Decade in Review - · PDF fileMarket Performance by Decade Decade In Review-10.00% ... Annual Stock Market ... the P/E ratio of the U.S. stock market has reverted to a level that is

State Universities Retirement System

Decade in Review

February 2010

Exhibit 4

2 State Universities Retirement System | February 2010

Market Return Summary

8.39.82.8-17.7Private Equity**14.320.119.924.3Gold

6.76.56.058.2High Yield Bonds6.35.06.05.9U.S. Investment-Grade Bonds

10.5-0.2-13.929.0REITs7.86.2-1.3-22.1U.S. Real Estate*

9.815.55.178.5Emerging Markets Stocks1.23.5-6.031.8Developed Non-U.S. Stocks

*As of 9/30/3009

**As of 6/30/09

***As measured by the Exchange-Traded Index (Broad)

-1.2-1.3-1.6-6.1U.S. Dollar***12.012.89.177.9Oil

-0.2%1.0%-5.2%28.6%U.S. StocksTen–YearFive-YearThree-YearOne-Year

Annualized Returns Ending 12/31/2009

Exhibit 4


Market Performance by DecadeDecade In Review

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

1930 1940 1950 1960 1970 1980 1990 2000

U.S. Equity Non-U.S. Equity Fixed Income CashSource: Ibbotson data; Ennis Knupp

Exhibit 4


Employment Situation

• The unemployment rate crossed over 10% during 2009, reaching levels last seen during the 1980’s

• High unemployment will remain one of the biggest challenges to a sustained economic recovery going forward

U.S. Unemployment RateSource: Bureau of Labor Statistics

10.0

0

2

4

6

8

10

12

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Unem

ploy

men

t Rat

e (%

) 10-Year Avg= 5.5%

Exhibit 4


Historical U.S. Stock Returns (1926-2009)

200919991998

2007 19962005 2006 19891992 2004 19831987 1993 19791984 1988 1976 20031978 1986 1967 1997

1994 1970 1982 1963 19951990 1960 1972 1961 1991

2001 1981 1956 1971 1955 19852000 1977 1953 1968 1951 19801973 1966 1948 1965 1950 19751969 1946 1947 1964 1949 1945

2002 1962 1941 1939 1959 1944 19362008 1974 1957 1940 1934 1952 1943 1928 1958 1954

1931 1937 1930 1929 1932 1926 1942 1938 1927 1935 1933-50 -40 -30 -20 -10 0 10 20 30 40 50 60

Annual Stock Market Return (%)

Exhibit 4


U.S. Stocks – Rolling 10 Year Returns

Rolling 10-Year Annualized Return - DJ Wilshire 5000 Index (Ending December 31, 2009)Source: Dow Jones Wilshire 5000 (with extended data from Global Financial Data & Ibbotson)

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%1Q

1812

1Q 1

819

1Q 1

826

1Q 1

833

1Q 18

40

1Q 1

847

1Q 1

854

1Q 1

861

1Q 18

68

1Q 1

875

1Q 1

882

1Q 1

889

1Q 1

896

1Q 1

903

1Q 1

910

1Q 1

917

1Q 1

924

1Q 19

31

1Q 1

938

1Q 1

945

1Q 1

952

1Q 19

59

1Q 1

966

1Q 1

973

1Q 1

980

1Q 1

987

1Q 1

994

1Q 2

001

1Q 2

008

Rollin

g 10

-Yea

r Ann

ualiz

ed R

etur

n

Average = 8.1%

Minimum = -4.4%

Maximum = 20.3%

10 Years Ending 4Q 2009 = -0.2%

Exhibit 4


P/E Ratio of the S&P 500 Index

• The price-to-earnings (P/E) ratio is an indication the price paid for a future earnings stream

• As shown, the P/E ratio of the U.S. stock market has reverted to a level that is close its historical average

Source: Robert Shiller

Price/Trailing 10Y Earnings of S&P 500(Adjusted for Inflation)

20.1

0.0

10.0

20.0

30.0

40.0

50.0

Dec-9

9

Dec-0

4

Dec-0

9

Dec-1

4

Dec-1

9

Dec-2

4

Dec-2

9

Dec-3

4

Dec-3

9

Dec-4

4

Dec-4

9

Dec-5

4

Dec-5

9

Dec-6

4

Dec-6

9

Dec-7

4

Dec-7

9

Dec-8

4

Dec-8

9

Dec-9

4

Dec-9

9

Dec-0

4

Dec-0

9

P/E

Ratio

P/E Ratio Historical Average of 16.3x

Exhibit 4


Non-U.S. Equity Market Performance

Source: MSCI

One Year Three Year Five Year Ten YearEUROPE 35.8% -6.1% 3.9% -0.6%

PACIFIC 24.2% -6.0% 2.7% -2.1%

NORTH AMERICA 28.4% -5.3% 0.7% -2.5%

One Year Three Year Five Year Ten YearEM ASIA 73.6% 4.8% 14.2% 4.7%

EM LATIN AMERICA 103.8% 14.2% 26.2% 13.9%

EM EUROPE & MIDDLE E 77.7% -5.0% 9.4% 5.5%

Developed Market Performance Ending 12/31/2009

Emerging Market Performance Ending 12/31/2009

Exhibit 4


Emerging Markets Performance Has Been Volatile

• After losing more than half their value in 2008, emerging markets roared back in 2009 to post a 78.5% return for the year

Emerging Markets Stock Returns by Year

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Year

Retu

rn

Exhibit 4


Growth of the Emerging Markets

• Over the past 10 years, the emerging markets have doubled in size, and now represent approximately 22% of the non-U.S. stock market

Non-U.S. Stock Market by Market Capitalization

0%10%

20%30%

40%50%60%

70%80%

90%100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

EM Countries Japan U.K. France Germany Switzerland Other Europe Canada Pacific ex-Japan

Source: MSCI

Exhibit 4


Dollar Declines

• Much of the superior performance of non-U.S. stocks relative to U.S. stocks can be attributed to the weakening of the dollar during 2009 and most of the decade

• In particular, emerging market currencies appreciated strongly in 2009 and currency investors sought riskier investments

Trade-Weighted Exchange Index: Broad

2009

2008

5060708090

100110120130140150

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Source: Federal Reserv e

Exhibit 4


Fixed Income Sector Performance

• 2009 marked a complete reversal from the previous year in the U.S. bond market, as all riskier sectors of the market enjoyed strong gains

• Most fixed income sectors earned much higher returns in 2009 than they did for the full decade

Fixed Income Sector ReturnsSource: Barclays Capital

6.2% 6.6% 6.5% 5.3% 6.1% 7.7% 6.7%

-2.2%

18.7%

5.9%

24.7%28.5%

11.4%

58.2%

-40%-30%-20%-10%

0%10%20%30%40%50%60%70%

Government Corp. MBS Asset-Backed CMBS TIPS High Yield

10 Years Ending 12/31/09 2009

Exhibit 4


High Yield Fixed Income

• Risk appetite over the last year increased as systemic risk subsided

• High yield bonds have offered better absolute and risk-adjusted returns than U.S. equity

U.S. High Yield Corporates by Quality December 31, 2009 (monthly)

0

500

1000

1500

2000

2500

3000

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Basis

Poin

ts

BB

B

CCC

U.S. High Yield Risk Spreads (Caa - Ba spreads) Through December 31, 2009 Red = +/- 1 stdev , green = +2 stdev

0

300

600

900

1200

1500

1800

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

(Monthly)

Basis

Poin

ts

16-year Average

Caa rich to Ba

Caa cheap to Ba

Exhibit 4


Inflation-Deflation Debate

• Treasury Inflation Protected Securities (TIPS) historically price expected inflation in the 2.0% range across the yield curve

• TIPS, like other fixed income sectors, exhibited significant volatility in 2008

• Investors are now pricing TIPS with implied inflation of 1.2% annualized for 2 years and 2.4% annualized over the next 10 years

Treasury Inflation Protected Securities (TIPS) Breakevens: Implied InflationThrough December 31, 2009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Monthly

Perce

nt

10-yr BE30-yr BE

Source: Bloomberg

Note: BE is the breakeven rate, which is the difference between the nominal bond yield and the TIPS bond yield.

Exhibit 4


U.S. Residential Housing Market

• S&P Case-Shiller Composite of 20 U.S. metro areas indicates some stabilization

• Year-over-year price depreciation has moderated since January 2009

• Composite price index down 29% through August 2009 from its peak in July 2006

S&P Case-ShillerHome Price Index: Composite 20Through October 2009

100.00

120.00

140.00

160.00

180.00

200.00

220.00

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Source: Standard and Poors

Exhibit 4

Decade in Review - · PDF fileMarket Performance by Decade Decade In Review-10.00% ... Annual Stock Market ... the P/E ratio of the U.S. stock market has reverted to a level that is

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