2017 Investment Reports
January 29, 2018 by Presbyterian Foundation
Returns were consistent with low volatility as US equities posted positive returns every month of the year. Against the predictions of many, the stock market, historically a leading indicator, continues to tell us that the economy is in a synchronized global expansion. Why? Because the labor market is strong, earnings are growing and we have no short-term inflation concerns.
Structural issues in 2008 have been resolved such as offshoring labor to low cost countries where we now see reshoring to the US. The housing glut of 2008 is now a housing shortage. Excessive bank leverage of the financial crisis has resulted in banks being well capitalized and more regulated. Corporate balance sheets now have cash near record levels, while household savings rates are higher with low debt to income ratios. (Source: Fidelity Investments)
The Presbyterian Endowment Fund (PEF), which is the investment vehicle for permanent funds and the Presbyterian Endowment Service, participated in the stock market rally with a return of 15.7% vs. the index return of 15.4%. The portfolio is diversified with target allocations of US, International and Private Equity, Real Assets and Fixed Income. The annual distributions are based upon a current spending formula of 4.25% of a 20-quarter rolling average with an 18-month lag.
The Presbyterian Foundation hired a new Investment Advisor, Northern Trust, in September of 2017. Strong returns from the markets, increased use of passive indexed strategies, reducing and eventually eliminating hedge funds, and lower expenses all contributed to the successful year of performance. The transition to Northern Trust was seamless and smooth as the PEF maintained its equity exposure and target asset allocations during the process.
The Presbyterian Foundation continues to honor the Social Witness Principles of the Presbyterian Church. This includes prohibiting investments in alcohol, tobacco, weapons, gambling and certain human rights offenders. All proxies for companies we invest in are voted in a socially responsible manner. During 2017, the Presbyterian Foundation along with the denomination’s committee on Mission Responsibility Through Investment (MRTI) also participated in filing and co-filing shareholder resolutions for companies in which we hold stock. These resolutions seek to encourage companies to be better corporate citizens by improving their policies on the environment, their employees and the communities they do business in. Corporate change comes slowly, yet the effort and direction of change is important for the future of our world as Christians.
What will calendar year 2018 bring? The stock market is already up for the year with a wide variety of predictions that range from a correction, to staying even, to a continued upward trend. As a fiduciary of Church assets, it is our responsibility to act in the best interest of our beneficiaries over the long term. Just as the Presbyterian Foundation has weathered many ups and downs of investment markets since 1799, it will continue to be vigilant, prudent, and faithful in management of the resources that benefit the Presbyterian Church (U.S.A.).
Ephesians 6:18 – Praying always with all prayer and supplication in the Spirit, and watching thereunto with all perseverance and supplication for all saints;