FEG Investment Advisors Quarterly Article
February 2022 – Year in Review – Evaluating the Investment Portfolio
Thank you for generously partnering with the Community Foundation of Central Wisconsin.
FEG Investment Advisors is grateful to be trusted to serve your community foundation since May 2018. Our investment team works with the Foundation’s Finance Committee to ensure your contributions are invested in a portfolio designed to seek competitive returns to support a shared vision for Central Wisconsin. We are pleased to begin sharing quarterly articles to help provide you with updates on performance and market education.
Our first article addresses the following questions:
- What does the Community Foundation want to achieve by investing?
- How well have the Foundation’s investments done at meeting the Foundation’s goals?
- Is the portfolio taking the right level of risk?
- What are the primary drivers and detractors of return, fiscal year to date?
What does the Community Foundation want to achieve by Investing?
FEG follows the Foundation’s Investment Policy Statement (IPS). The IPS is adopted by your Board of Directors to establish a clear understanding of the Foundation’s philosophy and investments. Each January the Community Foundation Finance Committee revisits the IPS and makes updates as needed. The primary goal for the Community Foundation’s investment portfolio is to support the community of Central Wisconsin both today and in the future. This is accomplished by setting a long-term return target that covers a distribution target of 4% and fees, while keeping pace with inflation. Right now, that translates to 6.3%.
How well have the Foundation’s investments done at meeting the Foundation’s goals?
As you can see from the below performance table, over all periods of time the investment returns have outpaced the goal of 6.3%, providing the Community Foundation with the distributions it needs to support the community.
|
1 YR |
3 YR |
INCEPTION |
|
|
Total Composite |
11.9% |
15.0% |
9.8% |
Is the portfolio taking the right level of risk?
Achieving returns is only part of the goal. The other part is to preserve capital for future generations. The portfolio strategy, approved by the Community Foundation Finance Committee, therefore incorporates diversified assets, including stock, bonds, real estates, and other diversifiers. While these diversifiers might mean the Foundation’s performance is lower than a portfolio more heavily invested in stocks, it does so to help protect future generations from a loss of capital.
What are the primary drivers and detractors of return, fiscal year to date?
There are a lot of variables that impact the return on investment. Broad asset classes (i.e., stocks, bonds) can determine a lot about performance. For example, stocks historically perform better than bonds, and so we might say these were the “drivers” of investment return, while conversely, fixed income was a “detractor” from return. The below chart therefore seeks to identify the primary drivers and detractors of investment returns by asset class.
Performance Drivers and Detractors FYTD
| GLOBAL EQUITY | • Global Equities (stocks) comprise the largest percent of the portfolio and are the primary driver of returns. • The portfolio has been dynamically overweight Global Equities category FYTD which has helped performance as stocks have demonstrated strong performance through December 31, 2022. • A few of the active international positions have lagged during this period, which has detracted from performance. We expect cyclical underperformance from and believe this will reverse. |
| FIXED INCOME | • This is a tough environment for Fixed Income (bonds) experiencing flat to negative returns. • While the asset category has not helped performance FYTD, it still provides downside protection. • Further, the Fixed Income allocation has been dynamically underweight, which has helped. |
| REAL ASSETS | • Real Assets have generated the highest performance of all categories FYTD. • The portfolio is dynamically overweight this asset class, which has helped performance and further provides additional downside protection. |
| DIVERSIFYING STRATEGIES | • Fiscal YTD Diversifying Strategies are performing as expected – delivering returns between Global Equities and Fixed Income while diversifying risk. They have been additive to both enhancing returns and providing downside protection. |
Please contact Community Foundation CEO, Jenny Riggenbach for more information by emailing her at jenny@cfcwi.org or by calling 715-342-4454.
