Page 43 - 2024 January report

INVESTMENT COMMITTEE MINUTES (DRAFT) (3)
Table 3
Allocation Within JSF Major Asset Classes
US
Non US Devel. Emerg Mkt
Public Equities (1)
JSF Target
62.0% 60.4% 27.4% 29.3% 10.2% 10.3% 100.0% 100.0%
Venture Buyout Distressed Real Assets
Private Capital (2)
JSF Target
46.3% 30% 30.0% 45%
9.4% 14.3%
25% 100.0% 100%
1) Target is MSCI All Country World Index Weightings
2) Target is midpoint of targeted range
3. Public Market Manager Comments and Asset Allocation – Most public market managers continue to outperform led by JSF’s two largest managers Adage ($49.8 mill – up 25.5% over the last year, 3.9% above its benchmark) and Silchester ($16.9 mill – up 32.5% over the last year, 5.9% over its benchmark). Since JSF’s initial investment both managers have been exceptional performers – Adage 2.4% annual outperformance over 14 years and Silchester 4.7% annual outperformance over 24 years. The recent passing of Silchester cofounder Michael Cowan has not caused Prime to alter its positive view on Silchester given its strong team.
On the negative side of the ledger, Baxter Street Offshore ($9.3 mill), a recent addition, has struggled due to poor stock selection. Prime is monitoring but is not concerned. Gaoling Feeder Fund ($1.5 mill) has performed poorly over the last year. This fund may be a candidate for redemption given JSF’s significant exposure to China through other managers.
Prime (and the Committee) is generally happy with JSF’s current roster of managers and is not recommending any changes. Asset allocations are close to target (see Table 2) except for Fixed Income/Cash which, at 9.5%, is below the bottom end of the allowable range of 10% to 15%. The Committee agrees with the Prime recommendation to redeem $7.3 mill of public equities over the next month (all Vanguard equity index funds – US equities $4.8 mill, non-US developed equities $1.5 mill, and emerging markets $1.0 mill) of which $3.2 mill will flow into Fixed Income/ Cash. This action will raise the Fixed Income/Cash weighting to 10.5% and reduce the Public Equity weighting to 50.5%.
4. Investment Performance Since September 30, 2023 and Outlook – Since September 30, 2023 equity and bond markets have been very volatile. Returns were negative in October as investors embraced the view that interest rates were likely to stay higher for longer. The JSF portfolio registered a negative return of 1.8% in October. However, equity and bond markets have enjoyed a sharp recovery in the first half of November with the JSF portfolio registering a gain of 4.2% bringing the year-to-date portfolio return (as of November 15th) up to 7.3%, which is not far off the JSF target rate of return of 7.5% for all of 2023.
Prime shares the view that short term interest rates have peaked and are likely to start declining by mid 2024. Prime also believes that the US will achieve a soft landing (i.e. avoid a recession) and that corporate earnings will resume growing in 2024. Equity valuations for global equities are close to average. Prime suggested small cap. equities may be entering a period of outperformance after underperforming over the last seven years. All of these considerations suggest a constructive environment for future investment returns. Prime however cautioned that getting inflation below 3% is likely to prove difficult and long-term interest rates are unlikely to materially decline. Also, there are a multitude of unpredictable risks (i.e. war in Ukraine and Middle East, Chinese factors including real estate and Taiwan, uncomfortably high fiscal deficits on a global basis, US election in 2024, etc.) all of which are likely to lead to continuing high volatility in markets.
Page 41 HORIZONS