Category: CIO Commentary

Back in March of 2022, we at TIFF looked at the challenges that lay ahead and thought discretion was the better part of valor. We trimmed our equity exposure to target weights as equity valuations dropped from stratospheric levels. We also kept our bond exposure short and tried not to take on any extra risk; interest rates rose the most in decades. This strategy worked in relative terms, but we still saw large portfolio drawdowns in 2022.

This is an excerpt from a longer commentary. Please Download the PDF to read the entire 2nd Quarter 2023 CIO Commentary.

March Madness

Recent market action calls to mind a quote attributed to Vladimir Lenin: “There are decades when nothing happens; and there are weeks where decades happen.” The past year and the past several weeks feel more significant than normal. We thought a brief recap of what got us here, where we are, and what the future might hold could be helpful. With events today moving fast, this letter will probably have a shorter shelf life than some of our other commentaries, except that you will forever be able to tease us for making projections of any sort in such a turbulent time.

This is an excerpt from a longer commentary. Please Download the PDF to read the entire 1st Quarter 2023 CIO Commentary.

So Many Moving Parts

2022 is a year most investors will be glad to put in the rearview mirror. Capital markets were unkind, almost all of them. Rather than try and dig into all the reasons why, we’ll summarize by saying that anything that could create inflation did – money printing, war, supply chain bottlenecks, slow response from the Fed, etc. – and the subsequent rise in rates derailed stocks, bonds, and just about everything else. If one could have known in advance just how high rates might go, then 2022 might not have been such a surprise, and maybe it could have been navigated better. With correlations high, it still would not have been easy, but maybe a bit easier.

This is an excerpt from a longer commentary. Please Download the PDF to read the entire 4th Quarter 2022 CIO Commentary.

It’s still (mostly) all about inflation

We won’t spend this entire letter on inflation, as we may seem to have done for several quarters now, but we will give you a brief update. Inflation remains the biggest driver of financial markets, for good or ill. At their Jackson Hole meeting in late August and again in late September, various Fed members spoke strongly about the need to contain inflation, capped off by Jerome Powell’s clear message that the Fed will raise rates until inflation falls, and keep them there until it’s back toward the 2% target rate. His remarks were shorter, his focus narrower, and his message more direct – we will bring price inflation back down to 2%: “A failure to restore price stability would cause more pain than restoring it will cause.” The market took this to mean that short rates are going up more than most had anticipated and may stay there for longer too. Longer run, 2 to 2.5% short rates may be appropriate once inflation comes back down toward target, but not now.

This is an excerpt from a longer commentary. Please Download the PDF to read the entire 3rd Quarter 2022 CIO Commentary.

The times are getting tougher

Pretty much the whole world has been wrong about how high inflation would go – including us. As investors’ views have changed, they have sold fixed income securities, pushing prices down and driving the Bloomberg Barclays US Aggregate to its worst quarter in 40 years at -5.93% in Q1 2022, followed by -4.69% in Q2. This -10.35% year-to-date loss is the worst first half of the year ever for the index. Results this poor don’t tend to occur when investors anticipate and are properly positioned for what lies ahead.

We believe the single most important investment question today is whether the Fed will – or won’t – get ahead of inflation. Typically, the Fed must balance the dual mandate of full employment and low inflation. Because inflation has been low for most of the past 40 years, the Fed has historically been able to respond quickly to economic or market events by easing rates. With inflation today above 8.5%, that calculus has changed: We expect that until inflation comes under control, the Fed will be talking tough and raising short rates, even if stock and bond prices are falling and even if the economy appears to be slowing. Until the Fed proves their mettle in taming inflation, they have lost the option of easing rates. We believe that only once the Fed has shown they can get inflation under control will they regain the ability to provide liquidity when markets require. This suggests a more difficult and volatile market backdrop in the short term, with the end of this term dictated by the path of inflation.

This is an excerpt from a longer commentary. Please Download the PDF to read the entire 2Q2022 CIO Commentary.