Investment Update – 2nd Quarter 2015
Many forecasters, including those at the Federal Reserve and the International Monetary Fund have repeatedly overestimated the economy’s strength, both in the U.S. and around the globe. They’ve predicted faster economic growth than has occurred. Extended valuations, the decline in corporate earnings, and investor’s sentiment in the European markets have slowed the U.S. equity market during the second quarter. The S&P 500 index rose 0.3% in the second quarter. Small Cap Stocks, as measured by the Russell 2000 index, outperformed, rising 0.4%. Overall, the Russell 3000 index increased 0.1%. Longer term, the year returns were 7.4%, 6.5% and 7.3%, respectively. The DJIA decreased 0.3% for the quarter and increased 7.2% for the year. The NASDAQ rose 2.0% for the second quarter and 14.4% for the year.
Conflicting economic and political signals have confounded policymakers, businesses, and investors and contributed to the intermittent bouts of volatility in the U.S. bond market causing the Barclays Aggregate index to fall by 1.7% during the second quarter. For the one-year period, the index rose 1.9%
Despite massive quantitative easing, most of the global economy faces woefully inadequate growth prospects and difficult policy options. The persisting absence of the Greek bail-out agreement continued to weigh heavily on the investors throughout the second quarter. On the positive side, the lack of the EU-Greece deal made the rate increase by the Bank of England less likely boosting UK equities upward. The MSCI EAFE returned 0.8% in the second quarter and -3.8% for the year.
China’s drastic move in its equity and currency markets led to greater volatility but luckily was able to offset gains in Latin America and Emergent Europe to end the second quarter of 2015 nearly flat. Overall, the MSCI EM index rose 0.8% for the second quarter. For the one-year period, the index decreased 4.8%.
ACERA is a long-term investor with a well-diversified, conservative portfolio. For the quarter ending June 30, 2015, ACERA’s Total Fund returned 1.2%, ranking in the 3rd percentile and finished the second quarter at a market value of $6.9 billion. Domestic Equities returned 1.5% (4th percentile), International Equities returned 1.0% (54th percentile), and Fixed Income returned -1.6% (72nd percentile) during the second quarter. ACERA’s Real Estate managers composite and Private Equity and Alternatives Return Leading Strategies (PEARLS) composite returned 5.1% and 3.8%, respectively, during the second quarter. The Real Return Pool composite decreased 0.2%, during the second quarter.
 Real Estate and PEARLS composite returns are subject to a quarter lag in reporting results.