REPORT TO THE 156th ANNUAL CONVENTION OF THE DIOCESE OF EASTON
March 9, 2024
To our participating parishes and the Diocese of Easton,
INVESTMENT PERFORMANCE IN 2023
Last year, my report to the 155th convention explained that the 1st and 2nd quarters of 2022 were terrible and led to disappointing performance in 2022 when we were down 15.17%. I am happy to report that the turnaround that began in the second half of 2022, continued through 2023, and that for the full year we reported a total return of 16.97%
The 1st and 2nd quarters of 2023 showed gains of around 4.8% each quarter, followed by a slight decline in the 3rd quarter and a 9.3% performance burst in the fourth quarter, generating full-year returns of 16.97%. This return placed the Easton Episcopal Fund in the top 20% of comparable funds as measured by Morningstar.
Assets in the fund grew by $4.6 million (+15%) after $1.3 million in distributions to our parish shareholders and the Diocese itself in support of our missions. Since inception, we have paid out more than $13.5 million to our shareholders and still have managed to grow the fund by providing competitive performance.
2023 turned out to be the third best year since we started in 2010.
LONG TERM RESULTS
While it was gratifying to have a near record year in 2023, we need to look at our long-term results. When we made the change from outside managers to inhouse management (finalized in 2016) we made the strategic decision to embrace an active-passive investment philosophy. We recognized that high management fees and uncertain security selection would cause greater volatility and most likely reduce total returns. We also believed that our philosophy would allow us to be in the top third of the competitive universe over rolling three-year time periods.
We are pleased to report that our assumptions were correct and that our rolling three-year and five-year returns placed us consistently in the top third of the competitive universe. More recently, in many instances, we were in the top 25%. Our rolling returns and rank for various time periods are shown below:
| Easton Episcopal Returns and Ranking | ||||||
| period ended | 1 yr return | 3 yr return | 5 yr return | 3 yr rank | 5 yr rank | |
| March 2013 | 7.33% | 7.33% | – | 84 | – | |
| December 2019 | 20.85% | 9.67% | 7.14% | 27 | 26 | |
| 2020 | 15.58% | 9.89% | 10.61% | 22 | 16 | |
| 2021 | 15.48% | 17.28% | 11.98% | 19 | 21 | |
| 2022 | -15.17% | 3.97% | 5.19% | 27 | 29 | |
| 2023 | 16.97% | 4.37% | 9.69% | 32 | 19 | |
| annualized returns through December 31 of each year | ||||||
Our primary successes have been an overweight of domestic equities and a shorter than typical fixed income maturity structure. At the end of 2023 our $35 million portfolio had a 64.51% exposure to stocks and a 34% exposure to fixed income. Most of the equity portfolio was invested domestically with less than 10% invested in international holdings. We carried a larger than normal exposure to cash, but our money market holdings were less than 1% of our total portfolio and were earning 5%. Full portfolio analytics can be found at our website, www.eastonepiscopalfund.org. Please let us know if you want to receive notification when we update information.
OUR OUTLOOK FOR THE CAPITAL MARKETS.
The prevailing Wall Street whispers are that the economy is in better shape than many believe, but not so hot that the Federal Reserve will raise rates any further. A number of economists call for three, four and in some cases five rate cuts in 2024 rolling over into 2025. The universal belief that short-term rates will fall will have an effect on the yield curve lowering rates for all maturities. Some of this has already occurred, but more investors will switch from short maturity to longer maturity bonds.
Both the stock and bond markets will most likely be buffeted by increasingly vocal political rhetoric, amplified by significant global actions. It is probable that this dialogue and global actions will cause greater uncertainty and more volatility. Given the expected conflicting nuances, we should be prepared for sharp reversals followed by recovery, leading us to believe that we should not deviate from our benchmarks. We expect to generate positive returns in 2024, though not at the same level as 2023.
FUND EXPENSES
Our fund experiences several types of expenses. Of course, we are subject to commission expenses when we buy and sell securities, but that number is very low as Fidelity, our primary broker, charges very little for portfolio transactions.
We incur direct expenses for shareholder recordkeeping, portfolio accounting, dividend calculation and distribution and, of course, buying and redeeming fund shares. These services are provided by Mutual Shareholders Services, who we have used since the inception of the Fund.
We pay fees to an outside investment advisor to evaluate our performance, to suggest changes when appropriate, and to provide guidance in our investment decision making. During 2023, we changed advisors. We terminated our contract with Osprey Capital Management and replaced them with Axia Advisors. See discussion below.
We incur minor expenses for stationary, postage data storage, and similar services.
Our last type of expense is called Acquired Fund Expenses. This item relates to the indirect expenses of the mutual funds and exchange traded funds that we hold. We control this expense by seeking to use the least expensive funds and ETFs.
The current cost of all of these support services is approximately $100,000 and represents less than 0.30% of our assets. For a shareholder with a $100,000 investment in the fund, the annual cost, both direct and indirect, is $300 per year, down 10% from last year and cheaper than 85% of the 700 funds that make up the Morningstar Moderate Allocation Balanced Fund Universe.
CHANGE OF INVESTMENT ADVISER
Our philosophy in managing our portfolio has been to clearly state our expectations, which need to be reasonable with appropriate time frames. This philosophy has worked in portfolio management but is also applied to our working relationship with our partners. The Board of Managers set specific expectations and deliverables after dialogue with Osprey Capital Management, but they were not able to deliver after a three-year period.
In January 2023, the Board sanctioned a review of alternative advisors and after multiple interviews selected Axia Advisors Incorporated, an investment advisor registered with the U.S. Securities and Exchange Commission. Since April 1, 2023, Axia has been providing service to the Easton Episcopal Fund in a timely and professional manner.
MANAGEMENT
The fund is managed by the Board of Managers (BOM) of the Diocese of Easton. The Bishop of the Diocese serves as the Chair of the Board. There are six members who are elected at the Diocesan Convention by our parishes. All investment and business decisions are made by the Bishop and the elected members of the BOM. The Board has a Vice Chair who oversees day-to-day operations. There are another seven individuals who serve as non-voting members. The Diocesan Treasurer and head of the Finance Department serve as ex officio members. The Bishop has appointed six others, enabling us to call on their experience and wisdom to assist in our deliberations.
Elected members generally serve two three-year terms, with two members’ terms ending every year. This year, Ray Munsch (Holy Trinity, Oxford) is completing his second three-year term. Ray has been an invaluable contributor on the Board of Managers. His experience at a major independent registered investment adviser and as an expert in fixed income investing has been extremely beneficial to us. Ray has agreed to stay on the Investment Advisory Board. We have nominated Nancy Robson (Christ Church IU Worton) as a successor board member. Nancy has served as a voting member, as recording secretary for the BOM and has assisted in shareholder development.
My first term as a voting member ends with this convention. At the request of the Bishop, I will continue as Vice Chair should I be re-elected as a voting member. None of the elected or appointed members receive any compensation or remuneration for their services to the Fund.
A big thank you goes to the continuing voting members Deb Dragone, (2025: St. Clements, Massey) who serves as Fund Administrator, Diane Robinson (2025: Christ Church, Cambridge), Tom Mendenhall (2026: Christ Church, St. Michael’s), Bill Shettle (2026: St. Mary’s Pocomoke City).
Our non-voting members are Al Smith, Vice Chair Emeritus; Nancy Robson, Charlie Bohn, Diocesan Treasurer; Fred Welsh, Chair of the Finance Department, Ron Geesey, and Myron Richardson.
The Easton Episcopal Fund has an excellent record of accomplishment. That success could not have been achieved without the dedicated and continuous support provided by our Board, by the tremendous support provided by our advisor, Axia Advisors (Keith Shadrick and Laura Perry), our Fund Accountant and Shareholder Servicing Agent, Mutual Shareholder Services, (Gregg Getts and Michael Anthony) as well as the continued support of our shareholders.
Thanks for your support.
Chris
W. Christopher Maxwell,
Vice Chair, Board of Managers
EASTON EPISCOPAL FUNDS
314 North Street
Easton, MD 21601-3684