Investment Plan 2011 - OPERS

Ohio Public Employees Retirement System
2011 Annual Investment Plan
ASSET CLASS STRATEGIES
Tactical Outlook
The following tactical outlook provides a background and context for the asset class
strategies for both the Defined Benefit and Health Care Funds.
The following are overviews of the two components of the tactical outlook: the economic
outlook and the investment outlook. The economic outlook summary was provided by the
Board’s general investment advisor, Mercer Investment Consulting, in November, 2010. A
comprehensive economic outlook from Mercer is included as Appendix A. The investment
outlook below is provided by OPERS’ Investment Staff and summarized by asset class.
Economic Outlook
Continued subdued growth in developed economies and average growth in emerging
markets.
Low inflation to continue into 2011.
Efforts to fight deflation are modestly successful, producing low inflation in 2011.
The downside of Quantitative Easing (QE) is a continued steep yield curve, as the
market fears rising inflation in the middle of the decade.
The Federal Reserve is not expected to raise interest rates until mid to late 2011.
Unemployment rate starts to gradually fall.
Investment Outlook
Information gathered from a variety of sources was used to determine the investment
outlook for 2011. Information considered includes Mercer’s outlook, research from
investment banks, discussions with and research by external investment managers,
feedback from asset class advisors, discussions with peers and industry experts and
academic and informational periodicals.
U.S. Equity Outlook
We expected strong performance in the first half of 2010, but were uncertain on how the
medication provided to the economy via fiscal and monetary stimulus would affect the
balance of 2010. The S&P 500 appreciated into April 2010, but was ultimately bogged
down by a lack of understanding by investors of the government forces at work both
domestically, as well as abroad and the uncertainty surrounding their effectiveness.
Currently, investors fear the unknown as the Federal Reserve embarks on another
round of QE. Investment banks’ ―Buy‖ ratings are at their lowest levels in many years,
confidence continues to show a relatively anemic and shaky improvement pattern, and
downward revisions or negative preannouncements in front of the third quarter earnings
per share season were very high relative to the last several quarters, and for stock
investors is considered good news.
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