Portfolio Performance: May 2012

June 22, 2012 by Staff | Comments Off on Portfolio Performance: May 2012

As I had hinted in my previous report 6/4/2012, that May could be problematic, the portfolio struggled last month, losing ground in its effort to remain in the black for this fiscal year.  Victimized by a weak domestic equity market and continued turmoil overseas, the portfolio lost 5.8% in May and dipped into negative territory for the fiscal year to date by nearly 3%.  It will take a very solid June to get back to even for the year in which case it would still fall short of its target 8% range.

However, monthly returns are only important to the degree they impact the Fund’s longer term outlook and performance, which is generally minimal.  Pension plans by nature have a long term, 25-50 years, focus and operating time frame to meet its present and future obligations.  For the past 25 years, the Fund’s performance stands at 9%.

May has proven to be a troublesome patch the past several years, lending support to the old market adage of “sell in May and go away”.   Large and small equity portfolios struggled with the S&P off 6% and the smaller market, Russell 2000 Index down near 7%.   The Fund’s domestic team of managers collectively slightly underperformed their benchmark.  Non-US and global markets were weaker, down about 12% as conditions in those areas suffered from soft economic forecasts coupled with political uncertainties.  There seems little likelihood this will improve to any meaningful extent for the near term.

The best relative performer among our active equity managers for the past twelve months remains Minneapolis based, Fifth Third Asset Management, which oversees an all –cap ( i.e. broadly based), domestic portfolio.   The best performing asset class, over this same stretch, is real estate which currently represents about 10% of the portfolio.  The Fund’s private equity holdings, which are less than 2% of the current portfolio, enjoyed solid returns primarily due to the success of several holdings within its venture capital component.

Meantime, fixed income markets, which generally perform counter to equities and serve as a more stabilizing effect especially in troubled times, edged higher by 1% in May and ahead by 8% for the fiscal year to date.  However, bond prices are experiencing downward pressure from the expectation that higher interest rates are inevitable.  To date, bonds are catching some favorable winds from the Fed’s monetary policy aimed at easing credit markets.  This tug of war,  so far led by continued strong demand for US credit instruments, particularly government debt, has resulted in bonds continuing to enjoy  their nearly three decade long bull market.  But… most observers see this favorable environment giving way to inflation winds that build pressure to raise rates which would eventually adversely impact bond values.

The remainder of the portfolio is invested in real estate and private equity holdings that are generally less liquid and priced on a quarterly basis.  But a more liquid piece, within equity related real estate, was lower by 4% in May.

Looking forward, June has been evidencing some rebound, although it is still a long way to go until month end, which also marks the close of the Fund’s fiscal year.  Last year, you will recall that the Fund enjoyed a 25% positive return.  Through May, our three year return for the portfolio is 11%.  Even with the disappointment of the past twelve months, the average annual return for this period, 2010-12, will reflect a nice rebound following the extremely difficult markets of 2008-09 and illustrates the value in remaining focused on the longer term and avoiding these short-term uncertainties.

This article was written by the SPTRFA Executive Director, Paul Doane.

Portfolio Performance: April 2012

June 4, 2012 by Staff | Comments Off on Portfolio Performance: April 2012

Entering the Spring Quarter, which in the recent past has proven to be a troublesome stretch for equities in particular, the SPTRFA portfolio remained in positive territory by 3% for the fiscal year to date. However, with two months left in this fiscal year, the SPTRFA Fund is unlikely to reach its annualized performance target of 8%, subsiding on the heels of its stellar 25% gain during the same stretch in the prior year. Starting July 1, as a result of the recently enacted legislation, the annual return target drops from 8.5% to 8%.

During April, the domestic equity portfolio, which accounts for 43% of the portfolio, recorded an overall negative 1% return.  Growth stocks did relatively better than value shares, and larger capitalization holdings edged out small and mid-sized firms, but nothing was too all-star in equity markets. Looking at the past ten month stretch of this fiscal year, the top performing active domestic equity manager is our all cap core portfolio managed by Fifth Third Advisors of Minneapolis. However, the disappointing feature is that all of our active domestic managers trail the index (passive) portfolios. The large cap growth index fund is ahead just over 10% for the period while domestic equities, as a whole, have added 5% to the portfolio, as the small and mid-cap holdings have recorded negative performance. Non-US stocks performed similar to their domestic counterparts for April, down about 1%. Like our smaller cap US holdings, international stocks have recorded a disappointing 5% loss for the fiscal year.

Fixed income was slightly positive, along with real estate for April. Bonds enjoyed a stretch this month over the past quarter as the inflationary pressures in the first quarter abated somewhat while the migration into government bonds as a safe haven from European woes escalated.  These factors helped the price of bonds with yields driving still lower, which in turn helped prices and drove the ten-year Treasury to its lowest yield in 50 years.  However, this continuing buoyancy in fixed income is not expected to continue as the mountains of US government debt are expected to drive up inflation which translates into lower bond prices.  The Real Estate Investment Trust (REIT) portfolio added 3% to continue its strong showing.  REIT is ahead over 30% annually for the past three years and it is managed by Saint Paul based Advantus.

The 2023 1099-R tax statements were mailed on January 12, 2024

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