June 2010 Investment Report

Markets

  • Fear that the U.S. may not be able to sustain continued economic recovery was a principal reason that the equity markets declined for the second month in a row. U.S. equity markets, represented by the Russell 3000, fell 5.8% in June. The Russell 3000 has declined 15.4% from its year-to-date high in late April, resulting in a 6.0% decline for the year.
  • Small-company U.S. stocks fell 7.8% and underperformed the broader U.S equity market. Stocks with strong earnings growth slightly outperformed stocks classified as “value” stocks.
  • International equity markets declined modestly compared with U.S. equity markets due to a weaker U.S. dollar and investor sentiment that the European credit crisis is stabilizing. The bellwether MSCI EAFE Index, which measures performance of developed-country stocks, retreated 1.0%. Stocks of developing countries, as measured by the MSCI Emerging Markets Index, declined 0.5%.
  • Interest rates declined significantly during the month. Concerns over the pace of the U.S. economic recovery and Europe’s fiscal problems led investors to the safety of U.S. Treasury securities. The yield on the 10-year Treasury note ended the month at 2.9%, decreasing from 3.3% at the beginning of the month.
  • U.S. credit markets advanced in June. High-quality “investment-grade” bonds, as measured by the Barclays U.S. Credit Index, advanced 2.0%, driven by lower interest rates. Credit spreads (interest rate premiums charged to corporate bond issuers) were largely unchanged during the month.

Economics Highlights

  • First-quarter growth was less robust than expected. The Department of Commerce’s final revision of the Gross Domestic Product (GDP) was lowered to 2.7% from its first revision of 3.0% and its initial estimate of 3.2%. The final revision reflected an upward adjustment to imports and a downward change to personal consumption expenditures.
  • Housing data disappointed during the month following the expiration of the homebuyer tax credit. Compared with the prior month, housing starts fell 10.0%, existing home sales fell 2.2% and new home sales fell 32.7%.
  • Employers cut 125,000 jobs in June. The decline was driven by a 225,000 reduction in temporary census workers. Markets also reacted negatively to the news that the private sector added only 83,000 jobs, a reduction from the nearly 200,000 average in March and April. However, the unemployment rate declined to 9.5%.
  • The Consumer Price Index (CPI), a measure of inflation, decreased 0.2% in May, driven by lower gasoline prices. Core CPI, which excludes food and energy prices, increased a modest 0.1%. The Federal Reserve Bank (Fed) reiterated its commitment to keep interest rates low for an extended period.

Geopolitical Headlines

  • Passage of a comprehensive financial regulatory reform bill moved closer to reality when members of the House and Senate conference committee announced they had negotiated a compromise version of the bill. The bill subsequently passed the House and currently awaits Senate action.
  • China announced that it would allow its currency, the yuan, to move away from its peg to the U.S. dollar. The move had been advocated by the U.S. in the hopes that a stronger yuan would encourage Chinese consumers to purchase more goods from abroad.
  • Oil continues to spill into the Gulf of Mexico, as efforts by British Petroleum (BP) to stem the flow from its deep-water drilling site continue. BP announced that it is establishing a $20 billion fund to compensate spill victims.

Investment Fund Review

Inflation Protection Fund

Fund June Q2 2010 Year-to-Date
Inflation Protection Fund +1.0% +1.7% +2.7%
Barclays Capital U.S. Government Inflation-Linked Bond Index +1.4 +3.9% +4.4%
Difference -0.4% -2.2% -1.7%
  • The Inflation Protection Fund returned 1.0% for the month of June but underperformed its benchmark by a margin of 0.4%. The fund’s investment in U.S. inflation-linked bonds generated the highest absolute return. All of the fund’s diversifying strategies underperformed the fund’s benchmark, though they all produced modest positive returns.
  • For the second quarter, the fund advanced 1.7% but underperformed its benchmark by a margin of 2.2%. The fund’s investment in U.S. inflation-linked bonds generated the highest absolute return and contributed positively to performance. The three remaining diversifying strategies—commodities, inflation-linked bonds from developing countries and global inflation-linked bonds—all detracted from performance.
  • For the year, the fund underperformed its benchmark primarily due to its allocation to commodities, which has declined 5.2%.

Domestic Bond Fund

Fund June Q2 2010 Year-to-Date
Domestic Bond Fund +1.3% +1.9% +4.7%
Barclays Capital U.S. Universal (ex MBS) Index +1.7% +3.3% +5.6%
Difference -0.4% -1.4% -0.9%
  • The Domestic Bond Fund returned 1.3% for the month of June but underperformed its benchmark by a margin of 0.4%. The active and passive core strategies generated the highest absolute returns and contributed positively to performance. The fund’s positive social purpose lending strategy detracted the most from performance during the month.
  • For the quarter, the fund advanced 1.9% but underperformed its benchmark by a margin of 1.4%. The positive social purpose lending strategy generated the highest absolute return and contributed the most to performance. The global bond and developing-market bond strategies, which hold securities denominated in foreign currencies, detracted the most from performance due largely to the strength of the dollar.
  • For the year, the fund returned 4.7%, underperforming its benchmark by a margin of 0.9%. The fund’s positive social purpose lending strategy has generated the highest absolute return. All fund strategies except the global bond strategy have generated positive returns for the year.

Domestic Stock Fund

Fund June Q2 2010 Year-to-Date
Domestic Stock Fund -5.3% -10.1% -5.2%
Russell 3000 -5.8% -11.3% -6.0%
Difference +0.5% +1.2% +0.8%
  • The Domestic Stock Fund declined 5.3% for the month of June and outperformed its benchmark by a margin of 0.5%. The fund’s allocation to alternative investments contributed significantly to outperformance compared with its benchmark. Investments in alternatives are an important diversifying influence in the portfolio, though performance tends to lag overall market performance. The positive performance was partly offset by the fund’s allocation to small and mid-sized companies, which reflected investor appetite for less risky securities in a weakening economy.
  • For the quarter, the fund declined 10.1% and outperformed its benchmark by a margin of 1.2%. The fund’s alternative investments contributed the most to the fund’s outperformance. Other positive contributors included publicly traded real estate securities and the fund’s allocation to small and mid-sized companies.
  • For the year, the fund has outperformed its benchmark due primarily to the fund’s allocation to small and mid-sized companies. The fund’s allocations to publicly traded real estate securities and private equity also benefited performance.

International Stock Fund

Fund June Q2 2010 Year-to-Date
International Stock Fund -0.6% -10.7% -8.0%
MSCI ACWI x US -1.2% -12.2% -10.4%
Difference +0.6% +1.5% +2.4%
  • The International Stock Fund returned -0.6% for the month of June. All of the fund’s active strategies contributed to the better-than-benchmark performance with the exception of the small-company developed-country international strategy. The fund’s allocation to developed-market growth companies contributed the most to the fund’s outperformance relative to the benchmark.
  • For the quarter, the fund declined 10.7%, but still outperformed its benchmark by 1.5%. The fund’s allocation to developing-market stocks and strong stock selection by two of the fund’s developed-market managers contributed to benchmark outperformance.
  • For the year, the fund has outperformed its benchmark by a margin of 2.4%. Major contributors to benchmark outperformance included the fund’s allocations to stocks from developing countries and the collective strong benchmark-relative performance by the fund’s investment managers.

Multiple Asset Fund

Fund June Q2 2010 Year-to-Date
Multiple Asset Fund -2.1% -6.1% -2.5%
Composite Benchmark -2.2% -6.4% -2.9%
Difference +0.1% +0.3% +0.4%
  • Similar to last month, the Multiple Asset Fund outperformed its composite benchmark slightly in June, due to the benchmark-relative outperformance of the International Stock Fund and Domestic Stock Fund. However, this outperformance was offset by the less-than-benchmark performance of the Domestic Bond Fund and Inflation Protection Fund.
  • For the quarter, the Multiple Asset Fund outperformed its composite benchmark slightly, due to the same reasons cited above.
  • For the year, the fund outperformed its benchmark due to the reasons cited above.

Balanced Social Values Plus Fund

Fund June Q2 2010 Year-to-Date
Balanced Social Values Plus Fund -3.0% -6.2% -2.5%
Composite Benchmark -3.2% -6.4% -3.2%
Difference +0.2% +0.2% +0.7%

 

 
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