Stewardship, Simplified, FOR THE LONG RUN

It’s no surprise that Crawford Investment Counsel’s oldest and largest client happens to be a foundation. Crawford’s investment philosophy was the cornerstone of the firm’s inception, but the truth is, the firm was founded on the trust of this single non-profit client. To provide some background, one morning while the firm’s founder, John Crawford, was still working for his previous employer, he went to meet with this client’s account manager. The account manager had been paying attention to the organization’s portfolio and asked, “Where’s the yield?” After discussing this and pondering it internally, John asked him if he would rather focus on growth or yield within the portfolio, essentially asking him to choose one or the other. The client answered, “Why not both?”

The answer to “Why not both?” marked the genesis of Crawford’s investment philosophy. John started hunting for companies that were down in price, paid consistent dividends, and increased their dividends over time. Of course, this became the basis of Crawford’s investment philosophy. Rooted in quality and utilizing dividend history as an indicator of business strength, the firm’s philosophy has been consistently applied to pursue both growth and yield objectives for over 40 years. In tandem with its philosophy, Crawford considers three primary objectives in managing accounts for endowment & foundation clients: preservation of capital, income generation, and growth of principal. Below, we will discuss these objectives and how we believe they have been fulfilled for this client over a 40+-year time horizon.

Objective #1: Preservation of Capital. Preservation of capital is exceedingly important when an endowment or foundation is taking withdrawals to meet organizational spending needs. We have found that investing in high-quality companies contributes to a more consistent pattern of returns with lower volatility, while sustaining participation in up markets and providing protection in down markets. Narrowing the range of potential investment results has many benefits, including a higher likelihood of meeting organizational needs and a lower risk of abandonment of the investment program, both of which can lead to a permanent loss of capital.

Many endowments & foundations utilize high levels of diversification and a multi-manager framework. We believe greatly in the benefits of diversification but have found that its greatest benefits are accrued primarily through a mix of high-quality U.S. stocks and bonds, which we obtain through utilizing our proprietary strategies. For this client, asset allocation has been contingent on the current market environment and has primarily consisted of high-quality U.S. stocks and bonds. Investing in high-quality companies has enabled equities to comprise the bulk of this client’s asset allocation over time. This has led to positive alpha generation and we believe has contributed to the prosperity of the organization.

Objective #2: Income Generation. We have increased this client’s allocation to equities over time as interest rates and bond yields have been in decline. The role of stocks in income production has greatly increased, which works exceedingly well in combination with our belief that the dividend is a window into quality and a critical piece of the total return equation. Income always serves as a positive component of return, and Crawford believes this is an element of the investment equation that is often underappreciated. When organizations need to meet spending needs, the security of the dividend and ability of a portfolio to generate income and growth of income reduces the need for an organization to sell its assets in a period of market distress.

Objective #3: Growth of Principal. Of course, meeting day-to-day operational needs is critical, but long-term growth should be the ultimate objective of any endowment & foundation client’s investment program. In thinking about growth of principal, we believe it is equally important to consider the other side of the coin, or the potential for portfolio decline. If an asset base declines, it has a smaller base to compound on when markets begin to appreciate again. We have found that to the extent that withdrawals are taking place, lower but more stable returns can actually result in higher terminal portfolio values.

This is an investment philosophy that was borne out of necessity and came out of a real-life situation. We would be remiss not to add that Crawford’s investment approach and success wouldn’t be possible without the high degree of client service the firm seeks to provide its clients with. John bookmarks the relationship with this client’s account manager as one of the most fulfilling of his career. And it’s not only the first client that’s stuck around. Crawford has an exceedingly high rate of client retention, over 97%, and its first four clients are still invested with the firm today. The firm’s 40-year experience serves as evidence of what the firm can accomplish over the long run.

Crawford Investment Counsel (“Crawford”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Crawford, including our investment strategies, fees and objectives, can be found in our Form CRS or Form ADV Part 2, which is available upon request.

Past performance is not indicative of future results. This material is distributed for informational purposes only. The opinions expressed are those of Crawford. Forward looking statements cannot be guaranteed. Crawford reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. All investments involve risk, including loss of principal and there is no guarantee that investment objectives will be met.

It is not known whether the clients listed above approve or disapprove of Crawford or the advisory services it has provided. Performance was not a determining factor for inclusion.


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