Investment Update – 4th Quarter 2012

Investment Update

Heightened fears over the U.S. fiscal cliff outweighed numerous positive indicators in the fourth quarter of 2012 as the S&P 500 index fell 0.4%. The decline occurred despite the resolution of U.S. elections and the Federal Reserve’s commitment to keep its target interest rate near zero and buy U.S.bonds as long as unemployment remains above 6.5% and inflation remains below the Fed’s target.U.S.small cap stocks outperformed the broader market, returning 1.9% in the fourth quarter of 2012.Stronger economic data, including higher than expected November non-farm payrolls, helped boost appetite for smaller stocks. The DJIA and NASDAQ returned -1.7% and -3.1%, respectively.

Corporate bonds returned 9.8% in 2012, while CMBS returned 9.6%. The Barclays Capital Aggregate returned 0.2% for the fourth quarter in 2012 and 4.2% for the year.

Continued accommodative monetary policy in Europe and Asia helped boost sentiment across markets. Overall, the MSCI EAFE index increased 6.6% for the fourth quarter. The decline in risk aversion continued in the fourth quarter, helping to elevate the MSCI EM index a further 5.6% to 18.6% for 2012.

ACERA is a long-term investor with a well-diversified, conservative portfolio. For the quarter ending December 31, 2012, ACERA’s Total Fund returned 2.5%, ranking in the upper 9th percentile among public funds greater than $100 million and finished the fourth quarter at a market value of $5.7 billion. Domestic Equities returned 0.3%, International Equities returned 6.1%, and Fixed Income returned 2.2% during the fourth quarter. ACERA’s Real Estate managers composite and Private Equity and Alternatives Return Leading Strategies* (PEARLS) composite returned 2.5% and 2.4%, respectively, during the fourth quarter. The Real Return Pool composite returned -1.3% during the fourth quarter.

Year Ending December 31, 2012

For the year ending December 31, 2012, ACERA’s total fund earned $601.9 million after income and expenses, and had a 15.0% rate of return, ranking the fund in the 1st percentile (i.e., at the top) among public funds with greater than $100 million in assets, a universe of 766 funds. ACERA’s annualized returns for 10, 15, 20, and 25 years are all in the upper decile (at or higher than the 10th percentile), exceeding ACERA’s over-all investment policy target ranking of the top quartile (at or above the 25th percentile). Additionally, ACERA’s 8.3% 10-year annualized return exceeds its 7.8% annual assumed (actuarial) earnings rate in a 10-year span that included the Great Recession and the global financial crisis.

 ACERA Rates of Return & Rankings
  ACERA Fund Rate of Return Ranking among all U.S. public funds larger than $100 million
2012 15.0% 1st percentile
Annualized 5 years 3.0% 71st percentile
Annualized 10 years 8.3% 10th percentile
Annualized 15 years 6.9% 7th percentile
Annualized 20 years 8.6% 8th percentile
Annualized 25 years 9.3% 9th percentile

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