Investment Report

Q3 2018 Investment Report

As of September 30, 2018

Kirstin-Sandaas 250 Although rising interest rates are pressuring the markets and volatility is on the rise, growth was strong across all financial segments in the third quarter of 2018. Seattle Foundation’s investment offerings are designed to address different risk tolerance levels and grantmaking timelines, and we are pleased to share third quarter performance results for our investment pools and market perspective as we bring this year to a close. Through September, we witnessed continued growth globally, with core inflation remaining relatively controlled and GDP growth above 4% in the U.S. Our unemployment rate dropped to 3.7%, a low last seen in 1969. The Standard & Poors 500 gained 7.7% during the third quarter while smaller company equities, as measured on the Russell 2000, gained 3.6%. A fundamental market concern in 2018 has been interest rates, with the Federal Reserve raising its discount rate three times this year and expectations that it will do so four more times between now and the end of 2019. These actions put pressure on fixed-income markets and significant pressure on equity prices moving forward. The market has reacted with increased volatility and as of this writing, a market sell-off to start the fourth quarter.

The European Union continues to yield positive GDP growth and reduced unemployment, with indicators of an expansive economy. Japan, which has seen sluggish and often negative growth for decades, has recently produced consistent positive growth. The exception has been emerging markets, with China and other emerging countries suffering tremendous losses. Emerging equities, as measured by the MSCI EM, fell -1.1% in the quarter and are down -7.7% YTD. The U.S. imposed a 10% tariff on an additional $200 billion of Chinese goods, sparking Chinese retaliatory tariffs on $50 billion of U.S. goods. Despite trade progress with Mexico, Canada and the European Union, it appears the standoff with China may last for some time, creating disruption and uncertainty in equity markets.

Our Balanced Pool, the investment choice for most of our philanthropists, maintains a diversified portfolio with exposure to equity markets as well as more conservative asset classes such as U.S. fixed income. Although we saw mixed results in global equities, the Balanced Pool was able to deliver a 2.2% quarterly gain and is up 7.3% over the latest 12-month period (net of investment management fees), in comparison with 5.3% for the 60/40 benchmark (60% global equities/40% Barclays aggregate). The Balanced Pool has also exceeded its target benchmark over the one, three, five, seven and 10-year periods. Much of this success is attributable to active management in equities, as well as strong performance in alternative areas.

Our Socially Responsible Pool, designed to meet Environmental, Social and Governance needs while providing competitive economic returns, gained 2.4% for the quarter and is up 4.8% over the past 12 months. Our Intermediate-Term Pool, designed to meet the expectations of donors with a grantmaking horizon in the two to seven year range, gained 0.8% this quarter and 2.1% for the past year. The Short-Term Pool, which is intended to preserve capital for donors with very short grantmaking horizons, gained an additional 0.4% on the quarter and 1.1% for the past 12 months.

The Foundation’s Index Pool, which is entirely passive, gained 2.6% for the quarter and is up 5.9% over the past 12 months. Our Growth Pool, which is invested more than 80% in equities, gained 2.4% this quarter and 6.6% for the latest 12 months.

I’m delighted to share that in October, Seattle Foundation was recognized as the 2018 Nonprofit of the Year at Seattle Business Magazine’s Community Impact Awards. The judges selected Seattle Foundation because of our commitment to and investment in advancing equity and opportunity. President and CEO Tony Mestres accepted this award on behalf of the philanthropic partners with whom we work every day and said we must address the deep racial and economic disparities in our community to create the society that all of our residents deserve.

On Nov. 1, we shared results, market perspective and our new investment manager diversity policy at our annual Investment Briefing. If you would like to receive a copy of the presentation by Brian Crawford of Colonial Consulting, please contact your philanthropic advisor.

This is the busiest time of year for grantmaking, as well as financial and tax planning. Our team is always available to help you and provide timely, strategic advice to support the organizations and causes that matter to you. Please note that the last day for grant recommendations this year is December 9.

As the year comes to a close, we are thankful for your partnership and the generosity you invest in making our community stronger and more vibrant for all. We wish you happy holidays.

Sincerely,

 Kirstin Sandaas signature

 

Kirstin Sandaas, Chief Financial Operating Officer