May 2010 Investment Report


  • Volatility returned to the markets in May on rising concerns about the European debt crisis. After reaching a year-to-date peak in late May, U.S. equity markets, represented by the Russell 3000 Index, reversed course and declined 7.9%, the worst May performance since 1940.
  • Small-company U.S. stocks declined 7.6% but modestly outperformed large-company U.S. stocks. Stocks with strong earnings growth outperformed stocks classified as “value” stocks.
  • International markets were especially adversely affected by the European credit crisis. The bellwether MSCI EAFE Index, which measures performance of developed-country stocks, retreated 11.5%. Stocks of developing countries, as measured by the MSCI Emerging Markets Index, declined 8.8%. Developing countries have generally outperformed developed markets as their local economies have rebounded faster from the global recession.
  • U.S. credit markets declined slightly during May. High-quality “investment grade” bonds, as measured by the Barclays U.S. Credit Index, fell 0.4%. The turmoil in Europe weakened demand for riskier assets and resulted in higher interest rate premiums (known as credit spreads) over low-risk U.S. Treasury securities at month-end.
  • In the bond markets, investors sought safety in lower-risk investments. U.S. Treasury securities benefited from Europe’s fiscal problems. The yield on the 10-year U.S. Treasury note ended the month at 3.3%, decreasing from 3.7% at the beginning of the month. Inflation remains muted, as the Federal Reserve Bank (Fed) reiterated its commitment to keep interest rates low for an extended period.

Economics Highlights

  • While first-quarter Gross Domestic Product (GDP) was revised down to 3.0%, the majority of U.S. economic statistics continue to confirm the slow but steady recovery of the economy.
  • The housing market benefited from the expiring homebuyer tax credit program, as new home sales grew a robust 15% from the prior month and is up 50% from year-ago levels.
  • Employers added 431,000 jobs in May. While this was an increase over May’s total, it reflected significant hiring of part-time government census workers. The unemployment rate fell slightly to 9.7%, but remains stubbornly elevated.
  • Commodity prices declined as the European crisis raised questions about global demand for commodities. Oil prices dipped below the $70-per-barrel level briefly near month-end and finished the month with a 16% decline.

Geopolitical Headlines

  • The announcement last month of an enhanced loan rescue program for fiscally troubled euro-zone countries proved to be of temporary comfort to world markets. The magnitude of the problem and its potential impact on European economic growth resulted in the U.S. dollar strengthening 7.4% against the euro, which hit a four-year low of $1.23.
  • Stock prices dropped dramatically in the final hours of trading on May 6 for no apparent reason, prompting market observers to coin the term “flash crash” to describe the phenomenon. There still seems to be no authoritative explanation for the decline, and it provided additional arguments for government intervention in the financial markets.
  • British Petroleum (BP) has been unable to stem the flow of oil from its deep-water drilling site in the Gulf of Mexico. The spill is now an environmental disaster of greater proportions than the 1989 Exxon Valdez accident, and it is likely to have far-reaching implications for the future of U.S. offshore drilling and the Gulf Coast economy.

Investment Fund Review

Inflation Protection Fund

Fund May Year-to-Date
Inflation Protection Fund -1.4% +1.7%
Barclays Capital U.S. Government Inflation-Linked Bond Index -0.1% +2.9%
Difference -1.3% -1.2%
  • The Inflation Protection Fund declined 1.4% for the month of May and underperformed its benchmark by a margin of 1.3%. The fund’s investment in commodities was the biggest detractor from performance, with an absolute return of -9.1%. The fund’s allocation to global inflation-linked bonds contributed positively to performance.
  • For the year, the fund has underperformed its benchmark principally due to its allocation to commodities.

Domestic Bond Fund

Fund May Year-to-Date
Domestic Bond Fund -1.0% +3.4%
Barclays Capital U.S. Universal (ex MBS) Index +0.2% +3.8%
Difference -1.2% -0.4%
  • The Domestic Bond Fund declined 1.0% for the month of May and underperformed its benchmark by a margin of 1.2%. The affordable housing strategy generated the highest absolute return. The developing-market and global bond strategies, which hold securities denominated in foreign securities, detracted the most from performance due to the strength of the dollar.
  • The fund has returned 3.4% for the year, underperforming its benchmark by a margin of 0.4%. The fund’s positive social purpose lending strategy generated the highest absolute return for the year. All fund strategies, with the exception of the global bond strategy, have generated positive returns for the year. The global bond strategy has declined 3.0% for the year principally due to the strength of the U.S. dollar.

Domestic Stock Fund

Fund May Year-to-Date
Domestic Stock Fund -6.8% +0.1%
Russell 3000 -7.9% -0.3%
Difference +1.1% +0.4%
  • The Domestic Stock Fund declined 6.8% for the month of May and outperformed its benchmark by a margin of 1.1%. Twelve of the fund’s 15 active strategies outperformed their respective benchmarks. In addition, the fund’s allocation to alternative investments contributed to the fund’s outperformance compared with the benchmark. Alternative investments, non-public interests in real estate and private equity, are an important diversifying influence in the portfolio, though performance tends to lag overall market performance in both up and down markets.
  • For the year, the fund has outperformed its benchmark due primarily to the fund’s allocation to small and mid-sized companies. The fund’s allocation to publicly traded real estate securities has also attributed positively to performance. This has been partially offset by the investment managers collectively underperforming their respective benchmarks.

International Stock Fund

Fund May Year-to-Date
International Stock Fund -10.6% -7.4%
MSCI ACWI x US -10.8% -9.5%
Difference +0.2% +2.1%
  • The International Stock Fund returned -10.6% for the month of May. The slightly better-than-benchmark performance is attributable to the fund’s allocation to developing-country stocks, which outperformed developed-country stocks.
  • For the year, the fund outperformed its benchmark by a margin of 2.1% because of collectively strong benchmark-relative performance of the fund’s managers.

Multiple Asset Fund

Fund May Year-to-Date
Multiple Asset Fund -5.6% -0.4%
Composite Benchmark -5.7% -0.7%
Difference +0.1% +0.3%
  • For the month, the Multiple Asset Fund outperformed its composite benchmark slightly due to the relative outperformance of the International Stock Fund and Domestic Stock Fund. Performance was offset by the less-than-benchmark performance of the Domestic Bond Fund and Inflation Protection Fund.
  • For the year, the fund outperformed its benchmark principally due to the better-than-benchmark performance of the International Stock Fund and Domestic Stock Fund. Performance was partially offset by the less-than-benchmark performance of the Inflation Protection Fund and Domestic Bond Fund.

Balanced Social Values Plus Fund

Fund May Year-to-Date
Balanced Social Values Plus Fund -4.3% +0.5%
Composite Benchmark -4.4% +0.0%
Difference +0.1% +0.5%


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