For the year ended March 31, 2017, the Jewish Community Foundation of Montreal’s pooled fund had a return of 9 percent. The average annualized return for the last five years has been 7 percent.
Fiscal year 2017 was one of unexpected outcomes. The Brexit vote and the U.S. presidential election were just two signals of a desire for change among voters that moved markets over the past year. The post-crisis era of synchronized global policy has ended, with greater divergence between global monetary and fiscal policies and between equity and fixed income returns. Unlike the extended period of monetary policy expansion, which did not discriminate, this divergent environment is likely to produce clear winners and losers.
A favorable economic environment provided much of the backdrop which led global equities to rise 15 percent and Canadian Equities to rise over 18 percent. So called “Trumponomics” have led to much of the rise in equity markets in the first three months of the calendar year as his policies are perceived to be favorable for economic expansion. The JCF equity portfolio returned 15.9 percent.
Loose monetary policy continued around the world for much of the year with the U.S. looking to start to normalize interest rates. Although interest rates across other major regions look to remain low or in some countries even negative. Unexpected geo-political events have led to temporary spikes in interest rates but favorable economic backdrops have persisted in keeping them relatively depressed.
Hedge funds provided some up-capture ability as global markets appreciated on favorable global economic news.
Currency and Currency Hedging
The Fund uses a dynamic currency hedging policy approved by the Investment Committee with the aim of reducing the foreign currency risk and removing most of the short-term currency volatility and the resulting impact on spending generated by the portfolio. However, a portion of the USD investments are not hedged in order to provide another source of diversification to the portfolio.
This past year the Canadian dollar depreciated 2.3% against the US greenback. In an environment where the Canadian dollar depreciates, currency hedges cost the portfolio. JCF’s currency hedging policy resulted in the portfolio being twenty five percent unhedged over the year, which mitigated the hedging costs a bit. The unhedged return would have been 11.4 percent while the actual portfolio return was 9.2 percent.
The JCF has a long-term outlook and its investment policies seek to generate average returns that will support the programs funded by our donors (5% payout and 2.5 % to protect against inflation for a total long term return of 7.5%)
The investment policies and philosophy are set by the Investment Committee – primarily to invest for the long-term, to use a multi-manager approach, to diversify the portfolio by investing in an array of asset classes, and to have an allocation to hedged investment strategies with the goal of smoothing the Fund’s return volatility over time. The policy targets and actual exposures as of March 31, 2017 were: