Investment Commentary: Q2 2022

During the second quarter of the year, equity markets continued to struggle, as the volatility from the first quarter continued to spill over. The war in the Ukraine, persistent inflation, and the ongoing supply chain issues that have been roiling markets for many months are still the source of a great deal of market uncertainty. Adding to this turbulent picture, China has maintained a “Zero-COVID” policy, and during most recent outbreak that happened in April, it was estimated that 75% of economic output was shutdown. Shanghai, the world’s largest port, and integral to many supply chains, has been operating far below its capacity for many months.

As inflationary pressures became embedded throughout the market, the U.S. Federal Reserve embarked on a campaign to rein in inflation, and in doing so recently hiked rates by 75 bps — a hike that harkens back to 1994, the last such time there was an adjustment of this magnitude. The 1994 move by Greenspan, too, was to combat inflation and an overheating economy, and it may be the case that the current Fed chair, Jerome Powell, continues a similar trajectory of interest rate increases. Already, Powell has indicated that another hike of 75 basis points is likely at its next gathering and that bringing inflation under control is essential. An increasing number of economists are predicting that a recession is becoming more likely (and some have proffered that we are technically in a recession) as the Federal Reserve balances fighting inflation and supporting the still ongoing economic expansion.

The Community Foundation’s Corporation year-to-date return ended June 30, 2022 was -15.2% versus the market benchmark of -13.3%. In the quarter ended, the Corporation returned -9.5%, or slightly ahead of the benchmark’s -9.8% return and 200 basis points ahead of the passive-market return of -11.4% . Our global equities were down 13.3% and favorable versus the MSCI All World Index that posted a -15.7% and was aided marginally by our overweight to equity markets outside of the U.S. The Fixed Income and cash the portfolio was -3.9% versus -8.4% for the benchmark, helped by our strong cash position. The hedges were down 5.9% during the second quarter, capturing just over 38% of the MSCI ACWI’s loss of 15.7%.

The recent market volatility has provided a very attractive opportunity set for our underlying managers and as this economic cycle continues, we believe our portfolio is well positioned for a wide variety of economic outcomes.

Questions? Contact A.F. Drew Alden
SVP and Chief Investment Officer, The Community Foundation for Greater New Haven;
President and CEO, TCF Mission Investments Company

*The Corporation is a Connecticut registered investment adviser and part of The Community Foundation for Greater New Haven.