Investment Report – January 2014

After a banner 2013, during which the SPTRFA portfolio returned just shy of 20%, markets stumbled in January and the Fund lost 2.7%. It was the worst opening month, especially for equities, in over five years. The one, three and five year returns, however, still remain comfortably ahead of the Plan’s 8% investment target rate of return, producing 12.6%, 8.9% and 14.2% respectively.
For the month, equities lost 3.3% as a group with non-US markets struggling along with the domestic scene. Emerging markets were the hardest hit, continuing a generally sluggish comparative performance in the prior year. However, this year it was currency concerns among Latin American giants Brazil and Argentina, along with political and economic worries in Eastern Europe and Turkey together with talk of China’s growth rate easing which in combination all proved too challenging. The so-called “non-developed” world saw equity markets decline nearly 7% for the month. Back home, some of the Plan’s strongest components in the past year, the small company equities, lost ground recording negative absolute and relative returns compared to their respective benchmarks.
Among the fixed income holdings, high-yield manager Waddell and Reed edged up about 1% while the less constrained core-plus bond manager, Guggenheim Partners, the portfolio’s largest separate account manager in this asset class, added 1.4%. Global bond managers lost ground in January down 0.5%.
The best performing group was the “inflation sensitive” holdings, which are intended to serve somewhat as a counterweight to equities, given their lower correlations to stocks. Real estate positions enjoyed gains as did the Treasury Inflation Protected Securities (TIPS) which rose 2% while energy related investments recorded a 2.2% gain, strongly besting its benchmark which rose 60 basis points, or 0.6%.
Total assets in the portfolio pulled back from its brief excursion over the $1 billion mark and closed out the initial month of the year at $980 million. The return for the Fiscal Year (July-June) eased somewhat to 8.9% but is still on a solid track to outperform the annual target.
Looking at the Plan’s asset mix, equities at 66% remain over-weighted to the policy benchmark’s 55% level. The planned commitment to hedge funds (5%) will be drawn from the equity portfolios thereby reducing some of the portfolio’s equity tilt. The move into hedge funds is designed to lower the portfolio volatility (i.e “risk”) reading and provide somewhat better protection in market downturns without unduly sacrificing potential return. The portfolio’s annualized longer term return is 9.4%.

Please note that our office has recently relocated and our new address is: 2550 University Ave W STE 312 N Saint Paul, MN 55114.

X