From the Investment Team: What is happening in the markets

June 2, 2022

Dear Partner in Ministry,

Given the recent bout of volatility in the financial markets, the Investment Team of the United Methodist Foundation of Western North Carolina, Inc. would like to share some brief comments that aspire to add context to these recent developments.

What is Happening?

The stock and bond markets in the U.S. and abroad are frequently referred to as “discounting mechanisms” (which is just a fancy way of saying that markets are constantly trying to predict the value of assets into the future). There are many factors considered but most relate to either the amount of income the asset earns or interest rates.   In normal periods, these inputs are more stable, however when uncertainty increases, market participants come to many different conclusions which creates higher volatility in these asset prices.

The main culprit behind the elevated uncertainty in markets is the recent increase in inflation.  In the spirit of brevity, let’s just say that inflation is like a fire and must be extinguished quickly to avoid larger problems.  Thus, the federal reserve must aggressively use its main tool (raise interest rates) to cool demand and fight inflation.  Unfortunately, this is a blunt tool that can potentially push the economy into a recession which adds uncertainty to both the earnings ability of assets AND the level of interest rates.

Is This Normal?

Yes, this is a normal, common, and healthy stage of the economic cycle.  Regardless of your level of investment training or experience, all investors feel the emotional tug of seeing a decline in the value of your portfolio.  While this stage of the cycle is unsettling, we encourage you to resist the urge to react emotionally and remain committed to your long-term investment plan.  Moving into a more conservative investment option right now will only serve to lock in unrealized losses and deny the opportunity to ride the markets up.

What is Next?

Ultimately, the battle against inflation will end and the economy and markets will find more stable footing.  No one can be sure how long this process will take or what levels the markets will ultimately settle. However, we do know from history that the recent market performance is a normal part of the ebb and flow as markets look through the uncertainty to find fair value.

The Foundation’s Investment Team, in partnership with its investment consulting firm, Callan LLC, is keeping a close watch on the market “noise.”  We continue to diligently monitor and carry out the Foundation’s disciplined investment process.  The long-term performance of the Diversified Fund continues to be strong with a trailing 10-year return as of March 31, 2022 of 9.51% (net of manager fees).  This return outperformed the fund’s benchmark, and the performance ranked in the top quartile as compared to similar Endowments and Foundations.

We are honored and thankful that you entrust your financial resources with the Foundation.  We remain committed to the highest level of excellence in all of the services we provide to support your ministry.



Steve Wilson                                                             Brad Crossley
Investment Team Leader                                      Chief Financial Officer

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