Investment Commentary: Q4 2021

The fourth quarter of 2021 was robust as equity markets continued to climb a “wall of worry,” albeit on a somewhat concentrated and narrow basis dominated by a very small number of very large companies. After a fast start in October, uncertainty regarding the Omicron variant of COVID-19, the speed of the Fed’s tapering of asset purchases and subsequent plans to hike interest rates, and geopolitical saber-rattling were able to slow the markets in November. However, in December, many of these worries subsided as the S&P 500 rose to all-time historical highs, climbing 11% for the quarter and 28.7% for the year.

The extremely contagious Omicron variant, while showing itself to be less severe, has put additional pressure on the labor force and exacerbated many of the current supply chain issues. Inflation remains persistent as labor shortages, supply chain issues, and commodity prices led to an annualized CPI print of 7.0%, the highest such reading in 40 years. Despite this inflation, corporate earnings remained strong and household balance sheets remained in good shape.

The Community Foundation’s Corporation,* for the fiscal / calendar year 2021 produced a net return of 9.0%, trailing the market benchmark’s return of 12.3%. In the last 15 fiscal years, the Corporation has missed its one-year market benchmark just four times. While we certainly do not like short-term volatility and under-performance, the Corporation’s strategy is built to generate exceptional long-term (5-10 year) returns and actually needs these periods to generate results that support the long-term goals, especially in an era of higher inflation. In the fourth quarter, the Corporation returned 1.2% versus 3.8% for the benchmark, which was primarily due to idiosyncratic positioning in a few of the underlying global equity and hedge fund managers. Over the course of the last quarter century, the portfolio’s brief periods of underperformance have been followed by longer periods of outperformance, and we believe the portfolio is well-positioned to capitalize on this economic opportunity associated with severely mis-priced securities globally.

Questions? Contact A.F. Drew Alden
SVP and Chief Investment Officer, The Community Foundation for Greater New Haven;
President and CEO, TCF Mission Investments Company

*The Corporation is a Connecticut registered investment adviser and part of The Community Foundation for Greater New Haven.