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Sunday, January 29, 2017

PSPRS investment returns through November 2016

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 through November 2016, the fifth month of the current fiscal year (FY), with the FY end 2014, 2015, and 2016 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%
6/30/2015 -0.73% 4.21% -1.67% 7.29%
6/30/2016 -0.32% 1.06% 0.21% 2.14%

7/31/2016 1.62% 1.62% 3.97% 3.97%
8/30/2016 1.76% 3.40% 0.26% 4.23%
9/30/2016 0.71% 4.14% 0.16% 4.40%
10/31/2016 -0.27% 3.86% -2.16% 2.14%
11/30/2016 1.17% 5.07% 4.48% 6.71%

There is usually about a two-month lag in PSPRS reporting its investment returns, though PSPRS waited until January 2017 to report the September, October, and November 2016 returns.

The last three months have been an interesting time for the markets.  The domestic stock market has so far reacted favorably to the election of Donald Trump.  We are also seeing an increase in inflation with the annual inflation rate at the end of 2016 reaching 2.1%.  This is the first time the annual inflation rate has been over 2.0% since 2011.  The Federal Reserve has also taken a more hawkish stance and increased interest rates in December 2016.  This was the first increase in a year with three more increases anticipated in 2017.

Looking at PSPRS' current fiscal year returns, we see the same pattern as we have seen in the past.  PSPRS tends to beat the Russell 3000 when the Russell 3000 has low or negative returns as in August, September, and October, but PSPRS greatly lags the Russell 3000 when the Russell 3000 has high returns as in July and November.  The good news is that PSPRS it has shown positive returns in nine of the ten investment classes for the fiscal year-to-date (YTD).  Only the risk parity class has shown a lost for the current fiscal year.  Six of the nine asset classes with positive returns beat their fiscal YTD benchmarks.  The markets continued upward since November, so we will be able to see if the pattern continues with PSPRS falling further behind the Russell 3000 in December 2016 and January 2017. 

 * 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.  Returns, gross of fees, are used in the table for consistency.  The past two years fees have reduced the final annual reported return by about a half percent.  Returns, net of fees, were 13.28% in FY 2014, 3.68% in FY 2015, and 0.63% in FY 2016.

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