Cabot Quarterly Review | 1Q24

Cabot Quarterly Review

1st QUARTER | 2024

IN THIS ISSUE

Spring Has Sprung - Opening Letter (Greg Stevens)

The Narrow Market Continues: What Does This Mean For Investors? (Craig Goryl)

New Cabot White Paper

Fixed Income: Time For Risk Management (Pat Creahan)

Get Your Estate Plan

Organized in 2024 (Alex Castrichini)

Financial Literacy Month: Free Books from Cabot

Search Engine Scams (Sonia Ernst)

Dear Friends, 1 2 3 4 5 6 7

Welcome New Employee John Strangie

Welcome Baby Callie

Solar Eclipse 2024

Spring has finally arrived here in New England! The days are getting longer, the grass is starting to turn green, and winter is (hopefully) behind us. Summer is not far away! New England weather continually tests our patience and resolve amid long stretches of dreary days. While it may not always seem possible when weather conditions outside are at their worst, the sun will always show itself at some point. I guess this could be a good analogy for the investment markets!

April 2024

The post-pandemic years have been a roller coaster ride for all of us. During the gloomy times of 2022 when the Fed was aggressively raising rates to combat inflation, it seemed like the sun was never going to shine again on our investment portfolios. During that time, you likely questioned whether your mix of investments was appropriate given the volatility of the markets. As we moved through 2023, there were rays of hope and markets began to stabilize. This led to a good year, which has carried over to 2024. As much as some may believe they can, no one can accurately predict where things will go from here. Our job as a wealth management team is to assess the global economic landscape and work with you to implement a financial plan that is tied to your short- and long-term goals. Global markets have performed well to start the year with the hope that inflation has been tamed, but we do need to prepare for the volatility that will inevitably come. A well-crafted financial plan should give you comfort that you can weather any storm.

Our newsletter this quarter has some great insights into our team’s thinking on both the equity and fixed-income markets as well as some important things to consider as you review your financial plan. At Cabot, we take a holistic approach to wealth management. We provide resources for our clients to ensure that any financial planning needs you have will be addressed. I hope this newsletter conveys the fact that Cabot Wealth Management is truly a team capable of helping you plan for all your financial needs.

Rob always made it a point to make sure his message in these newsletters reflected his optimism on the investment landscape and I intend to do the same. We can never fully predict what the short-term trajectory is for the investment markets. We can, however, make sure our clients have a plan in place to account for that uncertainty and put them in the best position to manage through it and come out well positioned on the other side.

Thank you for trusting Cabot to help manage your family’s financial future. Our team takes that responsibility very seriously.

Greg Stevens President and Managing Partner

The "Narrow Market" Continues: What Does it Mean for Investors?

Craig Goryl, CFA®, Partner, Chief Investment Officer

Don’t put all your eggs in one basket, goes the timeworn investment adage.

But current markets beg the question: What if there are only a few good baskets?

On 4/1/24 the Wall Street Journal proclaimed “The Stock Market’s Magnificent Seven is now the Fab Four” pointing out that of the 7 gigantic tech companies that led the market last year (Apple, Microsoft, Alphabet, Nvidia, Amazon, Tesla, Meta), three of them trailed in the first quarter.

The financial media is good at reflecting the market, terrible at predicting it. In this case they are also reflecting the feeling of many investors: After a period in which a handful of very large growth stocks have powered markets, it is tempting to own just those large growth stocks.

Indeed, these big seven ARE some of the best managed, most profitable, most competitively advantaged companies that history has seen. And they’ve been winning: their profitability has increased as the rest of the market’s earnings growth has stagnated. Finally, as deep-pocketed tech incumbents, they are likely to be among the biggest beneficiaries of artificial intelligence (AI) technology. Why? In prior leaps of productivity, such as factory automation, the largest companies, which have the resources to

(continued on page 3)

ASSET CLASS UPDATE

1st Quarter = 1/1/24 to 3/31/24; YTD = 12/31/23 to 3/31/24; 1 Year Return = 3/31/23 to 3/31/24

(What does this Index represent?)

US EQUITIES Dow Jones Industrial Average

MSCI Frontier Markets

FIXED INCOME

Barclay's US Intermediate Bonds

Cap Stocks (30 select large US corporations)

Combination of major global markets: United States, Foreign Developed, and Emerging Markets

companies in mature foreign markets like Japan, Europe, Australia, etc.

and

companies in developing economies like China, India, Brazil, Russia, South Africa, etc.

companies in the world's least advanced economies like Kuwait, Argentina, Kenya, etc.

invest in new technology, managed to extend their lead over smaller rivals.

However, those tempted to just stick with seven famous recent winners should heed the following advice: DON’T!!

There have been many times in history where investing seemed as simple as buying the winners without regard to their price. That hasn’t ever worked for long. The “Nifty Fifty” era and the internet bubble stand out as extreme examples. The chart below shows that many times throughout history, the largest companies have led the market- we’re in one of those times now. But it has always been temporary.

We believe strongly in proper diversification- that includes owning some of these winners, but also smaller companies, cheap companies, international companies, and bonds. Because the only thing you can count on in markets is change.

NEW WHITE PAPER

Portfolio Manager Taylor Haselgard looks at the fast-paced world of artificial intelligence in this new Cabot White Paper. Taylor explores the accelerating pace of innovation and recent advancements in generative AI with Large Language Models (LLMs). Cabot believes that the huge investments companies are making in AI today are just the beginning. The heights we can reach standing on the shoulders of AI are hard to conceptualize, but we look to provide greater context on the realities of AI today. Visit our website to read this new white paper: https://www.ecabot.com/cabot-white-papers

"The long-term potential for AI that has resonated most with me is the ability to access leading perspectives in any discipline. Imagine getting a guitar lesson from the best teacher in the world or getting legal advice from a top attorney. AI models could bring humanity's leading-edge perspectives to more people and springboard us into the next wave of innovations."

-Taylor Haselgard

Fixed-Income: Time for Risk Management

Pat Creahan, CFA®, CAIA®, Portfolio Manager

The start of 2024 continued a trend of economic strength that had surprised markets throughout the previous year. As stocks make new all-time highs, corporate bonds paint a similarly rosy picture in which default expectations have all but vanished from the investment-grade bond market.

RATINGS UPGRADES

The first quarter witnessed a notable trend in the perceived credit quality of corporate bonds as an asset class. With an upgrade vs. downgrade ratio of 4 to 1, ratings agencies have recognized most companies as significant beneficiaries of this prolonged economic strength in which corporate profits have stabilized balance sheets. This trend has been most pronounced in the BBB rating category (the low end of investment grade). This category of risk had ballooned in size during an era of low-interest rates when companies pushed the envelope of borrowing with little consequence to their borrowing rate. These companies would have been the obvious target of rating downgrades had a post-covid recession ever materialized, but it never did. Over the past two years, risk has been rewarded. However, credit ratings are notoriously backward looking and completely absent the consideration of what risk should cost in the marketplace. Market pricing, however, is also telling a similar story of low risk.

CREDIT SPREADS

Credit spreads (the yield difference between corporate bonds and a comparable duration government security), are near the tightest levels since the aftermath of the global financial crisis. This tightening of spreads is the market’s affirmation of stronger corporate profiles and a resilient economy. Tighter spreads mean that investors are willing to accept a lower rate of interest because the risk of default is also perceived to be lower.

In a world where the price of risk paints a perfect picture, both a conservative corporation and a reckless one begin to fetch similar bond yields. It may sound like an investment environment where few opportunities can be found. However, over the long term, an opportunity to manage risk is as important as seeking return. The opportunity is to move fixed-income portfolios “up in quality”, with minimal sacrifice to yield, by favoring the bonds of the most prudent companies. Additionally, we are growing our allocation to the highest rated bonds in the form of treasuries, mortgages, and certain municipal bonds.

The gift of higher rates means that investors can have a portfolio of highly rated investment-grade bonds that can endure a business cycle. Now is a good time to manage bond portfolio risk because the cost of doing so is low. The “cost” is accepting a marginally lower yielding portfolio. I am suspicious of the optimistic market pricing and our fixed-income portfolios are increasingly respectful of the growing economic and geopolitical risks throughout the world. The benefits of risk management can often be hard to appreciate until it’s too late, but responsible risk management will always be a cornerstone of wealth preservation and long-term investment success.

Getting Your Estate Plans Organized in 2024

Alex Castrichini, CFP , Wealth Advisor

When it comes to your accounts with Cabot, it is crucial to review with your Wealth Advisor how your beneficiaries are listed and in what manner your accounts are titled. Working in close partnership with your estate-planning attorney is also critical to ensure your estate plan is aligned across all your assets and property.

Another critical component of your estate plan is identifying the family, friends, or other trusted contacts who would help manage your affairs if you should become incapacitated. While never an easy discussion, getting ahead of this conversation can make things much easier for your family or potential beneficiaries.

This Estate Planning Checklist is a reminder and guide for the next steps in this important process.

Estate Planning Checklist

Check the ownership of all your assets. Are they titled as individual, joint, in trust? Understanding the pros and cons of asset titling is an important aspect of estate planning.

Check your beneficiary designations on IRAs, retirement accounts, insurance policies and/or annuities.

There are important tax and estate planning considerations when naming a beneficiary. Any investments with a beneficiary designation will pass to that individual (or entity) when you die.

Review your will (and Trust) to be certain you’re comfortable with who you have designated as your personal representative or trustee.

• Are they still appropriate?

•Can the beneficiaries handle their inheritance all at once or should the money be held in Trust for their benefit?

•Can your personal representative handle the burden of settling your estate?

Revisit the designee listed in your durable power of attorney and health care proxy.

•Does this person live close enough to help out if need be?

•Is there someone better equipped to handle these responsibilities?

Make sure your personal representative and designees know their role and responsibilities.

•Make sure they understand why you chose them for these roles.

•Review your documents with them so they are clear about your wishes. •

April is Financial Literacy Awareness Month Free Books Compliments of Cabot Wealth

It's never too early (or too late) to learn about finances and investing. Use the link below to order a free book and help support financial literacy by fostering awareness and education around a range of financial topics for all ages. Included in our list of free books is "Winding the Stem" by Cabot Wealth Management's founder Rob Lutts.

Please use this link for full descriptions and to order your free book(s):

https://bit.ly/cwmfreebooks

Management

Search Engine Scams

Sonia Ernst, Managing Partner, Manager of Trading and Operations

Imagine this: You decide you want to log in to your financial account. You open a web browser and search for your financial institution. A list of suggestions comes up. You click on a link that opens a web page that looks just like your financial institution’s home page. You can enter your login and password, but your credentials don’t work.

STOP! You may have just been the victim of a Search Engine Scam to steal your login credentials.

The scam may continue from here by asking you to contact a listed number to resolve your “disabled account”. In doing so, you may be asked a series of personal identification questions after which the scammer will have even more background information on you. The scammer may also lead you to download software to resolve the issue, which would then give them access to your device.

What happened here?

Scammers are creating “look-alike” websites that have high ranking in search engine results. Clicking on the title link leads you to the scam website instead of the actual website of your institution.

How can I prevent this?

Know the URL address of the website you want to go to. Type the website address in the browser address bar to go directly to the home page. It is also good to bookmark these sites on your device to easily access them in the future.

Make sure you have multifactor authentication set up for all financial institutions. If a scammer does get

access to your username and password, multifactor authentication would be required as a third step to allow them access. Change your passwords often and don’t use the same passwords across sites.

If your account is disabled, call the customer service number on your statement instead of the one listed on the website. Be cautious and wary of giving any personal information out! Trust your gut, if something doesn’t seem right, it’s probably not! Stop and contact a trusted source to help with the next step. https://www.

Around Cabot

John Strangie joins the Cabot Team

We are please to welcome John (a.k.a. Jack) Strangie to our Trading and Operations department as a new associate. Jack will be providing ongoing support to the teams of Cabot's portfolio managers and advisors. Jack is a graduate of Salem State University, with a major in Finance. He spent much of his time there in the Cabot-sponsored Cabot Wealth Management Bloomberg Lab.

Welcome aboard Jack!

Welcome Baby Callie!

On March 11th, Patrick Creahan (Portfolio Manager) and his wife Leah welcomed Callie Rose into their family. Callie has already brought a lot of joy and love to her parents. We look forward to watching Callie grow over the coming years. Congratulations Pat and Leah!

Solar Eclipse of April 8, 2024 - Enjoyed By Cabot Staff

(Left to Right: Craig Cooper, Craig Goryl, Kelly Birchmore, and Taylor Haselgard)

This quarterly newsletter is intended for information purposes only. Articles, graphs, charts and discussions should not be construed as specific investment advice. Individuals should personally consult with a financial professional to review their own specific situation in light of any information discussed here. Cabot is not under any obligation to update the information and while every attempt is made to insure that it is accurate, we are not responsible for misstatements or inaccuracies. This quarterly is intended for dissemination in the United States and is not intended for circulation elsewhere. It is important to note that any performance reporting or implied performance is not indicative of future results. Investments are not insured and may lose value. Asset allocation and diversification does not protect against loss. For complete disclosures, please contact us at (800) 888-6468 or info@ecabot.com to receive a copy of our Form ADV and privacy statement.

Callie Rose Creahan

John Strangie Trading and Operations Associate