howard Marks

Decentralized Finance - what is it and why does it matter?

Decentralized Finance – what is it and why does it matter? 

Let’s start with where we are right now and that’s with Centralized Finance. Essentially every way we conduct a transaction is done through some sort of exchange where there is a “middleman”. This exists in banking, lending, trading, investing, and so on. The middleman or exchange maintains control over the system is responsible for security and assures settlement between the interested parties. This is the dominant way that banks, lenders, and brokerage firms operate currently.

Decentralized Finance is a system that aims to use technology (Blockchain and Smart Contracts) to eliminate the middleman or exchange allowing interested parties to interact directly.  An example of “DeFi” would be users lending out crypto currencies like a traditional bank would lend dollars and earn interest as a lender. 

This example is the base case and can grow into any of the traditional areas of centralized finance mentioned above. 

Why should we care? 

DeFi has the potential to reach many more people than Centralized Finance. With only an internet connection users who currently don’t have access to traditional exchanges will be able to trade and transact anywhere and at any time.  With fewer intermediaries, DeFi has the ability lower costs and create additional flexibility. 

DeFi is still only beginning to be adopted but we are going to be hearing a lot more about it in the days and years to come and could be instrumental in reshaping finance as we know it.

As the adoption of DeFi grows I will continue to update you and dive deeper on this topic.

Introduction to Values Based Investing (ESG, SRI and Impact)

One of our primary focuses at Boon Capital is to make sure that your investments align with your goals. We also want to make sure that your investments align with your values.

Values-Based Investing (not to be confused with Value Investing) is exactly what it sounds like. It's looking beyond a company's balance sheet and stock price and considering the economic and social impact a company may have.

There are different approaches to Values-Based Investing that an investor can take and various mutual funds and ETF's that are built to serve these. Here are the primary approaches:

Socially Responsible Investing (SRI)

Socially responsible investing (SRI): This involves avoiding putting money into industries that may have negative environmental or social effects, such as companies that produce tobacco, defense companies, or those that damage the environment.

Environmental, social, and governance investing (ESG):

This refers to making investment choices after considering each company's environmental impact, social impact, and corporate governance structure. Investors may look at executive pay, representation of women and minorities on the board, and a host of other ESG issues.

Impact investing:

This involves investing in companies with the goal of generating beneficial social or environmental change.

If this interests you, we are happy to help identify an approach that suits your needs and implement the proper investment solutions.