SLIDE 1
City of Miami General Employees’ and Sanitation Employees’ Retirement Trust
Q4 2016
SLIDE 2 FIRM OVERVIEW PHILOSOPHY & PROCESS INVESTMENT GUIDELINES PERFORMANCE RESULTS BOND MARKET REVIEW INVESTMENT STRATEGY PORTFOLIO REVIEW APPENDIX
2
Experience
More than 25 years of institutionally-focused investment management across equities and fixed income Total of 38 employees with an average professional-level tenure at Chicago Equity Partners of 16 years $9.0 billion in assets under management for 96 institutional clients around the world
Discipline
Focus on clearly-defined and process-oriented strategies which are repeatable and scalable Deliberate approach to taking investment risks for which we believe our clients will be appropriately compensated Long-standing commitment to continued innovation in our investment approach
Partnership
Entire business platform built around delivering targeted solutions for sophisticated investors: we work with our clients to meet their investment objectives Exceptional level of client service Robust operational platform following industry best practices is the cornerstone of our long-term stability
As of December 31, 2016.
Experienced Firm that Partners with Clients to Provide Investment Solutions
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Clients are Our Top Priority
- AAA Allied Group, Inc.
- Advocate Health Care
- Bryan Health System
- Consolidated Edison
- DTE Energy
- Island Insurance Company, Ltd.
- Marriott International, Inc.
- NAMIC (National Association of Mutual Insurance
Companies)
- Sherwin Williams Company
- Tempel Steel
- ThedaCare Operating Fund
- United Airlines
- United Technologies Corporation
- University Hospitals Health System
- Walgreen Company
- Wooster Brush Company
- Batchelor Foundation
- Catholic Theological Union
- Children’s Care Foundation
- Diocese of Joliet
- Diocese of St. Petersburgh
- Dominican Sisters of Kenosha
- Elks National Foundation
- Friends Fiduciary Corporation
- Gottlieb Memorial Foundation
- Hall-Perrine Foundation
- Iowa Board of Regents
- LaRabida Children’s Hospital
- Lloyd A. Fry Foundation
- Mennonite Education Agency
- Misericordia Home Endowment
- Missionary Servants of the Most Blessed Trinity
- Moose Foundation
- Northwest Women’s Religious Investment Trust
- Oklahoma Medical Research Foundation
- Purdue University
- Regents of the University of Colorado
- Rush University Medical Center
- Schoenstatt Sisters of Mary
- Sisters of Charity of Saint Elizabeth New Jersey
- Sisters of St. Casimir
- Sisters of Saint Dominic
- Sisters of Saint Francis of Assisi
- Smith Center for the Performing Arts
- SSM International Finance
- St. Procopius Abbey
- Virginia Mennonite Retirement Community
- Wallace H. Coulter Foundation
- Association of Washington Cities
- California State Teachers’ Retirement System
- Chicago Housing Authority
- City of Miami General Employees' and Sanitation
Employees' Retirement Trust
- City of Springfield Police Pension Fund
- Commonwealth of Massachusetts Deferred
Compensation Plan
- Cook County Employees’ Annuity and Benefit Fund
- Firemen’s Annuity and Benefit Fund of Chicago
- Intergovernmental Risk Management Agency
- Knox County Retirement System
- Lake Forest Police Pension Fund
- Los Angeles Fire & Police Pension System
- Nevada Higher Education Pre-paid Tuition Program
- Nevada State Treasurer
- New Orleans (LA) Sewerage & Water Board Pension
- Park Employees' Annuity & Benefit Fund of Chicago
- Public School Retirement System of the City of St.
Louis
- Retirement Plan for CTA Employees
- State Universities Retirement System of Illinois
- WorkSafeNB
- Bakery Drivers & Salesman Local 194
& Industry Pension Fund
- Chicago Area I.B. Of T. Benefit Trust Funds
- Chicago Regional Council of Carpenters Millmen
Pension Fund
- Des Moines Iron Workers Local 67
- District #9 I.A.M.A.W. Pension Trust
- Midwest Operating Engineers’ Welfare Fund
- North Central Illinois Laborers Health & Welfare Fund
- NYC Local 237 International Brotherhood of
Teamsters
- Painters and Allied Trades District Council #35 Trust
Funds
- Southern States Savings and Retirement Plan Trust
- Teamsters Local #705 Pension and
Health & Welfare Funds
- Uniformed Firefighter's Association (NYC)
- AMG Funds
- Bank of Hawaii
- Jackson National Asset Management, LLC
The above client list is a representative sample of clients with assets
- f $5 million or greater under management who have given CEP
permission to use their name as of December 31, 2016. It is not known whether the listed clients approve
disapprove
Chicago Equity Partners or the advisory services provided.
Corporations Endowments & Foundations Public Funds Taft-Hartley Mutual Funds / Subadvisory
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CEP Fixed Income Team
CEP’s Fixed Income team employs an accomplished team of industry leading investment professionals who have spent an average of 16 years working together.
FIXED INCOME TEAM QUANTITATIVE RESEARCH INDUSTRY ANALYSTS
Portfolio management Risk control Model research and development Study academic and industry trends Company specific analysis Industry specific analysis
Ye ars with Ye ars in Ye ars with Ye ars in Ye ars with Ye ars in Firm I ndustry Firm I ndustry Firm I ndustry
Curt Mitc he ll, CF A
13 31
Ke ith Gusta fso n, CFA
20 27
Ro be rt Kra me r, CFA, CPA
27 30 Partner, CIO - Fixed Income Partner Founder
Mic ha e l Budd
27 37
Ge o rg e Ga o , CFA
12 23
Mic ha e l L a wre nc e , CFA
19 28 Managing Director Director Director
Christo phe r Ashbe e , CFA, FRM
7 14
Abha y Muno t, CFA
5 6
Ma rtin Mo rris, CFA
23 23 Director Director Director
F e ng Zha o , PhD, CFA, FRM
2 21
Willia m Murra y, CFA, CAIA
23 26 Director Director
T ina Kra usko pf
11 36
Ja me s Pa le rmo , CFA
25 33 Director Director
Ke nny Kwa n
7 27 Associate
Ave ra g e Ye a rs with Firm = 16 Ave ra g e Ye a rs in Industry = 26 December 31, 2016
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Fixed Income Investment Philosophy
Our Core Beliefs
Yie ld wins o ve r time , but no t all the time . Our rigorous research allows us to add value through sector allocation by identifying when we are being appropriately compensated for taking credit risk. Change s in fundame ntals drive se c urity se le c tio n re turns. The analysis of forward-looking measures of credit quality allows us to identify companies that we believe will outperform and avoid those that will underperform. Risk manage me nt is c ritic al to suc c e ss. Minimizing downside risk and avoiding permanent loss of principal are primary goals.
Outcomes
Our research-oriented and disciplined investment process focuses on fundamentals and valuations. A countercyclical, value-driven approach produces excess returns primarily through sector allocation and security selection rather than a static overweight to risky positions or interest rate timing. Returns are highly correlated to the overall bond market, but excess returns are generally often lowly or negatively correlated to bond manager peers.
We believe the role of fixed income is to provide principal preservation, income, and risk reduction through diversification.
T his philosophy is the founda tion of our inve stme nt pr
fir m unique .
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Fixed Income Investment Process
Sector Allocation
Sector and quality decisions incorporate fundamental, valuation, and momentum / sentiment market conditions.
Security Selection
Risk-budgeting framework measures magnitude of each excess return strategy on a forward-looking basis, while attribution provides real-time feedback.
2
Risk Management
3 1
STRUCTURED AND DISCIPLINED
Security and industry selection research combines quantitative equity-based inputs with qualitative insight from analysts.
We combine multiple strategies in areas where we have repeatedly demonstrated skill to produce consistent results.
TOP DOWN BOTTOM UP DOWNSIDE PROTECTION
Our inve stme nt pr
- c e ss pr
- duc e s c onsiste nt r
e tur ns while limiting r isk.
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Investment Guidelines
Hig h Qua lity Inte rme dia te F ixe d Inc ome Be nc hma rk
Barclays Intermediate Government Credit Index
F ixe d Inc ome Se c uritie s
The fixed income portion of the Trust shall be invested in marketable, fixed income securities. Corporate bond issues shall be diversified by industry and in number so that no investment in the securities of a single issue shall exceed 7% (at market) of the value of the portfolio. Single industry weightings will be a maximum of 25%, except US Government and agency securities. Fixed income investments are expected to preserve capital and provide a high level of income on a consistent basis. The fixed income investments shall be appropriately diversified although the investment manager may engage in "active" bond management. It is therefore anticipated that there may be turnover as shifts are made between and within sectors, quality and maturity. Average duration of the fixed income asset class will be targeted within a range of three to ten years. Each manager is expected to keep duration at +/- one year of the benchmark duration.
Pe rmissible Dire c t Inve stme nts:
Commercial Paper of only the highest quality shall be used when invested on an individual basis Certificates of Deposit of the top 100 national banks, so long as they are stated on the Controller's list Bankers Acceptances United States Treasury Bonds, Notes and Bills
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Investment Guidelines
Pe rmissible Dire c t Inve stme nts:
Repurchase agreements with U.S. Treasury Securities and agencies of the U.S. Government as collateral (marking to the market daily). The investment policy shall require all approved institutions and dealers transacting repurchase agreements to execute and perform as stated in the Master Repurchase Agreement. All repurchase agreement transactions shall adhere to the requirements of the Master Repurchase Agreement. Debt instruments issued or backed by agencies of/or guaranteed by the U.S. Government All investment grade corporate debt issues including those rated Baa3/BBB- better by Moody's Investors Services and/or Standard and Poors Corporation. In the case of a split rating, the higher rating shall apply. Securities downgraded subsequent to purchase resulting in violations of quality guidelines may be held at the manager's discretion subject to the high yield limitations indicated below. Mortgages, including agency, non-agency, commercial backed securities and CMO’s (as long as all other provisions are met). Futures (but must not exceed 15% without prior approval by the Board) and Options. However, these securities may not be used to leverage or hedge the portfolio. Preferred Stock Municipal Bonds Asset backed securities Yankee bonds/foreign credits Commingled and mutual funds Eurodollar bonds 20% maximum of each manager’s portfolio may be invested in aggregate to Yankee bonds, Foreign credits, Eurodollar bonds and Rule 144A Securities. 20% maximum of each manager’s portfolio may be invested in high yield securities (with ratings of CCC or better).
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Investment Guidelines
E xc lude d Dire c t Inve stme nts:
Private Placements Debt to Equity exchanges Investment managers are not authorized to use derivative securities, or strategies that do not comply with the basic investment objectives of this policy, i.e., an emphasis on the preservation of principal consistent with conservative growth of assets. Managers are specifically prohibited from using derivative or synthetic securities whose characteristics as implemented by the manager include potentially high price volatility and whose returns are speculative or leveraged (when considered together with liquid/short-term securities positions) or whose marketability may be severely limited, without written authority from the Board.
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Portfolio Performance
*T ra iling pe riods e nding De c e mbe r 31, 2016
0.00% 1.00% 2.00% 3.00% 4.00%
Q4 2016 1 Year 3 Years 5 Years Since Inception Portfolio
1.09% 1.76% 1.21% 2.59% Benchmark
2.08% 2.09% 1.85% 2.88% Excess
- 0.22%
- 0.99%
- 0.33%
- 0.64%
- 0.29%
- 3.00%
- 2.00%
- 1.00%
0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
YTD 2016 2015 2014 2013 2012 2011 2010 2009** Portfolio 1.09% 1.24% 2.97%
2.85% 6.98% 5.97%
Benchmark 2.08% 1.07% 3.13%
3.89% 5.80% 5.89%
Excess
0.17%
1.18% 0.08%
Ca le nda r Ye a r Re turns
Por tfolio Ma r ke t Va lue : $37,238,737
Performance results are gross of fees. Periods over one year are annualized. Performance start date: October 31, 2009 *Time weighted and year-to-date returns for periods ending December 31, 2016 **Return is for partial period beginning October 31, 2009 and ending December 31, 2009 Bloomberg Barclays Capital Inter. Govt/Credit City of Miami GESE
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Bloomberg Barclays Excess Return – QTD
Se c tor E xc e ss Re turns
0.0% 0.5% 1.0% 1.5% 2.0%
Corporate CMBS U.S. Agency Mortgage Sovereign Corporate Maturity E xc e ss Re turns
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
1-3 Yr 3-5 Yr 5-7 Yr 7-10 Yr 10 Yr > 25 Yr > Corporate Industry E xc e ss Re turns
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Financials Industrials Utilities
Quality E xc e ss Re turns
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Baa A AA
Note: Excess returns shown are for Index sectors within Bloomberg Barclays U.S. Aggregate Index relative to duration equivalent Treasuries. Source: Bloomberg Barclays for 10/1/16 – 12/31/16
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FIRM OVERVIEW PHILOSOPHY & PROCESS INVESTMENT GUIDELINES PERFORMANCE RESULTS BOND MARKET REVIEW INVESTMENT STRATEGY PORTFOLIO REVIEW APPENDIX
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Bloomberg Barclays Excess Return – YTD
Se c tor E xc e ss Re turns
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Corporate Sovereign CMBS U.S. Agency Mortgage Corporate Maturity E xc e ss Re turns
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
1-3 Yr 3-5 Yr 5-7 Yr 7-10 Yr 10 Yr > 25 Yr > Corporate Industry E xc e ss Re turns
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Financials Utilities Industrials
Quality E xc e ss Re turns
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Baa A AA
Note: Excess returns shown are for Index sectors within Bloomberg Barclays U.S. Aggregate Index relative to duration equivalent Treasuries. Source: Bloomberg Barclays for 1/1/16 – 12/31/16
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FIRM OVERVIEW PHILOSOPHY & PROCESS INVESTMENT GUIDELINES PERFORMANCE RESULTS BOND MARKET REVIEW INVESTMENT STRATEGY PORTFOLIO REVIEW APPENDIX
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High Quality Intermediate Excess Return
Hig h Q ua lity Inte rme dia te vs. Blo o mbe rg Ba rc la ys U.S. Inte rme dia te G o vt/ Cre dit
Rolling 5 year gross returns since inception (Q1 1996)*
1% 2% 3% 4% 5% 6% 7% 8% 9% 1% 2% 3% 4% 5% 6% 7% 8%
High Quality Intermediate Bloomberg Barclays U.S. Int G/C O utpe rfo rma nce Unde rpe rformanc e
See attached disclosure in the Appendix. Supplemental information offered is in addition to our performance presentation data and disclosures. Past pe r
for manc e is not indic ative of futur e r e sults.
* Data is based on quarterly five year rolling annualized returns since inception through 12.31.16.
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Bond Market Review and Outlook
Fed Policy
Ultra-easy monetary policy has increased the valuation of risk assets but done little to improve growth or inflation. Markets have become very dependent on policymakers and when liquidity has been reduced, risk assets have fallen. Central bank policies have distorted incentives and normal market signals have been clouded. The Fed is no longer adding stimulus but withdrawing liquidity. Policy tightening is occurring in a much slower growth environment and later in the economic cycle than past rate hikes. This will likely produce greater uncertainty, increased risks, unintended consequences, and higher volatility.
Fundamentals
Numerous indicators show we are late in the credit cycle. Leverage is at record levels and credit fundamentals continue to weaken. Ultra-easy monetary policy has produced negative side effects for creditors as problem-credits/defaults are increasing. Shareholder enhancement activity has peaked which historically has been a sign of a turn in the credit cycle. Given the current excesses in credit markets, the next downturn in the credit cycle could be severe and long-lasting.
Valuations
Credit spreads are priced for perfection and do not reflect the risks in the current environment. The recent dramatic backup in rates makes reaching for yield in credit less compelling.
Momentum / Sentiment
Without a recovery in underlying fundamentals, it will be difficult for the outperformance of credit to continue.
R isks a r e inc r e a sing a s the fa c tor s tha t ha ve dr ive n outpe r for ma nc e in c r e dit be c ome le ss suppor tive .
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Fed Policy
Source: Bloomberg as of December 31, 2016. Economic data is from the latest quarter that was available before a rate decision. R e c e ssion R e c e ssion R e c e ssion
1 2 3 4 5 6 7 8 9
Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Percent (%) Fed Funds Rate
HIKING CYCL E F e b 1994 – F e b 1995
Unemployment Rate 6.5% Core Inflation 2.3% GDP Growth 3.4%
HIKING CYCL E Jun 2004 – Jun 2006
Unemployment Rate 5.5% Core Inflation 2.0% GDP Growth 4.2%
HIKING CYCL E De c 2015 – De c 2016
Unemployment Rate 4.6% Core Inflation 1.7% GDP Growth 1.6%
The Fed is attempting to raise interest rates in an environment where growth and inflation are much lower than in previous tightening cycles.
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Fed Policy
Sep-16
120 140 160 180 200 220 240 260 20 40 60 80 100 120 140 160 Dec-70 Aug-72 Apr-74 Dec-75 Aug-77 Apr-79 Dec-80 Aug-82 Apr-84 Dec-85 Aug-87 Apr-89 Dec-90 Aug-92 Apr-94 Dec-95 Aug-97 Apr-99 Dec-00 Aug-02 Apr-04 Dec-05 Aug-07 Apr-09 Dec-10 Aug-12 Apr-14 Dec-15
Total Nonfinancial Debt to GDP (%) Total Stock Market Cap to GDP (%)
Total Stock Market Cap to GDP Total Nonfinancial Debt to GDP
Source: Bloomberg as of September 30, 2016. Note: Total nonfinancial debt includes government, household, and nonfinancial corporate debt.
T
ke t Ca pita liza tion to GDP vs. T
- ta l Nonfina nc ia l De bt to GDP
The current extreme level of risk assets has been supported with debt.
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Policy divergence has caused the dollar to rise, which has led to a significant tightening in global financial conditions.
50 60 70 80 90 100 110 120 130 140 150
Jan-73 Aug-75 Mar-78 Oct-80 May-83 Dec-85 Jul-88 Feb-91 Sep-93 Apr-96 Nov-98 Jun-01 Jan-04 Aug-06 Mar-09 Oct-11 May-14 Dec-16 Implic ations of a Str
Lower earnings for U.S. multinationals Undermines financial stability of foreign banking system Increased deleveraging risk for $10 trillion dollar carry trade Higher servicing costs for $4 trillion in emerging market debt Increased deflation risk Potential for increased risk aversion / flight to quality
Sources: Bloomberg, Bank for International Settlements as of December 31, 2016
T he re is a strong positive re lationship be twe e n the dollar and c re dit spre ads.
Index Value
T r a de We ig hte d U.S. Dolla r
Latin American Debt Crisis Asian/Russian Debt Crisis
Fed Policy
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Fundamentals
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Fundamentals
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Fundamentals
0.0 0.2 0.4 0.6 0.8 1.0 Jun-81 Jun-82 Jun-83 Jun-84 Jun-85 Jun-86 Jun-87 Jun-88 Jun-89 Jun-90 Jun-91 Jun-92 Jun-93 Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Chic a g o F e d Na tiona l Ac tivity Diffusion Inde x
Given where we are in the current credit cycle, we believe it is prudent to be cautious in the near-term but to be looking for opportunities over the intermediate-term.
Source: Bloomberg as of November 30, 2016
Mid-Cycle Slowdown Mid-Cycle Slowdown Mid-Cycle Slowdown Mid-Cycle Slowdown
RECESSION
R e c e ssion T hr e shold
Nov-16 RECESSION RECESSION RECESSION
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21 1 2 3 4 5 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$Trillions
20 40 60 80 100 120
Jun-88 Dec-89 Jun-91 Dec-92 Jun-94 Dec-95 Jun-97 Dec-98 Jun-00 Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10 Jun-12 Dec-13 Jun-15 Dec-16 $Billions
Source: Standard & Poor’s Sources: CreditSights, Dealogic
Ave r a g e Qua r te r ly Buyba c ks M&A Volume s
The peak in stock buybacks and deal activity provide additional evidence the credit cycle has turned.
Fundamentals
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Valuations
100 200 300 400 500 600 700 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Bloomberg Barclays Corporate Spread Index
Investment grade corporate spreads do not adequately compensate investors for global risks.
Basis Points
Stock Market Crash QE1
Source: Bloomberg Barclays as of December 31, 2016
Recession Subprime Crisis Worldcom Recession LTCM S&L Crisis QE2 9/11 QE3 GM/Ford Downgrades QE3 Ends $0 $1 $2 $3 $4 $5 $6 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Market Value (trillions) Cor por ate s Outstanding by Quality
BAA A AA AAA
Corpora te Inde x %
1999 25% 2008 33% 2016 48%
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Valuations
Treasury yields were only modestly higher in 2016 despite the dramatic bond sell-off in the second half of the year.
Source: Bloomberg as of December 31, 2016 Note: Swedish 3Y Bond Yield is interpolated because no bond with that maturity exists
1 Ye ar 3 Ye ar 5 Ye ar 10 Ye ar 30 Ye ar
12/31/15 0.77% 1.33% 1.79% 2.30% 3.01% 12/31/16 0.82% 1.46% 1.92% 2.43% 3.05% Change in YTD Yields 0.05% 0.13% 0.13% 0.13% 0.04% 0% 1% 2% 3%
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15
PCE Core Price Index (YOY% Change) Fed Inflation Target Global Gove rnme nt Bond Yie lds PCE Core Pric e Inde x
As of 12/ 31/ 16 2Y 3Y 5Y 10Y
Switzerland
Japan
0.041 Germany
0.204 Netherlands
0.350 Sweden
0.543 France
0.681 UK 0.044 0.094 0.471 1.235 Spain
0.263 1.380 Italy
0.596 1.812 US 1.196 1.458 1.920 2.431 U.S. T re asury Yie ld Curve
Nov-16
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Credit Sector Scorecard
Cate gory Indic ator Implic ations for Cre dit Spre ads F undame ntals
Treasury Curve Slope Absolute Level Neutral Treasury Curve Slope Relative Level Tighter Credit Curve Slope Wider Leverage Wider Lending Standards Tighter
Valuations
High Yield Market Pricing Tighter Quality Spread Tighter
Mome ntum / Se ntime nt
Credit Sector Excess Return Trend Tighter Stock Market Volatility Wider Our credit sector scorecard incorporates fundamental, valuation and momentum/sentiment factors.
As of December 31, 2016
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Credit Sector Allocation Decisions: 2006 – Present
100 200 300 400 500 600 700
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Bloomberg Barclays Investment Grade Corporate Spread
Our disciplined sector allocation process has been successful over full market cycles.
T re nd re ve rsa l a s ma rke t re a c ts to e nd of QE Be g inning of Ce ntra l Ba nk “wha te ve r it ta ke s” polic ie s
Our only sustained periods of underperformance were when investors “reached for yield.”
UNDE RWE IGHT OVE RWE IGHT UNDE RWE IGHT
Source: Bloomberg Barclays as of December 31, 2016
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Investment Strategy and Portfolio Positioning
We will add to credit if valuations become attractive
Credit valuations have disconnected from fundamentals. The recent tightening we have seen in corporate spreads is historic for this point in the cycle. We will monitor inputs to our investment process for indications of improving conditions and opportunities.
Corporate holdings are focused on high quality, liquid issues
Energy has been underweighted and holdings emphasize the major integrated issuers. Negative event risk from shareholder enhancement and M&A activity continues to be a headwind for credit investors. Large capitalization issuers have been emphasized. Underweights include bank, foreign/sovereign, lower quality, and illiquid issuers.
Governments provide liquidity and stability
Governments are overweighted to provide liquidity for opportunities in credit. This will serve us well in an environment of greatly reduced liquidity.
Duration / Yield Curve
Increased interest rate volatility due to uncertainty regarding the Fed’s actions is likely. This has led us to maintain duration and maturity distributions close to the benchmark. We be lie ve a r e sumption of c r e dit spr e a d wide ning will pr
ne a r
m outpe r for ma nc e a nd long e r
m oppor tunitie s.
SLIDE 27 FIRM OVERVIEW PHILOSOPHY & PROCESS INVESTMENT GUIDELINES PERFORMANCE RESULTS BOND MARKET REVIEW INVESTMENT STRATEGY PORTFOLIO REVIEW APPENDIX
27
Portfolio Characteristics as of December 31, 2016
Sector +/- Treasury 25.02% U.S. Agency 1.05% Corporate
Other Credit
Cash 0.44% City of Miami GESE
Yield-to-Maturity 1.78% Duration 4.06 Average Quality Aa1 Number Of Issues 76 Other Credit category includes Local Authorities, Sovereigns, Supranationals and Foreign Agency. Well-diversified Blo o mbe rg Ba rc la ys Ca pita l Inte r. G o v/ Cre dit
Bloomberg Barclays Capital Inter. Gov/Credit
+ / - 10% City o f Mia mi G ESE Expo sure
Exposure
Lower Higher 2.09% 3.98 Aa2 5,172
Treasury 80.85% U.S. Agency 4.80% Corporate 13.91% Cash 0.44% Treasury 55.83% U.S. Agency 3.75% Corporate 32.95% Other Credit 7.47%
SLIDE 28 FIRM OVERVIEW PHILOSOPHY & PROCESS INVESTMENT GUIDELINES PERFORMANCE RESULTS BOND MARKET REVIEW INVESTMENT STRATEGY PORTFOLIO REVIEW APPENDIX
28
Portfolio Characteristics as of December 31, 2016
*U.S. Government and Agency securities are currently classified as AAA. City of Miami GESE Bloomberg Barclays Capital Inter. Gov/Credit
8.83% 4.35% 0.73% 18.82% 12.38% 1.75%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Industrials Finance Utilities Co rpo ra te Distributio n
1.98% 42.48% 22.57% 17.71% 15.26% 1.08% 36.30% 28.86% 17.02% 16.74%
0.00% 20.00% 40.00% 60.00% 80.00% 100.00% <1 year 1 to 3 years 3 to 5 years 5 to 7 years 7 to 10 years Ma turity Distributio n
86.49% 4.08% 7.49% 1.94% 64.58% 7.88% 16.11% 11.43%
0.00% 20.00% 40.00% 60.00% 80.00% 100.00% AAA AA A BBB Q ua lity Distributio n*
SLIDE 29 FIRM OVERVIEW PHILOSOPHY & PROCESS INVESTMENT GUIDELINES PERFORMANCE RESULTS BOND MARKET REVIEW INVESTMENT STRATEGY PORTFOLIO REVIEW APPENDIX
29
Historical Sector Allocation
SLIDE 30
Chicago Equity Partners
PORTFOLIO APPRAISAL
CITY OF MIAMI GESE RETIREMENT TRUST HQI SS ACCOUNT NUMBER: LE3H December 31, 2016
Unit Total Market Pct. Annual Quantity Security Cost Cost Price Value Assets Income Yield CORPORATE FINANCIAL 220,000 BANK AMER CORP 97.40 214,282.20 96.71 212,767.94 0.6 5,506.60 3.1 2.503% Due 10-21-22 120,000 BANK NEW YORK MTN BK ENT 100.02 120,026.40 100.04 120,043.68 0.3 2,940.00 2.4 2.450% Due 11-27-20 105,000 BANK OF MONTREAL 99.96 104,954.85 100.00 104,999.58 0.3 2,205.00 2.1 2.100% Due 12-12-19 205,000 CHUBB CORP 122.64 251,409.95 105.53 216,330.76 0.6 11,787.50 1.7 5.750% Due 05-15-18 105,000 GENERAL ELEC CAP CORP MTN BE 104.74 109,972.80 100.04 105,037.17 0.3 3,045.00 1.1 2.900% Due 01-09-17 175,000 GOLDMAN SACHS GROUP INC 97.57 170,756.25 97.16 170,023.00 0.5 4,112.50 3.0 2.350% Due 11-15-21 275,000 J P MORGAN CHASE & CO MTN BE 98.54 270,976.75 98.15 269,905.35 0.7 6,311.25 2.7 2.295% Due 08-15-21 160,000 MORGAN STANLEY 99.06 158,500.80 98.80 158,073.92 0.4 4,200.00 2.9 2.625% Due 11-17-21 45,000 TORONTO DOMINION BANK 101.65 45,740.70 100.59 45,267.75 0.1 1,012.50 2.0 2.250% Due 11-05-19 125,000 VISA INC 99.91 124,893.75 100.31 125,388.62 0.3 2,750.00 2.1 2.200% Due 12-14-20 300,000 WELLS FARGO & CO NEW 99.98 299,931.00 99.26 297,777.00 0.8 7,500.00 2.7 2.500% Due 03-04-21 Accrued Interest 11,244.77 0.0 1,871,445.45 1,836,859.54 4.9 51,370.35 2.5 30
SLIDE 31
Chicago Equity Partners
PORTFOLIO APPRAISAL
CITY OF MIAMI GESE RETIREMENT TRUST HQI SS ACCOUNT NUMBER: LE3H December 31, 2016
Unit Total Market Pct. Annual Quantity Security Cost Cost Price Value Assets Income Yield CORPORATE INDUSTRIAL 60,000 3M CO 98.06 58,834.20 98.02 58,814.40 0.2 1,200.00 2.4 2.000% Due 06-26-22 85,000 ALTRIA GROUP INC 102.91 87,471.80 101.14 85,968.66 0.2 2,231.25 2.2 2.625% Due 01-14-20 185,000 AT&T INC 111.72 206,678.30 107.51 198,885.54 0.5 9,620.00 2.7 5.200% Due 03-15-20 110,000 BOEING CO 98.79 108,669.05 100.59 110,644.60 0.3 2,585.00 2.2 2.350% Due 10-30-21 70,000 DR PEPPER SNAPPLE GROUP INC 99.96 69,973.40 100.02 70,016.10 0.2 2,191.00 3.1 3.130% Due 12-15-23 145,000 EXXON MOBIL CORP 101.16 146,684.90 100.22 145,313.34 0.4 2,476.60 1.6 1.708% Due 03-01-19 70,000 FORD MTR CO DEL 100.00 70,000.00 101.05 70,734.86 0.2 3,042.20 4.2 4.346% Due 12-08-26 140,000 GENERAL ELECTRIC CO 106.32 148,845.20 103.59 145,030.90 0.4 7,350.00 1.3 5.250% Due 12-06-17 110,000 GENERAL MLS INC 119.94 131,934.00 107.51 118,265.73 0.3 6,215.00 2.0 5.650% Due 02-15-19 100,000 HOME DEPOT INC 102.80 102,798.00 101.35 101,352.00 0.3 2,250.00 1.4 2.250% Due 09-10-18 125,000 KIMBERLY CLARK CORP 115.50 144,375.00 102.88 128,606.00 0.3 7,656.25 1.1 6.125% Due 08-01-17 170,000 LOCKHEED MARTIN CORP 101.05 171,790.10 100.40 170,677.11 0.5 3,145.00 1.6 1.850% Due 11-23-18 31
SLIDE 32
Chicago Equity Partners
PORTFOLIO APPRAISAL
CITY OF MIAMI GESE RETIREMENT TRUST HQI SS ACCOUNT NUMBER: LE3H December 31, 2016
Unit Total Market Pct. Annual Quantity Security Cost Cost Price Value Assets Income Yield 205,000 MCDONALDS CORP MED TERM NT BE 107.05 219,460.70 104.21 213,636.44 0.6 10,967.50 1.7 5.350% Due 03-01-18 90,000 MEDTRONIC INC 99.88 89,894.70 99.94 89,948.70 0.2 787.50 1.2 0.875% Due 02-27-17 225,000 MERCK & CO INC NEW 99.60 224,104.50 99.80 224,539.20 0.6 2,475.00 1.3 1.100% Due 01-31-18 125,000 PFIZER INC 99.93 124,910.00 99.91 124,882.12 0.3 2,125.00 1.7 1.700% Due 12-15-19 120,000 PHILIP MORRIS INTL INC 119.85 143,820.00 105.40 126,479.04 0.3 6,780.00 1.7 5.650% Due 05-16-18 60,000 SHELL INTERNATIONAL FIN BV 99.45 59,673.00 97.77 58,663.02 0.2 1,125.00 2.4 1.875% Due 05-10-21 95,000 SHERWIN WILLIAMS CO 100.16 95,156.75 99.83 94,835.17 0.3 1,282.50 1.5 1.350% Due 12-15-17 170,000 SYSCO CORP 106.09 180,346.20 103.87 176,573.73 0.5 8,925.00 1.7 5.250% Due 02-12-18 130,000 TYSON FOODS INC 102.38 133,094.00 100.95 131,239.16 0.4 3,445.00 2.3 2.650% Due 08-15-19 80,000 UNION PAC CORP 99.78 79,820.80 104.40 83,518.00 0.2 2,916.80 3.0 3.646% Due 02-15-24 80,000 UNITED PARCEL SERVICE INC 106.20 84,962.40 103.35 82,682.96 0.2 2,500.00 2.2 3.125% Due 01-15-21 32
SLIDE 33
Chicago Equity Partners
PORTFOLIO APPRAISAL
CITY OF MIAMI GESE RETIREMENT TRUST HQI SS ACCOUNT NUMBER: LE3H December 31, 2016
Unit Total Market Pct. Annual Quantity Security Cost Cost Price Value Assets Income Yield 186,000 VERIZON COMMUNICATIONS INC 100.31 186,568.01 100.96 187,784.48 0.5 4,882.50 2.3 2.625% Due 02-21-20 Accrued Interest 27,550.27 0.1 3,069,865.01 3,026,641.55 8.1 98,174.10 1.9 CORPORATE UTILITY 50,000 DOMINION RES INC VA NEW 110.17 55,084.50 106.85 53,423.85 0.1 2,225.00 2.7 4.450% Due 03-15-21 95,000 MIDAMERICAN ENERGY CO 106.16 100,856.75 103.36 98,196.46 0.3 3,325.00 3.0 3.500% Due 10-15-24 112,000 PROGRESS ENERGY CAROLINA 99.97 111,961.74 102.57 114,877.39 0.3 3,360.00 2.4 3.000% Due 09-15-21 Accrued Interest 2,346.42 0.0 267,902.99 268,844.12 0.7 8,910.00 2.7 AGENCY 55,000 FEDERAL HOME LN MTG CORP 103.78 57,081.47 101.64 55,902.38 0.2 1,306.25 2.0 2.375% Due 01-13-22 75,000 FEDERAL HOME LN MTG CORP 98.13 73,597.50 99.22 74,418.45 0.2 1,031.25 1.6 1.375% Due 05-01-20 565,000 FEDERAL NATL MTG ASSN 100.20 566,135.65 99.80 563,866.61 1.5 4,943.75 1.0 0.875% Due 03-28-18 33
SLIDE 34
Chicago Equity Partners
PORTFOLIO APPRAISAL
CITY OF MIAMI GESE RETIREMENT TRUST HQI SS ACCOUNT NUMBER: LE3H December 31, 2016
Unit Total Market Pct. Annual Quantity Security Cost Cost Price Value Assets Income Yield 115,000 FEDERAL NATL MTG ASSN 96.91 111,449.83 97.29 111,880.05 0.3 1,581.25 2.0 1.375% Due 10-07-21 300,000 FEDERAL NATL MTG ASSN 98.39 295,179.00 98.62 295,852.80 0.8 3,000.00 1.5 1.000% Due 10-24-19 570,000 FEDERAL NATL MTG ASSN 96.75 551,491.38 99.72 568,405.14 1.5 4,987.50 1.1 0.875% Due 05-21-18 95,000 FEDERAL NATL MTG ASSN 100.82 95,777.35 101.22 96,157.19 0.3 1,781.25 1.3 1.875% Due 02-19-19 Accrued Interest 4,184.84 0.0 1,750,712.18 1,770,667.47 4.8 18,631.25 1.3 TREASURY 1,895,000 UNITED STATES TREAS NTS 99.80 1,891,231.15 98.69 1,870,202.03 5.0 16,581.25 1.4 0.875% Due 09-15-19 550,000 UNITED STATES TREAS NTS 100.60 553,288.95 100.55 553,007.95 1.5 8,250.00 1.2 1.500% Due 02-28-19 1,110,000 UNITED STATES TREAS NTS 101.73 1,129,169.70 100.78 1,118,671.32 3.0 18,037.50 1.3 1.625% Due 04-30-19 1,185,000 UNITED STATES TREAS NTS 102.34 1,212,730.20 99.73 1,181,806.42 3.2 22,218.75 1.9 1.875% Due 11-30-21 700,000 UNITED STATES TREAS NTS 99.76 698,317.99 97.33 681,296.70 1.8 14,000.00 2.4 2.000% Due 02-15-25 34
SLIDE 35
Chicago Equity Partners
PORTFOLIO APPRAISAL
CITY OF MIAMI GESE RETIREMENT TRUST HQI SS ACCOUNT NUMBER: LE3H December 31, 2016
Unit Total Market Pct. Annual Quantity Security Cost Cost Price Value Assets Income Yield 1,880,000 UNITED STATES TREAS NTS 99.42 1,869,047.55 98.96 1,860,464.92 5.0 25,850.00 1.7 1.375% Due 08-31-20 1,025,000 UNITED STATES TREAS NTS 101.77 1,043,155.14 98.11 1,005,581.37 2.7 17,937.50 2.1 1.750% Due 09-30-22 600,000 UNITED STATES TREAS NTS 99.20 595,173.89 99.52 597,093.60 1.6 5,250.00 1.1 0.875% Due 10-15-18 1,130,000 UNITED STATES TREAS NTS 99.92 1,129,076.83 98.40 1,111,945.99 3.0 15,537.50 1.8 1.375% Due 01-31-21 1,985,000 UNITED STATES TREAS NTS 97.77 1,940,667.12 93.44 1,854,734.37 5.0 32,256.25 2.4 1.625% Due 02-15-26 1,090,000 UNITED STATES TREAS NTS 98.79 1,076,847.01 97.30 1,060,578.72 2.8 12,262.50 1.8 1.125% Due 02-28-21 775,000 UNITED STATES TREAS NTS 100.90 781,965.49 97.69 757,108.35 2.0 9,687.50 1.8 1.250% Due 03-31-21 2,255,000 UNITED STATES TREAS NTS 97.70 2,203,035.98 93.25 2,102,787.50 5.6 36,643.75 2.4 1.625% Due 05-15-26 625,000 UNITED STATES TREAS NTS 104.49 653,078.67 100.16 625,976.25 1.7 12,500.00 2.0 2.000% Due 02-15-22 650,000 UNITED STATES TREAS NTS 100.84 655,438.93 98.53 640,452.80 1.7 11,375.00 2.0 1.750% Due 05-15-22 35
SLIDE 36
Chicago Equity Partners
PORTFOLIO APPRAISAL
CITY OF MIAMI GESE RETIREMENT TRUST HQI SS ACCOUNT NUMBER: LE3H December 31, 2016
Unit Total Market Pct. Annual Quantity Security Cost Cost Price Value Assets Income Yield 760,000 UNITED STATES TREAS NTS 99.84 758,755.67 98.84 751,182.48 2.0 6,650.00 1.3 0.875% Due 07-31-19 1,365,000 UNITED STATES TREAS NTS 100.17 1,367,266.88 98.96 1,350,763.05 3.6 13,650.00 1.4 1.000% Due 09-30-19 505,000 UNITED STATES TREAS NTS 100.41 507,067.77 97.32 491,467.51 1.3 8,206.25 2.1 1.625% Due 11-15-22 1,330,000 UNITED STATES TREAS NTS 100.01 1,330,108.36 98.80 1,313,998.77 3.5 13,300.00 1.4 1.000% Due 11-30-19 230,000 UNITED STATES TREAS NTS 98.24 225,961.74 99.84 229,622.57 0.6 1,725.00 0.9 0.750% Due 12-31-17 365,000 UNITED STATES TREAS NTS 105.32 384,420.60 99.18 361,991.67 1.0 7,300.00 2.1 2.000% Due 02-15-23 420,000 UNITED STATES TREAS NTS 97.61 409,959.37 99.71 418,785.78 1.1 3,150.00 1.0 0.750% Due 03-31-18 675,000 UNITED STATES TREAS NTS 93.06 628,178.56 97.40 657,439.20 1.8 11,812.50 2.2 1.750% Due 05-15-23 1,555,000 UNITED STATES TREAS NTS 100.56 1,563,744.86 100.47 1,562,289.84 4.2 21,381.25 1.1 1.375% Due 06-30-18 970,000 UNITED STATES TREAS NTS 100.02 970,231.99 101.77 987,201.98 2.7 24,250.00 2.2 2.500% Due 08-15-23 36
SLIDE 37
Chicago Equity Partners
PORTFOLIO APPRAISAL
CITY OF MIAMI GESE RETIREMENT TRUST HQI SS ACCOUNT NUMBER: LE3H December 31, 2016
Unit Total Market Pct. Annual Quantity Security Cost Cost Price Value Assets Income Yield 1,295,000 UNITED STATES TREAS NTS 104.78 1,356,941.98 103.30 1,337,694.85 3.6 35,612.50 2.2 2.750% Due 11-15-23 705,000 UNITED STATES TREAS NTS 101.78 717,579.67 101.50 715,547.50 1.9 17,625.00 2.3 2.500% Due 05-15-24 1,480,000 UNITED STATES TREAS NTS 100.10 1,481,475.19 100.46 1,486,821.32 4.0 22,200.00 1.3 1.500% Due 05-31-19 945,000 UNITED STATES TREAS NTS 99.62 941,364.47 99.68 941,973.16 2.5 8,268.75 1.1 0.875% Due 07-15-18 95,000 UNITED STATES TREAS NTS 100.52 95,497.62 99.93 94,936.92 0.3 1,543.75 1.6 1.625% Due 07-31-20 Accrued Interest 105,088.13 0.3 30,170,779.35 29,828,513.05 80.1 455,062.50 1.8 CASH AND EQUIVALENTS General Classification MONEY MARKET FUND 507,211.47 507,211.47 1.4 101.44 0.0 507,211.47 507,211.47 1.4 101.44 0.0 MISCELLANEOUS Not Classified INCOME CASH FOR WITHDRAWAL 12,153.12 12,153.12 0.0 2.43 0.0 12,153.12 12,153.12 0.0 2.43 0.0 TOTAL PORTFOLIO 37,650,069.57 37,250,890.34 100.0 632,252.07 1.8 37
SLIDE 38 FIRM OVERVIEW PHILOSOPHY & PROCESS INVESTMENT GUIDELINES PERFORMANCE RESULTS BOND MARKET REVIEW INVESTMENT STRATEGY PORTFOLIO REVIEW APPENDIX
Annual Performance Disclosure
SLIDE 39 FIRM OVERVIEW PHILOSOPHY & PROCESS INVESTMENT GUIDELINES PERFORMANCE RESULTS BOND MARKET REVIEW INVESTMENT STRATEGY PORTFOLIO REVIEW APPENDIX
Contact Information
Today’s Presenters
Chic a g o E quity Pa rtne rs
180 N. LaSalle Street, Suite 3800 Chicago, Illinois Mike Budd Managing Director p: 312.629.8506 e: mbudd@chicagoequity.com James A. DeZellar, CFA Managing Director p: 312.629.5725 e: jdezellar@chicagoequity.com
