[PPT] - 2019 Outlook Quarterly Webinar January 23, 2019 TODAYS SPEAKERS PowerPoint Presentation

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WELCOME

Quarterly Webinar

2019 Outlook

January 23, 2019

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David Baskin President and Founder, Baskin Wealth Management (BWM)

TODAY’S SPEAKERS

Michael Kimmel Executive Director, RPB

G. Leonard Teitelbaum

Chair, RPB Board of Trustees

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Opening Remarks 2018 Market Recap and Plan Update 2019 Economic and Market Outlook Q&A

AGENDA

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OPENING REMARKS

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2018 MARKET RECAP & PLAN UPDATE

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Market losses with most asset classes returning negative performance Cash outperformed all other asset classes – first time since 1994 Growing recessionary concerns as market activity has increased the probability of an end of the current cycle Strong realized earnings growth spurred by tax reform Continued interest rate increases in 2018 as the Federal Reserve hiked rates once per quarter Return to volatility with December being the most erratic

2018 Market Recap

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$85 $90 $95 $100 $105 $110 Dec-17 J an-18 Feb-18 Mar-18 Apr-18 May-18 J un-18 J ul-18 Aug-18 S ep-18 Oct-18 Nov-18 Dec-18

2018 Global Equity Cumulative Performance (MSCI ACWI)

2018 Recap – Return to Volatility

Source: Bloomberg.

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$85 $90 $95 $100 $105 $110 Dec-17 J an-18 Feb-18 Mar-18 Apr-18 May-18 J un-18 J ul-18 Aug-18 S ep-18 Oct-18 Nov-18 Dec-18

2018 Global Equity Cumulative Performance (MSCI ACWI)

2018 Recap – Return to Volatility

Source: Bloomberg.

Market begins to price in rate hikes, which scares equity markets plagued by trade concerns

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$85 $90 $95 $100 $105 $110 Dec-17 J an-18 Feb-18 Mar-18 Apr-18 May-18 J un-18 J ul-18 Aug-18 S ep-18 Oct-18 Nov-18 Dec-18

2018 Global Equity Cumulative Performance (MSCI ACWI)

2018 Recap – Return to Volatility

Source: Bloomberg.

Market begins to price in rate hikes, which scares equity markets plagued by trade concerns Trade war volatility offset by strong corporate fundamentals; Fed repeatedly reiterates intentions to hike rates, but market looks for policy shift based on trade dynamics

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$85 $90 $95 $100 $105 $110 Dec-17 J an-18 Feb-18 Mar-18 Apr-18 May-18 J un-18 J ul-18 Aug-18 S ep-18 Oct-18 Nov-18 Dec-18

2018 Global Equity Cumulative Performance (MSCI ACWI)

2018 Recap – Return to Volatility

Source: Bloomberg.

Market begins to price in rate hikes, which scares equity markets plagued by trade concerns Trade war volatility offset by strong corporate fundamentals; Fed repeatedly reiterates intentions to hike rates, but market looks for policy shift based on trade dynamics

Market again realizes the Fed is serious about raising rates

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$85 $90 $95 $100 $105 $110 Dec-17 J an-18 Feb-18 Mar-18 Apr-18 May-18 J un-18 J ul-18 Aug-18 S ep-18 Oct-18 Nov-18 Dec-18

2018 Global Equity Cumulative Performance (MSCI ACWI)

2018 Recap – Return to Volatility

Source: Bloomberg.

Market begins to price in rate hikes, which scares equity markets plagued by trade concerns Trade war volatility offset by strong corporate fundamentals; Fed repeatedly reiterates intentions to hike rates, but market looks for policy shift based on trade dynamics

Market again realizes the Fed is serious about raising rates Growth scare causes interest rates and stocks to decline as investors anticipate start of a recession

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2018 Asset Quilt – Diversification Matters

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q4 2018

Description

MLP 45.7% MLP 43.7% Core Bonds 10.3% EM 55.8% REITs 31.5% EM 34.0% REITs 35.9% EM 39.4% Core Bonds 5.2% EM 78.5% MLP 35.9% MLP 13.9% EM 18.2% US Equities 33.6% REITs 30.4% REITs 2.5% MLP 18.3% EM 37.3% Stable Value 1.9% Core Bonds 1.6% Diversified US Investment Grade Bond Index REITs 26.8% REITs 12.8% REITs 3.7% MLP 44.5% EM 25.6% EAFE 13.5% EM 32.2% MLP 12.7% Stable Value 2.1% MLP 76.4% REITs 28.5% REITs 8.7% REITs 17.8% MLP 27.6% US Equities 12.6% Core Bonds 0.6% High Yield 17.1% EAFE 25.0% Core Bonds 0.0% Stable Value 0.6% Stable Value (90 Day US Treasury Bill) Core Bonds 11.6% Core Bonds 8.4% Stable Value 1.8% EAFE 38.6% EAFE 20.3% REITs 12.1% EAFE 26.3% EAFE 11.2% High Yield

26.2%

High Yield 58.2% EM 18.9% Core Bonds 7.8% EAFE 17.3% EAFE 22.8% Core Bonds 6.0% US Equities 0.5% US Equities 12.7% US Equities 21.1% High Yield

2.1%

High Yield

4.5%

High Yield Bonds (Non-Investment Grade Bonds) Index Stable Value 6.0% High Yield 5.3% High Yield

1.4%

REITs 36.8% MLP 16.7% MLP 6.3% MLP 26.1% Core Bonds 7.0% MLP

36.9%

EAFE 31.8% US Equities 16.9% High Yield 5.0% US Equities 16.4% High Yield 7.4% MLP 4.8% Stable Value 0.0% EM 11.2% High Yield 7.5% REITs

4.6%

REITs

6.7%

Real Estate Investment Trust Index High Yield

5.9%

Stable Value 4.5% MLP

3.4%

US Equities 31.1% US Equities 12.0% US Equities 6.1% US Equities 15.7% US Equities 5.1% US Equities

37.3%

REITs 28.6% High Yield 15.1% US Equities 1.0% High Yield 15.8% REITs 2.5% High Yield 2.5% EAFE

0.8%

REITs 8.6% REITs 5.1% US Equities

5.2%

EM

7.5%

Emerging Market Stock Index US Equities

7.5%

EM

2.6%

EM

6.2%

High Yield 29.0% High Yield 11.1% Stable Value 2.9% High Yield 11.9% Stable Value 4.9% REITs

38.0%

US Equities 28.3% EAFE 7.8% Stable Value 0.1% MLP 4.8% Stable Value 0.1% Stable Value 0.0% High Yield

4.5%

Core Bonds 2.7% Core Bonds 3.5% MLP

12.4%

EAFE

12.5%

Developed Market International Stock Index EAFE

14.2%

US Equities

11.5%

EAFE

15.9%

Core Bonds 4.1% Core Bonds 4.3% High Yield 2.7% Stable Value 4.8% High Yield 1.9% EAFE

43.4%

Core Bonds 5.9% Core Bonds 6.5% EAFE

12.1%

Core Bonds 4.2% Core Bonds

2.0%

EM

2.2%

EM

14.9%

EAFE 1.0% Stable Value 0.9% EAFE

13.8%

US Equities

14.3%

US Large and Small Stock Index EM

30.8%

EAFE

21.4%

US Equities

21.5%

Stable Value 1.1% Stable Value 1.1% Core Bonds 2.4% Core Bonds 4.3% REITs

16.8%

EM

53.3%

Stable Value 0.2% Stable Value 0.1% EM

18.4%

Stable Value 0.1% EM

2.6%

EAFE

4.9%

MLP

32.6%

Stable Value 0.3% MLP

6.5%

EM

14.6%

MLP

17.3%

Master Limited Partnerships (Pipelines) Index Best Performing Worst Performing

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2018 Year-To-Date Tier 1 Investment Returns

January 1, 2018 through December 31, 2018

*Net of investment management fees. **50/50 MSCI ACWI (IMI)/Bloomberg Barclays Global Agg through March 31, 2015; 60/40 MSCI ACWI (IMI)/Bloomberg Barclays Global Agg through September 30, 2016;

60/40 MSCI ACWI (IMI)/Bloomberg Barclays U.S. Agg through September 30, 2017; 55/45 MSCI ACWI (IMI)/Bloomberg Barclays U.S. Agg thereafter.

***Barclays Global Aggregate January 1, 2013 through September 30, 2016, Barclays US Aggregate thereafter.

.

8.27%
10.08%
4.90%
5.42%
0.78%

0.01% 1.93% 1.86%

12.00%
10.00%
8.00%
6.00%
4.00%
2.00%

0.00% 2.00% 4.00% Capital Appreciation Fund MSCI ACWI IMI Index Appreciation and Income Fund 55% MSCI ACWI IMI/45% Fixed Income Composite** Income Focused Fund Fixed Income Composite*** Capital Preservation Fund FTSE 3 Month T-Bill

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Redeployed defensive cash allocation in December at lower price points in Capital Appreciation and Appreciation & Income Funds Increased value exposure across US and International Stock exposure in Capital Appreciation and Appreciation and Income Funds Shifted MLP (energy related companies) exposure to a more diversified infrastructure exposure in the Income Focused Fund

2018 Tier 1 Allocation Highlights

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Tier 1 Fund Design Explained

Designed for Lower Volatility Than Overall Market:

Up markets may capture less of the upside
Down markets may capture less of the downside
Over a full market cycle, performance close to the benchmark

Key Metrics

Standard Deviation: volatility
Beta: market risk
Sharpe Ratio: risk-adjusted returns
Also track up-market and down-market capture

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Standard Deviation – Volatility Lower is less risky

Since Inception: January 1, 2013 through December 31, 2018

*50/50 MSCI ACWI (IMI)/Bloomberg Barclays Global Agg through March 31, 2015; 60/40 MSCI ACWI (IMI)/Bloomberg Barclays Global Agg through September 30, 2016;

60/40 MSCI ACWI (IMI)/Bloomberg Barclays U.S. Agg through September 30, 2017; 55/45 MSCI ACWI (IMI)/Bloomberg Barclays U.S. Agg thereafter.

**Barclays Global Aggregate January 1, 2013 through September 30, 2016, Barclays US Aggregate thereafter.

.

9.7% 10.7% 6.4% 6.5% 3.0% 3.9% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Capital Appreciation Fund MSCI ACWI IMI Appreciation & Income Fund 55% MSCI ACWI IMI/45% Fixed Income Composite* Income Focused Fund Fixed Income Composite**

Standard Deviation

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Beta* – Market Risk Less than 1.0 less sensitive to market changes

Since Inception: January 1, 2013 through December 31, 2018 0.90 0.96 0.58 0.00 0.20 0.40 0.60 0.80 1.00

Capital Appreciation Beta Appreciation & Income Beta Income Focused Beta

Beta

*Market, or benchmark, Beta is always 1.0

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Sharpe Ratio – Risk-Adjusted Returns Higher offers more return per unit of risk*

Since Inception: January 1, 2013 through December 31, 2018 0.67 0.65 0.59 0.58 0.26 0.09 0.00 0.20 0.40 0.60 0.80 1.00

Capital Appreciation Sharpe Ratio MSCI ACWI IMI Sharpe Ratio Appreciation & Income Sharpe Ratio 55% MSCI ACWI IMI/45% Fixed Income Composite Sharpe Ratio Income Focused Sharpe Ratio Fixed Income Composite Sharpe Ratio

*While an investor’s goal is often to maximize return, the amount of risk incurred in earning that return must also be considered

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Up- and Down-Market Capture Ratio

Since Inception: January 1, 2013 through December 31, 2018 90.8% 89.1% 95.8% 93.9% 65.6% 50.7% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Capital Appreciation Up Market Capture Ratio Capital Appreciation Down Market Capture Ratio Appreciation & Income Up Market Capture Ratio Appreciation & Income Down Market Capture Ratio Income Focused Up Market Capture Ratio Income Focused Down Market Capture Ratio

Up/Down Makret Capture

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2018 Year-to-Date Tier 2 Investment Returns

January 1, 2018 through December 31, 2018

*Net of investment management fees.

4.41%
4.38%
9.31%
9.33%
14.46%
14.55%
14.58%
14.49%
5.93%-5.86%
0.03%

0.01%

1.73%-1.55%

0.53% 0.41% 0.35% 1.38%

8.94%-9.42%
20.00%
15.00%
10.00%
5.00%

0.00% 5.00% Vanguard S&P 500 Instl Index Fund (VIIIX) S&P 500 Vanguard Small Cap Index Fund (VSMAX) CRSP US Small Cap TR Index Vanguard Developed Mkts Idx Fund (VTMGX) FTSE Developed All Cap ex-U.S. Index Vanguard EM Markets Index Fund (VEAMX) FTSE EM Mkts All Cap China A Inclusion Index Vanguard REIT (VGSNX) Vanguard Spliced Real Estate Index Vanguard Total Bond Index Fund (VBTLX)

Blmbg. Barc. U.S. Aggregate

Vanguard Int-Term Corp Bond Index (VICSX)

Blmbg. Barc. U.S. Credit 5-10 Year Index

Vanguard ST Inflation-Protected Index (VTAPX)

Blmbg. Barc. U.S. TIPS 1-5 Year

Vanguard Short-Term Bond Index Fund (VBIRX)

Blmbg. Barc. U.S. Gov/Credit Float Adj: 1-5 Year

Reform JVI Fund MSCI AC World Index (Net)

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2019 ECONOMIC & MARKET OUTLOOK

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Political uncertainty in US with increased polarization and a split congress US tariffs imposed on three largest trading partners raises uncertainty Continued employment gains could increase inflationary pressure barring a larger economic slowdown Reduced interest rate hike expectations as the Fed has signaled two hikes in 2019, down from three the market expected at the end of 2018. Beginning in Q4, disconnect between market performance and economic fundamentals—market priced in more severe slowing than current economic data indicated (jobs, GDP, durable goods, home starts/sales, auto sales)

2019 Outlook – Domestic and Global Factors

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Stock markets initially off to fast start, but questions persist about future global earnings and how much one should pay for those earnings (price multiple) Concerns over global economic growth, and especially in China, which could lead to significant headwinds particularly for technology companies Failure to resolve Brexit crisis puts European earnings at risk Rising instability for European central governments poses risks

2019 Outlook – Domestic and Global Factors

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Increasing concerns, though low probability of recession in 2019 Markets have higher estimates for recession than indicated by fundamental economic measures Predicting recessions is difficult (impossible) in practice

US Recessionary Concerns – 2019

Source: New York Fed and J.P. Morgan.

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Dec-07 J ul-08 Feb-09 S ep-09 Apr-10 Nov-10 J un-11 J an-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 J ul-15 Feb-16 S ep-16 Apr-17 Nov-17 J un-18 J an-19 Aug-19

New York Fed Probability of Recession

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Very strong 2018 earnings 2019 earnings growth forecast more muted; tax reform impact is normalizing, higher wages and drop in consumption may impact corporate earnings

Strong and Slowing Earnings

Source: Factset.

25% 25% 28% 16% 4% 5% 5% 11%

0% 5% 10% 15% 20% 25% 30% 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 P ercent C hange Y /Y

S &P 500 Bottom-Up E PS Actual & Estimate

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Current economic cycle is one of the longest on record Cycle now near historical expansion ends

Economic Cycle: Beginning of the End?

Prior Expansion Peak Economic Cycle Duration (Quarters) 4Q 1948 19 3Q 1953 16 3Q 1957 11 2Q 1960 38 4Q 1969 16 4Q 1973 25 1Q 1980 6 3Q 1981 36 3Q 1990 42 1Q 2001 27 4Q 2007 44 Average Duration 25

current cycle duration since prior peak

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Lower expected returns going forward Smooth annual return over time; actual experience is bumpier Understand your time horizon, risk tolerance, and lifestyle needs The markets can’t correct for low contribution rates or overspending

What Does This Mean For You?

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Resources

RPB Annual Retirement Planning Seminar

May 19-21, 2019 JW Marriott | San Francisco Union Square

LifeWorks: 800-533-5690
Retirement planning calculators: rpb.org/calculators

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