Memorandum Date:
February 14, 2018
To:
Platte River Power Authority Retirement Committee Gerry Horak Todd Jirsa Tom Roiniotis Dave Smalley
From:
Jason Frisbie
Subject:
Retirement Committee Meeting
A Retirement Committee meeting is scheduled for February 22, 2018, from 12:30 p.m. to 2:30 p.m. in Platte River’s Board Room. The proposed agenda is as follows:
AGENDA (1) Election of Committee Chairperson. Steve Adams will no longer be serving as a Committee member. A new Committee Chairperson needs to be elected. Motion to approve
as Committee Chairperson.
(2) Review Minutes of November 17, 2017, Meeting. The November 17, 2017, Minutes summarize a report of 3rd quarter 2017 investment performance, review of an advisor fee comparison report, approval of the updated Investment Policy Statement, discussion of Retirement Committee appointments, and approval of the 2018 Retirement Committee meeting schedule. Motion to approve the minutes of the November 17, 2017, meeting. (3) Review 2017: 4th Quarter and Annual Investment Performance. Wendy Dominguez and Peter Mustian from Innovest will review the 4th quarter and annual investment results and highlight the Plan’s performance relative to its benchmarks. (4) Education: Private Equity Investing Innovest will provide education on investing in the private equity asset class. (5) Capital Markets Outlook and Asset Allocation Study. Wendy Dominguez and Peter Mustian from Innovest will present their firm’s long-term outlook for the economy and capital markets and provide an overview of Innovest’s asset allocation study. (6) Investment Consultant Review. The Committee will review Innovest’s performance as the Plan’s investment consultant. Page 1 of 2
(7) Other Business. ATTACHMENTS (7): 2018 Retirement Committee Meeting Planning Calendar, November Meeting Minutes, 4th Quarter 2017 Portfolio Review, Private Equity Investing Education, Innovest’s Long-Term Outlook for the Economy and Capital Markets, Investment Consultant Review, and Innovest’s Research Report. CC:
Central Files Innovest Portfolio Solutions
Julie Depperman Caroline Schmiedt
Kerry Fields Roy Steiner
Karin Hollohan Tracy Thompson
Page 2 of 2
2018 RETIREMENT COMMITTEE MEETING PLANNING CALENDAR FEBRUARY 22, 2018 Regular Retirement Committee Meeting: Review of 2017: 4th Quarter and Annual Investment Performance Capital Markets Outlook and Asset Allocation Study Investment Consultant Review
MAY 31, 2018 Regular Retirement Committee Meeting: Review of 1st Quarter Investment Performance Approval of Investment Policy Statement (if needed) Committee Education (provided by Innovest) Review and Approve Plan Amendments (DC and DB Plans) Review Required Plan Contribution for 2019
AUGUST 30, 2018 Regular Retirement Committee Meeting: Review of 2nd Quarter Investment Performance Committee Education (provided by Innovest) Review Defined Benefit Plan 2017 Audit Report
NOVEMBER 16, 2018 Regular Retirement Committee Meeting: Review of 3rd Quarter Investment Performance Approval of Investment Policy Statement (if needed) Advisor/Consultant Fee Comparison Report Approve 2019 Retirement Committee Meeting Schedule
PENDING ACTION ITEMS: Review/Approve Plan Amendments
Calendar subject to change. Used for planning purposes only. Last updated: October 2017
Meeting Minutes of the Defined Benefit Plan Committee 2000 East Horsetooth Road, Fort Collins, Colorado Friday, November 17, 2017 ATTENDANCE Committee Members Steve Adams (Chairman) Jason Frisbie (Plan Administrator) Tom Roiniotis Dave Smalley Absent: Gerry Horak Platte River Staff Julie Depperman (Treasury Manager) Caroline Schmiedt (Deputy General Counsel) Roy Steiner (HR Manager) Tracy Thompson (Executive Administrative Assistant) Guests Wendy Dominguez and Gordon Tewell of Innovest Portfolio Solutions, LLC (“Innovest”) CALL TO ORDER Chairman Steve Adams called the meeting to order at 1:06 p.m. A quorum was present and the meeting, having been duly convened, was ready to proceed with business. ACTION ITEMS (1) Review Minutes of August 31, 2017, Meeting. Chairman Steve Adams asked for a motion to approve the minutes from the August 31, 2017, meeting. Tom Roiniotis moved to approve the minutes as submitted. Dave Smalley seconded, and the motion carried 4-0. (2) Review of 3rd Quarter Investment Performance. Wendy Dominguez and Gordon Tewell reviewed the third quarter investment performance and highlighted the Plan’s performance relative to its benchmarks (included in the Retirement Committee materials). Innovest provided an update on the new allocation to reinsurance. At the August meeting, the Committee moved to allocate 3% of the portfolio to reinsurance, specifically, the Stone Ridge Reinsurance Premium Interval Fund (Stone Ridge). The 3% allocation was successfully placed in late September which was earlier than anticipated because reinsurance companies were seeking to increase liquidity. As of September 30, 2017, Plan assets totaled $102.1 million compared to $99.0 million on June 30, 2017. For the quarter, the portfolio gained 2.7%, below the Custom Index benchmark of 2.8%. The portfolio allocation as of September 30 was 24% U.S. equities, 14% non-U.S. equities, 10%
Defined Benefit Plan Committee Meeting Minutes: November 17, 2017 fixed income, 9% floating rate corporate loans, 5% commodities, 16% real estate, 14% hedge fund-of-funds, 4% MLPs, 3% reinsurance, and 1% money market accounts. For the year, the portfolio increased $7.7 million, which includes an investment gain of $8.5 million and net contributions of ($0.8) million. As depicted by the Plan Sponsor Peer Group Analysis on page 21 of the Portfolio Review booklet, the Plan’s return was in the 92nd percentile for the second quarter and the 78th percentile year to date as of June 30, 2017. However, long-term performance has been very strong. Innovest explained that there is a delay in compiling current peer group data; therefore, the report depicts a one quarter lag. Julie Depperman asked how the benchmarking will be impacted now that the Plan has surpassed $100 million, noting that the peer groups used for comparison will change. Innovest expects some differences, and explained that the Plan may be closer to the fixed income median. Aberdeen: Em Mkt;I remains on the watchlist as a minor concern. The fund was originally added due to a merger between Aberdeen Asset Management and Standard Life. Innovest does not foresee a negative outcome resulting from the merger. Additionally, the fund has experienced underperformance for the quarter primarily due to challenges presented by Chinese securities laws; for the quarter, the fund was not heavily invested in top performing Chinese internet stocks while their peers were. The fund has begun to increase some of these holdings as they navigate the legal structure. Innovest does not recommend any changes at this time but will continue to monitor the fund. Innovest reviewed the Manager Score Card on page 23 noting that Tortoise MLP – Composite appears as a concern in the Organization category due to a change in ownership, which may potentially place the fund on the watchlist. Stone Ridge is flagged as a minor concern for Expenses which is to be expected and will remain as such unless the firm lowers its fees. Innovest is not concerned at this time, but will continue to monitor the funds. Innovest reviewed each fund in the Table of Returns beginning on page 16 of the Portfolio Review booklet. Innovest confirmed real estate holdings were not negatively impacted by the recent hurricanes. Innovest clarified that the quarterly return reported for the reinsurance fund represents the entire quarter; however, the total fund return is calculated using only the period for which the Plan has been invested in the fund. Jason Frisbie asked for clarification on the new allocation to reinsurance. Innovest confirmed the current target allocation is 3%, which was achieved when the fund was entered in September. Dave Smalley recalled that a higher target was discussed, but 3% was selected by the Committee as recommended by Innovest. Gordon Tewell stated that the target allocation can be evaluated again once Innovest performs their asset allocation study. Jason Frisbie asked if the growing number of renewables has negatively impacted the return for funds invested in MLPs. Innovest agreed this is possible but believes the impact would be minimal at this time. Innovest will look into the matter further and evaluate this possibility as they develop their Long-Term Outlook for the Economy and Capital Markets report (to be presented at the February meeting). (3) Advisor/Consultant Fee Comparison Report. Innovest presented their advisor/consultant fee comparison report. The report was prepared using a database accessible to Innovest through Fi360 Company, and compares the Plan to 31 other private and public pension plans of similar size. In comparison, Innovest’s fee is in the lowest quartile and is lower than 97% of the fees for similar-sized plans.
Page 2 of 4
Defined Benefit Plan Committee Meeting Minutes: November 17, 2017 (4) Investment Policy Statement. Innovest reviewed the Investment Policy Statement (IPS). A redlined version of the IPS demonstrating the recommended changes is included in the Retirement Committee materials. In addition to small administrative changes, the IPS has been updated to reflect the addition of reinsurance as a new asset class. Julie Depperman noted that the allocation limits as shown in Appendix B were not impacted by the addition of reinsurance and asked if this is appropriate. The Committee and Innovest agreed that these should be adjusted for the asset classes which were rebalanced with the addition of reinsurance. Innovest will adjust the limit range for large cap domestic equities to 14%-20%, core fixed income to 4%-10%, and liquid low correlated hedge funds to 9%-19%. Committee members also pointed out corrections that are needed, including changing the effective dates to November, removing Dennis Coombs from the list of Committee members in Appendix A, and using whole percentages in Appendix C. Chairman Adams asked for a motion to approve the changes to the IPS as recommended by Innovest with the adjustments to the list of Committee members, allocation limits, effective dates, and percentages in Appendix C, and to authorize the Committee Chairman to execute the updated IPS at the upcoming December Board meeting. Tom Roiniotis moved, Jason Frisbie seconded, and the motion carried 4-0. (5) Retirement Committee Appointments. Jason Frisbie discussed current Committee vacancies and the process for filling vacancies. At the December Board meeting, the Board will appoint a new Committee member to take the place of Dennis Coombs. Additionally, another vacancy is expected as Chairman Adams plans to leave the Committee in March; at that time, a new member will be appointed, and a new Chairman will be selected. Although not required by policy, Committee members believe it is good practice to have representatives from each of the four owner municipalities serve on the Committee. Jason Frisbie confirmed the Board also supports this approach. (6) Proposed 2018 Retirement Committee Meeting Schedule. The Committee reviewed the proposed meeting schedule for 2018. Under the proposed schedule, all meetings will be held in Platte River’s Board Room. Meeting Date February 22, 2018 May 31, 2018 August 30, 2018 November 16, 2018
Start Time 12:30 p.m. 12:30 p.m. 12:30 p.m. 1:00 p.m.
Chairman Adams asked for a motion to accept the 2018 Retirement Committee meeting schedule as presented. Tom Roiniotis moved to accept the 2018 Retirement Committee meeting schedule as presented. Jason Frisbie seconded, and motion carried 4-0. (5)
Other Business.
Innovest Research Report – Chairman Adams provided positive feedback on the articles featured in the Research Report and feels that Innovest fulfills their role as advisor to the Committee, helping to ensure the Committee meets its fiduciary responsibilities. Chairman Adams specifically referenced the article titled “11 Tips to Reduce Retirement Plan Litigation Risk” and noted that the Retirement Committee follows all 11 tips identified in the article.
Page 3 of 4
Defined Benefit Plan Committee Meeting Minutes: November 17, 2017 The next regular Committee meeting is scheduled for February 22, 2018, at 12:30 p.m. in the Platte River Power Authority Board Room. The meeting adjourned at 2:01 p.m.
Chairman
Page 4 of 4
PORTFOLIO REVIEW Platte River Power Authority Defined Benefit Plan Gordon Tewell, CFA, CPC Wendy Dominguez, MBA Peter Mustian Prepared by: Kathryn Lalone 4643 S Ulster Street | Suite 1040 | Denver, CO 80237 303.694.1900 | innovestinc.com
4Q17
Privileged and Confidential
INNOVEST AT A GLANCE Fiduciary Expertise
Our History — — — —
—
Founded in 1996 by Richard Todd and Wendy Dominguez who lead the firm today Independent, privately held and employee-owned SEC Registered Investment Advisor Currently more than $19 billion in firm assets*
— —
Our Professionals — — — —
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45 employees Long-term relationships with top tier managers, vendors, and service providers 94% employee retention rate Demonstrated ability to hire and retain top quality talent
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Money Management Experience —
Alignment of Interest with Our Clients — — — — — —
97% client retention Conflict-free, independent and objective advocate A consistent investment philosophy since the firm’s inception A client-centered, risk-focused, and performance-driven culture Year-over-year revenue growth 19 of the last 20 years 2017 Client Survey Results: Overall Client Satisfaction 4.7 (5-point Scale)
— — — —
Award-Winning Team — — — — — — — —
Innovest named one of the Best Places to Work in the nation, 2017, 2016, 2014, Pensions & Investments PLANADVISER named Innovest Top 100 Retirement Plan Advisors, 2016 Forbes ranked Innovest #3 Fastest Growing RIA Firms, 2016 Recognized for 403(b) Plan Conversion Campaign, The Eddy Awards, 2016 ColoradoBiz Finalist for the Colorado Top Company Award, 2015 Top 100 Wealth Managers in the nation, 2015, Forbes 2014 Retirement Plan Adviser Team of the Year, PLANSPONSOR 19th Fastest Growing RIA in the nation, 2015, Financial Advisor
*As of October 2017
One of the first investment firms in the Rocky Mountain region rooted in prudent fiduciary principles Accreditations through Investment Management Consultants Association and Center for Fiduciary Studies Process-oriented approach with a focus on investment and spending policies Expert Witness in nearly 60 cases involving fiduciary investment responsibilities Numerous fiduciary certifications: AIF™, AIFA ™, CIMA®, CFA , QPFC, RF™, RPS 7 member Investment Committee with median experience of nearly 20 years Partners have more than 25 years of experience managing large pension and foundation portfolios Disciplined and opportunistic approach to forward-looking portfolio design Experts in many investment strategies: active, passive, hedge funds, and other alternatives Emphasis on downside risk quantification in developing portfolio design
Client Access and Transparency — — —
Direct access to Innovest’s investment and operational heads at all times Routine access to closed products, waived investment minimums, lower product fees, and socially responsible mandates Customized asset allocation, benchmarking and reporting
Diverse Client Base — — — —
250+ clients in 21 states Retirement Plans Foundations, Endowments and Nonprofits Wealthy Families
2
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC
INNOVEST’S HISTORY WITH PLATTE RIVER POWER 2012 - 2014 • Innovest Portfolio Solutions and Platte River Power enter into an agreement • Created quarterly reports • Monthly rebalancing report renewed • Added Reconciliation report – one for Mutual funds & one for Separate accounts • Updated asset allocation to include JP Morgan High Yield, Eaton Vance Floating rate, and PIMCO Commodity • Asset allocation changed • Core Fixed Income Search • PIMCO Total Return was replaced by MetWest (MWTIX) throughout report. • Education presentation on commodities • Education presentation on MLP’s
2017 • Updated Asset Allocation • Added StoneRidge reinsurance.
2015 - 2016 • Commodity search • Replaced PIMCO Commodity with Credit Suisse Commodity. • Education presentation on the Strength of the Dollar • Education presentation on Reinsurance • Presented Asset allocation study. • Presented watch list report on DFA World Ex US fund. Committee decided to take the fund off watch list. 3
Executive Summary December 31, 2017
Performance Over Time
Change in Account Value Last Quarter 3.04 3.26 -0.22
Platte River Pwr Total Fd Platte River Power Cust Index Difference
Year To Date 11.67 11.34 0.33
1 3 Year Years 11.67 6.46 11.34 5.86 0.33 0.60
5 Years 8.00 7.35 0.65
7 Years 7.32 6.81 0.51
Since Inception 7.47 7.07 0.40
Risk and Return (Since Inception)
Inception Date 01/01/2003
Market Value As of 10/01/2017 102,094,227
Platte River Pwr Total Fd
Blackstone BPIF
S&P 500 Index
$14,732,774 $9,049,115
Eaton Vance Floating Rate; I SFM SMID Value - Platte River Power
Return (%)
14.0
$8,077,542
Met West Total Return
$6,995,501
Wellington Opportunistic Growth
$6,832,126
Vanguard Dividend Growth
12.0
$6,510,250
Crdt Suis Comm Rtn Strat
$5,329,257
WF/Blackrock S&P 500 N
$5,145,009
Tortoise MLP (PRPA)
$4,673,161
Aberdeen Emerging Markets Fund
$4,514,079
American Funds EuroPacific Gr
10.0
Platte River Pwr Total Fd 8.0
5.2
3,253,847
$16,092,718
Principal US Property Account
4.8
Change $
Asset Allocation
16.0
4.4
Market Value As of 12/31/2017 105,348,073
5.6 6.0 6.4 Risk (Standard Deviation %)
6.8
7.2
$4,437,638
DFA World Ex US Value
$3,185,674
Lazard Int'l Strategic
$3,077,394
JPMorgan High Yield Select
$3,055,844
Stone Ridge Reins. Prem. Int. Fund
$2,865,670
Cash
7.6
$774,320 $0
$4,033,637
3/16
6/16
$8,067,274 $12,100,911 $16,134,548 $20,168,185 $24,201,822
Cumulative Performance over Time 80% 60% 40% 20% 0% -20 % 9/12
12/12
3/13
6/13
Platte River Pwr Total Fd
9/13
12/13
3/14
6/14
9/14
12/14
3/15
Platte River Power Cust Index
Total Fund return is net of all fees. Expected return is 7.5%
4
6/15
9/15
12/15
9/16
12/16
3/17
6/17
9/17
12/17
THE MARKETS 2017 Investment Returns YTD
40.00%
35.00%
S&P 500
MSCI EAFE
MSCI EM
Russell 2000
4Q17
37.28% 7.44%
BBgBarc US Agg Bond 30.00%
25.03%
25.00%
4.23%
21.83% 6.64% 20.00%
14.65% 3.34%
15.00%
10.00%
5.00%
3.54%
0.00%
-5.00%
1st Quarter
3rd Quarter
2nd Quarter 5
4th Quarter
0.39%
GLOBAL EQUITY INDICES 4th Quarter 2017
Value
YTD as of December 31, 2017
Domestic Equity Core Growth
Value
1 Year
Domestic Equity Core Growth
Value
Domestic Equity Core Growth
Large
6.3%
6.6%
6.8%
Large
15.4%
21.8%
27.4%
Large
15.4%
21.8%
27.4%
Mid
5.5%
6.1%
6.8%
Mid
13.3%
18.5%
25.3%
Mid
13.3%
18.5%
25.3%
Small
2.0%
3.3%
4.6%
Small
7.8%
14.6%
22.2%
Small
7.8%
14.6%
22.2%
Developed International Equity Value Core Growth 3.2% 4.2% 5.2% Emerging Markets 7.4%
Developed International Equity Value Core Growth 21.4% 25.0% 28.9% Emerging Markets 37.3%
Developed International Equity Value Core Growth 21.4% 25.0% 28.9% Emerging Markets 37.3%
3 Year Annualized
5 Years Annualized
10 Years Annualized
Value
Domestic Equity Core Growth
Value
Domestic Equity Core Growth
Value
Domestic Equity Core Growth
Large
9.5%
11.4%
12.9%
Large
14.2%
15.8%
17.0%
Large
6.8%
8.5%
10.0%
Mid
9.0%
9.6%
10.3%
Mid
14.7%
15.0%
15.3%
Mid
9.1%
9.1%
9.1%
Small
9.5%
10.0%
10.3%
Small
13.0%
14.1%
15.2%
Small
8.2%
8.7%
9.2%
Developed International Equity Value Core Growth 6.4% 7.8% 9.2% Emerging Markets 9.1%
Developed International Equity Value Core Growth 7.0% 7.9% 8.8% Emerging Markets 4.4%
Developed International Equity Value Core Growth 1.1% 1.9% 2.7% Emerging Markets 1.7%
Returns sourced from the S&P 500, S&P 500 Value, S&P 500 Growth, Russell Mid Cap, Russell Mid Cap Value, Russell Mid Cap Growth, Russell 2000, Russell 2000 Value, Russell 2000 Growth, MSCI EAFE, MSCI EAFE Value, MSCI EAFE Growth, and MSCI EM indices. Dark green indicates returns at or greater than 10%, light green indicates returns 0-4%, light pink indicates returns 0% to -5%, light dark red indicates returns down more than 10. Returns for time periods of 3 years or longer are annualized. Source: Morningstar Direct.
6
DOMESTIC EQUITY SECTOR PERFORMANCE Fourth Quarter 2017 0.2%
3.6% 3.2%
6.9%
1.5%
6.0%
0%
9.0%
6.1%
2%
4%
Utilities Info Technology Energy
8.6% 6.5%
6%
Telecom Services Industrials Consumer Staples
9.9% 8%
10%
Real Estate Health Care Consumer Discretionary
12%
Materials Financials
One Year (ending 12/31/2017) 12.1%
-1.3%
10.8%
23.8%
1 -1.0%
-5%
38.8%
21.0% 22.1% 22.2% 13.5%
0%
5%
10%
15%
23.0% 20%
25%
30%
35%
Utilities
Telecom Services
Real Estate
Materials
Info Technology
Industrials
Health Care
Financials
Energy
Consumer Staples
Consumer Discretionary
Returns are based off return data for the eleven sectors according to the S&P 500. Source: Morningstar Direct.
7
40%
45%
FIXED INCOME AND ADDITIONAL ASSET CLASSES FIXED INCOME INDICES
ADDITIONAL ASSET CLASSES
Barclays Agg U.S. Bond
HFRI Fund of Fund Index
QTD
YTD
1 Year
3 Year
5 Year
10 Year
QTD
YTD
1 Year
3 Year
5 Year
10 Year
0.4%
3.5%
3.5%
2.2%
2.1%
4.0%
2.0%
7.7%
7.7%
2.6%
4.0%
1.1%
Barclays U.S. Government 1-3 Year
Bloomberg Commodity
QTD
YTD
1 Year
3 Year
5 Year
10 Year
QTD
YTD
1 Year
3 Year
5 Year
10 Year
-0.3%
0.4%
0.4%
0.6%
0.6%
1.5%
4.7%
1.7%
1.7%
-5.0%
-8.5%
-6.8%
Barclays Municipal Bond
Alerian MLP Infrastructure
QTD
YTD
1 Year
3 Year
5 Year
10 Year
QTD
YTD
1 Year
3 Year
5 Year
10 Year
0.7%
5.4%
5.4%
3.0%
3.0%
4.5%
-1.8%
-8.8%
-8.8%
-9.6%
0.6%
6.8%
Credit Suisse Leveraged Loan
S&P Developed Property
QTD
YTD
1 Year
3 Year
5 Year
10 Year
QTD
YTD
1 Year
3 Year
5 Year
10 Year
1.2%
4.2%
4.2%
4.5%
4.3%
4.6%
3.9%
13.2%
13.2%
6.4%
8.0%
4.6%
Barclays U.S. Corporate High Yield QTD
YTD
1 Year
3 Year
5 Year
10 Year
0.5%
7.5%
7.5%
6.4%
5.8%
8.0%
Median
Current
High
Low
540
405
2474
222
480
358
2147
241
Returns sourced from the BBgBarc US Agg Bond, BBgBarc US Corporate High Yield, BBgBarc US Govt 1-3 Yr, Credit Suisse Leveraged Loan, BBgBarc Municipal, Bloomberg Commodity, Alerian MLP Infrastructure, HFRI Fund of Fund Index, and the S&P Developed Property indices. Dark green indicates returns at or greater than 4%, light green indicates returns 0-4%, light pink indicates returns 0% to -5%, light dark red indicates returns down more than 10%. Returns for time periods of 3 years or longer are annualized. Source: Morningstar Direct and InvestmentMetrics. Credit spreads source: Eaton Vance and Factset as of 12/31/17. Spread history measures past 15 years. All fixed-income spreads are measured in basis points and measure option-adjusted yield spread relative to comparable US Treasuries using daily data. Loan index spread represents the three-year discounted spread over LIBOR. Floating-Rate Loans represented by S&P/LSTA Leveraged Loan Index. High Yield represented by BofA Merrill Lynch US High Yield index. Dark green indicates current spreads greater than 1.25x the median, light green indicates spreads from 0.76 to 1.24x the median, and red indicates spreads at 0.75x the median or less.
Credit Spreads Category FR Corp Loans High Yield Corporate
8
INVESTMENT POLICY SUMMARY Client Variables Client Type: Time Horizon: Expected Return: Risk Tolerances:
Government Greater than Five Years 7.5% Expected downside of -12.0% to -15.0% per year based on a statistical confidence level of 95% (1)
Asset Allocation
Performance Benchmarks
Domestic Equity Large Cap
Smid Cap
Lower Limit
Strategic Allocation
Upper Limit
15.00%
17.00%
20.00%
4.00%
7.00%
10.00%
7.00%
10.00%
13.00%
1.00%
4.00%
7.00%
International Equity
Asset Category Domestic Equity Large Cap Value Large Cap Growth Large Cap Core Smid Cap
Investment Manager
Primary Index
Peer Group Universe
Vanguard Dividend Growth Wellington Opportunistic Growth Wells Fargo S&P 500 Index SFM SMID Value
S&P 500 Value S&P 500 Growth S&P 500 Russell 2500 Value
Large Cap Value Large Cap Growth Large Cap Core Smid Cap Value
American Fund EuroPacfic Lazard Int'l Strategic DFA World ex-US Value
MSCI ACWI ex -US MSCI ACWI ex -US MSCI ACWI ex -US
Int'l Lg Cap Gr Int'l Multi-Cap Int'l Value
Aberdeen Emer Equity
MSCI EM
Emerging Markets
Met West Total Return Bond
Blmbg BC Aggregate
Broad Mkt Core FI
JP Morgan High Yield
Blmbg BC High Yiield
High yield
Eaton Vance Floating Rate
CSFB Lev Loan
Loan Participation
Credit Suisse Commodity
Bloomberg Comm Index
NA
Principal US Property
NCREIF ODCE
US Open End Priv. RE
Blackstone Partners
HFRI FofF Composite
NA
Tortoise Capital Advisors
Alerian MLP Infr
NA
StoneRidge Reinsurance
Swiss RE Global
NA
International Equity
Emerging Markets
Emerging Markets
Core Fixed Income
Core Fixed Income 5.00%
7.00%
11.00%
High Yield
High Yield 0.00%
3.00%
6.00%
Floating Rate Corp Loans
Floating Rate Corp Loans 6.00%
9.00%
12.00%
Commodities
Commodities 3.00%
6.00%
9.00%
Real Estate
Real Estate 10.00%
15.00%
20.00%
Hedge Funds
Hedge Funds 10.00%
14.00%
20.00%
Master Limited Partnerships
Master Limited Partnerships 2.00%
5.00%
8.00%
Reinsurance
Reinsurance 0.00%
3.00%
6.00%
Total Portfolio Strategic Benchmark: 17.00% 7.00% 10.00% 4.00% 7.00% 3.00% 9.00% 6.00% 15.00% 14.00% 5.00% 3.00%
S&P 500 Russell 2500 Value MSCI ACWI ex-US MSCI Emerging Markets Blmbg BC Aggregate Blmbg BC High Yield CSFB Leveraged Loan DJ UBS Commodity NCREIF ODCE HFRI Fund of Funds Alerian MLP Index Swiss RE Global
Total Portfolio Secondary Benchmark:
7.5%
(1) There is a 5% probability that the 1 year modeled loss of -12.0% to -15.0% will be exceeded. Risk tolerances are based on 2017 capital markets assumptions. NOTE: The 1 year modeled loss will vary from year to year depending on future capital market assumptions.
9
Asset Allocation vs. Target Allocation
September 30, 2017
December 31, 2017
Large Cap Equity
Large Cap Equity
0.0%
Smid Cap Equity International Equity
Real Estate
Cash & Equivalents
0.9%
1.8%
-2.4 %
Allocation Differences
0.7%
-1.6 %
-0.8 %
0.0%
0.8%
1.6%
Allocation Differences
September 30, 2017
Large Cap Equity Smid Cap Equity International Equity Emerging Markets Fixed Income High Yield Floating Rate Corporate Loans Commodities Real Estate Low Correlated Hedge Fund Master Limited Partnerships Reinsurance Cash & Equivalents Total Fund
-0.3 %
Cash & Equivalents
1.0%
0.0%
-0.6 %
Reinsurance
-0.2 %
-0.9 %
0.0%
Master Limited Partnerships
-0.6 %
-1.8 %
0.3%
Low Correlated Hedge Fund
0.3%
Reinsurance
-0.9 %
Real Estate
0.5%
Low Correlated Hedge Fund
-2.7 %
-0.4 %
Commodities
-1.0 %
Master Limited Partnerships
-0.1 %
Floating Rate Corporate Loans
-0.3 %
Commodities
-0.4 %
High Yield
0.0%
Floating Rate Corporate Loans
0.3%
Fixed Income
-0.2 %
High Yield
0.2%
Emerging Markets
0.2%
Fixed Income
0.7%
International Equity
0.0%
Emerging Markets
0.5%
Smid Cap Equity
0.4%
December 31, 2017 Market Value ($) 17,339,293 7,541,758 10,164,644 4,302,088 6,956,916 3,045,560 8,922,656 5,103,624 15,799,372 14,560,994 4,494,545 2,875,664 987,113 102,094,227
Allocation (%) 16.98 7.39 9.96 4.21 6.81 2.98 8.74 5.00 15.48 14.26 4.40 2.82 0.97 100.00
Target (%) 17.00 7.00 10.00 4.00 7.00 3.00 9.00 6.00 15.00 14.00 5.00 3.00 0.00 100.00
Large Cap Equity Smid Cap Equity International Equity Emerging Markets Fixed Income High Yield Floating Rate Corporate Loans Commodities Real Estate Low Correlated Hedge Fund Master Limited Partnerships Reinsurance Cash & Equivalents Total Fund
Cash & Equivalents will range between one month and three months of pension payments. 10
Market Value ($) 18,487,385 8,077,542 10,700,706 4,514,079 6,995,501 3,055,844 9,049,115 5,329,257 16,092,718 14,732,774 4,673,161 2,865,670 774,320 105,348,073
Allocation (%) 17.55 7.67 10.16 4.28 6.64 2.90 8.59 5.06 15.28 13.98 4.44 2.72 0.74 100.00
Target (%) 17.00 7.00 10.00 4.00 7.00 3.00 9.00 6.00 15.00 14.00 5.00 3.00 0.00 100.00
Table of Returns December 31, 2017
Allocation Market % Value ($) Large Cap Equity Vanguard Dividend Growth S&P 500 Value IM U.S. Large Cap Value Equity (MF) Median
Performance(%) Last Quarter
Year To Date
1 Year
3 Years
5 Years
7 Years
10 Years
Since Inception
Inception Date
6,510,250
6.18
5.63 (54) 6.33 (38) 5.74
19.33 (14) 15.36 (59) 16.22
19.33 (14) 15.36 (59) 16.22
9.61 (20) 14.14 (30) 12.91 (17) 9.47 (23) 14.24 (27) 12.48 (26) 8.47 13.32 11.52
8.98 (4) 13.50 (58) 01/01/2012 6.80 (45) 14.80 (22) 6.62 13.78
Wellington Opportunistic Growth S&P 500 Growth IM U.S. Large Cap Growth Equity (MF) Median
6,832,126
6.49
7.35 (21) 6.80 (44) 6.67
33.64 (19) 27.44 (70) 29.47
33.64 (19) 13.76 (15) 17.26 (17) 13.73 (35) 27.44 (70) 12.86 (30) 17.00 (20) 14.81 (13) 29.47 11.78 15.72 13.07
9.65 (22) 10.57 (16) 04/01/2005 9.99 (13) 9.88 (31) 8.53 9.16
WF/Blackrock S&P 500 N S&P 500 Index IM U.S. Large Cap Core Equity (MF) Median
5,145,009
4.88
6.64 (38) 6.64 (38) 6.41
21.83 (36) 21.83 (36) 20.84
21.83 (36) 11.43 (16) 15.79 (14) 13.78 (13) 21.83 (36) 11.41 (17) 15.79 (14) 13.76 (14) 20.84 10.11 14.52 12.45
8.58 (14) 14.90 (16) 10/01/2012 8.50 (18) 14.90 (16) 7.57 13.81
8,077,542
7.67
7.18 (13) 7.15 (14) 4.25 (70) 5.39
12.74 (70) 12.63 (70) 10.36 (86) 14.93
12.74 (70) 11.00 (34) 14.49 (48) 12.11 (61) 12.63 (70) 10.96 (35) 14.45 (49) 12.04 (62) 10.36 (86) 9.30 (61) 13.27 (73) 11.54 (69) 14.93 9.84 14.37 12.67
N/A 14.63 (47) 10/01/2009 9.91 (52) 14.56 (50) 8.82 (76) 13.32 (74) 9.95 14.51
4,437,638
4.21
4.15 (43) 5.00 (7) 5.24 (4) 4.07
30.73 (22) 27.19 (56) 28.86 (44) 28.07
30.73 (22) 27.19 (56) 28.86 (44) 28.07
9.28 (19) 7.83 (54) 9.15 (24) 8.11
8.83 (10) 6.80 (61) 8.78 (11) 7.15
6.68 (19) 4.93 (74) 6.60 (25) 5.88
3.59 (13) 1.84 (77) 2.67 (46) 2.57
9.00 (14) 10/01/2003 7.83 (63) 7.55 (68) 8.21
DFA World Ex US Value MSCI AC World ex USA (Net) IM International Value Equity (MF) Median
3,185,674
3.02
5.96 (4) 5.00 (12) 3.50
28.21 (11) 27.19 (13) 23.15
28.21 (11) 27.19 (13) 23.15
9.18 (17) 7.83 (41) 7.22
7.40 (37) 6.80 (54) 6.87
4.48 (68) 4.93 (56) 5.04
N/A 1.84 (26) 1.32
4.33 (58) 07/01/2011 4.72 (45) 4.59
Lazard Int'l Strategic MSCI AC World ex USA (Net) MSCI EAFE (Net) Index IM International Multi-Cap Equity (MF) Median
3,077,394
2.92
6.10 (5) 5.00 (18) 4.23 (37) 3.89
27.85 (35) 27.19 (42) 25.03 (67) 26.35
27.85 (35) 27.19 (42) 25.03 (67) 26.35
6.02 (88) 7.83 (57) 7.80 (58) 8.04
7.98 (37) 6.80 (71) 7.90 (39) 7.55
7.48 (13) 4.93 (75) 6.04 (41) 5.73
3.81 (15) 1.84 (48) 1.94 (44) 1.78
7.08 (15) 07/01/2011 4.72 (71) 5.72 (42) 5.45
4,514,079
4.28
4.93 (80) 7.44 (22) 6.35
30.24 (74) 37.28 (42) 35.34
30.24 (74) 37.28 (42) 35.34
7.97 (59) 9.10 (39) 8.56
2.58 (80) 4.35 (47) 4.18
3.53 (30) 2.56 (48) 2.45
5.53 (3) 1.68 (45) 1.39
3.88 (60) 04/01/2012 4.42 (50) 4.40
Smid Cap Equity SFM SMID Value - Platte River Power Systematic SMID - Composite Russell 2500 Value Index IM U.S. SMID Cap Value Equity (SA+CF) Median International Equity American Funds EuroPacific Gr MSCI AC World ex USA (Net) MSCI EAFE Growth Index (Net) IM Internatll Large Cap Growth Equity
Emerging Markets Aberdeen Emerging Markets Fund MSCI Emerging Markets (Net) Index IM Emerging Markets Equity (MF) Median
3Q12 Total Fund return an estimate based on beginning & ending values. Historical returns from prior manager 3/31/2003-6/30/2012. Reutrns for Versus are net of fees.
11
Table of Returns December 31, 2017
Allocation Market % Value ($) Core Fixed Income Met West Total Return Blmbrg Barclays U.S. Aggr Index IM U.S. Broad Market Core Fxd Income High Yield JPMorgan High Yield Select Blmbrg Barclays U.S. Corp. High Yield IM U.S. High Yield Bonds (MF) Median Floating Rate Corp Loans Eaton Vance Floating Rate; I CSFB Leveraged Loan Loan Participation Mutual Funds Median Real Estate Principal US Property Account NCREIF ODCE IM U.S. Open End Private RE (SA+CF) Commodities Crdt Suis Comm Rtn Strat Bloomberg Commodity Index Total Return Hedge Funds Blackstone BPIF HFRI Fund of Funds Composite Index Master Limited Partnership Tortoise MLP (PRPA) Tortoise Midstream MLP SMA - Composite Alerian MLP Infrastructure Reinsurance Stone Ridge Reins. Prem. Int. Fund Swiss Re Global Cat Bond Index Total Fund Platte River Power Total Fund Platte River Power Custom Index 7. 5%
Performance(%) Last Quarter
Year To Date
1 Year
3 Years
5 Years
7 Years
10 Years
Since Inception
Inception Date
6,995,501
6.64
0.38 (41) 0.39 (39) 0.35
3.43 (58) 3.54 (52) 3.58
3.43 (58) 3.54 (52) 3.58
2.05 (59) 2.24 (43) 2.16
2.51 (16) 2.10 (39) 1.96
4.19 (5) 3.20 (49) 3.19
5.59 (1) 4.01 (48) 3.97
2.38 (51) 10/01/2014 2.62 (31) 2.40
3,055,844
2.90
0.32 (62) 0.47 (48) 0.44
6.65 (49) 7.50 (24) 6.63
6.65 (49) 7.50 (24) 6.63
5.01 (51) 6.35 (11) 5.02
4.92 (41) 5.78 (12) 4.71
5.95 (46) 7.04 (9) 5.88
7.05 (27) 8.03 (4) 6.43
5.30 (42) 10/01/2012 6.15 (12) 5.11
9,049,115
8.59
1.10 (33) 1.17 (26) 1.01
4.47 (13) 4.26 (18) 3.53
4.47 (13) 4.26 (18) 3.53
4.50 (19) 4.49 (22) 3.84
3.78 (23) 4.33 (3) 3.26
4.22 (25) 4.67 (6) 3.78
4.10 (21) 4.56 (3) 3.72
3.88 (26) 10/01/2012 4.41 (5) 3.41
16,092,718
15.28
2.07 (53) 2.07 (53) 2.14
9.12 (30) 7.62 (67) 8.52
9.12 (30) 11.65 (33) 12.62 (34) 13.16 (34) 7.62 (67) 10.42 (72) 11.53 (71) 12.07 (75) 8.52 11.06 12.07 12.64
5.40 (38) 5.03 (63) 5.19
8.20 (57) 10/01/2004 8.00 (66) 8.43
5,329,257
5.06
4.42 4.71
1.74 1.70
1.74 1.70
-4.97 -5.04
-8.47 -8.45
-8.11 -8.15
-6.67 -6.83
-4.97 -5.04
01/01/2015
14,732,774
13.98
1.19 2.02
6.75 7.73
6.75 7.73
4.34 2.60
5.53 3.99
4.74 2.66
3.28 1.08
7.07 4.84
07/01/1996
4,673,161
4.44 -0.57 -0.60 -1.77
-2.90 -2.80 -8.81
-2.90 -2.80 -8.81
-6.03 -6.13 -9.59
5.86 5.82 0.59
N/A 7.75 3.30
N/A 10.03 6.78
5.94 5.99 0.75
04/01/2012
2,865,670
2.72 -0.36 3.89
-11.37 0.57
-11.37 0.57
0.58 3.81
N/A 5.61
N/A 5.99
N/A 6.86
-0.36 3.89
10/01/2017
11.67 11.34 7.50
11.67 11.34 7.50
6.46 5.86 7.50
8.00 7.35 7.50
7.32 6.81 7.50
5.07 4.33 7.50
7.47 7.07 7.50
01/01/2003
105,348,073 100.00
3.04 3.26 1.82
3Q12 Total Fund return an estimate based on beginning & ending values. Historical returns from prior manager 3/31/2003-6/30/2012. Reutrns for Versus are net of fees.
12
Cash Flow Summary Household:
Platte River Power Authority
Period:
10/1/2017 to 12/31/2017
Activity Summary
Beginning Market Value Net Contributions Bond Accrual Market Value Increase/Decrease Ending Market Value
QTD
YTD
1-Year
3-Year
5-Year
Inception
(10/1/2017 to 12/31/2017)
(1/1/2017 to 12/31/2017)
(1/1/2017 to 12/31/2017)
(1/1/2015 to 12/31/2017)
(1/1/2013 to 12/31/2017)
(9/30/2012 to 12/31/2017)
$102,167,337.03
$94,398,954.57
$94,398,954.57
$91,420,934.18
$74,327,280.39
$177,215.00*
$172,877.37
($129,148.50)
($129,148.50)
($4,049,354.61)
($3,773,869.93)
$68,682,719.39
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$3,007,859.07
$11,078,267.40
$11,078,267.40
$17,976,493.90
$34,794,663.01
$36,488,139.08
$105,348,073.47
$105,348,073.47
$105,348,073.47
$105,348,073.47
$105,348,073.47
$105,348,073.47 * Initial contribution amounts
*Latest quarter beginning market value may differ from previous quarter's ending market value due to delayed reporting on alternative investments and/or bond accruals from fixed income investments. **Unmanaged assets are not included in market values.
Report Data Disclaimer For the above report, bond accrual is included in market values. Performance returns are calculated using time-weighted rate of return (TWR), gross of fees. ** The first 12 month returns are not annualized
1/29/2018 10:09:46 AM
13
Platte River Power Detail Period:
1/1/2017 to 12/31/2017
Beginning Value Net Contributions $ 82,144,890.65 $ 160,829.49 $ 7,654,371.29 $ (500,000.00) $ 4,599,692.33 $ 200,000.00
Income $ 1,468,120.08 $ 120,104.83 $ 279,395.79
Activity Summary
Platte River Power DB Platte River Power - SFM Platte River Power - Tortoise Platte River Power Total
$
94,398,954.27
$
(139,170.51) $
1,867,620.70
14
Expenses $ (79,993.91) $ (69,019.44) $ (36,113.87) $
Market Value Increase/Decrease $ 8,903,523.32 $ 872,085.55 $ (369,812.94)
(185,127.22) $
9,405,795.93
Ending Value $ 92,597,369.93 $ 8,077,542.23 $ 4,673,161.31 $
105,348,073.47
Platte River Power Position Detail Platte River Power Authority - DB XXXXXX2505 10/1/2017 to 12/31/2017
Performance By Security Beginning Market Value
Capital Inflow
Capital Outflow
Period Gain/Loss
Earned Income
Ending Market Value
Percent Asset
TWR (%)
Aberdeen Emerging Markets Instl
$4,302,087.61
$58,874.30
$0.00
$94,242.29
$58,874.30
$4,514,078.50
4.87 %
4.93 %
American EuroPacific Growth R6
$4,257,668.46
$128,305.62
$0.00
($76,642.09)
$128,305.62
$4,437,637.61
4.79 %
4.23 %
BAA-Bpif Non-Taxable L.P. Irt Mirrored Holding
$14,560,994.01
$0.00
$0.00
$171,780.33
$0.00
$14,732,774.34
15.91 %
1.18 %
BAA-Principal Life Insurance Company'S The Principal U.S. Property Account
$15,872,482.69
$0.00
$0.00
$220,235.59
$0.00
$16,092,718.28
17.38 %
1.39 %
BAA-Wellington Opportunistic Growth Fund
$6,848,483.99
$10,727.93
$500,000.00
$462,186.01
$10,727.93
$6,832,125.86
7.38 %
7.62 %
BAA-Wells Fargo Short Term Investment Fund N
$989,654.02
$2,261,008.79
$2,288,077.95
($3,066.69)
$3,066.69
$962,584.86
1.04 %
0.31 %
Credit Suisse Commodity Return Strategy I
$5,103,623.57
$142,984.11
$0.00
$82,649.78
$0.00
$5,329,257.46
5.76 %
4.42 %
DFA World Ex Value Instl
$3,006,625.48
$47,115.08
$0.00
$84,818.53
$47,115.08
$3,185,674.17
3.44 %
5.97 %
Eaton Vance Floating Rate I
$8,922,656.31
$116,535.75
$0.00
($76,876.79)
$86,800.02
$9,049,115.29
9.77 %
1.10 %
JP Morgan High Yield R5
$3,045,559.72
$46,892.26
$0.00
($83,500.46)
$46,892.26
$3,055,843.78
3.30 %
0.34 %
Lazard Intl Strategic Equity Instl
$2,900,350.09
$39,467.21
$0.00
$98,109.75
$39,467.21
$3,077,394.26
3.32 %
6.11 %
Metropolitan West Total Return Bond I
$6,956,915.72
$51,611.78
$0.00
($51,201.34)
$38,175.19
$6,995,501.35
7.55 %
0.38 %
Stone Ridge Reinsurance Risk Premium
$2,875,664.19
$2,780.02
$0.00
($15,553.91)
$2,780.02
$2,865,670.32
3.09 %
-0.35 %
($2,541.13)
$4,342,077.95
$4,997,447.49
$462,636.99
$7,008.79
($188,264.89)
-0.20 %
14.99 %
Vanguard Dividend Growth
$6,163,292.57
$0.00
$0.00
$113,830.10
$233,127.08
$6,510,249.75
7.03 %
5.63 %
WF/BlackRock S&P 500 Index CIT N
$4,327,516.49
$500,000.00
$0.00
$317,492.50
$0.00
$5,145,008.99
5.56 %
6.64 %
$90,131,033.79
$7,748,380.80
($7,785,525.44)
$1,801,140.59
$702,340.19
$92,597,369.93
100.00 %
Security
Sweep Asset
Total Total
15
THIS PAGE LEFT INTENTIONALLY BLANK
16
Plan Sponsor Peer Group Analysis As of September 30,2017
Plan Sponsor TF Asset Allocation - Public Plans (AUM>$100mm and Equity<50%) PRP
Allocation (%)
150.0 100.0 50.0 0.0 -50.0
US Equity 28.77 (24)
£ Platte River Power Total Fund ¢
Intl. Equity 14.17 (62)
US Fixed Income 18.54 (67)
Intl. Fixed Income 2.82 (54)
Alternative Inv. 19.26 (60)
Real Estate 15.48 (5)
Cash 0.97 (63)
5th Percentile
39.08
32.03
85.61
8.87
43.33
14.88
8.76
1st Quartile
28.25
21.81
28.28
5.04
27.86
10.45
4.03
Median
23.06
16.58
23.09
4.01
21.43
8.10
1.18
3rd Quartile
18.15
10.76
15.33
0.93
14.89
4.98
0.55
5.69
2.06
8.95
0.04
6.37
2.30
0.15
95th Percentile
Return
Plan Sponsor Peer Group Analysis - Public Plans (AUM>$100mm and Equity<50%) PRP
£ Platte River Power Total Fund ¢ p Platte River Power Custom Index r 5th Percentile 1st Quartile Median 3rd Quartile 95th Percentile Population
20.0 15.0 10.0 5.0 0.0 -5.0
9.8
9.0 3.1 1.7
Last Quarter 2.81 (86) 2.78 (86)
4.8
Year To Date 8.38 (86) 7.83 (90)
7.1
2.2
5.8 2.9
1 Year 10.78 (68) 9.75 (76)
3 Years 5.51 (80) 4.77 (86)
5 Years 7.83 (60) 6.93 (80)
2.5
4.22 3.64 3.39 3.05 1.70
13.21 11.92 11.01 9.03 4.76
13.67 12.74 11.55 9.80 2.22
7.84 7.41 6.57 5.82 2.89
9.74 9.03 8.31 7.14 2.51
91
86
81
76
73
17
Watch List - Platte River Power Authority Period Ending December 2017
Data!A2
Legend Strategy has been on watchlist for 1 quarter Strategy has been on watchlist for 2 consecutive quarters Strategy has been on watchlist for 3 consecutive quarters Strategy has been on watchlist for 4 consecutive quarters Strategy has been on watchlist for 5 or more consecutive quarters Data!A14 Data!A17 Data!A20 Data!A23 4Q WATCH American Funds Lazard International DFA World ex US Aberdeen Emerging Systematic SMID Europacific Growth Strategic Eq Instl Value Port I Markets Instl R6 WATCH 2Q WATCH 3Q WATCH 4Q WATCH 5Q> WATCH Data!A11
Data!A5
Data!A8
Wells Fargo Index Admin
Wellington Opportunistic Growth
Vanguard Dividend Growth Inv
Expense Ratio
0.25
0.75
0.30
0.85
0.50
0.82
0.53
1.10
Watch List Criteria
WFIOX
N/A
VDIGX
N/A
RERGX
LISIX
DFWVX
ABEMX
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Fail
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Fail
Changes in Ownership Structure or Material Litigation Investment Management Team Changes Significant Increase/Decrease in Assets Under Management Investment Style Stable/Consistent and Adherence to Investment Guidelines Performance *Watchlist Date
January-17 WATCH
WATCH Credit Suisse Eaton Vance Floating Commodity Return Rate I Strat I
Principal US Property Account
Blackstone BPIF
Tortoise MLP
Stone Ridge Reinsurance Prem. Int. Fund
0.79
0.85
1.25
0.75
2.42
EIBLX
CRSOX
N/A
N/A
N/A
N/A
Pass
Pass
Pass
Pass
Pass
Fail
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Fail
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Pass
Metropolitan West Total Return Bond I
JPMorgan High Yield R5
Expense Ratio
0.44
0.70
0.79
Watch List Criteria
MWTIX
JYHRX
Pass
Changes in Ownership Structure or Material Litigation Investment Management Team Changes Significant Increase/Decrease in Assets Under Management Investment Style Stable/Consistent and Adherence to Investment Guidelines Performance *Watchlist Date
October-17
October-17
September 29, 2016: Watch List Report Generated
18
Manager Score Card Criteria Organization
People
Philosophy Style Asset Base Performance & Process Consistency
Expenses
Overall
WellsFargo:Index;Adm (WFIOX) Wellington Opportunistic Growth Vanguard Div Gro;Inv (VDIGX) Systematic SMID American Funds EuPc;R6 (RERGX) Lazard:Int Str Eq;Inst (LISIX) DFA Wld ex US Val;I (DFWVX) Aberdeen:Em Mkt;I (ABEMX) Met West:Total Return;I (MWTIX) JPMorgan:High Yield;R5 (JYHRX) Eaton Vance Flt Rt;Inst (EIBLX) Principal US Property Account Crdt Suis Cmdty Rtn;Inst (CRSOX) Blackstone BPIF Tortoise MLP - Composite Stone Ridge Reins. Prem. Int. Fund
Exp Ratio (%) 0.25 0.75 0.33 0.85 0.50 0.81 0.53 1.10 0.44 0.70 0.79 0.85 0.79 1.25 0.75 2.42
Costs Median Exp Ratio (%) 1.05 0.67 1.05 0.89 1.16 1.06 1.07 1.41 0.74 1.04 1.09 1.10 1.40 2.05 1.69 0.00
Ratio of Exp to Median (%) 23.80 111.94 31.43 95.51 43.10 76.42 49.53 78.01 59.46 67.30 72.48 77.27 56.43 60.98 44.38 0.00
Legend For Overall Criteria No/Minimum Concerns Minor Concern Major Concern Under Review
New No/Minimum Concerns Upgrade to Minor Concern Downgrade to Minor Concern New Major Concern
Manager Aberdeen:Em Mkt;I (ABEMX)
Score Factor Organization
Aberdeen:Em Mkt;I (ABEMX)
Performance
JPMorgan:High Yield;R5 (JYHRX)
Asset Base
Tortoise MLP - Composite
Organization
Stone Ridge Reins. Prem. Int. Fund
Median Exp Ratio (Basis Points) Expenses
Stone Ridge Reins. Prem. Int. Fund
Comments A merger between Standard Life and Aberdeen was approved by shareholders in 2Q17 and warrants a minor organizational concern and increased diligence as the merger proceeds. The fund has underperformed its peer group and benchmark over a three and five year basis. In the near-term, the fund's significant underweight to technology companies has hurt performance as has the overweight to Latin America given geopolitical uncertainty and natural disasters that have hurt performance in the region. Despite recent underperformance, historic calendar year and rolling 3 year consistency remains good. We retain confidence in this strategy's ability to yield superior returns over a full market cycle. The assets withdrawn from the strategy are greater than 30% of fund AUM which merits increased monitoring and due diligence. We will continue to ensure the asset base is appropriate for the fund to pursue its stated goals. In October 2017, Tortoise announced that Lovell Minnick Partners, in conjunction with current Tortoise employees and senior leadership, will acquire the equity stake held by Mariner Holdings and retiring co-founders of the firm. The ongoing sale process was communicated to Innovest in advance, and we believe the increased equity stake in the company further aligns current management with investors. The investment process and day-to-day portfolio management will remain unchanged. As always, we will monitor the transaction with heightened diligence during the transition. N/A This fund's relatively high expense ratio is warranted because the fund allows clients to invest in an asset class that has historically been very difficult to access, and it has very few competitors.
The Expense Ratio and Median Expense Ratio for Hedge Fund of Funds and Private Equity Fund of Funds excludes underlying fund expenses; the expenses shown are only at the Fund of Funds level.
19
Vanguard Div Growth 12/31/17 FUND INFORMATION Vanguard Group Inc 05/15/1992 Donald J. Kilbride
RISK VS. RETURN
25.0
(5 YEARS*)
18.0
20.0
15.0
$33,269 Million
Investment Strategy:
The strategy gravitates towards financially sound industry leaders that generate enough free cash flow to grow dividends. Although the vast majority of portfolio holdings pay dividends, the fund can stash as much as 10% of assets in non-dividend payers that management thinks have the potential to pay dividends in the future. The portfolio management team is price conscious and prefers to purchase stocks when they are trading at historically low valuations. The strategy remains long-term focused and maintains below average turnover.
R eturn (% )
15.0
27% R eturn
Fund Family : Fund Inception : Portfolio Manager : Total Assets : Turnover :
PEER GROUP ANALYSIS - IM U.S. Large Cap Value Equity (MF)
10.0
12.0
9.0
5.0
6.0 0.0
3.0 -5.0
¢ Vanguard Div Growth £ S&P 500 Value Median
3.0
Last Quarter 5.63 (54) 6.33 (38)
Year To Date 19.33 (14) 15.36 (59)
1 Year 19.33 (14) 15.36 (59)
3 Years 9.61 (20) 9.47 (23)
5 Years 14.14 (30) 14.24 (27)
7 Years 12.91 (17) 12.48 (26)
10 Years 8.98 (4) 6.80 (45)
5.74
16.22
16.22
8.47
13.32
11.52
6.62
6.0 9.0 12.0 Risk (Standard Deviation %)
Return £ Vanguard Div Growth ¢ S&P 500 Value ¾ Median
14.14 14.24 13.32
15.0
Standard Deviation 8.76 9.80 10.36
Innovest Assessment:
This fund’s focus on low turnover and large established companies lends itself to being a very low beta, downside protection strategy. It has shown this over time with good longterm performance and strong protection in down markets where it is likely to outperform. That being said, this fund is likely to underperform in market rallies as those companies provide a much steadier earnings stream.
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS Vanguard Div Growth S&P 500 Value IM U.S. Large Cap Value Equity (MF) Median
2016 7.53 (100) 17.40 (22) 14.13
2015 2.62 (1) -3.13 (33) -3.86
2014 11.85 (29) 12.36 (19) 10.88
2013 31.53 (64) 31.99 (56) 32.33
2012 10.39 (95) 17.68 (26) 15.79
2011 9.43 (2) -0.48 (31) -2.38
2010 11.42 (73) 15.10 (24) 12.70
3 Years Ending Dec-2015 14.72 (2) 12.83 (30) 12.23
3 Years Ending Dec-2014 17.54 (83) 20.40 (33) 19.47
3 Years Ending Dec-2013 16.69 (18) 15.62 (35) 14.64
3 Years Ending Dec-2012 10.41 (17) 10.47 (16) 8.54
3 Years Ending Dec-2011 14.07 (12) 11.55 (39) 10.96
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
Vanguard Div Growth S&P 500 Value IM U.S. Large Cap Value Equity (MF) Median
3 Years Ending Dec-2017 9.61 (20) 9.47 (23) 8.47
*If less than 5 years, data is since inception of fund share class.
20
3 Years Ending Dec-2016 7.27 (36) 8.51 (9) 6.80
Vanguard Div Growth 12/31/17 TOP 10 HOLDINGS
PORTFOLIO CHARACTERISTICS Portfolio $129,941 $82,364 23.86 4.51 6.70 2.12 0.82 14.55 81.02 45
Wtd. Avg. Mkt. Cap $M Median Mkt. Cap $M Price/Earnings ratio Price/Book ratio 5 Yr. EPS Growth Rate (%) Current Yield (%) Beta (5 Years, Monthly) % in Int'l Securities Active Share Number of Stocks
Benchmark $133,561 $20,284 20.50 2.42 4.90 2.41 1.00 4.46 N/A 391
Nike Inc Microsoft Corp Accenture PLC Union Pacific Corp Costco Wholesale Corp Chubb Ltd PNC Financial Services Inc. United Parcel Service Inc Diageo PLC Visa Inc
% of Portfolio SECTOR PERFORMANCE
SECTOR ALLOCATION Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities
6.8 4.2
12.215.8 18.4
0.0 28.0
2.9
3.7 4.2 1.7 4.4
1.6 0.0
0.0 3.4 0.0 6.1
10.0
Vanguard Div Growth
0.0
-0.9
20.0
30.0
S&P 500 Value
40.0
-4.0
0.0
-0.3 -0.7
8.8
5.05.8 6.6
8.3 8.5
-0.5 0.0
12.6
0.6 0.1 -0.2
3.5
0.2
2.1
0.4
4.0
8.0
Vanguard Div Growth
STYLE MAP (06/01/92 - 12/31/17)
0.7 -0.3
6.5 6.2 6.4
0.3
Quarterly Return (%) 21.04 15.42 14.44 16.26 13.62 3.01 7.66 -0.06 12.03 8.53
12.9
9.1
4.3
Benchmark Weight (%) 0.24 0.00 0.31 0.45 0.73 0.61 0.62 0.37 0.00 0.00
30.41 SECTOR ATTRIBUTION 3.33 TOTAL
13.1 10.8 17.3 10.9 12.3
8.7 7.0 11.0
0.0
12.0
16.0
-1.2
-0.8
S&P 500 Value
-0.4
0.0
0.4
0.8
1.2
Vanguard Div Growth
UP/DOWN CAPTURE (01/01/13 - 12/31/17) 150.0
Large Cap Growth
Capitalization
Up Capture
Large Cap Value
Small Cap Value
Dec-2017
125.0 100.0 75.0 50.0
Small Cap Growth
50.0
Manager Style Style History
Portfolio Weight (%) 4.24 3.88 3.05 2.95 2.80 2.74 2.74 2.72 2.66 2.63
Average Style Exposure
Vanguard Div Growth
21
70.0
90.0 110.0 Down Capture
130.0
150.0
Wellington Opportunistic Growth 12/31/17 PEER GROUP ANALYSIS - IM U.S. Large Cap Growth Equity (SA+CF)
Firm and Management:
50.0
The Wellington Opportunistic Growth strategy has been led by Angrew Shilling, CFA since 2001. Shilling is supported by two co-portfolio managers and Wellington's deep research capabilities.
Innovest's Assessment:
The strategy will at different points in time have exposure to the momentum factor and is likely to outperform in markets characterized by momentum, high growth type of markets. This strategy is likely to underperform in markets characterized by a flight to quality or lower volatility.
18.0
30.0
R eturn
(5 YEARS*)
21.0
40.0
Investment Strategy:
Wellington Opportunistic Growth seeks t o provide long-term total returns above the Russell 1000 Growth Index by investing in the stocks of successful, growing companies across the US market capitalization spectrum. Wellingt on believes that stock prices follow fundamentals, in particular a company’s growth in earnings and cash flow. The investment team focuses on companies which can sustain above-average growth beyond what is reflected in the current stock price.
RISK VS. RETURN
R eturn (% )
STRATEGY INFORMATION
20.0
15.0
12.0
10.0
9.0 0.0
6.0 -10.0
¢ Wellington Opportunistic Growth £ S&P 500 Growth Median
0.0
Last Year 1 3 5 7 10 Quarter To Date Year Years Years Years Years 7.35 (35) 33.64 (16) 33.64 (16) 13.76 (23) 17.26 (29) 13.73 (57) 9.65 (44) 6.80 (55) 27.44 (60) 27.44 (60) 12.86 (42) 17.00 (36) 14.81 (26) 9.99 (33) 6.96
28.37
28.37
12.06
16.47
13.92
9.51
3.0
6.0
9.0
12.0
15.0
Risk (Standard Deviation %)
Return £ Wellington Opportunistic Growth ¢ S&P 500 Growth ¾ Median
17.26 17.00 16.47
Standard Deviation 9.10 7.44 8.63
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS Wellington Opportunistic Growth S&P 500 Growth
2016 2.76 6.89
2015 7.19 5.52
2014 9.59 14.89
2013 37.43 32.75
2012 21.63 14.61
2011 -8.74 4.65
2010 21.87 15.05
3 Years Ending Dec-2013 15.11 16.77
3 Years Ending Dec-2012 10.60 11.33
3 Years Ending Dec-2011 14.89 16.57
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
Wellington Opportunistic Growth S&P 500 Growth
3 Years Ending Dec-2017 13.76 12.86
3 Years Ending Dec-2016 6.48 9.03
*If less than 5 years, data is since account inception.
22
3 Years Ending Dec-2015 17.31 17.19
3 Years Ending Dec-2014 22.36 20.46
Wellington Opportunistic Growth 12/31/17 PORTFOLIO CHARACTERISTICS
TOP TEN HOLDINGS Portfolio 143,897,303,213 8,275,248,600 28.42 5.87 24.09 0.65 1.05 126
Wtd. Avg. Mkt. Cap ($) Median Mkt. Cap ($) Price/Earnings ratio Price/Book ratio 5 Yr. EPS Growth Rate (%) Current Yield (%) Beta (5 Years, Monthly) Number of Stocks
Benchmark 251,776,882,152 25,177,831,425 26.69 5.47 21.52 1.38 1.00 290
Alphabet Inc Facebook Inc Mastercard Inc Home Depot Inc. (The) Apple Inc Microsoft Corp TransUnion FleetCor Technologies Inc eBay Inc. Amazon.com Inc
Portfolio Weight (%) 5.14 3.91 2.88 2.77 2.44 2.34 2.27 2.22 2.20 2.14
Benchmark Weight (%) 2.70 3.60 1.20 1.89 7.44 5.65 0.00 0.00 0.31 4.00
Active Weight (%) 2.44 0.31 1.68 0.88 -5.00 -3.31 2.27 2.22 1.89 -1.86
28.31
26.79
1.52
% of Portfolio
SECTOR DISTRIBUTION Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Utilities
0.2 0.3
PERFORMANCE - 1 Quarter
7.0 5.5
9.8
17.4 14.8 41.9 40.3
0.2 1.7 2.9 2.8 0.0 0.7
8.0
16.0
Wellington Opportunistic Growth
24.0
32.0
40.0
48.0
56.0
S&P 500 Growth
7.6
0.6 6.7 7.0
-11.0 4.8 3.1
0.0
10.0 9.1
7.4 7.6
0.0
-10.0
16.2
10.2
5.6
7.0
0.0
10.0
20.0
30.0
S&P 500 Growth
DISTRIBUTION OF MARKET CAP 80.0 0.7
60.0
0.0 -0.4 -0.8
40.0
0.0
0.4
-0.1 0.0
-0.4
28.3 6.5
0.0 >100 Bil
0.0
0.0
54.9
20.0
0.1
-0.8
1.3 -2.8
Wellington Opportunistic Growth
-0.1
-1.2
6.5
-20.0
TOTAL ATTRIBUTION - 1 Quarter Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities
9.5 10.2
Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities
16.7 15.4
6.4 5.3
10.5
0.0
Quarterly Return (%) 9.10 3.27 7.36 16.46 10.20 15.42 16.29 24.33 -1.87 21.65
0.4
0.8
1.2
10.8
75 Bil 100 Bil
Wellington Opportunistic Growth
23
13.7
22.6
28.9
21.0 6.4
25 Bil 75 Bil
15 Bil 25 Bil
S&P 500 Growth
5.3
2 Bil 15 Bil
1.6
0.0
02 Bil
WF/Blackrock S&P 500 N 12/31/17 FUND INFORMATION
PEER GROUP ANALYSIS - IM U.S. Large Cap Core Equity (MF)
No data found.
RISK VS. RETURN
32.0
(5 YEARS*)
18.0
26.0
15.0
R eturn
Firm and Management:
A team at Wells Fargo manages the product by investing in BlackRocks's S&P 500 Index as a master/feeder fund structure.
R eturn (% )
20.0
14.0
8.0
9.0
Investment Strategy:
The collective fund is an index fund that invests in the equity securities of companies that compose the S&P 500 Index. the fund will pursue its objective through investment in one or more underlying collective investment funds maintained by BlackRock. To manage the strategy effectively, the advisor focuses on three objectives: minimizing transaction costs, minimizing tracking error, and minimizing investment and operational risk.
12.0
2.0
6.0 -4.0
¢ WF/Blackrock S&P 500 N £ S&P 500 Index Median
4.0
Last Quarter 6.64 (39) 6.64 (38)
Year 1 3 5 7 10 To Date Year Years Years Years Years 21.83 (36) 21.83 (36) 11.43 (16) 15.79 (13) 13.78 (13) 8.58 (14) 21.83 (36) 21.83 (36) 11.41 (17) 15.79 (14) 13.76 (13) 8.50 (18)
6.41
20.85
20.85
10.11
14.52
12.45
7.57
6.0 8.0 10.0 Risk (Standard Deviation %)
Return £ WF/Blackrock S&P 500 N ¢ S&P 500 Index ¾ Median
15.79 15.79 14.52
12.0
Standard Deviation 7.29 7.30 7.69
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS WF/Blackrock S&P 500 N S&P 500 Index IM U.S. Large Cap Core Equity (MF) Median
2016 11.95 (26) 11.96 (26) 10.00
2015 1.44 (27) 1.38 (28) -0.26
2014 13.66 (15) 13.69 (15) 11.36
2013 32.37 (40) 32.39 (39) 31.82
2012 15.98 (40) 16.00 (40) 15.41
2011 2.24 (23) 2.11 (24) -0.55
2010 15.24 (24) 15.06 (26) 13.18
3 Years Ending Dec-2015 15.14 (17) 15.13 (17) 13.58
3 Years Ending Dec-2014 20.39 (27) 20.41 (26) 19.26
3 Years Ending Dec-2013 16.22 (24) 16.18 (25) 14.86
3 Years Ending Dec-2012 10.97 (15) 10.87 (17) 9.28
3 Years Ending Dec-2011 14.33 (22) 14.11 (26) 12.95
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
WF/Blackrock S&P 500 N S&P 500 Index IM U.S. Large Cap Core Equity (MF) Median
3 Years Ending Dec-2017 11.43 (16) 11.41 (17) 10.11
3 Years Ending Dec-2016 8.88 (7) 8.87 (7) 7.24
*If less than 5 years, data is since inception of fund share class.
24
Wells Fargo/Blackrock S&P 500 12/31/17 PORTFOLIO CHARACTERISTICS
TOP 10 HOLDINGS
Total Securities Avg. Market Cap P/E P/B Div. Yield Annual EPS 5Yr EPS 3Yr EPS Growth
Apple Inc ORD Microsoft Corp ORD Facebook Inc ORD Amazon.com Inc ORD Berkshire Hathaway Inc ORD Johnson & Johnson ORD Exxon Mobil Corp ORD JPMorgan Chase & Co ORD Alphabet Inc ORD 1 Alphabet Inc ORD 2
510 $180,846 Million 27.40 6.19 2.32% 14.25 11.38 12.68
vs. S&P 500 Index Beta
3 Years
5 Years
1.00
N/A
ASSET ALLOCATION
3.65 % 2.63 % 1.86 % 1.76 % 1.62 % 1.60 % 1.59 % 1.54 % 1.33 % 1.33 %
SECTOR ALLOCATION Sector Weights As of 10/31/2017
Equities
99.2%
Other
Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities
1.5%
Convertibles
0.0%
Fixed Income
0.0%
Cash
-0.7 %
-50.0 %
0.0
0.0%
50.0%
100.0%
150.0%
STYLE MAP (
- 12/31/17)
Capitalization
Dec-2017
20.0
25.0
30.0
S&P 500 Index
125.0 100.0 75.0 50.0
Small Cap Growth
50.0
Manager Style Style History
15.0
150.0
Large Cap Growth
Small Cap Value
10.0
UP/DOWN CAPTURE ( - 12/31/17)
Up Capture
Large Cap Value
Wells Fargo/Blackrock S&P 500
5.0
Average Style Exposure
70.0
Wells Fargo/Blackrock S&P 500
25
90.0 110.0 Down Capture
130.0
150.0
SFM SMID Value - PRP 12/31/17 PEER GROUP ANALYSIS - IM U.S. SMID Cap Value Equity (SA+CF)
Firm and Management:
R eturn
28.0
20.0
10.0
5.0 4.0 0.0
Investment Strategy:
Innovest's Assessment: Systematic is likely to outperform during market periods focusing on quality companies and later stages of market cycles when company earnings prospects tend to diverge from one another. Underperformance is expected when highly levered, low quality companies lead market rallies and when macro economic factors dictate market performance.
15.0
12.0
with Joe Joshi at Mitchell Hutchins.
appreciation.
(5 YEARS*)
20.0
36.0
D. Kevin McCreesh, CFA is a Managing Partner in the firm and member of the Management Committee. In addition, as Chief Investment Officer, he has oversight responsibilities for all client portfolios. Kevin also serves as the lead portfolio manager for our Large and Small Cap Value equity portfolios. Although Kevin joined Systematic in 1996, he has been actively involved with our investment discipline since 1990, as he worked
Systematic’s investment philosophy is predicated on the belief that investing in companies with a combination of attractive valuations and a positive earnings catalyst will generate superior long-term results that outperform the benchmark over the long term. Systematic's SMID cap value investment strategy originates with a quantitative screening of all companies (U.S. Equity, REITs, ADRs and foreign securities traded on U.S. markets) with all stocks generally consistent with the market capitalization range of the Russell 2500TM Index. Companies are ranked by attractive valuation and a positive earnings catalyst. This screening process generates a research focus list of approximately 150 companies meriting rigorous fundamental analysis to confirm each stock's value and catalysts for
RISK VS. RETURN
R eturn (% )
STRATEGY INFORMATION
-4.0
¢ SFM SMID Value - PRP £ Systematic SMID - Composite r Russell 2500 Value Index p Median
3.0
Last Year 1 3 5 7 Quarter To Date Year Years Years Years 7.18 (16) 12.69 (72) 12.69 (72) 11.03 (32) 14.50 (49) 12.12 (61) 7.15 (17) 12.63 (73) 12.63 (73) 10.96 (34) 14.45 (50) 12.04 (62) 4.25 (72) 10.36 (85) 10.36 (85) 9.30 (61) 13.27 (75) 11.54 (71) 5.52
14.98
14.98
9.67
14.42
12.71
10 Years N/A 9.91 (53) 8.82 (78) 10.09
6.0 9.0 12.0 15.0 Risk (Standard Deviation %)
18.0
£ SFM SMID Value - PRP ¢ Systematic SMID - Composite r Russell 2500 Value Index p
14.50 14.45 13.27
Standard Deviation 11.88 11.80 9.93
¾ Median
14.42
10.07
Return
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS SFM SMID Value - PRP Russell 2500 Value Index
2016 22.67 25.20
2015 -0.98 -5.49
2014 4.46 7.11
2013 37.68 33.32
2012 18.29 19.21
2011 -4.34 -3.36
2010 28.84 24.82
Systematic SMID - Composite Russell 2500 Value Index
22.28 25.20
-0.80 -5.49
4.49 7.11
37.55 33.32
18.13 19.21
-4.49 -3.36
28.75 24.82
Russell 2500 Value Index
25.20
-5.49
7.11
33.32
19.21
-3.36
24.82
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
SFM SMID Value - PRP Russell 2500 Value Index
3 Years Ending Dec-2017 11.03 9.30
3 Years Ending Dec-2016 8.26 8.22
3 Years Ending Dec-2015 12.50 10.51
3 Years Ending Dec-2014 19.37 19.40
3 Years Ending Dec-2013 15.92 15.38
3 Years Ending Dec-2012 13.39 12.87
3 Years Ending Dec-2011 N/A 15.48
Systematic SMID - Composite Russell 2500 Value Index
10.96 9.30
8.22 8.22
12.55 10.51
19.30 19.40
15.78 15.38
13.25 12.87
18.87 15.48
9.30
8.22
10.51
19.40
15.38
12.87
15.48
Russell 2500 Value Index
*If less than 5 years, data is since account inception.
26
Systematic SMID - Composite 12/31/17 PORTFOLIO CHARACTERISTICS
TOP TEN HOLDINGS Portfolio N/A N/A N/A N/A 1.05 0
Wtd. Avg. Mkt. Cap ($) Median Mkt. Cap ($) Price/Earnings ratio Price/Book ratio 5 Yr. EPS Growth Rate (%) Current Yield (%) Beta (5 Years, Monthly) Number of Stocks
Benchmark 5,164,293,580 1,230,457,906 23.24 2.74 12.46 1.43 1.00 2,472
United Rentals Inc. Cboe Global Markets Inc E*TRADE Financial Corporation ANSYS Inc Arista Networks Inc Diamondback Energy Inc Alexandria Real Estate SVB Financial Group Take-Two Interactive Software Inc Xylem Inc % of Portfolio
SECTOR DISTRIBUTION Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities
0.0
0.00
2.69
-2.69
Quarterly Return (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
2.9 4.5 16.2
0.0
11.3
0.0
16.4
0.0
16.4
0.0
6.1
0.0
9.2
0.0 0.5 0.0
Systematic SMID - Composite
Active Weight (%) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
No data found.
12.7
0.0
0.0
Benchmark Weight (%) 0.30 0.29 0.28 0.26 0.26 0.26 0.26 0.26 0.26 0.26
PERFORMANCE - 1 Quarter
0.0 0.0
Portfolio Weight (%) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3.7
4.0
8.0
12.0
16.0
20.0
Russell 2500 Index
TOTAL ATTRIBUTION - 1 Quarter
DISTRIBUTION OF MARKET CAP
No data found.
100.0
79.1
75.0 50.0
20.7
25.0 0.0
0.0
0.3
15 Bil 25 Bil Systematic SMID - Composite
27
0.0
0.0
2 Bil 15 Bil Russell 2500 Index
02 Bil
Amer Funds EuPc 12/31/17 Fund Family : Fund Inception : Portfolio Manager : Total Assets : Turnover :
PEER GROUP ANALYSIS - IM International Large Cap Growth Equity (MF)
American Funds
44.0
05/01/2009 Team Managed
36.0
$64,731 Million
28.0
36% R eturn
Investment Strategy:
This fund's managers are focused on long term capital growth. They primarily invest in common stocks of European and Pacific Basin issuers that have prospects of above average capital appreciation. The managers may use cash to moderate volatility, typically holding 5-10% of fund assets in cash. The Fund usually has a stake in emerging-markets companies and will sometimes hold preferred stock and convertible debt.
Innovest's Assessment:
The fund’s propensity to focus intensely on bottom-up, fundamental factors can lead to periods of underperformance when the market is less concerned about company fundamentals and more driven by thematic and macroeconomic factors. Additionally, the fund is likely to lag when highly cyclical stocks and lower quality companies significantly outperform the overall market. Finally, the fund’s immense asset base is likely to present some challenges in the fund’s ability to build meaningful positions in smaller companies and to opportunistically trade in less liquid markets.
RISK VS. RETURN
(5 YEARS*)
12.0
10.0
8.0 R eturn (% )
FUND INFORMATION
20.0
12.0
6.0
4.0 4.0
2.0 -4.0
0.0 -12.0
¢ Amer Funds EuPc £ MSCI EAFE Gr Idx Median
8.0
Last Quarter 4.23 (37) 5.24 (4)
Year To Date 31.17 (16) 28.86 (44)
1 Year 31.17 (16) 28.86 (44)
3 Years 9.66 (10) 9.15 (24)
5 Years 9.21 (5) 8.78 (11)
7 Years 7.05 (10) 6.60 (25)
10 Years N/A 2.67 (46)
4.07
28.07
28.07
8.11
7.15
5.88
2.57
10.0 12.0 Risk (Standard Deviation %)
Return £ Amer Funds EuPc ¢ MSCI EAFE Gr Idx ¾ Median
9.21 8.78 7.15
14.0
Standard Deviation 10.44 11.19 10.84
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS Amer Funds EuPc MSCI EAFE Gr Idx Net IM International Large Cap Growth Equity (MF) Median
2016 1.01 (22) -3.04 (79) -0.26
2015 -0.48 (51) 4.09 (9) -0.48
2014 -2.29 (16) -4.43 (44) -4.69
2013 20.58 (20) 22.55 (9) 19.10
2012 19.64 (36) 16.86 (66) 18.96
2011 -13.31 (47) -12.11 (36) -13.42
2010 9.76 (55) 12.25 (40) 10.89
3 Years Ending Dec-2013 7.74 (36) 7.97 (31) 7.36
3 Years Ending Dec-2012 4.42 (51) 4.85 (45) 4.44
3 Years Ending Dec-2011 N/A 8.47 (60) 8.94
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
Amer Funds EuPc MSCI EAFE Gr Idx Net IM International Large Cap Growth Equity (MF) Median
3 Years Ending Dec-2017 9.66 (10) 9.15 (24) 8.11
*If less than 5 years, data is since inception of fund share class.
28
3 Years Ending Dec-2016 -0.60 (16) -1.20 (38) -1.75
3 Years Ending Dec-2015 5.45 (11) 6.83 (2) 4.26
3 Years Ending Dec-2014 12.12 (6) 11.03 (36) 10.54
Amer Funds EuPc 12/31/17 TOP 10 HOLDINGS
PORTFOLIO CHARACTERISTICS Portfolio $86,214 $23,525 20.31 2.99 10.43 1.42 0.88 28.30 78.02 247
Wtd. Avg. Mkt. Cap $M Median Mkt. Cap $M Price/Earnings ratio Price/Book ratio 5 Yr. EPS Growth Rate (%) Current Yield (%) Beta (5 Years, Monthly) % in Emerging Market Active Share Number of Stocks
Benchmark $53,812 $11,990 22.17 3.01 9.85 2.08 1.00 N/A N/A 543
25.5
0.0 0.8 0.0 0.02.2
27.8 15.8
0.2 0.5
0.0
-0.3
47.1
15.0
Amer Funds EuPc
45.0
MSCI EAFE Gr Idx Net
60.0
-15.0
-0.9 0.0 0.0 0.0
12.5 11.1 10.7
0.0 0.1
0.0
15.0
Amer Funds EuPc
30.0
45.0
-1.6
-1.2
-0.8
MSCI EAFE Gr Idx Net
-0.4
0.0
0.4
0.8
Amer Funds EuPc
TOTAL SECTOR ATTRIBUTION (10/01/17 - 12/31/17) Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities
MSCI EAFE Growth Index
Capitalization
MSCI EAFE Value Index
MSCI EAFE Small Cap
MSCI Emerging Markets Index
Manager Style Style History
0.3 0.0
3.9
1.5
STYLE MAP (06/01/09 - 12/31/17)
0.1
5.6 9.2 8.3
6.6 5.4
30.0
0.1
29.6
24.2
10.7 11.5 10.6 16.0
5.58 REGION ATTRIBUTION
-0.1
1.8
-6.5
Quarterly Return (%) 15.62 4.96 8.11 -0.16 20.73 4.83 6.14 20.67 -1.87 -0.95
13.8
0.0
1.1
23.14 TOTAL
Benchmark Weight (%) 1.36 2.05 0.00 0.00 0.00 0.76 0.00 0.00 0.86 0.55
5.2
0.0 0.0
-0.7 0.0
1.2 0.0
0.2 4.9 0.4 0.4
AIA Group Ltd British American Tobacco Taiwan Semiconductor Alibaba Group Holding Ltd Reliance Industries Ltd European Aeronautic H D F C Bank Ltd Tencent Holdings LTD Softbank Group Corp Nintendo Co Ltd
% of Portfolio REGION PERFORMANCE
REGION ALLOCATION EM Asia EM Europe EM Latin America EM Mid East+Africa Europe ex UK Japan Middle East North America Other Pacific ex Japan United Kingdom
Portfolio Weight (%) 2.95 2.82 2.31 2.29 2.28 2.27 2.20 2.11 2.03 1.88
Dec-2017
-0.3 0.3 0.1 -0.3 0.4 0.0 -0.4 0.0 -0.1 -0.1 -0.3
-0.8
Average Style Exposure
29
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
DFA Wld ex US Val 12/31/17 Dimensional Fund Advisors LP 08/23/2010 Team Managed
Investment Strategy:
The World ex US Value strategy is designed to achieve diversified exposure to non-US companies, both developed and emerging markets. The investment philosophy is deeply rooted in the belief that investors are rewarded for the levels of risk taken. Therefore, DFA offers a long-term approach designed to provide diversified exposure to the risk factors of the asset class. Dimensional is likely to outperform when smaller capitalization securities are in vogue. Investors must endure periods where risk has its consequences; however, causing the strategy to underperform during periods when smaller companies are out-offavor.
12.0
28.0
N/A
(5 YEARS*)
15.0
36.0
$249 Million
Innovest Assessment
RISK VS. RETURN
44.0
R eturn
Fund Family : Fund Inception : Portfolio Manager : Total Assets : Turnover :
PEER GROUP ANALYSIS - IM International Value Equity (MF)
9.0 R eturn (% )
FUND INFORMATION
20.0
12.0
6.0
3.0 4.0
0.0 -4.0
-3.0 -12.0
¢ DFA Wld ex US Val £ MSCI AC World ex USA (Net) Median
8.0
Last Quarter 5.96 (4) 5.00 (12)
Year To Date 28.21 (11) 27.19 (13)
1 Year 28.21 (11) 27.19 (13)
3 Years 9.18 (17) 7.83 (41)
5 Years 7.40 (37) 6.80 (54)
7 Years 4.48 (68) 4.93 (56)
10 Years N/A 1.84 (26)
3.50
23.15
23.15
7.22
6.87
5.04
1.32
10.0 12.0 14.0 Risk (Standard Deviation %)
Return £ DFA Wld ex US Val ¢ MSCI AC World ex USA (Net) ¾ Median
7.40 6.80 6.87
16.0
Standard Deviation 12.54 11.40 11.70
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS DFA Wld ex US Val MSCI AC World ex USA (Net) IM International Value Equity (MF) Median
2016 10.70 (11) 4.50 (31) 2.50
2015 -8.29 (95) -5.66 (77) -3.08
2014 -6.19 (42) -3.87 (15) -6.76
2013 17.02 (88) 15.29 (90) 21.85
2012 17.64 (39) 16.83 (47) 16.65
2011 -19.13 (95) -13.71 (57) -13.29
2010 N/A 11.15 (18) 8.03
3 Years Ending Dec-2015 0.22 (93) 1.50 (87) 3.11
3 Years Ending Dec-2014 8.90 (66) 9.00 (64) 9.52
3 Years Ending Dec-2013 3.64 (92) 5.14 (84) 7.11
3 Years Ending Dec-2012 N/A 3.87 (35) 3.18
3 Years Ending Dec-2011 N/A 10.70 (12) 6.43
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
DFA Wld ex US Val MSCI AC World ex USA (Net) IM International Value Equity (MF) Median
3 Years Ending Dec-2017 9.18 (17) 7.83 (41) 7.22
3 Years Ending Dec-2016 -1.62 (35) -1.78 (42) -2.32
*If less than 5 years, data is since inception of fund share class.
30
DFA Wld ex US Val 12/31/17 PORTFOLIO CHARACTERISTICS
ASSET ALLOCATION
Total Securities 4 Avg. Market Cap $39,385 Million P/E 17.43 P/B 1.15 Div. Yield 2.92% Annual EPS 18.84 TOP 5 COUNTRIES 5Yr EPS 1.08 3Yr EPS Growth 1.21 Unidentified
TOP 10 HOLDINGS
Equities Other
14.69 % 14.27 % 7.97 % 5.61 % 5.51 %
Japan United Kingdom Switzerland France
14.3%
Cash
0.3%
Convertibles
0.0%
Fixed Income
0.0%
0.0%
50.0%
100.0%
3 Years
56.75 % 22.49 % 9.56 %
150.0%
5 Years
vs. MSCI AC World ex USA (Net) Beta 1.07
REGION ALLOCATION
1.07
SECTOR ALLOCATION
EM Asia EM Europe EM Latin America North America EM Mid East+Africa Pacific ex Japan Japan Europe ex UK United Kingdom Middle East Frontier Markets Other
Other Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities 0.0
6.0
12.0
DFA Wld ex US Val
18.0
24.0
30.0
36.0
42.0
0.0
MSCI AC World ex USA (Net)
DFA Wld ex US Val
STYLE MAP (09/01/10 - 12/31/17)
6.0
12.0
18.0
24.0
30.0
36.0
MSCI AC World ex USA (Net)
UP/DOWN CAPTURE (01/01/13 - 12/31/17) 150.0
MSCI EAFE Growth Index
Capitalization
Up Capture
MSCI EAFE Value Index
MSCI EAFE Small Cap
Dec-2017
125.0 100.0 75.0 50.0
MSCI Emerging Markets Index
50.0
Manager Style Style History
DFA International Value Portfolio;Instit Dimensional Emerging Markets Value DFA International Small Cap Value
85.4%
Average Style Exposure
DFA Wld ex US Val
31
70.0
90.0 110.0 Down Capture
130.0
150.0
Lazard:Int Str Eq;Inst 12/31/17 FUND INFORMATION Lazard Asset Management LLC 10/31/2005 Team Managed
RISK VS. RETURN
50.0
15.0
40.0
12.0
$5,798 Million
Investment Strategy:
Lazard International Strategic Equity employs a relative value, multi-cap approach which invests in stocks from developed and emerging markets. The investment team seeks opportunities with market capitalization greater than $300 million, uncovered through intensive fundamental analysis that is focused on the trade-off between financial productivity and valuation.
20.0
6.0
3.0
10.0
0.0 0.0
-3.0 -10.0
Innovest Assessment:
The strategy should be expected to outperform when lesser capitalized stocks and emerging markets are leading. It should be expected to underperform in "risk-off" environments when investors are focused on megacap stocks domiciled predominantly in developed nations.
R eturn (% )
47%
(5 YEARS*)
9.0
30.0
R eturn
Fund Family : Fund Inception : Portfolio Manager : Total Assets : Turnover :
PEER GROUP ANALYSIS - IM International Multi-Cap Equity (MF)
¢ Lazard:Int Str Eq;Inst £ MSCI EAFE (Net) Index Median
0.0
Last Quarter 6.10 (5) 4.23 (37)
Year To Date 27.85 (35) 25.03 (67)
1 Year 27.85 (35) 25.03 (67)
3 Years 6.02 (88) 7.80 (58)
5 Years 7.98 (37) 7.90 (39)
7 Years 7.48 (13) 6.04 (41)
10 Years 3.81 (15) 1.94 (44)
3.89
26.35
26.35
8.04
7.55
5.73
1.78
4.0 8.0 12.0 Risk (Standard Deviation %)
Return £ Lazard:Int Str Eq;Inst ¢ MSCI EAFE (Net) Index ¾ Median
7.98 7.90 7.55
16.0
Standard Deviation 10.80 11.57 11.11
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS Lazard:Int Str Eq;Inst MSCI EAFE (Net) Index IM International Multi-Cap Equity (MF) Median
2016 -5.17 (90) 1.00 (43) 0.40
2015 -1.70 (65) -0.81 (53) -0.65
2014 -1.48 (13) -4.90 (45) -5.32
2013 25.02 (17) 22.78 (28) 20.48
2012 25.00 (4) 17.32 (59) 17.85
2011 -9.70 (14) -12.14 (35) -13.44
2010 14.43 (21) 7.75 (80) 10.94
3 Years Ending Dec-2012 8.91 (4) 3.56 (62) 4.11
3 Years Ending Dec-2011 9.70 (33) 7.65 (58) 8.41
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
Lazard:Int Str Eq;Inst MSCI EAFE (Net) Index IM International Multi-Cap Equity (MF) Median
3 Years Ending Dec-2017 6.02 (88) 7.80 (58) 8.04
*If less than 5 years, data is since inception of fund share class.
32
3 Years Ending Dec-2016 -2.80 (68) -1.60 (42) -1.91
3 Years Ending Dec-2015 6.58 (17) 5.01 (34) 4.13
3 Years Ending Dec-2014 15.47 (4) 11.06 (34) 10.19
3 Years Ending Dec-2013 12.17 (4) 8.17 (31) 7.06
Lazard:Int Str Eq;Inst 12/31/17 TOP 10 HOLDINGS
PORTFOLIO CHARACTERISTICS Portfolio $58,514 $19,780 22.96 3.11 12.17 1.55 0.88 7.28 95.65 60
Wtd. Avg. Mkt. Cap $M Median Mkt. Cap $M Price/Earnings ratio Price/Book ratio 5 Yr. EPS Growth Rate (%) Current Yield (%) Beta (5 Years, Monthly) % in Emerging Market Active Share Number of Stocks
Benchmark $63,327 $11,856 17.11 2.22 7.68 3.07 1.00 N/A N/A 928
0.0 0.4 0.0 1.2 0.0
6.0
36.6
0.2 0.9 0.4
23.7
0.0
6.6 5.1
-0.1 0.5
8.5 4.0
17.9
0.0
15.0
30.0
Lazard:Int Str Eq;Inst
2.6
45.0
MSCI EAFE (Net) Index
60.0
-20.0
-10.0
7.2
0.4
26.2
0.2
17.1
0.3 -0.7
5.7
0.0
10.0
20.0
30.0
40.0
-1.4
-0.7
0.0
MSCI EAFE (Net) Index
0.7
1.4
2.1
2.8
Lazard:Int Str Eq;Inst
TOTAL SECTOR ATTRIBUTION (10/01/17 - 12/31/17) Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities
MSCI EAFE Growth Index
Capitalization
MSCI EAFE Value Index
MSCI EAFE Small Cap
MSCI Emerging Markets Index
Manager Style Style History
1.6
10.0
Lazard:Int Str Eq;Inst
STYLE MAP (11/01/05 - 12/31/17)
18.7 0.0
8.3 24.5
31.70REGION ATTRIBUTION 2.48 TOTAL 0.1
-4.9 11.4
Quarterly Return (%) 40.11 N/A 4.96 11.31 8.35 12.03 3.83 6.30 3.28 -3.65
0.0
2.7 0.0 1.1 0.9
46.0
Benchmark Weight (%) 0.04 0.00 1.03 0.14 0.00 0.62 0.32 0.18 0.09 0.06
5.6
0.0 0.0 0.0
18.7 0.0 0.5
Don Quijote Holdings Co Ltd PRUDENTIAL PLC British American Tobacco Daiwa House Industry Co Ltd Informa Plc Diageo PLC Shire PLC Vivendi Julius Baer Gruppe AG Coca-Cola European Partners Plc
% of Portfolio REGION PERFORMANCE
REGION ALLOCATION EM Asia EM Europe EM Latin America Europe ex UK Japan Middle East North America Other Pacific ex Japan United Kingdom
Portfolio Weight (%) 3.95 3.91 3.77 3.07 2.99 2.97 2.94 2.83 2.64 2.63
Dec-2017
1.3 0.1 -0.2 -0.5 0.2 0.2 0.9 -0.1 0.1 0.1 0.2
-1.5
Average Style Exposure
33
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
Aberdeen Em Mkt 12/31/17 Aberdeen Asset Mgmt (Aberdeen Standard) 05/11/2007 Team Managed
Fund Inception : Portfolio Manager : Total $8,020 Million Assets : Turnover : 9% Investment Strategy: The Aberdeen Emerging Markets team utilizes a strict quality and valuation philosophy that seeks to identify companies through a bottom-up approach. Balance sheet strength, earnings transparency, and treatment of minority shareholders are key criteria. The team also prefers companies with clear business models, franchise power, and proven management teams. Aberdeen’s internal valuation process analyzes each firm relative to its industry and regional peers on price/earnings, price/cash flow, dividend yield, and net asset value. The portfolio consists of 50 to 60 securities.
Innovest Assessment:
This strategy will outperform the market in slower paced rallies, when growth companies tend to excel, and risk-on environments, where smaller capitalization companies excel. The asset base is large enough that Aberdeen closed the mutual fund to new investors in February 2013.
RISK VS. RETURN
65.0
(5 YEARS*)
12.0
50.0
8.0
35.0
R eturn
Fund Family :
PEER GROUP ANALYSIS - IM Emerging Markets Equity (MF)
R eturn (% )
FUND INFORMATION
20.0
4.0
0.0
5.0
-4.0 -10.0
-8.0 -25.0
¢ Aberdeen Em Mkt £ MSCI Emerging Markets (Net) Index Median
0.0
Last Year 1 3 5 7 10 Quarter To Date Year Years Years Years Years 4.93 (80) 30.24 (74) 30.24 (74) 7.97 (59) 2.58 (80) 3.53 (30) 5.53 (3) 7.44 (22) 37.28 (42) 37.28 (42) 9.10 (39) 4.35 (47) 2.56 (48) 1.68 (45) 6.35
35.34
35.34
8.56
4.18
2.45
1.39
10.0 20.0 Risk (Standard Deviation %)
30.0
Return £ Aberdeen Em Mkt ¢ MSCI Emerging Markets (Net) Index ¾ Median
2.58 4.35 4.18
Standard Deviation 14.27 14.27 13.78
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS Aberdeen Em Mkt MSCI EM (Net) Index IM Emerging Markets Equity (MF) Median
2016 11.96 (25) 11.19 (30) 8.26
2015 -13.68 (46) -14.92 (58) -14.07
2014 -2.45 (45) -2.19 (43) -2.95
2013 -7.49 (93) -2.60 (58) -1.42
2012 26.15 (8) 18.23 (56) 18.78
2011 -11.05 (4) -18.42 (36) -19.51
2010 27.58 (7) 18.88 (44) 18.32
3 Years Ending Dec-2015 -7.99 (70) -6.76 (53) -6.50
3 Years Ending Dec-2014 4.42 (48) 4.05 (55) 4.29
3 Years Ending Dec-2013 1.26 (20) -2.06 (51) -2.04
3 Years Ending Dec-2012 12.70 (2) 4.66 (53) 4.84
3 Years Ending Dec-2011 26.07 (4) 20.07 (26) 17.94
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
Aberdeen Em Mkt MSCI EM (Net) Index IM Emerging Markets Equity (MF) Median
3 Years Ending Dec-2017 7.97 (59) 9.10 (39) 8.56
3 Years Ending Dec-2016 -1.95 (30) -2.55 (42) -2.92
*If less than 5 years, data is since inception of fund share class.
34
Aberdeen Em Mkt 12/31/17 TOP 10 HOLDINGS
PORTFOLIO CHARACTERISTICS Portfolio $51,176 $16,981 19.01 3.14 8.39 2.22 0.93 84.84 85.80 65
Wtd. Avg. Mkt. Cap $M Median Mkt. Cap $M Price/Earnings ratio Price/Book ratio 5 Yr. EPS Growth Rate (%) Current Yield (%) Beta (5 Years, Monthly) % in Emerging Market Active Share Number of Stocks
Benchmark $89,981 $6,078 14.41 2.46 11.34 2.27 1.00 86.63 N/A 846
52.3 8.9 6.5 3.2 1.1 0.0 0.0 0.1 0.0 0.3 0.3 0.0
Samsung Electronics Co Ltd Taiwan Semiconductor HDFC AIA Group Ltd Banco Bradesco Sa Brad FEMSA PT Astra International TBK Tencent Holdings LTD ITC Ltd China Mobile Ltd
% of Portfolio REGION PERFORMANCE
REGION ALLOCATION EM Asia EM Europe EM Latin America EM Mid East+Africa Europe ex UK Frontier Markets North America Other Pacific ex Japan United Kingdom
12.1
60.7
21.3
-1.5 -5.5 -3.7
0.0
20.0
40.0
Aberdeen Em Mkt
60.0
MSCI EM (Net) Index
80.0
-15.0
-1.3 0.0 -0.1 0.0 0.0
6.9 -0.1
7.8 6.5
-0.4
11.8
0.0
0.0
15.0
Aberdeen Em Mkt
STYLE MAP (06/01/07 - 12/31/17)
30.0
45.0
-2.1
-1.4
-0.7
MSCI EM (Net) Index
0.0
0.7
1.4
2.1
Aberdeen Em Mkt
TOTAL SECTOR ATTRIBUTION (10/01/17 - 12/31/17) Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities
MSCI EAFE Growth Index
Capitalization
MSCI EAFE Value Index
MSCI EAFE Small Cap
MSCI Emerging Markets Index
Manager Style Style History
29.4
0.0 0.0
0.0
11.8 12.4
0.0
1.1
17.4
0.0
Quarterly Return (%) 8.48 8.11 0.49 15.62 -5.04 -0.93 5.13 20.67 4.32 0.05
-1.2
5.5
-3.9 -2.4
Benchmark Weight (%) 0.63 3.50 0.75 0.00 0.16 0.34 0.23 5.45 0.26 1.15
31.96 REGION ATTRIBUTION 12.47 TOTAL
9.8 7.6
-5.7
7.9
1.1 0.0
Portfolio Weight (%) 5.51 4.35 3.76 3.46 2.61 2.54 2.50 2.45 2.39 2.39
Dec-2017
-0.2 -0.9 -0.4 -1.6 -0.2 0.1 1.0 0.2 -0.4 0.1 0.2
-2.8
Average Style Exposure
35
-2.1
-1.4
-0.7
0.0
0.7
1.4
2.1
Met West:Total Return 12/31/17 FUND INFORMATION
8.0
4.0
6.0
3.0
(5 YEARS*)
$48,455 Million 4.0
313%
Investment Strategy:
The core tenant of MetWest’s fixed income philosophy is a disciplined implementation of their value-based process. The “value” concept is that regardless of factor (duration, yield curve, sector selection, or issue) the strategic decisions, and buy and sell decisions should be determined by whether the factor or security is cheap or rich to fair value. Further, their investment approach is designed to take advantage of the fact that fixed income pricing is extremely volatile in the short run, but over the long term the pricing risks tend to mean revert. Hence, they tend to only overweight interest rates, yield curve, credit / spread risk when prices move out of line with the long term fundamentals.
Innovest Assessment:
The fund is expected to outperform when its sector allocation and security selection in undervalued or under sponsored assets move toward management’s view of intrinsic value. The strategy will underperform when market psychology and investor sentiment cause temporary dislocations leading to mispriced securities. These short-term disruptions should lead to long-term opportunities.
R eturn (% )
Fund Inception : Portfolio Manager : Total Assets : Turnover :
Metropolitan West Asset Management LLC 03/31/2000 Team Managed
RISK VS. RETURN
R eturn
Fund Family :
PEER GROUP ANALYSIS - IM U.S. Broad Market Core Fixed Income (MF)
2.0
2.0
1.0
0.0
0.0
-1.0 -2.0
¢ Met West:Total Return £ BC Aggregate Idx Median
0.6
Last Quarter 0.38 (41) 0.39 (40)
Year To Date 3.43 (58) 3.54 (52)
1 Year 3.43 (58) 3.54 (52)
3 Years 2.05 (59) 2.24 (43)
5 Years 2.51 (16) 2.10 (39)
7 Years 4.19 (5) 3.20 (49)
10 Years 5.59 (1) 4.01 (48)
0.35
3.58
3.58
2.16
1.96
3.19
3.97
1.2 1.8 2.4 3.0 Risk (Standard Deviation %)
Return £ Met West:Total Return ¢ BC Aggregate Idx ¾ Median
2.51 2.10 1.96
3.6
4.2
Standard Deviation 2.64 2.82 2.86
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS Met West:Total Return Bloomberg Barclays U.S. Aggregate Index IM U.S. Broad Market Core Fixed Income (MF) Median
2016 2.46 (70) 2.65 (61) 2.85
2015 0.29 (35) 0.55 (19) 0.00
2014 5.99 (26) 5.97 (27) 5.55
2013 0.50 (2) -2.02 (53) -1.98
2012 11.55 (1) 4.21 (80) 5.98
2011 5.52 (81) 7.84 (11) 6.65
2010 11.66 (2) 6.54 (69) 7.24
3 Years Ending Dec-2013 5.76 (1) 3.26 (59) 3.46
3 Years Ending Dec-2012 9.54 (1) 6.19 (67) 6.69
3 Years Ending Dec-2011 11.39 (11) 6.77 (81) 8.76
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
Met West:Total Return Bloomberg Barclays U.S. Aggregate Index IM U.S. Broad Market Core Fixed Income (MF) Median
3 Years Ending Dec-2017 2.05 (59) 2.24 (43) 2.16
*If less than 5 years, data is since inception of fund share class.
36
3 Years Ending Dec-2016 2.88 (44) 3.03 (31) 2.80
3 Years Ending Dec-2015 2.22 (4) 1.44 (25) 1.10
3 Years Ending Dec-2014 5.92 (1) 2.66 (67) 3.07
Met West:Total Return 12/31/17 PORTFOLIO CHARACTERISTICS
TOP SECTOR ALLOCATIONS
Avg. Coupon Nominal Maturity Effective Maturity Duration SEC 30 Day Yield Avg. Credit Quality
GNMA and Other Mtg Backed Corporate Notes/Bonds Government Agency Securities Asset Backed Securities
3.23 % 7.40 Years N/A 5.65 Years 3.85 AA
ASSET ALLOCATION 40.21 % 29.80 % 25.84 % 5.31 %
Fixed Income
101.2%
Other
0.1%
Equities
0.0%
Convertibles
0.0%
Cash
-1.2 %
-100.0 %
MATURITY DISTRIBUTION
3-5Yrs 9.5% 9.0%
<1Yr
7.9%
10-20Yrs
0.0% 0.1%
D Rated
0.1%
BB AND B Rated
2.1%
CCC, CC AND C rated
2.3%
AA Rated
3.8%
Other
0.1%
>30Yrs
0.0%
0.0%
100.0%
15.8%
Government/AAA 20.0%
30.0%
40.0%
50.0%
60.0%
63.8%
0.0%
20.0%
40.0%
60.0%
UP/DOWN CAPTURE (01/01/13 - 12/31/17) 150.0
Barclays Capital Long Term Govt Bond
Up Capture
Barclays Capital 1-5 Yr Gov
Barclays Capital U.S. Credit 1-5 Year Index
Barclays Capital Long U.S. Credit
125.0 100.0 75.0 50.0
Manager Style Style History
80.0%
9.9%
A Rated 10.0%
200.0%
5.8%
BBB Rated
STYLE MAP (04/01/00 - 12/31/17) Capitalization
Not Rated Equities/Other
43.8% 26.0%
1-3Yrs
100.0%
QUALITY ALLOCATION
5-10Yrs 20-30Yrs
0.0%
50.0
Dec-2017
Average Style Exposure
70.0
Met West:Total Return
37
90.0 110.0 Down Capture
130.0
150.0
JPMorgan High Yield 12/31/17 FUND INFORMATION
RISK VS. RETURN
JPMorgan Funds
14.0
7.5
11/13/1998 Morgan/Shanahan
11.0
6.0
$3,550 Million
Investment Strategy:
The team utilizes a flexible approach that seeks to generate excess return by utilizing the full range of opportunities presented by the high yield market, from investment grade credits trading at high yield spreads to distressed and defaulted securities and postreorganization debt securities.
5.0
3.0
1.5
2.0
0.0 -1.0
-1.5
Innovest's Assessment:
The JPMorgan High Yield Fund has historically had an overweight allocation to BB and B-rated credits; therefore it is likely to underperform in markets where lower-rated high yield credits (CCC and lower) perform well. The strategy is likely to outperform when higher quality high yield credits are in favor or when investors generally favor less risky assets. Additionally, the strategy should perform well in market environments where bottom-up fundamental credit research is rewarded.
R eturn (% )
52%
(5 YEARS*)
4.5
8.0
R eturn
Fund Family : Fund Inception : Portfolio Manager : Total Assets : Turnover :
PEER GROUP ANALYSIS - IM U.S. High Yield Bonds (MF)
-4.0
¢ JPMorgan High Yield £ BC US Corp: High Yield Median
-3.0
Last Quarter 0.32 (62) 0.47 (48)
Year To Date 6.65 (49) 7.50 (24)
1 Year 6.65 (49) 7.50 (24)
3 Years 5.01 (51) 6.35 (11)
5 Years 4.92 (41) 5.78 (12)
7 Years 5.95 (46) 7.04 (9)
10 Years 7.05 (27) 8.03 (4)
0.44
6.63
6.63
5.02
4.71
5.88
6.43
0.0 3.0 6.0 Risk (Standard Deviation %)
Return £ JPMorgan High Yield ¢ BC US Corp: High Yield ¾ Median
4.92 5.78 4.71
9.0
Standard Deviation 4.86 5.18 4.90
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS JPMorgan High Yield Bloomberg Barclays U.S. Corporate High Yield IM U.S. High Yield Bonds (MF) Median
2016 13.75 (47) 17.13 (6) 13.41
2015 -4.54 (60) -4.47 (59) -3.92
2014 2.67 (19) 2.45 (24) 1.49
2013 6.94 (42) 7.44 (30) 6.61
2012 14.81 (48) 15.81 (29) 14.72
2011 2.65 (63) 4.98 (16) 3.32
2010 14.67 (36) 15.12 (28) 14.04
3 Years Ending Dec-2015 1.58 (44) 1.69 (40) 1.38
3 Years Ending Dec-2014 8.02 (34) 8.43 (22) 7.48
3 Years Ending Dec-2013 8.02 (53) 9.32 (10) 8.07
3 Years Ending Dec-2012 10.56 (50) 11.86 (9) 10.56
3 Years Ending Dec-2011 20.45 (47) 24.12 (5) 20.22
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
JPMorgan High Yield Bloomberg Barclays U.S. Corporate High Yield IM U.S. High Yield Bonds (MF) Median
3 Years Ending Dec-2017 5.01 (51) 6.35 (11) 5.02
*If less than 5 years, data is since inception of fund share class.
38
3 Years Ending Dec-2016 3.69 (38) 4.66 (11) 3.36
JPMorgan High Yield 12/31/17 PORTFOLIO CHARACTERISTICS
TOP SECTOR ALLOCATIONS
Avg. Coupon Nominal Maturity Effective Maturity Duration SEC 30 Day Yield Avg. Credit Quality
Corporate Notes/Bonds US$ Denominated Fgn. Gvt. Common Stock Preferred Stock-Non Convertible Convertible Securities GNMA and Other Mtg Backed Asset Backed Securities
N/A N/A 5.51 Years 3.84 Years 7.26 B
ASSET ALLOCATION 80.45 % 15.42 % 0.49 % 0.42 % 0.05 % 0.05 % 0.01 %
Fixed Income
96.4%
Cash
3.1%
Equities
0.5%
Convertibles
0.1%
Other
0.0%
0.0%
MATURITY DISTRIBUTION
3-5Yrs
Other
A Rated
0.1%
BBB Rated
0.5%
Equities/Other
0.9%
42.6% 41.8% 8.8%
10-20Yrs
5.8%
Not Rated
0.9%
3.1%
0.0%
20-30Yrs
0.0%
CCC, CC AND C rated
>30Yrs
0.0%
BB AND B Rated 10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
78.6%
25.0%
50.0%
75.0%
100.0%
130.0
150.0
UP/DOWN CAPTURE (01/01/13 - 12/31/17)
Barclays Capital 1-5 Yr Gov
150.0
Barclays Capital Long Term Govt Bond
Up Capture
Capitalization
14.7%
0.0%
STYLE MAP (12/01/98 - 12/31/17)
Barclays Capital U.S. Credit 1-5 Year Index
Barclays Capital Long U.S. Credit
125.0 100.0 75.0 50.0
Manager Style Style History
150.0%
2.0%
Government/AAA
1-3Yrs
0.0%
100.0%
QUALITY ALLOCATION
5-10Yrs <1Yr
50.0%
50.0
Dec-2017
Average Style Exposure
JPMorgan High Yield
39
70.0
90.0 110.0 Down Capture
Eaton Vance Flt Rt;Inst (EIBLX) 12/31/17 FUND INFORMATION Eaton Vance Management 01/30/2001 Page/Russ
RISK VS. RETURN
8.0
5.0
6.0
4.0
(5 YEARS*)
27%
4.0
Investment Strategy:
The Eaton Vance Floating Rate Fund invests in senior, secured floating-rate bank loans, most of which are rated below investment grade. It is a bottomup strategy that focuses on capital preservation and giving shareholders low volatility exposure to the floating rate loan asset class. Due to the large size of the strategy’s asset base, it is difficult for incremental gains from credit selection to be significant enough to generate meaningful alpha. Instead, the team focuses on only the largest issues of the highest rated credits available and leaves the "diamond in the rough" finds to smaller, more nimble strategies.
Innovest's Assessment: The strategy should be expected to outperform slightly during more difficult credit environments where higher quality, broad portfolio diversification tactics will protect the portfolio from widespread credit deterioration. The strategy should underperform when lower quality credits (B- and lower) lead, the largest issues selloff, and in situations when smaller issues outperform. Still, because of the fund’s size, it will often track the benchmark relatively closely.
R eturn (% )
$6,102 Million
R eturn
Fund Family : Fund Inception : Portfolio Manager : Total Assets : Turnover :
PEER GROUP ANALYSIS - Loan Participation Mutual Funds
2.0
3.0
2.0
1.0
0.0
0.0 -2.0
¢ Eaton Vance Flt Rt;Inst (EIBLX) £ CSFB Leveraged Loan Idx Median
0.0
Last Year Quarter To Date 1.10 (33) 4.47 (13) 1.17 (26) 4.26 (18)
1 Year 4.47 (13) 4.26 (18)
3 Years 4.50 (19) 4.49 (22)
5 Years 3.78 (23) 4.33 (3)
7 Years 4.22 (25) 4.67 (6)
10 Years 4.10 (21) 4.56 (3)
1.01
3.53
3.84
3.26
3.78
3.72
3.53
0.8 1.6 2.4 3.2 Risk (Standard Deviation %)
4.0
Return £ Eaton Vance Flt Rt;Inst (EIBLX) ¢ CSFB Leveraged Loan Idx ¾ Median
3.78 4.33 3.26
4.8
Standard Deviation 2.58 2.32 2.58
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS Eaton Vance Flt Rt;Inst (EIBLX) Credit Suisse Leveraged Loan Index Loan Participation Mutual Funds Median
2016 11.07 (29) 9.84 (56) 10.00
2015 -1.63 (53) -0.39 (22) -1.53
2014 0.63 (29) 2.06 (1) 0.25
2013 4.82 (51) 6.15 (4) 4.86
2012 8.27 (67) 9.42 (33) 8.89
2011 2.44 (9) 1.80 (29) 1.43
2010 9.55 (43) 9.97 (39) 9.17
3 Years Ending Dec-2012 6.71 (36) 6.99 (27) 6.45
3 Years Ending Dec-2011 18.02 (17) 17.49 (30) 16.28
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
Eaton Vance Flt Rt;Inst (EIBLX) Credit Suisse Leveraged Loan Index Loan Participation Mutual Funds Median
3 Years Ending Dec-2017 4.50 (19) 4.49 (22) 3.84
3 Years Ending Dec-2016 3.21 (20) 3.75 (3) 2.72
*If less than 5 years, data is since inception of fund share class.
40
3 Years Ending Dec-2015 1.24 (41) 2.58 (2) 0.99
3 Years Ending Dec-2014 4.53 (52) 5.84 (3) 4.54
3 Years Ending Dec-2013 5.15 (43) 5.74 (13) 5.00
Eaton Vance Flt Rt;Inst (EIBLX) 12/31/17 PORTFOLIO CHARACTERISTICS
TOP SECTOR ALLOCATIONS
Avg. Coupon Nominal Maturity Effective Maturity Duration SEC 30 Day Yield Avg. Credit Quality
Corporate Notes/Bonds
4.64 % 5.13 Years N/A 0.20 Years 3.84 BB
ASSET ALLOCATION 94.24 % Fixed Income
94.2%
Cash
4.2%
Other
1.6%
Equities
0.0%
Convertibles
0.0%
0.0%
MATURITY DISTRIBUTION
11.2%
<1Yr Other
D Rated
1.1%
Equities/Other
1.6%
53.8% 28.9%
1-3Yrs
CCC, CC AND C rated
3.3%
Not Rated
3.7%
Government/AAA
4.2%
4.4% 1.6%
10-20Yrs
0.2%
20-30Yrs
0.0%
BBB Rated
>30Yrs
0.0%
BB AND B Rated
0.0%
15.0%
30.0%
45.0%
60.0%
75.0%
80.3%
25.0%
50.0%
75.0%
100.0%
130.0
150.0
UP/DOWN CAPTURE (01/01/13 - 12/31/17)
Barclays Capital 1-5 Yr Gov
150.0
Barclays Capital Long Term Govt Bond
Up Capture
Capitalization
150.0%
5.8%
0.0%
STYLE MAP (02/01/01 - 12/31/17)
Barclays Capital U.S. Credit 1-5 Year Index
Barclays Capital Long U.S. Credit
125.0 100.0 75.0 50.0
Manager Style Style History
100.0%
QUALITY ALLOCATION
5-10Yrs 3-5Yrs
50.0%
50.0
Dec-2017
Average Style Exposure
70.0
Eaton Vance Flt Rt;Inst (EIBLX)
41
90.0 110.0 Down Capture
Principal US Property Account 12/31/17 PEER GROUP ANALYSIS - IM U.S. Open End Private Real Estate (SA+CF)
Investment Strategy
RISK VS. RETURN
17.0
The Principal U.S. Property Account is a core, commingled real estate account. The portfolio is diversified among the five core real estate sectors: Retail, Industrial, Apartment, Office, and Hotel. Addtionally, the portfolio is diversified across geographic regions. The main objective of the portfolio is to acquire well leased properties in a number of favorable markets. Leverage on the fund is expected to be low to moderate depending on the market environment.
14.0
18.0
R eturn
11.0
8.0
15.0
12.0
5.0
Innovest Assessment:
We should expect The Principal U.S. Property Account to outperform when the economy is strong and growing as rents tend to increase more in larger metropolitan markets where a majority of the assets are located. The fund has slightly lower than average levels of leverage and may will lag in times where competitors are being rewarded for their use of leverage. Conversely, in times when credit dries up, the fund may outperform as leverage tends to be penalized.
(5 YEARS*)
21.0
R eturn (% )
FUND INFORMATION
9.0 2.0
6.0 -1.0
¢ Principal US Property Account £ NCREIF Fund Index-ODCE Median
0.0
Last Year 1 3 5 7 10 Quarter To Date Year Years Years Years Years 2.07 (N/A) 9.12 (N/A) 9.12 (N/A) 11.65 (N/A) 12.62 (N/A) 13.16 (N/A) 5.40 (N/A) 2.07 (N/A) 7.62 (N/A) 7.62 (N/A) 10.42 (N/A) 11.53 (N/A) 12.07 (N/A) 5.03 (N/A) N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.8 1.6 2.4 3.2 Risk (Standard Deviation %)
Return £ Principal US Property Account ¢ NCREIF Fund Index-ODCE ¾ Median
12.62 11.53 N/A
4.0
Standard Deviation 1.44 1.44 N/A
CALENDAR YEAR RETURNS AND PERCENTILE RANKINGS Principal US Property Account NCREIF Fund Index-ODCE IM U.S. Open End Private Real Estate (SA+CF) Median
2016 11.23 (26) 8.77 (81) 9.52
2015 14.68 (60) 15.02 (52) 15.23
2014 13.56 (51) 12.50 (76) 13.59
2013 14.63 (49) 13.94 (57) 14.47
2012 12.42 (53) 10.94 (77) 12.45
2011 16.66 (36) 15.99 (43) 15.78
2010 17.27 (32) 16.36 (45) 15.76
3 Years Ending Dec-2013 14.56 (42) 13.60 (63) 14.11
3 Years Ending Dec-2012 15.43 (39) 14.40 (53) 14.78
3 Years Ending Dec-2011 -1.80 (44) -1.76 (43) -2.49
ROLLING 3 YEAR RETURN AND PERCENTILE RANKINGS
Principal US Property Account NCREIF Fund Index-ODCE IM U.S. Open End Private Real Estate (SA+CF) Median
3 Years Ending Dec-2017 11.65 (N/A) 10.42 (N/A) N/A
*If less than 5 years, data is since inception of fund share class.
42
3 Years Ending Dec-2016 13.15 (41) 12.07 (70) 12.76
3 Years Ending Dec-2015 14.29 (63) 13.81 (73) 14.47
3 Years Ending Dec-2014 13.53 (47) 12.45 (65) 13.49
Principal US Property Account 12/31/17 PROPERTY TYPE DIVERSIFICATION
REGIONAL DIVERSIFICATION
60.0
45.0
60.0
41.0
45.0
40.0
45.0 38.0 33.0
30.0
30.0 21.0
19.0
15.0
23.0
27.0
23.0
23.0 20.0
16.0
13.0
15.0 9.0 0.0
0.0
O
ffi
ce
l ria st u d In
t en tr m a Ap
Principal US Property Account
R
l ai et
H
1.0
el ot
3.0
O
5.0
0.0
0.0
er th
NCREIF Fund Index-ODCE
st Ea
Principal US Property Account
CHARACTERISTICS
h ut So
w id M
t es
NCREIF Fund Index-ODCE
TOP 5 HOLDINGS
Portfolio Characteristics Total Fund Assets # Properties # Investors Leverage %
t es W
Portfolio $7,180,000,000 142 N/A 22.40
43
Name
Location
Type
%
1370 Avenue of the Americas 112th at 12 Street Burbank Empire Center J.W. Marriott Watermark
New York Seattle Los Angeles San Antonio Cambridge
Office Office Retail Hotel Apartment
5% 4% 4% 3% 3%
Crdt Suis Comm Rtn Strat 12/31/17 FUND INFORMATION
PERFORMANCE OVER TIME
RISK VS. RETURN
8.0
-8.4
Investment Strategy:
Innovest Assessment:
The fund should outperform the benchmark in periods where fundamental supply and demand factors are driving commodity market returns. In addition, due to the Team’s conservative cash management strategy, the Fund may outperform the market during environments where interest rates are rising or credit spreads are widening. Periods of event driven risk can increase the volatility in the spread between an underlying contract of one maturity versus the same underlying instrument expiring at a different time. This environment often be challenging and cause increased tracking error.
4.7
4.4
4.0
1.7
1.7
1.7 R eturn (% )
1.7
R eturn (% )
The fund uses a wholly-owned subsidiary to invest in derivatives that provide exposure to the Bloomberg Commodity Index. It primarily uses swaps but can also hold futures and structured notes. The goal is to track the benchmark without much tracking error. Management tries to modestly outpace the benchmark by executing at favorable prices and employing low-risk cash management.
(5 YEARS*)
0.0
-8.5
-4.0 -5.0
-5.0 -6.7
-8.0
-8.5
-8.5
-8.1
-6.8
-8.1 11.6
-12.0 Last Quarter
2017
1 Year
3 Years
Crdt Suis Comm Rtn Strat
5 Years
10 Years
7 Years
Crdt Suis Comm Rtn Strat Bloomberg Commodity Index Total Return
Crdt Suis Comm Rtn Strat Bloomberg Commodity Index Total Return
2016 12.42 11.77
1 Year 1.74 1.70
2017 1.74 1.70 2015 -24.96 -24.66
SECTOR ALLOCATIONS
3 Years -4.97 -5.04 2014 -16.87 -17.01
5 Years -8.47 -8.45 2013 -9.96 -9.52
Bloomberg Commodity Index Total Return
7 Years -8.11 -8.15 2012 -1.83 -1.06
30.4
Crdt Suis Comm Rtn Strat Bloomberg Commodity Index Total Return
27.1 20.9
20.0
15.5
10.0
6.1
0.0
E
y rg ne P
re
c
us io
M
a et
ls
In
s al tr i s du
M
a et
ls
10 Years -6.67 -6.83 2011 -12.29 -13.32
2010 16.93 16.83
2009 20.12 18.91
2008 -35.47 -35.65
2007 14.78 16.23
INVESTMENT STATISTICS (5 YEARS*)
40.0 30.0
12.0
Crdt Suis Comm Rtn Strat
Bloomberg Commodity Index Total Return
Last Quarter 4.42 4.71
11.8 Risk (Standard Deviation %)
oc st ve i L
k ri c Ag
tu ul
re
*If less than 5 years, since inception time period was used.
44
Alpha
Beta
Actual Correlation
-0.18 0.00
0.98 1.00
1.00 1.00
Up Market Capture 97.43 100.00
Down Market Capture 98.67 100.00
Inception Date 01/01/2006 01/01/2006
Blackstone Partners LP 12/31/17 PERFORMANCE OVER TIME
Firm and Management
Investment Strategy
The investment objective of the Fund is to seek long-term capital appreciation above historical equity returns over a full market cycle with volatility that is lower than that of the equity market and returns that demonstrate a low correlation to both the equity and fixed income markets. Primary investment strategies are: long/short equity, arbitrage, relative value, and distressed/credit strategies. The portfolio is allocated 40-50% to Core managers they believe are capable of generating alpha in all market environments. 15-25% is allocated to Tactical managers where Blackstone believes they can over/under weight a particular strategy based on current market conditions while the remaining part of the portfolio is allocated niche managers and to hedging.
32.0
(5 YEARS*)
20.0
24.0
R eturn (% )
Blackstone is one of the world's largest asset managers with over $68 billion under advisement primarily in hedge fund investments. The firm employs over 1600 people around the globe and each group is led by deep and experienced management teams.
RISK VS. RETURN
21.8
21.8 15.8
16.0
13.8
11.4 8.0
6.6
7.0 7.7
R eturn (% )
FUND INFORMATION
7.0 7.7 4.0
1.5 2.0
5.8 2.6
2017
1 Year
Blackstone Partners LP
3 Years
10.0 5.0
8.5 5.1
4.0
5 Years
0.0
3.7
2.7
1.1
0.0 Last Quarter
15.0
0.0
10 Years
7 Years
4.0 8.0 Risk (Standard Deviation %)
12.0
Blackstone Partners LP
HFRI Fund of Funds Composite Index
HFRI Fund of Funds Composite Index
S&P 500 Index
S&P 500 Index
2016 2.53 0.51 11.96
Blackstone Partners LP HFRI Fund of Funds Composite Index S&P 500 Index
2015 2.60 -0.27 1.38
2014 5.66 3.37 13.69
2013 11.30 8.96 32.39
2012 7.90 4.79 16.00
2011 -0.54 -5.72 2.11
2010 7.69 5.70 15.06
2009 13.71 11.47 26.46
2008 -17.24 -21.37 -37.00
2007 13.62 10.25 5.49
ROLLING 3 YEAR PERFORMANCE 3 Years Ending Dec-2017 4.01 2.60 11.41
Blackstone Partners LP HFRI Fund of Funds Composite Index S&P 500 Index
3 Years Ending Dec-2016 3.59 1.19 8.87
3 Years Ending Dec-2015 6.46 3.95 15.13
3 Years Ending Dec-2014 8.27 5.68 20.41
3 Years Ending Dec-2013 6.10 2.49 16.18
3 Years Ending Dec-2012 4.94 1.46 10.87
3 Years Ending Dec-2011 6.79 3.57 14.11
Innovest Assessment
Blackstone should perform well in most market environments. They may underperform when there are shocks to the system which creates a lack of liquidity but they tend to bounce back after those shocks as hedge funds are adept at taking advantage of market opportunities when there are an abundance of dislocations. With about a third of the portfolio allocated to hedged equity, Blackstone may also underperform is strong upward moving equity markets.
STRATEGY ALLOCATION
INVESTMENT STATISTICS (5 YEARS*) Return
Multi-Strategy
34.0%
Long Short Equity
33.0%
Blackstone Partners LP HFRI Fund of Funds Composite Index S&P 500 Index
Cash -20.0 %
Return
3.0%
0.0%
20.0%
40.0%
Alpha
Beta
3.03 0.04 0.00
0.18 0.26 1.00
Alpha
Beta
6.58 2.34 0.00
0.14 0.22 1.00
Actual Correlation 0.65 0.76 1.00
Inception Date 01/01/1995 10/01/1997 01/01/1995
Actual Correlation 0.53 0.60 1.00
Inception Date 01/01/1995 10/01/1997 01/01/1995
INVESTMENT STATISTICS (SINCE INCEPTION)
30.0%
Global Macro
5.76 3.99 15.79
Standard Deviation 2.53 3.23 9.41
Blackstone Partners LP HFRI Fund of Funds Composite Index S&P 500 Index
60.0%
*If less than 5 years, since inception time period was used.
45
8.14 4.05 10.05
Standard Deviation 4.01 5.53 14.54
Tortoise MLP (PRPA) 12/31/17 PERFORMANCE OVER TIME
Firm and Management:
16.0
Tortoise Capital Advisors, L.L.C. is partially employee owned and partially owned by the Bicknell Family. The firm manages over $7 billion in MLP assets.
Investment Strategy:
Tortoise focuses on energy infrastructure MLPs. They invest primarily in midstream companies that transport, store, process and distribute crude oil, refined petroleum products (gasoline, diesel and jet fuel) and natural gas. These companies effectively connect areas of energy supply with areas of demand. Midstream MLPs tend to generate a stable, high current yield and consistent growth from long-lived, critical assets. Management seeks to identify and invest in MLPs that generate stable, fee -based revenues with attractive growth prospects and controlled risk. Because of the relatively stable, fee based nature of MLPs’ cash flows, the relative inelasticity of demand for their services, and the critical nature of the assets they operate, Tortoise believes MLPs offer a very attractive total return opportunity with less risk than most industries in the broader equity market.
10.0 7.7
5.9 5.8
6.0 6.8
3.3 0.6
0.0
-0.6 -0.6
-1.8
-2.9 -2.8
-2.9 -2.8
4.0
2.0
-6.0 -6.1
-8.0
-8.8
-8.8
0.0 -9.6 -2.0
-16.0 Last Quarter
2017
1 Year
3 Years
Tortoise MLP (PRPA)
5 Years
18.9
10 Years
7 Years
Last Quarter -0.57 -0.60 -1.77
2016 16.44 16.21 18.74
Tortoise MLP (PRPA) Tortoise Midstream MLP SMA - Composite Alerian MLP Infrastructure
-2.90 -2.80 -8.81
2015 -26.62 -26.77 -31.74
27.0
2013 37.60 36.46 29.48
il
pl Pi
N
0.0
es in
u at
ra
lG
as
P
el ip
Re
fi n
0.0
es in
ed
P
ro
s ct du
G
pe Pi
at
s li n
g r in he
7 Years N/A 7.75 3.30
10 Years N/A 10.03 6.78
2012 6.04 8.67 4.21
2011 N/A 16.92 16.99
Alerian MLP Infrastructure
2010 N/A 33.25 34.98
d an
P
1.4 0.0
0.0
ss ce ro a C
g in
sh
Alpha
Beta
Actual Correlation
5.41 0.00
0.98 1.00
0.96 1.00
Tortoise MLP (PRPA) Alerian MLP Infrastructure
19.5 0.0
0.0
de
2014 16.45 17.54 7.61
5 Years 5.86 5.82 0.59
35.3
15.0
ru
3 Years -6.03 -6.13 -9.59
2009 N/A 84.46 85.04
2008 N/A -37.22 -38.55
2007 N/A 12.73 11.30
INVESTMENT STATISTICS (5 YEARS*)
30.0
C
1 Year -2.90 -2.80 -8.81
2017
SECTOR ALLOCATION
16.8
19.8
Tortoise Midstream MLP SMA - Composite
Tortoise MLP (PRPA) Tortoise Midstream MLP SMA - Composite Alerian MLP Infrastructure
45.0
19.2 19.5 Risk (Standard Deviation %)
Tortoise MLP (PRPA)
Tortoise Midstream MLP SMA - Composite
Alerian MLP Infrastructure
O
(5 YEARS*)
8.0
8.0
R eturn (% )
Tortoise has a dedicated team of 46 individuals. The investment team includes the five member Investment Committee which is comprised of five Founders / Managing Directors who have worked together since Tortoise’s inception in 2002. The other 14 members of the investment team bring a range of disciplines including analysis (both financial and geological), trading and structuring expertise. The operations team completes the company’s capabilities with capital markets, financial reporting, tax, compliance and investor/client relations skills.
RISK VS. RETURN
R eturn (% )
FUND INFORMATION
d an
Eq
ui
n le va
Down Market Capture 77.52 100.00
TOP HOLDINGS
ts
Enterprise Products Partners L.P. Magellan Midstream Partners, L.P. MPLX LP Plains All American Pipeline, L.P. Energy Transfer Equity, L.P. Western Gas Partners LP ONEOK, Inc EQT Midstream Partners, LP Andeavor Logistics LP Phillips 66 Partners LP
Tortoise MLP (PRPA) Alerian MLP Infrastructure
*If less than 5 years, since inception time period was used. Prior to April 1, 2010, performance reflects that of Separate Account less annualized mutual fund expenses.
Up Market Capture 115.70 100.00
46
9.48 8.43 6.97 5.55 5.46 5.46 5.37 5.02 4.72 4.56
Inception Date 02/01/2012 02/01/2012
Stone Ridge Reins. Prem. Int. Fund 12/31/17 PERFORMANCE OVER TIME
Firm and Management:
12.0
Stone Ridge Asset Management LLC is 100% employee owned and manages over
0.0
Investment Assessment:
The fund should be expected to generate moderate returns in most years, with infrequent, but relatively large drawdowns. In any given year, the returns should depend on the level of reinsured losses throughout the world. Typically, the highest returns come immediately after major losses. The fund restricts access to this period of expected relatively high returns to existing investors. Following a drawdown of 20-25%, the fund will close to new investors for one year and will accept additional investments only from
3.9
4.2
3.8 0.6
0.6
0.6
-0.4
-6.0
3.6
3.0 -12.0
-11.4
-11.4 2.4
-18.0 Last Quarter
Investment Strategy:
The Stone Ridge Risk Premium Interval Fund seeks to collect profits by providing diversified reinsurance protection. The fund invests in insurance-linked securities that represent diversified reinsurance risks, with exposure to risks across the globe and across different peril types. The fund is composed of insurance-linked securities, including about 80-90% quota shares and 10 -20% catastrophe bonds. Quota shares are private notes that represent diversified slices of reinsurance companies' books of business. They normally have one year maturities and are not traded. Catastrophe bonds are fixed income securities each of which typically represents exposure to a single geography and peril, and they trade publicly.
(5 YEARS*)
4.8
6.0
R eturn (% )
$6 billion in assets. Stone Ridge is headquartered in New York City with additional locations in Chicago, San Francisco, Boston, and Beijing. Ross Stevens is the CEO and Founder of Stone Ridge Asset Management. Prior to founding Stone Ridge, Ross was a member of the Investment Committee and Co-Head of the Portfolio Managers Committee at Magnetar Capital. He has 20 years of experience including a PhD in Finance and Statistics from U. Chicago. The strategy has 8-10 reinsurance analysts along with 8-10 financial engineers.
RISK VS. RETURN
R eturn (% )
FUND INFORMATION
2017
1 Year
Stone Ridge Reins. Prem. Int. Fund
Stone Ridge Reins. Prem. Int. Fund Swiss Re Global Cat Bond Index
Stone Ridge Reins. Prem. Int. Fund Swiss Re Global Cat Bond Index
3 Years
5 Years
2.0
10 Years
7 Years
2016 6.39 6.64
1 Year -11.37 0.57
2017 -11.37 0.57
2015 7.90 4.32
3 Years 0.58 3.81
2014 11.00 5.93
SECTOR ALLOCATION
10.0
Stone Ridge Reins. Prem. Int. Fund
Swiss Re Global Cat Bond Index
Last Quarter -0.36 3.89
4.0 6.0 8.0 Risk (Standard Deviation %)
5 Years N/A N/A
2013 N/A N/A
7 Years N/A N/A
2012 N/A N/A
10 Years N/A N/A
2011 N/A N/A
Swiss Re Global Cat Bond Index
2010 N/A N/A
2009 N/A N/A
2008 N/A N/A
2007 N/A N/A
INVESTMENT STATISTICS (5 YEARS*)
No data found. Stone Ridge Reins. Prem. Int. Fund Swiss Re Global Cat Bond Index
TOP HOLDINGS No data found.
existing investors.
*If less than 5 years, since inception time period was used.
47
Alpha
Beta
Actual Correlation
-5.00 0.00
1.93 1.00
0.91 1.00
Up Market Capture 102.01 100.00
Down Market Capture 170.43 100.00
Inception Date 12/01/2013 12/01/2013
Historical Hybrid Composition Passive Portfolios Jan-2003 Historical benchmark returns
Weight (%)
Passive Portfolios
100.00
Oct-2009 Russell 3000 Index MSCI AC World ex USA Bloomberg Barclays U.S. Aggregate Index NCREIF ODCE HFRI Fund of Funds Composite Index
30.00 30.00 20.00 10.00 10.00
Jan-2010 Russell 3000 Index MSCI AC World ex USA Bloomberg Barclays U.S. Aggregate Index NCREIF ODCE HFRI Fund of Funds Composite Index
30.00 30.00 20.00 10.00 10.00
Oct-2010 Russell 3000 Index MSCI AC World ex USA Bloomberg Barclays U.S. Aggregate Index NCREIF ODCE HFRI Fund of Funds Composite Index
25.00 25.00 20.00 15.00 15.00
Jan-2012 Russell 3000 Index MSCI AC World ex USA (Net) Bloomberg Barclays U.S. Aggregate Index NCREIF ODCE HFRI Fund of Funds Composite Index
30.00 20.00 20.00 15.00 15.00
Oct-2012 S&P 500 Index Russell 2500 Value Index MSCI AC World ex USA (Net) MSCI Emerging Markets (Net) Index Bloomberg Barclays U.S. Aggregate Index Bloomberg Barclays U.S. Corporate High Yield CSFB Leveraged Loan Bloomberg Commodity Index Total Return NCREIF ODCE HFRI Fund of Funds Composite Index Alerian MLP Index
19.00 8.00 9.00 3.00 8.00 6.00 6.00 6.00 15.00 15.00 5.00
48
Weight (%)
Jun-2014 S&P 500 Index Russell 2500 Value Index MSCI AC World ex USA (Net) MSCI Emerging Markets (Net) Index Bloomberg Barclays U.S. Aggregate Index Bloomberg Barclays U.S. Corporate High Yield CSFB Leveraged Loan Bloomberg Commodity Index Total Return NCREIF ODCE HFRI Fund of Funds Composite Index Alerian MLP Index
18.00 7.00 10.00 4.00 8.00 3.00 9.00 6.00 15.00 15.00 5.00
Jan-2016 S&P 500 Index Russell 2500 Value Index MSCI AC World ex USA (Net) MSCI Emerging Markets (Net) Index Bloomberg Barclays U.S. Aggregate Index Bloomberg Barclays U.S. Corporate High Yield CSFB Leveraged Loan Bloomberg Commodity Index Total Return NCREIF ODCE HFRI Fund of Fund Liquidity Adj. Alerian MLP Infrastructure
18.00 7.00 10.00 4.00 8.00 3.00 9.00 6.00 15.00 15.00 5.00
4643 S Ulster Street | Suite 1040 | Denver, CO 80237 303.694.1900 | innovestinc.com
PRIVATE EQUITY INVESTING EDUCATION
February 2018
Platte River Power Authority Defined Benefit Plan
WHAT IS PRIVATE EQUITY INVESTING? • Private equity is an asset class in which investors purchase stakes in private companies (i.e., companies that are not publicly traded on a stock exchange) • Private equity can help launch a new company, help an existing company grow, or shift ownership and/or control of a company to a financial buyer • Private equity funds pursue a business model aimed at increasing the overall market value of a company through active engagement and various improvements, in an effort to later sell the company at a profit
© 2017 INNOVEST PORTFOLIO SOLUTIONS, LLC
2
PRIVATE EQUITY STRATEGIES Venture Capital
Growth Capital
Leveraged Buyouts
Turnaround
Money
Sales
Profits
Time Source: Aberdeen Investments
• • • • •
Pre-revenue / early stage companies 100% equity investment Innovation focused Partial ownership Relatively binary returns
•
• •
Expanding companies seeking capital 100% equity investment Minority investment
•
• • •
© 2017 INNOVEST PORTFOLIO SOLUTIONS, LLC
Mature, established companies Part debt and equity investment Value creation focus Majority ownership
•
•
Underperforming companies Majority ownership
3
PRIMARY FUND VS. FUND OF FUNDS INVESTING Direct Investing
Primary Fund Investing
Fund of Funds Investing
Diversification
Most concentrated: Investment into individual, privately held companies without a fund in between
More concentrated: Investment into a private equity fund at the beginning of the fund’s life
More diversified: Investment into a private equity fund during the fund’s life (existing portfolio)
Volatility
Potentially most volatile
Generally more volatile
Generally less volatile
Manager Fees
Generally none
Single layer of fees, generally ‘2% & 20%’
More expensive, double layer of manager fees
Return Potential
Greatest
Greater
Least
© 2017 INNOVEST PORTFOLIO SOLUTIONS, LLC
4
DIRECT
PORTFOLIO COMPANY INVESTMENTS
INVESTMENT
INVESTOR
COMPANY
Other Investor L.P.
PRIMARY
INVESTMENT
LIMITED PARTNER
FUND OF FUNDS
Other Investor L.P. Other Investor L.P. Other
Investor
INVESTOR
LIMITED PARTNER
INVESTMENT
PRIVATE EQUITY FUND
COMPANY
PORTFOLIO COMPANY INVESTMENTS
GENERAL PARTNER
INVESTOR
COMPANY
INVESTMENT COMPANY
COMPANY
COMPANY
PORTFOLIO COMPANY INVESTMENTS INVESTMENT GENERAL PARTNER
PRIVATE EQUITY FUND OF FUNDS
Private Equity Fund
COMPANY
COMPANY
COMPANY
PORTFOLIO COMPANY INVESTMENTS INVESTMENT
Private Equity Fund
COMPANY
COMPANY
COMPANY
PORTFOLIO COMPANY INVESTMENTS INVESTMENT
Private Equity Fund
© 2017 INNOVEST PORTFOLIO SOLUTIONS, LLC
COMPANY
COMPANY
COMPANY 5
J-CURVE EFFECT
Source: Pantheon Private Wealth
Investment Phase Negative cash flows resulting from investments, management fees, and potential write-offs for failed investments.
Value Creation Phase Managers seek to add value to investments through operational improvements, strategic oversight, and revenue initiatives.
Harvest Phase Investors receive distributions as the manager exits investments through selling companies or taking companies public.
© 2017 INNOVEST PORTFOLIO SOLUTIONS, LLC
6
PRIVATE EQUITY INDEX VS. S&P 500 INDEX
© 2017 INNOVEST PORTFOLIO SOLUTIONS, LLC
7
DISPARITY OF RETURNS
•
Historically the top quartile of Private Equity funds significantly outperforms the bottom quartile of funds.
•
Variation in returns highlights the importance of manager selection.
Source: Aberdeen Investments
© 2017 INNOVEST PORTFOLIO SOLUTIONS, LLC
8
OTHER IMPORTANT CONSIDERATIONS Benefits of Private Equity • Attractive long-term return potential – Potential for exceeding returns of public equity • Diversification benefits – Relatively low correlations with public equity and bonds – Broad and diverse range of different private equity strategies (buyouts, venture capital, special situations) – Vintage year diversification -- commitment drawn over time • Strong alignment of interest with investors Issues Associated with Private Equity • Illiquidity – Investments may be locked up for a significant period of time • Imprecise Interim Value Measurement – Investments are non-public – Quarterly markets imprecise indications of eventual/exit value • Costs – High fees -- Funds are subject to annual management and performance fees. Total fees often above 2%.
© 2017 INNOVEST PORTFOLIO SOLUTIONS, LLC
9
4643 S Ulster Street | Suite 1040 | Denver, CO 80237 303.694.1900 | innovestinc.com
Innovest’s Long-Term Outlook for the Economy and Capital Markets
Platte River Power Authority Defined Benefit Plan
January 2018
Privileged and Confidential
EXECUTIVE SUMMARY •
Slight shift in allocation from domestic equities to international equities
•
Eliminate allocation to high yield
•
Reduce allocation to commodities
•
Increase allocation to MLPs
•
Add allocation to private equity
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
2
PORTFOLIO CONSTRUCTION: LOOKING FORWARD
Asset allocation The largest impact on portfolio returns Focusing on past returns Dangerous for portfolio design Opportunities Uncovered by due diligence Forecasts Inevitably imprecise
Used with permission.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
3
SAMPLE PORTFOLIO: THEN AND NOW 1998 – 2017 Historical Returns
Domestic Fixed Income 30%
2018 Long-Term Projections
Domestic Fixed Income 30%
Large Cap (U.S.) 70%
Trailing 20-Year Return: 6.7% Trailing 20-Year Standard Deviation: 10.4%
Large Cap (U.S.) 70%
Expected Return: 5.3% Expected Standard Deviation: 14.9% Source: Innovest Portfolio Solutions.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
4
PERIODIC TABLE OF RETURNS 2008 - 2017 2008
High
2010
2011
2012
2014
2015
2016
U.S. Equity
Real Estate
Real Estate
MLPs
33.55%
31.78%
18.74%
Emerging Markets 37.28%
U.S. Equity
Int'l Equity
Real Estate
25.03%
MLPs
MLPs
MLPs
85.04% Emerging Markets 78.51% Diversified Portfolio 32.43%
34.98%
16.99%
Emerging Markets 18.23%
Real Estate
Real Estate
Real Estate
MLPs
U.S. Equity
28.60% Emerging Markets 18.88%
9.24% U.S. Fixed Income 7.84%
17.59%
29.48%
12.56%
4.23% U.S. Fixed Income 0.55%
Int'l Equity
Int'l Equity
MLPs
U.S. Equity
17.32%
U.S. Equity
Int'l Equity
U.S. Equity
U.S. Equity
U.S. Equity
-37.31%
31.78% Real Estate
Real Estate
28.60%
Real Estate
U.S. Equity
Int'l Equity
-39.20%
28.34% Hedge Funds 11.47% U.S. Fixed Income 5.93%
7.75% U.S. Fixed Income 6.54% Hedge Funds 5.70%
16.42% Diversified Portfolio 12.64% Hedge Funds 4.79% U.S. Fixed Income 4.21%
Int'l Equity
-38.55%
1.03% Diversified Portfolio -0.98% Hedge Funds -5.72%
7.61% Diversified Portfolio 6.76% U.S. Fixed Income 5.97% Hedge Funds 3.37% Emerging Markets -2.19%
0.48% Hedge Funds -0.27%
MLPs
16.93% Diversified Portfolio 14.54%
22.78% Diversified Portfolio 17.59% Hedge Funds 8.96%
12.74% Emerging Markets 11.19% Diversified Portfolio 7.64%
-0.81% Diversified Portfolio -2.94% Emerging Markets -14.92%
7.24% U.S. Fixed Income 2.65%
Int'l Equity
MLPs
-4.90%
-31.74%
-43.38% Emerging Markets -53.33%
Int'l Equity -12.14% Emerging Markets -18.42%
MLPs 4.21%
Real Estate 1.86% U.S. Fixed Income -2.02% Emerging Markets -2.60%
Int'l Equity 1.00% Hedge Funds 0.51%
2017
Annualized Annualized Return Std. Dev. '08 -'17 '08 -'17
2013
U.S. Fixed Income 5.24% Hedge Funds -21.37% Diversified Portfolio -32.94%
Int'l Equity
Low
2009
U.S. Equity
Real Estate
8.60%
7.28%
25.64% Emerging Markets 23.58%
U.S. Equity
MLPs
MLPs
21.13% Diversified Portfolio 14.33% Hedge Funds 7.75%
6.78% Diversified Portfolio 5.46% U.S. Fixed Income 4.01%
20.63%
Real Estate 4.18% U.S. Fixed Income 3.54% MLPs -8.81%
Int'l Equity 19.62% U.S. Equity
16.69% Diversified Int'l Equity Portfolio 1.94% 13.42% Emerging Hedge Markets Funds 1.68% 6.62% U.S. Fixed Hedge Funds Income 1.08% 3.26%
U.S. Equities: Russell 3000, MLPs: Alerian MLP Infrastructure, Real Estate: Wilshire US REIT, U.S. Fixed Income: BbgBarc US Agg, Int'l Equity: MSCI EAFE, Emerging Markets: MSCI EM, Hedge Funds: HFRI Fund of Funds Composite Diversified Portfolio: Russell 3000: 31%, MSCI EAFE: 18%, MSCI EM: 6%, BbgBarc US Agg: 10%, Wilshire US REIT: 7%, Alerian MLP Infrastructure: 7%, HFRI Fund of Funds Composite: 15%, CSFB Leveraged Loans: 6%
Source: Innovest Portfolio Solutions.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
High
5
Low
SUMMARY: INNOVEST’S LONG-TERM OUTLOOK
1 2 3
Valuations are high Healthy economic fundamentals and low interest rates have supported equities. Demographic headwinds and economic uncertainty support long-term caution. Given recent strong returns and high valuations, we have reduced long-term projected investment returns.
Volatility Have a plan, including portfolio rebalancing. Continue to consider exposure to non-correlated assets.
The most effective investment strategy Remain diversified and focused on the long term. Remain exposed to growth but manage future return expectations. Consider more opportunistic areas within asset classes. Remember that market timing is an exercise in futility.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
6
INNOVEST’S CAPITAL MARKETS PROCESS GLOBAL ECONOMICS Monetary Policy
Employment & Wages Inflation
Debt Levels
Fiscal Policy & Politics
ASSET CLASS FUNDAMENTALS Equities
Fixed Income
Valuations Earnings Growth Dividend Yields
Diversifiers Quantitative Analysis Valuations Qualitative Assessments
Nominal and Real Rates Inflation Credit Spreads
ASSET CLASS PROJECTIONS Returns
Volatility
Correlations
ASSET ALLOCATION STUDIES Portfolio Risk
Portfolio Range of Returns © 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
Opportunities
7
GLOBAL ECONOMICS: DEMOGRAPHIC HEADWINDS • The working-age population is declining, which will likely reduce tax receipts and increase pressure on government spending on healthcare and income security programs.
Working-Age Population
As a % of Total Population in Each Country
• Lack of political courage to address persistent budget deficits is likely to persist and add to already high debt levels. • Growth of the middle class, particularly in emerging economies, could help counteract unfavorable demographic ramifications on global growth. • Despite long-term threats resulting from demographic challenges, recession risk is low in the nearterm.
“Working age” defined as those age 15 through 64. Reported 10/29/2017. Sources: Charles Schwab and World Bank data.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
8
GLOBAL ECONOMICS: MONETARY UNCERTAINTY •
Quantitative easing was implemented in the years following the global financial crisis to help stabilize the world economy.
•
The unwinding of up to $14 trillion in central banks’ quantitative easing assets has considerable unknown consequences.
•
World economies are reaching full capacity, which has historically led to moderate inflationary pressures and higher short-term interest rates globally.
Central Banks’ Assets
Sources: Central Banks, Thomson Reuters Datastream, and Fathom Consulting. Reported Sept. 2017.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
9
IMPLICATIONS OF TAX REFORM •
The 2017 Tax Cuts and Jobs Act will accrue benefits to most corporations and individuals.
•
For individuals, a broad reduction in taxation will likely result in higher consumer spending, particularly in the near-term.
•
Corporations will benefit from a lower corporate tax rate (which will likely result in repatriation of overseas earnings) as well as 100% expensing of capital spending. The extent to which capital spending increases will be dependent on whether corporations decide to reinvest or repurchase stock. –
•
•
Companies with higher tax rates (small companies and high tax sectors such as banks, telecoms, consumer discretionary stocks) will likely benefit the most.
Increased consumer and business spending may boost GDP growth in the near term, however it could limit growth in U.S. corporate operating earnings due to: –
Lower unemployment and upward pressure on wages and inflation.
–
Potentially leading the Federal Reserve to raise rates faster than expected.
The itemization limit on property taxes and mortgage deductions could negatively impact real estate prices for homeowners.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
10
EQUITIES: VALUATIONS Equity Valuations Drive Long-Term Returns
Emerging Markets At long-term averages
< Undervalued
Developed Markets Slightly above long-term averages
Overvalued >
U.S. Above long-term averages
DM = Developed Markets; EM = Emerging Markets Valuations refer to NTMA P/E for U.S. and Developed Markets, and P/B for Emerging Markets. Data as of 12/31/2017. Sources: IBES, FactSet, MSCI, Standard & Poor’s, and J.P. Morgan Asset Management. 11 © 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
EQUITIES: VOLATILITY •
Over the past 37 years, the S&P 500 has had an average intra-year decline of ~14%.
•
In 2017, investors experienced record peaks in equity markets accompanied by historic lows in volatility.
•
Going forward, investors should expect increased volatility highlighting the need to remain well diversified and disciplined in rebalancing.
Bars = Calendar year return Circles = Calendar year intra-year decline
Bars represent the calendar year return for given year, circles represent the intra-year drawdown for the give calendar year. Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2017, over which time period the average annual return was 8.8%. Data as of December 31, 2017. 12 © 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
EQUITIES: U.S. VERSUS INTERNATIONAL
•
•
Equity market performance tends to move in cycles. U.S. outperformance reversed in 2017 and may mark the start of a new cycle. Investors should maintain diversified geographic exposure across equity allocations as timing of cyclical turns is impossible to predict.
Outperformance Over 36-Month Period
•
40%
U.S. vs International Developed Equities
30% U.S. Equities Outperform
20% 10% 0% -10% -20%
International Developed Equities Outperform -30% -40%
36-month Period Ending Chart as of 12/31/2017. U.S. Equities represented by S&P 500 Index returns. International (Developed) Equities represented by MSCI EAFE Index. Source: Innovest Portfolio Solutions.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
13
FIXED INCOME: INTEREST RATES
• Rate increases are often positive for equities, but can cause bond prices to fall over concerns of higher inflation. • This chart shows how an interest rate hike can affect returns of U.S. aggregate bonds, if spreads hold steady.
Impact of Spike in Interest Rates on High-Quality Bonds 0%
+1%
+1.5%
+2%
-2%
Total Return
• It is anticipated that the Fed will continue its policy of modest rate hikes into 2018.
-4%
-3.2
-6% -6.1%
-8%
-10%
-9.0%
Source: Bloomberg Barclays. Bloomberg Barclays Aggregate Bond Index used in projections. J.P. Morgan Asset Management as of 12/31/2017.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
14
FIXED INCOME: SPREADS •
Floating rate loan and high yield bond spreads, the difference in yield relative to a U.S. Treasury of the same maturity, have narrowed and are currently below median relative to history.
•
Spread compression has been supported by very low expectations of defaults.
•
An economic recession would pose a significant headwind for returns due to increasing default risk.
Spreads are Low
Spreads are reported in basis points. Source: Eaton Vance. Spread history measures past 15 years. Floating-Rate Loans represented by S&P/LSTA Leveraged Loan Index. High Yield represented by ICE BofA Merrill Lynch US High Yield Index. Factset as of 12/31/2017. © 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
15
ALTERNATIVES: VOLATILITY •
Hedge Funds, Private Real Estate, Private Equity, and Reinsurance have consistently exhibited less volatility than equities and less extreme drawdowns.
•
Alternatives provide attractive diversification benefits in the face of challenges for fixed income and equities.
S&P 500 Large Cap (U.S.)
Cambridge Associate US Private Equity Index
NCREIF ODCE Real Estate HFRI Fund Weighted Composite Index
Bloomberg Barclays Aggregate Index SwissRe Global Cat Bond TR USD
Volatility is shown as a moving average of each investment’s 20 year standard deviation. Source: Innovest Portfolio Solutions. Data represents each reported index. © 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
16
LONG-TERM PROJECTIONS
EXPECTED RETURNS OVER A 5-10 YEAR PERIOD Projections (%)
Asset Class
2018 2018 2017 Standard Return Return Change Deviation
Projections (%)
Asset Class
2018 2018 2017 Standard Return Return Change Deviation
Broad Domestic Equity
6.75%
7.00%
-0.25%
22.75%
Commodities
4.00%
4.50%
-0.50%
25.44%
Large Cap (U.S.)
6.50%
6.75%
-0.25%
21.89%
Low Correlated Hedge
5.25%
5.50%
-0.25%
9.29%
Small/Mid Cap (U.S.)
7.00%
7.25%
-0.25%
26.98%
Liquid Low Correlated Hedge
4.75%
5.00%
-0.25%
9.28%
International Equity
7.00%
8.00%
-1.00%
26.35%
Cons. Low Correlated Hedge
4.25%
4.50%
-0.25%
8.15%
Int'l Small Equity
7.50%
9.50%
-2.00%
29.82%
Hedge Funds
6.75%
7.00%
-0.25%
11.14%
Global Equity
7.00%
7.50%
-0.50%
24.53%
Private Equity
9.00%
9.50%
-0.50%
14.85%
Emerging Market Equity
8.00%
9.50%
-1.50%
33.22%
Listed Private Equity
7.50%
8.00%
-0.50%
46.39%
Domestic Fixed Income
2.50%
2.75%
-0.25%
3.96%
Illiquid Credit
7.25%
7.50%
-0.25%
10.87%
Defensive Fixed Income
1.75%
1.75%
0.00%
2.37%
Real Estate
6.25%
7.00%
-0.75%
11.92%
Float. Rate Corp Loans
5.25%
5.25%
0.00%
15.75%
Domestic REITs
5.75%
6.25%
-0.50%
36.88%
High Yield Fixed Income
4.25%
4.50%
-0.25%
16.65%
Global REITs
5.75%
6.00%
-0.25%
31.95%
TIPS
2.50%
2.50%
0.00%
6.07%
Reinsurance
6.00%
6.00%
0.00%
8.04%
Stable Value
1.50%
1.75%
-0.25%
0.67%
MLPs (pre-tax)
9.50%
10.00%
-0.50%
22.89%
Muni Fixed Income
2.25%
2.50%
-0.25%
5.41%
MLPs
5.75%
6.00%
-0.25%
22.89%
Defensive Muni F.I.
1.25%
1.50%
-0.25%
1.82%
Cash Equivalents
1.25%
1.50%
-0.25%
1.08%
Emerging Market Debt
4.00%
4.75%
-0.75%
14.71%
Inflation
2.25%
2.25%
0.00%
Global Fixed Income
1.50%
1.75%
-0.25%
7.02%
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
Source: Innovest Portfolio Solutions.
17
LONG-TERM PROJECTED RISK AND RETURNS Capital Markets Projections Risk vs. Return Scatter Chart
Source: Innovest Portfolio Solutions. See important disclosures at the end of this document.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
18
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NEXT STEPS •
Innovest to present Committee education on Private Equity investing
•
Work with Staff to finalize allocation for Committee consideration at May meeting
•
Present possible candidates for Private Equity allocation
•
Rebalance portfolio using revised allocation
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
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Appendix
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
22
PROJECTED VOLATILITY •
Based on each asset class’s worst five-year standard deviation over the past 20 years.
•
Combining low-correlated assets in a portfolio: helps to reduce the volatility of the portfolio.
•
Focus: the whole portfolio.
•
Portfolio rebalancing: a proven way to manage volatility.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
23
PROJECTED CORRELATIONS Combining asset classes with low correlations can provide potentially lower portfolio volatility. Correlations measure the degree of co-movement between asset classes. Projected correlations uses 20 years of historical data to encompass multiple market cycles and economic conditions. • • •
See important disclosures at the end of this document.
Correlation of 1.0: The two asset classes move in the same direction, in lockstep Correlation of (1.0): The two asset classes move in the exact opposite direction Correlation of 0.0: No relationship in the movement of the two asset classes
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
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DISCLOSURES Given the complexity of the financial markets, individual circumstances, and risk-reward trade-offs of portfolio construction, we believe it is not prudent or advisable to rely solely on forecasts and quantitative modeling. The material herein has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, accounting, or legal advice. No representation is being made as to whether any investment product, strategy, or security is suitable or appropriate for an investor’s particular circumstances. Assumptions, opinions, and forecasts herein constitute our judgment and are subject to change without notice. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The statistical analysis herein was prepared by Innovest Portfolio Solutions LLC with data provided by Investment Metrics (IM). Innovest and IM assume no responsibility for the accuracy of these valuations or return methodologies. Reasonable care has been taken to assure the accuracy of the MPI computer software and database. Innovest and IM disclaim responsibility, financial or otherwise, for the accuracy and completeness of this report. © Copyright 2018 by Innovest Portfolio Solutions LLC and Investment Metrics. Asset Class Projections Expected returns are the long-term projected total rate of return (income and capital gains) for each asset class and is shown in annualized form. Innovest’s 2017 long-term research on the capital markets includes, but is not limited to, resources from Aon Hewitt, Bank of New York Mellon, Callan Associates, Horizon Actuarial Services, JP Morgan Asset Management, Merrill Lynch Global Institutional Consulting, Morgan Stanley Wealth Management, SEI, UBS, Voya Investment Management, Wells Fargo Investment Institute, and Willis Towers Watson. Volatility Standard deviation is a statistical measure of the variability of potential returns around the expected return. Approximately 68% of the returns are expected to fall within plus or minus one standard deviation of the expected return in any single year. Standard deviation is also represented in annualized form. We utilize the single five year period with the highest standard deviation over a 20-year period for each asset class. For asset classes without a 20-year history, we use the longest data series available. Correlations Our projections of asset class correlations are based on 20-year historical correlations between asset classes, as they incorporate several economic and market cycles. The illiquid credit correlation projection uses the Bloomberg Barclays Corporate HY Bond Index as its proxy benchmark, which gives it a perfect correlation of 1.0 with high yield fixed income.
© 2018 INNOVEST PORTFOLIO SOLUTIONS, LLC PRIVILEGED AND CONFIDENTIAL
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Investment Consultant Review Date of Review: February 2018
Review Criteria
Meets Expectations
Does Not Meet Expectations
1. Quality of Quarterly Meetings a. Assigned Consultant does not change frequently. Consistency in the quality of staff attending meetings. b. Attends all quarterly meetings. Is prepared and answers questions clearly and concisely. Comments:
2. Quality of Quarterly Reports a. Written reports are concise, comprehensive and accurate. b. Reports are provided to staff on time. c. Verbal summary at Committee meetings is thorough and comprehensible. Comments:
3. Review of Investment Policy Statement a. Conducts periodic reviews of the Investment Policy Statement and advises the Committee on amending and improving the Investment Policy Statement. b. Advises the Committee on new investment guidelines. Comments:
Page 1 of 4
Review Criteria
Meets Expectations
Does Not Meet Expectations
4. Review of Portfolio Construction and Structural Analysis a. On a monthly basis reviews the asset allocation targets and ranges to determine whether the current allocation falls within the Plan’s investment objectives and guidelines. Provides prompt direction to staff regarding changes. b. Prepares recommendations for amendments or modifications to the Plan’s portfolio structure with justification based on changes in the financial markets or other factors. (Modifications may include additional asset classes or alternative investment vehicles.) Comments:
5. Comprehensive Manager Oversight & Performance Measurement a. Analysis of managers’ absolute and relative performance in relation to benchmarks, investment objectives and peer groups is detailed, well documented and presented to the Committee. b. Documentation of monitoring and analyzing managers on a continual basis is provided. The Consultant notifies the Committee of any significant changes or adverse events regarding the organization, performance or compliance issues. Comments:
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Review Criteria
Meets Expectations
Does Not Meet Expectations
6. Thoroughness of Manager Search and Fund Recommendations a. Provides due diligence, search and selection of new investment managers and funds. b. New managers and funds are presented to the Committee and the Consultant recommends the finalist based on solid analysis. Comments:
7. Educational Workshops and General Research a. Conducts at least one educational session per year for the Committee and staff. b. Provides ongoing research, advice and analysis on strategies and market developments. Comments:
8. Quality of Support Provided to Platte River Staff a. Responds to staff requests in a prompt and acceptable manner. b. Keeps staff informed of changes in personnel, timing of reports, unexpected delays in transactions, and other administrative tasks. Comments:
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Review Criteria
Meets Expectations
Does Not Meet Expectations
9. Reasonable Fees a. Provides benchmarking comparison reports. Fees compared to reports are maintained in the lowest two quartiles. Comments:
10. Other
Comments:
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INNOVEST’S RESEARCH REPORT
A NEWSLETTER BY
IN THIS ISSUE:
WINTER | 2018
A GOOD 2017. EXCITED FOR 2018!
1 A Good 2017. Excited for 2018!
3 The Benefits of Rebalancing
4 Nonprofit Spotlight:
Innovest Days of Giving
5 The Next Chapter of
Retirement Plan Excessive Fee Lawsuits
7 Employee Spotlight: Becca Ellis
8 Around the Firm
NEW CLIENTS Innovest was recently selected to provide investment consulting services for: Colorado Permanente Medical Group Operating Reserves Pueblo Water Taylor University Foundation It is not known whether the listed clients approve or disapprove of the services provided. The new clients on page one and in the Client Spotlight are listed with their approval and permission.
www.innovestinc.com
Richard Todd Managing Principal, CEO
Thank you to our clients, employees, and friends for another successful year at Innovest! We just completed our 21st year, believe it or not, and we are happy to celebrate another record year. Our revenue was up just under 10% over 2016 which was an Innovest top line best number. Our promise to team members is they will benefit from our growth in new opportunities for advancement and responsibility. We have several former analyst assistants that are members of our 11-partner group today! We instill a “pull each other up” culture and we emphasize the best way to be promoted at Innovest is to prepare others to take over current responsibilities. We are client driven, work as a team, and are driven to make each other better! Giving Back Another key to the Innovest culture is our involvement in the community. We sponsored four company volunteer events at nonprofits including Junior Achievement, Central City Opera House, Brothers Re-development, and GrowHaus. We also supported July
and December giving weeks where we donated clothing and participated in infant and school supply drives, as well as worked at Urban Peak, Glorified Recess, and the Denver Rescue Mission. Once again, our employees will receive a day off on their birthdays in 2018 because of everyone’s participation in Colorado Gives Day. Analyst Kathy LaLone did an amazing job leading our philanthropy activity! The highlight of our work with the community is our corporate work study sponsorship of Arrupe Jesuit High School. Each day, we have an Arrupe student work at Innovest and in turn, we pay a substantial portion of their tuition at this amazing prep school. Students attend school four long days and work the fifth. Students are able to enroll at Arrupe by qualifying for the National School Lunch Program. These inner-city Arrupe students are achieving incredible results and we are fortunate to work with four of them each year! Growth Continues Investment results in 2017 were strong as nearly all equity markets finished the year at close to all-time highs. We continue to promise our clients that they will benefit from our firm growth. Adding high quality professionals is one of the best ways we add value to clients. In 2017, nine professionals joined our near 50-employee firm. continued on page 2
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They include Kristy LeGrande, CFA, who was a managing director at Cambridge Associates and Katie Sauer, PH.D., who was director of financial wellness, education, and research at the University of Colorado System Administration Office. Employee retention is over 90% at Innovest. We are committed to continually moving our firm to the next generation of professionals and have no intention of “selling out.” We believe this is best for clients and employees alike.
the third time in four years. This award is based on a very comprehensive employee survey to help evaluate ourselves and determine how we can improve and become a better place to work. In addition, our professionals wrote or were interviewed in 16 different articles and presented nine speeches at conferences.
Committed to independence and objectivity, we are confident our business model leads to better client advice and solutions. Selling investment products taints investment advice. 100 percent of Innovest revenue is from the fees our clients pay. Firms that accept commissions (many can be completely hidden for the investor) only do so to line their own pockets at the expense of the client. In other words, commissions only drive up the cost to the client. The Innovest fee-only approach is the right way to do business! We were pleased to add 27 new clients in 2017, including families and family offices, governmental, corporate, and multi-employer retirement plans, and a number of nonprofit organizations’ operating reserves, endowment, and foundation assets. Our diversified clientele keeps us challenged and we are confident our consulting and client solutions are better because of it. For example, our portfolio accounting and custom client reporting is cutting edge in the family office world and is accomplished by the demands of the institutional marketplace and the large technology and database investments that we make at Innovest. Thanks to our great clients and friends of our firm for the referrals; they are important to us! Our research and due diligence team was busy spending more than 60 days on the road conducting onsite meetings with over 100 managers, products, and strategies! Overall, we held more than 300 meetings with managers in 2017. While crunching numbers is part of the process, our process is much more in-depth, focusing on the health of the organization, consistency in process and philosophy, manager consistency, fees, and fiduciary elements. Ultimately, we believe our due diligence process and approach to capital markets and asset allocation will lead to better client investment results. Measuring Success The 2017 client survey results were very strong with our overall score being a 4.7 on a 5.0 scale which is equal to the best score we have ever received. Our highest scores were “Knowledge and Experience of Our Consultants” and “Treatment by Our Entire Team” – each at 4.8. Innovest is a thought leader in the investment and fiduciary world and we have been recognized with many awards. Founding Partner Wendy Dominguez was a Denver Business Journal Outstanding Woman in Business Finalist and we are proud to be named one of the Best Places to Work nationally in the investment industry by Pensions and Investments for
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Photo (top and bottom): Innovest employees divide into teams for kickball at the annual company picnic.
From the 2016 employee survey, we spent considerable time and attention on the Innovest mentorship program and will introduce new initiatives based on suggestions in the 2017 survey. Mentorship and leadership training are especially crucial for our younger professionals’ success. We are also excited about the progress of our college internship program and employed seven interns in 2017. Several young professionals were all former Innovest college interns in past years including T.J. Berge, Joe Lemming, Thomas Martin, Kristin Lee, Whitney Wilkinson, and Harrison Levin. Excited for 2018 We are excited about 2018 and have identified some additional areas where we can serve our clients! Market valuations are stretched but the economy is on sound footing, and as we continue to grow, we will add to the professional ranks. Despite a very competitive Denver employment marketplace, Innovest is blessed by our reputation and our ability to attract top professionals into our firm. Thanks to our wonderful clients, professionals, and friends for making last year a successful one! We wish all of you amazing success in 2018! Happy New Year!
www.innovestinc.com
THE BENEFITS OF REBALANCING the bond investment to bring stocks back up to the 60% target allocation.
Chris Meyer Vice President
Routinely rebalancing a diversified portfolio of investments can play an important role in helping investors achieve their investment objectives. Other aspects of portfolio management are important, too, of course. It’s important to construct a portfolio based on an investor’s goals and risk and return objectives. It is also important to use forwardlooking return assumptions, suitable asset classes and competent investment managers. With these pieces in place, rebalancing can be a relatively easy way to improve results. Staying on Target The most obvious benefit of rebalancing is that it helps a portfolio maintain its return and volatility targets. A properly diversified portfolio will include investments with different return and volatility expectations. In addition, their returns in a given period will not normally match one another— one may be up when another is down, and vice versa. Over time, some investments will outperform others. Without rebalancing, this will cause the portfolio to stray gradually from the initial target allocations. To take a simple example1, consider a portfolio that was composed of 60% stocks and 40% bonds in January 2007. Ideally, an investor with this portfolio would have selected the investment mix in order to target a particular level of return and corresponding risk for the portfolio. However, if the portfolio were left alone, by October 2007 it would have been 65% stocks and 35% bonds. In other words, the portfolio would likely have higher return expectations and volatility. Moreover, October 2007 would have been the wrong time to have an overly aggressive portfolio, as the S&P 500 declined by approximately 45% over the following eighteen months. By March 2009, the decline would have reduced stocks to just 48% of the total portfolio, with bonds composing 52%—much less aggressive than the initial 60/40 portfolio. Just as October 2007 was the wrong time to be overly aggressive, March 2009 was the wrong time to be overly conservative. By January 1, 2017 the S&P 500 had risen more than 180% from the March 2009 bottom. Instead of using this buy-and-hold strategy, we believe the better approach is to rebalance periodically—typically quarterly, semi-annually, or annually. If a portfolio with a 60/40 target allocation became 65/35 after stocks advanced, as in October 2007, the investor would sell the 5% overallocation to stocks and invest the proceeds in bonds. Likewise, in March 2009, an investor would sell a portion of
WINTER 2018
To be clear, this example focuses on the stock market’s peaks and troughs in order to emphasize the point of rebalancing. Implementing a routine rebalancing plan would result in more incremental changes, and sometimes an investment will continue to decline after an investor has brought the allocation back up to target. Buying Low and Selling High Rebalancing to the 60/40 mix annually over twenty years would have reduced the standard deviation of the portfolio’s annual returns from 9.2% to 9.0%. At the same time, the portfolio’s average annual return would have increased from 6.6% to 7.0% for the same period. Together, the increased return and decreased volatility would have increased the portfolio’s Sharpe Ratio from 0.47 to 0.52. One of the reasons for the increase in returns is that rebalancing generally means selling investments after their prices have increased relative to other portfolio investments and buying investments that have decreased on a relative basis. A systematic rebalancing program that is essentially automatic can be particularly helpful when investors’ emotions are telling them to buy more of what has gone up and less of what has not. Although an investment to which assets have been added may continue to underperform the rest of the portfolio, over the long run, rebalancing means on average buying low and selling high, improving the portfolio’s performance. The 60/40 portfolio example above illustrates this well. By rebalancing to target in October 2007, an investor would sell part of the stock investment that had outperformed and move the money to bonds. In March 2009, after stocks had fallen, an investor would have moved money from bonds to stocks. Possible Drawbacks: Transaction Costs and Taxes So what are the drawbacks to rebalancing? The primary concerns are transaction costs and taxes. Transaction costs, especially for smaller portfolios, can erode value. As a result, it probably makes sense to set a rebalancing threshold so that transaction costs are only incurred when rebalancing would be most advantageous. For instance, rebalancing only when an investment is 5% above or below target might be appropriate for smaller portfolios, while a 3% threshold might make sense for larger portfolios. Additionally, for taxable portfolios, rebalancing can also create realized gains, particularly when it involves selling appreciated stocks. Consequently, before rebalancing, an investor should consider the tax consequences of any trades before moving forward.
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Conclusion To sum up, rebalancing is a relatively easy way to ensure that a portfolio’s expected return and volatility characteristics stay on target. Historically, a systematic, routine rebalancing process has resulted in increased returns and reduced volatility. That is due, at least in part, to selling investments after they have outperformed relative to other parts of the portfolio and buying after they have underperformed.
NONPROFIT SPOTLIGHT INNOVEST DAYS OF GIVING
However, before implementing a rebalancing strategy, investors should consider the transaction costs and tax consequences. And finally, investors should keep in mind that sometimes what has underperformed will continue to underperform; the benefits of rebalancing are likely to accrue over several years, not necessarily right away. Notes This example is based on research conducted by JP Morgan Asset Management. Stocks are represented by the S&P 500 Index. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Index.
This year Innovest continued our “Winter Week of Giving” tradition. On the first day of giving, Innovest sent to thee: gently used clothing and toil-let-tries. On the second day of giving, Innovest gave to thee: money to the charities we love. On the third day of giving, Innovest gave to thee: decorated Project Angel Heart bags by the tens. On the fourth day of giving, Innovest gave to thee: lunch served and encouraging words. On the fifth day of giving, Innovest gave to thee: gifts for six adopted families we bring.
Photo: Employee-decorated bags for Project Angel Heart.
Organizations Innovest was privileged to serve during this week included the Denver Rescue Mission, Project Angel Heart and Colorado Gives Day. For the fourth year in a row 100 percent of Innovest employees participated in the Colorado Gives Day Corporate Challenge, earning an extra day off for their birthdays. Typical of Innovest, each day employees brought in snacks to incentivize and encourage co-workers to contribute and participate in the designated activities.
Top Photo: Members of Innovest’s Charitable Donation’s Committee collect presents for our six adopted families. Middle Photo: Innovest volunteers pose with Denver Rescue Mission staff after serving lunch. Bottom Photo: Innovest employees box up the presents to be delivered to the adopted families.
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We were thrilled to have the opportunity to serve so many deserving organizations in 2017. Not only do these activities provide team-building experiences, but they provide already generous people with new opportunities to give back and find new nonprofits to support and be passionate about. Innovest is proud to be a company full of generous people!
www.innovestinc.com
THE NEXT CHAPTER OF RETIREMENT PLAN EXCESSIVE FEE LAWSUITS let’s look at some facts that may be partially responsible for the recent increase in excessive fee lawsuits.
1 Marianne Marvez, RPA Vice President, Director
It has been more than 11 years since the first retirement plan excessive fee cases were filed by Schlichter Bogard & Denton, against some of the largest corporations in the United States. Prior to 2006, fee cases were usually directed at the financial institutions who provided retirement plan services, not at the plan sponsors. 2006 changed that perspective and put both mutual fund and recordkeeping fees in the spotlight. Most of the complaints filed since 2006 allege a breach of fiduciary duty in violation of ERISA. Several of these claims allege that either excessive fees were charged, imprudent or higher cost investments were offered, or service providers kept undisclosed revenue-sharing dollars as payment for their services. Other claims involved plan sponsors that came under fire for failing to take their plans out to bid on a scheduled basis to ensure that the services received and the fees paid for those services were competitive and in the best interests of participants. The trend of suing plans for excessive fees has escalated and over the past two years, more than 60 additional excessive fee cases, including 16 involving private university 403(b) plans, have been filed in District Courts across the country. In order to understand the flurry of activity in the courts,
WINTER 2018
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LARGE SETTLEMENTS = LARGE FEES – Several cases have been settled for tens of millions of dollars, and those large settlements resulted in significant attorney fees. Some examples are Nolte v. Cigna settled for $35 million in October 2015 Spano v. Boeing settled for $57 million in August of 2015 and Abbott v. Lockheed Martin settled for $62 million in July 2015, resulting in approximately $50 million in attorney fees1. The lure of big money has brought out local personal injury attorneys seeking new sources of revenue. A highly visible Denver based firm recently launched an advertising campaign encouraging 401(k) participants to call the firm to see if their retirement funds may have been mismanaged and determine if they may be entitled to compensation. It is important to note that most of the previous cases involved very large employers with multi-billion-dollar retirement plans, but recent activity suggests that these claims are moving down market and smaller plans are no longer immune from litigation. SUPREME COURT DECISION - Tibble v. Edison International was heard by the Supreme Court of the United States in May of 2015. Tibble is the only excessive fee case to come before the high court. continued on page 6
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The case centered around 17 retail share class mutual funds which were chosen by the trustees and placed in the trust in 2001. Subsequently, the trustees failed to monitor the funds and did not exchange the higher cost funds for lower priced institutional funds when they became available. The Supreme Court unanimously ruled in favor of the plaintiffs and held that the defendants had indeed breached their fiduciary duty under ERISA as addressed under the common law of trusts, which states that the plan fiduciaries not only have an obligation to exercise prudence in the selection of investment options, but have an additional duty to monitor those investment options ongoing, and remove any imprudent investment funds. Finding in favor of the plaintiffs reinforced the importance for plan sponsors of having a prudent process in place for the ongoing monitoring of the plan’s investment options.
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LOWERING FEES POST TIBBLE – Studies indicate that plan sponsors and advisors are understanding of the importance of monitoring fees, utilizing the most cost-efficient share classes available, reducing or eliminating revenue-sharing arrangements, implementing fee equalization and putting prudent monitoring processes in place. In certain cases, making these changes post Tibble has resulted in certain plans coming under additional scrutiny. One major corporation caught in this trap is Starwood Hotels & Resorts Worldwide Inc. Workers allege that the company cut their fees in half post Tibble, but had they done so six years earlier, they may have saved plan participants more than $20 million in fees over that period. PRIVATE UNIVERSITY 403(b) PLANS - Since the summer of 2016, 16 private universities have been sued for excessive fees. Brown, Columbia, Cornell, Duke, Emory, New York University, Johns Hopkins, Massachusetts Institute of Technology, Northwestern, Princeton, University of Chicago, University of Pennsylvania, University of Southern California, Vanderbilt, Washington and Yale. The only 403(b) case to be dismissed to date is the University of Pennsylvania. These cases are somewhat unique as 403(b) plans have a long history dating back to the early 1900s and until 2009 were not highly regulated. These types of plans typically have had multiple recordkeepers and duplicative investment options available from multiple investment providers. There is a growing trend towards consolidation and streamlining of recordkeeping services and investment options, especially for those 403(b) plans that are subject
to ERISA.
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FUTURE TARGETS – Labor Unions may be the next group to be targeted by the tort lawyers. A suit was filed in the District Court of Central California on November 30th involving a 27,178 member, $1 billion dollar, union sponsored multiemployer Supplemental Income 401(k) Plan. The claim is that the Board of Trustees and its individual members breached their duty of loyalty and prudence by offering higher cost retail share class mutual funds when identical lower cost institutional share classes were available and that the plan overpaid the- recordkeeping service providers due to revenue sharing arrangements that led to higher cost retail funds.
The number of lawsuits filed in the last few years plus the addition of other types of plans besides mega corporate 401(k) plans has caused concern for retirement plan fiduciaries. One of the best ways for plan fiduciaries to keep plans out of the headlines is to make sure that plan sponsors and their representatives understand the fees they are paying and how those fees are being paid. The second is to make certain that there is a process in place to monitor the performance, expenses and available share classes of funds in the plan. Plan sponsors who have revenue sharing funds in their plans might consider crediting back any revenue sharing generated to the participants who are invested in those funds, thereby lowering the net expense ratio of those funds. Plan sponsors that charge their recordkeeping fees to the plan, might consider charging a flat per participant fee to any participant with an account balance. In addition, a set percentage based on plan assets could be allocated across all participant account balances. In some cases it might make sense to have both a flat per head fee and an asset based fee. These are just some ideas of how to make the payment of plan expenses more transparent and equitable for all participants. It is important to remember that neither ERISA nor the Department of Labor requires you to choose the least expensive service provider or fund share class. The least expensive option may not always be the best choice unless cost is the only difference, but acting in the best interests of plan participants is always what really matters. Stay tuned for the next chapter in fee litigation. 1 Source: Bloomberg BNA review of docket files
www.innovestinc.com
EMPLOYEE SPOTLIGHT
WHAT DO YOU LIKE BEST ABOUT WORKING AT INNOVEST?
BECCA ELLIS - MANAGER
I can’t say enough about the culture at Innovest. There is an emphasis on creating a best place to work through the type of people hired, an emphasis on being stewards, fun morale-building activities, community service opportunities, and including employees’ families in the Innovest family.
Becca is the manager of Marketing, supporting Business Development efforts for Innovest’s retirement plan, foundation and endowment and high net worth family practices. Her primary responsibilities are to further Innovest’s brand through proposals and presentations, social media, public relations, and events.
HOW DO YOU GIVE BACK TO THE COMMUNITY? I enjoy participating in a number of service projects through my church, at Innovest, or my sister’s nonprofit, Awesome Kids Who Care. WHAT ARE YOUR HOBBIES AND INTERESTS? My main hobby right now is chasing around my 18-month-old toddler, Miles. He keeps me on my toes, and we love spending time outdoors on walks, at the zoo, or at the park. After his bedtime, you can find me exercising, watching Shark Tank, watching chick flicks, and catching up with friends. TELL US ABOUT YOUR FAMILY.
WHERE IS YOUR HOMETOWN? A Colorado native, I was born and raised in Centennial. TELL US SOMETHING UNIQUE ABOUT YOU.
My husband, Jason, and I have been married for seven years. We are blessed with a goofy and cuddly son, Miles. We are fortunate to have both sets of grandparents nearby for trips to the mountains, family dinners and holiday celebrations.
My husband and I met in the same dorm hallway at Colorado State University (CSU) that my parents did 50 years earlier. Nine of our family members have attended CSU. Go Rams!
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AROUND THE FIRM RECENT EVENTS Innovest was proud to be named one of the “Best Places to Work in Money Management” by Pensions and Investments for three of the last four years. Employees consistently identified Innovest’s stewardship culture as a reason for it being a great place to work. Consistently being ranked as a best place to work aided Innovest in attracting Innovest’s newest team member, Vice President Katherine Sauer, Ph.D. Katie is working primarily with our university and retirement plan clients, as well as serving as a key contributor on our Capital Markets Team. Prior to joining Innovest, she was the director of financial Vice President Katie Sauer. wellness, education and research at the University of Colorado System Administration Office. Additionally, she previously held faculty positions at Metropolitan State University of Denver and University of Southern Indiana. Katie earned her doctorate in economics from the University of Colorado at Boulder and holds a certificate in change leadership from Cornell University. Last fall, from August 29 to September 1, 2017, Innovest sponsored and presented at the Colorado Public Plan Coalition Annual Conference in Beaver Creek, CO. Innovest team members Richard Todd, Donna Patch, Jerry Huggins, Gordon Tewell, Scott Middleton, Jared Martin, Marianne Marvez, and Rick Rodgers attended the conference. The conference drew more than 150 participants, including representatives from some of the largest public plans in Colorado.
EDITORS Whitney Wilkinson and Becca Ellis
INNOVEST PRINCIPALS Richard Todd Wendy Dominguez Bill Fender Peter Mustian Scott Middleton Steven Karsh
Garry Beaulieu Gordon Tewell Jerry Huggins Rick Rodgers Elizabeth Stemper
On December 7, Innovest sponsored the Rocky Mountain Benefit Plans Conference. The conference featured speakers from Innovest, EKS&H, Sherman & Howard, the U.S. Securities and Exchange Commission, TR Solutions and Empower. The conference was attended by more than 100 plan sponsors. Innovest employees and their families celebrated the holiday season with a gathering at Columbine Country Club. The event included a special visit from Santa, a delicious brunch, and a white elephant gift exchange. Congratulations to Nancy Swanson for winning the Founders Award – representing Innovest’s core values of honesty, integrity, hard work, and dedication to the client. Congratulations to Ryan Murphy for winning the 212-Degree Award, in recognition for his commitment to going the extra step for our clients and team. Congratulations also to Kathy LaLone for winning the annual Service to Others Award for focusing on helping the Innovest team and putting others first. Innovest will host the 18th Annual Rocky Mountain Nonprofit Conference on Wednesday, March 14, 2018. The mission of the conference is to provide an educational forum on topics of interest to enable board members, trustees, and executive staff to improve management of their organizations and their investment portfolios. Registration for the event will open in mid-January. If you have questions, please call Whitney Wilkinson at (303) 6941900, ext. 331 or [email protected].
Past performance is no guarantee of future results. Investing involves the risk of loss. The material herein has been prepared for informational purposes only and is not intended to provide, and should not be relied on for investment, tax, accounting, or legal advice. No representation is being made as to whether any investment product, strategy, or security is suitable or appropriate for an investor’s particular circumstances. Assumptions, opinions, and forecasts herein constitute our judgment and are subject to change without notice. Innovest is an independent Registered Investment Adviser registered with the Securities and Exchange Commission. This document may also contain returns and valuations from outside sources. While the information contained herein is believed to be true and accurate, Innovest assumes no responsibility for the accuracy of these valuations or return methodologies.
RETIREMENT 4643 S. Ulster Street | Suite 1040 | Denver, CO 80237 | 303.694.1900 | www.innovestinc.com
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