The meeting began with an investment consultant providing a analysis of the pension fund’s performance. The consultant highlighted that the S&P 500 had risen over 4% in the last quarter, while midcap and small-cap indices declined by 3.3%. Over the past year, the S&P gained nearly 25%, with small and midcap stocks seeing increases of 10% and 12%, respectively. A significant trend noted was the disparity between large-cap and small-cap stocks, which was driven primarily by the performance of seven major tech companies—Google, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. These companies, collectively referred to as the “Magnificent 7,” heavily influenced the Russell 1000 growth index, contributing to a 20.7% return in the first six months of the year. Excluding these seven stocks, the remaining 433 stocks only returned 10.3%, raising concerns about market stability if these companies do not continue to perform well.

A board member questioned Nvidia’s unusual recent performance, to which the consultant responded that while remarkable gains can occur, they often lack long-term momentum. The consultant presented additional data showing that the concentration of holdings within the Russell 1000 indices had surged to over 57% by June 30th, surpassing levels seen during the dot-com bubble era. This trend raised alarms about the sustainability of such concentrated market performance.

The consultant also discussed the impact of interest rates, noting recent movements despite the Federal Reserve’s stabilization efforts. Although rates had increased during the quarter, they had since fallen. Over the long term, the pension fund’s performance was assessed, showing growth from $55.8 million to $120.4 million despite withdrawals totaling about $50 million. The fund’s performance for the fiscal year-to-date was reported at 16.1%, slightly trailing behind the benchmark of 16.45%, placing it in the 27th percentile of public funds nationally.

The conversation then shifted to the performance of various investment portfolios managed by the board. J income reported a 1.8% decline, better than its benchmark’s 2.2% drop. E Vance, managing small-cap investments, saw a 3% decline, outperforming its benchmark’s 4.27% drop. The board noted a notable disparity between the Vanguard Total Stock and the Allspring portfolios, with core and growth segments showing positive results, while value and small-cap segments experienced negative outcomes.

International equity performance revealed a trend of underperformance across all managers, with DFA reporting a 0.5% decline against a benchmark drop of 0.96%, Euro Pacific falling by 2.3% compared to a positive return of 1.17%, and WCM Focus dropping by 1.4% against a positive benchmark. Despite some managers showing improved returns on a fiscal year-to-date basis, they failed to keep pace with U.S. investments.

Fixed income portfolios presented a more favorable picture, with the Baird short-term portfolio rising by 1.07% for the quarter, outperforming its benchmark of 0.95%. The Saw Grass portfolio also showed a minor increase, aligning closely with its benchmark. The allocation strategy involving reallocating funds from equities to fixed income had a negative short-term impact but was expected to yield better returns in the future.

The possibility of rebalancing funds due to strong equity performance was discussed, with suggestions to consider reallocating funds from equities to fixed income, especially in light of anticipated interest rate cuts. The board also deliberated the potential impact of forthcoming elections on market volatility, noting historical trends of increased market fluctuations during election cycles.

A noteworthy discussion emerged around Allspring, which had undergone a management change. Concerns were raised about Allspring’s performance, particularly during downturns. In 2022, Allspring experienced a downturn of 30.6%, worse than the benchmark’s 29% drop. Despite this, Allspring proposed a fee holiday to retain client confidence, and the board considered four alternative managers to replace the Allspring strategy, noting that these alternatives generally offered lower fees.

The meeting also addressed the nuances of investment vehicles, comparing Collective Investment Trusts (CITs) to mutual funds. CITs were noted for their flexibility and lower fees. The board discussed the performance and risk factors of various managers, emphasizing the importance of a balanced approach to manage risks while pursuing growth opportunities.