Investment Update – 4th Quarter 2013

Investment Update

The stock market finished 2013 with its biggest annual gain in over a decade—up over 30%—and also marked its fifth consecutive annual gain. Whereas one year ago investors were concerned about the “fiscal cliff” and whether the economy could avoid a double-dip recession, inputs now support the view that economic growth will sustain itself and likely improve in 2014. The Federal Reserve has also made headlines with various announcements about the gradual withdrawal of quantitative easing. While this is likely to drive further volatility, the positive background is that the U.S. domestic economy has continued to show steady progress. Furthermore, it is notable that the talk of tapering has been better received by the market in the fourth quarter than the “taper tantrum” from earlier in the year.

The S&P 500 index rose to 10.5% in the fourth quarter, the Russell 2000 index rose 8.7%, and the Russell 3000 index returned 10.1%. Longer term, one year returns were 32.4%, 38.8%, and 33.6%, respectively.  The DJIA appreciated 10.2% for the fourth quarter and 29.7% for the year.  The NASDAQ rose 11.1% for the fourth quarter and 39.8% for the year.  With the announcement of federal tapering and improving economic fundamentals, the Barclays Aggregate declined 0.1% in the fourth quarter and 2.0% for the year.  Non-U.S. equities also performed well in the fourth quarter thanks to an improved European outlook. Emerging market equities rose on average, led by stronger Chinese growth.  Overall, the MSCI EAFE returned in the fourth quarter 5.8%, while the MSCI EM index returned 1.9%.  For the year, the MSCI EAFE appreciated 23.3%.

ACERA is a long-term investor with a well-diversified, conservative portfolio. For the quarter ending December 31, 2013, ACERA’s Total Fund returned 6.0%, ranking in the 19th percentile and finished the fourth quarter at a market value of about $6.6 billion.  Domestic Equities returned 10.0%, International Equities returned 5.7%, and Fixed Income returned 0.8% during the fourth quarter.  ACERA’s Real Estate managers composite and Private Equity and Alternatives Return Leading Strategies1 (PEARLS) composite returned 3.4% and 4.5%, respectively, during the fourth quarter. The Real Return Pool composite returned -0.7% during the fourth quarter. 

Year Ending December 31, 2013

For the year ending December 31, 2013, ACERA’s total fund earned $1.00 billion after income and expenses, and had a 20.2% rate of return, ranking the fund in the top 8th percentile among public funds with greater than $100 million in assets, a universe of 750+ funds.

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