PYM and many of the meetings in PYM hold their investments at Friends Fiduciary because of their high performance and commitment to investing with Quaker values. On May 23rd Friends Fiduciary shared a message about their work in the context of the current market volatility. The message is reposted here for PYM Friends to see.
Capital markets continue to undergo turbulence as macro-economic uncertainty persists. Supply chain disruptions, exacerbated by the war in Ukraine, continue to apply upward pressure on inflation and have weighed heavily on economic activity across the globe. In response to inflationary pressures, the FOMC (Federal Open Market Committee) has begun a series of interest rate hikes paired with their newly unveiled plan to accelerate the selling of treasury and agency securities starting June 1st to cool an over simulative monetary environment. The culmination of these developments has resulted in market corrections of -10% to -27%, depending on the specific asset class. Near-term market sentiment is decidedly bearish, and with the VIX (Volatility Index) trending upwards we will likely continue to see big swings in the market averages into the summer months.
With US treasury yields rising to pre-covid levels, the period of speculative mania in the markets seems to have subsided. Headwinds of war, inflation, and rising interest rates have ushered in a period of risk-aversion and led investors to rotate into defensive stocks (i.e., those that provide stable revenue and dividend growth) and assets that benefit from inflationary pressures like commodities. As the S&P 500 Index has declined, P/E (price-to-earnings) multiples have reverted back to their 10-year average, suggesting the market is neither over-bought nor over-sold. During the first quarter 2022 earnings reporting season, results have been mixed with generally healthy economic conditions driving good revenue growth while higher costs of production have hurt profit margins. As global supply chains work through the snarls that have negatively impacted factors of production, we expect input prices will return to equilibrium levels and become less of a drag on corporate profitability.
In this very difficult environment for the equity and fixed income markets, FFC’s Quaker Growth & Income Fund has modestly trailed its blended benchmark on a year-to-date basis. However, we are pleased that seven of fund’s thirteen managers have outperformed their respective benchmarks. Notably, allocations to Great Lakes Advisors (Large Cap Value), Walden (Mid Cap), Aristotle and Kayne Anderson Rudnick (Small Cap), and two of three bond managers (Glenmede and Payden & Rygel) were additive to performance. Allocations to large cap growth and international stocks were the biggest detractors to performance. FFC’s funds are constructed with a common theme of downside risk protection which has proven beneficial to the long-term record of outperformance. Asset class diversification is the hallmark of our approach to investment management, and we remain confident it will lead to attractive risk-adjusted returns over the long term.
Thank you for your confidence in and support of Friends Fiduciary.
Richard Kent, CFA, Chief Investment Officer