PLAN SPONSOR | Q2 12
Strategic research report Changing Gears GM’s Pension Risk Transfer Strategy Gains Traction Grant D. Verhaeghe Director, CAPTRUST Investment Research
General Motors has received significant press coverage since early June about their decision to implement a sizeable pension risk transfer strategy. This event occurred as most defined benefit pension Plan Sponsors were seeking to control cash contribution and financial statement volatility amidst a challenging legislative and accounting change backdrop. Plan Sponsors face three primary obstacles in their quest to control this volatility: (1) low interest rates; (2) volatile capital markets; and (3) demographic uncertainties. The GM decision indicates that some Plan Sponsors are now willing to pay a premium to reduce this uncertainty. In short, they are evaluating strategies to address more than just capital market risk and the asset-liability mismatch. General Motors announced that it planned to reduce its underfunded U.S. salaried pension plan obligation by $26 billion by employing a two-part pension risk transfer strategy. The first component involved offering lump sum payments to one-third of its U.S. retirees. Lump sum windows allow the transfer of assets from the plan to the participant and eliminate mortality risk and premiums associated with annuity purchase. As a result of recent rule changes, a disparity may exist between lump sum rates and current discount rates used to measure pension liabilities. In some cases, this creates an opportunity for Plan Sponsors to pay lump sums out at a lower cost than the current actuarial measure of the liability.
In This Issue Market News
2
Plan Sponsor Highlights
4
Investment Strategy
12
Index Returns
15
Investment Asset Classes
16
CAPTRUST in the News
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The second component included purchasing a group annuity from Prudential for the remainder of retirees who were not offered or did not elect the lump sum. Buyout strategies—otherwise known as terminal or single-premium group annuities—involve paying an insurance company a premium in order for it to assume the responsibility for paying participants future annuity streams. This strategy eliminates mortality risk but may trigger settlement accounting, and involves paying additional fees to an insurance company beyond the actuarial measure of the liability. This combined pension risk transfer approach will cost GM close to $3 billion in excess of the current liability and will reduce their total estimated U.S. salaried pension plan obligations from ~$134 billion to ~$108 billion. While we were not privy to discussions involving this transaction specifically, it is reasonable to assume that GM was focused on a number of the challenges that face most pension Plan Sponsors today. Following you will find a primer on several of these issues.
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MARKET NEWS
In the second quarter, global financial markets gave back some of early 2012’s strong gains across riskier asset classes. Three principal issues surrounded the investment climate: (1) European sovereign and financial sector woes; (2) slowing economic growth from emerging markets, particularly China; and (3) increased concerns regarding the second half of 2012 for the U.S., including political developments that could dramatically shape markets. The combination of a presidential election showdown and the pending “fiscal cliff” will make the coming investment period a challenging one as investors weigh how much news flow has been priced into global markets versus what potential risks, both upside and downside, are not yet reflected in asset classes. We expect a volatile capital markets environment for the near term.
WASHINGTON ROUNDUP Phyllis Klein Senior Director, CAPTRUST Consulting Research Group Plan Sponsors and fiduciaries have seen a great deal
• 408(b)(2) — Disclosure of Compensation by Covered
of activity surrounding the topics of plan fees and fee
Service Providers: Plan Sponsors should have received
disclosure thus far in 2012. The following is a quick
disclosures from their plan service providers on or
roundup of important reminders and developments as
before July 1, 2012.
of mid-year (at the time of this publication): • Field Assistance Bulletin 2012-02: This bulletin, issued
• ERISA 404(a)(5) — Disclosure to Plan Participants: Participant fee disclosures are due to all employees
by the Department of Labor in May of this year,
who are eligible to participate in the plan as well as any
provided instructions for complying with participant
terminated employees with balances. They must be
fee disclosure under ERISA 404(a)(5). Plan Sponsors
delivered by August 30, 2012, although some providers
and recordkeepers are encouraged to pay particular
have already sent them. It is difficult to gauge how
attention to the seemingly new requirements that could
employees will react, but early feedback suggests a
be placed on plan fiduciaries related to self-directed
subdued response. According to one of the largest
brokerage accounts.
recordkeepers—who mailed four million disclosures in
• Tussey v. ABB, Inc. and Fidelity: On March 31, a court in the Western District of Missouri found that ABB
April—they have received approximately 600 phone calls in response.
personnel breached their fiduciary responsibility on
Please feel free to contact your CAPTRUST Advisor
several counts. This decision highlights the requirement
should you have any questions about these key
for Plan Sponsors to continuously monitor fees,
developments.
negotiate for lower price points when possible, and follow their Investment Policy Statement.
All Publication Rights Reserved. None of the
The opinions expressed in this report are subject to change without notice. This material has
material in this publication may be reproduced
been prepared or is distributed solely for informational purposes and is not a solicitation
in any form without the express written
or an offer to buy any security or instrument or to participate in any trading strategy. The
permission of CAPTRUST: 919.870.6822
information and statistics in this report are from sources believed to be reliable, but are not warranted by CAPTRUST Financial Advisors to be accurate or complete. Performance
©2012 CAPTRUST Financial Advisors
data depicts historical performance and is not meant to predict future results. CAPTRUST Financial Advisors, Member FINRA/SIPC.
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continued from page 1
The current low interest rate environment creates a larger pension liability measured in today’s terms. Interest rates on high-quality corporate bonds used to discount pension liabilities determine pension funding ratios, contributions, and balance sheet entries. Higher interest rates lead to a lower pension liability in today’s dollars and vice versa. The 10-Year U.S. Treasury, which is a building block for corporate bond rates, touched an all-time low yield of 1.44% on June 1, 2012, driving liability present values higher.1 Disappointing asset returns can create lower funding ratios when compared to otherwise-elevated liabilities. A rough approximation for the historical allocation of most corporate pension plans is 60% equity and 40% fixed income. A blend of 60% S&P 500 and 40% Barclays Capital Aggregate Bond indexes averaged 13.9% in the 1980s and 13.3% in the 1990s. However, in the 2000s the same blended index averaged only 3.5%.2 In layman’s terms, actuaries are understating pension liability if people live longer than projected. In March 2012, the Society of Actuaries published a study on the mortality tables most pension actuaries use. Mortality tables estimate how long pensioners will receive benefit payments based on life expectancy. This study evaluated the use of a new mortality table that would effectively increase pension liabilities by a margin of 1.4% to 3.6%.3
Annuity discount rates are materially lower than the effective discount rates used to calculate current pension liability. Insurance companies who seek to take on pension liabilities through annuity transactions charge a premium. This premium generally includes mortality expense, asset management, and administration costs, as well as profit. Dietrich & Associates, a terminal funding annuity services firm, estimated rates between 2.8% and 3.5% in their June 2012 update, which are materially lower than the rates on corporate bonds utilized to calculate current liability.4 In summary, there are many tools that Plan Sponsors can utilize beyond asset or asset-liability strategies to address the volatility created in pension funding, contributions, and financial statements. Since this volatility can often create significant stress for organizations, many Plan Sponsors are evaluating the benefits and costs of pension risk transfer solutions. Each of these strategies has unique costs and benefits and involves a complex decision-making framework. We welcome the opportunity to further discuss what is most appropriate for your plan based on your unique objectives. For additional information on pension risk transfer strategies, please reference “Pension Risk Management: What Are You ‘Buy-in’?” in our second quarter, 2011 Plan Sponsor Strategic Research Report edition.
Source: 1
U.S. Department of the Treasury Resource Center Daily Treasury Yield Curve Rates: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2012.
2
Zephyr Style ADVISOR.
3
Report of the Society of Actuaries, Exposure Draft on Mortality Improvement Scale: http://www.soa.org/research/experience-study/pension/research-mortality-improve-bb.aspx.
4
Dietrich & Associates, Inc. Interest Rate Update, June 2012: https://www.dietrichassociates.com/Default.aspx.
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PLAN SPONSOR HIGHLIGHTS
STABLE VALUE MARKET TURBULENCE: A CASE STUDY FRAGILE — HANDLE WITH CARE Jennifer Dunbar Senior Associate, CAPTRUST Investment Research
Since the 2008 financial crisis, market volatility and low interest rates have made it difficult for stable value product providers to continue to offer book value guarantees, liquidity, and attractive rates. Many have modified their products significantly — or exited the business altogether—forcing Plan Sponsors to react quickly to such change. Several of our Clients were recently affected by a major stable value product provider that decided to liquidate its $7.5 billion fund. Nineteen CAPTRUST institutional Clients received notice of this liquidation and were given just three months to find replacement products. Our team sprung into action to find new homes for these assets — a perfect example of how we work with asset managers and recordkeepers to facilitate the most appropriate solutions for our Plan Sponsors and participants. Stable value investors count on capital preservation above all else, so portfolio health and financial strength— along with a proven track record — are always paramount in product provider selection. But today’s environment demands an even tougher level of scrutiny. Detailed portfolio holdings, rate-setting formulae, and a provider’s capacity to accept new investment dollars all provide additional insight. It is important to consider how portfolio composition and crediting rate might be negatively affected by a large amount of inflows into a product. For example, a fresh cash influx in today’s low-rate fixed income environment could have a significant impact on a smaller stable value product. Beyond investment considerations, it is also important to acknowledge that changing stable value providers could be cause for participant concern. Reduced crediting rates, higher expense ratios, or changes to liquidity provisions can all potentially affect participants and, as such, must be communicated carefully.
With this laundry list of criteria and considerations in mind, our Consulting Research Group strategically identified a short list of viable stable value options and began working through the practical aspects of helping those plans transition. Recordkeeping requirements, revenue needs, minimum investment requirements, contract provisions, and an implementation plan — complete with participant communication programs — became our next area of focus. Armed with information and perspective on alternative stable value products and a deep understanding of implementation issues, Plan Sponsors were able to quickly make decisions, and CAPTRUST Clients began migrating assets to new providers within the short timeframe required. Of course, this is not an isolated incident in our world and the stable value market continues to change. Since 2008, our Clients have seen a total of eight stable value fund closures— representing over $20 billion of assets—as well as five partial fund closures. Despite these product terminations, our team still actively tracks and performs due diligence on over 30 stable value products on an ongoing basis. Rest assured that if and when the next provider decides to exit the business or significantly modify its product, we stand ready to provide the insight and perspective necessary to help Plan Sponsors efficiently handle the next instance of change.
Since 2008, our Clients have seen a total of eight stable value fund closures and five partial fund closures. Despite these product terminations, our team actively tracks and performs due diligence on over 30 stable value products.
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PLAN SPONSOR | Q2 12
FROM PLAN DESIGN TO PARTICIPANT OUTCOMES: HIGHLIGHTS FROM THE 2012 PLANSPONSOR NATIONAL CONFERENCE Scott T. Matheson, CFA, CPA Senior Director, CAPTRUST Investment Research
Phyllis Klein Senior Director, CAPTRUST Consulting Research Group
Grant D. Verhaeghe Director, CAPTRUST Investment Research
Several CAPTRUST colleagues met in Chicago this past June to attend the 2012 PLANSPONSOR National Conference, where the theme was “From Plan Design to Participant Outcomes.” For those of you who could not make it to this annual event, we wanted to share several highlights from this year’s agenda in an effort to keep you abreast of industry developments and, perhaps more importantly, what other Plan Sponsors are talking about. The conference opened with a keynote address from Mark Iwry, senior advisor to the secretary of the U.S. Department of Treasury and deputy assistant secretary for retirement and health policy, who focused on the history, current state, and future path of the 401(k). He spoke to us in the midst of “graduation season” about the 401(k) plan, as he says, “graduating from what it used to be, to what it can be.” Iwry outlined his vision for what he called “401(k) 3.0,” which included: • Rethinking or enhancing automatic features to get more eligible employees participating and deferring at higher levels • Repositioning match formulas to encourage higher deferral rates — for example, a company might match 50% on the first 8% a participant saves, versus 100% on the first 4% in an effort to encourage participants to “stretch” their savings • Challenging the status quo for eligibility requirements • Exploring in-plan and out-of-plan solutions for retiree income generation • Illustrating lifetime income projections based upon participant balances and deferral rates • Controlling plan “leakage” at separation of service, perhaps allowing loan repayments to continue after termination to help keep a participant’s savings intact • Further restricting or limiting use company stock in 401(k) plans continued on page 6
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Mr. Iwry suggested that success for the next generation of defined contribution plans will be broadly judged on participants’ retirement readiness. His address set the tone for the rest of the conference, which encouraged sponsors to challenge today’s benchmarks for success while focusing more on outcomes than ever before.
requested topic was fee disclosure: both service provider and participant-level disclosure. It was clear that the full effects of fee disclosure and transparency are yet to be determined. These issues are still top of mind, and proved to be a hot topic for several other sessions, with frequent fee-centric questions asked by audience members.
Examples of this year’s sessions that echoed the “outcomes” theme included:
The conference’s two most popular investment topics were target date and stable value funds. During a session titled “The Glide Path Conundrum: Target Date Funds Are Not Created Equal,” panelists from the asset management industry discussed the variety of demographic and capital market assumptions used and the resulting range of glide path designs. They also discussed the linkage of various glide path assumptions to the investment outcome of target date funds. Plan Sponsors continue to be challenged by selecting the glide path and target date funds that are right for their Plan Participants, a task that becomes increasingly more important as participant balances continue to shift toward target date funds. In a session titled “Stable Value: Five Things All Plan Sponsors Should Know,” panelists discussed the continuing issues stable value funds face and the impact these constraints have on the way portfolios are offered and managed.
• “Creating Better Savers” outlined a few practical ways to overcome participant inertia and engage the unengaged participant. • “How Much Is Enough?” focused on how best to educate participants about retirement readiness and retirement income options. • “Investment Advice” explored the role for investment advice in retirement plans and how to gauge participant usage. • “Defining Success” dealt with the important idea that participation rate is no longer an adequate measurement, and suggested that sponsors need to apply different benchmarks for success in plans.
Another topic of discussion throughout the event was behavioral finance, specifically the behavior of defined contribution Plan Participants. There was an agreement among sponsors in their desire not to allow negative participant behavioral tendencies to hinder their chance of ultimately navigating to successful outcomes. Rather than trying to force employees to become educated investors, many sponsors are investigating how to devise a benefit that will get them to retirement, while recognizing that they may not be equipped to make informed decisions. CAPTRUST Advisor Mark Davis sat on a panel titled “Top of Mind: What’s Keeping Plan Sponsors Up at Night — and What Should Be.” Davis and fellow panelists discussed popular issues submitted by the audience prior to the conference. To no one’s surprise, the panel’s most
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Defined benefit pensions received their fair share of attention during the conference as well, with the theme of de-risking being most prevalent. In a standing-room-only session titled “Five Things You Need to Know About Pension Risk Transfer,” Steve Ellis, chief financial officer at Hickory Springs Manufacturing, sat alongside representatives from MetLife and Prudential to discuss the considerations and benefits of transferring pension risk to an insurer. Later in the conference, CAPTRUST Advisor John Pickett represented the consultant point of view alongside representatives from the actuarial and bundled provider industry on a well-attended panel titled “Liability-Driven Investing.” Pickett and fellow panelists discussed many considerations surrounding liabilitydriven investing, including a question Plan Sponsors routinely struggle with in this era of persistent market volatility and historically low interest rates: “Is now the time?”
PLAN SPONSOR | Q2 12
In summary, we felt the conference was well worth our time and travel, as it offered an agenda packed with topics both timely and relevant for anyone responsible for managing a retirement plan. We have found in the past that “conference buzz” is often a leading indicator of the nature of conversations we will have in coming months (and years) with our Clients. If this holds true once again, here are a few clear themes we foresee we will all be talking more about in the future: 1. Outcomes as a New Definition of Success. The evolution of the defined contribution marketplace continues, and success for the next generation of defined contribution plans will be judged not only on procedural prudence, but also on the plan’s ability to prepare its workforce for retirement. 2. Fee Disclosure, Chapter 2. The full ramifications and effects of fee disclosure and transparency are yet to come. Plan Sponsors not only must rigorously comply with the fee disclosure regulations, but also should contemplate potential impacts and challenge the status quo where necessary to ensure that participants are protected and treated equitably. 3. The Evolution of Target Date Funds. As participant balances shift toward allocation funds — such as target date funds — it is imperative that Plan Sponsors routinely reaffirm the appropriateness of the allocations used in the funds they are offering in their plans. As plan demographics shift and morph over time — through acquisitions, divestitures, or simply the passage of time — the optimal solution and method of delivery may also change. 4. De-Risking Is Alive and Well. Persistent market volatility and low interest rates serve to not-so-subtly remind defined benefit Plan Sponsors that some pension risks are unrewarded. As such, sponsors are understandably clamoring for opportunities to de-risk their plans. Plan Sponsors should be exploring all aspects of de-risking—from simple asset-only, to asset and liability, all the way to de-risking the liability itself. As 2012 continues to unfold, and until next year’s annual conference agenda takes shape, our team looks forward to discussing and assisting you with any and all of these topics. Should you have any questions, feel free to contact your CAPTRUST Financial Advisor.
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FRONTLINE PERSPECTIVES: A TIMELY Q&A WITH MOHAMED EL-ERIAN David A. Hood Senior Manager, CAPTRUST Investment Research
Questions abound across global capital markets. The health of the U.S. economy, the future of the Eurozone, a potential “fiscal cliff” late this year, plus a persistently low interest rate environment all present unique challenges and opportunities. How investors prepare for these variables will determine their investment outcomes. As a firm with over $76 billion in Client assets, CAPTRUST has direct access to some of the brightest minds in the asset management industry. This quarter we use that leverage to share macroeconomic perspectives from a renowned thought leader. Mohamed El-Erian is chief executive officer and co-chief investment officer of PIMCO, a Newport Beach-based asset management firm currently managing $1.8 trillion in assets. PIMCO is the manager of the largest bond mutual fund and is one of the largest fixed income asset managers in the world. Mohamed recently joined me to answer a few questions and provide his thoughts on the principal issues facing investors today. Q: Starting first in the U.S., as we’ve passed the midpoint of the year, how healthy is the U.S. economy? Is it finally healthy enough to fly on its own without the help of stimulus and achieve “escape velocity”? Mohamed: There certainly are factors that suggest the U.S. economy is gradually healing, but the deleveraging process is still very much with us and continues to suggest weak growth ahead. Positive factors include healthy corporate balance sheets, significant cash on the sidelines, and data that indicate the housing market is in the process of forming a bottom. But it is unlikely that these factors on their own will propel the U.S. economy to escape velocity given the lack of robust demand and ongoing structural challenges, including stubbornly high long-term unemployment, government debt and deficit issues, clogged credit pipes for mediumand small-scale companies, and inadequate investment in education, worker training, and infrastructure. Also, the risk of collateral damage from Europe cannot be underestimated.
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Q: One of the questions we field often is the possibility of a “fiscal cliff” at year-end and its implications on investment returns. How is PIMCO positioning portfolios for this uncertain event? Mohamed: Economists, including Federal Reserve Chairman Ben Bernanke, are rightly starting to warn that the U.S. faces a worrisome “fiscal cliff” at year’s end. If politicians take no action before the end of the year, tax stimulus and government spending worth approximately 4% of Gross Domestic Product (GDP) are scheduled to be cut. The blunt spending cuts mandated by the 2011 compromise on the debt ceiling along with across-the-board tax increases would derail the U.S. recovery and undermine the well-being of the global economy. Investors should remain defensive, possibly moving up in quality and maintaining broad portfolio diversification. PIMCO is emphasizing liquidity, both for defensive reasons and to take advantage of market dislocations should they occur. This gives us important optionality and flexibility so we can be prepared to capture opportunities should there be policy mistakes. Q: Shifting gears now to Europe, what is PIMCO’s current view on the Eurozone? Will the European Union survive? Mohamed: We believe the status quo is no longer an option for the Eurozone. The Eurozone will either evolve to a less imperfect union or fragment. Our baseline view is that eventually there will be a smaller, less imperfect union anchored by Germany, the owner of the strongest balance sheet in Europe, along with France, Italy, and Spain. For this union to be sustainable, it will have to be underpinned by a much stronger fiscal union as well as greater support for the banking system, adequate mutualization of debt, and greater political integration. All of these solutions are grounded in the sharing of Germany’s balance sheet, and Germany must play a leading role in several of the critical fiscal decisions. In the interim, however, the risk of a disorderly breakup of the Eurozone will remain a key tail risk for global markets for some time to come.
Q: Is there still a chance that global leaders, including in the U.S., are able to work in a synchronized fashion to promote, as you would say, a “virtuous cycle,” where growth and expansion promote regulatory reform, thereby further boosting confidence and stability? Mohamed: In order to promote a virtuous cycle, policy makers need a common analysis, a shared vision, and political consensus for implementation. Unfortunately, policy makers in Washington and Europe have failed over the past few years to address pressing fiscal issues and structural challenges to their economies. They are opting instead for short-term fixes and half measures instead of seriously confronting looming sovereign debt issues. Now they must pivot quickly and respond in a much more comprehensive way. Difficult decisions need to be made to restore the public’s faith in elected leaders and to ensure an orderly solution to the problems facing the global economy. If policy makers continue to opt for political posturing rather than grand bargains, legitimate concerns about growth, jobs, inequality, debt, and deficits will persist and undermine the basic functioning of markets and, in Europe, possibly lead to a disorderly outcome. Q: Today, forecasting policy leaders’ and regulatory officials’ actions are at the center of the investment process. How do you analyze such large non-investment uncertainties, and what changes have you made to adapt to this new reality? Mohamed: It is now almost four years since the full onset of the global financial crisis. The economic and social costs have been immense, and they continue to accumulate. Against this reality, it should come as no surprise that there have been many regulatory policy initiatives at the national, regional, and multilateral levels. Our ongoing assessment of the regulatory landscape now always includes recognition of how much is still in flux and, essentially, both what is unknowable and unquantifiable at this stage. continued on page 10
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From a PIMCO business perspective, we have increased our legal and compliance staff around the world, and doing so has enhanced our ability to monitor and react to regulatory changes in a large number of national jurisdictions. Q: To date, much of the policy response from leaders to the crisis has come in the form of lower interest rates and quantitative easing. Central banks have used these tools to try to lower borrowing costs to encourage growth. The byproduct has been the creation of historically low interest rates. Given the current low level of rates, what role should fixed income play in a portfolio? Mohamed: We believe fixed income will continue to play an important role in portfolios, especially given the uncertainty surrounding the global economy. Despite historically low yields, the fixed income asset class tends to provide investors with liquidity, income, and a cushion against deflation. It also provides important optionality in a world in which volatility is likely to create opportunities down the road. Given our view that consequential risks to the global economy still remain, we suggest investors look to strategies that can take advantage of the changing global opportunity set and have the flexibility to preserve capital during bouts of market volatility. This would suggest an evolution in the way investors have traditionally deployed capital in the fixed income markets.
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Measures that investors might consider include “smart” benchmarks that focus on a country’s contribution to global GDP, an increased allocation to emerging market debt and currencies given favorable growth dynamics, and the use of tail risk hedging to help guard against unexpected shocks. Q: While portfolio liquidity and optionality are important, many investors look to their fixed income allocations for yield. How would you advise a retiree to invest in this low-rate environment with a need for income? Mohamed: We understand that generating a high level of income is often a primary goal for some investors who are looking to preserve their savings and generate reliable, steady cash streams. Given the current low-rate environment, U.S. Treasury securities may not provide investors sufficient income to meet their needs. And traditional credit-centric portfolios could expose a retiree’s principal to substantial risks. We believe that it makes sense to look more broadly at other sectors of the fixed income market and also look outside the U.S. for opportunities to generate income without taking excessive risk. These sectors could include high-quality non-U.S. government bonds as well as inflation-linked bonds and mortgagebacked securities, among other options. We believe it’s important to invest in strategies that maintain flexibility, while
allowing for the generation of attractive income and the diversification of risk away from a single sector. Q: Earlier you mentioned that consequential risks to the global economy still remain and that investors may need to evolve from the ways they have traditionally deployed capital in fixed income markets to consider “smart” benchmarks that focus on a country’s contribution to global GDP. Is the Barclays Capital Aggregate Bond index still an appropriate benchmark for core fixed income managers? Mohamed: As a starting point we can ask ourselves the following question: “Do we want to lend to the countries that have the lowest income growth and the most debt?” That’s the outcome that traditional indices can produce. Global investors need a new approach for allocating capital across regions and countries by being forward-looking and seeking attractive opportunities wherever they are. At PIMCO we have developed the Global Advantage Index (GLADI) to help investors capture investment opportunities in the “New Normal.” The index’s GDP-weighting methodology makes it more inclusive of newly developing countries with stronger underlying fundamentals and avoids an overallocation to debt-laden developed countries. This feature positions investors for future rather than past opportunities.
PLAN SPONSOR | Q2 12
The index also includes broad exposure across fixed income markets and sectors, including inflation-linked bonds and currencies, which can help preserve and enhance purchasing power over the long-term. Q: And lastly, given all that we've discussed, have any of these largely macroeconomic issues changed the way PIMCO manages fixed income portfolios or manages risk? Mohamed: We believe the focus on macroeconomic issues gives PIMCO a significant advantage to add value in client portfolios. The current environment reinforces our belief that an investment manager must have a well-informed top-down view, and
supplement this with detailed bottomup analyses. This has been a central tenet in our investment process going back to the founding of the firm. Our investment process starts with an annual Secular Forum in which PIMCO professionals across our twelve global offices gather for a three-day discussion about the future of the global economy and financial markets. The Secular Forum has proven enormously important for PIMCO’s ability to deliver consistent value to our clients. We debate the major trends that will play out over the next three to five years and assess not what should happen but what is likely to happen. Think of the outcome as providing medium-term guardrails for where and
how we invest the funds that have been entrusted to us. While we have not made any significant changes to our risk management process since the global financial crisis, we have continued to invest in human, analytical, and technological resources to continuously enhance our risk management framework. We believe in a “mosaic” approach to analyzing and managing risk that uses many different measures while not relying too heavily on any single one. As the global financial crisis highlighted, any one measure of risk can often be incomplete or even misleading. Risk management always has been as it should be, at the forefront of all that we do at PIMCO.
Dr. El-Erian is CEO and co-CIO of PIMCO and is based in the Newport Beach office. He re-joined PIMCO at the end of 2007 after serving for two years as president and CEO of Harvard Management Company, the entity that manages Harvard’s endowment and related accounts. Dr. El-Erian also served as a member of the faculty of Harvard Business School. He first joined PIMCO in 1999 and was a senior member of PIMCO's portfolio management and investment strategy group. Before coming to PIMCO, Dr. El-Erian was a managing director at Salomon Smith Barney/Citigroup in London, and before that, he spent 15 years at the Mohamed A. El-Erian
International Monetary Fund in Washington, D.C.
Dr. El-Erian has published widely on international economic and finance topics. His book, When Markets Collide, was a New York Times and Wall Street Journal bestseller, won the Financial Times/Goldman Sachs 2008 Business Book of the Year and was named a book of the year by The Economist and one of the best business books of all time by The Independent (UK). He was named to Foreign Policy’s list of “Top 100 Global Thinkers” for 2009, 2010, and 2011. Dr. El-Erian has served on several boards and committees, including the U.S. Treasury Borrowing Advisory Committee, the International Center for Research on Women, the Peterson Institute for International Economics, and the IMF's Committee of Eminent Persons. He is currently a board member of the NBER, the Carnegie Endowment for International Peace, and Cambridge in America. He holds a master's degree and doctorate in economics from Oxford University and received his undergraduate degree from Cambridge University.
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investment strategy
THE LEADERSHIP CRISIS Eric J. Freedman CAPTRUST Chief Investment Officer
Youth sports have taken a much different turn from what they were in my day (just reading that sentence, and listening to the cracking noise from my right knee as I ascend stairs, confirms that I am officially old). All three of my children, ages 12, 9, and 4, play a variety of sports, leaving my wife and me to help coordinate car pools, tournament sign-ups, and other logistical feats, not the least of which includes halftime and post-game snack detail. Having taken several operations classes in graduate school, I feel I have been reasonably trained for handling this trying schedule. Currently, all three children play soccer, which for the eldest two entails long road trips across state lines (a recent Final Jeopardy! question on TV asked contestants which of the original 13 colonies was the widest, and I correctly blurted “North Carolina!” — my knowledge based 100 percent on experience), and as much as I try to commiserate with fellow road-weary parents, I am told that your kids grow up faster than you know it, so I try to savor every moment. Given the distance of some of these trips, conversations can head into interesting places. I am not allowed to discuss boys with my 12-year-old daughter (I am in a state of suspended disbelief anyway, so I am not sure what I would say), and our musical tastes mostly diverge, but Hailey does like to talk about current events. Given our European heritage, Hailey has always had an interest in the Continent, but the convergence of recent developments and weekly current events assignments in social studies have made today’s European plight of particular interest. Being a rising seventh grader with her mother’s brains, Hailey understands concepts like debt and even productivity differentials across countries. We have kept up a running dialogue during trips about the latest European developments. Hailey’s
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nine-year-old sister Elle is not quite ready for such concepts, but she too knows that part of her dad’s job is to keep aware of current events. When I try to explain to her what is going on in Europe, the most digestible explanation is that it is a leadership crisis. European policy makers have a challenging task assigned to them; the region’s countries have disparate productivity levels, growth potential, and debt characteristics along with minimal fiscal integration — yet they share the euro as the common currency. The original Maastricht Treaty, signed two decades ago at the European Union’s inception, attempted to enforce fiscal rules by imposing penalties on countries whose debt-to – Gross Domestic Product (GDP) percentages exceeded 60% or whose budget deficits exceeded 3%. However, once large countries like Germany and France breached those limits, policy makers looked the other way. German and French leaders missed an opportunity to lead by example, and the initial fiscal control attempts gave way to self-determination, or in Elle’s world, handing in a book report and grading it yourself. The twentieth European Summit since the Greek crisis began in 2009, held June 28–29, 2012 in Brussels, was met with considerable fanfare. Leaders released a statement long on what they intend to do (including the potential for a centralized European bank regulator, easier access to aid capital, and other considerations) yet short on how they will do it. Successful implementation is a cross-country coordination problem, described eloquently in Surowiecki’s The Wisdom of Crowds. Surowiecki details how some groups excel at coordination (schools of fish, New York City pedestrians) while others have had historically weak performance (the fragmented U.S. intelligence operations). Europe’s individual countries are driven first by self-interest and a distant second (or perhaps third) by their common bond as Europeans. Most U.S. citizens view themselves as Americans first and Iowans or South Carolinians second; this identity helps our governments, at least on a relative basis, to react more quickly to crises and coordinate better than Europe. We are in an environment driven by policy makers, so we must consider one other variable: political self-interest. A recent quote by simultaneous Luxembourg and Eurogroup President
Jean-Claude Juncker aptly summarizes this conflict: “We all know what to do. We just don’t know how to get re-elected after we’ve done it.”1 Whether or not all European politicians truly know what to do, Mr. Juncker’s quote does provide insight into why Europe may be focused on certain types of legislation that appear more popular with constituents. Take, for example, the European Court of Justice’s late-June decision that European Union citizens who get sick while on vacation must receive paid time off equivalent to the duration of their illness.2 This benefit is layered on top of the EU minimum of 20 paid vacation days that can be superseded by more favorable national laws like those in France, which allows for ten days of vacation for those working up to 39 hours a week on top of the national 25 day minimum, or Spain, which allows three weeks of vacation for marriage.3 It is hard to compete in a globally integrated marketplace if you are not in the office very often. These are certainly policies that may get you temporarily elected by the beneficiaries of such generosity, but it will also lead to rampant unemployment, lower productivity, and a perpetual state of uncompetitive bliss, which leads to youth unemployment rates of 22% for countries using the euro versus 11% for the total Eurozone. Most strikingly, Greek and Spanish youth unemployment stands at over 50%. These are not levels consistent with leadership and today’s global economic realities. A graduate professor of mine, Dr. Michael Useem, wrote a book called The Leadership Moment, which chronicles nine leaders throughout history and across geographies, detailing moments they faced as leaders and the choices they made, some with favorable results and some with catastrophic implications. Europe is facing its own set of leadership moments, but as we approach the twenty-first European leadership summit, it is time to be long on details and short on promises. I applaud Europe’s focus on work-life balance, but global capital markets and economic forces are indifferent about Europe’s intentions. They seek results. More open labor and trade practices, fewer unsustainable benefits, and a more credible path toward debt reduction are all steps capital markets need to see before we can reverse Europe’s negative feedback loop. Otherwise, investors will cling to political developments, press conference continued on page 14
13
continued from page 13
outtakes, and the “he said, she said” of back room negotiations. Case in point was yours truly on Father’s Day, alternating between the U.S. Open golf tournament and Greek election coverage — not your typical Sunday programming schedule. The U.S. faces its own leadership moments later this year with the presidential election as well as the impending “fiscal cliff.” These events, coupled with the ongoing European saga, will continue to shape markets and portfolios more than anything else. I am encouraged when I read quotes from the likes of Italian Economic Undersecretary Gianfranco Polillo, who states that having Italians work one more week a year would help jump-start productivity, but I fear it may take further market pain to push policy makers into durable reforms. In this environment, we continue to recommend that Clients greatly spread out their portfolio risks; capital market environments driven by policy makers are fraught with volatility and we expect the tugof-war to continue until the hard choices are made. As such, taking heroic stands for or against asset classes may work against you. As an example, the 10-Year U.S. Treasury touched an all-time low yield of 1.44% on June 1, and as paltry as that yield may be, should things deteriorate in Europe, the “fiscal cliff” become a reality, or the global growth picture rapidly decelerate, that yield could go a lot lower. Not having that defensive exposure could hurt when you need it the most.
More open labor and trade practices, fewer unsustainable benefits, and a more credible path toward debt reduction are all steps capital markets need to see before we can reverse Europe’s negative feedback loop.
I want to write columns rich with charts, data, and provocative hypotheses. I want to drill into specific asset classes and opine on what will fundamentally drive them. But those variables are subordinated by macroeconomic developments, specifically political economy challenges that we will continually digest in our goal to help CAPTRUST Clients navigate through a difficult landscape. We are seeing some progress out of Europe, but we need to see more; the aforementioned U.S. issues await. No rest for the weary, dear travelers; it’s time to put both hands on the wheel and continue on this road trip. We at CAPTRUST are committed to handling whatever roadblocks capital markets may put up, but like a Freedman family weekend soccer excursion to Anytown, North Carolina, it is likely to be a long drive. Just remember, no talking about boys. Sources: 1
http://www.msnbc.msn.com/id/46880512/ns/business/t/analysis-europes-reform-drive-risks-running-outsteam.
2, 3
14
http://online.wsj.com/article/SB10001424052702304782404577490130796396386.html.
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index returns
2012 2ND QUARTER ASSET CLASS RETURNS 2000
2001
2002
2003
2004
2007
2008
2009
2010
2011
YTD
Mid Cap Growth
Small Cap Value
Small Cap Value
Fixed Income
Small Cap Growth
Mid Cap Value
Large Cap Growth
Fixed Income
Mid Cap Growth
Small Cap Growth
Fixed Income
Large Cap Growth
51.29%
22.83%
14.02%
9.84%
48.54%
23.70%
14.02%
26.86%
11.81%
5.08%
46.29%
29.09%
7.84%
10.08%
Small Cap Growth
Mid Cap Value
Fixed Income
Cash
Small Cap Value
Small Cap Value
Mid Cap Value
Small Cap Value
International Equities
Cash
Large Cap Growth
Mid Cap Growth
Large Cap Growth
Small Cap Growth
43.09%
19.18%
8.96%
46.03%
22.25%
12.65%
23.48%
11.63%
37.21%
26.38%
2.64%
8.81%
Large Cap Growth
Fixed Income
Mid Cap Value
Mid Cap Growth
International Equities
Mid Cap Growth
Large Cap Value
Mid Cap Growth
Small Cap Value
Small Cap Growth
Mid Cap Value
Large Cap Value
Large Cap Value
-9.64%
42.71%
20.70%
12.10%
22.25%
11.43%
-28.92%
34.47%
24.75%
0.39%
8.68%
Cash
Small Cap Value
1.68%
Cash 3.64%
2005
2006
International International Equities Equities
1.51%
33.16%
10.12%
International Equities
Large Cap Value
Mid Cap Value
Small Cap Value
International Equities
Large Cap Value
Large Cap Value
Mid Cap Value
Fixed Income
Large Cap Value
Mid Cap Value
Small Cap Value
27.37%
7.02%
2.33%
-11.42%
39.17%
16.49%
7.05%
20.22%
7.39%
-36.85%
34.21%
24.50%
Cash
Large Cap Value
Large Cap Value
Mid Cap Value
Mid Cap Growth
Large Cap Growth
Small Cap Growth
Small Cap Growth
Mid Cap Value
International Equities
Large Cap Growth
Mid Cap Value
Mid Cap Growth
-5.59%
-15.52%
38.07%
15.48%
5.26%
13.35%
7.05%
-38.44%
32.46%
16.71%
-1.38%
8.10%
Mid Cap Growth
Small Cap Growth
International Equities
Large Cap Value
Small Cap Growth
Small Cap Value
Mid Cap Growth
Cash
Large Cap Growth
Small Cap Value
Large Cap Value
Mid Cap Growth
Mid Cap Value
-11.75%
-9.23%
-15.66%
30.03%
14.31%
4.71%
10.66%
-38.44%
20.58%
15.51%
-1.65%
7.78%
Fixed Income
International Equities
Mid Cap Growth
Mid Cap Growth
Large Cap Growth
Large Cap Growth
Small Cap Growth
Large Cap Growth
Large Cap Value
Small Cap Growth
Large Cap Value
International Equities
Small Cap Growth
International Equities
0.39%
-13.96%
-20.15%
-27.41%
29.75%
6.30%
4.15%
9.07%
-0.17%
-38.54%
19.69%
8.21%
-2.91%
3.38%
Mid Cap Value
Large Cap Growth
Large Cap Growth
Large Cap Growth
Fixed Income
Fixed Income
Cash
Cash
Mid Cap Value
International Equities
Fixed Income
Fixed Income
Small Cap Value
Fixed Income
-0.11%
-22.42%
-20.42%
-27.88%
4.31%
3.04%
3.35%
5.08%
-1.42%
-43.06%
5.24%
5.89%
-5.50%
2.37%
Small Cap Value
Small Cap Growth
International Equities
Small Cap Growth
Fixed Income
Fixed Income
Small Cap Value
Mid Cap Growth
Cash
Cash
International Equities
0.21%
0.13%
Large Cap Value
6.36%
7.35%
Cash 5.01%
-1.49%
-22.43%
-21.21%
-30.26%
Cash
Cash
1.05%
1.44%
1.58%
4.08%
4.71%
-9.78%
-44.32%
0.10%
-11.73%
8.23%
Cash 0.04%
Small Cap Value Stocks (Russell 2000 Value)
Large Cap Value Stocks (Russell 1000 Value)
International Equities (EAFE)
Small Cap Growth Stocks (Russell 2000 Growth)
Mid Cap Growth Stocks (Russell Mid Cap Growth Index)
Fixed Income (Barclay’s Capital U.S. Intermediate Govt./Credit)
Large Cap Growth Stocks (Russell 1000 Growth)
Mid Cap Value Stocks (Russell Mid Cap Value Index)
Cash (Merrill Lynch 3-Month Treasury Bill)
Source: Markov Processes Inc., Bloomberg, Mobius
1999
2012 2ND QUARTER INDEX PERFORMANCE Q2-12
2012
2011
2010
2009
2008
2007
1 YEAR
3 YEAR
5 YEAR
S&P 500
-2.75%
9.49%
2.11%
15.06%
26.46%
-37.00%
5.49%
5.45%
16.40%
0.22%
5.33%
Dow Jones Industrial Average
-1.85%
6.83%
8.38%
14.06%
22.68%
-31.93%
8.88%
6.63%
18.25%
2.00%
6.02%
-5.06%
12.66%
-1.80%
16.91%
43.89%
-40.54%
9.81%
5.82%
16.95%
2.43%
7.21%
-3.12%
9.38%
1.50%
16.10%
28.43%
-37.60%
5.77%
4.37%
16.64%
0.39%
5.72%
Russell 1000 Growth
-4.02%
10.08%
2.64%
16.71%
37.21%
-38.44%
11.81%
5.76%
17.50%
2.87%
6.03%
Russell 1000 Value
-2.20%
8.68%
0.39%
15.51%
19.69%
-36.85%
-0.17%
3.01%
15.80%
-2.19%
5.28%
Russell Mid Cap Index
-4.40%
7.97%
-1.55%
25.48%
40.48%
-41.46%
5.60%
-1.65%
19.44%
1.06%
8.45%
Russell 2000
-3.47%
8.53%
-4.18%
26.85%
27.17%
-33.79%
-1.57%
-2.08%
17.80%
0.54%
7.00%
Russell 2000 Growth
-3.94%
8.81%
-2.91%
29.09%
34.47%
-38.54%
7.05%
-2.71%
18.09%
1.99%
7.39%
Russell 2000 Value
-3.01%
8.23%
-5.50%
24.50%
20.58%
-28.92%
-9.78%
-1.44%
17.43%
-1.05%
6.50%
MSSCI Europe, Australia, Far East
-6.85%
3.38%
-11.73%
8.21%
32.46%
-43.06%
11.63%
-13.38%
6.45%
-5.63%
5.62%
3.71%
14.90%
9.24%
28.60%
28.60%
-39.20%
-17.55%
13.21%
33.62%
2.05%
10.31%
NASDAQ Composite Russell 1000
Wilshire REIT Index
10 YEAR
Barclays Govt. Intermediate Bond
1.45%
1.07%
6.08%
4.98%
-0.32%
10.43%
8.47%
5.01%
4.44%
5.77%
4.63%
Barclays Corporate IG Bond
2.52%
4.65%
8.15%
9.00%
18.68%
-4.94%
4.56%
9.71%
10.57%
7.64%
6.60%
Barclays Aggregate Bond
2.06%
2.37%
7.84%
6.54%
5.93%
5.24%
6.97%
7.47%
6.93%
6.79%
5.63%
Barclays Intermediate Govt./Credit
1.48%
2.10%
5.80%
5.89%
5.24%
5.08%
7.39%
5.42%
5.81%
6.01%
5.08%
1.83%
7.27%
4.98%
15.12%
58.21%
-26.16%
1.87%
7.27%
16.28%
8.45%
10.16%
90-Day U.S. Treasury
0.03%
0.04%
0.10%
0.13%
0.21%
2.06%
5.00%
0.06%
0.12%
0.98%
1.87%
Consumer Price Index (Inflation)
0.45%
2.10%
2.96%
1.50%
2.72%
0.09%
4.08%
2.08%
2.23%
2.03%
2.51%
Barclays High Yield
Source: Morningstar, Mobius, MPI
INDICES
The information contained in this report is from sources believed to be reliable, but not warranted by CAPTRUST Financial Advisors to be accurate or complete. Index performance depicts historical performance and is not meant to predict future results.
15
investment asset classes
U.S. EQUITIES Market Performance, 2nd Quarter 2012
• U.S. equities recorded their first negative quarter in the last three, with the S&P 500 falling a modest 2.8% after Q2 ’12
2012
Large Value (R1000 Value)
-2.20%
8.68%
Large Blend (S&P 500)
-2.75%
9.49%
posting much weaker intra-quarter losses, at one point dropping 8.8% from April to early June on weakening macroeconomic data.
Large Growth (R1000 Growth)
-4.02%
10.08%
• Four of the ten major S&P 500 sectors were positive
Mid Value (Russell)
-3.26%
7.78%
in the second quarter, with the traditionally defensive
Mid Blend (Russell)
-4.40%
7.97%
telecom, utilities, consumer staples, and health care
Mid Growth (Russell)
-5.60%
8.10%
Small Value (R2000 Value)
-3.01%
8.23%
Small Blend (R2000 Blend)
-3.47%
8.53%
Small Growth (R2000 Growth)
-3.94%
8.81%
Source: MPI Stylus Pro
sectors higher from last quarter. Financials (-6.8%) and technology (-6.7%) were the weakest performers after being the strongest to start the year. • Since the U.S. equity market peaked in October 2007, mid- and small-cap stocks have fully recovered their losses when incorporating reinvested dividends. At the end of the quarter, large-cap stocks were 3.4% lower than their 2007 peak.
INTERNATIONAL EQUITIES Market Performance, 2nd Quarter 2012
• Developed and emerging international equities both fell in the second quarter, but have been higher 10 out of the Q2 ’12
2012
last 13 and 10 out of the last 14 quarters, respectively.
International Equities (MSCI EAFE)
-6.85%
3.38%
Pacific Stocks (MSCI Pacific Ex-Japan)
-4.89%
5.82%
terms and 5.1% in local currency terms, behind Germany
European Stocks (MSCI Europe Ex-UK)
-9.34%
1.87%
(-11.7%) and France (-8.2%). In a reversal from last quarter,
Japanese Stocks (MSCI Japan)
-7.30%
3.14%
UK Stocks (MSCI UK)
-3.97%
3.35%
Emerging Markets (MSCI EME)
-8.77%
4.12%
Source: MPI Stylus Pro
• Developed international equities declined 6.9% in Dollar
the Dollar strengthened relative to the Pound and euro but fell against the Yen. • Emerging markets had weak performance, down 8.8% in Dollar terms and matched their developed brethren’s -5.1% local currency decline. Brazil reversed first-quarter strength and fell 18.8%, while Russia felt the commodity price swoon and dropped 14.0%.
16
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FIXED INCOME Market Performance, 2nd Quarter 2012
• The Barclays Aggregate Bond Index had its fourteenth positive quarter in its past fifteen, closing up 2.1% in the 2012
Broad Market (Barclays Capital U.S. Aggregate)
2.06%
2.37%
Barclays Capital U.S. Treasurys
2.83%
1.51%
Barclays Capital Mortgage Backed Securities 1.08%
1.66%
Barclays Capital Municipals
1.88%
3.66%
Barclays Capital Intermediate Corporates
1.58%
4.37%
Barclays Capital High Yield
1.83%
7.27%
second quarter of 2012. The index was up every quarter in 2011. • Within the broad fixed income space, inflation-protected Source: MPI Stylus Pro
Q2 ’12
securities were up 3.2%, Treasury bonds turned in a positive 2.8% quarter and investment-grade corporates were up 2.5%. Mortgage-backed bonds lagged this quarter but are up 1.7% thus far in 2012. • On June 1, a day when the Labor Department released disappointing employment data, the 10-Year U.S. Treasury yield touched 1.44%, an all-time low as investors continue to seek perceived safety in U.S. government bonds relative to other global choices.
HEDGE FUNDS / PRIVATE EQUITY Market Performance, 2nd Quarter 2012
• Hedge fund strategies gave up some of their first-quarter gains, but broad measures remain in positive territory. The 2012
HFRI Fund Weighted Composite Index
-2.88%
1.70%
HFRI Equity Hedge Index
-4.49%
2.09%
HFRI Relative Value Index
0.18%
4.32%
HFRI Fund of Funds Composite Index
-2.30%
0.99%
HFRI Fund of Funds Conservative Index
-1.66%
0.79%
HFRI Fund Weighted Composite and HFRI Fund of Funds Composite Index are both clinging to small year-to-date gains. Relative value strategies have been strong year-todate, but dedicated short and short bias strategies have had performance difficulty. Source: HFRI
Q2 ’12
• As noted over the prior two quarters, volatility fluctuations had been very difficult for most investment managers to navigate as we experienced high correlation across asset classes. With most asset classes reflecting more consistent price biases in the first quarter, managers were able to add some more value than in prior quarters, but this reversed following a volatile second quarter. • Private equity research firm Prequin noted an interesting divergence in private equity fundraising in the second quarter, where the number of private equity funds looking to raise capital reached a record high while those funds completing fundraising hit a record low, indicating that firms continue to leave coffers open in search of opportunities.
17
COMMODITIES Market Performance, 2nd Quarter 2012
• The Dow Jones UBS Commodity Index fell 4.6% in the second quarter, leaving it in negative territory year-to2012
-4.55%
-3.70%
-12.38%
-7.23%
Gold (Spot, $/oz)
-4.25%
2.16%
Natural Gas (U.S. Spot Henry Hub)
38.38%
-8.05%
Crude Oil (U.S. Spot, WTI Cushing)
-17.53%
-14.03%
Dow Jones UBS Index S&P GSCI Commodity Index
date after falling 13.4% in 2011. The energy complex was Source: MPI Stylus Pro, Bloomberg
Q2 ’12
hit especially hard (apart from natural gas, which was up over 38.3% in the quarter) despite a massive rip higher on June 29. • Metals fell across the board, with gold the best performer (down 4.3%), while industrial metals fell harder on slowing growth concerns. • Recently, commodities have demonstrated considerably higher correlations to public equities than over longer time periods; correlations between crude oil and U.S. equities were extremely high in the second quarter, higher than the correlation between U.S. stocks and international stocks.
REAL ESTATE Market Performance, 2nd Quarter 2012 Q2 ’12
2012
MSCI U.S. REIT Index
3.75%
14.88%
Wilshire REIT Index
3.71%
14.90%
Source: MPI Stylus Pro
• Public real estate, as measured by the NAREIT Equity REIT Index, increased 4.0% in the second quarter after rising 10.5% in the first quarter and a 15.3% fourth quarter 2011 performance. REITs have outperformed U.S. equities four out of the last five quarters. • Based on Pension Real Estate Association data, commercial mortgage backed security issuance — a gauge of industry health — continued to show robust growth in the second quarter on both a sequential and a year-over-year basis. • REITs continue to have attractive income profiles relative to Treasurys and their capital raising efforts last year, and so far this year provides them with flexibility. Their strong performance relative to other asset classes may leave some concerned about the path forward; however, the market continues to reward their strong fundamentals.
18
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captrust in the news
CAPTRUST GROWTH The CAPTRUST team grew in the second quarter of 2012 with the addition of three key senior management team members.
CONGRATULATIONS
Consulting Research Hunter Brackett Senior Manager, Investment Research Hunter joins CAPTRUST from NCM Capital where, as a sector leader, financials, he managed the firm’s financial sector exposure across all equity portfolios for its institutional and high net-worth Clients. Prior to that he was an associate, large-/mid-cap banks at Lehman Brothers, Equity Research Division and an international corporate banking associate at First Union Corporation. In his new position, he will support our investment research team efforts. Hunter is a graduate of Washington and Lee University with a BA in economics and a MBA from UNC Kenan-Flagler Business School, and holds a CFA designation.
Marketing John Curry Senior Director, Marketing As head of CAPTRUST marketing, John will develop and oversee the firm’s day-to-day and strategic marketing efforts. He joins CAPTRUST from ProShares, where, as head of product management, he worked with product development, branding, marketing, and sales to prioritize marketing efforts, orchestrate product focus, execute campaigns, and support product launches. Prior to that he worked at AllianceBernstein and Putnam Investments, where he was responsible for marketing and product management for various aspects of their retirement businesses. John is a graduate of the University of North Carolina at Chapel Hill with a BS in biology and a MBA from McColl School of Business, Queens University.
Client Services Doreen O’Dowd Senior Director, Client Services In her new position, Doreen will manage and support all our client services efforts. She joins CAPTRUST from Stock Yards Bank and Trust Company, where she developed plan and investment reviews, procedures for processing contributions and distributions, and tracking mechanisms for retention and revenues. She also trained a team of associates, and developed training curricula. Prior to that Doreen worked at ADP Retirement Services.
Doylestown Hospital Awarded for Outstanding Patient Safety and Experience Doylestown Hospital was recently honored as recipient of the 2012 HealthGrades Outstanding Patient Experience Award™ and the 2012 HealthGrades Patient Safety Excellence Award™. Doylestown Hospital is one of only five hospitals to receive the Patient Safety Excellence Award™ four years in a row (2009–2012) and one of only two to be a five-time recipient of the Outstanding Patient Experience Award™ (2009, 2009/10, 2010/11, 2011, 2012) across the state of Pennsylvania. Most significant of all, Doylestown Hospital is one of only eight hospitals nationwide to be a fivetime recipient of the Outstanding Patient Experience Award™ and four-time recipient of the Patient Safety Excellence Award™. HealthGrades, a leading provider of information to help consumers make informed decisions about a physician or hospital, identified 332 hospitals performing in the top 10% in the nation for patient satisfaction, based on survey responses from patients treated at those facilities. Hospitals had to meet bed size, survey-response size, and clinical-quality thresholds in order to be eligible for the award. Information on award recipients and the ratings methodology is available, free to the public, at HealthGrades.com.
19
CAPTRUST RECOGNITION CAPTRUST’s Traynor Reitmeier, vice president and Financial Advisor, was recently named one of the Triangle Business Journal’s “40 Under 40,” a list of professionals from the Raleigh, NC area, under the age of 40, who are recognized for their outstanding contributions to their organizations and to the community. “The ‘40 Under 40’ winners are the region’s up-and-coming thought leaders,” says Bryan Hamilton, publisher of the Triangle Business Journal. “Look for them to shape the Triangle’s vision of tomorrow.”
UPCOMING INDUSTRY INVOLVEMENT The following is a list of topical discussions to be led by CAPTRUST at upcoming industry events in the third quarter. CREATING BETTER OUTCOMES THROUGH PLAN DESIGN September 9–12, 2012 | Las Vegas, NV 2012 Las Vegas Mid-Sized Retirement & Healthcare Plan Management Conference For more information, visit www.ucs-edu.net/conferences UNDERSTANDING THE FIVE COMPONENTS OF A SUCCESSFUL NONQUALIFIED DEFERRED COMPENSATION PLAN STRATEGY September 20, 2012 | Dallas, TX Dallas Country Club (CPE credit available for attending event) Presented by Mike Curran, CAPTRUST senior vice president
GIVING BACK CAPTRUST continued its charitable efforts this past quarter through the CAPCommunity Foundation’s involvement with the following organizations and causes: • Big Brothers and Big Sisters of the Triangle • AMRAN Shriners • Hubie Poteat Memorial Foundation • Activate Good
CAPTRUST employees learn more about Read and Feed
20
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• Triangle Family Services • Easter Seals UPC • Boys and Girls Clubs of Richmond • Payton Wright Foundation
• Read and Feed
• Super Cooper’s Little Red Wagon Foundation
• Royal Family Kids
• Carolina Ball Foundation
• Light the Night
• March of Dimes
• Kid’s Peace
• Walk MS
• YMCA
• Safechild
• Miracle League
• UNICEF
• Boys and Girls Clubs of NC
• Hope Reins of Raleigh
• Hit it Farr for Kirby
• American Diabetes Association
• North Raleigh Ministries
• Harris YMCA
• Camp Firefly
• Junior Achievement