August 2010 Investment Report


  • Equities fell during August as market participants continued to express skepticism about the economic recovery. U.S. equity markets, represented by the Russell 3000, declined 4.7%.
  • Large-company U.S. stocks outperformed small-company U.S. stocks. Among large-company stocks, those classified as “value” performed better than stocks with strong earnings growth potential, or “growth” stocks. Among small-company stocks, growth stocks performed better than value stocks.
  • International equities declined during August, though not to the same extent as U.S. equities. The bellwether MSCI EAFE Index, which measures performance of developed-country stocks in U.S. dollar terms, declined 3.1%. Stocks of developing countries, as measured by the MSCI Emerging Markets Index, declined 1.7% during the month.
  • U.S. credit markets advanced in August, reflecting continued interest in less risky fixed-income investments. High-quality “investment-grade” bonds, as measured by the Barclays U.S. Credit Index, advanced 2.0%.
  • Demand for U.S. Treasury securities rose, as the yield on the 10-year Treasury note ended the month at 2.50%. At a recent policy conference, Federal Reserve Chairman Ben Bernanke signaled that he would propose additional stimulus measures should the economy exhibit further signs of weakening.

Economics Highlights

  • The Department of Commerce revised second-quarter Gross Domestic Product downward to an annual rate of 1.6%. Originally reported at 2.4%, the downward adjustment shows a more significant slowdown in economic activity from the first quarter rate of 3.7%.
  • Home sales continued to disappoint, reflecting the impact of the expiration of the homebuyer tax credit program. Sales of existing single-family homes fell to a seasonally adjusted annual rate of 3.8 million, a 26% year-over-year decline and a level not seen in over a decade. New homes sold in July also dropped precipitously, decreasing 32% from one year ago. Despite historically low interest rates, it seems that potential homebuyers are reluctant to purchase homes if prices continue to decline.
  • A jump in merger and acquisition activity is a positive sign of confidence in economic recovery. During August, several large transactions were announced, including the mining giant BHP Billiton’s $40 billion offer for fertilizer manufacturer Potash, the pharmaceutical company Sanofi-Aventis’ $18.5 billion bid for Genzyme and the computer microprocessor manufacturer Intel’s $7.7 billion bid for software company McAfee. In addition, increases in share repurchase programs by Hewlett-Packard, WebMD and drug retailer CVS is further evidence of faith in the economic recovery.
  • Commodity prices for agricultural goods, in particular wheat, surged during the month as Russia introduced a ban on wheat exports due to extreme summer drought and wildfires.

Geopolitical Headlines

  • President Obama declared the seven-year U.S. combat mission in Iraq over, and described restoration of the U.S. economy to full strength as his “central mission.”
  • President Obama and Secretary of State Hillary Clinton opened formal talks with Israeli and Palestinian officials in a bid to achieve regional stability and bring peace to the Middle East.
  • The Senate confirmed the appointment of new Supreme Court Justice Elena Kagan, making her the fourth woman to serve on the U.S. high court.
  • China reduced its holdings of U.S. Treasury securities by the greatest amount ever, according to a U.S. government report released in August. China’s holdings declined by $21 billion in June to a total of $840 billion. China, America’s largest creditor, recently abandoned its currency peg to the U.S. dollar, giving it less reason to buy dollars and invest in Treasuries.

Investment Fund Review

Effective August 1, 2010, the names of three General Board investment funds changed:

  • The Domestic Stock Fund (DSF) changed to the U.S. Equity Fund (USEF).
  • The International Stock Fund (ISF) changed to the International Equity Fund (IEF).
  • The Domestic Bond Fund (DBF) changed to the Fixed Income Fund (FIF).

The General Board changed these funds’ names to align them more closely with the funds’ investment strategies. Only the names of these funds changed. The funds’ investment strategies, investment managers, fund expenses, management and administration remain the same. Click on the following links for more information:

Inflation Protection Fund

Fund August Year-to-Date
Inflation Protection Fund +1.9% +5.6%
Barclays Capital U.S. Government Inflation-Linked Bond Index +1.8% +6.4%
Difference +0.1% -0.8%
  • The Inflation Protection Fund returned 1.9% for the month of August and slightly outperformed its benchmark primarily due to the fund’s allocation to non-U.S. inflation-linked bonds. The fund’s allocation to commodities detracted from performance.
  • For the year, the fund has underperformed its benchmark by a margin of 0.8% largely due to its allocation to commodities. The fund’s allocation to inflation-linked bonds from developing countries has contributed positively to performance.

Fixed Income Fund

Fund August Year-to-Date
Fixed Income Fund +1.6% +8.5%
Barclays Capital U.S. Universal (ex MBS) Index +1.7% +9.0%
Difference -0.1% -0.5%
  • The Fixed Income Fund returned 1.6% for the month of August but underperformed its benchmark by a margin of 0.1%. The fund’s allocation to lower-quality credit strategies and international bonds from developed countries detracted the most from performance. However, active management contributed positively to performance, as eight of 10 managers outperformed their respective benchmarks.
  • For the year, the fund has returned 8.5%, underperforming its benchmark by a margin of 0.5%. The fund’s allocation to bonds from developed countries has been a detractor from performance due to the impact of the European sovereign debt crisis on exchange rates relative to the U.S. dollar. However, bonds from developing countries, strong contribution from active management and the fund’s Positive Social Purpose loans, with the highest absolute return of 12.0% year-to-date, all contributed positively to performance.

U.S. Equity Fund

Fund August Year-to-Date
U.S. Equity Fund -4.2% -3.2%
Russell 3000 -4.7% -4.3%
Difference +0.5% +1.1%
  • The U.S. Equity Fund declined 4.2% for the month of August and outperformed its benchmark by a margin of 0.5%. The fund’s allocation to alternative investments contributed significantly to outperformance. The fund’s allocation to small and mid-sized companies detracted from performance, reflecting investor appetite for less risky securities should the economy continue to weaken.
  • For the year, the fund outperformed its benchmark by a margin of 1.1% due primarily to the fund’s allocation to private equity, public real estate securities and the equities of small and mid-sized companies. Underperformance by eight of the fund’s 15 active strategies, however, partially offset this positive contribution.

International Equity Fund

Fund August Year-to-Date
International Equity Fund -2.9% -3.4%
MSCI ACWI x US -2.7% -5.0%
Difference -0.2% +1.6%
  • The International Equity Fund returned -2.9% for the month of August, but slightly underperformed its benchmark. Below-benchmark performance by three of the fund’s active managers contributed to the underperformance, but the underperformance was partially offset by the fund’s developing-market managers and public real estate securities managers.
  • For the year, the fund has outperformed its benchmark by 1.6%. Contributors to benchmark-relative outperformance included the fund’s allocations to equities from developing countries and the strong benchmark-relative performance by two of the fund’s investment managers.

Multiple Asset Fund

Fund August Year-to-Date
Multiple Asset Fund -1.8% +0.5%
Composite Benchmark -2.0% +0.1%
Difference +0.2% +0.4%
  • The Multiple Asset Fund outperformed its composite benchmark slightly in August due to the relative outperformance of the U.S. Equity Fund and Inflation Protection Fund. The fund’s outperformance was offset by the less-than-benchmark performance of the International Equity Fund and Fixed Income Fund.
  • For the year, the fund has outperformed its composite benchmark due to the relative outperformance of the International Equity Fund and U.S. Equity Fund. This outperformance has been offset by the less-than-benchmark performance of the Inflation Protection Fund and Fixed Income Fund.

Balanced Social Values Plus Fund

Fund August Year-to-Date
Balanced Social Values Plus Fund -3.0% -1.9%
Composite Benchmark -3.2% -2.3%
Difference +0.2% +0.4%


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