PSPRS investment returns through April 2015

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 for April 2015, the tenth month of the current fiscal year, with the June 2014 returns included for comparison:

Report	PSPRS	PSPRS	Russell 3000	Russell 3000
Date	Month End	Fiscal YTD	Month End	Fiscal YTD
6/30/2014	0.78%	13.82%	2.51%	25.22%
7/31/2014	-0.67%	-0.67%	-1.97%	-1.97%
8/31/2014	1.73%	1.05%	4.20%	2.14%
9/30/2014	-1.53%	-0.49%	-2.08%	0.01%
10/31/2014	0.40%	-0.09%	2.75%	2.76%
11/30/2014	0.92%	0.82%	2.42%	5.25%
12/31/2014	-0.18%	0.64%	0.00%	5.25%
1/31/2015	0.01%	0.65%	-2.78%	2.32%
2/28/2015	1.91%	2.58%	5.79%	8.25%
3/31/2015	0.83%	3.42%	-1.02%	7.15%
4/30/2015	0.95%	4.40%	0.45%	7.63%

There is usually about a two-month lag in PSPRS reporting its investment returns.  April 2015 was the second consecutive good month for PSPRS.  I should say extraordinarily good because, if you remember, PSPRS' investment strategy is designed to balance risk and return by sacrificing some gains when the market is up in order to limit losses when the market is down, so outperforming  the Russell 3000 when it has a positive month is very good and producing a gain when the Russell 3000 shows a loss is outstanding.  An analysis of PSPRS' recent performance vis-a-vis its stated strategy is here.  Overall, PSPRS more than doubled the monthly return of the Russell 3000.  PSPRS' April 2015 returns were helped enormously by its non-US equity portfolio, which had a monthly gain of 4.22%.  The non-US equity portfolio had been the biggest laggard for PSPRS this fiscal year, but after this month, it is no longer the worst performing asset class at -1.43%.  That honor belongs to the real assets class which has a fiscal YTD return of -1.95% and is the only other asset class with a negative return YTD.

The Russell 3000 shows a 1.38% gain for May 2015.  As of June 16, 2015, the Russell 3000 has a loss of -0.17.  With that big gain in May and the pattern of the past two months, do we dare have hope that PSPRS might actually reach its expected rate of return (ERR) of 7.85% by the end of June? Taking into account the 0.5% in fees that must be subtracted from final fiscal year returns (the net of fee returns), PSPRS would have to earn about 4% over the last two months of the fiscal year to achieve its ERR.  I would like to remain optimistic, but if PSPRS is consciously trying to hit a narrow sweet spot of  annual returns between 7.85% and 9.00% in order to avoid paying PBI's, instead trying to earn as much as possible, it seems unlikely.

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  The past two years fees have reduced the final annual reported return by about one-half of a percent.