The investment guidelines around a $24-million fund held by the Anglican Church of Canada have been changed to allow for a higher proportion of foreign stocks and “market neutral” investments, and a lower proportion of bonds.
Foreign stocks are normally considered to yield higher returns at higher levels of risk, and bonds have a relatively lower risk and lower returns.
At its fall meeting last weekend, Council of General Synod (CoGS) approved a set of resolutions dealing with the Consolidated Trust Fund, a pool of money intended mostly for investing endowment and trust funds of General Synod and the Missionary Society. The resolutions called for changes to the Statement of Investment Policy, the set of guidelines that govern the way this money is invested.
Among the changes proposed and accepted by CoGS are:
- A reduction in the strategic target of bond holdings in the fund from 35% to 30%
- A reduction in the strategic target of holdings in Canadian stocks from 30% to 22.5%
- An increase in the strategic target of holdings in foreign stocks from 15% to 22.5%
- An increase in the strategic target of “market neutral strategies” from five to 10%.
At a presentation via video conference November 15, David MacNicol, a member of General Synod’s investment sub-committee, said that a number of factors were behind the proposed changes.
Connor, Clark and Lunn Financial Group, the firm that manages the fund, is currently “very bearish” toward interest rates, MacNicol said, and believes the recent pattern of historically low interest rates may now be bottoming out. Indeed, he added, there’s a good chance the rates set by the U.S. Federal Reserve could be raised by the end of this year. Historically, high interest rates tend to be accompanied by high inflation rates. As a result, he said, in the near future, bonds may be less attractive than other types of investment that have the potential to outgrow inflation.
“In a rising rate environment, we don’t want to have great exposure to long bonds or to interest-sensitive investments,” he said. “We want to be more hedged against inflation.”
The way to do this, he suggested, in addition to increasing the fund’s exposure to foreign stocks, is by increasing its holdings in “market neutral strategies” type investments. This investment type consists of a mix of “long” (owned) and “short” (owed) stocks, meaning that they’re less vulnerable to fluctuations of the stock market than regular stock holdings, he said.
As another way of protecting the fund against potentially falling markets, managers have also been introducing other “alternative” forms of investment beyond the conventional stocks, bonds and cash, MacNicol said—specifically, in real estate and infrastructure.
“By expanding our approach into the market neutral strategy and other alternatives in real estate and infrastructure, we’re really adding asset classes that run counter to the stock market and especially the bond market,” he said.
“We have to come up with the capital from somewhere in order to do those, so we’re suggesting that we lower the amount that we have in bonds, which has always over the last 31 years been considered a nice safe place to be—but I’m suggesting that they might not be in the near-distant future.”
The resolutions proposed by the investment subcommittee were passed immediately, with no questions or debate.
As at September 30, the Consolidated Trust Fund stood at $23.8 million. Of this, the share of General Synod is about $17.3 million, with the remainder belonging to a number of dioceses.