Investment Objectives and Guidelines (2013)

Approved by AHA Investment Subcommittee, December 5, 2013

The purpose of this Statement is to clearly convey:

  • the objectives the AHA seeks to achieve
  • the guidelines to be observed in pursuit of the objectives
  • a framework for evaluation of results
  • the standards for communication  

General Considerations

It is the intention of the AHA to allow the investment manager full discretion within the scope of these mutually agreed upon investment guidelines. The investment manager shall be responsible for periodically reviewing these guidelines with the Investment Subcommittee to ensure that they remain appropriate and relevant.

Investment Objective

The primary objective is to provide a high total return over the long term, consistent with the preservation of principle and subject to the risk and liquidity requirements defined below. To achieve this objective, the portfolio should:

  • Earn over a long term a return equal to or in excess of the increase in the Consumer Price Index plus 3% on an annualized basis
  • Utilize a Composite Index comprised of appropriate market indices weighted to reflect the target asset allocation
  • Be competitive with appropriate peer group performance composites

Volatility

Volatility shall be evaluated in terms of the total portfolio, not each individual investment. The portfolio should be well diversified to avoid undue exposure to any single economic sector, industry group, or individual security.

Liquidity

Withdrawals may come from principal and income assets. Otherwise, liquidity should reflect the investment strategy that is most appropriate for achieving the objectives.

Asset Allocation

The following asset classes are acceptable for inclusion in the portfolio. Exposure to each asset class, measured by market value, is to be within the minimum and maximum limits defined below. The target allocation is that which will comprise the Composite Index used for the purpose of performance measurement. The investment manager shall propose mutual funds deemed appropriate to the matrix below, and shall advise on maximum and minimum for each asset class.    

Maximum % Minimum % Target %
Money Market 10% 0% 5%
Fixed Income Bonds 50% 30% 35%
Equities 70% 50% 60%

Investments in real estate securities shall be considered 50% equity and 50% fixed income for purposes of asset allocation. Further, it is understood that market movements could cause the portfolio's asset mix to fall outside of these ranges. However, any divergence should be of a short-term nature. Persisting divergence should be corrected by periodic rebalancing of the portfolio. Guidelines should be reviewed with the investment committee at least annually.

Restrictions and Limitations

  1. Commingled Investments: Investments in commingled accounts are permitted provided that the investment guidelines and restrictions of the commingled account are in substantial conformance with the AHA guidelines.
  2. Restricted Transactions: All investments must have a readily ascertainable market value, and must be readily marketable. The investment manager will not engage in transactions involving: Commodities; Restricted Stock; Foreign Equities not traded on the New York Stock Exchange, either directly or as ADR's (except purchased through a mutual fund); Private Placements (except marketable 144(a) securities and the investment manager's commingled investment vehicles); Warrants; Securities Purchased on Margin, Short Selling; Venture Capital
  3. Equities: Common and convertible preferred stocks should be listed on a major stock exchange or traded in the over-the-counter market with the requirement that such stocks have adequate market liquidity relative to the size of the investment.  
  4. Fixed Income: Purchases of individual fixed income securities shall include obligations issued or guaranteed by the United States or Canadian governments or any agencies or instrumentalities thereof or to debt issues rated in one of the top four quality grades as established by one or more of the nationally recognized bond rating services. Yankee bonds may be used. Non-investment grade bonds shall not be purchased for the portfolio, but are acceptable if assumed because of downgrades to investment grade bonds currently held in the portfolio.
  5. Maturity: The average maturity and duration of the fixed income portfolio will be consistent with the index benchmark within 20%. In determining average maturity and duration, mortgage pass-through, asset-backed, putable and other similar variable maturity securities will be measured based upon their estimated effective maturity and duration.
  6. Concentration by Issuer: Investment in any one fixed income investment shall be limited to 5% of total portfolio of the total assets of a given manager's assets. Securities issued or guaranteed by the US Government, its agencies or instrumentalities are not subject to this limitation. Mutual funds are also not subject to this limitation, but care should be taken to ensure that individual mutual funds are comprised of well diversified portfolios.

Performance Evaluation

Investment results will be reported quarterly. This review will examine the portfolio's total return, as well as that of the separate asset classes that comprise the portfolio. Performance is to be compared to all relevant benchmarks. Moving 3 and 5-year periods will be used to determine whether the portfolio's objectives are being met. However, to aid in the evaluation of portfolio trends, standard periods for evaluation are to include quarter, year-to-date, 1-year, 3-year and 5-year periods.

The equity portion of the portfolio will be measured against the S&P 500 Index. This index is appropriate for comparison, given the manner and style to be used in managing these funds. Separate mutual funds will be used against this index, or other indices as appropriate.

The fixed income portion of the portfolio will be measured against the Lehman Aggregate Bond Index. This index is appropriate for comparison, given the manner and style to be used in managing these funds.

Ethical and Social Responsibility

The investment manager shall where appropriate seek to consider Social Responsible Investing (SRI) objectives consistent with the AHA "Statement of Investment Objectives and Guidelines." In consultation with the Investment Subcommittee, and where feasible the investment manager shall recommend investment funds that are consistent with the performance guidelines and with policy statements on SRI by the AHA Investment Subcommittee.  

Communication

The investment manager will report performance of the portfolio quarterly. This report will include all performance as noted above. The investment manager will communicate changes to investment strategy, asset allocation and other matters affecting the investment policy or philosophy of the portfolio on a timely basis. If the investment manager believes that a particular guideline should be altered or deleted, any recommended change is to be conveyed to the Client in a timely manner. Meetings with the investment manager are to be held annually.

Draw Down on Endowment

At present, the AHA draws down 4% from endowment each year using a three year moving average.