Investment Update – 2nd Quarter 2011
The overall markets were flat for the 2nd quarter. The Dow Jones Industrial Average returned 1.4%. The Standard & Poor’s 500 and NASDAQ stock indexes were mixed, up 0.1% and down -0.3%, respectively. The MSCI EAFA was up 1.6% and Emerging Markets (EM) decreased -1.1%. The markets began to react negatively to often‐contradictory economic indicators and the ensuing heightened volatility, experiencing a steady slide through most of the quarter. In addition to social unrest in Greece, the second quarter witnessed continued supply chain issues as a result of the earthquake in Japan.Oil continued to appreciate due to lingering concerns of unrest in Libya. Europe is dominated by concerns about sovereign debts, with Greece the focal point. In the domestic economy, new home sales remain at all‐time lows, but housing prices are stabilizing, indicating some positive sign of recovery. Unemployment news was discouraging. At its most recent meeting, the Federal Reserve kept the federal funds target rate range unchanged at 0% to 0.25% due to low inflation and elevated rates of unemployment. The Federal Reserve ended its quantitative easing (QE2) strategy on June 30 completing the purchase of $600 billion of Treasury securities but decided to continue its existing policy of reinvesting principle payments from security holdings. Fixed Income markets saw greater returns in the second quarter but could not compete with equity markets over the trailing 12 months. ACERA investment staff monitors capital markets very closely.
ACERA is a long-term investor with a well-diversified and conservative portfolio. For the quarter ending June 30, 2011, ACERA’s total Fund was up 1.0% with the portfolio’s international and domestic large caps outperforming small caps. Overall, Domestic Equities were down 0.2%, International Equities were up 1.1%; Fixed Income increased by 2.4%. ACERA’s Real Estate managers (composite) were up 4.0% and Private Equity and Alternatives Return Leading Strategies (PEARLS) composite slightly down 0.9%. The total Fund returned 25.5% and ranked in the upper 4 percentile among public funds greater than $100 million for the year ending 6/30/2011 and finished the 2nd quarter at $5,449,874,936.
During the period April-June 2011, The Board approved a new target asset allocation; and amended the Real Estate Strategic Plan and 2011 Investment Plan; made one new PEARLS investment, one Real Estate investment; and adopted a short list of managers for its Currency Alpha Manager search. As part of the ongoing portfolio monitoring and due diligence, the Investment Committee reviewed the real estate portfolio and risk analysis, two small-cap equity portfolio managers, as well as, its custodian bank. ACERA’s consultant, Strategic Investment Solutions, also provided education on the Real Return Pool, a new asset class. Please refer to the Investment Committee Meeting minutes found on this website.
i New Target Asset Allocation including Real Return Pool: 34% in U.S. Equity, 25% in International Equity, 20% in Fixed Income, 6% in Real Estate, 10% in PEARLS and 5% in Real Return Pool. –April 2011 ICM Minutes.