Investment Report

Q3 2020 Investment Report

As of September 30, 2020

Kirstin-Sandaas 250 Kirstin Sandaas, Chief Financial and Operating Officer

Over the past three months, the many complexities of 2020 continued to unfold as people throughout our community and country adapted to new developments in the economy and society at large. The third quarter revealed a number of encouraging bright spots, and it also laid bare the mounting inequities. While everyone is experiencing the impacts of this year, we are not experiencing them equally – many communities, especially communities of color, are hit harder by the pandemic and its implications.

The economic recovery we saw in the third quarter provides an apt visual of this persistent trend. Its K-shape shows how many companies have rebounded to pre-COVID performance levels while others are facing further layoffs, debt payments they cannot make, and, inevitably, bankruptcy. In the United States, unemployment has recovered from its March highs, but remained at 7.9% in September. Monetary and fiscal support have helped prop up equity markets and return them to positive territory, and global equities, as measured by the MSCI ACWI benchmark, are up 1.4% YTD through Sept. 30. Most surprising is the separation of winners and losers in the market. Looking at the S&P500, the top five positions—held by Google, Microsoft, Facebook, Apple and Amazon—are up 44% for the year; the remaining 495 stocks of the index are collectively down 1%.

Globally we have witnessed a similar boom-or-bust scenario. China’s growth seems to improve daily while many European countries are stagnant as positive COVID cases rise. The markets have reflected this situation in different ways with the S&P500 (U.S. stocks) gaining 5.6% through Sept. 30, while Non-U.S. Stocks (MSCI EAFE) are down 7.1%.

Given the significant events of this fall, including a spike in COVID cases and the U.S. election, volatility in equity markets is likely to continue. As we have seen in past election cycles, the outcomes can have an impact on multiple industries and countries. Our Investment Committee and Investment Consultant, Crewcial Partners, are monitoring these elements closely. Our investment principles, described in our Investment Policy Statement, continue to guide our approach, which remains steady despite market uncertainty.

The Balanced Pool maintains a diversified portfolio that includes exposure to each of the equity markets described above, as well as more conservative asset classes such as U.S. Fixed Income. As equity markets continued to recover in Q3, some non-equity areas of the portfolio lagged, though we saw significant improvement overall. At the end of Q1, the Balanced Pool had fallen nearly 18% but has since substantially recovered; the portfolio is down 0.3% through Sept. 30. Pool objectives are aligned with time horizons, with the Balanced Pool targeted toward real returns of 4.5% over a market cycle. The Balanced Pool returned 7.0% against the 6.8% target benchmark over the past 10 years, which approximates a market cycle. Performance data about our other investment pools are shown in the accompanying charts.

As we work to address urgent and evolving community needs, Seattle Foundation is focused on both immediate relief and long-term solutions. In August we released "The Case for Investing in King County’s Black-Led Organizations,” a report produced in collaboration with Byrd Barr Place and Cardea Services that presents findings from 10 months of research into the priority issues, strengths, and challenges facing local Black-led organizations. To address the digital divide affecting many students and their families, a Digital Equity Initiative took shape as part of All In WA, supporting academic achievement by providing access to devices and hardware, hot spots, and tech support. This fall, the COVID-19 Response Fund will make another $10 million in grants. We are also standing up a new fund to focus on reimagining a more equitable, inclusive future and look forward to sharing more about that soon.

If you haven’t already, I encourage you to explore our 2019 Impact Report, which provides a glimpse into our work last year and the many ways it prepared us to address the formidable challenges of 2020. As always, thank you for the opportunity to support you and your philanthropy. Together, even in these most trying times, we are making Greater Seattle a stronger, more vibrant community for all.

Please don’t hesitate to reach out with any questions and comments. I can be reached at 206.515.2105 or k.sandaas@seattlefoundation.org.

Sincerely,

 

 Kirstin Sandaas signature

 

Kirstin Sandaas, Chief Financial Operating Officer