Global equity markets continued to rally with narrow leadership from mega-cap technology companies, driven by artificial intelligence enthusiasm, and first quarter earnings better than anticipated. The U.S. market rally this year has been led by seven mega-cap stocks of the S&P 500 contributing 74% of the index return YTD. This has led to concentration levels of the top 10% of stocks reaching the highest level since July 1932.
Large-cap stocks (S&P 500 Index) were up +8.74% in the quarter, and small-cap stocks (Russell 2000 Index) were up +5.21%. International developed stocks (MSCI EAFE Index) were up +2.95% for the quarter, and emerging market equities (MSCI EM Index) were up +0.90% for the quarter.
Fixed-income markets were more mixed during the quarter. Second quarter performance for the Barclays Government Credit Index, a proxy for the broad U.S. fixed-income market, was down -0.93% in the quarter; high-yield bonds was up +1.75% in the quarter; and emerging market debt was up +1.53%. The Stable Value Fund continues to be a positive performer, with returns up +0.53% for the quarter.
The Stable Value Fund continues to be a positive performer, with returns up +0.49% for the quarter.
The Bond Fund was down -0.45% for the quarter, as interest rates increased especially in shorter maturities impacted by Federal Reserve (Fed) anticipated action.
The Sustainable Balanced Fund, which has allocations to both sustainability-focused equity and fixed-income managers, was up +2.59% for the quarter. Underlying managers specialize in Environment, Social, and Governance (ESG) leaders, positive and sustainable change, and corporate engagement.
The Target Annuitization Date (TAD) Funds, which have allocations to the Bond Fund as well as to the Equity Fund (and in a few of the TAD Funds, the Stable Value Fund), had performance between +1.31% and +3.40% for the quarter.
The Equity Fund was up +4.40% for the quarter. Mega-cap growth-oriented stocks led to narrow market performance.
The Global Sustainability Index Fund (GSIF) was strong, with a return of +6.76% for the quarter.
The Basic Annuity essentially has been protected from interest rate volatilities since 2016, with the addition of sophisticated risk and monitoring tools and the hiring of a completion manager, Voya. As a result, the funded status is healthy and stable.
In the Participating Annuity, the funded status improved slightly and also remains healthy.
In terms of the Equity and Balanced Benefit (pre-2006) Annuities, increases to both based on investment performance through the first six months of 2023, will be announced shortly.
As a retirement investor, you should focus always on the appropriate asset allocation, or mix among stocks, bonds, and cash/stable value investments, and your long-term retirement objectives. It is rarely wise to react to shorter-term market movements. The easiest way to avoid that is to invest in the Target Annuitization (TAD) Fund nearest to your retirement date. As of January 1, 2021, there are now two new TAD Funds (2045 and 2050) available. Again, these funds are more focused on growth early in your career, and become more conservative as retirement approaches, by owning fewer equities and more bonds and stable value investments.
Our capable and responsive Member Services staff is available to assist you. Please contact the Pension Boards at 1.800.642.6543 with questions about fund information, performance, strategy, and approach.