A comprehensive analysis of the pension portfolio’s quarterly and annual performance took center stage, with notable emphasis on the 21% return for the fiscal year. This impressive outcome was attributed to strong growth in large-cap stocks, with the large-cap growth sector achieving a remarkable 41.1% return. Midcap and small-cap stocks also contributed positively, with returns of 24% and 20.7%, respectively. Despite these gains, the board acknowledged that diversification had led to underperformance in some areas, notably within the value portion of the portfolio, which fell short of its benchmark.

The meeting included an in-depth presentation of the Sterling Capital quarter report, highlighting the performance of various asset classes. It was noted that approximately 60% of the assets were managed within domestic US portfolios and fixed income, with a well-balanced diversification into other asset classes. The report underscored the success of large growth stocks, particularly those related to artificial intelligence, which outperformed others. This performance aligned with the broader trend in US markets, which have been strong since the reopening post-COVID. However, the board was advised to remain cautious, given potential challenges such as inflation and shifts in Federal Reserve monetary policy.

The Federal Reserve’s recent interest rate cuts were a topic of discussion. A 50 basis point reduction in September followed by a 25 basis point cut in November, with potential for further cuts, was noted. The speaker described the economic climate as one of strong earnings reports overshadowed by persistent inflation concerns. Inflation was likened to “the last mile of a marathon,” highlighting the difficulty in reducing it effectively. Housing market dynamics, with mortgage rates surpassing 7%, were identified as a significant variable impacting inflation due to supply and demand issues.

Discussion also extended to labor and wage issues, with a focus on the complexities of adjusting wages downwards once set, which complicates economic recovery efforts. The possibility of layoffs and recession was considered, but the Federal Reserve’s effective management was credited with steering the economy away from a hard landing. This led to deliberations on the future economic landscape and the need to monitor key indicators, especially those related to housing and wages.

The board tackled asset allocation, specifically concerning the allocation of small-cap stocks within the portfolio. Concerns were raised about the decreased allocation to small caps compared to large caps, with suggestions that small caps could benefit from potential tax cuts and tariffs post-election. Current allocations showed a 10% exposure to mid-cap equities, but only 1.6% to small caps, sparking discussions about potential overlaps with mid-cap investments.

Attention was also given to the broader market expectations and the strategic alignment of the portfolio’s asset allocation with long-term objectives. The board emphasized maintaining a balance between risk and return while ensuring the portfolio’s alignment with the pension fund’s goals. The portfolio’s cash flow data was reviewed, showing a beginning value of $20.3 million and ending just under $21 million for the quarter.

As the meeting progressed, discussions on geopolitical events, particularly the situation in Ukraine, were brought up, noting the unpredictability of market reactions should tensions escalate. The bond market’s performance was highlighted, with a return exceeding 5% during the quarter due to declining interest rates, although subsequent increases led to some value loss.

Real estate investments were discussed, with direct real estate experiencing negative returns for the quarter, while Real Estate Investment Trusts (REITs) performed positively. Infrastructure investments, typically seen as defensive, returned 26.7% for the year. The performance of bonds was also notable, with a 12% increase for the fiscal year.