report of the investment council
For the second time in two years, we find ourselves repeating words from last year’s report, this time from the 2020 Outlook:
The financial markets have been very mindful of this new challenge, and valuations have gyrated—sometimes violently—to both the up and downside. We have no more idea than anyone else of how this will play out.
And, indeed, 2020 was an investment year like no other in memory.
After plunging in the month of March, the markets, bolstered by the prospects of a massive relief package, began to contemplate the probability of vaccines being available, the waning of the first wave of the pandemic, and a “new normal.”
This produced a burst of buying in virtually every asset class that continued apace the entire year.
When the books were closed for 2020, amidst the upheaval in the global economies, financial markets globally rose with the U.S. taking pride of place.
The broadest measure of the U.S. equity market, the Wilshire 5000 Index, rose 20.9%. The broadest measure of global equity returns, the ACWI All-World ex-US was up 9.5%. The bond market participated, too, as bonds of investment grade and less than investment grade rose in the wake of interest rates falling to modern day lows. This produced a return of .7% in the Barclay’s aggregate Bond Index, a broad measure of investment grade bonds.
As you’ll see in the graphic below, ECF’s portfolio earned 12.4%, compared to our blended benchmark return of 8.9%.
* The Foundation’s Blended Benchmark Index is a weighted average of the market indices used to measure portfolio performance.
128 funds participate in ECF’s $32.1 million investment portfolio.
Fully warned of the folly involved in commenting about a coming year, we hesitantly offer these thoughts.
We start from this place. In their zeal to prevent a collapse of the global economies, the world’s central banks and governments have gone all in, buying time for their economies to resume some semblance of “normal” once the vaccines that so quickly became available—a wonderful success story, to be sure—find their way into billions of arms.
However, in the process some unforeseen damage may have been done. Interest rates at zero and huge floods of liquidity have produced valuations of stocks and bonds to extreme levels.
Indeed, interest rates are so low that even high-grade bonds will behave for a while more like stocks than bonds in the markets. As a result, the ability to hedge—to protect against extreme price movements—has been seriously damaged.
Long term investors have nowhere to hedge out volatility risk. Bubbles—from bitcoin to Gamestock and the Robinhood investors to Tesla—are percolating up, surely signs of an overheated market.
The sensible long term investor, like ECF, will bear in mind the portfolio’s investment horizon, diversify as best as one can, keep calm, and mind the chasms. Whatever the return is to be for 2021, it is surely to be achieved after traveling a rocky path.
Please look for our 2020 audited financials here on the website later this summer.