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January 25, 2023

Commentary: NCM Core Global and NCM Core International

On January 25, 2023, Portfolio Manager Phil D’Iorio briefly recapped a challenging 2022 and laid out his cautiously optimistic case for 2023.


Good afternoon, everyone. It's January 25th, 2023. My name is Phil D’Iorio, lead manager for the NCM Core Global and Core International strategies. What I wanted to do today was give you an update on the funds. Start off by giving a little bit of a review of last year and then the outlook for 2023, along with some of the changes we've been making in the portfolios.

So just reflecting back on last year, it wasn't a good year, as everyone knows. I don't really want to spend too much time on it. Stocks and bonds both lost money for only the third time since 1926. Not only did they lose money, but both bonds and stocks were down by more than 10%.

According to Ned Davis Research, that's the first time on record that this has happened. So definitely not a good year. If there was one good thing to come out of it, though, it's that valuations were reset. By the end of last year, the forward price to earnings ratio for the S&P 500 had fallen back to the long term averages in the high 16 range, about 16.8 as of December 31st, 2022.

So that's the one good thing about what happened last year is that stocks got back to more reasonable valuation levels. So looking ahead, a new year is underway. And in terms of our outlook for the market, one thing that we're encouraged by is that inflation is moderating. It has been better for a few months. The leading indicators for inflation are getting better.

And it leads us to believe that we are nearing the end of the Fed's interest rate hiking cycle. You know, everyone is talking about a recession and the R word that's very topical right now. And our view is that if we do have one, it's likely to be a mild recession and few reasons for that. Banks have lots of capital in the aftermath of the great financial crisis.

A lot of regulations changed, so banks are flush with capital. We're not going to have a repeat of what happened back then. In addition to that, both corporates and consumers are a lot less exposed to credit risk and leverage risk than they have in prior periods where we've been going into a downturn. On the left side and short here, you can see that in terms of U.S. housing, the consumer is a lot less exposed to floating rate mortgages.

In fact, right now about 90% of U.S. mortgages are at a fixed rate. And in addition to that, debt to disposable income ratios are floating along the bottom of the range over the last 40 years. So we think the consumer is a lot less vulnerable should we go into a recession. Corporates are also in a decent position too. Their rate is a lot more fixed at higher levels than it has been at previous downturns.

And the maturities of the debt are termed out longer than they have been previously. And as you can see on the chart here on the right, the interest expense as a percentage of their operating income is at the lowest level seen in decades. So for all those reasons, the banks, consumer, corporates, less vulnerable than what we've seen when we've gone into prior downturns.

So based on this view that we have what we've been doing early in the year is putting some money back to work. We had raised a bit of cash last year given what was going on in the market. We have a bit of a more constructive view now, we’re cautiously optimistic, putting some of that cash to work, getting into some more cyclical areas.

A few of the areas that we've been investing in would include financials, some of the banks and some semiconductors as well. Thank you very much for your time.


Phil D’Iorio is a Portfolio Manager, with Cumberland Investment Counsel Inc.(CIC). CIC is the sub-advisor to its affiliate, NCM Asset Management Ltd. The information in this video is current as of January 25, 2023 but is subject to change. The contents of this video (including facts, opinions, descriptions of or references to, products or securities) are for informational purposes only and are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. The communication may contain forward-looking statements which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.



Phil D'Iorio, MBA, CFA

I search around the globe for best-of-breed companies trading at attractive valuations. And I spend a significant amount of time thinking about portfolio construction to ensure that the portfolio is optimized to reflect where we are in the cycle.