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Pension portfolio down for quarter; adviser urges patience on American Funds EuroPacific
Summary
An investment adviser reported the pension plan was down about $83,000 (1.4%) for the quarter, in line with the strategic model, and recommended holding the American Funds EuroPacific position for now while monitoring performance next quarter.
An investment adviser reported July 9 that the pension plan fell about $83,000, or 1.4%, for the quarter ended March 31, and recommended maintaining the current allocation while monitoring the underperformance of the American Funds EuroPacific fund.
The adviser said the quarterly decline was "in line with your strategic model, which was down 1.3%," and noted the plan remains roughly in line with targets for the fiscal year to date. For the 12 months ending March 31 the plan returned about $738,000, or 5.9%, and the five-year annualized return was about 10.2%.
The nut graf: the presentation emphasized that international and alternative investments have been recent portfolio strengths, and that active international managers such as American Funds EuroPacific have underperformed over the pandemic period but have long-term track records that counsel patience.
The adviser said international developed markets (MSCI EAFE) were up about 16.3% year to date through the prior Friday (excluding China) and that emerging markets, including China, were up about 10.1%. By contrast, the S&P 500 was down about 0.8% through that Friday, though markets had rallied after tariff‑related headlines over the weekend.
On specific fund performance, the adviser identified the plan's best quarterly performers as the international developed markets index fund (up 6.8%), Cohen & Steers Global Infrastructure (up 5.2%), and the fixed‑income manager Sawgrass (up 3.1%). Over the past year, he cited global infrastructure (up 14.8%), the S&P 500 index fund (up 8.3%), convertibles (7.4%), and high yield (7.4%) among the top performers.
The adviser explained why American Funds EuroPacific underperformed for the quarter, pointing to two large holdings that sold off (including Novo Nordisk) and to policy risks that could affect revenues. He said Novo Nordisk, maker of Ozempic and Wegovy (and the diabetes treatment Rybelsus), had experienced strong gains in 2023–24 but faced increased competition and late‑stage trial results that disappointed investors. The adviser also said comments from the federal administration about possible pharmaceutical pricing measures had weighed on investor expectations.
About the American Funds EuroPacific position, the adviser recommended patience: "We'll consider changes next quarter if we see continued deterioration in their performance," and noted the board had already shifted roughly two‑thirds of that sleeve to a Vanguard FTSE developed markets index fund. He said that if the manager continues to lag materially, the board could consolidate to the index and run a search for an alternate active manager.
The adviser reviewed target allocations and current weights, noting the portfolio was slightly underweight U.S. equities (which helped during the quarter when U.S. markets lagged) and that small‑cap valuations looked historically attractive compared with large caps. He also noted the plan remains ranked in the top 40–third percentile versus public pension peers for the one‑year period cited.
Ending: The adviser closed by opening the floor for questions and reiterating that Capital City (the adviser/manager referenced in the presentation) would rebalance as it sees opportunities in volatile markets.
