First Quarter Market Review 2014

Both uncertainty and volatility increased at the start of 2014.  Equity markets fluctuated modestly during the quarter – initially suffering from geopolitical tensions and weather-weakened data, before rebounding strongly toward quarter-end. An uncharacteristically cold winter took a toll on the economy in the U.S., with most major indicators showing signs of weakness.  European economies continued to stabilize but concerns rose in Asia, especially over China’s economic health.  Geopolitical tensions between Russia and Ukraine evolved into a diplomatic crisis after Russia moved to annex the Crimea region.  Despite the intense media attention, market reaction has been limited to Ukrainian and Russian assets and thus far has not affected global oil and gas prices.

Growth Oriented (Equity) Benchmarks

Category

Benchmark

Q1 2014

1 Year

3 Year

5 Year

10 Year

Global Equity MSCI All Country

1.08%

16.55%

8.55%

17.80%

6.97%

U.S. All Cap Russell 3000

1.97%

22.61%

14.61%

21.93%

7.86%

U.S. Large Cap S&P 500

1.81%

21.86%

14.66%

21.16%

7.42%

U.S. Small Cap Russell 2000

1.12%

24.90%

13.18%

24.31%

8.53%

International MSCI EAFE

0.66%

17.56%

7.21%

16.02%

6.53%

Developing Markets MSCI Emerging

-0.43%

-1.43%

-2.86%

14.48%

10.11%

Commodities Dow UBS

4.62%

2.04%

-3.32%

8.96%

6.62%

Global REITs NAREIT Global

3.99%

0.32%

7.51%

22.17%

Note: All benchmark results for periods longer than one year are presented as compound annual returns.  Benchmark returns do not include fees.

The first quarter’s standout was commodities.  The agriculture sector saw the largest gains with grains rallying on turmoil in Ukraine and coffee benefiting from drought conditions in Brazil.  Also, U.S. natural gas prices rose as unusually cold winter weather increased demand for heating and negatively impacted production.  Emerging markets (“EM”) ended the quarter mixed as EM debt and currencies posted gains while EM equities posted slightly negative results.

Income Oriented (Bond) & Cash Benchmarks

Category

Benchmark

Q1 2014

1 Year

3 Year

5 Year

10 Year

Global Bond Market Barclays Global

2.03%

1.31%

4.39%

4.53%

4.42%

U.S. Bond Market Barclays U.S.   Aggregate

1.84%

-0.10%

3.75%

4.80%

4.46%

Municipal Bonds Barclays Municipal

3.32%

0.39%

5.79%

5.71%

4.45%

Cash 3 Month Treasury   Bill

0.01%

0.05%

0.08%

0.12%

1.65%

Bond markets rallied early in the quarter due to the somewhat uncertain pace of economic expansion and mostly held on to gains as the crisis in Ukraine led to a general flight to quality.  Municipal bonds outperformed Treasuries during the quarter, but negative credit headlines continue to weigh on the muni bond markets.  For example, during the quarter, Moody’s downgraded the City of Chicago’s credit rating and all three rating agencies downgraded the Commonwealth of Puerto Rico to below investment grade.  During the quarter, remarks by new Fed Chair Janet Yellen sparked concern that rate increases might come sooner than expected.

“Nobody and nothing will stop Russia on the road to strengthening democracy and ensuring human rights and freedoms.”    Vladimir Putin