In the dimly lit conference room of Portsmouth City Hall, members of the Portsmouth Supplemental Retirement Board gathered on November 2, 2023, to discuss the current state and future outlook of the city’s retirement portfolio. The atmosphere was charged with a mix of concern and cautious optimism as they navigated the complexities of fixed income investments and equity performance amid a challenging economic landscape.

The meeting kicked off with a detailed analysis of the fixed income portfolio, which has recently undergone significant changes. Following the exit of BlackRock, the board transitioned to Loomis, and early results indicate a positive shift. Year-to-date performance shows a decline of 3.44%, a notable improvement compared to the broader index's drop of 4.47%. This shift has been particularly beneficial in a market characterized by rising interest rates, with Loomis outperforming expectations by a margin of 93 basis points.

As the discussion progressed, the focus turned to strategies for the fourth quarter. Board members emphasized the importance of understanding the duration of their fixed income investments and the anticipated movements in interest rates. With forecasts suggesting a potential easing of rates next year, there is hope that the portfolio can capitalize on this shift, leading to improved performance.

However, the conversation also acknowledged the ongoing challenges in the equity market. Earnings reports have been weaker than anticipated, particularly when excluding the performance of a handful of high-profile stocks. The board anticipates that it may take several quarters for earnings to stabilize, influenced by the Federal Reserve's aggressive rate hikes over the past two years. This has created a bear market environment for both bonds and stocks, leaving the board to navigate a trading range that may persist into the early part of next year.

Despite these hurdles, there was a silver lining. The fixed income segment of the portfolio is generating significantly higher income than in previous years, with yields now ranging between 5% and 6%. This increase in income is a welcome change after years of low rates, providing a more robust foundation for the portfolio's long-term growth.

As the meeting drew to a close, the board reflected on their current asset allocation strategy, which remains at a 70/30 split between equities and fixed income. While some debate exists about the effectiveness of traditional allocations in light of recent market conditions, the board concluded that now is not the time for drastic changes. They remain committed to balancing current income needs with the long-term growth necessary to meet future benefit payments.

In a world of economic uncertainty, the Portsmouth Supplemental Retirement Board is poised to adapt and respond to the evolving financial landscape, with a focus on strategic planning and prudent management of the city’s retirement assets. As they look ahead, the hope is that the combination of improved income from fixed investments and a stabilization in equity markets will pave the way for a more prosperous future.