Alaska Retirement Management Board Domestic Fixed Income - - PowerPoint PPT Presentation

Alaska Retirement Management Board

Domestic Fixed Income Presentation

Victor Djajalie, CFA Juneau, Alaska March 3, 2017

Alaska Retirement Management Board

Fixed Income Investment Team ARMB Asset Allocation Investment Approach & Risks

Department of Revenue - Treasury Division Page 2

Alaska Retirement Management Board Department of Revenue - Treasury Division Page 3

Victor Djajalie, CFA

Corporate/Government Bond Trading Credit Research

Casey Colton, CFA

MBS and TIPS Trading

Emily Howard

ABS/CMBS Research and Trading

Kevin Buckland, CPA, CGMA

Operations and Analytics

Fixed Income Investment Team

Alaska Retirement Management Board Department of Revenue - Treasury Division Page 4

ARMB Asset Allocation

Equity Manager Total 54% Absolute Return Pool 7% Private Equity Pool 8% Real Asset Pool 17% High Yield Pool International Fixed Income Pool 2% Alternative Fixed Income Pool 1% Emerging Markets Debt Pool 1% Taxable Muni Bond Pool 1% TIPS, Internally Managed 0% Short Term Pool - Retirement 1% US Treasury Fixed Income Pool 4%

As of December 31, 2016

Alaska Retirement Management Board Department of Revenue - Treasury Division Page 5

• Identify a broad range of potential movements in the yield curve from one to

three months into the future.

• Position portfolios to attempt to outperform over the full set of scenarios.
• Manage trading costs and give liquidity sparingly.
• Seek yield in non-Treasury holdings:
• Position portfolios in higher conviction securities.
• Diversify positions.
• Manage the basis between indexed and non-inflation-indexed Treasury

holdings.

Investment Approach

Alaska Retirement Management Board Department of Revenue - Treasury Division Page 6

• Future yield curve movements may be other than what we forecast.
• Spread changes are not explicitly incorporated, so could detract from

performance.

• Changes in inflation expectations may not mirror actual changes in inflation;

carry differences could detract from performance.

• Idiosyncratic, bond-specific, credit and structural risk is present.

Risks to Investment Approach

Alaska Retirement Management Board

Investment Outlook Portfolio Positioning

Department of Revenue - Treasury Division Page 7

Alaska Retirement Management Board Page 8 Department of Revenue - Treasury Division

Treasury Yields are Still Low Despite Recent Rise

Source: JP Morgan

Alaska Retirement Management Board Page 9 Department of Revenue - Treasury Division

TIPS Yields are Also Range Bound

Source: JP Morgan

Alaska Retirement Management Board

Corporate Fundamentals are Deteriorating

Department of Revenue - Treasury Division Page 10

Source: CreditSights

Alaska Retirement Management Board

Investment Grade Corporate Bond Net Issuance

Department of Revenue - Treasury Division Page 11

Source: Barclays

Alaska Retirement Management Board

Spreads are Tight

Department of Revenue - Treasury Division Page 12

Source: Barclays Live

Alaska Retirement Management Board Department of Revenue - Treasury Division Page 13

Intermediate Treasury Portfolio Dashboard

As of December 31, 2016

Treasuries 83% Agencies 0% Corporate 8% MBS 2% CMBS 2% ABS 1% Cash 4%

Sector Allocation

0.00 0.03 0.31 0.04 0.03 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 Treasuries Agencies Corporate MBS CMBS ABS Cash

Spread Duration Contribution

Index Portfolio

• 0.20

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 KRD01 KRD02 KRD03 KRD05 KRD10 KRD20 KRD30

Key Rate Duration Exposure

Portfolio Index 1.83 1.80 12.77 3.87 0.22 0.42 1.83 1.67 0.00 3.90 0.22 0.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 Coupon YTW OAS EDUR ECONV Spr Dur

Portfolio Characteristics

Portfolio Index

Alaska Retirement Management Board Department of Revenue - Treasury Division Page 14

Treasury Inflation Protected Securities Portfolio Dashboard

As of December 31, 2016

0.71 0.22 8.09 5.26 0.48 0.77 0.19 8.23 5.34 0.49 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 Coupon Real Yield WAL EDUR ECONV

Portfolio Characteristics

Portfolio Index 0.06 0.21 0.16 1.56 1.42 0.79 1.04 0.06 0.13 0.37 1.32 1.68 0.67 1.11 0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 KRD01 KRD02 KRD03 KRD05 KRD10 KRD20 KRD30

Key Rate Duration Exposure

Portfolio Index

Alaska Retirement Management Board Department of Revenue - Treasury Division Page 15

Short-Term Fixed Income Dashboard

As of December 31, 2016

1.17 1.01 38.06 0.23 0.29 0.00 0.00 0.00 0.00 0.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 Coupon YTW OAS EDUR Spr Dur

Portfolio Characteristics

Portfolio Index Treasuries 23% Agencies 16% Municipal 0% Corporate 12% MBS 0% CMBS 4% ABS 39% Cash 6%

Sector Breakdown

0.00 0.07 0.00 0.05 0.00 0.01 0.15 0.00 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 Treasuries Agencies Municipal Corporate MBS CMBS ABS Cash

Spread Duration Contribution

AAA 61% AA 28% A 11%

Quality Breakdown

Alaska Retirement Management Board

Portfolio Performance

Department of Revenue - Treasury Division Page 16

Alaska Retirement Management Board Department of Revenue - Treasury Division Page 17

Performance

Source: Callan and State Street, As of September 30, 2016

3 months 1 Year 3 Years 5 Years Inception Inception Date Intermediate Treasury Portfolio

• 0.16%

2.78% 2.43% 1.85% 2.48% Apr-10 Index

• 0.26%

2.50% 2.22% 1.64% 2.31% Difference 0.10% 0.28% 0.21% 0.21% 0.17% 3 months 1 Year 3 Years 5 Years Inception Inception Date Treasury Inflation Protected Securities Portfolio 1.04% 6.61% 2.43% 2.01% 4.52% Jul-07 Index 0.96% 6.58% 2.40% 1.93% 4.43% Difference 0.08% 0.03% 0.03% 0.08% 0.09% 3 months 1 Year 3 Years 5 Years Inception Inception Date Short Term Fixed Income 0.19% 0.68% 0.41% 0.40% 3.01% Jul-94 Index 0.10% 0.27% 0.12% 0.10% 2.73% Difference 0.09% 0.41% 0.29% 0.30% 0.28%

Alaska Retirement Management Board

Domestic Fixed Income Presentation