Administration October 6, 2007

Mercer Warns Pensions about Commodities

June 22, 2006 (PLANSPONSOR.com) - Pension funds that currently invest in commodities, or are looking to do so, should be aware that they could lose money by following the traditional passive futures approach to investment, according to a UK report from Mercer Investment Consulting.
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In a press release, MercerIC explains that, while commodity prices rose significantly in the year ending March 31, 2006, the return on commodity futures was flat.   This was because the market has been (and is now) in ‘contango,’ where commodity futures prices are higher than current ‘spot prices.’ According to the release the typical situation where futures prices are lower than ‘spot prices’ is more likely to create positive ‘roll’ returns for pension funds with passive investments in commodities.

Andy Green, European Director of Investment Policy at Mercer, said in the press release that the increase in the number of investors purchasing commodity futures pushes prices up and could be one of the reasons why markets have fallen into contango.

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If cash flows into commodity markets remain high, there is a risk that commodities futures will stay in contango, Mercer said. In April and May, the contango was a drag on the return of the GSCI, the main commodities index, at an annualized rate of over 10%.

According to Green, “On balance, demand for commodities is likely to remain strong, at least in the short term.   But, it is questionable how long prices of both oil and metals, which make up over half of the main commodities index, can persist before supply increases. The scope for disappointment is high for investors that passively track a commodity futures index. Given current market conditions, passive investment in commodity futures may not be as beneficial as investing directly in energy and mining shares or in actively managed strategies.”

The paper ‘Buying commodities?   You’ve been contangoed!’ is available at  www.merceric.com .

Products October 5, 2007

F-Squared Launches Provider of Actively Managed Mutual Fund Indexes

October 5, 2007 (PLANSPONSOR.com) - F-Squared Investments, LLC, has announced the launch of an industry index portfolio dedicated to indexes constructed of a select number of actively managed mutual funds.
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Active Index Solutions, LLC (AIS) will introduce the first 18 active fund indexes, known as ActiFindexes, this week, and will offer more in the coming months, according to the F-Squared announcement. The indexes on average are constructed from 10 actively managed mutual funds.

The initial index platform is divided into three investment objective categories:

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  • The Retirement Income category is comprised of Large-Mid Value, Large-Mid Blend, and Large-Mid Growth indexes, and is designed to provide high quality returns over a full market cycle while outperforming in weak or down markets. The selection of the qualifying managers in the portfolio is done by Kanon Bloch Carré (Boston, Massachusetts), the “Index Manager”.
  • The PrecisionAlpha/Sector category is made up of the largest sector categories (Technology, Health care, Financial Services, Utilities, Natural Resources, and Real Estate) and is designed to deliver maximum alpha, or investment value-add. The Index Manager for the portfolio is Mesirow Financial (Chicago, Illinois).
  • The Risk-adjusted Return family of ActiFindexes is made up of nine indexes featuring Value, Core, and Growth across the Large Cap, Mid Cap, and Small Cap areas. These indexes are designed to deliver maximum risk-adjusted-returns. Klein Decisions (Raleigh, North Carolina) is the Index Manager for these indexes.

“The proposition underlying AIS’s ActiFindexes is that the best active mutual fund managers consistently add value over three-year rolling periods and a portfolio of those managers will provide investors with higher retained returns,” said Ron Santangelo, former Manager of Merrill Lynch’s Managed Solutions and Analytics Group and Chairman of the AIS Investment Committee, in the announcement. “The key is to identify the minority of active managers who are skilled and talented enough to repeatedly and reliably outperform.”

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