Captain's Corner

What's happening: The market has been volatile lately. After months of expecting rate cuts to start soon, investors are now betting the Fed will wait until summer. This shift has hit growth stocks particularly hard—tech companies that soared last year are now seeing pullbacks as higher rates for longer changes the math on their future profits.

What we're watching: Big institutional investors (pension funds, endowments, family offices) are quietly moving money from aggressive growth stocks into more stable sectors like utilities and healthcare. They're preparing for a period where interest rates stay elevated, even as everyday investors haven't fully caught on yet.

What we're doing about it: We're taking some chips off the table—reducing stock exposure modestly and focusing on quality companies with real profits and strong balance sheets. On the bond side, we're keeping maturities shorter to avoid getting hurt when rates move. This isn't panic selling; it's prudent adjustment. When the dust settles, having cash ready to deploy will be an advantage.

Why we're talking about this: While regular bonds have been getting hammered by rising rates, there's a corner of the market that's actually benefiting. Private credit—basically lending directly to medium-sized companies outside the public markets—is producing income of 11-13% right now (Source: Cliffwater Direct Lending Index, Q4 2024). These loans adjust with interest rates, so unlike your typical bonds that lose value when rates rise, these actually pay more as rates go up.

The bottom line: These private loans have held up much better than stocks during market downturns. Because they're not traded daily like public stocks, you don't see the wild price swings. The companies borrowing this money are valued much cheaper than public companies, yet they're producing similar cash flows. Eventually that gap should close, which would be good for investors in this space.