August 2012 Investment Report

Markets

  • U.S. equities represented by the Russell 3000 Index increased 2.5% during August. Stock market volatility as measured by the VIX Index reached new lows for the year, as the U.S. Federal Reserve (the Fed) stood ready to support the economy with continued monetary stimulus. August was the third consecutive monthly gain for U.S. equities, and the Russell 3000 Index has gained 13.2% year-to-date.
  • International developed equities as measured by the bellwether MSCI EAFE Index increased 2.7% in U.S. dollar terms. Markets gained as investors anticipated additional stimulus from the European Central Bank to support a struggling economy in Spain. Emerging markets were basically unchanged.
  • The interest rate yield curve steepened in August. The 2-year U.S. Treasury Note yield increased by 0.01% (1 basis point) to 0.22%. The 10-year U.S. Treasury Note yield increased by 0.08% (8 basis points) to 1.55%. The long bond (30-year U.S. Treasury) increased 13 basis points in yield to 2.67%.
  • Investment-grade debt as represented by the Barclays U.S. Credit Index increased 0.2%. Below-investment-grade debt as measured by the Barclays U.S. Corporate High-Yield Index increased 1.2%, outperforming the investment-grade index by 1.0%. U.S. Treasury securities as measured by the Barclays U.S. Treasury Index decreased 0.1% in July, reflecting increased willingness of investors to forego the perceived safety of U.S. Treasury securities.
  • The U.S. dollar weakened during August. The Dollar Index, which compares the U.S. dollar to six other major currencies, decreased 1.7%. Within the index, the euro increased 2.2% versus the dollar, and the Japanese yen decreased 0.3%.
  • Commodities as represented by the Dow Jones UBS Commodity Index increased 1.3% in August. Petroleum rose 10.5% and was the strongest contributor to the index for the month, reflecting a combination of Iran tensions, hurricane-related disruptions, and expectations for additional central bank stimulus in the U.S. and Europe.

Economics Highlights

  • The U.S. economy continues to display mixed signals. While GDP growth at 1.7% remains well below full-employment levels, the housing market is showing signs of improvement. Housing starts have increased about 20% year-over-year. New home sales through June recorded price increases for the first time in two years.
  • Fed officials signaled their intention to intervene to support the economy if they detect further signs of economic weakness.
  • After a state visit by German chancellor Angela Merkel, China promised to continue buying European bonds in an effort to help the euro zone through its debt crisis. Separately, recent Chinese economic data indicated the slowdown in growth of the last several quarters may have abated.
  • Apple Computer was awarded $1.05 billion in damages in a patent infringement suit with South Korean electronics manufacturer Samsung. The ruling could make it more difficult for competitors to introduce handheld devices that resemble Apple products.

Geopolitical Headlines

  • Storm surge from Hurricane Isaac caused flooding along the Gulf Coast, but levees around New Orleans held, sparing the city from major damage. Insured losses estimated to be $1.5 billion will be significantly less than those incurred in 2005 as a result of Hurricane Katrina.
  • The Republicans hosted their convention in Florida, nominating Mitt Romney as their choice for president and Paul Ryan as vice president. Fiscal responsibility is expected to be a major theme in the weeks leading up to the election.

Sources: Bloomberg News, the Economist, the Wall Street Journal, CNBC, CNN, Associated Press and Bridgewater

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 (Net of Fees Performance)

For returns of one year, three years, five years, 10 years and Since Inception periods, please visit our Historical Funds Performance page.

Inflation Protection Fund

Fund August Year-to-Date
Inflation Protection Fund +0.3% +5.7%
Barclays Capital U.S. Government Inflation-Linked Bond Index -0.4% +5.9%
Difference +0.7% -0.2%
  • The Inflation Protection Fund advanced 0.3% during August and outperformed the fund’s benchmark return, which declined 0.4%. All three of the fund’s diversifying strategies added value with the fund’s investments in commodities returning 4.0%.
  • For the year-to-date, the fund has returned 5.7% and has slightly underperformed its benchmark return by 0.2%. While the fund’s 10% allocations to inflation-linked bonds from developing countries and commodities contributed positively to performance, the fund’s allocation to inflation-linked bonds from developed countries detracted from performance and more than offset the positive contribution from the fund’s other two diversifying strategies.

Fixed Income Fund

Fund August Year-to-Date
Fixed Income Fund +0.6% +7.1%
Barclays Capital U.S. Universal (ex MBS) Index +0.2% +5.4%
Difference +0.4% +1.7%
  • The Fixed Income Fund gained 0.6% in August and modestly exceeded the performance of the fund’s benchmark. The fund’s allocation to bonds from developed countries was the biggest contributor to the fund’s excess performance as the U.S. dollar weakened in anticipation of further action by the Fed to provide economic stimulative measures. International bonds are generally denominated in the currency of the issuing country. In addition, the fund’s allocation to credit risk investment strategies also positively contributed to the fund’s benchmark-relative performance.
  • For the year-to-date, the fund has gained 7.1% and it comfortably exceeds the performance of the fund benchmark. The fund’s allocation to emerging market debt has gained 11.0% for the year, and the fund’s largest active manager, PIMCO, has exceeded its 2012 performance benchmark by 3.3% through August. All but one of the fund’s strategies has contributed to the fund’s favorable benchmark-relative performance.

U.S. Equity Fund

Fund August Year-to-Date
U.S. Equity Fund +2.7% +11.5%
Russell 3000 +2.5% +13.2%
Difference +0.2% -1.7%
  • The U.S. Equity Fund gained 2.7% in August and slightly outperformed its benchmark return by 0.2%. The fund’s greater-than-benchmark allocations to stocks of small and mid-sized companies positively contributed to relative performance, as the Russell 2000 Index of small stocks advanced 3.3% compared with the 2.3% gain by the S&P 500 Index of large company stocks. A majority of the fund’s managers outperformed their respective benchmarks for the month. These gains were partially offset by the fund’s allocation to publicly traded real estate investment trusts (REITs), which declined 0.1% for the month.
  • For the year-to-date, the U.S. Equity Fund has gained 11.5%, but it trails the Russell 3000 Index by 1.7%. The primary contributors to the fund’s below-benchmark performance are its allocation to small and mid-sized companies, its allocations to private real estate and private equity, and collective underweighting to Apple Computer by the fund’s managers. So far in 2012, the large company S&P 500 Index has gained 13.5% compared with the 10.6% gain for the Russell 2000 Index of small companies. The fund’s allocation to alternative investments has gained only about 5% and accounts for roughly half of the fund’s below-benchmark performance. The value of alternative investments tends to lag in periods of positive stock market returns. Apple Computer has gained 64% for the year through August and the stock represents 2.5% of the U.S. Equity Fund’s overall value. However, as Apple comprises 4.0% of the fund’s Russell 3000 Index benchmark, the fund’s underweighting of Apple detracted 0.75% from the fund’s performance.

International Equity Fund

Fund August Year-to-Date
International Equity Fund +1.7% +8.1%
MSCI ACWI ex US +2.2% +6.5%
Difference -0.5% +1.6%
  • The International Equity Fund gained 1.7% for the month, but underperformed its benchmark by 0.5%. The primary contributors to the fund’s below-benchmark performance were its allocations to emerging market stocks, which declined slightly less than 1%. In addition, the fund’s managers collectively underweight stocks from the European Monetary Union, which gained 6.3% in August due to increased optimism regarding potential resolution of the European debt crisis.
  • For the year-to-date, the International Equity Fund has gained 8.1% and it continues to maintain a comfortable performance advantage relative to the fund’s benchmark return of 6.5%. The fund’s international REIT portfolio has gained 24.3%, far surpassing the performance of the fund benchmark. In addition, the fund’s allocation to international small company stocks has positively contributed to benchmark-relative performance and has gained 11.8% to date in 2012. However, poor benchmark-relative performance of one of the fund’s emerging markets managers has partially offset these gains.

Multiple Asset Fund

Fund August Year-to-Date
Multiple Asset Fund +1.7% +9.1%
Composite Benchmark +1.6% +9.3%
Difference +0.1% -0.2%
  • The Multiple Asset Fund (MAF) gained 1.7% and slightly outperformed its benchmark by 0.1%. Three of the four funds that comprise MAF positively contributed to benchmark-relative performance, though the below-benchmark performance of the International partially offset these gains.
  • For the year-to-date, MAF has gained 9.1% but trails its benchmark return by 0.2%. The Fixed Income Fund and International Equity Fund have contributed positively to benchmark-relative performance, while the Inflation Protection Fund and U.S. Equity Fund have detracted from benchmark-relative performance.

Balanced Social Values Plus Fund

Fund August Year-to-Date
Balanced Social Values Plus Fund +1.7% +7.7%
Composite Benchmark +1.7% +7.3%
Difference +0.0% +0.4%

 

 
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