Investors have continued to sell global equities and other risk assets, such as high yield bonds and corporate debt, as continued economic impact from the COVID-19 virus becomes apparent. The U.S. equity market has continued to be very volatile with big swings this week. The clear implication is that global growth will come down as concern about China and neighboring countries has now migrated to our shores.
Bond investors continued to be positively rewarded during this time period, benefitting from central bank policies to lower interest rates around the world. The U.S. Federal Reserve (Fed) once again lowered rates this past Tuesday (March 3), after doing so three times in 2019, responding to changes in market rates and attempting to provide support to the economy.
How is United Church Funds Positioned?
The Fixed Income Fund and the Moderate, Conservative and Beyond Fossil Fuels Balanced Funds own ample bond (fixed income) securities, which can benefit from lower interest rates and price appreciation in those markets. In particular, the core-fixed income manager in the Fixed Income Fund has benefitted recently from lower rates, and that benefit accrues to balanced funds. In January, we reduced equity weightings in UCF balanced funds after significant market appreciation in 2019, which proved to be timely.
What is UCF’s Strategy Going Forward?
What we said at the outset of this period was that U.S. Treasury securities and other safe-haven assets could continue their rally for the near term, and that has happened even beyond our expectations. The current fears may have the upper hand with regard to risk assets, such as equities, until we get better news on the virus. That said, we are selectively buying with cash raised in January. If there is a greater selloff than we now anticipate, our stance would continue to be to add to equities, especially in balanced funds, for your long-term benefit. We also expect that our active equity managers continue to use price dislocations to act in the best long-term interests of investors.
What Should You Do?
As an endowment investor, you should focus, always, on the appropriate asset allocation, or on a mix among stocks, bonds and cash. A focus on proper asset allocation will continue to help you to make better decisions during periods like this for your organization’s long-term benefit. If you have questions or concerns about your investments, please feel free to reach out to us at [email protected].
If there is a greater selloff than we now anticipate, our stance would continue to be to add to equities, especially in balanced funds, for your long-term benefit. – David Klassen, Chief Investment Strategist