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Home My WebLink AboutDocumentation_Pension Public Safety_Tab 03_05/07/2007Village of Tequesta Public Safety Officers' Pension Fund March 31, 2007 Sfrategy Review Presented by: D. Andrew Holtgrieve Managing Partner andy@rockwoodcapital. com ROCKW OOD CAPITAL ADVI SORS 721 Emerson Road, Suite 565 St. Louis, Missouri 63141 (888) 962-8336 (toll-free) (314) 962-1254 (fax) The American ....... 1 i~ i~ ROCRW OOD ~ n . "'rN CAPITAL ADVISORS 1 Tequesta Public Safety Officers' Pension Fund First Quarter 2007 Total Fund Portfolio Summary Change in Market Value Interest /Dividends Contributions Net Disbursements Net Realized & Unrealized (G/L) Portfolio Summary Fxed Income ihort-Term Funds 7% Equities 58% ROCgW00D CAPITAL ADVISORS $28,957 $84,966 ($18,682) $122, 794 Total Fund Performance 2 (Policy) 60% S&P 500 and 40% LBIN ~ Tequesta Public Safety Officers' Pension Fund ~ Equity -First Quarter 2007 ~~ First Quarter ' Cutting Through "Choppy" Waters ' The first quarter of 2007 was a choppy one for most equity investors as stocks started out strong, dipped, and eventually landed in positive territory. The S&P 500 Index, appreciated a slight 0.6%, while the average diversified equity fund Increased 2.1 %. Bond investors were more or less in line with equity investors as the Lehman Brothers Aggregate Bond Index rose 1.5% The equity markets continue to be characterized by uneven leadership. As such, it has been ' difficult to identify obvious themes in the market, creating a true "stock pickers" environment. Your equity portfolio has benefited from an unusual combination of economically sensitive sectors (Industrials and Consumer Discretionary) and traditionally more defensive areas ' (Consumer Staples, Utilities, and Telecom). Our flexible investment approach should allow us to continue to achieve long-term superior returns. ' We will continue to monitor your portfolio and make adjustments as opportunities make themselves available. In fact, the price weakness in the equity market that occurred during the quarter has provided a growing list of buy opportunities. Contravisory Research & Management Corp. is a registered investment adviser and equity sub-adviser to Rockwood Capital Advisors, LLC. & Performance 20°i° i o ~ 15 /0 13.5% 11.8% 10% 1 5.5°/ 0 5% - I~, 0.6% 0% - 1 ST Qtr. One 2007 Year Tequesta Public Safety i ROCRWOOD CAPITAL ADVISORS 1 15.8% S8P 500 3 Since Inception (5/ 1 /05) Equity Portfolio First Quarter 2007 Style Box Top Ten Holdings 1. Precision Castparts 3.4% 2. Ryanair Holdings Plc 3.2% 3. Bayer A G 3.1 4. Volvo 3.1 5. Loews Corp. 3.0% 6. Simon Property Group Inc. 2.8% 7. NYSE 2.7% 8. AT&T Inc. 2.7% 9. Safeway Inc. 2.7% 10. Ahold (Kon) 2.6% Five Best Impact 1. Precision Castparts +33.0% ,2. Volvo +22.2% 3. Bayer AG +19.9% 4. Alliant Corp. +19.7% 5. Federated Dept Store +18.5% ROCgW00D CAPITAL ADVISORS Val Cr Grw Large Cap - 63.2% Mid Cap - 36.8% Small Cap - 0% Average Market Cap $36.7 billion Median Market Cap $17.9 billion Sector Allocation Producer Durables Technobgy Materials g% 6% ~ 5% Utilities Health Care 10% 8% ADFYs ~ 13% finance Not gass'rfied 22% ~~ o 2 /o Auto 8~ ~ Transport Cons. Staples Cons. Disc. 2% 14% 12% Five Worst Impact 1. International Game -12.3% 2. Kraft Foods Inc. -10.6% 3. Wendy's Intl. Inc. -5.2% 4. General Motors Corp. -4.0% 5. NYSE -3.6% 4 Characteristics Equity Transactions First Quarter 2007 Sold Jan EI Paso Corp. Jan HCC Insurance Feb Brown-Forman Feb Texas Instruments Feb J2 Global Communications Bought Jan AT&T Inc. Jan Ahold (Kon) ~-~-~f;--~ - 1~:~~1%V"'~kdL.~y~_.~.~~ Feb Cisco Systems Feb General Motors Feb Tyco International 1 ROCKW OOD CAPITAL ADVISORS 5 Proxy Voting Record .. .. Hewlett -Packard Co. HPQ Elect Directors For For 1,385 3/14/07 Ratify Auditors For For 1,385 3/14/07 Require Director Nominee Qualifications For For 1,385 3/14/07 Separate Chairman 8~ CEO Positions For For 1,385 3/14/07 Submit Shareholders Rights Plan For For 1,385 3/14/07 Performance Based Equity Awards For For 1,385 3/14/07 ROCgW00D CAPITAL ADVISORS 6 I International Game Technology IGT I ' Equity Holdings -March 31, 2007 • . •. , -- Cash 160,394 1.00 160,394 1.00 160,394 6.9 4.8 7,699 NA NA AHO Ahold(Kon) Nv 5,200 10.34 53,750 11.74 61,048 2.6 0.0 - NR - LNT AlliantCorp 1,300 38.94 50,617 44.82 58,266 2.5 2.8 1,495 B 0.74 BUD AnheuserBuschCos 1,100 46.99 51,694 50.46 55,506 2.4 2.3 1,298 A+ 0.51 AIV Apartment Invt & Mgm 970 38.98 37,806 57.69 55,959 2.4 4.2 2,910 B- 0.72 T At&T Inc 1,600 33.60 54,083 39.43 63,088 2.7 3.6 2,272 B+ 0.78 BAY Bayer A G 1,150 52.86 60,785 63.97 73,566 3.1 1.6 641 NA - BA Boeing Co 570 58.58 33,389 88.91 50,679 2.2 1.6 798 B+ 0.87 BRE Bre Properties Inc 795 57.15 45,434 63.15 50,204 2.1 3.4 1,630 B 0.94 CSCO Cisco Sys Inc 1,942 28.51 55,361 25.53 49,579 2.1 0.0 - B+ - CL Colgate Palmolive Co 800 64.86 51,887 66.79 53,432 2.3 2.2 1,024 A+ 0.98 DISH EchostarCommunicati 1,400 36.37 50,921 43.43 60,802 2.6 0.0 - B- 0.31 FD Federated Dept Store 1,300 41.34 53,738 45.05 58,565 2.5 1.1 650 B 0.30 FISV Fiserv Inc 960 43.76 42,010 53.06 50,938 2.2 0.0 - B+ 0.35 GM General Mtrs Corp 1,585 33.60 53,251 30.64 48,564 2.1 3.3 1,585 B- 0.99 HNZ Heinz H J Co 1,060 42.21 44,742 47.12 49,947 2.1 3.0 1,272 B 0.88 HPO Hewlett Packard Co 1,385 32.33 44,770 40.14 55,594 2.4 0.8 443 B+ 0.54 IGT International Game 1,300 42.28 54,961 40.38 52,494 2.2 1.3 676 B+ 0.41 JPM J P Morgan Chase & C 1,100 46.98 51,673 48.38 53,216 2.3 2.8 1,496 B 0.89 KFT Kraft Foodslnc 1,350 32.61 44,020 31.66 42,741 1.8 3.2 1,350 NR 0.66 LMT Lockheed Martin Corp 610 59.24 36,136 97.02 59,182 2.5 1.4 854 B 0.31 LTR LoewsCorp 1,530 23.82 36,449 45.43 69,508 3.0 0.6 383 B 0.16 MKC Mccormick 8 Co Inc 1,250 35.29 44,116 38.52 48,150 2.1 2.1 800 A+ 0.72 NYX Nyse Euronext 680 66.09 44,942 93.75 63,750 2.7 0.0 NR - PCG Pg&E Corp 1,050 34.97 36,722 48.27 50,684 2.2 3.0 1,386 B 0.98 PPL Ppl Corp 1,400 33.44 46,813 40.90 57,260 2.5 3.0 1,540 B+ 0.51 PX Praxair Inc 900 62.52 56,268 62.96 56,664 2.4 1.9 900 A 0.56 PCP Precision Castparts 760 37.69 28,644 104.05 79,078 3.4 0.1 91 B 0.62 RYAA.Y Ryanair Hldgs Plc 1,690 27.61 46,664 44.79 75,695 3.2 0.0 - NR - SWY Safeway Inc 1,720 22.29 38,342 36.64 63,021 2.7 0.6 396 B 0.85 HSIC Schein Henry Inc 985 45.52 44,841 55.18 54,352 2.3 0.0 - B+ 0.89 SHLD Sears Hldgs Corp 300 151.84 45,552 180.16 54,048 2.3 0.0 NR 0.16 SPG Simon Ppry Group Inc 590 62.30 36,757 111.25 65,638 2.8 3.0 1,652 B+ 0.11 SRCL Stericycle Inc 670 63.44 42,506 81.50 54,605 2.3 0.0 - B+ 0.29 TROW T.Rowe Price Group I 1,150 33.76 38,819 47.19 54,269 2.3 1.4 762 A 0.43 TYC Tyco Intl Ltd New 1,626 31.91 51,885 31.55 51,300 2.2 1.3 650 B+ - WOOF VcaAntechlnc 1,470 28.86 42,429 36.31 53,376 2.3 0.0 - NR 0.65 VOLV VolvoAktiebolaget 850 43.66 37,111 84.07 71,460 3.1 3.6 1,568 NR - WEN Wend s Intl Inc 1,600 34.02 54,436 31.30 50,080 2.1 1.1 544 B+ 0.07 ~' ~• •r• r rr r ROCRWOOD CAPITAL ADVISORS 7 Tequesta Public Safety Officers' Pension Fund Fixed Income -First Quarter 2007 Market Environment • The Fed held rates steady in the first quarter of 2007; the federal funds rate target remains at 5.25%. The economy grew at a 3.3% rate in 2006, but economists look for the economy to slow to a 2% annualized grow rate in Q1 2007. • Despite the current slow down, the economy retains a good amount of strength. The labor market remains very tight (4.4% unemployment rate) and inflation remains stubbornly high. Both of these factors will have to reverse before the Fed will begin lowering the funds rate in 2007 as many analysts had predicted. • The Treasury yield curve steepened in the first quarter as the yield on two-year Treasury notes fell 23 basis points while 30-year yields rose 3 basis points. Heightened inflation concerns are keeping long rates elevated while the current economic soft patch is pushing short rates down. • February's sharp sell-off in global stock markets fueled a flight to safety in U.S Treasuries. This safe haven bid led to a 1.54% return for the Lehman Aggregate index, its highest monthly return since August 2004. • For the quarter, the Lehman Aggregate was up 1.5% and the Lehman Government was up 1.4%. The Mortgage sector was again the best performing sector in the quarter, returning 1.6%. In general, because of the steepening of the curve, shorter maturities out-performed longer dated issues. Sector Index Returns 14% 12% 10% 8% 6% 4% 2% 0% 8% 6% 4% 2% 0% U.S. Treasury Yield Curves 6% 5% 4% 3% 2% 1% 0% 1 ° ~ . . ...... . . . .. - - - - - - - 3/31 /2007 12/31 /2006 - • - - - 3/31 /2006 3 2 5 10 mos yrs yrs yrs Fixed Income Performance 6.0% 6.1 30 yrs ROCRW OOD CAPITAL ADVISORS g Tsy Agy MBS Gl-edit HY 1 ST Qtr. One Since Inception 2007 Year (5/1 /05) ~ Tequesta Public Safety Lehman Int. Gov't/Credit Fixed Income Portfolio Structure March 31, 2007 ' 10+ 0% 20% 40% 60% Tequesta Public Safety Lehman Int. Gov't/Credit u.s. u.s. Cash Treasuries Treasuries 8% 31% CMBS 4% Corporates ' 4% ~ _' Agencies Corporate gencies ' Mortgages 26% 36% 22% 27% 0% ROCRWOOD CAPITAL ADVISORS g Characteristics Bond Holdings -March 31, 2007 ' . •. ~.. ., ,,, •.- 107 USDCASHI USD CASH 4.768 3/31/2007 100.000 106,929 7.54 4.830 0.00 0.00 0.00 50 31359MZD FEDERAL NATL MTG ASS Aaa - 4.250 9/28/2007 99.469 49,746 3.51 5.350 0.48 0.48 0.00 60 31359ME7 FEDERAL NATL MTG ASS Aaa - 5.000 1/23/2009 100.156 60,652 4.28 4.900 1.70 1.70 0.04 25 3133MLT8 FEDERAL HOME W BKS Aaa - 5.250 2/13/2009 100.625 25,320 1.78 4.890 1.75 1.75 0.04 20 3134A3EM FEDERAL HOME W MTG Aaa - 5.750 3/15/2009 101.594 20,367 1.44 4.890 1.83 1.83 0.04 50 3133X15Y FEDERAL HOME W BKS Aaa - 4.100 3/30/2009 98.531 49,266 3.47 4.880 1.89 1.89 0.05 70 9128275N UNITED STATES TR NT Aaa 6.000 8/15/2009 103.121 72,684 5.12 4.600 2.19 2.19 0.06 80 912828DX UNITED STATES TREAS Aaa - 3.625 6/15/2010 97.309 78,684 5.55 4.530 2.96 2.96 0.11 105 31359MHK FEDERAL NATL MTG AS Aaa 5.500 3/15/2011 102.281 107,636 7.59 4.860 3.52 3.52 0.15 30 52108HU5 LBUBS 2004-Ce A4 Aaa - 4.510 4/15/2011 97.789 29,393 2.07 5.170 3.60 3.60 0.15 30 912828FH UNITED STATES TREAS Aaa - 4.875 5/31/2011 101.242 30,855 2.18 4.540 3.68 3.69 0.16 70 912828FN UNITED STATES TREAS Aaa - 4.875 7/31/2011 101.289 71,449 5.04 4.540 3.85 3.85 0.18 50 3133X8R0 FEDERAL HOME W BKS Aaa - 4.700 10/4/2011 98.406 50,352 3.55 5.100 3.92 2.10 •1.40 50 912828AP UNITED STATES TREAS Aaa - 4.000 11/15/2012 97.375 49,433 3.48 4.530 4.90 4.90 0.28 10 742718DA PROCTER & GAMBLE CO Aaa B- 4.950 8/15/2014 98.304 9,892 0.70 5.230 6.06 6.06 0.44 10 78387GAP SBC COMMUNICATIONS I A2 5.100 9/15/2014 97.699 9,791 0.69 5.480 6.10 6.10 0.44 15 595620AD MIDAMERICANENERGYC A2 B- 4.650 10/1/2014 95.725 14,706 1.04 5.350 6.08 6.08 0.45 11 17275RAC CISCO SYS INC SR NT Al C+ 5.500 2/22/2016 100.692 11,140 0.79 5.400 6.93 6.93 0.59 15 52517PF6 LEHMAN BROS HLDGS IN Al C- 5.500 4/4/2016 99.436 15,319 1.08 5.580 6.84 6.83 0.58 20 912828FF UNITED STATES TREAS Aaa - 5.125 5/15/2016 103.395 21,061 1.48 4.660 7.14 7.13 0.62 115 912828FY UNITED STATES TREAS Aaa - 4.625 11/15/2016 99.707 116,647 8.22 4.660 7.57 7.56 0.70 25 31402DJS FNMA POOL #725773 - 5.500 9/25/2034 98.891 24,720 1.74 5.710 5.08 4.14 -1.76 30 36200EUP GNMAI POOL #599190 - 6.000 3/15/2035 101.301 30,666 2.16 5.730 4.38 3.39 -1.85 80 36291 W7H GNMAI POOL #640896 - 7.000 4/15/2035 103.933 83,187 5.86 5.150 2.15 1.27 -1.17 72 36291XMW GNMAI POOL #641273 - 4.500 4/15/2035 94.313 68,139 4.80 5.480 5.86 5.73 -0.67 38 31402RDG FNMA POOL #735503 - 6.000 4/25/2035 100.742 38,923 2.74 5.800 4.11 3.20 -1.98 64 31407NOM FNMA POOL #835760 - 4.500 9/25/2035 93.722 60,152 4.24 5.580 5.80 5.71 -0.94 82 31402RRS FNMA POOL #735897 - 5.500 10/25/2035 98.930 81,025 5.71 5.700 5.09 4.09 •1.92 30 50179AAC LB-UBS CMBS 2007-Ct - 5.398 2/15/2040 101.183 30,422 2.14 5.240 5.44 5.44 0.36 ROCRW OOD CAPITAL ADVISORS 10 ' Economic Environment & Outlook ' First u Q arter 2007 ~ The Fed held rates steady in the first quarter of 2007; the federal funds rate ' target remains at 5.25%. The post-FOMC statement left analysts confused over the likely direction of monetary policy. The Fed dropped any mention of "additional firming" of rates (a dovish stance). However, the Fed also expressed ' a great deal of concern over the outlook for inflation. ~' ~ The release of the stronger-than-expected March employment report (in early April) dashed any expectation of Fed easing in the near future. The economy added 180,000 jobs in March, plus an additional 32,000 in upward revisions to ' January and February. The unemployment rate returned to its cycle-low of 4.4%. ~ A tightening labor market has put upward pressure on wages. In September 2005, average hourly earnings were rising at a modest annual rate of 2.7%. However, through March 2007, wages were increasing at a 4.0% year-over-year rate. ~ Core CPI has remained stubbornly high, and the Fed remains concerned about the prospect of rising inflation pressures. The Median CPI, a widely followed measure of core inflation, has remained at a 3.6% year-over-year rate since November, a level not seen since May 2002. ~ The meltdown of the sub-prime mortgage market exposed the fact that investors have accepted too much risk for too little expected return. Concerns over the sub-prime sector, combined with a drop in Chinese stocks and comments by Alan Greenspan regarding a possible recession, caused US stocks to plummet in late February. Stocks have since stabilized, but the markets have been re- pricing system-wide risk ever since. ~ The economy is currently navigating a soft patch, largely due to weakness in housing. However, the economy's resources remained stretched (particularly in the labor market) and inflation remains above the upper bound of the Fed's comfort zone. We look for the Fed to maintain the funds rate at its current level for the foreseeable future. ROCRW OOD CAPITAL ADVISORS 11 Monetary Policy Fed Funds Target Rate 8% 6% 4% 2% 10% 8% 6% 4% 2% 0% -2% -4% 0% 6/00 12/00 6/01 12/01 6/02 12/02 6/03 12/03 6/04 12/04 6/05 12/05 6/06 12/06 Real GDP Growth (Quarterly Growth at Annualized Rate) 2002 2003 2004 2005 2006 7.2 5.6 4.3 3.8 4.2 3.7 3.6 3.5 4.0 3.3 2.7 2.2 2.4 3.3 2.6 2.2 2.5 1.7 1.8 0.2 Q1 Q2 Q3 Q4 C11 C12 C~3 Q4 C~1 Q2 G13 Q4 Q1 Q2 Q3 Q4 Q1 C~2 C;13 Cl4 ROCRWOOD CAPITAL ADVISORS 12 Inflation Pressures Building 86 84 U a 82 (0 U I ' ' ~ 80 .~ ~ 78 , 3 m ~ 76 0 74 72 70 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Can the Fed Pause . 7% I 6% ' 5% g . 4% ~ w c 0 3% a~ io •2% } ' }° 1% , 1 Q% 1 ~ 88 90 92 94 ROCRWOOD CAPITAL ADVISORS Median CPI 96 98 00 02 04 06 13 Capacity Utilization Labor Market Keeps Tightening 9% 8% 7% 6% 5% 4% Unemployment Rate 3% ~ 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 5.0% 4.5% - •~ 4.0% - L W 3.5% L = 3.0% Q 2.5% } 0 ~ 2.0% 1.5% Wages 1.0% 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 'ROCgWOOD CAPITAL ADVISORS 14 S& P 5 00 Broad Market vs. Ca turin p g the Best of Both Worlds January 2007 12 Nionth Price Change of SBcP 500 Index Relative to CR Universe 40% 30% 20% ~S& P 500 Outperforming Broad Market ~____ \`~ io% o% ~ -lo% ~ r -so% Broad Market Outperforming S&P 500 -30% V If1 ~O 1~ 00 Oi O rl N N a r r n r r r o0 0o ao 00 00 O~ 01 O~ O1 01 O1 01 O1 01 01 Qt rl rl ei ei ~ rl rl ~ 'i rl ri ltf ~D 00 0o O1 O1 rl eel f~ 00 OI O rl N N d In b 1~ OD OI O ~i N M V If1 ~O l~ ao 00 00 01 O~ O~ O~ 41 41 C1 ~ ~ a O O O O O O O O 01 01 01 O1 O1 01 O1 01 O1 0/ Of 01 O~ o O o O O o O o 'i rl ei ei rl 'i rl rl rl 'i ei r1 'i N N N N N N N N •i ~ ei ei rl ri ei ri ti rl 'i ei ri rl e~l rl rl ri ed e~l ei rl ei r1 'i rl rl 'i ri ei rl ~-1 rl rl 'i .-1 eel e~ rl rl ~ •i rl 'i 'i rl ei rl 'i ri rl ~ ri rl rl 'i ei rl ti ~-1 rl .~ e~ 'i •i ~i ri eel 0 Rock~rvood Strate is E ui Portfolio g q tY Monthly Performance Relative to S&P 500 Index Januar}~ 2000 -December 2006 68% Rate of Success s 6 4 0 ~ _ 4 - 6 Technolo Recovery from Energy peak, - -8 gy bubble burst bear market entering period of low volatility 10 - Jan-00 Jan-Ol Jan-02 Jan-03 Jan-04 Jan-OS Jan-06 2006 A Compelling Case for Diversification Intl. Stocks 26.34% Large Cap Value 22.25 Small Cap Stocks 18.37% S&P 500 15.80% Mid Cap Stocks 15.26% ':' Rockwood Strategic Equity 13.70% Nasdaq 9.52% Large Cap Growth 9.07% Rockwood Strategic Equ ^ Russe111000 Growth Index Russell 2000 Index Nasdaq Index ^ Russell 1000 Value Index MSCt EAFE Index ^ Russell Mid-Cap Index S8~P 500 Year-to-Year I gelling Case for Diversification Over the Longer-Term (Cumulative Performance results by Equity Investment Style) 2000 - 2006 100% $0% 60% 40% 20% 0% -20% -40% -60% 80°/ -- sr,~~~~~~c Equity P~~rtfolio Mid Cap Small Cap Large Value -- -- lntemational S&P 500 Large Cap ', Growth ' Nasdaq - o 2000 2001 2002 2003 2004 2005 2006 2007 ~' ~,;. oU~u (-~)'%i1 Z u~o -~2~% An Agnostic View Rockwood Strategic Equity Por~olio Style Box Breakdown Value Blend Growth Apri12000 Apri12002 Apri12004 Value Blend Growth Large Medi Smal April 2006 Average Market Cap Average Market Cap Average Market Cap Average Market Cap $73.6 billion $10.8 billion $18.8 billion $15.7 billion Median Market Cap Median Market Cap $24.2 billion $4.4 billion Median Market Cap Median Market Cap $5.7 billion $8.7 billion Value Blend Growth Value Blend Growth