HomeMy WebLinkAboutHandouts_Pension Public Safety_Tab 04_11/03/2008G ~-.~ #~.
VILLAGE OF TEQUESTA PUBLIC SAFETY OFFICERS' PENSION
Investment Performance Attribution Supplement
3Q08 Performance Comparison
Total program investment results were negative for the quarter, as the fund experienced a decline
of -7.64% net of management fees, driven predominantly by widespread weakness across the U.S.
equity market. On a relative basis, total fund returns underperformed the benchmark index due to
weak investment performance in the Rockwood equity portfolio, which posted a loss of -13.08%
vs. a decline of -8.37% for the benchmark S&P 500 Index. The quarter was characterized by
extreme volatility and fear across equity and fixed income markets both in the U.S. and abroad. As
the credit and liquidity crisis in the financial markets continued to worsen, equity prices declined
substantially, with many market sectors experiencing double-digit losses and areas of perceived
safety remaining elusive for active managers. Equities were a clear detractor to total fund
performance for the period, placing the portfolio in the bottom 90`h percentile of the large cap core
equity peer universe. Strong stock selection was difficult to achieve throughout the entire three
month period, as investor selling was agnostic to style, sector, and individual securities. This factor
significantly hurt performance, while sector allocation decisions also detracted from returns, with a
large overweight bet in Materials (more than triple weight relative to the benchmark index) and an
equally large underweight bet in the rebounding Financial sector having the greatest negative
impact on portfolio results. Fixed income results relative to the benchmark were the bright spot for
the quarter, with a minimal decline of -0.82% vs. a loss of -1.19% for the Lehman Intermediate
Government Credit Index, placing the portfolio in the top 38~' percentile of its peer group.
A below target allocation to equities (51.5%) clearly cushioned the impact of Rockwood's poor
stock results and helped the fund remain in the top half of its peer universe with a ranking in the
top 42"d percentile. Fiscal year to date results, while down -l ].80% in absolute terms, remained
solid on a relative basis, placing the Fund in the top 22nd percentile of its peers and outperforming
the benchmark index which posted a -12.46% loss for the period. Absolute rolling returns for all
trailing periods ended September are below the actuarial required rate of return due to the impact of
equities, an asset class whose trailing results are currently well below long term historical averages.
However, relative to peers, the Fund ranks in the top 26th`' percentile over the trailing three year
period.
Attribution Supplement
3Q08 Performance Comparison
Key elements of equity manager attribution are as follows:
Note to analysis: We used Thomson Portfolio Analytics for the holdings-based attribution analysis,
which is based on monthly holdings for the Rockwood "composite"portfolio. Holdings-based
attribution can help to ident~ active elements of the investment manager. The analysis does not
reflect the impact of cash flows or management fees; actual portfolio returns may differ.
- Based on holdings attribution from Thomson (excluding cash), the Rockwood portfolio
trailed the S&P 500 Index during the Q3 by 4.60 percentage points (-12.97% vs. -8.37%).
- During the quarter, the portfolio's non-US allocation averaged nearly 14%. This foreign
exposure detracted 2.44 percentage points.
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- As of 9/30/08, there were 37 securities in the portfolio. Additionally, the portfolio had a
smaller weighted-average market cap ($45.2B vs. $86.3B) and had a slight "growth" bent
based on a lower dividend yield, a higher forward price-to-earnings and higher price-to-
book ratios. The growth bias is also highlighted in the relative style factors; for the
quarter, the portfolio's growth factor was greater than the index's (+0.36 vs. -0.05) and the
value factor was significantly less than the index's (-0.61 vs. +0.04).
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Mkt Cap Bucket 1 {small cap)
.................................................................................................. $ 2,000,000,000
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Mkt Cap Bucket 2 {mitl cap) ..
..
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......................................................
$ 10,000,000,000
Mkt Cap Bucket 3 {mid/large cap) $ 20,000,000,000
Mkt Cap Bucket 4 {large cap) $ 200,000,000,000
Mkt Cap Bucket 5 {"mega' cap) Infinity.
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GICS Sector Anal_ sis
Poor stock selection accounted for a majority of the underperformance relative to the S&P 500
Index. The nearly 14% allocation to the Materials detracted 5.61 percentage points from the
quarterly return; Utilities detracted another 216 basis points (bps). United States Steel Corp.
(Materials sector) was the largest detractor (271 bps). Stericycle (Industrial sector) provided the
largest positive contribution (49 bps).
Market Cap Value Analysis
The portfolio's market cap distribution relative to the index detracted 64 bps. An underweight to
"mega cap" stocks (market cap bucket 5) relative to the index hurt performance (-29 bps). Market
Cap Bucket 5 (> $200 Billion) was the best performing market cap range within the index.
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