After the great run that alternatives had in 2022, we decreased our exposure from overweight to neutral in the beginning of the year. Alternatives underperformed stock and bond indices – with the commodity and broad hedge indices both posting negative 1st quarter returns. As of right now, decreasing our exposure to alternatives is having a positive impact on portfolio performance.
Gold and cryptocurrencies both rallied in the 1st quarter as investors reacted to the turmoil in the financial sector. Gold ended the quarter at $1,969/ounce, up more than 8% from the start of the year – this is less than 10% away from all-time highs. The CoinDesk Market Index which covers more than 90% of the market capitalization of the cryptocurrency markets ended the first quarter 58% higher. Despite those rallies, commodities were down in the first quarter. Oil contributed to those negative returns, declining more than 7% in the first quarter. As of this writing, there has been some recovery due to OPEC+ announcing a cut in output which could keep inflation higher for longer. There is also some additional upside potential for the remainder of 2023 with the reopening of China increasing global energy consumption.
Brad mentioned that housing starts and mortgage applications are both well below their level 1 year ago. The global real estate sector as a whole eked out a 0.21% return in the 1st quarter. With weakened consumer balance sheets and rising loan costs continuing to put pressure on various aspects of the real estate sector, we are underweighting the sector as a whole. We are also avoiding office space in particular within real estate – COVID fundamentally changed the way we work. With many individuals now working completely from home or adopting hybrid schedules, the traditional office leasing industry has been disrupted. As always, we are available to help you meet your financial goals – reach out to any of our LCNB| Wealth officers for a more detailed discussion.