Domestic equity markets experienced steep declines in the second
quarter. The Russell 3000 Index, an indicator of the broad market,
tumbled 16.7%, bringing year-to-date losses to 21.1%, officially in
bear market territory. The sharp sell-off was driven by high,
broad-based inflation and investor expectations of slowing economic
growth as the Fed raised rates to combat rising inflation
expectations. Fear is growing that Fed rate hikes may push the U.S.
economy into a recession. Value stocks continued to outpace their
growth counterparts, as higher rates weighed more heavily on future
earnings of growth stocks; the Russell 3000 Value Index declined
12.4% versus a 20.8% downturn for the Russell 3000 Growth Index. In
a risk-off environment, large caps modestly outpaced small caps; the
Russell 1000 Index declined 16.7% versus 17.2% for the Russell 2000
Index. All 11 GICS sectors finished the quarter in negative
territory, with growth-oriented sectors leading the declines.
Consumer discretionary (-25.7%) was the worst performing sector. IT
(-21.3%) and communications services (-21.0%) stocks followed
closely behind. At the other end of the spectrum, defensive consumer
staples (-5.0%) and utilities (-5.2%) sectors held up relatively
well. Energy (-6.0%) stocks also continued to outperform, buoyed by
high oil and gas prices.
Developed non-U.S. equities also fell sharply in the second
quarter with the MSCI EAFE Index sinking 14.5% in USD terms. Market
weakness continued to be more extreme in Europe, where Russia's war
with Ukraine intensified during the period. The MSCI Euro ex-UK
Index was down 15.7%, while MSCI Japan decreased 14.6%. MSCI Asia
ex-Japan dropped 14.1%, and MSCI UK declined 10.5%. Consistent with
U.S. equities, value remained ahead of growth for the second
consecutive quarter. The MSCI EAFE Value Index contracted 12.4%,
while the MSCI EAFE Growth Index fell 16.9% Energy (-4.1%) was the
best performing sector, while IT had the worst quarter, finishing
Continuing to combat high inflation, the Federal Open Market
Committee hiked rates by 50 bps in May and by another 75 bps in
June. The final estimate of first quarter GDP was a 1.6% decline,
following a 6.9% gain in the fourth quarter. Early second quarter
GDP estimates signal a 1.2% decrease. Treasury yields increased over
the quarter, along with a slight steepening of the yield curve.
Credit spreads widened, with investment grade spreads increasing 39
bps to 155 bps and high yield widening 244 bps to 569 bps. Amid this
backdrop, the Bloomberg U.S. Aggregate Index declined 4.7%, while
the Bloomberg U.S. Corporate High Yield Index fell 9.8%.
Total Fund (Trusts) declined 11.8% in the second quarter,
outperforming the blended index* by 30 bps.
The DIT Stock Fund lost 14.9% during the quarter, but outpaced the
blended 65% Russell 3000/ 35% MSCI EAFE Index by 100 bps due to
outperformance from all three active international managers and
overweight exposure to domestic large and small cap value stocks.
The DIT Income Fund finished the quarter 100 bps behind the
Bloomberg U.S. Aggregate Index as the IR&M Core Bond SRI account and
the Loomis Sayles Core Plus SRI Fund underperformed the benchmark by
30 bps and 90 bps, respectively. The allocation to high yield bonds
also detracted. The DIT Fossil Fuel Free Stock Fund declined 16.3%,
10 bps ahead of the blended 85% Russell 3000/15% MSCI EAFE Index.
With all economic sectors losing ground in the period, Aperio's
modest cash allocation contributed to the outperformance.
With increased geopolitical risk in Europe due to Russia's war with
Ukraine and equity markets shifting in favor of value stocks over
growth stocks, the Trustees moved $3.5 million from non-U.S. growth
manager, Hardman Johnston International Equity, to U.S. value
manager, Dodge & Cox, as the second quarter began. In May, the
Trustees made another asset allocation decision, moving $5.0 million
from the Vanguard High-Yield Corporate Fund to the IR&M Intermediate
Fund, in a risk mitigation effort.
It seems investors might expect to experience volatility in all
markets for the foreseeable future. That said, we believe the
longer-term return from a disciplined investment management approach
focused on manager selection, asset allocation and periodic
rebalancing will ultimately produce better returns relative to
market benchmarks and our spending rule imperatives.
for combined management, consulting, custody, and accounting
services for DIT Stock Fund investments is 72 basis points annually, the fee for DIT Income Fund Investments
is 35 basis points annually, and the fee
for DIT Fossil Fuel Free Stock Fund Investments is 47 basis points
annually. There are
no additional or underlying fees on your DIT Investments.
currently recommend a 65% Stock
Fund / 35% Income Fund allocation for investments in the DIT. We respectfully
remind DIT participants that they can delegate to us responsibility
for maintaining the allocation of their agency funds or, if
preferred, specify an allocation where their agency funds will be
automatically restored on a quarterly basis. We would also encourage
DIT participants who have not already done so to review their
current agency fund allocations.
always, we welcome invitations from EDOM parishes and affiliated
organizations to discuss existing or prospective investments in the
DIT. A meeting with TOD representatives can be arranged by calling
the DIT's Investment Coordinator, Mr. Charles Jordan, at (617)
482-4826 ext. 557 or by emailing him at