February 2011 Investment Report


  • U.S. equities represented by the Russell 3000 Index advanced 3.6% for the month of February. Equity markets reached a two-year high despite growing concerns about inflation and the impact of Middle East turmoil on oil prices.
  • Small-company U.S. equities outperformed large-company U.S. equities. Among large-company U.S. equities, those classified as “value” performed better than stocks with strong earnings growth.
  • International equities also advanced during February. The bellwether MSCI EAFE Index, which measures performance of developed-country equities in U.S. dollar terms, increased 3.3% as investor confidence in the global economic recovery continued. However, equities of developing countries, as measured by the MSCI Emerging Markets IMI, declined 1.3%. Investors worried that rising consumer prices might spur policymakers to take drastic steps to fight inflation, which could dampen economic growth in the developing world.
  • Interest rates changed little during the month as the yield for the benchmark 10-year U.S. Treasury note increased slightly to finish the month at 3.43%. Conversely, the 10-year U.S. TIPS (Treasury Inflation Protection Security) real yield declined slightly to 1.03%.
  • Commodity prices represented by the Dow Jones UBS Commodity Index advanced 1.3% in February. Due to political unrest in North Africa, the price of a barrel of Brent crude oil gained over 10%, rising to $112 per barrel—the highest level since 2008.
  • The Barclays Capital U.S. Credit Index advanced 0.7% for the month as borrowing costs for U.S. investment grade corporations declined during the month.
  • The U.S. dollar weakened during February. The U.S. Dollar Index, which measures the strength of the U.S. dollar against six major currencies, declined 1.1% for the month. The decline is primarily attributable to market expectations of the continued Federal Reserve monetary policy of low interest rates.

Economics Highlights

  • Data from the Federal Reserve’s (the Fed) manufacturing report revealed activity at the highest level since 2004, and the Institute for Supply Management Manufacturing Index reached a seven-year high. Both are encouraging signs of economic recovery.
  • The U.S. Department of Agriculture forecasted that food prices might rise 3% to 4% this year due to rising commodity prices.
  • The February unemployment rate dropped to 8.9%. New jobs in the private sector increased by 222,000 while the number of government jobs fell by 30,000.
  • The Commerce Department revised fourth-quarter gross domestic product from 3.2% growth to 2.8%. The downward revision stemmed primarily from lower state and local government spending.

Geopolitical Headlines

  • Tensions in North Africa and the Middle East continued as President Mubarak stepped down as the ruler of Egypt, and protests escalated in Bahrain and Libya. Other Mideast countries also experienced demonstrations.
  • The Obama administration and Congressional Democrats are battling Republicans over federal spending cuts. The government is expected to reach the federal deficit ceiling soon, and failure to raise the limit could result in a shutdown of government services.
  • Republican governors in Indiana, Ohio and Wisconsin proposed legislation that would adversely affect public employee unions in an effort to balance state budgets. Public demonstrations of protest, notably in Wisconsin, ensued.
  • The New York Stock Exchange and Deutsche Börse proposed a merger to create the largest exchange operator in the world. The merger requires shareholder and regulatory approvals.
  • With 2010 economic growth of 9.8%, China surpassed Japan and became the second largest economy in the world. Combined, both economies are about two-thirds the size of the U.S. economy.

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

Source: briefing.com–economic statistics; Econoday–description of the economic indicators

Investment Fund Review

Inflation Protection Fund

Fund February Year-to-Date
Inflation Protection Fund +1.2% +1.1%
Barclays Capital U.S. Government Inflation-Linked Bond Index +0.9% +1.0%
Difference +0.3% +0.1%
  • The Inflation Protection Fund gained 1.2% in February, outperforming its benchmark in February by 0.3% primarily due to the fund’s 10% exposure to commodities, which increased 3.2% largely because of the rise in the price of oil.
  • For the year, the fund is slightly ahead of its benchmark because of the 5.7% gain in the fund’s commodities holdings. However, the fund’s other two diversifying strategies that hold inflation-linked bonds of foreign countries detracted from performance. The fund’s 10% exposure to inflation-linked bonds from developing countries has declined 1.2%.

Fixed Income Fund

Fund February Year-to-Date
Fixed Income Fund +0.6% +1.1%
Barclays Capital U.S. Universal (ex MBS) Index +0.3% +0.7%
Difference +0.3% +0.4%
  • The Fixed Income Fund outperformed its benchmark in February largely because of the fund’s exposure to corporate credit. Improving economic prospects positively affected corporate borrowing costs. In addition, weakness in the U.S. dollar benefitted the fund’s holding of non-dollar debt from foreign countries.
  • For the year, the fund is outperforming its benchmark largely due to gains in the higher-risk credit portfolios that benefit from improving economic conditions. In addition, U.S. dollar weakness has benefitted the fund’s holdings in non-dollar denominated bonds from developed countries. Declines in the value of bonds from developing countries, however, have negatively contributed to the fund’s relative performance because of inflation fears and Mideast unrest.

U.S. Equity Fund

Fund February Year-to-Date
U.S. Equity Fund +3.5% +5.4%
Russell 3000 +3.6% +5.9%
Difference -0.1% -0.5%
  • The U.S. Equity Fund produced a solid 3.5% return in February but slightly underperformed its benchmark. The fund benefitted from its greater-than-benchmark exposure to the stocks of small and mid-size companies. For the month, the Russell 2000 Index of small companies gained 5.5% compared to the 3.3% return of the S&P 500. In addition, the fund’s public real estate holdings gained 5.5% and positively influenced benchmark-relative performance. However, the performance of the fund’s holdings of private equity and private real estate more than offset the positive contribution of these factors. The fund’s holdings in these asset classes were essentially flat for the month. The increase in value of private assets tends to lag in rising markets.
  • For the year, U.S. stocks continue as the best-performing asset class. The fund has underperformed its benchmark by 0.5% largely due to the fund’s exposure to private real estate and private equity, which both gained approximately 1% for the year compared to the nearly 6% gain of the broad stock market.

International Equity Fund

Fund February Year-to-Date
International Equity Fund +1.6% +1.4%
MSCI ACWI x US +2.5% +3.3%
Difference -0.9% -1.9%
  • For the second straight month, the International Equity Fund produced disappointing relative performance as it trailed its benchmark by 0.9%. As in January, the main factor contributing to the fund’s underperformance was its exposure to stocks from developing countries. While the MSCI EAFE Index of developed countries gained 3.3%, the MSCI Emerging Markets Index declined 1.3%. In addition, the fund’s diversifying investments in public international real estate only gained approximately 1%. All of the fund’s developed country managers underperformed their respective benchmarks, as all have some exposure to stocks from developing countries.
  • For the year, the International Equity Fund trails its benchmark by 1.9% for the same reasons as described for the month of February. The developed country MSCI EAFE Index is up 5.8% for the year, but the MSCI Emerging Markets Index has declined 4%. Stocks from the developing world have suffered because of inflation fears and unrest in the Middle East. The two real estate portfolios have gained only 1% for the year.

Multiple Asset Fund

Fund February Year-to-Date
Multiple Asset Fund +2.2% +3.1%
Composite Benchmark +2.3% +3.6%
Difference -0.1% -0.5%
  • For the month of February and for the first two months, the two bond funds positively contributed to benchmark-relative performance, whereas the two equity funds negatively contributed to performance.

Balanced Social Values Plus Fund

Fund February Year-to-Date
Balanced Social Values Plus Fund +1.7% +2.7%
Composite Benchmark +1.6% +2.6%
Difference +0.1% +0.1%


close (X)