December 2010 Investment Report


  • U.S. equities, represented by the Russell 3000 Index, advanced 6.8% for the month of December. Markets reacted positively to the extension of the Bush-era tax cuts and the continued monetary stimulus program (colloquially known as “QE2”) by Federal Reserve (Fed) Chairman Ben Bernanke. The Russell 3000 climbed to its highest level since 2008.
  • Small-company U.S. equities outperformed large-company U.S. equities. For both groups, equities classified as “value” performed better than companies with strong earnings growth.
  • International equities also advanced during December. The bellwether MSCI EAFE Index, which measures performance of developed-country equities in U.S. dollar terms, increased 8.1%. Equities of developing countries as measured by the MSCI Emerging Markets Index increased 7.0%. The U.S. dollar declined 2.7% versus a basket of developed market currencies as measured by the U.S. Dollar Index.
  • Interest rates on U.S. Treasury securities with all maturity dates continued to increase in December. The rates responded to improving economic data, the Fed’s commitment to support the economy with monetary stimulus, and the extension of the tax cuts. For December, the 10-year U.S. Treasury Note increased nearly a half of a percentage point to 3.30%.
  • The Barclays U.S. Credit Index declined 1.0% in December as investor perceptions of better economic conditions resulted in higher interest rates for investment-grade corporate debt. In contrast, the Barclays Capital U.S. Corporate High Yield Index advanced 1.8% for the month. Adverse changes in the general level of interest rates were more than offset by improvements in investor perceptions of credit conditions for lower-quality companies.

Economics Highlights

  • As a sign of improving economic conditions, the value of the S&P 500 Index finally recovered what it had lost subsequent to the collapse of Lehman Brothers in 2008.
  • The Fed continued its second quantitative easing initiative (“QE2”) by purchasing additional U.S. Treasury securities in an effort to stimulate the economy.
  • Businesses in the U.S. expanded in December. The Institute for Supply Management-Chicago Inc., an organization comprised of corporate purchasing managers, said its business barometer rose to 57.0 in December, exceeding the forecasts of economists. A figure greater than 50 signals economic expansion.
  • In another sign that the economy may be improving, 388,000 Americans filed initial unemployment claims for the week ending December 25. This was the first time in more than two years that claims were below 400,000. However, new job creation was less than expected and the unemployment rate remains stubbornly high.
  • Commodities outperformed stocks, bonds and the dollar in 2010. According to the Dow Jones UBS Commodity Index, commodities gained 10.7% in December and 16.8% for 2010. Reasons for commodities’ superlative performance include growing consumption of commodities (including food, energy and minerals) led by China. In addition, commodities tend to increase in value when the U.S. dollar weakens.

Geopolitical Headlines

  • President Obama signed into law an $858 billion bill extending Bush-era tax cuts for two years.
  • China is believed to have intervened with North Korea to mitigate rising acrimony between North Korea and South Korea.
  • The U.S. Senate voted to ratify the broadest nuclear arms-reduction treaty between Russia and the U.S. in nearly two decades.
  • A Virginia judge ruled a key element of President Barack Obama’s health care reform law is unconstitutional. The judge struck down the individual mandate requiring most Americans to purchase health insurance by 2014. The decision will be appealed and likely end up in the Supreme Court.

Key Monthly Economic Statistics

This table contains a list of key monthly economic statistics. Each statistic is listed with a link to a Web page that provides a thorough description of the economic indicator.

  Positive Statistics
  Neutral Statistics
  Negative Statistics

Source: Econoday

Investment Fund Review

Inflation Protection Fund

Fund December Q4 2010 Year-to-Date
Inflation Protection Fund +0.6% +1.6% +9.0%
Barclays Capital U.S. Government Inflation-Linked Bond Index -1.6% -0.7% +6.3%
Difference +2.2% +2.3% +2.7%
  • The Inflation Protection Fund significantly outperformed its benchmark in December primarily because of its 10% allocation to commodities, which gained 11.1% during the month. In addition, the fund’s other two diversifying strategies in global and developing country inflation-linked bonds gained 0.2% and 2.5% respectively.
  • The fund significantly outperformed its benchmark for the fourth quarter largely due to the diversifying strategies of commodities and inflation-linked bonds from developing countries. These strategies gained 17.9% and 5.4% respectively during the last three months of the year.
  • Largely because of the excellent performance of the same two diversifying strategies, the fund exceeded its performance benchmark by 2.7% in 2010. The commodities portfolio gained 27.7% and the portfolio of developing-country inflation-linked bonds gained 18.4%.

Fixed Income Fund

Fund December Q4 2010 Year-to-Date
Fixed Income Fund +0.0% -1.2% +8.7%
Barclays Capital U.S. Universal (ex MBS) Index -1.0% -1.5% +8.0%
Difference +1.0% +0.3% +0.7%
  • Though flat for the month, the Fixed Income Fund significantly outperformed its benchmark in the fourth quarter and rebounded from poor benchmark-relative performance in November. The fund benefited from its exposure to international bonds from both developed and developing countries and its exposure to below-investment-grade bonds. These strategies gained between 1% and 2% despite a 1% decline in the fund benchmark.
  • For the fourth quarter, the fund modestly outperformed its benchmark. Several strategies contributed positively to the fund’s benchmark relative performance. These included strategies that invest in below-investment-grade bonds and sovereign debt of developing countries. In addition, the fund’s two core fixed income managers outperformed their respective benchmarks. However, the fund’s exposure to bonds from developed countries and the fund’s investments in positive social purpose loans negatively contributed to the fund’s benchmark-relative performance.
  • For the year, the fund exceeded its performance objective of 0.5% excess return over the fund benchmark. Major positive contributors included the fund’s allocation to below-investment-grade bonds, developing country debt, and excellent results attained by the fund’s two core bond managers. The fund’s exposure to bonds from developed countries detracted from performance largely because of the appreciation of the U.S. dollar during 2010.

U.S. Equity Fund

Fund December Q4 2010 Year-to-Date
U.S. Equity Fund +6.6% +11.6% +18.1%
Russell 3000 +6.8% +11.6% +16.9%
Difference -0.2% +0.0% +1.2%
  • U.S. stocks gained the most for the month of December in 20 years. While the U.S. Equity Fund had significant gains, it slightly underperformed its benchmark. The fund’s higher-than-benchmark allocation to stocks of small and mid-sized companies contributed positively to benchmark-relative performance, but this was more than offset by the fund’s allocation to both publicly-traded real estate securities and private real estate partnerships.
  • For the quarter, the fund matched the performance of its benchmark. Again, the fund’s allocation to stocks of small and mid-sized companies contributed positively to benchmark-relative performance, whereas the fund’s real estate investments detracted from performance.
  • For the year, the fund exceeded its performance objective of 0.75% excess return over the fund benchmark. Similar to results for the month and fourth quarter, the fund’s higher-than-benchmark allocation to small and mid-sized companies contributed positively as the Russell 2000 Index of small companies and the S&P 400 Index of mid-sized companies both gained 27%. In addition, the fund’s public real estate securities gained 30% for the year, though the fund’s investments in private real estate only gained 5%. Private equity investments, however, positively contributed to performance, with a gain of nearly 24%.

International Equity Fund

Fund December Q4 2010 Year-to-Date
International Equity Fund +8.3% +9.0% +16.3%
MSCI ACWI x US +8.1% +7.7% +12.7%
Difference +0.2% +1.3% +3.6%
  • International stocks also posted significant gains in December. The International Equity Fund slightly outperformed its benchmark primarily due to the fund’s exposure to small-sized international companies, which gained 11.3% for the month.
  • For the fourth quarter, the fund surpassed its performance benchmark due to its exposure to small-sized international companies and better-than-benchmark performance by nearly all of the fund’s investment managers compared with their respective benchmarks. The fund’s exposure to international public real estate securities slightly detracted from the fund’s benchmark-relative performance.
  • For the year, the fund meaningfully outperformed its benchmark as nearly every strategy in the fund added value. A notable contributor to the fund’s excellent benchmark-relative performance was the fund’s value manager (and largest manager in terms of assets managed), which outperformed its benchmark by over 11 percentage points. In addition, one of the fund’s managers of developing country stocks produced a return of nearly 26%, eclipsing its benchmark return by nearly seven percentage points.

Multiple Asset Fund

Fund December Q4 2010 Year-to-Date
Multiple Asset Fund +4.8% +6.9% +14.6%
Composite Benchmark +4.3% +6.3% +13.3%
Difference +0.5% +0.6% +1.3%
  • In December, the fourth quarter and the year, all four of the underlying funds in the Multiple Asset Fund outperformed their respective benchmarks, resulting in benchmark-relative outperformance for all three periods.

Balanced Social Values Plus Fund

Fund December Q4 2010 Year-to-Date
Balanced Social Values Plus Fund +3.5% +5.2% +8.8%
Composite Benchmark +3.4% +6.0% +9.2%
Difference +0.1% -0.8% -0.4%


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