June 2013 Investment Report

Markets

  • U.S. equities represented by the Russell 3000 Index decreased 1.3% during June. Markets declined as the U.S. Federal Reserve (the Fed) indicated it may reduce monetary stimulus sooner than previously expected. June was the first monthly decline for the Russell 3000 since October 2012.
  • Small company stocks as measured by the Russell 2000 Index were down 0.5%, yet performed better than large company stocks. Regardless of company size, investors favored stocks classified as “value” over those with strong earnings growth.
  • Developed country international equities as measured by the MSCI EAFE Index declined 3.6% during the month, but outperformed developing markets as measured by the MSCI Emerging Markets index, which declined 6.7%. The central bank of China—the largest developing market country as measured by Gross Domestic Product (GDP)—put downward pressure on markets by allowing interest rates to rise.
  • The U.S. Treasury yield curve steepened as yields increased in June. The 2-year U.S. Treasury Note yield increased by 0.06% to 0.36%, and the 10-year U.S. Treasury Note yield increased by 0.36% to 2.49%. The long bond (30-year U.S. Treasury) increased 0.22% in yield to 3.50%. Market observers attributed the rising yield to comments by U.S. Federal Reserve Chairman Ben Bernanke regarding expected reductions to the exceptional monetary stimulus of its Quantitative Easing program.
  • U.S. Treasury securities as measured by the Barclays U.S. Treasury Index decreased 1.1% in June. Investment-grade debt as represented by the Barclays U.S. Credit Index decreased 2.9% for the month, underperforming Treasuries as credit spreads widened due to concerns about reduced monetary stimulus. Below-investment-grade debt as measured by the Barclays U.S. Corporate High-Yield Index decreased 2.6%. Developing nation local currency debt as measured by the JPMorgan Government Bond Index-Emerging Markets decreased 3.5% in June on an un-hedged U.S. dollar basis, due to a combination of rising yields and declining currencies in developing nations.
  • The U.S. dollar as measured by the U.S. Dollar Index decreased 0.3% in June. During the month, the euro and the British pound each increased 0.1% relative to the dollar, and the Japanese yen increased 1.3%. Currencies of most developing nations were weak, and the Mexican peso and Brazilian real decreased 0.9% and 4.1%, respectively.
  • Commodities as represented by the Dow Jones UBS Commodity Index decreased 4.7% in June. The precious metals sector was the weakest and declined 12.3%. Within precious metals, the price of gold declined to the lowest level since 2010, reflecting market expectations for reductions in monetary stimulus from the U.S. Federal Reserve.

Economics Highlights

  • U.S. Federal Reserve Chairman Bernanke unsettled global markets with a statement that current expectations indicate it would be appropriate to reduce the $85 billion per month pace of Federal Reserve purchases of U.S. Treasury and mortgage-backed securities later this year. Bernanke said the asset-purchase tapering would likely continue into next year and culminate in an end to asset purchases around mid-2014.
  • Mortgage finance entity Freddie Mac (the Federal Home Loan Mortgage Corporation) reported an average 30-year mortgage interest rate of 4.46% in its June 27 weekly survey results, up from 3.93% the previous week and 3.81% the week of May 27. The weekly increase was the largest percentage rise since 1987. Mortgage interest rates climbed following the rise in the 10-year U.S. Treasury Note yield and led to debate about potential impact on the U.S. housing market recovery; however, Freddie Mac noted that home ownership remains highly affordable on an historical basis.
  • China’s central bank provided liquidity to credit markets after a credit shortage in China caused some overnight borrowing rates to briefly rise above 13%. The central bank had allowed the credit shortage to temporarily develop as a signal to Chinese lenders to exercise prudence in lending and to comply with government lending restrictions.

Geopolitical Headlines

  • Edward Snowden, a former computer contractor for the National Security Agency (NSA) and former employee of the Central Intelligence Agency (CIA), leaked details of the NSA’s classified telephone and internet surveillance program to the press. Snowden fled the U.S. to Hong Kong, then Moscow; his search for political asylum continues to unfold.
  • Hassan Rohani won the presidential election in Iran in an unexpected outcome. Rohani, who is viewed as a centrist reformer, received widespread electoral support amid hopes that he will bridge reformists and conservatives to create a path for social and economic change.
  • Public discontent led to large protests around the globe, especially in developing nations such as Brazil, Turkey, Indonesia and Bulgaria. The protests spanned issues that included rising inflation, political corruption, poverty and inadequate public services.
  • Millions of Egyptians gathered in Cairo to protest the presidency of Mohamed Morsi on the first anniversary of his inauguration. Demonstrators set fire to Muslim Brotherhood headquarters and called for Morsi’s resignation. His first year as president was marked by political polarization and economic hardship in Egypt. By July 3, the Egyptian military had deposed Morsi and installed Adly Mansour, head of the Supreme Constitutional Court, as interim president.

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

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 June QTD Year-to-Date
Inflation Protection Fund -3.87% -6.64% -6.29%
Barclays Capital U.S. Government Inflation-Linked Bond Index -3.77% -7.39% -7.84%
Difference -0.10% +0.75% +1.55%
  • Despite the fact that May’s performance represented the worst monthly decline since October 2008, the Inflation Protection Fund (IPF) experienced an even worse loss in June, declining 3.87% due to market fears that the Fed’s bond buying program would be coming to an end. The fund’s diversifying allocation to inflation-linked bonds from developing countries suffered the most, falling 6.8% in June. Only one of IPF’s diversifying strategies—its allocation to floating-rate senior secured loans—positively contributed to benchmark-relative performance, as the strategy experienced only a 0.5% loss. The benchmark-relative gain of the floating rate loan strategy offset the benchmark-relative loss of the developing country inflation-linked strategy, and the fund underperformed its benchmark by a nominal 0.10%.
  • For the second quarter, IPF declined 6.64% but outperformed its benchmark return by 0.75%. Although the fund’s diversifying strategies of commodities and inflation-linked bonds from developing countries detracted from performance—declining 8.2% and 12.4% respectively—the fund’s allocation to floating-rate senior secured loans gained 0.4%. This, combined with the better-than-benchmark performance of the fund’s allocation to developed country inflation-linked bonds, more than offset the negative contribution of the other two diversifying strategies.
  • For the year to date, IPF has declined 6.29% but has outperformed its benchmark by 1.55%. The fund’s allocation to floating-rate senior secured loans has gained 2.0% and contributed the most to its benchmark-relative performance. The fund’s allocation to developed country inflation-linked bonds also positively contributed to its benchmark-relative performance. As was the case for the second quarter, the fund’s allocations to commodities and inflation-linked bonds from developing countries both detracted from its benchmark-relative performance.

Fixed Income Fund

Fund June QTD Year-to-Date
Fixed Income Fund -2.57% -3.03% -2.70%
Barclays Capital U.S. Universal (ex MBS) Index -2.02% -2.50% -2.39%
Difference -0.55% -0.53% -0.31%
  • The Fixed Income Fund (FIF) experienced a second month of meaningful negative performance, declining 2.57% in June, which was slightly worse than the fund’s performance in May. The fund underperformed its benchmark return by 0.55%. The fund’s 10% allocation to bonds from developing countries declined 5.2% and was the primary contributor to the fund’s below-benchmark performance. In addition, the fund’s lower-than-benchmark allocation to U.S. Treasury securities detracted from benchmark-relative performance, as investors sold corporate and other credit-related fixed income investments in anticipation of higher interest rates resulting from an end of the Fed’s Quantitative Easing program. Partially offsetting the negative benchmark-relative performance of these two strategies was the fund’s allocation to positive social purpose loans, which declined 1.2%.
  • For the second quarter, FIF declined 3.03% and underperformed its benchmark return by 0.53%. The fund’s 10% allocation to bonds from developing countries declined 8.0% and detracted the most from benchmark-relative performance. In addition, the fund’s higher-than-benchmark allocation to credit also detracted from performance. During the quarter, FIF’s allocation to positive social purpose loans and its allocation to more speculative credit instruments both declined 0.2% and positively contributed to its benchmark-relative performance.
  • For the year to date, FIF has declined 2.70% and has underperformed the fund benchmark by 0.31%. The fund’s allocation to bonds from developing countries declined 7.8% and detracted the most from benchmark-relative performance. The fund’s higher-than-benchmark allocation to investment grade credit also detracted from benchmark-relative performance. Three of the fund’s diversifying strategies produced positive performance and partially offset the negative contribution from developing country bonds and investment grade credit. FIF’s allocation to more speculative credit instruments gained 2.7%. The fund’s allocation to below-investment-grade bonds gained 1.1%, and its 10% allocation to positive social purpose loans gained 1.7%.

U.S. Equity Fund

Fund June QTD Year-to-Date
U.S. Equity Fund -0.77% +3.08% +14.07%
Russell 3000 -1.30% +2.69% +14.06%
Difference +0.53% +0.39% +0.01%
  • The U.S. Equity Fund (USEF) lost 0.77% in June and outperformed the fund’s Russell 3000 Index benchmark by 0.53%. The fund’s greater-than-benchmark allocation to the stocks of small and mid-sized companies contributed to the positive benchmark-relative performance, as the Russell 2000 Index of small companies lost only 0.5% compared to the S&P 500 Index loss of 1.3%. The fund also recognized gains in its alternative investments, with its private real estate and private equity holdings gaining about 1.5% for the month. In addition, USEF’s investment managers collectively outperformed their respective benchmarks, with only two of the fund’s 12 active managers underperforming their benchmarks.
  • For the second quarter, USEF gained 3.08% and outperformed its benchmark by 0.39%. The fund’s active managers’ collective better-than-benchmark performance contributed the most to USEF’s relative performance, with 10 of the fund’s 12 managers outperforming. The portfolio of one of the fund’s growth managers, Zevenbergen, gained 10.3%, surpassing its benchmark return by over eight percentage points. The only significant detractor from benchmark-relative performance was USEF’s modest allocation to public real estate investment trusts (REITs), which declined 1.0% for the quarter.
  • For the year to date, USEF has gained 14.07%, which almost exactly matches the benchmark return of 14.06%. Better-than-benchmark returns by several of the fund’s managers have contributed positively to benchmark-relative performance; however, these favorable returns are nearly fully offset by USEF’s 10% allocation to the alternative investment strategies of private real estate and private equity, which have gained 6.2% and 3.2% respectively.

International Equity Fund

Fund June QTD Year-to-Date
International Equity Fund -4.25% -3.00% +0.78%
MSCI ACWI ex US -4.43% -3.27% +0.18%
Difference +0.18% +0.27% +0.60%
  • The International Equity Fund (IEF) declined 4.25% in June but outperformed its benchmark return by 0.18%. Stock markets around the world declined on worries of economic contraction resulting from the anticipated end of the U.S. Fed Quantitative Easing program. The Japanese stock market was the only international market to register a gain, in dollar terms, as the MSCI Japan IMI Index gained 1.4%. The fund benefitted from its underweighting of stocks from developing countries, as the MSCI Emerging Markets IMI Index declined 6.7%.
  • For the quarter, IEF declined 3.00% and outperformed its benchmark return by 0.27%. As was the case for the month of June, the fund’s less-than-benchmark allocation to stocks of developing countries contributed positively to benchmark-relative performance, as the MSCI Emerging Markets IMI Index declined 8.0%.
  • For the year to date, the IEF has gained 0.78% and has outperformed its benchmark return by 0.60%. The fund’s less-than-benchmark allocation to developing countries contributed the most to benchmark-relative performance, with the MSCI Emerging Markets IMI Index falling 8.9% for the first six months of 2013. IEF also benefitted from its allocation to small international companies, which has gained 5.4%. The fund’s allocation to international REITs has declined 2.0% and has detracted from its benchmark-relative performance.

Multiple Asset Fund

Fund June QTD Year-to-Date
Multiple Asset Fund -2.11% -0.49% +5.07%
Composite Benchmark -2.35% -0.83% +4.74%
Difference +0.24% +0.34% +0.33%
  • For June, the Multiple Asset Fund (MAF) declined 2.11% and outperformed its fund benchmark by 0.24%. Both equity funds contributed positively to benchmark-relative performance, while the underperformance of FIF and IPF detracted from performance.
  • For the second quarter, MAF declined 0.49%, yet outperformed its benchmark by 0.34%. Three of the four funds that comprise MAF outperformed their relative benchmarks, and only FIF detracted from performance.
  • For the year-to-date, MAF has gained 5.07% and has outperformed its benchmark return by 0.33%. The Inflation Protection Fund and the International Equity Fund have both positively contributed to benchmark-relative results, and the Fixed Income Fund detracted from relative performance.

Balanced Social Values Plus Fund

Fund June QTD Year-to-Date
Balanced Social Values Plus Fund -0.96% +1.91% +10.07%
Composite Benchmark -0.84% +1.95% +9.83%
Difference -0.12% -0.04% +0.24%

 

 
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