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2018 Investment Review

By Rob Morgan, Chief Investment Officer

By many measures 2018 was the worst year for investors since 2008, when the Great Recession began.  Causes for the poor markets can be blamed on many things, but two things stand out – the Federal Reserve raised interest rates 4 more times to 2.25%, and saber-rattling between the US and China over trade at various points during the year caused precipitous drops in the market.

On the bond side of the market, the yield curve partially inverted, which is a sign that investors want to hold longer bonds over shorter bonds.  When the bond market does this, it is an indication that bond markets expect a slowdown in growth, which could lead to a recession.  We did not see a full inversion of the yield curve, which often is a good predictor of a recession on the horizon.


In spite of the poor investment backdrop for 2018, overall the MAUMF’s team of Advisors outperformed their relative benchmarks by 35 basis points.* Not every account managed by MAUMF will show this type of performance, but it is a good comparative number for how our investment team performed in a difficult investing environment.

As they have consistently done in their 30 year relationship with MAUMF, Fulton Financial Advisors did this by investing in numerous asset classes – many of which have low correlation – to give better risk-adjusted returns than many of their peers and the market. The goal of the MAUMF’s Investment Policy is to capture upward market returns in line with the benchmarks while reducing exposure to downward movements and limiting client losses.


Many would say that the causes for poor returns in 2018 were due to ‘headline risk’, which is when gloomy headlines weigh down investment markets.  Investment fundamentals heading into 2019, however, arguably remain strong.  PE ratios on stocks are currently at 14X earnings, which is below the historic average.  By this measure stocks are inexpensive.

Furthermore corporate earnings heading into 2019 should also remain strong, perhaps approaching 10% growth over 2018.  In a market where stocks are fairly valued, stock price movement over the long haul should reflect earnings growth, so if we see that type of earnings growth in 2019 the S&P 500 might mirror that growth.

Finally, some of the ‘headline risk’ items which have weighed on markets in 2018 may have unexpectedly positive outcomes in 2019.  The Fed is expected to raise rates twice in 2019, but maybe they won’t.  The expectation is that the US and China will continue in their trade war, but maybe they’ll strike a deal.  Regardless, market fundamentals should provide a strong underpinning for stocks in 2019, and anything positive regarding the Fed or the trade war would be a bonus.


Historically when markets have bad years, endowment boards which meet four times a year decide ‘enough is enough’ and turn their endowments over to the MAUMF to manage on a daily basis.  MAUMF found this to be the case in 2009 and 2010 after the terrible market of 2008, and anticipate the same thing to happen in 2019 as we await the recovery and continue to grow our Foundation.

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