Investment Commentary: Q3 2022

The Corporation* net return for the 3Q 2022 was (3.2%) versus the market benchmark’s return of (4.4%). Year-to-date, the Corporation is ahead of its benchmark by 50 basis points, posting a (16.8%) versus the market drawdown of (17.3%) The portfolio’s diversification, to weather different economic scenarios, was benefited by meaningful exposure to inflation protected securities and to real assets. More specifically,

  • The Corporation outperformed the market benchmark by 100 basis points during the month -- (4.9%) versus (5.9%);
  • September’s equity performance was (7.7%) or 190 basis points better than the MSCI ACWI’s return of (9.6%.) Most of the outperformance coming from Tenzing (3.3%) and Cevian (5.6%), while Barker fell (11.3%)
    • Tenzing’s results were bolstered by Yelp’s performance, their second largest position, which was “flat” for the month as advertisers’ demand continues to look strong
    • Cevian’s portfolio fell less then index (-5.6% vs -6.0%), and for the year is down (11.8%) versus (17.2%) for the MSCI Europe, as its focus on industrial and materials companies were helpful
    • Barker’s position in ASOS, which made up 40% of their portfolio a year ago, continues to struggle as supply chain issues and management changes have taken place. ASOS is down 80% year-to-date and fell -23.2% in September alone
  • The Hedge Fund sleeve of the long-term model was off (2.2%) versus (2.0%) for the HFRI Fund of Funds and (4.6%) for the HFRI Equity Hedge Index, with Nitorum adding return vis-à-vis the index and Bayberry falling the most (4.4%) during the month
    • Nitorum generated alpha on the long side as stocks like Churchill Downs and many of their healthcare stocks outperformed the market
    • Bayberry lost ground as JBI, the manufacturer of rolled steel doors for self-storage units lost (13.4%) as demand slowed and inflationary input costs hurt margins
  • Fixed Income performance was ahead of the market indices losing (3.5%) versus the benchmark drawdown of (6.1%), primarily due to our cash position, and remains solidly ahead for the year (10.7%) versus (20.6%) for the markets.

The global markets declined in the third quarter as inflation remained at its elevated levels, the Federal Reserve continued to aggressively increase interest rates, and geopolitical tensions remained top of mind. Evidence continues to point towards a significant economic downturn, as the global purchasing managers’ index is suggesting significant slowdowns in many key regions. Volatility picked up too as market participants adjusted their views to incorporate meaningful recessionary fears given a very determined Federal Reserve and the surging US dollar. In the UK, the Bank of England has already pivoted from quantitative tightening to quantitative easing, as a rapid escalation in the cost of living and political turmoil has taken hold.

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.