The return of market volatility in 2018 does feel different than the straight up market of 2017. Continued economic expansion, earnings growth, and still-accommodative monetary policies are the pillars for the market, but geopolitical risks and policy uncertainties, especially the confusing tariff talks, have resulted in near-term caution in market thinking.

All that said, U.S. equities were quite positive recently, as evidenced by U.S. large-cap stocks (S&P 500), which returned 3.43%, and domestic small-cap stocks (Russell 2000 Index), which returned 7.75% for the quarter. In contrast, international developed stocks were down for the quarter by 1.24%, and emerging market equities, after a year-long period of outperformance, lagged well behind with a negative return of 7.96% for the three-month period.

On the fixed-income front, the Barclays Government Credit Index, a proxy for the broad U.S. fixed-income market, produced returns of -0.33% for the period. Bank loans performed as expected in 2Q18, with a positive return of 0.70%, even as interest rates rose. Emerging market debt, like emerging market equities, was the weakest asset class performer for the quarter, down 7.02%.

• Net of all fees, the Equity Fund was down slightly at 0.06%, behind benchmarks for the period but still ahead for 2018. Manager performance recently has been the primary detractor.
• The Northern Trust Global Sustainability Index Fund (GSIF) was up 0.90%.
• The Stable Value Fund returned 0.39%.
• The Bond Fund generated a negative return of 0.83%, behind the benchmark for the period but also ahead for the year so far. Diversification into emerging market debt has hurt most recently versus the U.S. benchmark.
• The Balanced Fund had a return of -0.40%, reflecting underlying stock and bond returns.
• Target Annuitization Date (TAD) Funds returned anywhere from -0.28% to -0.36%, with returns depending on the mix among stocks, bonds, and stable value assets.

Generally, we continue to implement thoughtful diversification designed to benefit from positive valuation and improving fundamentals in both equities and fixed income. We will continue to be vigilant in investing on your behalf, and will provide commentary on market conditions and outlook monthly, and as warranted, on the Pension Boards’ website at www.pbucc.org.

Thank you for your confidence in us.