September 2012 Investment Report

Markets

  • U.S. equities represented by the Russell 3000 Index increased 2.6% during the month. September marked the fourth consecutive monthly gain for equities. The markets benefitted from the Federal Reserve’s (the Fed’s) ongoing commitment to monetary stimulus measures to spur economic recovery. Small-company U.S. equities outperformed large-company U.S. equities during the month, as investors favored the higher risk-return profile of small-company stocks. Stocks classified as “value” performed better than equities, with strong earnings growth. The Russell 3000 Index has gained 16.1% for year-to-date through September.
  • Developed country international equities as measured by the bellwether MSCI EAFE Index increased 3.0% in September, and the MSCI Emerging Markets IMI Index gained 6.1%. Year-to-date through September, the MSCI EAFE Index has advanced 10.1% and MSCI Emerging Markets IMI Index has gained 12.5%.
  • The interest rate yield curve steepened in September. The 2-year U.S. Treasury Note yield increased by 0.01% (1 basis point) to 0.23%. The 10-year U.S. Treasury Note yield increased by 0.09% (9 basis points) to 1.63%. The long bond (30-year U.S. Treasury) yield increased 15 basis points to 2.84%.
  • Investment-grade debt as represented by the Barclays U.S. Credit Index increased 0.6%. Below-investment-grade debt as measured by the Barclays U.S. Corporate High-Yield Index increased 1.4%, outperforming the investment-grade index by 0.8%. U.S. Treasury securities as measured by the Barclays U.S. Treasury Index decreased 0.3% in September, reflecting continued willingness of investors to forego the perceived safety of U.S. Treasury securities.
  • The U.S. dollar weakened during September. The Dollar Index, which compares the U.S. dollar to six other major currencies, decreased 1.6%. All six of the currencies within the index appreciated relative to the dollar, led by the euro’s 2.2% increase.
  • Commodities as represented by the Dow Jones UBS Commodity Index increased 1.7% in September. Industrial metals and then precious metals were the strongest contributors to the index, rising 11.0% and 6.2% respectively. The gains closely followed additional central bank stimulus in Europe and the U.S.

Economics Highlights

  • Home prices as represented by the S&P/Case-Shiller 20-City Composite rose 1.6% for the most current month reported and 1.2% from a year earlier. This was the largest annual gain since August 2010. The number of existing home sales increased 7.8% for the month and 9.3% from a year earlier, according to the National Association of Realtors.
  • U.S. consumer confidence rose to a seven-month high in September, according to the Conference Board’s Consumer Confidence Index reading of 70.3.
  • Second quarter GDP growth was revised down to 1.3% from the prior estimate of 1.7%, largely reflecting the impact of the Midwest region drought on farm inventories.
  • In its third round of quantitative easing (QE3), the Fed will make open-ended purchases of $40 billion of mortgage-backed securities per month. Fed officials also said the Fed Funds target rate would likely remain near zero at least through mid-2015.
  • European Central Bank President Mario Draghi declared that policymakers agreed to a proposal involving unlimited government bond purchases targeting shorter maturity instruments.
  • With rising U.S. consumer demand benefitting Asian exporters and helping offset weakness in Europe, emerging economies’ reliance on U.S. demand underscores the challenge facing the Group of 20 nations’ proposal to shift global economic dependence away from the U.S.

Geopolitical Headlines

  • U.S. Ambassador to Libya J. Christopher Stevens and three other Americans were killed in an attack on the consulate in Benghazi. Reports attributed the attack to a preplanned al-Qaeda mission conducted under cover of the widespread Arab protests related to an inflammatory Internet video.
  • Republican presidential candidate Mitt Romney trailed incumbent President Barack Obama in the polls heading into the October presidential debates.
  • Spain released a proposed 2013 budget amid renewed public protests of the planned spending cuts. Demonstrators also gathered in Greece and Portugal to condemn the austerity measures either planned or already imposed in response to the euro zone debt crisis.

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

M/M=Month-over-month (% change since last month)
Q/Q = Quarter-over-quarter (% change since last quarter)
Y/Y = Year-over-year (% change since the same month, last year)
SA = Seasonally adjusted
SAAR = Seasonally adjusted annual rate

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 September Q3 2012 Year-to-Date
Inflation Protection Fund +0.6% +3.2% +6.3%
Barclays Capital U.S. Government Inflation-Linked Bond Index +0.5% +2.2% +6.5%
Difference +0.1% +1.0% -0.2%
  • The Inflation Protection Fund advanced 0.6% in September and slightly outperformed the fund benchmark. Two of the fund’s diversifying strategies—commodities and inflation-linked bonds of developing countries—positively contributed to the fund’s benchmark-relative performance. However, inflation-linked bonds from developed countries declined, primarily due to losses in the fund's holdings of United Kingdom inflation-linked bonds resulting from a rumor of a possible change in the calculation of U.K. inflation that is used to determine the inflation payment to holders of U.K. inflation-linked bonds. In addition, U.S. Treasury Inflation Protected Securities (TIPS) advanced, primarily as a result of inflation fears arising from the Fed's announcement of a third round of quantitative easing.
  • For the three months ending September 30, the fund gained 3.2% and outperformed its benchmark, as the fund’s investments in commodities and inflation-linked bonds from developing countries gained 11.8% and 7.0% respectively.
  • For the year, the fund has gained 6.3% but has slightly underperformed its benchmark. Two of the fund’s diversifying strategies—commodities and inflation-linked bonds from developing countries—have contributed positively to benchmark-relative performance, with the fund’s commodities investments advancing 8.6% for the year to date and the fund's allocation to inflation-linked bonds from developing countries gaining 13.8% for the year to date. The fund’s 30% allocation to bonds from developed countries, however, has only gained 4.1%, offsetting the positive contributions from the other two diversifying strategies.

Fixed Income Fund

Fund September Q3 2012 Year-to-Date
Fixed Income Fund +0.7% +3.1% +7.8%
Barclays Capital U.S. Universal (ex MBS) Index +0.3% +2.3% +5.7%
Difference +0.4% +0.8% +2.1%
  • The Fixed Income Fund gained 0.7% in September and outperformed its benchmark by 0.4%. The fund benefitted from its underweighting of U.S. Treasury securities, its overweighting of credit instruments, and its exposure to non-dollar international bonds. The best-performing strategy was the fund's allocation from bonds of developing countries, which gained 2.6%. In addition, the fund's global bond portfolio gained 1.5%. Both portfolios benefitted from U.S. dollar weakness resulting from the Fed's third round of quantitative easing. The positive contribution from the fund's international bonds holdings was slightly offset, however, by the fund's allocation to positive social purpose loans, which declined 1.8% because of a change in the process for valuing these loans. The quality of these loans has not deteriorated.
  • For the three months ending September 30, the fund gained 3.1% and comfortably outperformed the fund's benchmark. As for the month of September, the fund benefitted from its less-than-benchmark weighting of U.S. Treasury securities and greater-than-benchmark allocation to credit instruments and non-dollar international bonds. The best-performing portfolio for the quarter was the fund's allocation to developing country bonds, which advanced 6.7%. In addition, the fund's allocation to high yield bonds and global bonds gained 4.0% and 3.8% respectively. The greatest detractor from performance was the fund's allocation to positive social purpose loans, which advanced only 0.4% for the quarter. The lower gain is primarily attributable to the previously mentioned change in valuation policy.
  • For the year, the Fixed Income Fund has gained 7.8% and has meaningfully outperformed its benchmark by 2.1%. All but two of the fund’s strategies have added value relative to the fund benchmark. PIMCO, the fund’s largest manager, exceeds its performance benchmark for the year to date by 3.6% and represents the most significant contributor to the fund’s excess performance. In addition, three of the fund's diversifying strategies have gained more than 10% so far in 2012. The fund's allocation to debt from developing countries, the fund's high-yield bond allocation, and the fund's allocation to opportunistic credit gained 13.9%, 10.5% and 10.3% respectively. The positive contribution from PIMCO's benchmark-relative performance and the fund's diversifying strategies were partially offset by the 4.9% return of the fund's allocation to positive social purpose loans.

U.S. Equity Fund

Fund September Q3 2012 Year-to-Date
U.S. Equity Fund +2.2% +5.4% +14.0%
Russell 3000 +2.6% +6.2% +16.1%
Difference -0.4% -0.8% -2.1%
  • The U.S. Equity Fund gained 2.2% in September, but underperformed the fund’s Russell 3000 Index benchmark. The fund’s allocations to alternative investments primarily contributed to the U.S. Equity Fund’s below-benchmark performance, as the fund's private equity managers recognized slight losses attributable to the second quarter's decline in private equity valuations. Since the U.S. Equity Fund typically recognizes gains or losses in fund values one quarter in arrears, the private equity values reflected declining public equity market values in the second quarter. In addition, the fund's allocation to publicly traded real estate investment trusts (REITs) declined 2.2% for the month.
  • For the three months ending September 30, the fund gained 5.4%, which was 0.8% below the fund benchmark. Half of the performance shortfall is attributable to the fund's allocations to private equity and private real estate, which gained slightly less than 2% for the quarter. In addition, the fund's greater-than-benchmark allocation to small and mid-sized companies detracted from the fund’s performance for the quarter, as the Russell 2000 Index of small companies gained 5.3% compared with the 6.4% gain for the large company S&P 500 Index.
  • For the year, the fund has gained 14.0%. While this is a very good absolute return, the fund's performance is disappointing relative to the Russell 3000 Index return of 16.1%. The fund’s allocation to alternative investments and its higher-than-benchmark allocation to small and mid-sized companies detracted from the fund’s benchmark-relative performance. The fund's alternative investment allocations returned approximately 5% for the year-to-date period and accounted for slightly more than half of the fund's benchmark-relative underperformance.

International Equity Fund

Fund September Q3 2012 Year-to-Date
International Equity Fund +4.3% +7.8% +12.8%
MSCI ACWI ex US +3.9% +7.5% +10.7%
Difference +0.4% +0.3% +2.1%
  • The International Equity Fund advanced 4.3% in September and outperformed its benchmark return by 0.4%. Once again, the fund's managers' collective underweight of stocks from the euro countries helped benchmark-relative performance, as continued concerns regarding the euro zone's economic recovery dampened investor enthusiasm relative to non-euro zone equities.
  • For the three months ending September 30, the fund gained 7.8% and outperformed its benchmark index by 0.3%. The fund benefitted from its underweight of stocks from the euro zone and its diversifying investments of international real estate investment trusts (REITs) and small-company international stocks.
  • For the year, the International Equity Fund has gained 12.8% and has meaningfully outperformed its benchmark. The primary contributors to the positive relative performance include the fund’s 7% allocation to international REITs, which have gained nearly 30% so far in 2012. In addition, most of the fund’s managers are outperforming their respective benchmarks, largely due to their less-than-benchmark allocations to stocks from the euro zone, which have declined more than other international stocks.

Multiple Asset Fund

Fund September Q3 2012 Year-to-Date
Multiple Asset Fund +2.1% +5.1% +11.3%
Composite Benchmark +2.1% +5.1% +11.6%
Difference +0.0% +0.0% -0.3%
  • For September, the Multiple Asset Fund gained 2.1% and matched the performance of the fund's benchmark. The fund benefitted from the better-than-benchmark performance of the Fixed Income Fund and International Equity Fund, although the positive contribution from these two strategies was offset by below-benchmark performance of the U.S. Equity Fund and Inflation Protection Fund.
  • For the three months ending September 30, the Multiple Asset Fund gained 5.1%, again matching the performance of the fund's benchmark. The Inflation Protection Fund, Fixed Income Fund and International Equity Fund all contributed positively to benchmark-relative performance, although the positive contributions from these three strategies were completely offset by benchmark-relative losses from the U.S. Equity Fund.
  • For the year, the Multiple Asset Fund has gained 11.3% and has slightly underperformed the 11.6% return of the fund benchmark. The Fixed Income Fund and International Equity Fund have positively contributed to benchmark-relative performance, whereas the Inflation Protection Fund and U.S. Equity Fund have negatively contributed to benchmark-relative performance.

Balanced Social Values Plus Fund

Fund September Q3 2012 Year-to-Date
Balanced Social Values Plus Fund +1.4% +3.9% +9.2%
Composite Benchmark +1.4% +3.8% +8.8%
Difference +0.0% +0.1% +0.4%

 

 
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