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The Grantmaker Investment Value Index (“GIV”) rose over 6% in the fourth quarter, but that was not enough to compensate for the first nine months performance, leaving the index down 15.5% for 2022. Over the longer term, foundation investment performance annualized at 6.1% per year for the ten years ended December 31, 2022, trailing the 60/40 mix (the traditional mix of 60% S&P 500 and 40% Bloomberg Aggregate Index) by 200 basis point per year.
The poor returns for foundations come as every major asset class fell in 2022, most by double digits. The S&P 500 dropped 18.1%, international stocks were down by similar amounts, and even high grade bonds were down 13%. The only safe haven was cash, which was the only asset class that was not in the red in 2022.
The chart below shows the relationship between risk and return. In the chart risk is defined as volatility (shown on the x-axis) and return is plotted on the y-axis. Asset classes out to the right (International and Emerging Markets) are more volatile then those closer to the axis (High Grade Bonds). As one can see, over the 10-year period, U.S. Equities were the strongest performer, up 12.6% (y-axis). The dotted line shows an approximation of the average Sharpe ratio which is a measure of risk weighted return. Asset classes above the line delivered better risk/return than those below. U.S. Equity was the lone outlier over the period (which also drove the 60/40), with Hedge Funds a solid second place.
As one can see Emerging markets were a poor asset allocation choice for the decade, with annualized returns of just 1% and volatility greater than U.S. Equity markets. Another way to look at it is that Emerging Markets delivered essentially the same return as High Grade Bonds, but with much greater risk.
The FoundationMark GIV Index is calculated using FoundationMark return estimates up to and including June 30, 2021 thereafter monthly returns are estimated based on reported asset allocations and market returns. The GIV Index serves as a proxy for foundation performance. Actual performance may differ materially. The GIV Index is updated on a continuing basis and all data is subject to revision.
The 60/40 Balanced Portfolio represents the traditional institutional allocation to equities and fixed income with weightings of 60% in the S&P 500 and 40% in the Bloomberg U.S. Aggregate Index, rebalanced monthly.
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