U.S. Equities

Despite a number of challenges, U.S. stocks performed well in the 2006-07 fiscal year. Market breadth was strong, and all major industry groups recorded positive returns. As in Canada, materials, technology and telecom stocks led the market. Unlike Canada however, U.S. energy stocks participated in the rally, rising on the strength of high oil prices and improved refining margins. Financials were the weakest sector in the U.S., recording only minimal gains as concern spread over the impact of the meltdown in the sub-prime mortgage market. As Americans experienced the first decline in average house prices in decades, mortgage delinquencies climbed, refinancing became difficult and many sub-prime mortgage lenders went out of business. Late in the fiscal year, concern spread that major financial institutions may be forced to write off substantial parts of their sub-prime loans, which led to share price corrections among financial stocks.

ATRF retains the services of two external investment firms to actively manage its U.S. equity investments. The U.S. equity market proved to be an extremely challenging environment for active managers in the past year. Two of the difficult events were the rally in low quality stocks in the fall of 2006 and the widespread sell-off of stocks in August 2007 triggered by hedge funds forced to meet redemption demands. Neither of these events was anticipated by ATRF’s managers and they were unable to match the performance of the benchmark. Taken together, U.S. equities generated a disappointing return of 5.3%, well below the benchmark Russell 3000 Index return of 9.6%.