Note: The following is Chad Horning's President's letter from the Praxis Mutual Funds® 2022 Annual Report.
Investing is an inherently risky enterprise, but sometimes it can seem easy when optimism is in the air. Not so in 2022 as both stock and bond markets declined in tandem, shaking long held expectations that diversified portfolios would protect investors from frightening losses.
We know that stocks can and often do follow a jagged path through history. We’re less accustomed to high quality bond investments delivering double digit losses as they did during the year. It wasn’t credit risk that failed investors - there was very little deterioration in financial quality among the companies borrowing in public markets - but rather interest rate risk that caused bond values to fall, a relationship that worked to bond investors’ disadvantage when they could least afford it.
These broad trends were reflected in the performance of the Praxis Mutual Funds as our team describes in the 2022 annual report. The index funds tracked corresponding equity markets lower and the Impact Bond Fund declined in step with the intermediate term investment grade bond market, outperforming its benchmark marginally. Our investment managers did a great job delivering on their objectives in a difficult environment.
On the positive side, interest rates resetting at higher levels allow bonds to potentially play the stabilizing role investors have come to expect. Higher starting yields provide a cushion to bond values should interest rates move higher. Time will tell whether markets return to more typical patterns in the coming year.
Of course, we know shareholders invest in Praxis Mutual Funds not just for investment returns, but also for the positive impacts their investments make on the world. Despite the turmoil in markets, the Praxis team continued to extend investor's values into the world through a range of impact strategies including advocacy, impact bonds, and active proxy voting with the companies we invest in.
In each of these activities, we invite companies to internalize the costs and impacts of their activities. Not to shame them into better behavior, but to position them for success. We believe that companies that fail to plan for climate change, ignore the corrosive effects of inequality and practice poor governance risk their future and the returns they generate for investors.
Christians are encouraged to be “salt and light” to the world, to bind up wounds and side with the poor. It may seem like a stretch to some that these eternal lessons can be applied in the marketplace, but we believe they can and should. Thank you for joining Praxis on this important journey.