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Monthly Market Update - May 2024

May 07, 2024

The now familiar fear of inflation and sustained high interest rates pushed down asset prices in major asset classes last month. We discuss both the markets and the underappreciated, surprisingly metaphysical aspect of risk in our latest monthly update.

A bit of risk came back to the markets of both stocks and bonds last month. In this piece, we briefly summarize what happened in April and delve into another risk - that of the unobserved.

April 2024 Market Performance

Equities took a breather last month, as US and total world stocks returned -4.08% and -3.71%, respectively [1].

Major bond indices were also negative, with the Bloomberg US Aggregate, Bloomberg Global Aggregate Ex-U.S., and Bloomberg Municipal Bond indices returning -2.53%, -2.59%, and -1.24%, respectively [2].

“Sticky” US inflation remained the top story [3], which lifted commodities +2.69% [4]. Real estate stocks, often viewed as an inflation hedge, are currently struggling with changing tenant priorities post-COVID and the increasing weight of high refinancing costs. While US real estate stocks posted a disappointing -8.50% for the month [1], we believe opportunities exist in select stocks and bonds in the sector.

Spotlight on: Unobserved Risk

Compare the three investments below.

Return Drawdown
Investment A10.85%-40.05%
Investment M10.85%-50.95%
Investment D10.85%-55.25%

Clearly, Investment A is superior; it has the same annual return and the lowest risk. Here’s the trick - all these investments are the S&P 500 viewed at different intervals (A = annually, M = monthly, D = daily) [5].

As the age-old question goes, “If a tree falls in a forest and no one is around to hear it, does it make a sound [6]?” In this case, if the market is not pricing an investment (hearing its sound), is it riskless? While the philosophically correct answer is unknown, we prefer to assume the investment is not riskless. Instead, we estimate the “true” risk of an asset by using many sources of information, including comparison to liquid peers. We believe this is prudent because our clients may need to unexpectedly sell their investments, possibly on short notice, and because short-term risk is a vital input to the financial planning recommendations we provide.

Several popular investments are not priced daily, and, therefore, require greater scrutiny. Consider a few examples:

  1. Fixed Annuities - Fixed annuities usually accumulate and payout like clockwork, and their statements are usually stale. It may appear to be a low-risk way to achieve reasonable income in today’s interest rate environment. However, it is important to compare their merits to a daily liquid portfolio alternative. Although the portfolio is subject to more perceived volatility, it may be able to replicate the income and security of a fixed annuity, with lower cost and greater liquidity.
  2. Real Estate - Many of our clients are significantly invested in private real estate through their homes, businesses, commercial properties, or pooled vehicles. The value of this real estate is often estimated with appraisals and property comparisons, but extrapolating from infrequent occurrences can lead to inaccurate valuations. Publicly traded REITs are the most liquid comparison in the asset class. We believe the information derived from their prices is important to review when estimating private real estate’s true risk.
  3. Private Equity - Interests in individual private companies or private equity funds are also common among our clients. To evaluate our clients’ financial and human capital, we often need to estimate the risks of these holdings. Private valuations and financial statements are regularly used, but they can be outdated, incomplete, flawed, and may underestimate the risk of catastrophic loss. Comparison to selected public equities, when applicable, is a powerful tool that sharpens our forecasts.

Looking Ahead

It is easy to confuse perception with reality in investing, despite the quantitative nature of the endeavor. We believe our breadth of investment knowledge and depth of experience give us an advantage when assessing risks for our clients. We hear the tree’s sound: we’re listening closely.

If you would like to know how we navigate risk in your portfolio and financial plan, please contact us, we’re here to help.

1 Eaton Vance: The BEAT, May 2024, slide 38,

2 Eaton Vance: The BEAT, May 2024, slides 21, 25,

3 CNBC: Consumer prices rose 3.5% from a year ago in March, more than expected,

4 Eaton Vance: The BEAT, May 2024, slide 44,

5 Morningstar: S&P 500 TR USD, 1/31/1988 - 1/31/2024, “Drawdown” defined as the maximum fall in the value of the investment as given by the difference between the value of the lowest trough and that of the highest peak before the trough.

6 Wikipedia: If a tree falls in a forest,

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not consider any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

The views expressed in this commentary are subject to change based on market and other conditions. This communication may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Generally, among asset classes, stocks are more volatile than bonds or short-term instruments. Government bonds and corporate bonds have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns. U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.

Diversification does not ensure a profit or guarantee against loss.

KLR Investment Advisors LLC (“KLRIA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where KLR Investment and its representatives are properly licensed or exempt from licensure.

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