Statement From CICF Regarding Recent Market Changes
April 1, 2020
Between Feb. 12, and today the Dow Jones Industrial Average has declined by approximately 26%. It is important to keep in mind that our long-term investment strategy is intended for the long-term, and we knowingly accept the ups-and-downs in the market to capture the long-term benefit (an average return greater than timing the market). We maintain a disciplined investment strategy, and we rebalance portfolios back to policy targets to take advantage of market swings.
Because we have experienced a decline like this before in 2008, we have experience managing our investments in this environment. Our investment manager, Prime Buchholz, is closely monitoring the market and will make adjustments as appropriate.
CICF and its affiliates, The Indianapolis Foundation and Hamilton County Community Foundation, are prepared for such a time as this. The boards and staff have been saving diligently for years to accumulate an operating reserve that will help us endure market fluctuations. Even though our operating revenue will decline because fund market values decline, we can continue to operate at full capacity for the foreseeable future.
While uncertainty, volatility and short-term underperformance are unpleasant, they are necessary conditions for generating outsized returns over the long-term.
In this environment, our investment consultants remain focused on three broad concepts:
- Monitor market conditions for excessively pessimistic pricing
- Monitor investment managers to be sure they are responding appropriately to volatility and the higher likelihood of inefficient market pricing
- Seek opportunities to add capital to previously closed managers as openings can be driven by an improved opportunity set and/or decisions by their current investors to withdrawal capital
Relative to a peer group of other community foundations, the performance of CICF’s long-term pool continues to exceed the median peer return.
In managing the various investment pools the community foundation pursues the following approach:
- Establish a strategic asset allocation which is expected to achieve the long term return objective of each pool.
- Diversify the portfolio by asset class and strategy as this increases the likelihood of achieving return objectives under different economic/market conditions.
- Maintain the strategic asset allocation within established ranges through rigorous monitoring and regular rebalancing. This discipline forces the sale of assets when they are relatively expensive and the purchase of assets when they are relatively cheap.
- Stick with good managers during good times and bad as long as they remain ethical, have not deviated from their strategy or changed key staff.
- Avoid the temptation to market time or change strategy based on current conditions or near term outlook.