Original broadcast details

Date: Thursday, October 12, 2023

Executive Summary

3Q23 was a strong quarter of relative performance; our U.S. strategies outperformed the S&P 500 in both up and down months.

We had a flat quarter of absolute performance, outperforming the S&P 500’s decline of over 3%, and the S&P 500 Value’s decline of over 4%. Year-to-date, our LYRIX mutual fund outperformed 98% of the 382 funds in our Morningstar peer group. 

The story of 2023 has been the Magnificent Seven, which have contributed 11 percentage points of the S&P 500’s 13.1% return.

Excluding the Magnificent Seven, the rest of the S&P 500 had an average return of only 2.7%. This is close to the 2.1% YTD return of the S&P 500 Equal Weight index. 

We continue to experience a benign economic environment.

Almost every stock in the portfolio remains solidly on track to meet or exceed earnings expectations in 2023. Last quarter, the median stock in our portfolio beat consensus estimates by 4% and has seen 9.5% earnings growth year-to-date. 

After a strong second quarter, our international portfolio underperformed in the third quarter.

The primary reason for the underperformance was multiple compression. We have seen better earnings results this year from our portfolio companies, but valuation changes have offset all of that and more, with almost all the year-to-date multiple compression occurring in the third quarter. 

Our valuation spread relative to the S&P 500 remains extremely wide.

We believe our absolute valuation is attractive at about 10x consensus forward earnings, and our valuation spread relative to the S&P 500 remains extremely wide at 94%. If this spread stays at this level, we believe our faster earnings growth should be able to still drive outperformance. But we expect that spread to revert to the pre-2018 average of 29% someday, and if that happens, then we could generate a few thousand basis points of outperformance over several years.

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