September 2010 Investment Report


  • Equities solidly recovered in September, primarily on reports that Federal Reserve (The Fed) Chairman Ben Bernanke is considering additional stimulus measures to prevent the economy from slipping back into recession. U.S. equity markets, represented by the Russell 3000, advanced 9.4%.
  • Small-company U.S. equities outperformed large-company U.S. equities. For both groups, those with strong earnings growth performed better than equities classified as “value.”
  • International equities advanced during September, and modestly outperformed U.S. equities, primarily as a result of U.S. dollar weakness against world currencies. The bellwether MSCI EAFE Index, which measures performance of developed-country equities in U.S. dollar terms, increased 9.8%. Equities of developing countries, as measured by the MSCI Emerging Markets Index, increased 11.2% during the month.
  • Despite record corporate bond issuance, the Barclays Capital U.S. Credit Index gained 0.7% in September as demand for fixed income securities exceeded supply. The 10-year U.S. Treasury note finished the month with an interest rate yield of 2.53%—an increase of six basis points from August, though still very low by historical standards.

Economics Highlights

  • The Fed announced that it is evaluating additional purchases of long-term U.S. Treasury securities. Instead of utilizing the massive buying program that the Fed employed in 2009 to inject liquidity into the economy, the Fed is now considering a smaller-scale effort which could be adjusted as the economic recovery gains strength.
  • The National Bureau of Economic Research, a group of academic economists, reported that the most recent recession that began in December 2007 officially ended in June 2009 and represented the longest economic drought since the Great Depression.
  • Housing industry news continues to be mostly negative. August home sales rose modestly from July, reversing the downward sales trend that resulted from the expiration of the homebuyer tax credit. However, the current rate of home sales reflects activity levels comparable to 1997. At the current depressed sales level, it will take at least one year for the market to absorb the existing inventory of housing for sale.
  • Corporate bond issuance set a record of $159 billion in September as companies sought to take advantage of falling interest rates and investors continued to move funds into fixed-income investments.
  • Commodity prices continued their upward trend in September, rising 7.3% as measured by the Dow Jones UBS Total Return Index. Key drivers included crude oil (+11.4%), gold (+4.8%) and corn (+16.8%).

Geopolitical Headlines

  • British Petroleum closed its Gulf of Mexico oil well five months after the Deepwater drilling rig explosion. The long-term impact on ecosystems and the government’s ongoing oversight role in offshore drilling remain to be determined.
  • Congress postponed a decision to extend federal income tax cuts enacted under former President George W. Bush until after the November elections. Some observers fear that the delay raises uncertainty for small businesses and individual taxpayers regarding future tax liabilities, and this uncertainty could potentially inhibit new job creation.
  • The House of Representatives passed legislation that would give U.S. government officials the ability to levy tariffs on countries with monetary policies and other policies that might artificially undervalue their currencies. The measure specifically targets China’s practice of fixing its currency to the U.S. dollar, thereby potentially artificially inflating the value of U.S. goods. The Senate’s position is unclear given the bill’s potential for causing economic tension with one of the U.S.’s largest trade partners.

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


Investment Fund Review

Inflation Protection Fund

Fund September Q3 2010 Year-to-Date
Inflation Protection Fund +1.6% +4.5% +7.3%
Barclays Capital U.S. Government Inflation-Linked Bond Index +0.6% +2.5% +7.0%
Difference +1.0% +2.0% +0.3%
  • In September, the Inflation Protection Fund meaningfully outperformed its benchmark because of the fund’s diversification into commodities and inflation-linked debt of developing countries. The fund’s commodity portfolio gained 8.2% for the month.
  • For the third quarter, the fund significantly exceeded its performance benchmark due to the same factors contributing to September’s excess performance. The fund’s commodities portfolio advanced 14.2% and the portfolio of inflation-linked bonds from developing countries gained 9.6%
  • Because of September’s excess performance, the fund modestly exceeds its benchmark return for the year. Inflation-linked bonds from developing countries have contributed positively to performance, whereas bonds from developed countries have detracted from performance. The difference is due to strengthening currencies and economic conditions in the developing world.

Fixed Income Fund

(Note: Effective August 1, 2010, the Domestic Bond Fund was renamed the Fixed Income Fund.)

Fund September Q3 2010 Year-to-Date
Fixed Income Fund +1.4% +5.1% +10.0%
Barclays Capital U.S. Universal (ex MBS) Index +0.6% +3.8% +9.7%
Difference +0.8% +1.3% +0.3%
  • The Fixed Income Fund outperformed its benchmark by 0.8% due to the strength of the fund’s international bond holdings resulting from weakness in the U.S. dollar relative to foreign currencies during the month. In addition, the fund’s exposure to higher-risk bonds also contributed positively to performance, though this was slightly offset by the fund’s exposure to positive social purpose loans.
  • For the third quarter, the fund outperformed its benchmark for the same reasons. In addition, the fund’s core plus bond manager, Pacific Investment Management Company (PIMCO), attained excellent benchmark comparative results. The Positive Social Purpose lending portfolio detracted from returns in the third quarter, though performance for the nine months ending September 30 is strong.
  • For the year, the fund is modestly outperforming its benchmark due to the excellent benchmark relative performance by PIMCO, the fund’s exposure to bonds from developing countries, and excellent performance from the fund’s portfolio of Positive Social Purpose loans. The fund’s exposure to bonds from developed countries has slightly detracted from performance as interest rate declines in the U.S. have exceeded interest rate declines abroad, perhaps due to market expectations of more aggressive action by the Fed.

U.S. Equity Fund

(Note: Effective August 1, 2010, the Domestic Stock Fund was renamed the U.S. Equity Fund.)

Fund September Q3 2010 Year-to-Date
U.S. Equity Fund +9.3% +11.6% +5.8%
Russell 3000 +9.4% +11.5% +4.8%
Difference -0.1% +0.1% +1.0%
  • The U.S. Equity Fund slightly underperformed its benchmark in September. The fund’s higher exposure to the stocks of small and mid-sized companies contributed positively to performance, whereas the fund’s exposure to both public and private real estate as well as private equity detracted from performance. An increase in the value of alternative investments such as private equity and real estate tends to lag in markets that experience significant gains such as those we saw in September.
  • The fund modestly outperformed its benchmark in the third quarter. The fund’s higher exposure to small and mid-sized companies contributed positively to the excess performance, whereas the fund’s exposure to private real estate detracted from performance for the same reason as cited above.
  • For the year, the fund’s excess performance is again attributable to its exposure in small and mid-sized companies. The Russell 2000 Index of small companies gained 9.1% for the year through September, whereas the large company-dominated S&P 500 has gained 3.9%. In addition, the fund’s exposure to public real estate securities and private equity positively contributed to performance. Generally, the benchmark-relative performance of the fund’s active managers has slightly detracted from performance.

International Equity Fund

(Note: Effective August 1, 2010, the International Stock Fund was renamed the International Equity Fund.)

Fund September Q3 2010 Year-to-Date
International Equity Fund +10.6% +16.1% +6.8%
MSCI ACWI x US +10.1% +16.8% +4.6%
Difference +0.5% -0.7% +2.2%
  • The International Equity Fund outperformed its benchmark in September primarily because of the fund’s exposure to small-sized international companies.
  • The fund underperformed its benchmark in the third quarter primarily due to poor benchmark-relative performance by the fund’s investment managers. This was partially offset by the fund’s allocation to public real estate securities, which gained approximately 22% during the quarter.
  • For the year, the fund remains meaningfully ahead of its benchmark because of its allocation to stocks from developing countries and its holdings of international public real estate securities. In addition, the fund’s managers have collectively produced excellent benchmark-relative performance.

Multiple Asset Fund

Fund September Q3 2010 Year-to-Date
Multiple Asset Fund +6.7% +9.9% +7.2%
Composite Benchmark +6.5% +9.8% +6.7%
Difference +0.2% +0.1% +0.5%
  • The Multiple Asset Fund exceeded its performance benchmark in September primarily because of the positive benchmark-relative performance of the Inflation Protection Fund and the Fixed Income Fund.
  • The same two funds contributed positively to the fund’s positive benchmark-relative performance for the third quarter, although partially offset by the benchmark-relative underperformance of the International Equity Fund.
  • For the year, all four funds that comprise the Multiple Asset Fund have contributed to the funds’ excess benchmark-relative performance.

Balanced Social Values Plus Fund

Fund September Q3 2010 Year-to-Date
Balanced Social Values Plus Fund +5.4% +6.2% +3.5%
Composite Benchmark +5.5% +6.2% +3.1%
Difference -0.1% +0.0% +0.4%


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