ACF Blog

ACF Leadership Blog


Opinions, thoughts and ideas from the leaders of the Arizona Community Foundation, Arizona’s largest statewide philanthropic grantmaker.

Investment Update from our Chief Investment Officer
Specify Alternate Text

Financial markets went on a wild ride during ACF’s fiscal year 2018, which ended on March 31. Equity market volatility was historically subdued for most of the year before it came roaring back in February and March 2018.

During the first ten months of fiscal year 2018 (April 2017 - January 2018), equity markets produced exceptional returns driven by improving global economic growth, strong corporate earnings, and the Trump Administration’s tax overhaul. However, in February, markets entered correction territory for the first time in two years after strong January wage growth numbers stoked inflation fears. While subsequent data helped to alleviate inflation concerns, the correction extended into March as President Trump’s announcements of new tariffs led to fears of a potential trade war with China.

As long-term investors, ACF accepts short-term market volatility. However, we closely monitor financial markets and evaluate the drivers of performance (relative and absolute) over both short- and long-term periods. ACF does not believe it is prudent to make strategic decisions based on short-term results, but we do feel it is important to communicate to donors the primary sources of short-term performance. 

For ACF’s fiscal year ended March 31, the Long Term Pool posted a favorable absolute return of +8.4%, but lagged its strategic policy benchmark return as two major financial market themes influenced performance:

  1. Equity markets produced exceptional returns, outperforming nearly every other asset class.
    ACF believes that having allocations to diversifying strategies and private equity will allow us to reach our long-term return goals in a more efficient manner (less volatility) than a portfolio consisting of only traditional equity and fixed income. However, in particularly strong equity market environments like that which we have seen over the past year, we were not surprised to see the performance of our allocations to diversifying strategies and private equity lag their public equity-centric benchmarks.

  2. Growth stocks outperformed value stocks by a wide margin. 
    Value stocks have stock prices that are low relative to the book value of the company’s assets while growth stocks are those that have high forecasted earnings growth rates. Academic research has shown that over long historical periods, value stocks have outperformed growth stocks while exhibiting less volatility (See Table 1 and Chart 1 below). ACF subscribes to the belief that value stocks will provide better long-term risk-adjusted returns. As a result, the Investment Committee has implemented a long-term bias toward value stocks within the Long Term Pool’s equity allocation.
Table 1: 


Annualized Return1

Standard Deviation1

Sharpe Ratio

(Risk-Adjusted Performance) 1

Russell 3000 Value Index




Russell 3000 Growth Index





) Based on data since inception of the Russell 3000 Value and Growth Indices


Chart 1: 

As growth stocks outperformed value stocks over the past year, ACF’s value tilt influenced the Long Term Pool’s relative performance. From year to year, meaningful return deviations between value and growth may occur. ACF accepts the impact our value bias may have on short-term relative performance, whether positive or negative, with the expectation that the bias will add value over the long term.

The primary goal of ACF’s Investment Pools is to achieve long-term (10+ years) absolute returns in excess of inflation, investment expenses, and spending. Additionally, ACF expects to achieve Pool returns equal to or greater than the returns of each Pool’s respective policy benchmark over rolling 5- and 10-year periods. ACF’s Investment Policy Statement (IPS) speaks to these objectives, along with our Investment Beliefs, governance and other relevant investment program information.

 In 2017, ACF implemented changes to the Long Term Pool’s strategic asset allocation policy that resulted in: 

  • A shift to predominantly low-cost index funds within public equities, which meaningfully lowered pool investment expenses.
  • A transition away from ACF’s previous asset allocation policy, which included long/short equity hedge funds, to several diversifying strategies, which have low correlations to traditional equities and fixed income. ACF believes diversifying strategies will provide favorable long-term diversification benefits, decreasing year-to-year return volatility without sacrificing the Pool’s long-term returns. 
  • At its May 22 meeting, the Investment Committee will begin its annual review of capital market assumptions, asset allocation, asset class benchmarking and other strategic matters related to the management of ACF’s Investment Program. As always, we encourage our donors to attend the Investment Committee meetings to learn more about how ACF makes investment decisions and stewards the assets entrusted to us.
    Should you have any questions, please don’t hesitate to reach out to your relationship manager or give us a call at 602.381.1400.

Comments are closed.
Back to Top