2016 Common Fund Performance Report

2016 was an interesting year for investors and Common Fund participants. Early in the year we experienced the remnants of the downturn that began in 2015. Then we had a mid-year rally followed by nervousness about the elections. The year concluded with the so-called Trump Rally.

Looking deeper into the numbers for the Common Fund, we saw that Domestic Large Caps, Domestic Small Caps and Emerging Markets were the places to be, while International Large Caps and International REITs were somewhat weak. After the election, while domestic equities popped, the Bond Market saw a dramatic drop in value as yields rose.

The bottom-line question is: How did we do? Frankly, it was a good, “normal” year. This means we did slightly better than our projected rate for average return for each of the portfolios, and better than our Composite Benchmark.

In 2016:

  • The Growth Portfolio delivered 7.7% for investors (composite benchmark: 7.4%)
  • The Growth and Income Portfolio delivered 7.2% (benchmark: 6.0%)
  • The Balanced Portfolio earned 6.3% for investors (benchmark: 5.5%)
  • Finally, the Income Portfolio delivered 5.6% (benchmark: 4.6%)

As you can see, it was a solid, “normal” year.

While we don’t complete our Peer Study until June, I looked at one of the foundations we include in our peer group whose returns are among the top three in the study; its portfolio that most resembles our Growth Portfolio delivered 4.9% for 2016, versus our 7.7%.

At our annual Investment Committee meeting this past summer, Buddy Bearmann from Kaspick talked about the “rotation” where Value Investing is returning to its historic position of delivering better results than Growth Investing. This is a positive for the Common Fund since it leans more towards Value versus Growth investing styles.

Looking longer term to three and five years, we see the effects of Growth Investing and Domestic Large Caps being in vogue. In general, we are matching or slightly exceeding our benchmarks.

Again, recalling our Peer Study from last summer, our performance consistently outperforms our peers. We will soon release another study of how the Common Fund measures up to college and university endowments; preliminary information indicates our performance will be among the top 25%.

Looking ahead is always dangerous. If we could predict the future, we’d all be richer. Will the Trump Rally continue? What will happen with interest rates and bond prices? How will the Trump policies and Britain’s exit from the EU impact the markets?  When I listen to the “talking heads”, I often hear them talking about how the Market does not like uncertainty. Then I stop and think – When was the last time there wasn’t uncertainty? So what does this all mean?

First, since we can’t predict the future, diversification is still the key. It has worked in the past and it will work in the future for your investments and the Common Fund.

Second, while hitting a grand slam every time at bat is impossible, the short and long term numbers show we are still leading the league in batting.

Third, we remain committed to delivering a superior customer service experience at the lowest possible cost to your ministry. Our reported performance numbers ALWAYS reflect the results after the .69% fee is taken, which is not always the case with other institutions. For example, the foundation cited earlier in this report only deducts from its reported returns only the external management and investment advisory expenses, and does not include the withdrawals to supports its administration and internal operation. In most cases, most foundations charge 1% or more on top of the external fees.

Now, for a point of personal privilege: I will retire on June 30, 2017, after 20 years of service to the Foundation and the Moravian Church. The Foundation’s board of trustees is conducting a national search for the next president. What will this mean for the Common Fund and your investments? NOTHING, not one thing! Kaspick will continue to expertly manage the investments and produce the reports, and the MMFA staff will continue to work with you to make sure you are pleased with your participation in the Common Fund. Again, while being unable to predict the future, I am very confident in saying the relationship with Kaspick will continue. Not because we are wedded to Kaspick, but simply because they are delivering such outstanding returns.

I also want to thank each and all of you so very much. These 20 years have been the happiest, most fulfilling, and rewarding of my entire professional career. Why? Because of you and the ministries you serve. Sometimes I think the Church is too modest about what it does. You shouldn’t be. What the Moravian Church does every day is truly the manifestation of Christ’s Gospel of love and mercy.

Since I still have five months to go, please call me if you have any questions or would like a meeting to discuss your investments and the Common Fund. I would also enjoy the opportunity of saying good bye.

Lastly, thank you for Investing Where You Believe!     

To view the Q4 Common Fund results, please click here.