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 Fixed Income Investment Team Victor Djajalie, CFA Corporate/Government Bond Trading Credit Research Casey Colton, CFA Emily Howard Kevin Buckland, CPA, CGMA MBS and TIPS Trading ABS/CMBS Research and Trading Operations and Analytics Page 3 Department of Revenue - Treasury Division

Alaska Retirement Management Board ARMB Asset Allocation Short Term Pool - Retirement TIPS, Internally Managed 1% Taxable Muni Bond Pool 0% 1% US Treasury Fixed Income Pool 4% Emerging Markets Debt Pool 1% Alternative Fixed Income Pool 1% International Fixed Income Pool 2% High Yield Pool Real Asset Pool 17% Equity Manager Total 54% Private Equity Pool 8% Absolute Return Pool 7% As of December 31, 2016 Page 4 Department of Revenue - Treasury Division

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

Alaska Retirement Management Board Risks to Investment Approach 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. • Page 6 Department of Revenue - Treasury Division

Alaska Retirement Management Board Investment Outlook Portfolio Positioning Department of Revenue - Treasury Division Page 7

Alaska Retirement Management Board Treasury Yields are Still Low Despite Recent Rise Source: JP Morgan Page 8 Department of Revenue - Treasury Division

Alaska Retirement Management Board TIPS Yields are Also Range Bound Source: JP Morgan Page 9 Department of Revenue - Treasury Division

Alaska Retirement Management Board Corporate Fundamentals are Deteriorating Source: CreditSights Page 10 Department of Revenue - Treasury Division

Alaska Retirement Management Board Investment Grade Corporate Bond Net Issuance Source: Barclays Page 11 Department of Revenue - Treasury Division

Alaska Retirement Management Board Spreads are Tight Source: Barclays Live Page 12 Department of Revenue - Treasury Division

Alaska Retirement Management Board Intermediate Treasury Portfolio Dashboard Sector Allocation Spread Duration Contribution CMBS 0.00 Cash ABS Cash MBS 2% 0.00 4% 1% 2% Corporate 0.00 8% ABS 0.01 Agencies 0% 0.00 CMBS 0.03 0.00 MBS 0.04 0.00 Corporate 0.31 0.00 Agencies 0.03 0.00 Treasuries Treasuries 0.00 83% 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 Index Portfolio Portfolio Characteristics Key Rate Duration Exposure 14.00 1.80 12.77 1.60 12.00 1.40 10.00 1.20 8.00 1.00 0.80 6.00 0.60 3.87 3.90 4.00 0.40 1.83 1.83 1.80 1.67 0.20 2.00 0.42 0.22 0.22 0.00 0.00 0.00 0.00 KRD01 KRD02 KRD03 KRD05 KRD10 KRD20 KRD30 Coupon YTW OAS EDUR ECONV Spr Dur -0.20 Portfolio Index Portfolio Index As of December 31, 2016 Page 13 Department of Revenue - Treasury Division

Alaska Retirement Management Board Treasury Inflation Protected Securities Portfolio Dashboard Portfolio Characteristics Key Rate Duration Exposure 9.00 1.80 1.68 8.23 8.09 1.56 8.00 1.60 1.42 1.32 7.00 1.40 1.11 6.00 5.34 1.20 5.26 1.04 5.00 1.00 0.79 4.00 0.80 0.67 3.00 0.60 0.37 2.00 0.40 0.21 0.77 0.16 0.71 0.13 0.48 0.49 1.00 0.20 0.06 0.06 0.22 0.19 0.00 0.00 Coupon Real Yield WAL EDUR ECONV KRD01 KRD02 KRD03 KRD05 KRD10 KRD20 KRD30 Portfolio Index Portfolio Index As of December 31, 2016 Page 14 Department of Revenue - Treasury Division

Alaska Retirement Management Board Short-Term Fixed Income Dashboard Portfolio Characteristics Sector Breakdown 38.06 40.00 Cash 6% 35.00 Treasuries 23% 30.00 25.00 20.00 ABS 39% 15.00 Agencies 10.00 16% 5.00 Municipal 1.17 1.01 0.23 0.29 0.00 0.00 0.00 0.00 0.00 0% 0.00 Corporate CMBS MBS Coupon YTW OAS EDUR Spr Dur 12% 4% 0% Portfolio Index Quality Breakdown Spread Duration Contribution A 11% Cash 0.00 ABS 0.15 CMBS 0.01 MBS 0.00 AA Corporate 0.05 28% AAA Municipal 0.00 61% Agencies 0.07 Treasuries 0.00 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 As of December 31, 2016 Page 15 Department of Revenue - Treasury Division

Alaska Retirement Management Board Portfolio Performance Department of Revenue - Treasury Division Page 16

Alaska Retirement Management Board Performance 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% Source: Callan and State Street, As of September 30, 2016 Page 17 Department of Revenue - Treasury Division

Alaska Retirement Management Board Domestic Fixed Income Presentation