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Annual Letter: 2020 Year in Review

The phrase “Happy New Year!” seems to take on extra meaning this year. Reflecting on 2020, it is difficult to know where to begin or what lens to view it through. Among other things, we experienced the most economic destruction in 90 years, nationwide protests for racial justice, and watched nearly 400,000 Americans die from Covid-19. Given the gravity of what continues to unfold, writing about investing and financial planning seems trivial. Yet we focus on these areas so that our clients do not have to; our goal is to relieve our clients of financial stress and worry so that they can focus on the more important aspects of life.

We could not be prouder of how our team and clients navigated 2020. There are too many lessons to count. Below are a handful of the ones that stood out most to us.

Investment Lessons from 2020

  • Nobody can predict the future. This has always been true, but perhaps it was more true in 2020. We read annual forecasts every single year that call for equity appreciation of 8-10% and a moderate increase in interest rates. Stocks DO usually appreciate each year (on average by 8-10%, but almost never 8-10% in a given year), although interest rates have been falling for 40 years (so many rates forecasts are directionally wrong!). While many of us understand that the future is a cone of possibilities, we also tend to discount very rare events. We were reminded last year that rare events can and do occur and that policy decisions can lead to very different outcomes.
  • Diversification and Asset Allocation are important. Many stocks lost substantially all of their value and bankruptcies are on the rise, but most diversified indices were never down more than 30-40% at their lowest in March. Of course, most client portfolios declined less than that, as our clients own fixed-income, real estate, and other asset classes that fared better than public equities. The reason that we diversify and focus on asset allocation is in preparation for times like 2008, 2020, or other scenarios in which investors are tempted to sell at the worst time. Just as people can drown in a river that is four feet deep on average, investors need to be prepared for the worst moments because those are the ones that make a difference. We do not diversify and focus on asset allocation for years like 2019; we focus on these things for years like 2020.
  • A systematic plan is important. There were a lot of unknowns about the virus and the economy as financial asset prices tumbled week after week in February and March. Given that we had accepted the unknowability of the future and we had developed appropriate asset allocations with understanding clients, we were free to focus on executing on our plans. As our clients understand, the plan when equities decline is to tax-loss harvest (TLH) and rebalance. There was A LOT going on in February and March and we could not be prouder of our team and clients for sticking to the plans that we spend so much time developing.
  • …but also remain flexible and opportunistic. We spend a lot of time developing and executing plans with our clients, but a lot of those changed in March. We cancelled many fund commitments in March and the following months because it was unclear how the pandemic would impact certain funds. At the same time, we made a large number of commitments in March and the following months to funds that were positioned to capitalize on the opportunities. Planning is important, but so is the ability to adjust based on new information and market dynamics.
  • The government is a market participant. The federal response in March/April was the first time that I saw consensus among progressives, libertarians, and everyone in between. The reason for the consensus was that it is not realistic to expect that the federal government will stand by and watch while an economic emergency unfolds. After almost five weeks of nearly uninterrupted stock market declines, the Federal Reserve made a Monday morning announcement that it would throw the kitchen sink at the problem resume quantitative easing (QE4) and establish a slew of credit facilities. Later in the week, the White House and Congress agreed on the CARES Act. Many indices rallied 50-100% over the next nine months. Understanding the transmission mechanisms of fiscal and monetary policy and appreciating the psychological impact is important, but so is the ability adjust positioning in the face of policy changes. If history is any lesson, the current round of monetary support will not continue until it is no longer needed but until there is no reasonable risk of a relapse.

Direct Indexing and Alternative Investment Opportunities

Several of our 2019 initiatives continued to gain steam. Client allocations to direct indexing (which became cost-efficient for many in 2019) and opportunity zones (which were effectively created in 2018) increased significantly. There is nothing new to report about these platforms, but we do expect allocations to increase in 2021 as investors continue to seek tax-efficient investment strategies.

Our alternative investment platform continued to expand with additional allocations to our existing suite of managers in private debt, private real estate, as well as hedge funds. Additionally, we were able to make smaller allocations to new, niche strategies and we are already seeing the same theme continue in 2021.

Not everything turned out as we expected though. Early on in the pandemic, we had thought that we would be able to capitalize on many distressed opportunities but the economy and markets rebounded before most investors could take advantage of the momentary dislocations. For instance, we invested significant time sourcing and conducting due diligence on funds seeking to participate in the Federal Reserve’s emergency Term Asset-Backed Securities Loan Facility (TALF). However, much of the distress in the marketplace healed before TALF-oriented strategies were able to deploy capital. The TALF program was barely used in 2020 and eventually wound down in December. Of course, there were also a lot of opportunities that we evaluated in 2020, but decided against recommending or allocating to for one reason or another.

Overall, we were very pleased with our alternative investment platform in 2020 and we believe that it will continue to be a cornerstone of client portfolios given the economic uncertainty and low interest rate environment.

Firm Update

As 2020 demonstrated, quality advice is incredibly valuable and MFA experienced considerable growth again in 2020. As we wrote last year, our priority is to serve our clients well and we do not want to grow beyond our capacity to provide a high level of service. With that goal in mind, we have taken two immediate steps:

  1. In order to support our advisory team, we have hired two Associate Advisors who we will be introducing shortly.
  2. We are increasing our investment minimum for $500,000 to $1,000,000. Our growth is primarily fueled by client referrals and we appreciate the overwhelming number of referrals that we receive each year. At the same time, we need to ensure that we grow at a sustainable pace and maintain capacity to provide high quality service to our clients.


We are certainly thankful to have made it through 2020. Our team went above and beyond to make the transition to remote work seamless and we are thankful for all the technology that allows us to connect even though we’re all siloed in our home offices. Most of all, we are thankful to our clients who continue to trust us with their financial affairs and allow us to serve them. We take our responsibility very seriously and that was more than ever in 2020. Thank you to the entire MFA family, we are looking forward to the next year.

Happy New Year,

Matt & the MFA Team