December 2012 Investment Report

Markets

  • U.S. equities represented by the Russell 3000 Index increased 1.2% in December. Market volatility as measured by the VIX Volatility Index increased during the month as uncertainty mounted regarding expiration of certain federal tax and spending laws, collectively known as the “fiscal cliff.” For the year, the Russell 3000 Index gained 16.4%.
  • Stocks classified as “value” outperformed those with strong earnings growth for the month and for the full year 2012. The Russell 3000 Value Index outperformed the Russell 3000 Growth Index by 2.0% and 2.3% for the month and year, respectively.
  • Developed country international equities as measured by the MSCI EAFE Index increased 3.2% in December and 17.3% in 2012. Investors favored the perceived higher risk and reward of emerging markets, which gained 4.9% for the month and 18.7% for the year as measured by the MSCI Emerging Markets IMI index.
  • The intermediate portion of the U.S. Treasury yield curve, which represents maturities ranging up to 10 years, steepened modestly in December. The 2-year U.S. Treasury Note yield was nearly unchanged at 0.25%, but the 10-year U.S. Treasury Note yield increased by 0.14% (14 basis points) to 1.76%. The long bond (30-year U.S. Treasury) also increased 0.14% (14 basis points) in yield to 2.95%. Investors demonstrated increasing optimism in light of positive economic reports and a belief that Congress would reach agreement regarding the country’s fiscal situation.
  • Investment-grade debt as represented by the Barclays U.S. Credit Index declined 0.1% for the month, as coupon income did not offset the lower prices that resulted from the yield curve steepening. Below-investment-grade debt as measured by the Barclays U.S. Corporate High-Yield Index increased 1.6%, outperforming the investment-grade index by 1.7%. This increase reflects improved market optimism for the U.S. economy, which benefits riskier assets. U.S. Treasury securities as measured by the Barclays U.S. Treasury Index decreased 0.4% in December.
  • The U.S. dollar as measured by the U.S. Dollar Index decreased 0.5% during December, as Japanese yen weakness was offset by strength in European currencies. The yen declined 4.9% relative to the dollar after newly-elected Japanese Prime Minister Shinzo Abe pressured the Bank of Japan for more aggressive monetary stimulus to spur economic growth. The euro, which is the largest component of the Dollar Index, increased 1.6% relative to the dollar.
  • Commodities as represented by the Dow Jones UBS Commodity Index decreased 2.6% in December, led by a 6.1% decrease in grains. Despite the December decline, grains increased more than 18% for the year.

Economics Highlights

  • Shortly after year-end, President Obama signed into law the “American Taxpayer Relief Act of 2012.” The Act averts short-term economic distress (i.e., the “fiscal cliff”) by extending certain Bush-era tax cuts and unemployment benefits—but does not address long-term entitlement spending that threatens U.S. financial solvency.
  • The Federal Reserve (the Fed) announced plans to purchase $85 billion per month of mortgage-backed securities and Treasury securities in an effort to keep long-term interest rates low to encourage borrowing, spending and investing. The Fed also announced plans to keep short-term rates unchanged until unemployment falls to 6.5% or lower, as long as inflation forecasts remain near its 2% target.
  • The central banks of Sweden, Turkey and Hungary all cut interest rates in an effort to counter the euro-zone crisis. Each country has close financial ties with the euro zone and has been hurt by reduced demand for its exports from nations that use the euro.
  • Despite the U.S. government’s recent upward revision of third quarter real GDP to 3.1% from 2.7%, the economy remains sluggish. Employers added 155,000 jobs in December, but the unemployment rate remained high at 7.8%—the same as its revised level in November.
  • The housing market remains depressed, but showed continued signs of improvement in December as new home sales, existing home sales and S&P Case Shiller Home Price Index data all improved.

Geopolitical Headlines

  • Newly-elected Japanese Prime Minister Shinzo Abe plans to stimulate his country’s economy through increased government spending. The prime minister has the two-thirds majority in the lower house of the Diet to advance his agenda. Due to the anticipated stimulus, the Japanese yen declined as compared with the U.S. dollar during the month.
  • U.S. Treasury Secretary Timothy Geithner plans to depart from his post in January when President Obama begins his second term. The president has not yet announced a replacement. The appointment will be critical in light of the looming fiscal challenges that were not addressed in the recent government legislation (American Tax Payer Relief Act of 2012, signed into law January 2).
  • Officials from the Taliban, Kabul and the Northern Alliance met in France in December to discuss the future of Afghanistan after U.S.-led coalition forces depart in 2014. Top Afghani aides and Northern Alliance leaders have urged the Taliban to disavow violence and become a political party as a means of influencing the outcome in the 2014 Afghanistan elections.
  • Venezuelan President Hugo Chavez named Vice President Nicolas Maduro as his successor in the event that cancer-stricken Chavez becomes unable to continue leading the country after almost 14 years in power. Maduro, a former bus driver and union leader, is one of the president’s longest-serving aides.

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 December Q4 2012 Year-to-Date
Inflation Protection Fund +0.10% +1.35% +7.74%
Barclays Capital U.S. Government Inflation-Linked Bond Index -0.72% +0.72% +7.26%
Difference +0.82% +0.63% +0.48%
  • The Inflation Protection Fund advanced 0.10% in December and meaningfully outperformed the fund benchmark by 0.82%. Three of the fund’s four diversifying strategies positively contributed to the fund’s benchmark-relative performance. The fund’s 30% allocation to global inflation-protected government bonds advanced 0.4% and the fund’s allocation to inflation-linked bonds from developing countries gained 3.4%. Bonds denominated in currencies other than the U.S. dollar continued to benefit from dollar weakness relative to most foreign currencies. The fund’s recent allocation to floating rate senior secured debt also added value relative to the fund benchmark and gained 0.5% in December. The fund’s 10% allocation to commodities futures contracts declined 1.4% and slightly detracted from benchmark-relative performance.
  • For the three months ending December 31, the fund gained 1.35% and outperformed its benchmark by 0.63%. The fund benefitted primarily from its diversifying exposure to inflation-linked bonds from developed and developing countries, as the dollar weakened relative to most foreign currencies during the quarter. The fund’s allocation to global bonds gained 2.6% and its allocation to developing country inflation-linked debt gained 6.1%. The fund’s allocation to commodities futures contracts declined 4.2% and detracted from benchmark-relative performance.
  • For the year, the Inflation Protection Fund gained 7.74% and outperformed its benchmark by 0.48%. The fund’s 10% allocation to inflation-linked bonds from developing countries, which gained 20.7%, was solely responsible for the fund’s better-than-benchmark performance. The fund’s other diversifying strategies detracted from benchmark-relative performance, as its allocation to global bonds gained 6.8% and its allocation to commodities futures contracts gained 4.0%, failing to keep pace with the fund benchmark.

Fixed Income Fund

Fund December Q4 2012 Year-to-Date
Fixed Income Fund +0.36% +1.64% +9.58%
Barclays Capital U.S. Universal (ex MBS) Index -0.02% +0.85% +6.61%
Difference +0.38% +0.79% +2.97%
  • The Fixed Income Fund gained 0.36% in December and outperformed the fund benchmark return by 0.38%. The fund benefited from its exposure to non-dollar denominated bonds, as the U.S. dollar declined relative to most foreign currencies. The fund’s emerging market debt strategy advanced 2.4% and its global bond strategy gained 1.0%. In addition, the fund’s allocation to its two strategies with exposure to below-investment-grade debt also benefited from improved investor sentiment regarding risk. The Fixed Income Fund’s allocation to its positive social purpose loan portfolio declined 1.6% and detracted from the fund’s benchmark-relative performance, due to increasing interest rates for longer term U.S. Treasury securities, which adversely affected the value of the portfolio’s loans.
  • For the three months ending December 31, the fund gained 1.64% and outperformed its benchmark by 0.79%. The strategies responsible for December’s excess performance also contributed to excess benchmark-relative performance for the quarter. In addition, the fund’s largest manager, PIMCO, outperformed its benchmark by three quarters of one percent (0.75%) and contributed to excess performance.
  • For the year, the Fixed Income Fund returned 9.58% and meaningfully outperformed its benchmark by 2.97%. All but one of the fund’s strategies added value compared with the fund benchmark. PIMCO, the fund’s largest manager, exceeded its performance benchmark for the year by 4.5% and represents the most significant contributor to the fund’s excess performance. In addition, three of the fund's diversifying strategies gained more than 12% 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 19.2%, 13.9% and 12.7% respectively.

U.S. Equity Fund

Fund December Q4 2012 Year-to-Date
U.S. Equity Fund +1.59% +0.95% +15.05%
Russell 3000 +1.23% +0.25% +16.42%
Difference +0.36% +0.70% -1.37%
  • The U.S. Equity Fund gained 1.59% in December and outperformed the fund’s Russell 3000 Index benchmark. The fund benefited from its larger-than-benchmark allocation to small and mid-sized companies, as indices comprised of smaller companies outperformed the large company S&P 500 Index. In addition, the fund’s allocation to publicly traded real estate investment trusts (REITs) gained 3.8% and contributed to the positive benchmark-relative performance.
  • For the three months ended December 31, the fund gained 0.95% and outperformed the fund benchmark by 0.70%. As was the case in the month of December, the fund’s greater-than-benchmark allocation to small and mid-sized companies contributed to the fund’s positive benchmark-relative performance as the Russell 2000 Index of small company stocks gained 1.9% compared to the -0.4% return for the large company S&P 500 Index. In addition, the fund’s alternative real estate and private equity strategies positively contributed to benchmark-relative performance resulting from net gains collectively recognized by the underlying managers in the fourth quarter.
  • For the year, the U.S. Equity Fund gained 15.05% but underperformed its benchmark return by 1.37%. The fund’s 10% allocation to the alternative investment strategies of private equity and private real estate gained 5.8% and 7.5% respectively. The performance difference of these two strategies relative to the fund benchmark was the primary contributor to the fund’s underperformance. Collectively, the fund’s mid and small-company managers outperformed their benchmarks, while two of the fund’s growth-oriented large company managers meaningfully underperformed their benchmarks and detracted from the fund’s benchmark-relative performance.

International Equity Fund

Fund December Q4 2012 Year-to-Date
International Equity Fund +3.11% +6.12% +19.67%
MSCI ACWI ex US +3.53% +5.74% +17.04%
Difference -0.42% +0.38% +2.63%
  • The International Equity Fund advanced 3.11% in December, underperforming its benchmark return by 0.42%. Several of the fund’s managers held a below-benchmark weighting in the strong Japanese market, which adversely affected their performance relative to their respective benchmarks. The fund benefited from its 7% allocation to international REITs, which gained 5.4% for the month.
  • For the three months ending December 31, the fund gained 6.12% and outperformed its benchmark by 0.38%. The primary contributor to the fund’s excess performance was its 7% allocation to international REITs, which gained 12.4% during the quarter compared with the benchmark’s 5.7% gain.
  • For the year, the International Equity Fund gained 19.67% and significantly outperformed its benchmark by 2.63%. The primary contributors to the positive relative performance include the fund’s 7% allocation to international REITs and 15% allocation to international small companies, which gained 46% and 23% respectively for the year. In addition, the fund’s seven active managers collectively exceeded their respective performance benchmarks significantly.

Multiple Asset Fund

Fund December Q4 2012 Year-to-Date
Multiple Asset Fund +1.43% +2.18% +13.76%
Composite Benchmark +1.18% +1.54% +13.35%
Difference +0.25% +0.64% +0.41%
  • For December, the Multiple Asset Fund (MAF) gained 1.43% and outperformed its fund benchmark, with three of the four funds that comprise MAF positively contributing to benchmark-relative performance.
  • For the three months ending December 31, the fund gained 2.18% and outperformed the fund’s benchmark by 0.64%. All four funds that comprise MAF outperformed their respective benchmarks in the fourth quarter.
  • For the year, the Multiple Asset Fund gained 13.76% and outperformed the 13.35% return realized by the fund benchmark. The Fixed Income Fund, Inflation Protection Fund and International Equity Fund all positively contributed to benchmark-relative performance, whereas the benchmark-relative performance of the U.S. Equity Fund detracted from benchmark-relative performance.

Balanced Social Values Plus Fund

Fund December Q4 2012 Year-to-Date
Balanced Social Values Plus Fund +0.57% -0.04% +9.17%
Composite Benchmark +0.72% -0.02% +8.73%
Difference -0.15% -0.02% +0.44%

 

 
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