Investment Update – 1st Quarter 2014
The S&P 500’s bull-run marked its fifth anniversary in February this year. Over this time period, global equity markets have endured a near collapse of the Eurozone, serious and ongoing geopolitical issues, and sluggish GDP and corporate revenues. None of these concerns have been sufficient to derail the liquidity-fueled equity markets. However, the return of frostier relations between the West and Russia, talk of an emerging tech bubble, and uncertainty relating to the end of quantitative easing, has left investors feeling a sense of unease as markets progress into 2014. Despite this news, the S&P 500 index rose 1.8% in the first quarter. Small Cap stocks, as measured by the Russell 2000 index, rose 1.1%. Overall, the Russell 3000 index returned 2.0%. Longer term, one-year returns were 21.9%, 24.9% and 22.6%, respectively. The DJIA declined 0.2% for the first quarter but gained 15.7% for the year. The NASDAQ rose 0.8% for the first quarter and 30.1% for the year.
Geopolitical risk and global growth concerns helped boost demand for U.S Treasuries. Lower-rated corporate bonds outperformed during the first quarter with the Barclays Aggregate returning 1.8%. For the one-year period, the index declined 0.1%.
In the first quarter, the potential for quantitative easing from the European Central Bank and reforms by Italian Prime Minister Matteo Renzi helped boost Europe ex-UK. In Japan, equities fell with concerns over the effects of the consumption tax and the efficacy of Abenomics. Overall, the MSCI EAFE returned 0.8% in the first quarter. For the one-year period, the MSCI EAFE gained 18.1%.
Rising geopolitical tensions between Russia and Ukraine provided headwinds to emerging market equities. The EM Europe and Mid East Index were hit the hardest. South African equities gained the most due to improved metal exports. Overall, the MSCI EM index lost 0.4% and 1.1% for the one-quarter and one-year period, respectively.
ACERA is a long-term investor with a well-diversified, conservative portfolio. For the quarter ending March 31, 2014, ACERA’s Total Fund returned 1.8%, ranking in the 28th percentile and finished the first quarter at a market value of about $6.7 billion. Domestic Equities returned 1.3%, International Equities returned 0.9%, and Fixed Income returned 3.3% during the first quarter. ACERA’s Real Estate managers composite and Private Equity and Alternatives Return Leading Strategies (PEARLS) composite returned 3.7% and 3.8%, respectively, during the fourth quarter. The Real Return Pool composite returned 1.5% during the fourth quarter.
[*] Real Estate and PEARLS composite returns are subject to a quarter lag in reporting results.