Reversal of Fortune and the Long View
The very sharp rebound in equity markets in March has contributed to positive returns for most assets year-to-date. We said in January, “In broad market selloffs, it is too easy to get consumed by the immediacy of negative headlines and sentiment. A thoughtful approach to opportunities, rather than succumbing to short-term concerns, still remains the optimal approach.” So far, so good.
Within markets, there is another “reversal” story. Former winners are losing, and previous laggards have risen to the top for the period. Emerging market equities and debt are winning, value stocks and managers are winning, and growth stocks and managers who like the “nifty nine” stocks (Facebook, Amazon, Netflix, Google, etc.), which contributed the totality of the markets’ return last year, are down.
Investing on your behalf, we do not have a preference. We maintain a diversified manager roster in both equity and fixedincome asset classes, and rebalance portfolios when appropriate in order to not skew too far from one style to another.
The other tool? Retain good managers who are acutely focused on the long term, for members’ benefit. One such manager is Walter Scott, a Pension Boards manager since 2003. Founded in 1983, they are headquartered in Edinburgh, Scotland, and maintain a focus on international developed markets like Europe and Japan.
Walter Scott employs a fundamentally thorough, research driven, stock-by-stock process with one premise: high and consistent returns benefit their clients’ goal of wealth creation over the long term. Walter Scott seeks companies that control their own destinies, have sustainable profit margins, strong balance sheets, and management teams with a proven track record. They are patient, long-term investors in a world of fast traders.
How have they done? In the first three months of 2016, Walter Scott has outperformed its index by over 4%. Since being selected for the Pension Boards’ investment portfolio in 2003, the Walter Scott portfolio has returned 8.05% (net of management fees) versus 6.33% for its index, an impressive annual outperformance. Walter Scott is part of the Equity Fund. As such, it is part of the Pension Boards’ balanced funds, including the Target Annuitization Date (TAD) Funds and the Participating Annuity.
We hope that this commentary has been helpful to you. Please visit the Pension Boards’ website at http://bit.ly/PB_Investments for more information.