The following Q3 market update provides context for the investment performance of your charitable assets at InFaith Community Foundation.
From Cambridge Associates, InFaith Investment Advisor
The third quarter continued to improve, supported by robust global stimulus and further signs of a rebounding global economy. Global equities gained for the quarter. However, momentum stalled in September when equities experienced their first monthly decline since March.
The pullback at the end of the quarter reflected concerns related to a coronavirus resurgence as weather in the northern hemisphere turns colder, risks of waning fiscal support, and political turbulence. The trajectory of economic recovery varied by region as some countries grappled with a second wave of infections, forcing tighter restrictions that risk stifling economic activity. Progress toward vaccine development continues to be a source of optimism, but the timing of vaccine rollout remains unclear.
Global stimulus measures have helped buffer the economic fallout from the pandemic, but the future of fiscal support is uncertain. While the US Federal Reserve has taken unprecedented steps to keep monetary policy accommodative, including recent changes to its long-held inflation targeting policy, Federal Reserve officials have indicated that additional fiscal support will be necessary for a faster recovery. However, negotiations for an additional spending bill faced a stalemate in Congress.
The EU agreed to a breakthrough budget and stimulus package agreement in July, but recent disputes among member states risk delaying the disbursement of funds. Geopolitical developments also weighed on sentiment as investors prepared for an uncertain US presidential election, and further uncertainty emerged after President Trump tested positive for coronavirus in October. Brexit negotiations between the United Kingdom and EU faced continued obstacles with the transition period deadline approaching.
US equities bested the broader developed market index, excluding US counterparts, extending their year-to-date outperformance to 16 percentage points (ppts), as of September 30, 2020. The S&P 500 Index retraced its entire peak-to-trough drawdown by late August and reached new all-time highs, but performance stumbled in September. In fact, nine of 11 sectors declined in the final month of the quarter. Still, most sectors posted strong performance in the third quarter; ten of 11 sectors advanced, with consumer discretionary, materials, industrials, information technology, and consumer staples all advancing by double digits. Energy was the only sector to decline. Among size and style, large caps and growth stocks bested small caps and value equivalents for the quarter, respectively. Emerging markets equities outperformed developed international markets. Global growth stocks outperformed value stocks for the seventh consecutive quarter and large caps edged small caps. High-yield bonds outgained investment-grade corporates and sovereigns as credit spreads narrowed. Real assets were mixed as commodities and REITs advanced, while natural resources equities declined sharply as oil prices were nearly flat. UK sterling and the euro broadly advanced, while the US dollar continued its sell-off, despite a sharp rebound in September.
In this time of economic, geopolitical, and market uncertainty, we continue to believe that InFaith’s diversified investment approach positions the portfolios well. As we enter the election season, we expect uncertainty and market volatility to remain high. Our focus will continue to be on staying disciplined in our investment process, valuing liquidity, being patient, and looking for compelling new investment opportunities.
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