MEBT in an Extraordinary
Market
Posted: October 15, 2008
Since it’s
inception in 1972, the MEBT Trust has weathered periods of high
inflation and significant market downturns. But these market
conditions pale in comparison to the events that have unfolded
over the past several months.
Because the
market crisis developed in the credit markets, investor
confidence was undermined not only in the stock markets, but
also in the bond markets. As a result, investments were
negatively impacted across the board.
Some
participants have asked why the MEBT Trust Committee did not
anticipate or react to the rapid market decline. First, MEBT,
like most retirement plans in the US, does not believe that that
the magnitude and breadth of this unusual market could have been
anticipated. As to reacting to declining markets it is
important to understand that MEBT is made up of many different
investments and that MEBT’s investment actions are guided by an
Investment Policy Statement (IPS).
The IPS is in
place to help the MEBT Trust manage through all kinds of market
conditions. It is very well documented that attempting to time
the market is most often a losing proposition. For example, if
MEBT had tried to move out of the equity market last week to
avoid losses, the Trust would have ended up selling “low” and
then having to buy “high” after the markets rebounded on Monday.
Key principles
of the MEBT IPS include:
·
Manage with a long-term investment horizon
·
Diversify to attempt to control the volatility
·
Capture up-side and try to minimize down-side
·
Use a balanced portfolio 40% fixed income (bonds) & 60% equities
(US/international stocks)
The mix of
MEBT investments is carefully selected in an attempt to meet
these goals. To that end, MEBT did not have any direct exposure
to mortgage backed securities. Unfortunately the market
downturn was not limited to this narrow sector. Ultimately the
crisis in the credit markets led to the recent, unprecedented
market downturn.
MEBT is
a prudently managed long-term investment. The MEBT Committee
will continue to monitor performance and communicate with
participants.
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