HomeMy Public PortalAbout2011 4th Quarter ReportInvestment Performance AnalysisFebruary 10, 2012Douglas W. Moseley, PartnerKristin Finney-Cooke, CAIA, Senior ConsultantKristen Jackson, CFA, Sr. AnalystMetropolitan St. Louis Sewer District
Table of ContentsMarket Commentary & Update3Executive Summary 24Investment Performance Analysis 40Page212/31/2011
Market Commentary & Update
" L o w e x p e c t e d r e t u r n s a r e h e r e t o s t a y f u n d a m e n t a l e c o n o m i c d r i v e r s r e m a i n d e p r e s s e d D e v e l o p e d w o r l d s e e k i n g t o a v o i d r a p i d d e l e v e r a g i n g b y a c c e p t i n g s l o w e r g r o w t h L o w e r 3 0 - y e a r y i e l d s e x t e n d u n a t t r a c t i v e b o n d r e t u r n s t o t h e l o n g - t e r m " U n c e r t a i n t y a r o u n d u l t i m a t e f a t e o f E u r o p r o l o n g s v o l a t i l i t y a n d m a c r o - d r i v e n m a r k e t s L i m i t e d p o l i t i c a l w i l l w o r l d w i d e t o r e c o g n i z e l o s s e s O f f i c i a l U S r e c e s s i o n ( t w o n e g a t i v e q u a r t e r s ) i s u n l i k e l y d u e t o p o t e n t i a l f i s c a l a n d m o n e t a r y i n t e r v e n t i o n " D e s p i t e p o o r g r o w t h p r o s p e c t s , r i s k y a s s e t s h a v e s o m e u p s i d e C o r p o r a t e b a l a n c e s h e e t s a r e s t r o n g a n d v a l u a t i o n s a r e m o d e s t l y a t t r a c t i v e C e n t r a l b a n k s t i m u l u s u n l i k e l y t o c r e a t e j o b s b u t c a n d r i v e t h e s t o c k m a r k e t u p C r e d i t m a r k e t s h a v e m o r e a t t r a c t i v e r i s k - a d j u s t e d r e t u r n e x p e c t a t i o n s t h a n e q u i t i e s s h o u l d p r o t e c t b e t t e r i n d o w n t u r n a n d h a v e b e t t e r r i s k a d j u s t e d r e t u r n s i n m a r k e t r a l l y " W o r l d w i d e r e c o v e r y , t h o u g h u n l i k e l y , c o u l d s p a r k i n f l a t i o n R e a l a s s e t s p r o v i d e p r o t e c t i o n , b u t o t h e r w i s e h a v e l o w r e t u r n p r o s p e c t s " S t i l l p l a y a n i m p o r t a n t s t r a t e g i c r o l e i n p o r t f o l i o s , b u t l e s s a t t r a c t i v e o n a t a c t i c a l b a s i s " G l o b a l e c o n o m i c l e a d e r s h i p e x p e c t e d f r o m e m e r g i n g c o u n t r i e s H i g h e r r e l a t i v e i n v e s t m e n t p e r f o r m a n c e e x p e c t e d a s p a r t o f t h i s t r a n s i t i o n O w n e r s o f s t u f f p e o p l e w a n t a n d i n c r e a s i n g l y h o m e o f p e o p l e w a n t i n g s t u f f N E P C 2 0 1 2 C a p i t a l M a r k e t O b s e r v a t i o n s 4
" R e c o g n i z e t h a t c u r r e n t g l o b a l d e l e v e r a g i n g i s a m u l t i - y e a r e v e n t E x p e c t m a n y t h e m e s t o b e r e p e a t e d a n d r e i n f o r c e d f o r s e v e r a l y e a r s O n g o i n g c o m m i t m e n t a n d p a t i e n c e r e q u i r e d t o c a p t u r e r e t u r n s " I f a p p r o p r i a t e , i n c r e a s e p o r t f o l i o r i s k a n d e x p e c t e d r e t u r n S e e k h i g h e r r i s k p r e m i a , b a l a n c e d a c r o s s a s s e t c l a s s e s , f a c t o r s , a n d s t r a t e g i e s " B r o a d - b a s e d c r e d i t m a r k e t s a r e b e s t p o s i t i o n e d f o r v o l a t i l i t y R e v i e w r i s k m a n a g e m e n t p r o c e s s e s c o n s i d e r e n g a g i n g a n o v e r l a y m a n a g e r " E x p l o r e h e d g i n g a p o r t i o n o f d e v e l o p e d c o u n t r y c u r r e n c y e x p o s u r e " C o n t i n u e t o i n c r e a s e e m e r g i n g m a r k e t s e x p o s u r e T y p i c a l U S i n s t i t u t i o n a l a l l o c a t i o n s t i l l u n d e r m a r k e t - c a p i t a l i z a t i o n w e i g h t i n g W h i l e p o t e n t i a l f o r s l o w d o w n h a s i n c r e a s e d , l o n g - t e r m s t r u c t u r a l t h e m e s f o r o u t p e r f o r m a n c e r e m a i n i n p l a c e a c r o s s e q u i t y , d e b t , a n d c u r r e n c i e s " U s e a c t i v e s t r a t e g i e s t o e n h a n c e r e t u r n s R e c o g n i z e c h a l l e n g e s t h a t a c t i v e m a n a g e r s h a v e f a c e d w i t h m a c r o - d r i v e n m a r k e t s a n d h a v e p a t i e n c e w h e r e c o n v i c t i o n r e m a i n s s t r o n g S e t r e a s o n a b l e e x p e c t a t i o n s a n d e v a l u a t e m a n a g e r s r o l e i n t o t a l p o r t f o l i o s t r u c t u r e " B u y L o w i n s e g m e n t s o f i l l i q u i d a n d l e s s l i q u i d a s s e t s D i s t r e s s e d s t r a t e g i e s p r o v i d e a c c e s s t o m u l t i p l e p h a s e s o f c r e d i t r e s t r u c t u r i n g S t r u c t u r e d s e c u r i t i e s o f f e r a t t r a c t i v e e x p e c t e d r e t u r n s " A c c e s s e d i n b o t h h e d g e f u n d a n d p r i v a t e s t r u c t u r e s N E P C 2 0 1 2 G e n e r a l A c t i o n s f o r C l i e n t s 5
" B r o a d P o r t f o l i o S t r u c t u r e : P r u d e n t l y C o n s i d e r I n c r e a s e d E x p o s u r e t o H i g h e r R i s k A s s e t C l a s s e s - I n c r e a s e E m e r g i n g E q u i t y e x p o s u r e - I n c r e a s e E m e r g i n g D e b t e x p o s u r e - I n c r e a s e v a r i o u s F i x e d I n c o m e C r e d i t a l l o c a t i o n s - W h e r e p o s s i b l e , i n c r e a s e a l l o c a t i o n s t o I l l i q u i d i n v e s t m e n t s , s p e c i f i c a l l y a l l o c a t i o n s t o D i s t r e s s e d S t r a t e g i e s o f f e r e d b y P r i v a t e M a r k e t F u n d s a n d H e d g e F u n d s - W i t h n e a r - t e r m f o r e c a s t s s u g g e s t i n g s u b d u e d r e t u r n s a n d h e i g h t e d v o l a t i l i t y , c o n s i d e r A c t i v e O v e r l a y s a n d G T A A N E P C 2 0 1 2 F o c u s e d A c t i o n s f o r P u b l i c F u n d s 6 S o u r c e : F a c t S e t S o u r c e : B a r c l a y s , J P M o r g a n
" F i x e d I n c o m e L o o s e n C o r e a n d C o r e P l u s c o n s t r a i n t s t o i n c l u d e m o r e C r e d i t , H i g h Y i e l d , a n d E M D C o n s i d e r d i r e c t a l l o c a t i o n s a n d o v e r w e i g h t s t o C r e d i t a n d E M D R e v i e w t h e r o l e o f N o n - d o l l a r d e v e l o p e d m a r k e t s o v e r e i g n d e b t e x p o s u r e s d u e t o l o w r e t u r n e n v i r o n m e n t a n d c u r r e n c y v o l a t i l i t y A s a p p r o p r i a t e , e x t e n d l o n g - o n l y p o r t f o l i o t o i n c l u d e L o n g - S h o r t C r e d i t N E P C 2 0 1 2 F o c u s e d A c t i o n s f o r P u b l i c F u n d s 7 3 5 % 1 1 % 3 2 % 2 % 2 0 % T r e a s u r y A g e n c y A g e n c y M B S C M B S C o r p o r a t e N o n - G o v e r n m e n t S e c t o r s T o t a l 2 2 % B a r c l a y s A g g r e g a t e S e c t o r A l l o c a t i o n s
" E q u i t y L o o s e n c o n s t r a i n t s o n E A F E M a n d a t e s t o i n c l u d e m o r e E M E , o r s e e k f u n d s i n v e s t i n g a s E A F E P l u s C o n s i d e r G l o b a l E q u i t y m a n d a t e s a s a t w i n t o o l f o r i n c r e a s i n g E M E a n d A l p h a S e e k i n g A s a p p r o p r i a t e , e x t e n d l o n g - o n l y a l l o c a t i o n s t o i n c l u d e c o m m i t m e n t s t o E q u i t y L o n g - S h o r t N E P C 2 0 1 2 F o c u s e d A c t i o n s f o r P u b l i c F u n d s 8 4 6 % 4 1 . 5 % 1 2 . 5 % M S C I A C W I S e c t o r A l l o c a t i o n s U S E q u i t y N o n - U S D e v e l o p e d E m e r g i n g M a r k e t s
" P o r t f o l i o R i s k M a n a g e m e n t E n h a n c e d R e t u r n a n d R i s k t a r g e t s s h o u l d b e t h o u g h t f u l l y i m p l e m e n t e d a n d m a n a g e d A s s e t A l l o c a t i o n S t u d i e s w i t h i n c r e a s e s t o P o r t f o l i o R i s k n e e d t o b e c o n d u c t e d w i t h a n e y e o n p o t e n t i a l m a r k e t s c e n a r i o s a n d a n u n d e r s t a n d i n g o f t h e d o w n s i d e I n c r e a s e s t o I l l i q u i d A s s e t s ( i n c l u d i n g P r i v a t e E q u i t y , R e a l E s t a t e , a n d H e d g e d S t r a t e g i e s ) n e e d s t o b e m e a s u r e d a g a i n s t t o t a l p o r t f o l i o L i q u i d i t y N e e d s a n d C o n s t r a i n t s " R e a l A s s e t C o n s i d e r a t i o n s M a n y p u b l i c f u n d s h a v e c o s t o f l i v i n g a d j u s t m e n t m e c h a n i s m s . W h i l e m a n y i n f l a t i o n p r o t e c t i o n c l a s s e s c o m e w i t h s u b d u e d r e t u r n f o r e c a s t s a n d a p p e a r o v e r p r i c e d , s o m e e x p o s u r e c a n m i t i g a t e u n e x p e c t e d i n f l a t i o n p r e s s u r e s " I n v e s t f o r t h e L o n g T e r m S h o r t t o m e d i u m - t e r m r e t u r n a s s u m p t i o n s a r e s t i l l s u b d u e d L o w y i e l d s h a v e a l s o d a m p e n e d l o n g - t e r m e x p e c t e d r e t u r n s 5 - 7 Y e a r e x p e c t e d t a r g e t r e t u r n s w i l l s t r u g g l e t o m e e t a c t u a r i a l t a r g e t s b u t n o r m a l i z e d e x p e c t a t i o n s ( l o n g - t e r m ) , w h i l e l o w , w i l l i m p r o v e c h a n c e s o f e a r n i n g a c t u a r i a l t a r g e t s N E P C 2 0 1 2 F o c u s e d A c t i o n s f o r P u b l i c F u n d s 9
" B r o a d P o r t f o l i o S t r u c t u r e : P r u d e n t l y C o n s i d e r I n c r e a s e d E x p o s u r e t o H i g h e r R i s k A s s e t C l a s s e s I n c r e a s e E m e r g i n g E q u i t y a n d D e b t e x p o s u r e s I n c r e a s e v a r i o u s F i x e d I n c o m e C r e d i t a l l o c a t i o n s W h e r e p o s s i b l e , i n c r e a s e a l l o c a t i o n s t o I l l i q u i d i n v e s t m e n t s , s p e c i f i c a l l y a l l o c a t i o n s t o D i s t r e s s e d S t r a t e g i e s o f f e r e d b y P r i v a t e M a r k e t F u n d s a n d H e d g e F u n d s " F i x e d I n c o m e L o o s e n C o r e a n d C o r e P l u s c o n s t r a i n t s t o i n c l u d e m o r e C r e d i t , H i g h Y i e l d , a n d E M D C o n s i d e r d i r e c t a l l o c a t i o n s a n d o v e r w e i g h t s t o C r e d i t a n d E M D A s a p p r o p r i a t e , e x t e n d l o n g - o n l y p o r t f o l i o t o i n c l u d e L o n g - S h o r t C r e d i t " E q u i t y L o o s e n c o n s t r a i n t s o n E A F E M a n d a t e s t o i n c l u d e m o r e E M E , o r s e e k f u n d s i n v e s t i n g a s E A F E P l u s C o n s i d e r G l o b a l E q u i t y m a n d a t e s a s a t w i n t o o l f o r i n c r e a s i n g E M E a n d A l p h a S e e k i n g A s a p p r o p r i a t e , e x t e n d l o n g - o n l y a l l o c a t i o n s t o i n c l u d e c o m m i t m e n t s t o E q u i t y L o n g - S h o r t A c t i o n s f o r P u b l i c F u n d s 1 0
" P o r t f o l i o R i s k M a n a g e m e n t E n h a n c e d R e t u r n a n d R i s k t a r g e t s s h o u l d b e t h o u g h t f u l l y i m p l e m e n t e d a n d m a n a g e d A s s e t A l l o c a t i o n S t u d i e s w i t h i n c r e a s e s t o P o r t f o l i o R i s k n e e d t o b e c o n d u c t e d w i t h a n e y e o n p o t e n t i a l m a r k e t s c e n a r i o s a n d a n u n d e r s t a n d i n g o f t h e d o w n s i d e A n i n c r e a s e t o I l l i q u i d A s s e t s , i n c l u d i n g P E , R E , a n d H F s , n e e d s t o b e m e a s u r e d a g a i n s t t o t a l p o r t f o l i o L i q u i d i t y N e e d s a n d C o n s t r a i n t s " I n v e s t f o r t h e L o n g T e r m S h o r t t o m e d i u m - t e r m r e t u r n a s s u m p t i o n s a r e s t i l l s u b d u e d L o w y i e l d s h a v e a l s o d a m p e n e d l o n g - t e r m e x p e c t e d r e t u r n s 5 - 7 Y e a r e x p e c t e d t a r g e t r e t u r n s w i l l s t r u g g l e t o m e e t a c t u a r i a l t a r g e t s b u t n o r m a l i z e d e x p e c t a t i o n s ( l o n g - t e r m ) , w h i l e l o w , w i l l i m p r o v e c h a n c e s o f e a r n i n g a c t u a r i a l t a r g e t s A c t i o n s f o r P u b l i c F u n d s 1 1
12/31/2011Market Environment - Overview12Qtr. 1 Yr.3 Yr.5 Yr.10 Yr.World Equity BenchmarksMSCI WorldWorld7.6%-5.5%11.1%-2.4%3.6%Qtr. 1 Yr.3 Yr.5 Yr.10 Yr.Domestic Equity BenchmarksS&P 500Large Core11.8% 2.1% 14.1%-0.2%2.9%Russell 1000Large Core11.8% 1.5% 14.8% 0.0% 3.3%Russell 1000 Growth Large Growth10.6% 2.6% 18.0% 2.5% 2.6%Russell 1000 ValueLarge Value13.1% 0.4% 11.6%-2.6%3.9%S&P Mid Cap 400Mid Core13.0%-1.7%19.6% 3.3% 7.0%Russell 2000Small Core15.5%-4.2%15.6% 0.2% 5.6%Russell 2000 Growth Small Growth15.0%-2.9%19.0% 2.1% 4.5%Russell 2000 ValueSmall Value16.0%-5.5%12.4%-1.9%6.4%NAREIT All Composite REIT 14.1% 7.3% 20.5%-2.2%9.4%Qtr. 1 Yr.3 Yr.5 Yr.10 Yr.International Equity BenchmarksMSCI EAFEInt'l Developed3.3%-12.1%7.7%-4.7%4.7%MSCI EMEEm. Mkt. Eqty. 4.4%-18.4%20.1% 2.4% 13.9%MSCI ACWI ex USInternational3.7%-13.7%10.7%-2.9%6.3%S&P EPAC SmallCap Small Cap Int'l 0.3%-14.4%13.1%-3.9%9.0%Qtr. 1 Yr.3 Yr.5 Yr.10 Yr.Domestic Fixed Income BenchmarksBarclays Aggregate Core Bonds 1.1% 7.8% 6.7% 6.5% 5.8%Barclays High Yield High Yield 6.5% 5.0% 24.1% 7.5% 8.9%Barclays 1-10 Muni.Municipal Bond2.1% 10.7% 8.6% 5.2% 5.4%Barclays 1-10 TIPSInflation1.7% 8.9% 8.7% 6.9% 6.6%90 Day T-BillCash0.0% 0.1% 0.2% 1.5% 2.0%Qtr. 1 Yr.3 Yr.5 Yr.10 Yr.Global Fixed Income BenchmarksCitigroup World Govt Bond Global Bonds-0.1%6.4% 4.7% 7.1% 7.8%J.P. Morgan EMBI Plus Em. Mkt. Bonds 5.3% 9.2% 15.4% 8.1% 11.6%Qtr. 1 Yr.3 Yr.5 Yr.10 Yr.Diversified BenchmarkBalanced Index *Diversified6.7% 2.0% 10.5% 1.9% 5.8%* 35% LC, 10% SC, 12% Int'l, 3% Emerging, 25% FI, 5% HY, 5% Global FI, 5% REITS
12/31/2011Economic Environment13
12/31/2011Components of U.S. GDP14
12/31/2011Key Economic Indicators15
12/31/2011Economic Environment16
Market Summary17Source: ICC12/31/2011
Domestic Equity18Source: ICC12/31/2011
International Equity19Source: ICC12/31/2011
Emerging Equity20Source: ICC12/31/2011
Currency Markets & Yield Curve21Source: ICC12/31/2011
Bond Markets22Source: ICC12/31/2011
12/31/2011Investment Market UpdateSources: Lehman Live, Bloomberg, Wilshire23 SectorIndex200820092010QTR 1QTR 2JulyAugSepQTR 3OctNovDecQTR 42011Muni BondsBC Muni (unadj)-2.5%12.9% 2.4% 0.5% 3.9% 1.0% 1.7% 1.0% 3.8%-0.4%0.6% 1.9% 2.1% 10.7%Core FI BC Aggregate 5.2% 5.9% 6.5% 0.4% 2.3% 1.6% 1.5% 0.7% 3.8% 0.1%-0.1%1.1% 1.1% 7.8%Global FI Citigroup WGBI 10.9% 2.6% 5.2% 0.7% 3.3% 2.3% 2.1%-2.0%2.4% 0.5%-1.5%0.9%-0.1%6.4%Int. Core FI BC Intermediate Agg 4.9% 6.5% 6.2% 0.5% 2.2% 1.2% 1.1% 0.0% 2.3% 0.2%-0.1%0.8% 0.9% 6.0%Int. Gov/Credit BC Intermediate GC 5.1% 5.2% 5.9% 0.3% 2.1% 1.4% 1.1%-0.1%2.4% 0.3%-0.2%0.8% 0.8% 5.8%High Yield BC HY-26.2%58.2% 15.1% 3.9% 1.1% 1.2%-4.0% -3.3% -6.1%6.0%-2.2%2.7% 6.5% 5.0%Gov/Credit BC 1-5 Yr Gov/Cred 5.1% 4.6% 4.1% 0.3% 1.5% 0.8% 0.5%-0.3%0.9% 0.3%-0.2%0.3% 0.4% 3.1%Large Cap Growth R1000 Growth-38.4%37.2% 16.7% 6.0% 0.8%-1.0% -5.3% -7.4% -13.2%11.0% 0.0%-0.3%10.6% 2.6%Large Cap S&P 500-37.0%26.5% 15.1% 5.9% 0.1%-2.0% -5.4% -7.0% -13.8%10.9%-0.2%1.0% 11.8% 2.1%Diversified Diversified*-23.3%17.5% 12.6% 3.6% 1.1%-0.4% -3.5% -5.0% -8.7%6.7%-1.0%1.0% 6.7% 2.0%Gov/Credit BC 1-3 Yr Gov/Cred 5.0% 3.8% 2.8% 0.2% 0.9% 0.3% 0.2%-0.2%0.3% 0.2%-0.1%0.1% 0.2% 1.6%Large Cap Russell 1000-37.6%28.4% 16.1% 6.2% 0.1%-2.2% -5.8% -7.5% -14.8%11.2%-0.3%0.8% 11.8% 1.5%Large Cap Value R1000 Value-36.8%19.7% 15.5% 6.5%-0.5% -3.3% -6.2% -7.6% -16.2%11.4%-0.5%2.0% 13.1% 0.4%SMID Cap R2500-36.8%34.4% 26.7% 8.7%-0.6% -3.8% -8.2% -10.8% -21.2%14.7%-0.3%0.2% 14.6%-2.5%Small Cap Growth R2000 Growth-38.5%34.5% 29.1% 9.2%-0.6% -3.9% -8.6% -11.5% -22.3%15.9%-0.5% -0.2%15.0%-2.9%Small Cap Russell 2000-33.8%27.2% 26.9% 7.9%-1.6% -3.6% -8.7% -11.2% -21.9%15.1%-0.4%0.7% 15.5%-4.2%Small Cap Value R2000 Value-28.9%20.6%24.5% 6.6%-2.7% -3.3% -8.8% -10.9% -21.4%14.4%-0.2%1.6% 16.0%-5.5%Int. Equity EAFE (net)-43.4%31.8% 7.8% 3.4% 1.6%-1.6% -9.0% -9.5% -19.0%9.6%-4.9% -0.9%3.3%-12.1%Commodities DJ UBS Commodity-35.7%18.9% 16.8% 4.4%-6.7%3.0% 1.0%-14.7% -11.3%6.6%-2.2% -3.7%0.3%-13.3%Emerging EM (net)-53.3%78.5% 18.9% 2.1%-1.1% -0.4% -8.9% -14.6% -22.5%13.2%-6.7% -1.2%4.4%-18.4%* 35% LC, 10% SC, 12% Intl, 3% Emerging, 25% FI, 5% HY, 5% Global FI, 5% REITSPERFORMANCE THROUGH 12/31/2011
Executive Summary
" A s s e t G r o w t h a n d A l l o c a t i o n A t q u a r t e r e n d , t h e a s s e t s i n t h e F u n d t o t a l e d a p p r o x i m a t e l y $ 2 0 0 . 5 m i l l i o n , a n i n c r e a s e o f $ 1 2 . 4 m i l l i o n o v e r t h e q u a r t e r , r e f l e c t i n g i n v e s t m e n t g a i n s o f $ 1 0 . 2 m i l l i o n a n d n e t i n f l o w s o f $ 2 . 1 m i l l i o n . T h e F u n d s a l l o c a t i o n t o e q u i t i e s w a s 4 7 . 1 % a t t h e e n d o f t h e q u a r t e r ( i n c l u d i n g e q u i t y a l l o c a t i o n s o f G M O a n d P I M C O A l l A s s e t ) , b e l o w t h e m e d i a n p u b l i c f u n d s a l l o c a t i o n t o e q u i t i e s o f 5 0 . 6 % . T h e F u n d s e q u i t y c o m m i t m e n t r a n k e d i n t h e 6 5 t h p e r c e n t i l e o f t h e p u b l i c f u n d s u n i v e r s e * . " P e r f o r m a n c e T h e F u n d p o s t e d a 5 . 5 % r e t u r n f o r t h e q u a r t e r , r a n k i n g i n t h e 4 5 t h p e r c e n t i l e o f p u b l i c f u n d s , n a t i o n w i d e . " A c t i v e m a n a g e m e n t a d d e d 4 0 b p s t o p e r f o r m a n c e F o r t h e y e a r 2 0 1 1 , t h e F u n d p o s t e d a r e t u r n o f 1 . 9 % , r a n k i n g i n t h e 3 7 t h p e r c e n t i l e o f p u b l i c f u n d s . " A c t i v e m a n a g e m e n t a d d e d 5 0 b p s F o r t h e t h r e e - y e a r p e r i o d , p e r f o r m a n c e w a s 1 1 . 2 % , w h i c h r a n k e d i n t h e 4 4 t h p e r c e n t i l e o f p u b l i c f u n d s . T h e f i v e - y e a r r e t u r n o f 4 . 2 % r a n k e d i n t h e 8 t h p e r c e n t i l e . " H i g h e r r e l a t i v e r e t u r n s w e r e e a r n e d w i t h l o w e r l e v e l s o f r i s k t h a n t h e m e d i a n p u b l i c f u n d o v e r t h e t h r e e - a n d f i v e - y e a r p e r i o d s . E x e c u t i v e S u m m a r y T o t a l F u n d * A s o f D e c e m b e r 3 1 , 2 0 1 1 t h e p u b l i c f u n d s u n i v e r s e i n c l u d e d 1 8 6 f u n d s w i t h a s s e t s o f a p p r o x i m a t e l y $ 5 . 3 t r i l l i o n . 2 5 1 2 / 3 1 / 2 0 1 1
Total Fund Asset Growth Summary2612/31/2011
Performance2712/31/2011
Performance – Public Funds Universe2812/31/2011
Performance Contd. – Public Funds Universe29*The above data is for trailing one-year periods12/31/2011
Three Year Risk vs. Return – Public Funds UniverseComposite3012/31/2011
Five Year Risk vs. Return – Public Funds UniverseComposite3112/31/2011
Manager Executive Summary3212/31/2011Excess Return Vs. BenchmarkExcess Return Vs. MedianAsset Class / ManagerBenchmarkOrganizationProduct &ProcessLast 3 Months 1 Year 3 Years 5 YearsLast 3 Months 1 Year 3 Years 5 YearsDOMESTIC EQUITYVanguard Windsor IIRussell 1000 ValueNo changes to noteStable(0.2)% 2.8% 2.0% 1.9% 0.1% 3.2% 9.0% 1.2% BDH&SRussell 1000 GrowthPlease see separate pagePlease see separate page 1.1% 0.5% (8.7)% (2.8)% 1.9% 2.9% (6.6)% (2.6)%Waddell & ReedRussell 1000 GrowthNo changes to noteStable0.9% 0.4% (3.4)% 1.5% 1.8% 2.8% (1.3)% 1.7% Vanguard Institutional IndexS&P 500No changes to noteStable0.0% 0.1% 0.3% 0.2% 0.0 1.1% 0.2% 0.2% Kennedy Russell MidCap ValueNo changes to noteStable1.7% 1.4% 2.0% n/a 1.3% 4.2% 2.3% n/aTimesSquareRussell 2000 GrowthNo changes to noteJames Russo joined the team in November as a Senior Research Analyst replacing a technology analyst who resigned.1.7% 6.5% 3.2% 4.7% 3.1% 3.2% 1.6% 2.8% INTERNATIONAL EQUITYMorgan Stanley InternationalMSCI EAFE No changes to note Stable 1.9% 5.4% (0.6)% 3.1% 1.3% 5.4% (2.8)% 0.9% Morgan Stanley EmergingMSCI Emerging Mkts FreeNo changes to note Stable (1.2)% 1.0% (0.7)% (0.8)% (0.8)% 0.6% 1.1% (1.0)%FIXED INCOMEIncome ResearchBarclays Capital Gov't/CorpNo changes to note Stable 0.6% 0.2% 3.3% 1.1% (0.1)% 0.1% (0.4)% 0.1% Penn CapitalMerrill Lynch High Yield Cash PayNo changes to note Stable (2.1)% 0.1% (4.7)% (0.8)% 2.6% (1.3)% 9.4% (0.4)%Loomis Credit Asset Fund50/25/25 BC Credit/HY/LLIMark Smith, Managing Director of Fixed Income, retired 12/31/11. His responsibilities have been assumed by other key members of the Fixed Income group.Stable 0.9% (1.8)% n/a n/a 2.4% (2.1)% n/a n/a
Manager Executive Summary, Continued3312/31/2011Excess Return Vs. BenchmarkExcess Return Vs. MedianAsset Class / ManagerBenchmarkOrganizationProduct &ProcessLast 3 Months 1 Year 3 Years 5 YearsLast 3 Months 1 Year 3 Years 5 YearsGLOBAL / INT'L FIXED INCOMEBrandywine Global Bond FundCiti World Gov't IndexNo changes to noteJack McIntyre was promoted to Portfolio Manager. Brian Hess was promoted to Associate Portfolio Manager.0.8% 2.1% 9.7% 1.5% (0.4)% 3.2% (4.0)% 0.7% EMG MKT DEBT LOCAL CURRENCY / FIXED INCOMEPictetJPMorgan GBI EM Global DivNo changes to note Stable (1.0)% 4.3% 0.2% 2.4% (1.2)% n/a n/a n/aTACTICAL ASSET ALLOCATIONGMO65% MSCI World / 35% BC AggEffective December 2011, Peg McGetrick was elected to the GMO Board of Directors.Stable (1.0)% 4.3% 0.2% 2.4% (0.3)% 0.4% (2.5)% (2.1)%ALTERNATIVE ASSETSPyramis90 Day T-Bill + 300bpsNo changes to note Stable 4.4% (1.3)% (2.2)% (1.3)% 4.7% 3.7% (6.5)% 1.3% PIMCO All Asset CPI + 500bps No changes to note Stable 3.4% (4.8)% 6.2% (0.8)% 0.0 1.0% 0.0 0.3% UBS Realty NCREIF Property No changes to note Stable (0.7)% (2.8)% 2.6% 1.7% 0.9% 0.7% 4.6% 2.6% Wellington Diversified Inflation Hedge55% MSCI World/25% GSCI/20% BC US Tips 1-10 YrNo changes to note Stable (1.7)% (6.4)% n/a n/a (1.7)% (6.4)% n/a n/a
" G e r a l d S p a r r o w i s r e j o i n i n g B D H & S a s C h i e f I n v e s t m e n t O f f i c e r . H e w i l l b r i n g h i s a s s e t b a s e o f a p p r o x i m a t e l y $ 4 5 m i l l i o n w i t h h i m . " G e r a l d S p a r r o w w i l l p u r c h a s e o w n e r s h i p s t a k e i n f i r m . O t h e r o w n e r s i n c l u d e R e g i n a l d D i c k s o n , T a d B u f o r d , A l e x R a m o s , D a v i d H a r p e r , a n d B i l l Y o u n g . " I n v e s t m e n t C o m m i t t e e g o i n g f o r w a r d w i l l c o n s i s t o f G e r a l d S p a r r o w , R e g i n a l d D i c k s o n , A l e x R a m o s , a n d R o b e r t G a y . " R e c o m m e n d e d A c t i o n : I n i t i a t e a s e a r c h a n d i n c l u d e B D H & S M a n a g e r U p d a t e B u f o r d , D i c k s o n , H a r p e r & S p a r r o w 3 4 1 2 / 3 1 / 2 0 1 1
Total Fund Asset AllocationTarget Asset AllocationNote: Totals include manager cash; totals may not add to 100% due to rounding35Equities39.0%Equities38.0%Fixed Income33.6%Fixed Income33.0%Alts17.1%Alts19.0%Actual Asset Allocation12/31/2011
Asset Allocation History3612/31/2011
Commitment To Equity – Public Funds Universe3712/31/2011
Actual vs. Policy Weights38Note: Totals may not add to 100% due to rounding. 12/31/2011Asset ClassTarget AllocationActual AllocationVariance From TargetEquity 38.0% 38.9% 0.9%Large Cap Equity 20.0% 20.4% 0.4%Small Cap Equity 5.0% 6.3% 1.3%International Equity 10.0% 9.4% -0.6%Emerging Markets Equity 3.0% 2.8% -0.2%Fixed Income33.0% 33.6% 0.6%Core Fixed Income13.0% 13.4% 0.4%High Yield5.0% 4.5% -0.5%Global Bonds8.0% 8.7% 0.7%Emg Mkts Debt (LC)5.0% 5.0% 0.0%Credit Opportunity2.0% 2.0% 0.0%GTAA10.0% 10.0% 0.0%Real Assets10.0% 8.8% -1.2%Absolute Return4.0% 3.2% -0.8%Market Neutral5.0% 5.0% 0.0%Cash0.0% 0.5% 0.5%Total100.0% 100.0%
Manager Allocation3912/31/2011
Investment Performance Analysis
Performance Summary – ICC Universe4112/31/2011
Performance Summary – ICC Universe, Continued4212/31/2011
Performance Summary – ICC Universe, Continued4312/31/2011
Performance Summary – ICC Universe, Continued4412/31/2011
Domestic Equity - Vanguard Institutional Fund45CharacteristicsVanguard InstitutionalRussell 1000 Value P/E Ratio 11.6 12.2P/B1.82.0P/S1.11.2P/CF6.37.8Median Market Cap44.99k61.4kTop 10 HoldingsApple IncExxon MobilInternational Business MachinesChevron Microsoft CorpJohnson & JohnsonProctor & GambleAT&TGeneral Electric Company Coca-Cola Ten Largest Holdings = 20.42% total net assetsSource: Vanguard12/31/2011
Domestic Equity - Vanguard Windsor II46Equity CharacteristicsWindsor II Fund Russell 1000 Value P/E 10.1 11.2P/B 1.5 1.5P/S 1.0 1.1P/CF 5.7 6.8Median Market Cap 42.01k 50.15kTop 10 HoldingsConoco PhillipsInt'l Business MachinesPfizerCMT Market Liquidity RateMicrosoftPhilip Morris IntlJohnson & JohnsonWells FargoJP Morgan ChaseBaxter IntlTen Largest Holdings = 27.95% total net assetsSource: Vanguard12/31/2011
Domestic Equity – BDH & S47Source: BDH&S12/31/2011
Domestic Equity - Waddell & Reed48Source: Waddell & Reed12/31/2011
Characteristics3Yr. Risk vs. Return12/31/2011Domestic Equity - Kennedy49Source: KennedyKENNEDYNumber of Issues 528Market Cap (millions)7,763P/E Ratio 15.0P/B Ratio 1.62Dividend Yield(%) 2.42Return on Equity(%) 9.9710141822263010 15 20 25 30 35 40ReturnStd Dev.MANAGERINDEXSector AttributionTop 10 Holdings
TIMES SQUARE R 2000 GROWTHNumber of Issues 104 1151Market Cap (millions)$1,648 $1,397P/E Ratio 22.6 21.3P/B Ratio 3.8% 4.0%Dividend Yield(%) 0.6% 0.7%Return on Equity(%) 13.2% 12.7%CharacteristicsWeight (%)Buy/HoldReturn (%)GLOBAL PAYMENTS INC2.3 17.4ULTIMATE SOFTWARE GROUP INC2.3 39.4GENESEE +WYOMING INC CL A2.0 30.2WRIGHT EXPRESS CORP2.0 42.7MONTPELIERRE HOLDINGS LTD1.9 1.0BOTTOMLINETECHNOLOGIES INC1.8 15.1COSTAR GROUP INC1.8 28.4SOLERA HOLDINGS INC1.7 -11.6UNITED NATURAL FOODS INC1.6 8.0DEALERTRACK HOLDINGS INC1.6 74.0Top 10 Holdings151617181920212223242510 15 20 25 30 35 40ReturnStd Dev.TIMES SQUARER 2000 GROWTH3Yr. Risk vs. Return (Small Growth)Sector Over / Under vs. Return Domestic Equity Times Square12/31/2011-10.0-5.00.05.010.015.020.025.030.035.040.0OVER / UNDERTIMES SQUARER 2000 GROWTH
International Equity - Morgan Stanley5112/31/20113Yr. Risk vs. Return (Emerging Markets)024681012141618200 1020304050ReturnStd Dev.Morgan StanleyMSCI EMERGING MARKETS (NET)CharacteristicsMorgan Stanley MSCI Eafe Wtd. Average Market Cap 49,496 42,479Price / Earnings 11.6 10.3Price / Book 1.3 1.3Return on Equity % 17.7 17.3Country AllocationMorgan Stanley MSCI EAFE UNITED KINGDOM 34.3 23.3JAPAN23.5 21.6SWITZERLAND11.7 8.6FRANCE8.1 9.1NETHERLANDS5.8 2.5GERMANY5.6 7.9AUSTRALIA3.3 8.6IRELAND1.6 .3UNITED STATES1.6ITALY1.3 2.3
CharacteristicsTop 10 Holdings3Yr. Risk vs. Return (Emerging Markets)Country AllocationInternational Equity - Morgan Stanley Emerging Equity10121416182022242628300 1020304050ReturnStd Dev.Morgan Stanley EMMSCI EMERGING MARKETS (NET)52Morgan StanleyMSCI EM FreeWtd. Average Market Cap 18,777 17,560Price / Earnings 13.7 10.8Price / Book 2.3 1.6Return on Equity % 24.5 14.7Morgan StanleySAMSUNG ELECTRONICS CO 3.5OAO LUKOIL 1.7PETROLEO BRASILEIRO SA 1.6HYUNDAI MOTOR CO 1.4CI de BEBIDAS DAS AMERICAS 1.4SBERBANK OF RUSSIA 1.3NASPERS LTD 1.3ITAU UNIBANCO MULTIPL 1.3CHINA CONTSRUCTION BANK 1.3TAIWAN SEMICONDUCTOR MFG 1.2SAMSUNG ELECTRONICS CO 1.2AMERICA MOVIL SAB DE CV1.1Morgan StanleyMSCI EM FreeSOUTH KOKEA 15.4 15.0CHINA10.6 17.8BRAZIL9.5 14.9INDIA6.2 5.6TAIWAN5.6 10.9INDONESIA5.5 3.0SOUTH AFRICA4.9 7.9PHILIPPINES4.0 0.7THAILAND3.5 2.012/31/2011
CharacteristicsAverage Maturity % HeldCoupon DistributionDistribution AnalysisDomestic Fixed Income (High Yield) – Penn Capital5312/31/2011
Global Fixed Income - Brandywine54Source: Brandywine12/31/2011
TIMES SQUARE R 2000 GROWTHNumber of Issues 104 1151Market Cap (millions)$1,648 $1,397P/E Ratio 22.6 21.3P/B Ratio 3.8% 4.0%Dividend Yield(%) 0.6% 0.7%Return on Equity(%) 13.2% 12.7%CharacteristicsMV Weight (%)Buy/HoldReturn (%)GLOBAL PAYMENTS INC$748,604 2.3 17.4ULTIMATE SOFTWARE GROUP INC $742,368 2.3 39.4GENESEE +WYOMING INC CL A $648,206 2.0 30.2WRIGHT EXPRESS CORP$629,648 2.0 42.7MONTPELIERRE HOLDINGS LTD $591,075 1.9 1.0BOTTOMLINETECHNOLOGIES INC $567,665 1.8 15.1COSTAR GROUP INC$567,205 1.8 28.4SOLERA HOLDINGS INC$538,934 1.7 -11.6UNITED NATURAL FOODS INC $524,131 1.6 8.0DEALERTRACK HOLDINGS INC $523,392 1.6 74.0Top 10 Holdings151617181920212223242520 22 24 26 28 30ReturnStd Dev.TIMES SQUARER 2000 GROWTH3Yr. Risk vs. Return (Small Growth)Sector Over / Under vs. Return Times Square12/31/2011-10.0-5.00.05.010.015.020.025.030.035.040.0OVER / UNDERTIMES SQUARER 2000 GROWTH
Domestic Fixed Income – Income Research56Source: Income Research12/31/2011
Portfolio and Quality CharacteristicsSector AllocationLoomis, Sayles & Company – Credit Asset Trust
Fund Number736Fund NameAll Asset FundTotal Fund Net Assets ($US MM) 24,630.73/31/2010 6/30/2010 9/30/2010 12/31/2010 3/31/2011 6/30/2011 9/30/2011 10/31/2011 11/30/2011 12/31/2011Short-Term Strategies: 3.9% 3.2% 5.1% 0.7% 0.1% 0.3% 0.1% 0.1% 0.1% 0.1%Low Duration Fund 2.5% 1.3% 2.6% 0.7% 0.0% 0.2% 0.0%Short Term Fund 1.4% 1.9% 2.5% 0.1% 0.0% 0.0% 0.1%US Core and Long Maturity Bond Strategies: 28.1% 13.9% 12.4% 9.8% 8.0% 13.3% 8.4% 8.1% 8.3% 8.2%GNMA Fund -------Investment Grade Corporate Bond Fund 8.4% 5.9% 5.7% 5.3% 4.8% 4.1% 5.0%Long Duration Total Return Fund 3.2% 0.3% 0.0% 0.0% 0.0% 1.3% 0.1%Long Term Credit Fund 6.8% 6.2% 6.1% 4.2% 3.1% 2.8% 3.1%Long-Term US Government Fund 3.5% 0.2% 0.1% 0.1% 0.1% 2.1% 0.1%Mortgage-Backed Securities Fund - - - - - - -Total Return Fund 6.2% 1.3% 0.6% 0.2% 0.1% 2.9% 0.0%EM and Global Bond Strategies: 12.4% 16.6% 11.8% 12.0% 12.1% 13.1% 19.4% 21.1% 23.0% 24.1%Diversified Income Fund 3.4% 3.4% 3.5% 3.6% 4.2% 3.9% 4.2%Emerging Local Bond Fund 2.0% 4.1% 2.0% 1.5% 0.8% 1.5% 4.1%Emerging Markets Bond Fund 1.5% 1.2% 0.6% 0.6% 0.2% 0.3% 1.5%Emerging Markets Currency 3.1%5.6%3.4%3.0%3.9%4.6%6.5%Foreign Bond Fund (Unhedged) 0.1% 0.1% 0.1% 0.8% 0.7% 0.7% 0.7%Global Advantage Strategy Bond Fund 2.4% 2.3% 2.2% 2.6% 2.4% 2.2% 2.4%Global Bond Fund (Unhedged) - - - - - - -Credit Strategies: 6.1% 10.1% 18.9% 23.5% 27.8% 27.0% 29.2% 29.1% 29.2% 29.1%Convertible Fund 2.6% 3.2% 3.6% 3.7% 4.2% 3.4% 3.5%Credit Absolute Return Fund ------0.3%Floating Income Fund 1.0% 1.2% 5.3% 6.1% 6.6% 7.6% 7.7%High Yield Fund 0.7% 1.7% 2.3% 3.9% 5.7% 4.6% 5.9%High Yield Spectrum Fund - - 0.4% 0.8% 1.4% 1.7% 1.6%Income Fund 1.8% 4.0% 7.4% 8.9% 9.8% 8.9% 9.4%Senior Floating Rate Fund - - - - - 0.8% 0.9%Inflation Related Strategies: 29.2% 22.3% 12.0% 18.7% 22.9% 15.3% 17.3% 17.9% 17.5% 17.6%CommoditiesPLUS™ Strategy Fund - 2.2%1.8%3.1%5.1%2.6%3.7%CommodityRealReturn Strategy Fund® 2.8% 3.8% 1.9% 4.2% 5.2% 1.6% 3.8%Real Return Asset Fund 20.5% 12.9% 6.0% 8.2% 8.1% 7.8% 7.3%Real Return Fund 5.6% 1.8% 1.3% 1.7% 1.5% 1.4% 0.0%RealEstateRealReturn Strategy Fund 0.3% 1.5% 1.0% 1.5% 3.1% 1.9% 2.6%US Equity Strategies: 2.0% 1.8% 1.0% 1.0% 1.0% 1.0% 4.5% 4.9% 4.2% 1.3%Fundamental IndexPLUSTM0.1% 0.1% 0.1% 0.1% 0.1% 0.1% -Fundamental IndexPLUSTM TR0.8% 0.7% 0.4% 0.4% 0.4% 0.4% 1.8%Small Cap StocksPLUS® Total Return Fund0.7% 0.6% 0.1% 0.1% 0.1% 0.2% 0.4%Small Company Fundamental IndexPLUS® TR Strategy Fund ------ 0.1%StocksPLUS® Fund0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 1.5%StocksPLUS® Total Return Fund0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.7%Global Equity Strategies:3.0% 7.3% 7.8% 7.5% 9.6% 9.6% 12.3% 13.9% 13.4% 13.4%EM Fundamental IndexPLUSTM TR Strategy Fund1.8% 4.7% 6.0% 5.9% 7.1% 6.4% 8.2%EqS Dividend Fund-------EqS Emerging Markets Fund---- 0.2% 0.3% 0.3%EqS Pathfinder Fund- 1.2%1.1%1.1%1.4%1.9%2.3%International Fundamental IndexPLUS® TR Strategy Fund ------ 0.1%Int'l StocksPLUS® TR Strategy Fund (U.S Dollar Hedged) 0.8% 0.8% 0.4% 0.3% 0.4% 0.4% 0.4%Int'l StocksPLUS® TR Strategy Fund (Unhedged)0.3% 0.5% 0.3% 0.3% 0.5% 0.6% 1.0%Alternative Strategies:15.2% 24.7% 31.0% 26.8% 18.7% 20.4% 8.8% 4.9% 4.3% 6.2%Fundamental Advantage Total Return Strategy Fund15.2% 16.9% 19.7% 15.7% 13.5% 14.5% 5.7%Unconstrained Bond Fund- 7.8% 11.4% 11.0% 5.2% 5.8% 3.1%100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Absolute Return – PIMCO All Asset FundSource: PIMCO5812/31/2011
Asset AllocationHistorical AllocationTactical Asset Allocation –GMO Global Balanced
Portfolio CharacteristicsMarket Neutral - PyramisSource: Pyramis6012/31/2011
Real Estate – UBS Trumbull Property FundSource: UBS6112/31/2011
Portfolio ReturnsActive Portfolio WeightsAttribution ChartAsset Class Allocation SummaryWellington Diversified Inflation HedgesSource: Wellington12/31/201162
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