Portfolio Performance: June 2012

August 7, 2012 by admin | Comments Off on Portfolio Performance: June 2012

The Saint Paul Teachers’ (SPTRFA) Portfolio battled to a performance draw during a quite volatile fiscal year that ended June 30. It was a twelve month period of mixed struggles and high points. The year ended about where it began with the Fund returning 0.3% for the twelve months. That was short of the Plan’s investment target return of 8% per year. However, its longer term return, which remains the important focus for the Board, remained above an annualized 9%.

In early August, the Board completed two days of its annual Summer Workshop during which it continued its examination of steps it might want to consider to further insure the Fund’s financial sustainability with a major emphasis on potential adjustments to the investment portfolio. Such changes would be designed to best address future challenges that the markets may present, including the strong likelihood of rising interest rates and continued volatility. Volatility and risk are necessary components of portfolio management, for without them, important growth and return potential becomes very limited. Therefore, managing that risk becomes a key element for the SPTRFA Board’s focus in its investment planning and decisions.

The past twelve months were a text book case of “ups and downs”. The fiscal year opened with one of the worst quarterly stretches in market memory, as domestic and non-US markets were roiled by growing concerns of a worsening global slowdown. Investors dumped equities in favor of the safer haven of bonds, as a result. The next two quarters witnessed a solid rebound among stocks globally while bonds, which were less sanguine, were also positive, as investors shifted between these so-called “risk on” and “ risk off” moods. But by springtime, the old market adage of “sell in May and go away” again proved true as the largely European fiscal nightmares took center stage amid worries that a global double dip recession was at hand. As a result, stocks tumbled in the fourth quarter virtually wiping out any of the gains of the preceding nine months and ended the year with a very slight 0.3% gain.

The year’s best performing asset class was the Plan’s real estate assets that gained about 11%, while bonds contributed 8%. Those two asset classes represent about 30% of the portfolio. Domestic equities, the largest class, struggled in the final quarter, especially the Plan’s smaller and mid-sized capitalized portfolios, as investors sought perceived safer ground among larger cap stocks and bonds. As a result, the portfolio gave back most of its equity gains earned during the first nine months. For the fiscal year, domestic stocks reported a 1.0% gain to slightly under-perform the benchmark. However, it was the non-US equities, buffeted by the double whammy of slowing global demand and mounting credit concerns, that proved the most harmful, returning a negative 12% over the twelve months, with emerging markets being especially hard hit.

The Plan was coming off two very strong performance years, in 2010 and 2011, the latter of which was a 25% gain, one of the Plan’s best years ever. The Fund’s three year annualized return remains a very solid 12.5%. During the year, the Board’s target return, based on its recently completed actuarial “Experience Study” and legislative action, was reduced from 8.5% to 8%. Even with the near term expected challenges to equity and fixed income markets, the Board remains convinced that its long term annualized 8% target rate of return will be achievable.

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

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