After strong financial market returns in 2017, many endowments and foundations have continued to increase their effective spending rates since 2015. According to the 2017 National Association of College and University Business Officers (NACUBO) annual study, average spending rates among university and college endowments rose in fiscal 2017 to 4.4% from 4.3% in fiscal year 2016. Institutions with endowment assets of more than $1 billion accounted for the largest increase in spending rates with a spending rate of 4.8% (compared with 4.4% in 2016), with smaller endowments rising slightly.
By Bryan Shipley, CFA, CAIA, Co-CIO
Passive investment management:
A passively managed fund seeks to match the performance of an index by replicating the index’s holdings. Passive investment management delivers market returns, and typically has lower fees than active management.
Over the past decade, investor preference for passive investing has dramatically altered equity markets. This huge movement toward index investments (inflows to passive investments of more than $200 billion annually in 2016 and 2017) may have repercussions on equities’ pricing and valuation, the implications of which should be considered by investors. While we understand there are valid reasons many investors have shifted their preference to more index-based solutions, it would also be naïve not to be aware of the unintended consequences of this shift. Read more
One of the more frustrating aspects of the political climate in 2018 is that no one seems to be comfortable discussing the elephant in the room: Americans are living longer and having fewer babies. As a result, the commitment the United States has made to healthcare and retirement benefits for baby boomers is likely to lead to substantially higher taxes and/or significant cuts to entitlement programs in the United States over the next few decades. Read more
After hitting an all-time low in 2017, investor expectations of stock market volatility have started to rise this year. While these market jitters are at least partly due to eventful headlines, there’s another, more fundamental explanation that may be playing a role: The Federal Reserve’s decision to reduce its bond holdings may be contributing to increased volatility in the stock market. Read more
Arnerich Massena’s first quarter 2018 MarketCast is available for viewing. Read more
Seventy-six percent of the 174 U.S. initial public offerings (IPOs) in 2017 were of companies with earnings less than zero. While it’s not unusual for unprofitable companies to go public, this is the highest level we’ve seen since 2000, and equal to the second-highest year of 1999.
There are nearly 20,000 U.S. equity mutual funds in the market, and about 2,300 ETFs. The irony is that there are only 3,492 U.S.-headquartered companies that are publicly traded, active, and available for investment (as of 12/31/17). This means there are more than six times as many equity products as there are equities! Read more
Click this link to view a larger image: impact infographic
When market returns are attractive, as they have been for the last several years, the lure of passive investing is strong. After all, who wouldn’t want to capture market returns when the market is booming? (Passive investments, or index funds, closely mirror indexes in order to provide investors with broad market exposure at a generally lower cost than actively managed funds.) Passive investing can serve a purpose in a portfolio, particularly in more efficient asset classes, but investors should be aware of the pitfalls of overusing passive investment strategies, as outlined below. Read more
President Trump signed sweeping tax legislation last month and the changes will impact investors in a variety of ways. Here, we address some of the changes you may want to discuss with your accountant in 2018. Read more