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Friday, July 7, 2017

PSPRS investment returns through April 2017

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 through April 2017, the eighth 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%
12/31/2016 1.30% 6.43% 1.95% 8.79%
1/31/2017 1.03% 7.52% 1.88% 10.84%
2/28/2017 1.17% 8.78% 3.72% 14.96%
3/31/2017 1.06% 9.93% 0.07% 15.04%
4/30/2017 0.75% 10.76% 1.06% 16.26%

There is usually about a two-month lag in PSPRS reporting its investment returns.

This post is more than a little late because of all the Hall case doings that have taken place over the last two months.  Through April 2017, PSPRS is returning about 2/3 of the Russell 3000, which is very good and exceeds the 55-60% range that we have seen in the past.  So kudos to PSPRS through April 2017.  The Russell 3000 ended the fiscal year 2017 with an annual return at just about 18.50%, so if PSPRS gets to 2/3 of that, it would return 12.21% for the fiscal year.  Even at 55-60% of the Russell 3000, it would produce an annual return in the range of 10.18% to 11.10%.  All of these would well exceed the expected rate of return of 7.40%.  PSPRS' Cancer Insurance Plan (CIP) has returned 8.30%, net of fees, through April 2017, so if we subtract 0.50% from PSPRS fiscal YTD returns, PSPRS is surpassing the CIP by almost 2%.

PSPRS has positive returns in all its ten major asset categories and in its short-term investments.  The CIP has positive returns in four of its five major categories, as well as its short-term investments.  The CIP has lost about 1% on its fixed income investments for the fiscal YTD, though PSPRS has returned 4.60% on its fixed income portfolio, a 5.60% difference.  The fiscal YTD returns on US and non-US equity, the only other two categories that the two funds share, showed much smaller differences, a 0.48% return in the CIP's US equity and a 0.75% higher return in the CIP's non-US equity.  Fixed income makes up 26.60% of the CIP's total portfolio, while it makes up only 5.49% of PSPRS' total portfolio.  I am not sure why the CIP would have a different fixed income portfolio than PSPRS, nor do I know if they have different investment managers, and not to rain on PSPRS' parade, but obviously, the CIP's fiscal year to date return would have been much closer to PSPRS' fiscal YTD return if the CIP had invested in the same fixed income portfolio as PSPRS.  This shows an element of luck in choosing investments that underlies all actively managed portfolios.

If PSPRS were to end the year at 12.21% returns, this would mean that under the old PBI system about 1.60% of the fiscal year's returns would be sequestered in the Fund for Future Benefit Increases to be used for PBI's.  PSPRS ended FY 2016 with $8.291 billion in investments; 1.60% of that would be over $132 million available to pay PBI's.  The first COLA under the new system will not be paid until next fiscal year (FY 2019).  Inflation through the 12 months ending May 31, 2017 was 1.9%.

* 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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