May 2011 Investment Report

Markets

  • U.S. equities represented by the Russell 3000 Index declined 1.1% for the month. This is the first monthly decline in 2011. During the month, investors confronted renewed European sovereign debt concerns, elevated gasoline prices, and the impending June expiration of the Federal Reserve’s second quantitative easing initiative.
  • Large-company U.S. equities outperformed small-company U.S. equities. There was essentially no difference in the performance of companies classified as “value” versus those with strong earnings growth.
  • International equities declined during May. The bellwether MSCI EAFE Index, which measures performance of developed-market equities in U.S. dollar terms, declined 3.0%. Weakening developed market currencies contributed to the negative performance. These currencies declined 2.3% versus the U.S. dollar as measured by the U.S. Dollar Index. Equities of developing countries also declined; the MSCI Emerging Markets IMI Index dropped 2.7% during the month.
  • The yield on the benchmark U.S. 10-year Treasury Note declined 27 basis points from 3.32% to 3.05% on concerns of dimming U.S. economic growth prospects and the potential for the Greek debt restructuring process to spread to other euro-zone debt markets. U.S. investment grade bonds, as represented by the Barclays Capital U.S. Credit Index, advanced 1.5%.
  • Global bonds, as represented by the Barclays Capital Global Aggregate Bond Index, declined 0.1% as currencies for developing and developed countries weakened relative to the U.S. dollar.
  • Concerns about global growth pressured commodity prices. Silver (-21.2%), Brent oil (-7.3%), gold (-1.3%) and corn (-0.9%) all declined, while wheat (+1.7%) and copper (+0.2%) advanced.

Economics Highlights

  • Gross domestic product (GDP) was 1.8% in the first quarter, lower than 3.1% growth in the fourth quarter of 2010, due to slower consumption growth and lower U.S. government expenditures.
  • Housing values continued to decline and reached 2002 levels, according to Case/Shiller.
  • U.S. government borrowing hit the $14.3 trillion debt ceiling, making it impossible for the U.S. Treasury to issue debt without approval from Congress. It is expected that it would take until August for the government to be forced into default. At the end of the month, the House rejected a debt ceiling increase.
  • Japanese GDP declined 3.7% in the first quarter as the effects of the Japanese tsunami adversely affected the Japanese economy. Automobile production contracted 8.9% due to disruption in auto part supplies, resulting in flat overall industrial production. Exports from Japan through April were down 12.5%.
  • The social networking website LinkedIn garnered headlines when it launched its initial public offering with shares soaring in price over the first few trading days. The company priced its shares at $45 and they traded over $120 during the first trading day before closing with a 109% gain. Discussions of another potential tech bubble ensued.

Geopolitical Headlines

  • U.S. Special Forces killed Osama Bin Laden on May 1. The ISI, the Pakistani version of the CIA, is suspected by some to have known Bin Laden was in the country. John Kerry and Hilary Clinton visited Pakistan to ease diplomatic tensions.
  • The head of the International Monetary Fund (IMF) Dominique Strauss-Kahn stepped down from the IMF after he was arrested for sexual assault of a hotel employee. He had been quite involved in Europe’s debt restructuring throughout the European debt crisis. He also had been expected to challenge Nicolas Sarkozy in the upcoming French presidential election. The IMF started a search for Strauss-Kahn’s replacement with French Finance Minister Christine Lagarde leading the way.
  • European debt woes were center-stage again in May. Standard & Poor’s (S&P) cut Greece’s debt rating from BB- to B. S&P also downgraded Italy from “stable” to “negative.” Greece agreed to sell over $70 billion in state assets. Portugal negotiated its third aid package.

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: briefing.com–economic statistics; Econoday–description of the economic indicators

Investment Fund Review

Inflation Protection Fund

Fund May Year-to-Date
Inflation Protection Fund -0.2% +4.4%
Barclays Capital U.S. Government Inflation-Linked Bond Index +0.3% +5.0%
Difference -0.5% -0.6%
  • The Inflation Protection Fund declined 0.2% in May and underperformed its benchmark by 0.5%, largely due to the performance of the fund’s 10% allocation to commodities. While the fund’s allocation to passive U.S. Treasury Inflation Protected Securities (TIPS) and inflation-linked bonds issued by developed international countries produced positive returns, the commodities portfolio declined 5.3% because of fresh global concerns of an economic slowdown.
  • For the year, the fund has returned 4.4% and is underperforming its benchmark by 0.6%. Despite May’s decline, the fund’s commodities allocation has gained 5.5% for the year and has added value to the fund relative to the fund’s benchmark. However, the fund’s exposure to inflation-linked bonds of developed countries has gained only 3.6% and has detracted from the fund’s returns.

Fixed Income Fund

Fund May Year-to-Date
Fixed Income Fund +0.8% +4.2%
Barclays Capital U.S. Universal (ex MBS) Index +1.3% +3.4%
Difference -0.5% +0.8%
  • The Fixed Income Fund produced a modest positive return in May, but underperformed its benchmark by 0.5%, largely because of the fund’s exposure to bonds denominated in currencies other than the U.S. dollar and the fund’s exposure to credit fixed income instruments. The dollar strengthened as fears of a slowing economy motivated investors to find a “safe haven” in U.S. assets, particularly less-risky U.S. Treasury securities. The fund’s Positive Social Purpose Lending Program gained 2.0%, and was the best-performing portfolio in May. However, the fund’s global bond portfolio and credit opportunities portfolio both declined 0.2% for the month.
  • For the year, the fund continues to outperform its benchmark. Despite May’s decline, the fund’s allocation to global bonds has gained 6.0% in 2011 and it is the best-performing portfolio in the fund for 2011. The fund’s allocation to debt of developing countries and positive social purpose loans has also contributed to the fund’s excess performance compared with the fund benchmark.

U.S. Equity Fund

Fund May Year-to-Date
U.S. Equity Fund -1.1% +7.8%
Russell 3000 -1.1% +8.3%
Difference +0.0% -0.5%
  • The U.S. Equity Fund declined 1.1% in May and performed in-line with the fund’s benchmark. The fund’s allocation to public real estate securities and private real estate investments positively contributed to the fund’s performance, though most of the fund’s active managers underperformed their respective benchmarks.
  • For the year, the U.S. Equity Fund continues as the best-performing fund. The fund’s holdings of public real estate investment trusts have gained 15.7% and the fund’s larger-than-benchmark allocation to small and mid-sized companies has positively contributed to benchmark-relative performance. However, the fund’s allocations to private real estate and private equity have only gained 2.5% and 3.6% respectively and have detracted from the fund’s benchmark-relative performance. Generally, the increase in the value of these investments tends to lag in rising equity markets.

International Equity Fund

Fund May Year-to-Date
International Equity Fund -2.3% +4.2%
MSCI ACWI x US -2.9% +5.1%
Difference +0.6% -0.9%
  • The International Equity Fund declined 2.3%, but outperformed its benchmark in May by 0.6%. The fund benefitted from its allocation to international public real estate securities, which were essentially flat for the month. In addition, the fund’s investment managers collectively added value relative to their respective benchmarks, largely because of less-than-benchmark weightings in companies domiciled in Europe. An index of European Monetary Union (EMU) countries declined 6.5% for the month.
  • For the year, the International Equity Fund continues to trail its benchmark, though the difference is half of what it was earlier in the year. The fund’s underperformance is partially attributable to the fund’s less-than-benchmark exposure to stocks from the European Union. Despite May’s decline, an index of EMU countries has advanced 10.3% for the year. In addition, the fund’s exposure to stocks of developing countries has gained about 2.0% for the year and has negatively contributed to benchmark-relative performance.

Multiple Asset Fund

Fund May Year-to-Date
Multiple Asset Fund -0.8% +5.8%
Composite Benchmark -0.7% +6.1%
Difference -0.1% -0.3%
  • For the month of May, the Multiple Asset Fund declined 0.8% and modestly underperformed the fund’s benchmark.
  • For the year, the fund is underperforming its benchmark by 0.3%. The Fixed Income Fund has positively contributed to the fund’s benchmark-relative returns, though more than offset by the negative contribution from the other three funds.

Balanced Social Values Plus Fund

Fund May Year-to-Date
Balanced Social Values Plus Fund +0.1% +4.9%
Composite Benchmark +0.1% +5.0%
Difference +0.0% -0.1%

 

 
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