Investment Update – 1st Quarter 2013

Investment Update

U.S. equities surged during the quarter, with many of the broader U.S. indices up low double digits. Many of the improved macroeconomic conditions have been aided by the Federal Reserve’s continued accommodative interest rate policy, and with inflation below its 2% target and unemployment well above its 6.5% objective. The S&P 500 index rose 10.6% for the first quarter of 2013, while the DJIA and NASDAQ returned 11.9% and 8.2%, respectively.Smaller stocks performed the best with the Russell 2000 appreciating 12.4% due to continued strong economic data results from the prior quarter.

With financial repression in the developed world, investors have been seeking opportunities for greater yield. Treasury bonds fell 0.2% in the first quarter, while CMBS and asset backed securities both rose 0.1%. The Barclays Capital Aggregate returned -0.1% for the quarter and 3.8% for the year.

The Bank of Japan increased its inflation target to 2% and expectations that the new Bank of Japan governor, Haruhiko Kuroda, would move to ease further were surpassed. This Increased monetary policy helped boost sentiment across markets. The MSCI EAFE index increased 5.2%. Global concerns over the uncertainty in Europe potentially spreading abroad led to declines in emerging market equities. The MSCI EM index fell 1.6% in the first quarter.

ACERA is a long-term investor with a well-diversified, conservative portfolio. For the quarter ending March 31, 2013, ACERA’s Total Fund returned 6.1%, ranking in the upper 15th percentile among public funds and finished the first quarter at a market value of $6.0 billion. Domestic Equities returned 11.3%, International Equities returned 5.0%, and U.S. Fixed Income returned 1.2% during the first quarter. ACERA’s Real Estate managers composite and Private Equity and Alternatives Return Leading Strategies* (PEARLS) composite returned 4.2% and 3.9%, respectively, during the first quarter. The Real Return Pool composite returned -2.0% during the first quarter.

* Real Estate and PEARLS composite returns are subject to a quarter lag in reporting results.