How do you tell how your investment is doing?
Or how well it will do?
Since inception in 2010, the Fund was reporting significant gains most years. For the 12 years through the end of 2021 the Fund had only three years when the total return for that year was negative, and then only by a small margin. Prior to this year, our weakest year was 2018 when we declined 5%.
With the confluence of the Covid 19 epidemic, the war in the Ukraine, a disrupted supply chain, rapidly rising inflation, and a Fed Policy designed to stop a once-in-a-generation explosion of inflation, the stocks and bond markets were rocked. For a while nothing was working. Year-To-Date returns for most investors through June were disappointing, and our Fund was experiencing greater declines. By June 30, 2022, we were down 18.12% since the December 31, 2021 high, and by July 14, we were at our lowest down, 18.16%. Since our June low we are up 4% for a YTD decline of 15.42%. Even though we are long term investors, and these are short term results, we were disappointed.
The talking heads on CNBC, Fox Business, and Bloomberg were offering any strategy you might want to follow, and not surprisingly many pundits in our own backyard were offering suggestions. Some thoughts from the talking heads are below:
Morgan Stanley expects the S&P 500 to plunge another 15%-25% within the next four months.
Moneywise, September 8, 2022
Don’t be duped by the doom-n-gloom: JPMorgan says this reliable contrarian indicator points to an 11% stock market surge
Moneywise, September 9, 2022
The Board of Managers, unpaid and elected by the parishes have been following a consistent balanced strategy looking for long term success. Your Board has been following three major objectives since inception of the Fund.
- We want our three-year annualized total return to be greater than our Constant Rate of Return* recommendation. We have met that objective in 98% of the 126 three-year measurement periods.
- We would like to have our three-year annualized returns sufficient to put us in the top third of the 50%-70% Equity Balanced Fund universe as reported by Morningstar. We have achieved our goal in 79 of the last 80 measurement periods. We failed to reach this goal in the first 46 measurement periods but took successful actions to achieve our goal in almost every measurement period since December 2016.
- We strive to have returns close to our benchmark. For the last three years we have matched our benchmark, and for the last five years we have been just 17 bps (.17%) below the same benchmark. The benchmark reports no expenses associated with it, nor any disclosure of brokerage commissions or trading impact.
We also strive to have excellent customer service and low costs. The fund has direct costs of 28 basis points (0.28%) meaning that the cost of managing a $100,000 portfolio is only $280 per year. This cost is lower than more than 90% of the Balanced Funds tracked by Morningstar.
As part of the Diocese, we have a completely volunteer Board with extensive experience in portfolio management, trading, mutual fund administration, and general financial management.
When you look at our record over the last 3, 5, and 10 years you see that we are respectively in the 25th, 28th, and 32nd performance percentile, and our annualized returns through September 8th were 6.21%, 6.69% and 7.62%. Since inception we have generated an annualized return of 7.16%.
To achieve these returns in a changed investment landscape we have made modest adjustments to our portfolio. We reduced our overall equity position from 74% at the end of 2021 to the current level of 66%. We reduced our exposure to small cap and international stocks. We slightly reduced our exposure to technology, and we dramatically reduced our already low exposure to fixed income investments. On September 8, 2022, our portfolio weightings were:
Domestic Stocks 60.21%
International Stocks 5.59%
TOTAL STOCKS 65.80%
High Yield Bonds 3.98%
Investment Grade Bonds 11.97%
TOTAL FIXED INCOME 15.95%
Invested Cash 18.25%
TOTAL PORTFOLIO $31,715,997
We normally carry a very small cash portfolio. With the expectation of rising interest rates, we do consider most of the cash to be bond substitutes, a strategy that is working nicely at this time.
So, the answer to the headline question is that we are pleased with our three, five, and 10-year performance, and while we are disappointed with the YTD performance through September 8, we are confident that we will continue to meet our goals. Please call us, or send us a note if you have any questions or concerns.
Chris Maxwell, Vice Chair
Board of Managers of the Easton Episcopal Funds
*Constant Rate of Return (CRR) is the recommended prudent annual withdrawal rate. See FAQ’s.