Russia’s unprovoked act of aggression against Ukraine is such a departure from the norm that its consequences are impossible to know and figure to play out in unexpected ways for months to come. Amid this uncertainty, equity markets are likely to remain volatile. Given the current uncertainty about the conflict and its impact on the market and global economy, we recommend that you maintain a sense of perspective and remember that patient, long-term investors win in the end.
We expect volatility to persist, given the situation is fluid and secondary effects are unknown. However, much negative news is now priced in, and even slightly positive developments can lead to significant rebounds given lower equity valuations. In the interim, we will continue to evaluate the valuations of Cardinal’s securities and search for new investment opportunities across developed world markets.
Cardinal Capital has long emphasized our risk-adjusted returns. We focus on risk and seek to reduce volatility in our portfolios through individual stock selection. We choose to own companies with solid balance sheets and sustainable business models. As a result, our equity portfolios have less volatility than the market. Therefore, we like to avoid selling into sudden market disruptions when possible. We prefer to selectively buy equities when the market is as oversold as presently. In the current volatile market, we find new opportunities for investment as stocks once too expensive have now become cheap.
Our bond strategy is to invest in high-quality short to intermediate-term issues for stability of principal, cash flow, and diversification. Yields on bonds are higher than they were a year ago. But are still low by historical standards. Regardless of the level of interest, high quality-bonds are a source of safety and in times of stress have historically delivered positive returns. Moreover, utilizing low-risk bonds allows a higher allocation to equities for the superior returns they provide over time.
As we celebrate our 30th anniversary, we continue to believe that wealth is best built by investing in financially strong, growing companies purchased at discount valuations rather than speculating on essentially unpredictable political and macroeconomic events. Nevertheless, we remain confident that our ever-changing world will provide ample market opportunities to continue to employ our strategy.
We continue to wish you good health and encourage you to reach out for any support you may need. Thank you for your trust in Cardinal Capital.