September 2013 Investment Report

Markets

  • U.S. equities represented by the Russell 3000 Index increased 3.7% during September. Investors reacted positively to the U.S. Federal Reserve (the Fed) announcement that quantitative easing would continue unchanged. The S&P 500 reached a new all-time high during the month and has gained 19.8% year-to-date.
  • Investors favored small companies with strong earnings growth, as measured by the Russell 2000 Growth Index (+7.0%). Large growth companies as measured by the Russell 1000 Growth gained 4.5%, whereas large companies classified as “value” gained only 2.5%, as measured by the Russell 1000 Value Index.
  • Developed country international equities as measured by the MSCI EAFE Index gained 7.4% in U.S. dollar terms during the month. The Fed’s continued quantitative easing contributed to a weakening U.S. dollar, which resulted in stronger international equity returns when measured in U.S. dollar terms. Developing nation equities as measured by the MSCI Emerging Markets Index gained 6.5%. Year-to-date, international equities have gained 10.6%, as measured by the MSCI All Country World ex-U.S. (IMI) Index.
  • The U.S. Treasury yield curve declined in September, most notably in the 5- to 10-year maturity range. The decline in yields was attributed to the Fed’s September decision to delay tapering the current pace of bond purchases through its quantitative easing program. The 2-year U.S. Treasury Note yield decreased by 0.08% to 0.32%; the 5-year Note yield decreased by 0.26% to 1.38%; and the 10-year Note yield decreased by 0.17% to 2.61%. The long bond (30-year U.S. Treasury) decreased 0.01% in yield to 3.69%.
  • U.S. Treasury securities as measured by the Barclays U.S. Treasury Index increased 0.7% in September, reflecting the decline in the U.S. Treasury yield curve. Investment-grade debt as represented by the Barclays U.S. Credit Index increased 0.8% for the month. Below-investment-grade debt as measured by the Barclays U.S. Corporate High-Yield Index increased 1.0%, modestly outperforming investment-grade credit. Developing country local currency debt as measured by the JPMorgan Government Bond Index-Emerging Markets increased 4.6% in September on an unhedged U.S. dollar basis. The increase was attributed to investors’ willingness to purchase riskier assets after the Federal Reserve announced the continuation of U.S. monetary stimulus.
  • The U.S. dollar as measured by the U.S. Dollar Index decreased 2.3% in September. During the month, the euro increased 2.3% relative to the dollar, and the British pound increased 4.4% relative to the dollar. The Japanese yen decreased by a modest 0.1%. Currencies of developing countries were generally strong relative to the dollar during September, which partially reversed recent weakness. The Brazilian real, Indian rupee and Mexican peso increased 7.6%, 4.9% and 2.2% respectively relative to the U.S. dollar.
  • Commodities as represented by the Dow Jones UBS Commodity Index decreased 2.6% in September. The petroleum sector declined 4.8%, and precious metals declined 5.6% during the month. The precious metals sector has declined 23.3% year-to-date through September. This decline in precious metals has been attributed to the combination of low U.S. inflation and strong stock market returns, which have caused precious metals to lose favor with some investors.

Economics Highlights

  • The Fed unexpectedly decided not to taper its quantitative easing program, citing job market conditions as rationale for its decision. The news sent stocks sharply higher. Fed Vice Chairman Janet Yellen became the frontrunner to replace current Fed Chairman Ben Bernanke in January 2014, after former Treasury Secretary Larry Summers reluctantly withdrew his name for the position. Summers cited his desire to avoid an acrimonious confirmation process at a time when the nation faces complex challenges.
  • Non-essential U.S. federal government functions shut down at midnight September 30 as the House, Senate and Obama Administration were unable to agree on a budget. The debt ceiling and the implementation of the Affordable Care Act were major points of contention.
  • The Justice Department and JP Morgan Chase discussed a possible $12 billion settlement for the banking giant’s alleged violations. The Justice Department has multiple open investigations against the bank on issues ranging from the sale of mortgage-backed securities before the 2008 global financial crisis to JP Morgan Chase’s hiring of relatives of top Chinese officials. These investigations and potential settlement are part of U.S. Attorney General Eric Holder efforts to aggressively pursue JP Morgan Chase and other large financial institutions regarding their involvement in the global financial crisis.

Geopolitical Headlines

  • Angela Merkel won a historic third term as German chancellor by a wide margin, putting her on course to surpass Margaret Thatcher as Europe’s longest-serving female leader. Merkel led Germany through the recent euro zone crisis, helping the country achieve nearly its lowest unemployment rate in two decades.
  • At least 72 people were killed when gunmen attacked an upscale shopping mall in Nairobi, Kenya. Al Queda-linked militant group Al-Shabaab claimed responsibility for the attack, which lasted three days and resulted in the deaths of at least 61 civilians, six Kenyan soldiers and five attackers.
  • Syrian president Bashar Assad vowed to abide by the U.N. resolution calling for destruction of the country's chemical weapons stockpile. The announcement came following the deadly chemical weapons attack in Syria during August.
  • President Obama and Iranian President Hassan Rouhani spoke via telephone in the first conversation between U.S. and Iranian presidents since 1979. President Obama said he believes the two countries can reach a comprehensive solution on Iran’s nuclear program.

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 and Since Inception periods, please visit our Historical Funds Performance page.

Inflation Protection Fund

Fund September QTD Year-to-Date
Inflation Protection Fund +0.99% +0.93% -5.42%
Barclays Capital U.S. Government Inflation-Linked Bond Index +1.47% +0.64% -7.25%
Difference -0.48% +0.29% +1.83%

 

  • The Inflation Protection Fund (IPF) gained 0.99% in September and underperformed the fund’s benchmark return of 1.47%. Three of the fund’s four diversifying strategies detracted from benchmark-relative performance, with the fund’s 10% allocation to commodities futures contracts declining 2.3%. The fund’s 10% allocation to inflation-linked bonds from developing countries was the Inflation Protection Fund’s only diversifying strategy that added value in September, gaining 4.5% during the month and rebounding from a double-digit loss for the year through the end of August.
  • For the quarter, the Inflation Protection Fund gained 0.93% and outperformed its benchmark return by 0.29%. The fund’s diversifying strategies of commodities futures contracts and floating rate senior-secured loans contributed positively to benchmark-relative performance, gaining 4.3% and 1.2%, respectively. The fund’s allocation to bonds from developing countries declined 0.4% and detracted from its performance.
  • For the year to date, the Inflation Protection Fund has declined 5.42% but has outperformed its benchmark by 1.83%. Three of the fund’s diversifying strategies contributed positively to benchmark-relative performance, including the fund’s allocation to floating rate senior-secured loans, which has gained 3.3% year-to-date and is the best-performing strategy within the Inflation Protection Fund. The fund’s allocation to inflation-linked bonds of developed countries has also added value relative to the benchmark, declining 2.9% year-to-date. However, the fund’s allocation to bonds from developing countries detracted from performance, declining 11.6% year-to-date.

Fixed Income Fund

Fund September QTD Year-to-Date
Fixed Income Fund +1.47% +1.17% -1.56%
Barclays Capital U.S. Universal (ex MBS) Index +0.86% +0.65% -1.75%
Difference +0.61% +0.52% +0.19%

 

  • The Fixed Income Fund (FIF) advanced 1.47% in September and outperformed its benchmark return by 0.61%. Bonds denominated in currencies other than the U.S. dollar contributed positively to benchmark-relative performance. The fund’s 10% allocation to bonds from developing countries gained 3.6%, while the portfolio’s allocation to bonds from developed countries gained 2.1% primarily due to weakness in the U.S. dollar.
  • For the quarter, the Fixed Income Fund gained 1.17% and outperformed the benchmark return by 0.52%. The fund’s two allocations to below-investment-grade debt gained more than 2% and contributed positively to benchmark-relative performance. In addition, the fund’s 9% allocation to positive social purpose loans gained 2.3%. Only one of the fund’s 10 portfolio managers detracted from benchmark-relative performance.
  • For the year-to-date, the Fixed Income Fund has declined 1.56% and slightly outperformed its benchmark by 0.19%. The fund’s two allocations to below-investment-grade debt have gained more than 3% and contributed positively to benchmark-relative performance. The fund’s allocation to positive social purpose loans has gained 4.0% and contributed positively to benchmark-relative performance. However, the fund’s allocation to developing countries detracted from performance, declining 7.0%.

U.S. Equity Fund

Fund September QTD Year-to-Date
U.S. Equity Fund +4.24% +8.03% +23.23%
Russell 3000 +3.72% +6.35% +21.30%
Difference +0.52% +1.68% +1.93%

 

  • The U.S. Equity Fund (USEF) gained 4.24% in September and outperformed the fund’s Russell 3000 Index benchmark by 0.52%. The fund’s greater-than-benchmark allocation to stocks of small and mid-sized companies contributed to its positive benchmark-relative performance, as the Russell 2000 Index of small companies returned 6.4% compared to the S&P 500 Index total return of 3.1%. In addition, 10 of the fund’s 12 active investment strategies outperformed their respective benchmarks and contributed positively to the fund’s excess performance. The fund’s 6% allocation to the alternative investment strategies of private equity and private real estate detracted modestly from benchmark-relative performance—a trend that is typical during periods of strong public market performance.
  • For the third quarter, the U.S. Equity Fund advanced 8.04% and meaningfully outperformed the fund benchmark return of 6.35%. The largest contributor to the fund’s positive benchmark performance was the portfolio managed by growth manager Zevenbergen, which gained 23.4% for the prior three months. The Zevenbergen portfolio benefited from significant appreciation of several stocks including Tesla, Netflix, LinkedIn, Facebook and Zillow. In addition, the fund’s greater-than-benchmark exposure to stocks of small and mid-sized companies contributed positively to excess performance, as the Russell 2000 Index of small stocks gained 10.2% for the quarter compared to the S&P 500’s 5.2% total return during the same time period. The U.S. Equity Fund’s average 8% allocation to alternative investment strategies detracted from benchmark-relative performance, as the strategies collectively gained slightly more than 3% during the quarter. During the quarter, the fund received significant redemptions from its private real estate strategies, resulting in a decline in the value of the fund’s alternative investments exposure as a percentage of the total fund.
  • For the year-to-date, the fund has gained 23.23% and is outperforming its benchmark return by 1.93%. The fund’s active managers have collectively outperformed their respective benchmarks, benefiting from their collective higher-than-benchmark allocations to small and mid-sized companies. The Russell 2000 Index has gained 27.7% through September. The fund’s best-performing manager, Zevenbergen, has produced a 52.6% return and exceeds its performance benchmark by more than 30 percentage points for the year-to-date, whereas the fund’s worst-performing manager has only underperformed by less than 4 percentage points. The fund’s allocation to the diversifying strategy of public real estate investment trusts (REIT) has gained only 2.3% for the year and has detracted from performance. In addition, the fund’s allocation to the alternative investment strategies of private equity and private real estate have gained 5.9% and 11.2% respectively, compared to the strong returns from the public equity markets; these results offset the positive contributions from the fund’s active managers.

International Equity Fund

Fund September QTD Year-to-Date
International Equity Fund +6.94% +10.55% +11.42%
MSCI ACWI ex US +7.07% +10.37% +10.57%
Difference -0.13% +0.18% +0.85%

 

  • The International Equity Fund (IEF) advanced a very strong 6.94% in September and slightly underperformed its benchmark return of 7.07%. The response of the international markets mirrored U.S. market increases resulting from the Fed’s unexpected announcement that it would delay its much-anticipated tapering of monetary stimulus and the withdrawal of Fed Chair candidate Lawrence Summers. In addition, the international markets benefited from U.S. dollar weakness, which was also an outcome of the taper delay. During September, the fund implemented a new policy that will adjust the value of the fund’s investments based on financial market activity that transpires after the international markets close but before 4:00 p.m. Eastern time. This new daily valuation policy is described here. In September, this policy had a slight positive impact on the International Equity Fund’s benchmark-relative performance. The new policy will positively or negatively impact future benchmark-relative performance each month; the results will depend on what transpires in the U.S. markets on the last business day of each month.
  • For the three months ending September 30, the International Equity Fund has gained 10.55% and outperformed the fund’s benchmark by 0.18%. In addition to the positive impact resulting from the new daily valuation policy, the fund benefited from its slight underweighting of stocks of developing countries. The MSCI Emerging Markets Index gained 5.5% compared to the 11.6% gain of the MSCI EAFE Index of developed country stocks. The fund’s 6% exposure to international REITs detracted from performance as the strategy gained only 8.3% for the quarter.
  • For the year-to-date, the International Equity Fund has gained 11.42% and outperformed its benchmark return by 0.85%. The fund’s allocation to small international companies has gained 17.1% and positively contributed to the fund’s benchmark-relative performance. The fund has also benefited from its below-benchmark allocation to the stocks of developing countries, as the MSCI Emerging Markets Index has declined 3.9% so far this year. The fund’s allocation to international REITs has gained 6.2% year-to-date and modestly detracted from benchmark-relative performance.

Multiple Asset Fund

Fund September QTD Year-to-Date
Multiple Asset Fund +3.76% +6.09% +11.46%
Composite Benchmark +3.45% 5.15% +10.13%
Difference +0.31% +0.94% +1.33%

 

  • For September, the Multiple Asset Fund (MAF) gained 3.76% and outperformed its fund benchmark by 0.31%. The U.S. Equity Fund and Fixed Income Fund each contributed positively to benchmark-relative performance, while the International Equity Fund and Inflation Protection Fund each detracted from benchmark-relative performance.
  • For the third quarter, the fund returned 6.09% and meaningfully exceeded its benchmark’s 5.15% return. All four of the Multiple Asset Fund’s strategies outperformed their respective benchmarks, with the U.S. Equity Fund’s excess performance contributing more than half of the Multiple Asset Fund’s excess performance this quarter.
  • For the year-to-date, the Multiple Asset Fund has gained 11.46% and outperformed its benchmark return by 1.33%. As for the quarter, all four of the fund’s strategies outperformed their respective benchmarks, with the U.S. Equity Fund’s excess performance contributing more than half of the Multiple Asset Fund’s excess performance.

Balanced Social Values Plus Fund

Fund September QTD Year-to-Date
Balanced Social Values Plus Fund +2.42% +2.97% +13.34%
Composite Benchmark +2.58% +3.22% +13.36%
Difference -0.16% -0.25% -0.02%

 

 
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