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Established in 1913, The California State Teachers' Retirement System (CalSTRS) is one of the oldest state supported pension funds. CalSTRS is the largest teachers' retirement fund portfolio in the country, and also the seventh largest public pension fund in the world. The pension fund provides retirement, disability and survivor benefits to almost 900,000 state educators working in the state of California.

After seeing huge losses during the financial crises, CalSTRS is still trying to recover its asset base, particularly real estate investments. The pension fund's portfolio managers run several diversified investments. As of February, CalSTSR's asset allocation is as follows (click to enlarge):



Asset Allocation for the Period Ended February 28, 2011

Assets

Market Value
($ million)

Actual

Target

Difference

Range

Global Equity

83,591

55.7%

54.0%

1.7%

48 - 60

Fixed Income

26,819

17.9%

21.0%

(3.1%)

18 - 24

Real Estate

16,473

11.0%

11.0%

(0.0%)

8 - 14

Private Equity

20,055

13.4%

12.0%

1.4%

9 - 15

Cash

1,255

0.8%

1.0%

(0.2%)

-2 - 4

Absolute Return + Alpha

1,895

1.3%

1.0%

0.3%

0 - 4

Total Investment Assets

150,088

100.0%

100.0%



CalSTRS' largest asset allocation is in global equities. The retirement portfolio has $83.5 billion invested in global equities. Approximately 30% of these holdings are 'actively managed' by 'professional' portfolio managers employed by CalSTRS. According to the latest filings submitted to I-Metrix Edgar-Online, CalSTRS' largest actively managed equity holdings are as follows:

Company Name

Ticker

Sector

Market Value

Ytd Return

Profit/Loss

GENERAL ELECTRIC

GE

Conglomerates

357.13

10.74%

34.64

PROCTER & GAMBLE

PG

Consumer

295.69

-2.96%

-9.02

COCA-COLA

KO

Consumer

236.79

1.13%

2.65

PEPSICO

PEP

Consumer

176.09

0.34%

0.60

EXXON

XOM

Energy

729.51

16.15%

101.43

CHEVRON

CVX

Energy

368.76

19.26%

59.55

SCHLUMBERGER

SLB

Energy

221.31

12.47%

24.54

CONOCOPHILLIPS

COP

Energy

198.46

19.54%

32.44

OCCIDENTAL

OXY

Energy

141.85

6.25%

8.34

JPMORGAN

JPM

Financial

306.22

9.63%

26.90

WELLS FARGO

WFC

Financial

257.10

3.14%

7.83

BERKSHIRE

BRK.B

Financial

245.02

6.68%

15.34

BANK OF AMERICA

BAC

Financial

224.01

0.90%

2.00

CITIGROUP

C

Financial

168.24

-5.92%

-10.59

PFIZER

PFE

Healthcare

274.93

17.35%

40.65

JOHNSON & J.

JNJ

Healthcare

274.42

-3.13%

-8.87

MERCK

MRK

Healthcare

170.95

-6.51%

-11.90

WAL-MART

WMT

Services

172.49

-2.22%

-3.92

DISNEY

DIS

Services

140.65

15.57%

18.95

APPLE

[[AAPL

Technology

550.42

8.08%

41.15

IBM

IBM]]

Technology

359.99

11.92%

38.34

MICROSOFT

MSFT

Technology

333.20

-7.71%

-27.84

AT&T

T

Technology

296.97

6.04%

16.92

GOOGLE

GOOG

Technology

244.31

-2.04%

-5.09

ORACLE

ORCL

Technology

217.72

5.76%

11.86

INTEL

INTC

Technology

192.66

-1.87%

-3.67

VERIZON

VZ

Technology

181.02

8.89%

14.78

CISCO

CSCO

Technology

172.18

-14.1%

-28.12

HEWLETT PACK.

HPQ

Technology

166.16

-1.71%

-2.89

QUALCOMM

QCOM

Technology

152.41

10.50%

14.48

Total / Average

7,826.65

4.74%

401.47

Weighted Average

5.13%

CalSTRS has a unique equity portfolio where 11 out of 30 top holdings are technology stocks. The pension fund's portfolio managers favor high-tech stocks with research and development centers in Silicon Valley. The largest technology investment is Apple, followed by IBM, and Microsoft. The portfolio also has significant investments in energy equities. Exxon and Chevron are two companies favored by its portfolio managers. The sector breakdown of CalSTRS' portfolio looks like this:


CalSTRS Sectoral Breakdown

The year-to-date performance of this actively managed portfolio is mediocre. The value-weighted return of top equities is 5.13%, below the S&P 500's (NYSEARCA:SPY) return of 5.58%. While the ytd performance of energy stocks was outstanding, CalSTRS' technology picks returned only 2.44%. Microsoft and Cisco were the most disappointing picks, returning -7.71%, and -141.%, respectively. The total damage to California's teachers just by those two companies was $27.84 million and $28.12 billion, respectively. The following graph offers sector-wide performance analysis:


The only conglomerate, General Electric, was a brilliant choice since the stock's ytd return is 10.74%. Exxon and Chevron provided fantastic capital gains that amounted to $101.43 million and $59.55 million, as well. Pfizer, a dividend aristocrat, gained 17.35%, boosting the actively managed portfolio by $40.65 million. Apple, and IBM were other great stock picks returning 11.92%, and 8.08%.

A quick comparison of the actively managed portfolio with the 3rd quarter of 2010 holdings shows no significant adjustments. Almost all of the holdings are slightly increased, generally by no more than by 0.5% to 1%. The only major change was increasing the Citigroup holdings by 7.34%.

However, Citi shares lost 5.92%, costing the retirement portfolio $10.59 million. The year to date performance of this actively managed portfolio is below the market benchmark.

Perhaps it is time for California's teachers to question whether active management is a good strategy, given the underperforming return of their actively managed retirement portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Dissecting CalSTRS' Holdings: Lessons From the California Teachers' Pension Fund