Investment consultant reports market gains, manager underperformance; boards approve quarterly report

An investment presentation to the Jacksonville Beach pension boards summarized 2021 returns, manager-level results and near-term market movements, and the boards subsequently approved the quarterly investment report by roll-call votes.

Brandon Bresno, the presentation’s lead, told the boards the plan finished 2021 with about $123,000,000 in assets under advisement and described the firm as “100% employee owned.” He said recent market movement had reduced plan assets to roughly $117,000,000 as of the morning of the meeting. "We ran the assets as of this morning... we're effectively right back at that $117,000,000 level," he said.

Bresno summarized that 2021 was a strong year for large-cap U.S. equities — the S&P 500 was up about 29% for the year — while mid-, small-cap and international equities lagged. He told the boards fixed income finished the quarter roughly flat but was negative for the 12-month period because of rising interest rates. "If you look over the last 12 months, S&P was up almost 29%... fixed income was actually negative for the balance of the year because of the rise, or the increase in interest rates," Bresno said.

At the manager level, Bresno identified one notable underperformer. The firm listed as Wells (transitioning to Allspring) produced 1.48% for the quarter versus an 11.6% benchmark, creating a material shortfall for the quarter. Bresno attributed the gap mainly to index concentration effects: "when you have an active manager... they can only own 5%, 6% of your portfolio on any one name... and if they own 3 or 4 compared to an index that owns 11, and that stock goes up 30% in a quarter, they're going to have a huge deficit," he said.

Bresno also reported on Sawgrass, a fixed-income manager, noting a staff departure in client service but saying the fixed-income team remained stable and he saw no immediate concerns about investment stewardship: "From our perspective... he had no responsibilities related to investment management or the portfolio itself. So no concerns as it relates to the strategy or the ongoing nature of the firm," he said.

The presentation included discussion of interest-rate expectations and duration risk. Bresno said markets were pricing faster Fed tightening and discussed possible portfolio responses such as shortening duration, adding TIPS (Treasury Inflation-Protected Securities) or adding publicly traded bank loans (floating-rate instruments) subject to plan ordinance constraints. He offered to “queue that up” for a future agenda item if the board wanted to consider alternatives.

After discussion the boards moved and seconded a motion to approve the report. Roll-call votes show the Firefighters’ Board, General Board and Police Officers’ Board each approved the report; recorded affirmative votes included Gabriel Cameron, Ed Dawson, Debbie White, Nick Curry, Dan Janssen, Brandon Bresno and others when the votes were called.

No formal changes to the investment policy were adopted in the meeting; potential strategy changes were presented as options for future consideration.