The decline of the U.S. dollar over the first half of 2025 may have lowered domestic valuations, but for diversified investors such as the $19.7B San Diego County Employees’ Retirement Association (SDCERA), it was a boon for international equities.
During a recent board meeting, Tom Williams, SDCERA’s deputy chief investment officer, presented a risk-return report, noting the Euro Stoxx 50 index — the Dow Jones Industrial Average index of Europe — returned 9% so far this year. SDCERA’s global equities portfolio return surpassed its one- (16.3% vs 15.9%), three- (18.2% vs 16.8%) and five-year (14.6% vs 13.4%) benchmarks.
“For a US investor, adjustment for the appreciation of the Euro versus the dollar, the returns were almost 24% and you can see how much better most international markets have performed so far this year, versus US equities,” he said.
The U.S. dollar has encountered several challenges, including trade policy and increased fiscal deficits over the last couple of years.
Indeed, concern about the sustainability of the U.S.’ fiscal position has led one of the two largest credit rating agencies to lower the U.S. credit rating from “triple A” — the highest rating — to double A, the second highest, he pointed out.
Williams shared that one of the big concerns about the drop in the dollar is that it may be signaling a decrease in investor confidence, noting gold has seen increased focus of late as a safe haven asset. Its price is up more than 40% as investors and central banks have rushed to buy it. Still, he added that the U.S. dollar still dominates other currencies, as it remains one of the largest economies in the world with the deepest and most liquid capital markets.
Showing a chart with the number and size of large U.S. tech companies, he pointed out that, when compared the U.S. equities still dominates European equities. “The main point here is one we’ve shared with you consistently … and that’s equity returns dominate the returns of public pension funds, including our trust fund. Being in public equities has benefited the trust fund immensely through the years.”
He ended by saying SDCERA’s trust fund continues to be well-diversified. “It maintains sufficient liquidity to pay benefits and it’s invested to be able to recognize the growth in the economy, the growth in corporate earnings, and the long-term returns of equities.”
As of June 30, 2025, 49.9% of SDCERA’s trust fund was allocated to public markets equity, 31.4% to fixed income and cash, 13.9% to private assets, and 4.8% to opportunistic. The trust fund fell short of its one-year policy (11.2% vs 12.3%).
