You are probably aware that the stock market has recently experienced strong volatility. A long-overdue correction was anticipated by most investors; the U.S. equity markets as reflected by the S&P 500 are down 10% for the month of December alone. To better understand the current markets and what LACERS does to withstand volatility, it’s helpful to examine past market cycles and what was learned.
When the market cycle is in its earlier stages and trending upward, investors who buy and hold positions in stock ownership are rewarded. Going back to the “Tech Bubble,” which burst in 2000, LACERS portfolio was valued at $7.87 billion (July 1, 2000). Since that time, the portfolio has more than doubled to $16.3 billion (estimated December 31, 2018). LACERS has returned 6.43% (gross of fees) on an annualized basis over an 18 year period, ending June 30, 2018; and 7.89% on an annualized basis over the past 16 years, ending June 30, 2018. These are attractive returns in light of the recession in 2008.
The latest bull market, which started after the 2008 recession, has stretched on for almost 10 years and is one of the longest and strongest bull markets on record. Investors who had their retirement investments in the public markets have enjoyed considerable gains. For example, investments in the S&P 500 index in December 2008 saw that original investment triple in value if held through the end of 2018. Conversely, staying on the sidelines in a safe money market account over that same time period would have yielded little gain.
With markets fluctuating greatly from day to day, these can be pivotal moments for investors; even the most sophisticated investors are reviewing their portfolios to determine next steps. We at LACERS already know our next steps: Remain calm and stay the course! LACERS manages its investment portfolio by diversifying its holdings. What that means is that our basket of assets is invested across a number of buy-and-hold strategies that are designed to behave somewhat independently from one another (reducing risk), and allows the LACERS investment portfolio to withstand the worst of unpredictable market headwinds. Rather than a frequent trading approach, the LACERS Board takes a long-term strategic approach to establishing a diversified asset allocation policy that is relevant for current and future market conditions. Assisting the Board is a highly qualified team of investment staff and consultants who ensure that all relevant financial and economic information is considered by the Board when they make key investment decisions. In fact, the Board has already initiated a major restructuring of its investment program approved in 2018 to ensure that the portfolio is prudently structured in order to pay your hard-earned retirement benefits over the decades to come.