HomeMy WebLinkAboutDocumentation_Pension Public Safety_Tab 10C_08/11/2005Village of Tequesta
Public Safety
Officers' Pension Fund
/une 30, 2005
Strategy Review
Presented by:
Andrew Holtgrieve
ROCKW OOD CAPITAL ADVISORS
1401 S. Brentwood Blvd. Suite 400 St. Louis, Missouri 63144 (888) 962-8336 (toll-free) (314) 962-1254 (fax)
Tequesta Public Safety Officers' Pension Fund
__
Second Quarter 2005
Total Fund
Portfolio Summary
~'
.-
Portfolio Summary
'
Fxed Incc rt-Term
38% unds
' 2%
Equities
60%
ROCKW OOD CAPITAL ADVISORS
Total Fund Performance
1
`Inception 4/22/05
~ Tequesta Public Safety Officers' Pension Fund
Fixed Income -Second Quarter 2005
Market Environment
• In the June 30 FOMC statement, the Fed made no change in either of two important phrases: "the stance of monetary
policy remains accommodative," and "policy accommodation can be removed at a pace that is likely to be measured."
Thus, further tightening is the most likely path for Fed policy.
• The yield curve continued to flatten in the second quarter as yields on two-year Treasuries fell 14 basis points, while the
30 year bond yield fell 56 basis points. Year-to-date, the spread between 2- and 30-year Treasury yields has narrowed
1.2%. Despite 225 basis points of Fed tightening, long term rates remain stimulative.
• A number of factors combined to push Treasury yields lower in the second quarter. Weaker European economies and
lower foreign bond yields exerted a drag on US yields; the US automotive industry lost its investment grade status; rumors
of a North Korean nuclear test; and mixed economic data gave credence to the existence of an economic "soft patch."
• Overall, the Lehman Aggregate Index rose 3.0% in the second quarter, with the Credit sector leading the way with a
robust 3.6% return. Mortgages lagged all other investment grade sectors in the quarter, gaining only 2.3%. Given the
flattening of the curve, long term securities shined. Long term Government bonds were up 7.8% in the second quarter.
• Junk bonds had a strong 2.0% return in June, bringing the Lehman High Yield index into positive territory year-to-date
(+1.1 %). For the quarter, junk bonds were up 2.8%.
• Except for the Dow Jones Industrials (-1.6%), most major equity indices had a solid quarter. The NASDAQ Composite
was up 3.1% in the second quarter while S&P 500 turned in a more modest 1.4% return. However, most major indices
remain in negative territory year-to-date. Only mid- and small-cap stocks have positive returns through June.
Sector Index Returns
5%
^ 2nd Qtr 2005
4% ~ O 2005 YTD
3°/a
2%
1%
0%
4%
3%
U.S. Treasury Yield Curves
6% i
5% a ~ ,---
3% ~'
2% ~'
~' r- 6/30/2005
1 q° J ~ 3/31 /2005
- • - - - 6/30/2004
0%
3 2 5 10
mos yrs yrs yrs
30
Y~
Fixed Income Performance
2 9%«
2 % -,
1 '~ 1.4%
1%
0.4%
0% ---
June
2005
~ Tequesta Public Safety Lehman Int. Aggregate
' ROCRW OOD CAPITAL ADVISORS
+~
2
Tsy Agy MBS Credit HY
2nd Qtr
*(inception 4/22/05)
Effective Maturity
1 to 3 yrs
3 to 5 yrs
~ Tequesta Pub. Safety
5 to 10 yrs
® Lehman Int. Agg.
0% 20% 40% 60%
Lehman Int. Aggregate
3
~ Tequesta Public
1
Officers' Pension Fund
Market Environment
• The second quarter of 2005 was a bumpy one for equity investors. After starting the
quarter in negative territory, a robust rally in May and early-June allowed most indices,
and portfolios, to generate positive returns -albeit modest ones. While the S&P 500
pulled in a three-month gain of 1.2%, the average U.S. diversified equity fund increased
some 2.3%. The Lipper Balanced Index was positive 1.7%. Bonds were ahead by some
2%, as well.
• The equity market this year has traded in a relatively narrow range with very few
catalysts to push it one way or the other. Investor sentiment has been somewhat muted
despite the Fed's continued "measured pace" of raising interest rates, and the significant
rise in oil prices.
• Although there have been no significant "theme" changes this year, some price
weakness has been more evident in recent months in the more cyclical Information
Technology and Industrials sectors. Consequently, we have trimmed back holdings in
these areas and replaced them with stronger performing stocks found within the Energy
and Healthcare sectors. While there has been some lift in the large company category,
we continue to favor medium-sized companies. We will continue to monitor these trends
in the event that additional opportunities present themselves.
Rockwood Strategic Equity
1
4%
3%
2%
1%
0%
Equity -Second Quarter 2005
Tequesta Public Safety S&P 500
' ~ROCKWOOD CAPITAL ADVISORS 4
June 2nd Qtr
2005 `(inception 4/22/05)
Equity Portfolio Structure
June 30, 2005
Characteristics
Sector Weighting Top 10 Holdings
1
~~~ ;ZOCRW OOD CAPITAL ADVISORS 5
~ ' Equity Transactions
Second Quarter 2005
Sold
June Capital One Finance
June Royal Caribbean Cruise
June Worthington Ind.
June Fastenal Co.
~ a
i
May Apartment Invt. & Mgmt Co.
June Baxter International Inc.
June Lennar Corp.
June MDC Holdings Inc.
June Murphy Oil Corp.
ROCKWOOD CAPITAL ADVISORS
6
' Bond Holdings -June 30, 2005
... .,
7 OOOOOOCM CASH & EQUIVALENTS AAA 3.260 7/31/2005 100.000 7 0.67 3.260 0.08 0.08 0.00
40 912828CW UNITED STATES TREAS NTS TSY 2.500 9/30/2006 98.672 40 3.79 3.592 1.21 1.21 0.01
40 912828DJ UNITED STATES TREAS BONDS TSY 3.125 1/31/2007 99.211 40 3.84 3.640 1.51 1.52 0.02
50 3134A4RH FEDERAL HOME LN MTG CORP MTN AGY 3.500 9/15/2007 99.375 50 4.79 3.796 2.08 2.09 0.03
100 912828AN UNITED STATES TREAS NTS TSY 3.000 11/1512007 98.547 99 9.44 3.643 2.26 2.27 0.03
25 3133MLT8 FEDERAL HOME W BKS AGY 5.250 2/13/2009 104.156 27 2.53 4.004 3.22 3.23 0.06
50 3133X15Y FEDERAL HOME LN BKS AGY 4.100 3/30/2009 100.031 51 4.82 3.934 3.41 1.58 -1.25
70 9128275N UNITED STATES TREAS NTS TSY 6.000 8/15/2009 108.652 78 7.41 3.718 3.60 3.60 0.08
105 31359MHK FEDERAL NATL MTG ASSN AGY 5.500 3/15/2011 107.250 114 10.91 4.063 4.84 4.85 0.14
50 3133XBR0 FEDERAL HOME LN BKS AGY 4.700 10/412011 100.000 51 4.82 4.648 5.31 1.79 -1.64
45 912828DM UNITED STATES TREAS NTS TSY 4.000 2115/2015 100.355 46 4.37 3.955 7.82 7.88 0.37
100 36200EUP GNMA POOL - 599190 AGY 6.000 3/15/2035 103.003 103 9.67 4.944 2.84 2.35 -0.89
130 36291WGR GNMA POOL - 640208 AGY 6.500 3/15/2035 104.173 136 12.99 4.410 2.01 1.32 -0.56
120 36291W7H GNMA POOL - 640896 AGY 7.000 4!15/2035 105.799 128 12.18 3.571 1.70 0.46 -0.19
80 36291XMW GNMA POOL - 641273 AGY 4.500 411512035 98.894 79 7.58 4.685 6.54 6.09 -0.60
' ROCKW OOD
CAPITAL ADVISORS
7
' Equity Holdings -June 30, 2005
• -.
APACHE CORP 620 58.99 0.68 36,573.99 64.60 40,052.00 2.614 188.24 0.47
APARTMENT INVT 8 MGMT CO 970 38.98 0.80 37,806.04 40.92 39,692.40 2.591 2329.94 5.87
BALL CORP 900 40.37 NA 36,332.01 35.96 32,364.00 2.112 352.77 1.09
BAXTER INTERNATIONAL INC. 1,000 36.58 0.42 36,580.00 37.10 37,100.00 2.421 582.47 1.57
BOEING CO 620 58.58 0.60 36,317.99 66.00 40,920.00 2.671 634.26 1.55
BUNGE LIMITED 700 52.02 NA 36,414.00 63.40 44,380.00 2.897 412.73 0.93
CARNIVAL CORP 730 50.38 NA 36,774.99 54.55 39,821.50 2.599 589.36 1.48
CATERPILLAR INC 400 89.53 0.65 35,812.00 95.31 38,124.00 2.488 800.60 2.10
CENTERPOINT ENERGY INC 3,090 11.86 0.48 36,647.09 13.21 40,818.90 2.664 865.36 2.12
CHESAPEAKE ENERGY CORP 1,790 20.50 0.73 36,695.00 22.80 40,812.00 2.664 322.41 0.79
DEERE & CO 560 64.81 36,293.99 65.49 36,674.40 2.394 674.81 1.84
DEUTSCHE TELEKOM AG-SPON ADR 1,820 19.22 NA 34,984.04 18.42 33,524.40 2.188 1471.72 4.39
DOW CHEMICAL 800 45.49 0.48 36,390.00 44.53 35,624.00 2.325 1072.28 3.01
EL PASO CORP 3,540 10.38 0.78 36,744.85 11.52 40,780.80 2.662 550.54 1.35
ENTERGY CORP 500 72.02 0.92 36,010.00 75.55 37,775.00 2.465 1080.37 2.86
GOODYEAR TIRE 8 RUBBER CO 3,080 11.72 024 36,109.92 14.90 45,892.00 2.995 0.00 0.00
GRACOINC 980 36.63 0.29 35,897.01 34.07 33,388.60 2.179 510.85 1.53
HALLIBURTON CO 840 43.97 0.63 36,936.98 47.82 40,168.80 2.622 409.72 1.02
INDYMAC BANCORP INC 1,020 36.12 0.89 36,841.99 40.73 41,544.60 2.711 1503.91 3.62
LANDSTAR SYSTEM INC 1,100 32.79 0.13 36,069.00 30.18 33,198.00 2.167 0.00 0.00
LENNAR CORP-CL A 600 58.31 0.08 34,983.00 63.45 38,070.00 2.485 327.40 0.86
LOCKHEED MARTIN CORP 610 59.24 0.24 36,135.97 64.87 39,570.70 2.583 629.17 1.59
LOEWS CORP 510 71.47 0.74 36,448.99 77.50 39,525.00 2.580 304.34 0.77
MCCORMICK & CO-NON VTG SHRS 1,050 34.80 NA 36,538.95 32.68 34,314.00 2.240 689.71 2.01
MDC HOLDINGS INC 500 75.83 0.20 37,916.00 82.25 41,125.00 2.684 357.79 0.67
MURPHY OIL CORP 740 51.35 0.99 37,999.00 52.23 38,650.20 2.523 324.66 0.84
P G 8 E CORP 1,050 34.97 0.45 36,721.97 37.54 39,417.00 2.573 1269.23 3.22
PRECISION CASTPARTS CORP 480 75.38 0.20 36,182.02 77.90 37,392.00 2.440 56.09 0.15
PROTECTIVE LIFE CORP 960 38.56 0.97 37,022.02 42.22 40,531.20 2.645 737.67 1.82
ROCKWELL COLLINS INC. 780 46.61 0.44 36,356.03 47.68 37,190.40 2.427 383.06 1.03
SCHERING-PLOUGH CORP 1,760 20.74 0.39 36,503.98 19.06 33,545.60 2.189 392.48 1.17
SIMON PROPERTY GROUP INC 590 62.30 0.93 36,757.00 72.49 42,769.10 2.791 1625.23 3.80
SPRINT CORP 1,580 23.01 0.18 36,358.01 25.09 39,642.20 2.587 792.84 2.00
SWIFT ENERGY CO 1,280 2927 0.74 37,460.99 35.82 45,849.60 2.992 0.00 0.00
TELECOM NEW ZEALAND-SP ADR 1,040 35.39 NA 36,806.02 33.59 34,933.60 2.280 2672.42 7.65
TEREX CORP 910 39.83 NA 36,243.03 39.40 35,854.00 2.340 0.00 0.00
TIMBERLAND CO-CL A 980 37.16 0.27 36,412.00 38.72 37,945.60 2.477 0.00 0.00
TORO CO 850 42.37 0.92 36,016.97 38.61 32,818.50 2.142 210.04 0.64
VERISIGN INC 1,250 29.54 0.54 36,922.00 28.76 35,950.00 2.346 0.00 0.00
VOLVO AB-SPONSORED ADR 850 43.66 NA 37,111.00 40.51 34,433.50 2.247 1456.54 4.23
' RocxwooD
CAPITAL ADV1 SORS
8
J
~I
Economic Environment & Outlook
June 30, 2005
' ~ The Federal Reserve has increased the funds rate at each of the last nine FOMC
meetings. The statement released at the end of the June FOMC meeting, showed
no change in either of two important phrases: "the stance of monetary policy remains
' accommodative," and "policy accommodation can be removed at a pace that is likely
to be measured." Our analysis suggests that monetary policy remains stimulative,
and that the Fed will continue to raise the funds rate (currently 3.25%) until it reaches
an estimated "neutral" range of at least 4%.
' ~ Another issue confronting the bond market is the imminent retirement of Alan
Greenspan whose term ends January 31, 2006. Much speculation surrounds
possible replacements. Bond market investors may demand a higher risk premium
' (higher real yields) while they wait for the new chairman to establish his inflation-
fighting credentials.
' ~ The US economy exhibited solid, steady growth in 2004, expanding at a 3.9% rate
(real GDP). The economy continued to this strong pace in the first quarter of 2005,
growing at an annualized rate of 3.8%. Estimates of annualized Q2 2005 are again
around the 3.5% range. Despite widespread signs of economic resurgence, long
term bond yields are at historically low levels.
' ~ Year-over-year job growth in the US economy has remained above the 2 million
mark for nine consecutive months, a level of job growth not seen since 2000. In
June, the unemployment rate dipped to 5%, its lowest level since 2001. All signs
' point to continued solid employment growth for the remainder of 2005.
~ Despite 225 basis points of tightening, the financial conditions remain supportive of
' growth, primarily because long term rates have continued to fall. The housing sector
in particular is showing classic signs of morphing into a bubble as mortgage rates
' remain at historically low levels.
~ While recent inflation numbers have been well-behaved, inflation risks are clearly
' tilted to the upside. Financial conditions remain stimulative, excess manufacturing
capacity is shrinking, commodity prices are on the rise again, unit labor costs have
picked up, and productivity growth is slowing.
' ~ We caution fixed income investors to maintain an average portfolio maturity
(duration) shorter than their benchmarks. We believe that Alan Greenspan's words
' of late last year continue to ring true: "Rising interest rates have been advertised for
so long and in so many places that anyone who has not appropriately hedged his
position by now, obviously, is desirous of losing money."
' ROCRW OOD CAPITAL ADVISORS 9
1 Monetary Policy
1
T r et Rate
Fed Funds a g
' 8%
' 6%
4%
2%
0%
' 12/99 6/00 12/00 6/01 12/01 6/02 12/02 6/03 12/03 6/04 12/04 6/05
Real GDP Growth
' (Quarterly Growth at Annualized Rate)
10%
8%
6%
' 4%
2%
' 0%
-2%
moo/
° "Bloomberg Median Estimate
_ ROCRWOOD CAPITAL ADVISORS 10
Employment Growth
Employment
(rolling 12 months)
6, 000, 000
5, 000, 000
4,000,000
.-.
c 3,000,000
£ 2, 000, 000
...
c
m
~ 1,000,000
_o
~ 0
E
w
Change in Employment (rolling 12 months)
-1, 000, 000
-2,000,000
-3, 000, 000 '
76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
Source: Bloomberg
' ROCKWOOD CAPITAL ADVISORS 11
' Wage Pressures are Building
1
1
1
' 6
5
' 4
' 3
2
}
~ 1
0
' 0
-1
' -2
-3
Unit Labor Costs
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
' ~ROCxw ooD
APITAL ADVISORS
Source: Bloomberg
12
Housing Bubble
1
1
'
What Goes U
p...
15Y.
Real House Prkes. Yearly Change '.
1u
r' '
' -5
10
i
' 1974 I~~g,: '~82 20Q~1 2004
1
' Source: Stone & McCarthy
' ~~,~;, ROCRW OOD CAPITAL ADVISORS _ 13
Inflation Growth
~nfla~n ~e~orn
l~ c~-+re inflation rated, °~'.~ increase ~i~~ a year e~riier
t i~~ROCRW00D CAPITAL ADVISORS 14