With a focus on long-term investing and portfolio diversification, the Fund is equipped to endure short-term market fluctuations. In times of market volatility, the Fund assumes the investment risk, not you. To maximize returns and minimize risk for career Y employees, the Fund manages its portfolio according to its long-term investment philosophy and objectives. Read more about our policy and guidelines.

Investment Review for 2020 Calendar Year-End

By Hunter S. Reisner, Chief Investment Officer

While we are still at the heart of challenging times brought about by the coronavirus, there are new reasons for significant optimism looking forward. Vaccinations are occurring around the country, with additional vaccines on the way to gaining regulatory approval in 2021.

During these challenging times, we hope that the Retirement Fund provides a source of financial security to all of its constituents:

  • Current retirees know they have an attractive annuity for as long as they live.
  • Working-age participants will see their balances grow (they have never decreased in the Fund’s nearly 100-year existence) until they receive their lifetime income in retirement.

The Fund’s portfolio had a strong calendar year in 2020, which, as we discuss below, may seem counter-intuitive given the historic disruptions to the economy, employment, and individual businesses.

Market Perspective – Unusual Times

It almost seems inconceivable that stock markets globally would be higher at a time when 9.8 million more people are unemployed compared to a year ago1, nearly 8 million small businesses have closed, national revenues2 have declined ~30%, and a growing and staggering number of lives have been lost. The Federal Government and the Federal Reserve, as well as other governments and central banks globally, stepped in with record speed and incredible magnitude to back-stop financial markets, lend to impacted businesses, and provide increased benefits to many Americans in need—with the prospect of more to come. This led to a relatively swift and continuous recovery in both the real economy and capital markets. It is also a reminder that the stock market is not the same thing as Main Street, as public companies, for the most part, are larger, have more diversified business lines, and have broader access to capital than the typical small business.

Despite the record-setting ~30% declines in equity markets globally in March, most markets were up significantly later on in the year, following the stimulative moves by governments and central banks. The S&P 500 finished up 18%, Emerging Markets similarly up 18%, and the technology-heavy Nasdaq Index gained an astounding 45% for the year. Even small-cap stocks in the U.S. finished up 20% after trailing behind their large-cap peers for most of the year.

Not every corner of the market benefited, however. Value stocks underperformed significantly. Small-cap growth stocks outperformed small-cap value stocks by an astounding 30% points in 2020. Travel, leisure, and cyclical industries meaningfully underperformed, and many were down significantly during the year. Bonds benefited from the Fed cutting interest rates to ~0%, with the Barclays Aggregate Index finishing up 7.5%. Unfortunately, with yields now extremely low globally (or negative in many parts of the world!), prospective returns in bonds are similarly low by most forecasters’ projections. Gold (+25% in 2020) benefited from a flight to safety and real yields falling into negative territory, while energy stocks suffered the largest declines in the year as the price of oil finished down -21% (and even traded at a negative price in the spot market in April!).

Other items of note that occurred in 2020 include:

  • A record year for debt issuance;
  • A record period (extending into 2021) of public offerings, including IPOs (initial public offerings) and SPACs (Special Purpose Acquisition Companies or “blank check companies”);
  • 10 million new brokerage accounts created, leading to retail trading accounting for ~25% of stock trading volume versus <10% in 2019;
  • A record spike in individual savings, as those fortunate enough to maintain their employment had fewer options for spending;
  • Many cryptocurrencies, including Bitcoin, reached records (which continued into 2021);
  • The sitting president lost his bid for re-election in a record-setting election turnout; and
  • Many more items that likely would have been unimaginable just one year earlier.
Strong Performance in Difficult Times

The Fund produced a high 10+% return for the calendar year, with almost a third of the portfolio in private investments still yet to report their Q4 returns, which we expect to be quite strong. Given the market performance discussed earlier, it is not surprising that our Public Equity portfolio performed quite well, up 19%, with our U.S. Equity producing an extremely strong up 31%, thanks to holdings in high-quality technology companies as well as biotech managers. Private Equity (which includes buyouts, growth equity, and venture capital) will likely be up over 20% when their year-end numbers are finalized. The main detractors for the year were our Natural Resources portfolio and some illiquid credit holdings.

As we mention frequently, perhaps the Fund’s greatest advantage is its long-term horizon with a diversified pool of retirees and working-age participants. Unfortunately, we have heard too many sad stories of people outside of the Fund: retired loved ones who sold their investment portfolio in March (when stocks were down 30%) for fear of not having enough income in retirement, and friends who sold their equities, fearing what the next six to twelve months would do to their savings. Given the Fund’s ability to invest for generations to come, we have several options available to us that individual investors do not:

• Commitments to private equity and venture capital that require ten- to twelve-year illiquidity. In this past year’s environment, these paid off with returns of >20% and realized proceeds of >$250 million.

• Commitments to opportunistic credit strategies, despite not knowing what the future holds. These commitments allowed our managers to deploy >$150 million of capital quickly when generational opportunities were available in high-quality debt markets.

• Investments in select global macro funds and long-short equity vehicles that can quickly alter their position from playing defense to playing offense.

• While not a tool, perhaps the greatest benefit is the willingness to maintain risk exposures during highly uncertain times because of our ability to look through what may be a challenging next one to two years.

Most importantly, none of our retirees had to question whether they would receive their annuity payments – they could rest assure that their lifetime income would continue without interruption. We are committed to upholding this promise for future generations.

Market and Macro-Economic Outlook

As investors, we currently find ourselves at an exceptionally challenging time. The outlook for economic recovery certainly is improving with multiple approved vaccines, but many large risks exist: (1) equities currently trade at extremely high valuations; (2) safe bonds offer low or even negative yields; (3) private markets have become more efficient and even crowded; (4) there is record corporate leverage, growing government deficits, and high debt levels; (5) some inflation forecasts are higher than they have been in decades; and, of course, (6) the mutating coronavirus continues to exist.

On both sides of the debate, there are well-respected market strategists and pundits: some predicting the dawn of a new bull market or even a new “Roaring Twenties” led by economic recovery and continued stimulus, others making bold calls of a current stock market bubble that is at risk of imminently popping.

One might rationally ask why we hold much in risk-oriented assets given the myriad risks just mentioned. We believe there are a few conditions that could lead to an economic recovery stronger than some envision. The U.S. government, particularly with the current Democratic leadership, is expected to continue providing support to local governments, businesses, and individuals in amounts never seen before last year. Additionally, the Fed has committed to keeping interest rates low for the next few years and even tolerating higher-than-usual inflation in pursuing its goal of full employment. While valuations certainly look high in absolute levels, stocks are more reasonable when considering that short-term Treasuries yield <1% (meaning bond prices are as high as they’ve ever been), and thus, stocks still offer a several percent risk premium over bonds. Importantly, we invest through skilled and successful investment managers. We, and they, don’t own the entire stock market and can avoid some of the frothiest ends of the market and selectively invest in the highest-quality companies that are expected to continue growing for a long time and that exhibit a healthier long-term valuation. In summary, we have been rotating our portfolio to areas of the market we believe offer better risk-rewards.

We, like other investors, will be keeping a close eye on the Fed and any indications that they may start to consider raising interest rates or slowing down bond purchases. We look forward to communicating any changes to our views in future letters.

Concluding Remarks

We expect to be reporting on more good news in our country’s recovery from this pandemic in our next correspondence and hope that equates to more good news for our YMCAs and all of our constituents.

1Bureau of Labor Statistics (January 8, 2021).
2U.S. census.

Investment Performance: Comparing Fund Net Investment Returns To General Market Returns

In addition to individual asset classes and composite benchmarks, the Fund continuously compares its investment strategies and returns against related investment vehicles and the overall market

Money saved in the Fund is invested through a variety of vehicles to ensure future growth, including exposure to stocks and bonds. These assets are closely monitored by Fund management and Trustees in order to provide the highest level of return, while protecting value. The return on investments enables the Fund to safeguard account balances (risk free) and provide lifetime annuities for retirees.

The mission of the YMCA Retirement Fund is to provide you with a reliable stream of retirement income. Since the Fund’s inception in 1922, account balances have never gone down.

For purposes of understanding relative outcomes, the table below shows the Fund’s performance, as of 12/31/20, in comparison to returns of standard indices:

Returns for Periods Ending
December 31, 2020
Total Portfolio  10
Qtr Ended
YRF Actual Return(1) 7.71% 7.09% 9.01% 7.92%  10.78% 10.92%
YRF Absolute Return Benchmark 10.67% 7.40% 9.75% 8.31% 12.25% 9.72%
YRF Simple Asset Class Benchmark(2) 9.49% 8.31% 12.25% 9.72%
65% Stocks / 35% Bonds 7.50% 7.43% 9.75% 8.81% 13.90% 9.74%
* Annualized
(1) Net of external manager fees.
(2) Calculated using YRF Composite Benchmark for 10 and 7 years.


Asset Class Range

The Fund’s Board of Trustees sets the investment policy with a target weight for each asset class in the Fund’s portfolio. The numbers in boxes represent fiscal year target weight for each asset class. They also set a range around the target, allowing flexibility to overweight or underweight accordingly and is notated below in the horizontal line for each asset classification. The actual weight for each asset class is represented by the triangle for the period highlighted.

While the position in each range is monitored monthly, the Fund is required to rebalance the portfolio at the end of each quarter if an asset class ends up outside its range.

Targets and Ranges as a % of Fund (December 31, 2020)

The Fund invests in a wide range of assets for the purpose of diversification, which results in lower risk. These asset allocation pie charts illustrate the broadest categories of our investment portfolio.