updated February 14, 2017 for the Board of Trustees meeting on February 15, 2017
Presentation and Update Archive
Endowment Advisory Committee Updates
Performance Review For the Year Ending December 31, 2016
CA Endowment returned 7.6% in 2016, which outperformed the Policy Index return of 5.7%. For the 3-year period (2014 to 2016), Endowment returns have averaged 4.0%, also exceeding the Policy Index Return of 2.9%.
(On the scale of investment returns, CA Endowment ranked in the Top 23%, 17% and 42% percentiles for the 1-, 3- and 5-year periods, respectively)
Colorado Academy's Endowment returns are marked with the red <hearts>. As measured (only) by investment performance, CA is beating its Peer Group (Endowments under $50 million), in every time period. However, note that from 2014 - 2016, despite strong relative investment performance, the 4% average annual return is below our Distribution to the school budget. All things equal, the Endowment must generate annual investment returns of 5% to stay even.
Colorado Academy's Investment Policy Statement specifies a Target Rate of Return, which dovetails with the Endowment Spending Policy of 5% (of the trailing three year average market value). All things equal, the Endowment must generate investment returns of 5% to "keep even."
Making the Best of a Low-Return Environment (2014-2016)
Our investment consultant, Ellwood Associates, produces this Risk & Reward scatterplot at year end. The Y-Axis shows Annualized Returns (higher is better). The X-Axis plots Risk, as measured by Annualized Standard Deviation (left is better).
The Y-Axis shows the Annualized Investment Returns of our Endowment as well as the Endowment Universe. Colorado Academy generated a 4.0% annualized return, which ranked in the top 17% of our peer group. The X-Axis plots Risk, as measured by the Annualized Standard Deviation of Investment Returns. "Less Risk" is to the Left, and all things equal, "less risky" (lower standard deviation) is better than "more risky." From 2014 to 2016, the Endowment's investment returns had an annualized standard deviation of approximately 5%, which is significantly less then annualized standard deviation of the Universe, which as approximately 7.0 - 7.5%.
The Efficient Frontier
The Efficient Frontier, we're on it. From the perspective of Risk-Adjusted Returns, we could not have achieved a better outcome.
(Final Estimate, updated through December 31, 2016)
Endowment Value = $25,511,464
Asset Allocation
Committee Remains in a Defensive Posture. The Endowment remains overweight U.S. Stocks as the primary exposure in Equities. In Fixed Income, Committee has reduced its Loan Exposure, and remains heavy in Cash. Regarding Alternatives, the Committee has exited all* Hedge Fund investments in 2016. Instead, we are focusing our Bets on Specific Ideas including MLPs, Energy and Gold.
Equities (58% of the Portfolio) remain the primary source of Investment Risk, and also Investment Returns
Fixed Income remains Heavy in Cash and Floating-Rate Interest (via Loan Funds*)
* Note: At the February 7th EAC meeting, Committee voted to reduce Loan Exposure from approximately 13% to 10%
FIXED INCOME
In Q4 2016, Colorado Academy's Fixed Income Portfolio outperformed due to our Focus on Floating Rate strategies.
* Note: At the February 7th EAC meeting, Committee voted to reduce Loan Exposure from approximately 13% to 10%
United States 10-Year Treasury yields are now trending at 2.5% . . . and it could break either way, depending on Trump's Economic Policy success (if successful, rates go up) or failure (rates will go back down).
EQUITY
CA's "Alternative" Investments
Review of Key Environmental Factors
The U.S. Dollar has strengthened versus key currency pairs, breaking above "100" to the highest levels in more than a decade
The Dollar Index is shown above in the Red line. "DXY" is the trade-weighted dollar exchange rate against the major floating currencies.
United States 10-Year Treasury yields are now trending at 2.5% . . . and it could break either way, depending on Trump's Economic Policy success (if successful, rates go up) or failure (rates will go back down).
China Foreign Exchange Reserve (U.S. Treasury Bonds) are falling as China defends its Currency Peg to the US Dollar
Both Consumer Confidence and Consumer Sentiment continue to grind higher
MLPs (9%) & Energy (5%) make up ~14% of the Endowment
Oil Price is a <Political> Calculus and Geopolitics matter as much as Industry Supply & Demand Fundamentals
Growing Social Expenditures ($300+ billion per year, $100 per barrel of oil produced) in a $50 oil environment has nearly halved Saudi Foreign Exchange Reserves.
The Green Line is the Cost of a Credit Default Swap on Sovereign Debt of the Kingdom of Saudi Arabia
U.S. Oil Production. Is the U.S. the swing producer? Maybe, but it probably really depends on the Timing of production.
Compliance Committee includes: Qatar, Algeria and Venezuela from OPEC as well as Russia from Non-OPEC
Gold is a 5% weighting in the Endowment
Gold. Arguably, Gold is down from $1,400 due to the improved outlook for Economic Growth under the Trump Administration.
So, if it's 4 more years, do we really think Gold stays "down here"?
Endowment Advisory Committee: Minutes from February 7, 2016
Votes at last meeting:
- Reduced position in Loan Closed-End Funds by one-third, pro rata basis (BST, BSL FRA, TLI).
- Increased position in XLE (Energy Select Spyder) to 5.0%
- Increased position in Gold to 5.0%
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End