Common Fund: 1st Quarter 2017 Reports

It is always good and more pleasurable to provide you with a positive report on the absolute and relative rates of returns for the Common Fund. This report is for the first quarter of 2017, which ended on March 31.

We are, of course, very proud of the fact that the studies on the 2016 Common Fund performance place our investment returns #1 among our peers and among the top 25% of 700 colleges, universities, and foundations in the US and Canada for the fourth year in a row. However, we are cognizant that most investors say thanks about past performance but often ask, “What have you done for me lately?”

I am very pleased to say we continue to deliver on the Moravian Ministries Foundation’s commitment to providing the best returns possible at the lowest possible cost while managing risk and volatility.

Below is a quick summary of the results for each of the primary portfolios with the respective benchmarks; to view and print the Q1 performance report, please click here . Also, please click here for a detailed report and commentary provided by our investment manager and partner, TIAA Kaspick. You’ll see all major equity segments in each of the portfolios have had a very good year; this reflects what we have seen in the press.

On the fixed income side, we see that while government bonds have fallen in value, high quality corportate, high yield and international bonds have also contributed in a significant way to the performance of the portfolios over the past year plus. This shows growing confidence in the economy. We will watch to see what happens as interest rates rise, which they are expected to in light of the Federal Reserve.

Portfolio*

1st Qtr ‘17

One Year

Three Years

Five Years

Ten Years

Inception

GROWTH

4.6%

11.0%

4.9%

7.8%

5.2%

6.6%

Benchmark

4.1%

10.0%

5.6%

7.8%

5.1%

6.5%

Growth/Income**

4.1%

9.7%

4.9%

7.0%

N/A

8.5%

Benchmark

3.4%

7.4%

5.0%

6.6%

 

8.0%

BALANCED

3.7%

8.3%

4.5%

6.5%

5.1%

6.1%

Benchmark

3.2%

6.6%

4.7%

6.1%

4.8%

5.9%

INCOME

2.9%

6.7%

4.4%

5.9%

5.2%

5.7%

Benchmark

2.3%

4.6%

4.3%

5.2%

4.9%

5.6%

* The rates of return, with exception of the “1st Qtr” are shown as the average rate of annual return.

**The Growth /Income Portfolio began on 1/1/2010, while the Growth, Balanced and Income Portfolios began on 6/30/2004. 

In addition, in a continuing effort of monitoring our performance relative to other like organizations, below are the performance data from one of the foundations included in the Annual Peer Group Study that has a portfolio that most resembles our Growth Portfolio. It repeatedly ranks highly in the annual study.

Portfolio

1st Qtr ‘17

One Year

Three Years

Five Years

Ten Years

Inception

Peer Foundation

2.0%

9.5%

5.5%

7.5%

5.0%

N/A

 

It is important to note, while our returns are net of ALL fees (Kaspick and MMFA), the above numbers are only net of their outside investment manager’s fees and do not contain the organization’s administrative fees. In most cases, these internal fees can run from .75% to 1.25% annually and should be deducted from net return figures to make a true comparison. In real terms, the actual spread in total net returns between our Peer and the Common Fund is much greater.

COMMENTARY

Looking at the big picture, and repeating what has been mentioned in previous reports, from about 2014 to mid-2016, domestic equities (S&P 500 and small caps) was almost the only place where the market rewarded investors. While the Common Fund has a significant position in domestic equities, it is also diversified into other market segments that did not perform as well. For example, during this period, US large caps were up 9.1%, while emerging markets were up 1.6%

What we are now seeing, as we did before 2014, are the other segments in the market doing better than domestic equities. For example, during three months of 2017, emerging markets were up 13% while small cap domestic equities were up 1.9%. Looking at the past year domestic equities were up 21%, while international and emerging markets were up over 17%.

The point is diversification is our long-term friend. There will always be times when one segment of the market is more or less in vogue, and there is no way to know when this occurs and ends, until it occurs. Therefore, our best offense is to design Common Fund portfolios that look at long term trends and select products in the right proportion – based upon research - so we can deliver superior returns over the long term.

Coupled with diversification is the Common Fund’s investment style tilt towards “value investing”. The textbook definition of value investing is: “An investment strategy where stocks are selected that trade for less than their intrinsic values. Investors who use this strategy believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with a company's long-term fundamentals, giving an opportunity to profit when the price is deflated.”  For example, because of low interest rates, banks saw their stock price lagging in the market. As interest rates have begun to rise, financial institution stock are benefiting from higher margins and greater economic activity. The value investor recognizes the potential of the industry or company during these down periods, buys the bank or banks accordingly, and holds it or them for a long time. Warren Buffett is the best example of a value investor. It is not market-timing. Rather, its taking advantage of an opportunity to buy a good company cheap and riding the wave to higher prices over the long term

Historically, value investing outperforms growth investing, which is another contributing factor to our out-performance.

LOOKING FORWARD

While we can’t predict the market, we can say that the economies, both US and international, are recovering quite well. The jobs picture in American is normalizing. The overseas economies are showing many positive signs. Corporate profits are coming in quite well and their earnings projections are positive. The risks, however, are twofold: 1) terrorism, and 2) political upheaval – domestic and overseas.

Some experts speculate the markets may have peaked. Others say there is still room for better returns. For Common Fund participants all of this means stay invested! For those of you who invested in the Growth portfolio since we selected TIAA Kaspick in 2004, your have seen a total return of almost 86%, which takes into account the Great Recession.

THANK YOU

Finally, this will be my last quarterly report to you. On June 30, I will retire and conclude my 20 years of service to the Church and the Foundation. I want to thank each and every one of you from the bottom of my heart. I am proud of what we have done together. Frankly, there would not be a Foundation without you, your ministry, and the many we have served. The Foundation only exists to serve and it has been an honor and personal privilege to do so. 

Regarding the next president of the Foundation, the Trustees have embarked on a national search and are approaching its conclusion. I understand the pool of finalists is quite impressive. You can expect an announcement very soon.

As for the Common Fund – nothing will change. As long as TIAA Kaspick continues to deliver the returns we have all come to expect, there is no reason to change. The Trustees are very pleased with and confident in the work of TIAA Kaspick and our investment manager, Buddy Bearman. On our end, the staff will remain the same and their dedication to providing a superior customer service is in their genes.

I expect the new CEO will be reaching out to you and will want to visit your ministry and meet you.

This is a great job. In our role, we meet great people. We serve great people. We see money going into ministry. And, we see how our work helps people and ministry is simply – wonderful! I will miss all of you and this work, but at age 66, in good health and with a beautiful new granddaughter, it is time to step out of the way and to do what I want to do, with the time the good Lord has planned for me.  

God bless you and your work. You will always be in my daily devotions. Thank you.

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