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Q4 and 2022 Market Commentary

Monday, January 30, 2023 - 10:40

The following market commentary provides context for the investment performance of your charitable assets.

From Cambridge Associates, investment advisor

2022 proved to be a challenging year with few places to hide for investors seeking shelter from the market volatility. Global equities, as measured by the MSCI All Country World Index, returned -18.4% during the year amid stubbornly high inflation, slowing economic growth, and the war in Ukraine. Bond markets, which typically provide protection during equity market drawdowns, also experienced double-digit declines in response to both rising inflation and interest rate hikes. Recessions in the United States and euro area look increasingly likely in 2023, while the United Kingdom appears to already be in recession and China’s economy has stalled. Stocks and bonds may still have some downside given these challenging conditions. Yet, we recognize this past year has improved valuations that may eventually lead to strong long-term returns.

While Thrivent Charitable’s portfolios were certainly not immune from the financial market conditions of 2022, diversification beyond traditional equities and bonds bolstered performance during the calendar year. The Core Growth portfolio’s estimated market value at year-end is $337.5 million after returning -15.0% in 2022, slightly underperforming the benchmark return of -14.3%. Mission Growth’s estimated year-end market value is $105.1 million after returning -19.8% during the calendar year and underperforming its benchmark return of -14.7%. Lastly, the Income portfolio’s market value at year-end is $32.6 million after returning -9.0% for the year and underperforming its benchmark return of -6.8%.

Two public equity managers within Thrivent Charitable’s Core Growth and Mission Growth portfolios have been particularly challenged by the recent market environment and explain the bulk of underperformance in these portfolios. Ownership Capital is a global equity manager that applies rigorous fundamental analysis incorporating environmental, social, and governance (ESG) factors. The manager’s bias towards high-quality, growing businesses has hurt recent performance due to the portfolio’s overweight to healthcare and information technology, which struggled in 2022, and relative underweight to energy and industrials, which outperformed on the year. Ownership returned -31.6% during the calendar year and underperformed its benchmark return of -18.2%.

Generation Investment Management is another global equity manager that integrates a similar sustainability focus when determining the quality of its businesses. Generation evaluates companies on how they approach human capital, the environment, community needs, poverty, social issues, demography, and other ESG criteria. Like Ownership, Generation’s preference towards sustainable companies has skewed its investment portfolio towards technology companies which underperformed during 2022. Generation returned -27.2% in calendar year 2022, underperforming its benchmark return of -18.1%. While Ownership and Generation both experienced disappointing performance in 2022, the sectors in which they invest were extremely out of favor in 2022, and we retain conviction in both managers due to their impressive long-term track records.

We continue to carefully monitor portfolio exposures and review portfolio positioning, rebalancing as needed. Thrivent Charitable’s portfolios are built to withstand, not avoid, volatility so that we stay invested and benefit from the long-term upward trend in equity markets. The portfolios continue to remain well-diversified with ample liquidity. We believe that staying calm, invested, and prepared remains the best course of action going forward.