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​The ups and downs of principled investing

Making annual statements available online was a popular request in our most recent member survey. In that same survey, members told us that their annual statement is one of their top sources for information about their CSS holdings. We were very pleased to roll this functionality out in the myCSSPEN area of our website recently (see page 9 for more information on this initiative).

We know that many members read their annual statements because our call volumes spike significantly in late February and throughout March every year. The statement is a reminder for our retirees receiving Variable Benefit payments from the Plan to review and possibly rebalance their holdings. 

For those not yet retired, the statement is a reminder to check in on their portfolio and evaluate progress against their individual retirement plan. It is also an opportunity to check in on the Plan’s performance over the past year.

In reviewing their annual statement, members will have noted that 2020 was a disappointing year in terms of the Plan’s equities investment performance when compared to its benchmarks. We’ve written on the ups and downs of the markets in 2020 on several occasions over the past year or so (for example, “A word or two about recent performance,” “A look at recent market performance…,” “Navigating the market downturn,” and “Riding the market roller coaster”). We do receive frequent calls from members asking why the performance of the Plan’s investments in 2020 (and for the past several years, in fact) are different from equity market indices such as the S&P 500, for example.

Our approach to portfolio construction is intended to provide better long-term outcomes for members. That does not mean that the portfolio won’t incur periods of time with below benchmark (or even negative) returns.

The table will provide an overview of CSS’ investment principles, in no particular order.

Members will note from the above that CSS purposefully constructs our portfolios to be different than the market indices that members may be familiar with. Our approach to portfolio construction is intended to provide better long-term outcomes for members. That does not mean that the portfolio won’t incur periods of time with below benchmark (or even negative) returns. We expect there to be periods of time, sometimes multi-year, where our investment approach will provide below benchmark results in the short- or even medium-term. Our overriding investment philosophy has a very long time horizon and is designed to help members achieve financial security in their retirement, not to beat short- and medium-term market benchmarks.

While we don’t have a crystal ball or any certainty over what the future may hold for investment returns in our portfolio, we have seen a significant uptick in the performance of our equities portfolio in the fourth quarter of 2020 and the first quarter of 2021 compared to the Plan’s benchmarks. In other words, the principles described above that guide the Plan’s portfolio construction have been rewarded over the past six months.

Six months, of course, is too short a period to say with any certainty that things have changed. Nonetheless, we may very well be seeing the beginning of a period where our investment approach is once again rewarded, as it has for decades in the past.

Article from the spring/summer 2021 issue of TimeWise.