The world remains in a state of disequilibrium. While modern civilization has rarely found balance, the range of outcomes tied to central banks optimizing for future growth and political leaders navigating new domestic and international realities stands particularly wide. That makes our annual forecasting ritual more difficult. Last year’s prognostications of a resilient consumer and stubborn inflation proved correct, but a major conflict in Europe and the Federal Reserve’s war on inflation left our market optimism misplaced. Higher interest rates and the prospect of a recession spared neither stocks nor bonds and punished speculative fads along with blue chip stalwarts. For 2022, the S&P 500 was down 18%, nearly returning the index to its 2020 close.
The direction of markets in 2023 and beyond depends largely upon the answers to three questions: (a) will hot and cold conflicts in Ukraine and Taiwan, respectively, stay contained? (b) can the Fed return inflation to the low-single-digits without triggering deep economic and earnings recessions? and (c) given the altered political economic backdrop, what multiple should investors pay for stocks? Despite abysmal sentiment, market volatility remains subdued with inflation data driven rallies and sell-offs punctuating what has generally been a steady grind lower. We continue to await a market uplift (the so-called January effect) as tax loss selling abates.
Uncertainty in the board room and elevated borrowing costs curtailed deals and financial engineering. M&A normalized to pre-pandemic levels, totaling $3.6 trillion in 2022, down 32% from the record-breaking $5.1 trillion activity in 2021, excluding SPACs. Activity by both strategic and financial buyers reawakened late in the year as market dislocations presented bargains too enticing to resist. Portfolios benefited from several deals, including Philip Morris International’s recently completed acquisition of Swedish Match and the announced acquisition of Aerojet Rocketdyne (+20%) by L3 Harris Technologies, Aerojet’s second trip to the altar in as many years. A number of announced spin-offs, including Liberty Braves as an asset-backed company and a fourth separation involving Madison Square Garden could create future consolidation targets. The most active industries were Technology ($720 billion, or 20% of total dealmaking), Energy & Power (13% of deal volume), and Industrials (12% of deal volume). Private Equity accounted for a record 20% of M&A activity in 2022, with total value reaching $785 billion. The U.S. remained the top venue for M&A with deal activity totaling $1.5 trillion, or 43% of worldwide volumes, a similar proportion compared to 2021.
The contracting stock multiples, widening credit spreads and rising interest rates spared few asset classes. Convertibles were caught up in this storm, but there are some positive takeaways for our market. Specifically, convertibles outperformed their underlying equities this year, participating in only 56% of the downside.
The convertible market is now quite fixed income oriented with high yields, high premiums, and low deltas. While this is not the typical profile of our market, it presents a unique opportunity. At current levels, many convertibles should participate in very little equity downside from here. They offer yields to maturity that in many cases exceed the expected annual return of our market over the long term. Some of these issues are trading at double digit yields to maturity despite positive cash flows and growth opportunities. We have seen some companies that have addressed investor concerns by issuing more manageable converts and buying back or exchanging some percentage of their existing debt. This can be an accretive transaction for the company and usually improves the credit. One portfolio holding, Bandwidth, did a transaction like this during the quarter and it was one of our top performing convertibles as a result. As it becomes clear that a company is not on a path to bankruptcy the bonds will move higher regardless of the equity price. This is what we call a credit delta. Additionally, in the event that one of these companies is acquired, the bonds would be puttable at par. This would be a very attractive outcome for bond holders. We continue to look for value in this area of the market and have added a number of these issues to the portfolio.
After a record low year for convertible issuance in 2022, we expect the primary market to rebound this year. The issuance we saw in the fourth quarter came at attractive terms and we expect this to continue as there is a significant appetite among convertible investors for new paper. We believe many companies have delayed coming to the market and converts offer an attractive way for companies to add low cost capital to their balance sheets, particularly as interest rates move higher and other forms of financing such as High Yield become more expensive. Continued issuance allows us to stay current and we expect to selectively layer new issues into our portfolio to maintain the asymmetrical risk profile we are seeking to achieve.
To continue please select your investor category and your country of residence.
Select your Country:
Qualified Investor
QUALIFIED INVESTOR ACCORDING TO ART. 10 PARA. 3,
3BIS AND 3TER
- regulated financial intermediaries such as banks, securities traders,
fund management companies and asset managers of collective
investment schemes, as well as central banks;
- regulated insurance institutions;
- public entities and retirement benefits institutions with professional
treasury operations;
- companies with professional treasury operations;
- High-net-worth individuals may declare in writing that they wish to be
deemed qualified investors;
- Investors who have concluded a written discretionary management
agreement as defined in Article 3 Paragraph 2b and c unless they
have declared in writing that they do not wish to be deemed as such.
INDEPENDENT ASSET MANAGERS ACCORDING
TO ART. 3 PARA. 2 LIT C TO THE EXTENT THAT:
(i) The asset manager as a financial intermediary is according
to Article 2 Paragraph 3 littera e subject to the Money
Laundering Act of 10 October 1997;
(ii) The asset manager is subject to a professional code of
conduct which is recognized as a minimum standard by the
supervisory authority, and
(iii) The asset management contract contains the recognized
guidelines of a professional organization which are recognized
as a minimum standard by the supervisory authority.
Legal Notes
General Information
This website belongs to Swiss Fund Platform Ltd, a company based in Switzerland (hereafter referred to as "Swiss Fund Platform"). The sole purpose of the website is to provide information. No information published on this website constitutes an offer, a request or a recommendation to buy or sell any investment instruments. Users of the Swiss Fund Platform website are aware that Swiss Fund Platform Ltd. and the fund providers mentioned on this website are mutually independent from each other and therefore do not act as agent, employee, associate, guarantor or licence provider for each other. Although Swiss Fund Platform takes all reasonable care to ensure that the information on this website is correct at the time of publication, the company makes no representation or warranty (including liability towards third parties), express or implied, regarding the correctness, reliability or completeness of the information provided. The information provided on the Swiss Fund Platform website may be modified at any time without prior notice. The posting of any information on the website should not be understood to imply that there has not been any change in the affairs since the date on which the information was filed with the relevant regulatory authority or published or that the information is accurate at any time subsequent to the date on which it was published. Some links on the Swiss Fund Platform website lead to third-party websites, which are completely beyond the control of Swiss Fund Platform. Accordingly, the company do not assume any responsibility for the accuracy, completeness or legality of the contents of such websites, or for any offers and services contained. This disclaimer may be updated at any time. Therefore, Swiss Fund Platform advises you to read through this disclaimer regularly to ensure that you are informed of any changes. The date on which this disclaimer was last updated is given below.
By accessing the Swiss Fund Platform website or using any information provided on this website (for personal use or for third parties), you signify your agreement to the terms of use below.
Access Restrictions By Residence And Investor Category
Swiss Fund Platform website is intended exclusively for qualified investors according to Art. 10 Para. 3, 3bis and 3ter of the Swiss Federal Collective Investment Schemes Act (CISA) and independent asset managers as per Art. 3 Para. 2 lit c CISA with country of residence in Switzerland and Liechtenstein. Considered as qualified investors according to Art. 10 Para. 3, 3bis and 3ter CISA are:
- regulated financial intermediaries such as banks, securities traders, fund management companies and asset managers of collective
investment schemes, as well as central banks;
- regulated insurance institutions;
- public entities and retirement benefits institutions with professional treasury operations;
- companies with professional treasury operations;
- High-net-worth individuals may declare in writing that they wish to be deemed qualified investors;
- Investors who have concluded a written discretionary management agreement as defined in Article 3 Paragraph 2b and c are deemed
qualified investors unless they have declared in writing that they do not wish to be deemed as such.
Considered as independent asset managers according to Art. 3 Para. 2 lit c CISA are:
Independent asset managers to the extent that:
(i) The asset manager as a financial intermediary is according to Article 2 Paragraph 3 littera e subject to the Money Laundering Act of 10
October 1997;
(ii) The asset manager is subject to a professional code of conduct which is recognized as a minimum standard by the supervisory authority,
and
(iii) The asset management contract contains the recognized guidelines of a professional organization which are recognized as a minimum
standard by the supervisory authority.
When accessing the Swiss Fund Platform website for the first time, users are asked to specify their country of residence and their personal investor category. Swiss Fund Platform website is intended exclusively for qualified investors and independent asset managers with country of residence in Switzerland and Liechtenstein. All other persons are not authorized to access this website.
No Offer / No Obligation
Information and documents available through Swiss Fund Platform website are in general provided by the fund providers and are for personal use and information only. The information and documents may be modified at any time without prior notice. The companies make no representation, express or implied, that the information and documents published on the website are accurate, complete or up to date. In particular, the companies shall not be obliged to remove any outdated information from the Swiss Fund Platform website or to expressly mark it as being outdated. Nothing contained on the Swiss Fund Platform website constitutes financial, legal, tax or other advice, nor should any investment or any other decisions be made solely based on the website content. Investments in anyof the investment funds described on the Swiss Fund Platform website should only be made after carefully studying the corresponding fund prospectus, simplified prospectus and annual or semiannual report including all the legal information therein. You should obtain advice from a qualified expert before making any investment decision.No information published on this website constitutes an offer, a request or a recommendation to buy or sell any investment instruments or to conclude any other transactions or any legal act whatsoever.
Performance
The future performance of investment funds cannot be deduced from previous performance, i.e. the value of an investment may fall as well as rise. Therefore, good performance in the past does not guarantee good performance in the future. The performance shown does not take any account of any commission and costs which may be charged when subscribing for units or redeeming them. Commission and costs of this kind have a detrimental impact on performance. Should the currency in which the performance is presented not match the reference currency of the investor, this will result in additional risks from fluctuations in currency exchange rates, which may have a positive or negative influence on the value of the investment. Therefore, Swiss Fund Platform cannot guarantee that any capital invested will maintain its value or increase in value.
Intellectual Property Rights Of Swiss Fund Platform
The entire content of the Swiss Fund Platform website is subject to copyright with all rights reserved by Swiss Fund Platform or by the suppliers of the corresponding investment funds. If on this website names or logos of fund providers or other companies are reproduced, this is with explicit authorization of the proprietary of the intellectual property rights. You may save or print out a hard copy of individual pages and/or sections of the Swiss Fund Platform website provided that you do not remove any copyright or other proprietary notices. With any saving or otherwise copying from the Swiss Fund Platform website, the terms and conditions for use shall be deemed to have been accepted. All property rights shall remain with Swiss Fund Platform or with the suppliers of the corresponding investment funds. You may not reproduce (in whole or in part), transmit (by electronic means or otherwise), modify, link to or use for any public or commercial purpose the Swiss Fund Platform website without the prior written permission of the companies. Nothingon the Swiss Fund Platform website shall be construed as granting any licence or right to use any image, trademark, logo or software. Downloading or copying this website or parts thereof shall not transfer any title to you. Swiss Fund Platform or the fund providers supplying fund information or documents reserve all rights (in particular with respect to copyright andtrademark ownership) to all material on the Swiss Fund Platform website and will enforce their rights to the full extent of the law.
No Recommendation / Possible Conflicts Of Interest
No information about investment funds published on the Swiss Fund Platform website constitutes a recommendation list. It is only a list of investment funds for which Swiss Fund Platform administers the payments of trailer fees. Swiss Fund Platform and/or their boards of directors, executive management and employees are in principle independent of the fund providers or investment funds. They may have or have had interests in the listed investment funds or have or have had positions in the securities held by them. Furthermore, such entities or persons may have or have had a relationship with or may provide or have provided other services to or serve or have served in the executive bodies of relevant fund providers or companies. Swiss Fund Platform receives a fee for the administration of the payments of the trailer fees.
DATA PROTECTION
Based on Article 13 of the Federal Constitution and the provisions of federal data protection legislation, everyone has the right to the protection of their privacy, as well as to protection from misuse of their personal details. We comply with these provisions. Personal data is treated as strictly confidential and is neither passed on nor sold to third parties. In close cooperation with our hosting provider, we make every effort to protect the databases as well as possible from outside access, data loss, misuse or falsification. When you access our websites, the following data is stored in log files: IP address, date, time, browser request and general information on the operating system and browser. This usage data forms the basis for statistical, impersonal evaluations for the purpose of tracking trends so that we can improve the information on offer.
PRIVACY POLICY FOR USAGE OF FACEBOOK-PLUGINS (LIKE-BUTTON)
Our pages integrate plugins of the social network Facebook, 1601 South California Avenue, Palo Alto, CA 94304, USA. You can recognize Facebook-plugins by the Facebook-Logo or the addition "Facebook Social Plugin" or the "Like-Button" ("Like") on our pages. You can find an overview of Facebook-plugins here: http://developers.facebook.com/docs/plugins/. When visiting our pages, the plugin establishes a connection between your browser and the Facebook-server. Thereby Facebook gains information on the fact that you visited our site by your IP-address. If you interact with the plugins, e. g. you click on the Facebook "Like-Button" or enter a comment, while being logged on to your Facebook-Account, you link the contents of our pages to your Facebook-profile. Thereby Facebook can correlate your visit of our site with your user account. We point out that we as provider of the pages do not have any knowledge of the content of the transmitted data as well as no knowledge of its usage by Facebook. You can find more information on that issue in the privacy policy of Facebook at http://www.facebook.com/about/privacy/. If you do not want to have Facebook correlate your visit on our site with your Facebook-account, please log out from your Facebook-account.
PRIVACY POLICY FOR USAGE OF TWITTER
Our pages integrate functionality of the service Twitter. These functionalities are provided by Twitter Inc., 795 Folsom St., Suite 600, San Francisco, CA 94107, USA. By using Twitter and the function "Re-Tweet" the websites you visited get correlated with your Twitter-account and get displayed to other users. Thereby data gets transmitted to Twitter. We point out that we as provider of our pages do not have any knowledge about the content of the data transmitted and also do not have any knowledge about its usage by Twitter. You can find further information on this topic in the privacy policy of Twitter found at http://twitter.com/privacy. You can change the privacy settings in the settings of your Twitter-account at http://twitter.com/account/settings. For questions please contact privacy@twitter.com.
PRIVACY POLICY FOR USAGE OF GOOGLE ANALYTICS
Our website uses Google Analytics, a service for web analysis of Google Inc. ("Google"). Google Analytics utilizes so-called "Cookies", text files that are stored on your computer. Cookies permit analysis of your usage of our website. Information created by your usage of our website (including your IP-address) gets transmitted to a server of Google in the USA and will be stored there. Google will use that information to evaluate your usage of our website and to generate reports on website activity for the provider of the website and to provide further services related to usage of websites and the internet. Furthermore Google will transmit this information to third parties as far as it is statutory or as far as a third party processes the information on behalf of Google. By no circumstances will Google correlate your IP-address with other data of Google Inc. You can prevent installation of cookies by a corresponding setting of your browser software; but we point out that in this case you might not use all functionality of our website to the full extent. By using this Website you comply with informational data on you being collected and processed by Google in the way described above and for the purposes described above.
Local Legal Restrictions
The Swiss Fund Platform website contains information and documents regarding numerous investment funds and is intended for qualified investors in Switzerland and Liechtenstein only. The Swiss Fund Platform website is not directed to any person in any jurisdiction where (by reason of that person's nationality, tax residence or otherwise) the publication or availability of the Swiss Fund Platform website is prohibited. Persons in respect of whom such prohibitions apply must not access the Swiss Fund Platform website.Fund information and documents are provided either by Swiss Fund Platform or by the fund providers themselves. If the information and documents are published on the Swiss Fund Platform website by the companies, then they will rely on the information provided by the fund providers regarding distribution licences for the investment instruments. Swiss Fund Platform does not guarantee the accuracy of information on distribution authorisation and can therefore not be made liable for incorrect data/information. If the in-formation and documents are uploaded to the Swiss Fund Platform website directly by the fund providers, the fund providers shall be responsible for obtaining the necessary distribution licences.
Limitation Of Liability
Fund information and documents are published on the Swiss Fund Platform website either by Swiss Fund Platform or by the various fund providers directly. Under no circumstances shall Swiss Fund Platform be held liable for any direct, indirect or consequential damages whatsoever resulting from use of the fund information or documents, from access to the Swiss Fund Platform website or from links to third-party websites. Furthermore, the company disclaim all liability for any tampering with the Internet user's computer system by unauthorized parties.
Zurich, 3rd February 2014
01/23/2023
Gabelli Funds, LLC
