GIV Index Down 4.9% in Third Quarter
The Grantmaker Investment Value Index (“GIV”) was down 4.9% in the third quarter and down 20.6% year-to-date for 2022. Over longer the longer term, foundation investment performance annualized at 5.5% per year for the ten years ended September 2022, trailing the 60/40 mix (the traditional mix of 60% S&P 500 and 40% Bloomberg Barclays Aggregate Index) by 200 basis point per year.
The poor returns for foundations come as both equity and fixed income markets have come under a great deal of pressure as fears of inflation and recession have weighed on investors.
As one can see below, all asset classes except for cash were in negative territory for 2022 year-to-date which accounted for the negative 20.6% GIV performance. The best asset class for the period was hedge funds at negative 6.2%, while the worst was emerging markets, down 27.2%.
Asset Class Returns
Risk and Return
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 11.7% (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 Barclays Aggregate Index, rebalanced monthly.