EXECUTIVE SUMMARY

Investment Landscape: Despite a tumultuous 2023, with major bank failures, the threat of government shutdowns, and rising geopolitical tensions, financial markets and the global economy proved to be surprisingly resilient. However, we believe the economy has yet to feel the full impact of higher interest rates, which is a reason why we are maintaining a somewhat defensive posture.

Current Asset Allocation Stance: As rates have risen, prospective returns in bonds have become relatively more attractive when compared to stocks, allowing us to rebuild our fixed income exposure and extend our duration. In terms of equity exposure, we are focused on investing in high-quality companies that can withstand a wide range of potential scenarios heading into 2024 (including geopolitical volatility, that stems from ongoing military conflicts and upcoming elections). Credit and bonds will continue to play an increasingly important role given higher interest rates and a more attractive return profile, while we still seek opportunistic investments across alternatives and select segments of the public equity market. While private market activity has slowed down, we are still committing to the space, and find private credit to offer particularly attractive returns relative to its risk, given the pullback in bank lending.

2024 U.S. Presidential Election: 2024 will be an important election year, and perhaps the most watched election will be in the U.S. There is limited evidence to suggest that the election of one particular party leads to a better outcome than another, although the re-election of a sitting president has been associated with higher market returns. There are unique circumstances in this particular cycle which may lead to higher-than-average volatility leading up to the November election.

State of the U.S. Consumer: The financial picture for U.S. consumers has been surprisingly strong, despite higher interest rates impacting key markets, such as housing and autos. Unemployment is low, wages are rising faster than inflation and consumer balance sheets remain healthy. However, consumers may face mounting pressure as excess savings from the pandemic dwindle, debt levels rise and the cost of that debt increases. This poses a risk to the U.S. economy, where consumption makes up 70% of GDP.

U.S. Fiscal Situation: The U.S. faces a challenging fiscal environment with a large deficit, high debt levels, and rising interest costs. While the risks of a U.S. government debt crisis remain low in the short term, the U.S. will eventually have to address these issues, perhaps through austerity, higher taxes, or a mixture of both.

Note: All commentary sourced from Brown Advisory as of 12/31/23 unless otherwise noted. Alternative Investments may be available for Qualified Purchasers or Accredited Investors only. Click here for important disclosures, and for a complete list of terms and definitions.