How The Fund Works

Investments & Performance
Investment Review
For the Quarter Ended March 31, 2020

We begin this letter by sending our most heartfelt well wishes to all of our participants. We are keenly aware of the hardships facing all of you, your families, and your YMCAs in this period. So many of us know someone impacted by the virus from a health standpoint, and all of us have already been affected by the virus from a financial and social standpoint. YMCAs and their employees are directly affected and have been forced to close or reduce their activity – at a time in which the myriad services provided by YMCAs are needed most by their communities. We hope that while you undoubtedly have many considerations with which you are dealing, you can take comfort in knowing that the staff of the Fund, many of whom are being impacted as well, are working hard to manage and preserve your retirement income for life. We believe that during these tough times, the stability of the Fund and the benefits of a professional YMCA Retirement Fund organization truly shine through.


Volatility returns to the markets – but not to the size of participant balances. The first quarter of 2020 was a notable one not only for equity markets, but also for all financial markets. The coronavirus took most people by surprise – both in their personal and business lives and in their financial dealings. The virus spread more rapidly in late February and March than had been expected. Governments quickly implemented “social distancing” measures, which rapidly shut down large parts of the national and global economy. This affected small businesses and local YMCAs, large multinational airlines, and every company in between.

During the first quarter of the year, the S&P 500 ended down 19.6% (falling 30.4% at its low), while the Russell 2000 index of small-cap companies plummeted 30.6%. Markets around the world also fell into bear market territory, with the MSCI World Index declining 20.9%, its worst quarter since the 2008 Great Financial Crisis (GFC). At the same time, oil prices plunged by almost 70% to their lowest levels since 2001, as when OPEC+ failed to reach an agreement on oil production cuts, a subsequent price war erupted between Russia and Saudi Arabia, and the demand for oil fell precipitously as the coronavirus shut down large parts of the economy, including many forms of travel, the largest component of oil demand. The term “unprecedented” was used with great frequency to describe the health, economic, and financial crises that were unfolding – and, eventually, the size of the monetary and fiscal responses.

From March 23 into April, risk assets have rallied due to strong interventions by policy makers through rate cuts and other economic stimulus measures. In the U.S., the government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. At the same time, the Fed cut the federal funds rate by 150 bps to zero and introduced (or at least, promised to introduce ) trillions of dollars of buying power into the debt markets, growing their balance sheet by $2 trillion in a matter of weeks. Other governments around the world have cut rates and enacted similar stimulative policies to protect businesses and their citizens from the effects of social distancing and the forced closure of many business activities. The collective amounts of stimulus in just a few weeks exceeded everything that was done in an entire year during the GFC. The magnitude of these moves contributed significantly to fueling the stock market’s fierce rally.

The Fund's Performance for the Quarter 

Given the Fund’s heavy equity orientation, the March quarter performance was down 10.1% (shown net-net, after all management fees and the Fund’s investment-related costs). While this is an extreme move by any standard, it was well within expectations given the historic decline in risk assets and our portfolio composition. However, markets have recovered to a significant degree in April, and the Fund’s asset level has improved.

We routinely highlight that, as long-term investors, we manage a diversified portfolio to protect our participants’ balances while also growing our asset base in a risk-controlled manner. However, the losses in the first quarter of 2020 were significant, although they have now somewhat recovered. Despite the large drawdown in March, the Fund’s ten-year annualized return is still +6.4%. This has allowed the Fund (a) to afford the generous and well-above-market annuity payout we provide to retirees and all participants on their account balances and (b) to deliver interest credits above market interest rates on other principal-protected products. 

Macroeconomic and Market Environment 

As compared to the last time we wrote (at December year-end), the outlook today is quite different – and highly uncertain. Going forward, the economic outlook may well depend on how well different communities contain the spread of this virus. There are any number of economic recovery shapes (V-, U-, W-, L-, square-root, swoosh, and more) being modeled by pundits and practitioners. Each of these is possible, but we won’t know how things will go for quite a while.

Even when governments decide to start easing restrictions, it will be in phases, and there will likely not be a full “return to normal” until a vaccine is created and administered in scale – which may take upwards of a year or two. We, and others, have spent considerable time contemplating what this “new normal” will look like, as many aspects of business, society, and capitalism will likely be changed to some degree.

Perhaps one of the largest challenges investors now face as a result of the Fed’s response to the global economic slowdown is a world of zero-interest-rate policies. The markets are not projecting interest rates to rise for years to come, and some are predicting negative interest rates in the U.S., which have already existed in much of the developed world for years since the GFC. In this environment, safer and diversifying assets will earn nearly nothing and provide very little protection when risk assets sell off. This will ultimately lead to a tough challenge in seeking high returns with diversification against a slowdown in economic growth. It seems unlikely investors can achieve both – especially in public markets.

Closing Statement 

During the Fund's nearly ninety-eight years, broad and index-like exposure to stocks and bonds has been sufficient to fulfill the Fund's mission. While we hope this remains the case going forward, Management is working diligently to add exposure to other sources of returns while also enhancing the Fund's ability to perform relatively well if market conditions deteriorate. We remain focused on maintaining and refining a well-diversified portfolio that is built for the long term and that tilts, when appropriate, to sectors of more attractive, risk-adjusted returns.