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Foundation Investment Advisors and Consultants

Insights and Publications

Colonial Consulting provides insights and analysis on current conditions and challenges, market environment, and industry trends.

Quarterly Commentaries

  • Looking across time at the intricacies of human behavior, it is quite common to run into fixed mindsets that put undue weight on present facts and circumstances. Yet, this trait is not universal as some have been able to foresee change either through creativity and/or a deep understanding of the past. The rare few that comprise this group are justifiably held in very high regard, although not immediately, as their point of view may initially seem implausible or even insane. Yet, when viewed through the lens of history, accurate predictions of great change in society, technology, geopolitics, etc., are valuable and revered for generations.

    In the world of financial markets, dramatic shifts also occur over time 鈥 these shifts typically involve both the structure of markets and pricing dynamics, with most investors being quite keenly interested in the latter. Nevertheless, despite a massive oversupply of forecasters, very few are able to predict the direction of prices with any level of consistency. Still, one should never discount our tendency to remember the rare successes, such as the investor that sold technology stocks before the bursting of that bubble in the early 2000鈥檚, or the investor that bet against low-quality mortgages shortly before the Global Financial Crisis.

    As we recall these remarkable successes, it is only natural to seek to replicate them for ourselves. As equity markets generally march higher, the temptation to introduce short-term forecasting into the equation justifiably grows. Yet, one must question whether we would pursue such an approach if we could precisely measure the odds of success and also quantify the impact on our long-term goals if we are proven right or wrong. Our guess is that most investors, armed with this information, would be driven back to the imperfect, less exciting brand of investing that we espouse, which is to base all decisions on long-term outcomes with portfolios that are tailored to their owners鈥 respective goals and risk tolerance levels.

  • For more than five years institutional investors have evaluated (and re-evaluated) the role of fixed income in their portfolios. During the financial crisis of 2008, a flight to quality led many investors to government debt, sending Treasury rates lower and credit spreads to historically wide levels. Near the end of the market downturn, opportunistic investors shifted to a more credit-oriented approach in an effort to capitalize on much higher yields and the potential for strong mark-to-market gains if spreads contracted. In recent years many investors, under the premise that an end to the low-rate cycle is approaching, added floating rate debt (bank loans) to portfolios in an effort to mitigate their losses when interest rates rise.

    Despite the closely related complexity of the economic climate and bond pricing over this time, we have now reached a particularly challenging period for asset allocators as the threat of higher interest rates, in addition to the historically low coupon offered by many fixed income instruments, have led investors to reevaluate how they view bonds within their portfolios.

    Importantly, while the prospects for fixed income as an asset class may look bleak in the coming years, we hold steadfastly to the notion that it has a place in strategic allocations although we fully acknowledge that there are no simple solutions or particularly compelling ways to address appropriate, albeit widely held, concerns. At the same time, we are struck by some of the misconceptions regarding fixed income risk both in absolute terms and relative to other asset classes.

  • For nearly a decade, we have been producing the Quarterly Commentary with the simple goal of writing about a topic where our perspective might be of use to clients. Along the way, we have been educated by constructive criticism and immensely flattered by compliments.

    When we sat down in early March to discuss this Commentary, the silence was deafening. Say what you will about the anxieties of a massive financial crisis, it was a fabulous period for those of us writing about investing. What was behind our recent struggle to find a suitable subject? Yes, there were topics to write about but many had already been covered and we had nothing new to say. Had the current market calm made us complacent?

    While a common problem for investors, we can say with great certainty that complacency is not one of our shortcomings 鈥 there is always something to worry about and it is usually not what we are reading or hearing about on a regular basis. Yet one must be wary of complacency as it can be infectious and the chart below provides some insight regarding why it may be a problem today.

  • Jean-Baptiste Alphonse Karr was a 19th century French novelist/journalist who is credited with coining the phrase 鈥淭he more things change, the more they stay the same.鈥 A more modern expression of this idea is found in a Bon Jovi song entitled The More Things Change - 鈥淭he times they are a-changin鈥/We鈥檙e here to turn the page/It鈥檚 the same old story but it鈥檚 told a different way.鈥

    From the perspective of those who are entrusted with endowment funds, the need to maintain inter-generational balance is a story that never changes. Yet today鈥檚 fiduciaries face a host of issues that in concert are unique to our time and reflect a changing world as it relates to investment opportunities and perceptions regarding the resources and structure to properly capitalize on that which is offered.

    In this Commentary we provide our perspective regarding the various decision making models that today鈥檚 fiduciaries can pursue. In keeping with the theme of change and constancy, we also provide a brief update regarding Colonial.