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Economic Dashboards

20112011

June 28, 2017The information in this document does not constitute a recommendation to buy or sell securities or any investment recommendation. The contentsof this document have been prepared solely for the OCERS Board and is meant to provide general information only. The information containedherein has been obtained from sources that we believe to be reliable, but its accuracy and completeness are not guaranteed. Any examples shownin this document are purely hypothetical and have been included for demonstrational purposes only.

© 2017 OCERS

Contents

1. Business Cycle Dashboards

2. Market Dashboards

3. Risk Factor Dashboards

4. Asset Class Dashboards

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OCERS provides copies of its Economic Dashboards to other public pension plans as a professional courtesy without representation or warranty. This information is not to be construed as investment advice. Commercial use of this material is expressly prohibited. OCERS assumes no liability for the accuracy of the information provided.

Business Cycle Dashboards

© 2017 OCERS

Business Cycle: U.S. economy, growth slowed in Q1

4

Peak?

We are here.

Business Cycle: A recession is considered to have occurred after 2 consecutive quarters of negative GDP growth. A recovery is defined as theperiod when the GDP level rebounds off the trough until it achieves the prior output peak. GDP growth beyond the prior output level isconsidered an expansion. A full business cycle is considered a round trip from one peak to the next, or one trough to the next.

Trends: U.S. real GDP rose by 0.7% during the 1st quarter compared to 2.1% growth in the 4th quarter. This was the slowest quarterly expansionin three years as weak auto sales and depressed utility costs dragged down consumer spending. Consumer spending, representing 70% of theeconomy, only grew 0.3% in the 1st quarter, the slowest pace since 2009. Economic growth in the 2nd quarter will be dependent on wage gainsin order to help boost sentiment and offset the negative effects on consumer spending from higher inflation. Year‐over‐year GDP growth camein at 1.9% vs 2.0% in the 4Q 2016. Fed policy makers indicated at their May meeting that they are inclined to ignore “transitory” weakness inthe 1st quarter and continue normalizing interest rates at their June meeting.

Real GDP indicates that the current business cycle has lasted for 111 months and remains in the expansion stage. The prior peak occurredduring 4Q07, and the last trough occurred during 2Q09 after GDP output had fallen by nearly $640 billion. The U.S. recovery took 2 years andofficially ended when GDP surpassed $15 trillion during June 2011. From the last peak the economy has grown by 1.3% per year, but since thetrough it has expanded by 2.1% annually in real terms. The last 3 recoveries have lasted 92 months (1982‐1990), 120 months (1991‐2001), and73 months (2001‐2007).

Source: Bloomberg/ Federal Reserve Bank of St. Louis, Real Gross Domestic Product (GDPC1)

US Real GDP – January 2006 to March 2017

Source: Bloomberg & National Bureau of Economic Research: www.nber.org/cycles/recessions.html(1/15/2013)

Dec 2007 Peak $15.0T

1Q17$16.8T

June 2009 Trough$14.4T

© 2017 OCERS

Leading and Coincident Indicators: Continued optimism

Leading and Coincident Economic index:The Commerce Department produces indexes of economic growth, including a coincident index which measures the current state of the economy, aleading indicators series which tends to presage GDP trends, and a lagging index which is a rear‐view mirror. Most people watch the leading indicatorsfor signals of what is to come. The coincident indicators tend to top out when a recession begins and bottom out when the recession ends, and theleading indicators tend to precede those points by several months. A sharp decline in the leading indicators is almost always bad news for the stockmarket; partly because stock prices themselves are part of the leading indicators index which makes its predictive power less valuable for investmentpurposes.

Trends: The index of U.S. leading indicators rose 0.3% in April after increasing 0.3% in March. Year‐over‐year it has gained 2.7%. 8 out of the 10indicators were positive, with the indicators for building permits and stock prices detracting. The April results suggest that the economy should continueto expand at a moderate pace. The coincident indicator (red line) rose 0.3 % in April (to 115.2 from 114.9). The leading indicator (blue line) rose to 126.9in February from 126.5 in March.

U.S. Conference Board Leading and Coincident Indicators10 years, monthly as of April 30, 2017

Source: Bloomberg/ Conference Board

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Leading Economic Index (LEI)1. Avg. weekly hours, manufacturing2. Avg. weekly initial claims, unemployment insurance3. Manf. new orders: consumer goods, materials4. ISM new orders index5. Manf. new orders: nondefense capital goods ex

aircraft6. Building permits, new private housing units7. Stock prices, 500 common stocks8. Leading Credit Index9. Interest rate spread, 10‐year Treasury vs. Fed Funds10. Avg. consumer expectations for business conditions

Coincident Economic Index (CEI)1. Employees on nonagricultural payrolls2. Personal income less transfer payments3. Industrial Production4. Manuf. and trade sales

Source: The Conference Board, www.conference-board.org (1/15/14)

Source: Bloomberg

© 2017 OCERS

Consumer Confidence: Cooled further in May

Trends: Consumer confidence fell to 117.9 in May after reporting 119.4 (revised) in April. The consumer expectations for the next six monthsalso fell to 102.6 in May from 105.4 in April. Consumer sentiment cooled further in May from the 16‐year high we saw in March. Consumerconfidence remains in healthy territory despite the recent cooling of the sentiment. We will continue to closely monitor the direction of thereadings over the next few months.

When consumer confidence begins to rise above “stall speed”, consumers and investors typically begin to engage in irrational behavior, drivingup asset prices beyond reasonable valuation and purchasing beyond their means. We are not there yet, but we are getting closer.

Source: Bloomberg / University of Michigan

Consumer ConfidenceMonthly from January 1, 1985 to May 31, 2017

30 year Average

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Exiting stall speed: irrational behaviors

Doom and Gloom

Source: Bloomberg

© 2017 OCERS

Fed Guideposts for Unemployment & Inflation

Trends: The U.S. unemployment rate fell to 4.3% in May from 4.4% in April, while the labor force participation rate declined slightly andwages failed to meet expectations (falling 0.8%). The labor market is showing some slowdown in hiring, but remains healthy overall,supporting the recent interest rate increase by the Fed. The slowdown could be due to a labor shortage where employers find it harder to fillvacancies, but if that is the case , we should expect faster wage growth. We will closely monitor the direction over the next few months.

Meanwhile, the consumer‐price index (headline inflation) fell 0.1% in May after it rose 0.2% in April. The consumer‐price index rose 1.9%over the past 12 months after rising 2.2% in April, returning below the Fed’s 2% inflation target. Prices for energy, transportation, andcommodities contributed the most to the decline in CPI. The “core” measure rose 0.1% from the previous month and rose 1.7% year‐over‐year, down from 1.9% in April.

U.S. Unemployment Rate and Consumer Price Index (Urban Consumers)10 years monthly to May 31, 2017

Source: Bloomberg/ Federal Reserve, Bureau of Labor Statistics

Inflation Target = 2.0%

7Source: Bloomberg & Federal Reserve

© 2017 OCERS

Fed Forecasts vs. the Futures MarketTarget Federal Funds Rate & 30‐day Federal Funds Futures Data Fed dots as of March 2017 & June 2017; Fed funds futures as of June 2017

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Source: The Federal Reserve & CME Group

Trends: The update to the fed funds futures market data, the black line (June) vs. the dashed grey line (March), shows that market participants are expecting a slower pace of an increase of the target federal funds rate by the Fed. The median FOMC forecast is indicating one more rate hike in 2017 with current Fed funds rate ranging between 1% and 1.25%, up from the 0.75% to 1% range established in March.The futures market is still telling us that bond traders are not pricing in any major rate hike any time soon.

Note the disparity between market expectations and the views of the Federal Reserve governors. Market expectations are still less optimistic than the Fed.

Disparity

The GREEN dots, known as the Fed’s “dot plot” represents theFed officials’ projection of where the central bank's key interest rate will be at the end of the year for the next few years

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Fed Funds Futures: No hike expected in July

Probability Matrix for Upcoming FOMC Meetingsas of 6/16/2017

US Dollar Index 9/30/15 to 6/16/2017

Probability for a Rate Hike at July FOMC Meeting (%)4/3/17 to 6/16/2017

Fed futures are pricing in a 37.4% chance of getting another rate hike by the end of this year.

Source: Bloomberg

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Inflation Expectations: Expectations falling off5‐Year, 5 year Forward Inflation ExpectationsAs of 6/16/2017

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Historically, market inflation expectations have remained relatively level at 2.5% over a long period of time and can be viewed as less fragile than what the Federal Reserve has made them out to be. Since 1995, core inflation has remained mostly below 2%.

During 2016, the year‐over‐year core inflation remained moderately higher in the range of 2.1‐2.3% relative to its 1.6‐2.1% range of 2015. In December, the gap between service and goods price trends narrowed further as prices for energy increased. The trend continued into 2017 where headline inflation surpass the Fed’s 2% target as well as the core inflation measure earlier in the year. However, it fell below the 2% target once again in May.

The recent cooling inflation pressure, a March pullback and weaker than expected April and May inflation numbers ,did not keep the Fed from raising the interest rate in June.

Source: Federal Reserve Bank of St. Louis – FRED Economic Data Inflation MeasuresAs of 5/31/2017

Source: Bloomberg

PPI Finished GoodsPPI Finished Goods ex Food & Energy

CPICPI ex Food & EnergyCPI Service Industry ex Energy Services

Line depicts 0%

This index is a measure of expected inflation (on average) over the five‐year period that begins five years from today

Oil shock

© 2017 OCERS

U.S. Job Growth and Wages

Source: Bloomberg/ Bureau of Labor Statistics

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Total Private Hourly Wages, S.A.8/31/2008 to 5/31/2017

Number of Workers, Nonfarm Total Payroll S.A.8/31/2008 to 5/31/2017



Average Weekly Hours, Private Workers S.A.Nominal Dollars, 10/31/2008 to 5/31/2017

Estimated Monthly Aggregate Payroll, Nonfarm Total S.A.Nominal Dollars, 10/31/2008 to 5/31/2017

Payroll growth is driving GDP through

the consumer

UNCHANGED

Recent 12‐month wage growth =

2.0%

© 2017 OCERS

15.6%

9.7%

8.1%

4.8%

9.6%

6.1%

4.7%

4.0%

2.3%

4.3%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Less than High School

High School degree only

Some College (associates)

Bachelors degree or higher

National Rate

Unemployment Rate by Education Level Attained8/2009 vs. 5/2017

5/31/2017 8/31/2009

Labor Market Monitor: Employment stable in May

Trends: The U.S. unemployment rate has been steadily falling sincethe financial crisis, from 10% to 4.3% as of May 2017. As seen onthe prior slide, hourly earnings have advanced 2.0% year‐over‐year, which should be supportive of a continued increase inconsumer spending.

Overall labor market dynamics look quite healthy for the U.S.economy, and the recent retracement in the various employmentmeasures are at this point only indicating a slight cooling.

Temporary help employment has increased in the last couple ofmonths from the lows seen in June 2016 when it was down 1.9%year‐to‐date. It is worth noting that temporary employmentpeaked prior to the last two recessions. We will continue tomonitor this leading indicator.


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Temporary Help Services Nonfarm Payrolls1/1/1990 to 5/31/2017

Pre-crisis average 66.5%

Source: BloombergSource: Bloomberg/ Bureau of Labor Statistics

Participation Rate12/31/1990 to 5/31/2017

The labor participation measure remains weak over the last year and well below the

pre‐crisis average

We will monitor this leading indicator

© 2017 OCERS

Manufacturing Indices: Manufacturing activity rebound

Trend: The Empire State Manufacturing Index, the index for manufacturing in the New York region, rebounded to 19.8 in June. The results aresurprising given that there has not been any actions taken regarding the administration’s trade, regulation, or tax policy. Regardless, it highlights arobust U.S. manufacturing sentiment.

In the report, the indicator for prices paid (20.0), new orders (18.1), and shipments (22.3) contributed the most. The 6‐month forward‐lookingindicators for manufacturers in the region also rebounded in June and overall expectations remain in expansionary territory.

The ISM Manufacturing Index slightly increased in May to 54.9 from 54.8 in April, and is remaining in expansionary territory. The results are encouraging and shows that there is stabilization in U.S. manufacturing, but with the dollar appreciating on the prospect of interest rate increases and global growth remaining slow, the upside potential for exports may be limited.

Source: Bloomberg13

Empire State Manufacturing SurveyJanuary 2008 to June 2017

ISM Manufacturing IndexJanuary 2008 to May 2017

A reading of more than 50 represents expansion of the manufacturing sector,

compared to the previous month. A reading under 50 represents a contraction, while a

reading at 50 indicates no change.

© 2017 OCERS

Spare Capacity and Industrial Production

Trends: Capacity utilization is the percentage of available mining and manufacturing capacity used at any point in time. Because of obsolescence, 80% to 85% is normally considered the “full throttle” level, beyond which capacity shortages begin to induce price increases. Capacity Utilization tends to correlate strongly with GDP and industrial production, but historically has been the quicker index to signal turning points and is followed more closely as a leading and confirming indicator. When the economy reaches its prior output peak, the expansion is no longer a “recovery” and is then called an “expansion” phase in the business cycle. At that point, growth rates tend to moderate as there is less remaining idle slack in capacity.

U.S. industrial production was unchanged in May after increasing 1.1% in April. The underlying reading for manufacturing dropped 0.4%, after a 1.1%increase in April. The capacity utilization fell slightly to 76.6% from 76.7% in April.

For now, we do not see capacity constraints impeding economic growth or requiring a hard foot on the brakes by the Fed.

Capacity Utilization as % of Total and Industrial ProductionMonthly from January 1995 to May 31, 2017

Source: Bloomberg/ Federal Reserve

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We are watching

© 2017 OCERS

U.S. Housing Market: Is the home-buying season back?

30Y Fixed Rate Mortgage (%) – (7/31/98 – 6/16/17) Mortgage Refinance Activity – (7/13/12 – 6/16/17)

Home Sales Existing – (10/31/2000 – 4/30/2017)

Home sales were strong throughout 2016 and the pace has continued with existing home sales reaching another cycle peak in March while retracing slightly in April, but remaining above the 15 year average. The home buying demand trend continues despite higher prices and rising mortgage rates, and housing continues to be an important contributor to U.S. economic growth.

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Source: Bloomberg/ Corelogic and US Census Bureau

Source: Bloomberg/ US Cenus Bureau

20 yr avg

15 yr avg

Muchhealthier

It’s not the cost of money holding back housing demand

Negative Equity Homes (%) – (9/30/09 – 3/31/17)

© 2017 OCERS

Global Shipping: Holding steady

Baltic Dry Index: Transportation of goods is a good measure of underlying economic activity. In the global markets, the best single indicatoris the Baltic Dry (shipping) Index which tracks global freight rates for ships carrying dry‐bulk commodities. The level of international tradeis highly correlated with these day‐rates. A decline in the Baltic Dry Index usually signals a global slowdown, and a rising index correlateswith global growth.

The Baltic Dry Index appears to be stabilizing as oil and commodity prices rebound. The multi‐year softening in shipping rates can beattributed to a sluggish global economy and excess shipping capacity. Similar to commodity super‐cycles, the shipping industry isvulnerable to booms and busts driven by overbuilding during economic expansion followed by lack of demand during contractions. Inresponse, shipping companies are increasing the rate at which old ships are turned into scrap and building more efficient fleets. Untilglobal trade improves, any rebound in rates will simply reflect “oversold” market pricing adjustments. Eventually we will findopportunities for “distressed” investment plays in this industry, but that may not be prudent until the next recession. This couldbecome a future “opportunistic” investment sector.

Source: Bloomberg/ Freight Transportation Research and Baltic Dry Index

Baltic Dry IndexMonthly from 9/30/2008 to 6/15/2017

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© 2017 OCERS

Bloomberg U.S. Economic Surprise Index

Trend: The Bloomberg Economic Surprise Index shows the degree to which economic analysts under or over‐estimate the trends in the businesscycle. The surprise element is defined as the percentage difference between analysts forecasts and the published value of a large number ofeconomic data releases of regularly reported weekly and monthly economic data releases (smoothed over a six‐month period with more weightgiven to recent releases). The forecasts are surveyed and displayed on the Bloomberg economic release calendar.

In 2015, economic momentum did not improve at all after the mid‐year market correction. However, economic momentum was more supportivein 2016 and it rose persistently throughout the year giving reason to believe the economic cycle has more to run, even as the stock market hasbeen reaching new record highs. As can be seen above, economic momentum increased sharply post the election, but has since leveled off andwith economic releases coming in below estimates as of lately.

Source: Bloomberg

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Bloomberg U.S. Economic Surprise Indexas of 6/20/2017

Economic Momentum trending up in 2016 & 2017?

Economic Momentum did not improve in 2015

© 2017 OCERS

Citi Economic Surprise Indices: Post elections effect wearing off?

Trend: The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that the data releaseshave been stronger than expected and a negative reading means that the data releases have been worse than expected.

Source: Bloomberg

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Citi Economic Surprise Index ‐ U.S.as of 6/20/2017

Citi Economic Surprise Index ‐ Euro‐Zone as of 6/20/2017

Citi Economic Surprise Index ‐ U.K. as of 6/20/2017

Citi Economic Surprise Index ‐ Emerging Markets as of 6/20/2017

Market Dashboards

© 2017 OCERS

6/20/2017 DescriptionLatest

* 5 yrs 10 yrs 15 yrsP/E Price to Earnings 15.4x 13.2 13.6 13.5P/B Price to Book 1.7 1.5 1.7 1.7P/CF Price to Cash Flow 7.4 7.0 8.0 7.8P/S Price to Sales 1.3 1.1 1.2 1.2Div. Yld Dividend Yield 2.4% 2.8 2.7 2.6

MSCI EME Index: Valuation Multiples Historical Average



MSCI EAFE Index: Valuation Multiples Historical Average



S&P 500 Index: Valuation Multiples Historical Average

Global Index Valuations: U.S. Valuations in “stretching” territory

Trends: High valuation metrics put share prices at risk. When shares are trading at high price to earnings ratios, sales or profits need to grow to justify the market’s expectations. In the U.S,corporations are operating at historically high profit margins, and price to sales ratios are elevated. If corporate earning don’t grow as fast as the market anticipates, share prices can decline.Compared to historical levels, the U.S. ratios of prices to sales and cash flow are near their highs. This is troubling to many analysts, who believe that P/S and P/CF ratios give the best measure of valuation, because they use top‐line sales and cash earnings instead of book value and reported profits which can be manipulated by management accountants.Emerging markets equity have “caught up” somewhat on a relative P/E basis.

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© 2017 OCERS

S&P 500 Forward P/E Ratio

Trend: The forward 12‐month P/E ratio for the S&P 500 is above the 5 and 10‐year historical averages seen on the prior page. However,it is arguable that the markets still look cheap on a dividend yield basis also seen on the prior page. Additionally, the dividend yields lookrelatively cheap compared to corporate bond yields, but this trend might be reversing due to the recent interest rate rally.

The forward 12‐month P/E ratio for the S&P 500 is computed as the current total market value divided by the sum of the 12 monthforward earnings per share (EPS). The driving force behind the higher P/E ratio is a combination of higher values driving the “P” and atthe same time there is a decline in the forward 12‐month EPS estimate for the S&P 500.Source: Bloomberg

S&P 500 Forward P/E ratioJanuary 1990 to June 2017

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Long‐term Average

Stretching?

© 2017 OCERS

80.9%

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1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

U.S. Market Cap to GDP: Valuation Indicator

Trend: The total market valuation is measured by the ratio of total market capitalization (Wilshire Total Market) to U.S. GDP. The ratio isbroadly used to determine whether an overall market is over‐ or under‐valued relative to the broader economy.

Over the past four decades, the ratio has varied within a large range: the lowest point was below 35% in the 1982 recession and the highestpoint reached above 136% during the tech bubble in 2000. Over the long‐run, stock market valuations are expected to mean revert. The highercurrent valuations therefore suggest the prospect of lower long‐term returns in the future.

Note: To match the quarterly GDP, the daily Wilshire data is an average of the daily closes in a quarter rather than the quarter‐end closes(slightly smoothing the volatility).

Source: Bloomberg & Federal Reserve Bank of St. Louis

Mean73.4%

U.S. Market Cap To GDP: Valuation Indicator1Q 1971 to 1Q 2017

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© 2017 OCERS 23

China Monitors: Manufacturing contracts

One of the biggest risks to the global economy remains a sharp Chinese contraction. In May, Caixin PMI Manufacturing dipped below 50 for the first time in 11 months to 49.6 from 50.3 in April. Satellite data confirms the move with the market awaits the official reading from the Chinese government. The Chinese Yuan strengthened post election, but remains within the longer term devaluation trend.

Caixin China PMIJune 30, 2014 to June 16, 2017

Source: Bloomberg <CNH>

Offshore Chinese RMB vs USDJanuary 6, 2011 to June 16, 2017

China Satellite Manufacturing Index Versus China OfficialDecember 31, 2010 to June 16, 2017

Services

Manufacturing

Source: Bloomberg <MPMICNSA> and <MPMICNMA> Source: Bloomberg <SPCKCSMI> and <CPMINDX>

Satellite

Official

?

?

Watching this

© 2017 OCERS

Crude Oil: Prices, Supply & Demand

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Trends: May average crude oil prices were lower than the April averages and declined further as of early June, settling at $50.63 per barrel on June 1. OPEC announced an extension to the voluntary production cuts through the first quarter of 2018 at their May 25 meeting, as concerns regarding the high level of global liquidity fuels inventories relative to the five‐year average level. Brent crude oil prices are forecasted to average $53 per barrel in 2017 and $56 per barrel in 2018.

Global economic activity continues to remain robust and is supporting oil consumption growth. However, the outlook for oil remains uncertain as OPEC’s supply plans remains highly uncertain.

Eventually, supply/demand dynamics will return to equilibrium as the lower prices will over time contribute to a pickup in demand and/or a decline in the supply.

Brent & WTI Oil Spot PricesOctober 2010 to June 20, 2017

Source: Bloomberg <CO1 Comdty>, <CLX5> & <AMLP>

Baker Hughes Oil & Gas Rig CountAugust 2014 to June 16, 2017

Brent Crude Price

WTI Crude Price

World Oil Production & Consumption (million barrels per day)

Source: U.S. Energy Information Administration “Short-Term Energy Outlook, June 2017”

*Forecasts

International

U.S.

© 2017 OCERS

Mid-Stream Energy: MLPs track oil lower

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Trends: Supply concerns weigh on oil prices as recent U.S. inventory data show larger than expected builds while other oil producing countries, such as Africa, increase output. Midstream energy has followed oil prices lower. The market watches as oil tests the lower end of the trading range to see whether prices can hold.

However, political initiatives toward alternative energy in the longer term may curtail energy demand and could impair long‐termpipeline asset values for MLPs. Overall, oil is facing both oversupply and lower demand scenarios which may ultimately lead to a lower range for oil prices for a prolonged period. On the positive side for MLPs, the lower energy prices will stimulate higher domestic demand and throughput, except for regions that become uneconomic for production.

Alerian MLP ETFApril 1, 2015 to June 16, 2017

Alerian MLP

Source: Bloomberg <CLA> & <AMLP>

WTI Crude Price

Risk Factor Dashboards

© 2017 OCERS

Risk Expectations: Volatility remains low

Trend: Volatility remains at multiyear lows, however the VIX futures curves has steepened perhaps anticipating higher volatility to come.

The VIX is a measure of risk (or unpredictability) of stock prices from day to day. The VIX Index is a key measure of market expectations ofnear‐term volatility conveyed by the S&P 500 stock index option prices. The VIX futures curve has reverted back to its normal term structurewith a relatively low spot price.

“Be fearful when others are greedy and greedy when others are fearful. “~ Warren Buffett

Source: Bloomberg Charts, Chicago Board Options Exchange

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Low Volatility ≠ Low Risk !!!

CBOE S&P 500 Volatility Index (VIX)Daily as of June 16, 2017

VIX Futures Curve As of June 16, 2017

10.911.325

12.32512.975

14.17514.925

15.42515.72516.775 17.15

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101112131415161718

Spot 1M 2M 3M 4M 5M 6M 7M 8M 9M

© 2017 OCERS

Equity Risk Monitor – P/E valuations are stretched

S&P 500 Financials – Median 10Y P/EAs of 6/20/2017

S&P 500 Industrials – Median 10Y P/EAs of 6/20/2017

S&P 500 Consumer Discretionary – Median 10Y P/EAs of 6/20/2017

S&P 500 Information Technology – Median 10Y P/EAs of 6/20/2017

The Price to Earnings ratio is a common valuation multiple used to assess whether a stock is overbought or oversold compared to company earnings. The stock market has continued to reach new highs post the Presidential election. Information Technology, Financials, Consumer Discretionary, and Industrials valuations are above the 10 year average.

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Source: Bloomberg

Source: Bloomberg Source: Bloomberg

Source: Bloomberg

© 2017 OCERS

Source: Bloomberg/ Bloomberg Indices

Credit Monitor – Spreads below average levels

Emerging Market Sovereign OAS (bps)as of 6/20/2017

Investment Grade Corp Bid OAS (bps)as of 6/20/2017

High Yield Corporate OAS (bps)as of 6/19/2017

10 Year Treasury Interest Rate (%)as of 6/20/2017

EMD, High Yield ,and Investment Grade have fully recovered from the decline early in 2016 and 10 year Treasury rates have been on the rise despite recent retrenchment. Low rates and narrow spreads encourage poor capital use and lack of credit discipline. Widening spreads could bring some caution into a frothy credit market and a shift from greed to fear.

29Source: Bloomberg/ Bloomberg Indices

Source: Bloomberg/ Bloomberg Indices

© 2017 OCERS

European Banks: Banks spike higher after election

Stoxx 600 Banks Index vs 5 year Corp CDSas of 6/16/2017

Deutsche Bank – Contingent Convertible Bondsas of 6/16/2017

Stoxx 600 Banks Index – Price/Book Ratioas of 6/16/2017

Trends: European banks jumped after Emmanuel Macron won the French election easing concerns over a Marine Le Pen victory. Credit risk returns to levels not seen since 2015.

Source: Bloomberg

Stoxx 600 Banks Index

5yr Corp CDS

Source: Bloomberg, DB 7.5% 12/29/49 CoCo (EK5892527)

Source: Bloomberg <sxp7>

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High Yield Market: Still strong

Trends: The high yield bond market has seen a steep decline which was intensified by scarcity due to less dealer inventory. Yields greater than 10% are often seen as distressed. Since mid February 2016, the high yield market has recovered all of its losses and then some.

US High Yield Bonds with Yield‐to‐Worst Greater than 10%As of June 2017

Source: Bloomberg <HCNF> Inspiration: CQS

BoAML US Non‐Financial High Yield Constrained Index11/30/2015 to 6/15/2017

BoAML US Non‐Financial HY ‐‐ Yield‐to‐Worst (%)11/30/2015 to 6/15/2017

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Asset Class Dashboards

Equity

Fixed Income

Emerging Markets

Real Estate

Private Equity & Credit

Real Assets

© 2017 OCERS

Periodic Chart of OCERS’ Indices and Total Plan

Trend: The periodic chart of asset classes illustrates the differing return patterns over the last 10 years from a few of the major OCERS’ indicesincluded in the policy benchmark. From year to year, the chart illustrates how one asset class may shift from being the top performing category tothe worst performer in the next. As evidenced from the OCERS’ Total Plan net of fees performance (white box), diversification ensures a moreconsistent return pattern, less susceptible to wild swings from one year to the next.

Source: www.my.statestreet.com

33

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Annualized 2007 - 2016

MSCI EM39.4%

CPI+5%5.1%

MSCI EM78.5%

MSCI EM18.9%

NCREIF ODCE16.0%

MSCI EM18.2%

Russell 300033.6%

Cambridge PE17.9%

NCREIF ODCE15.0%

High Yield17.5%

Cambridge PE10.7%

Cambridge PE29.8%

BC US Univl2.4%

High Yield57.5%

Cambridge PE18.4%

Cambridge PE14.3%

MSCI EAFE17.3%

MSCI EAFE22.8%

Russell 300012.6%

Cambridge PE5.9%

Russell 300012.7%

High Yield7.3%

JPM GBI-EM18.1%

JPM GBI-EM-5.2%

MSCI EAFE31.8%

Russell 300016.9%

CPI+5%8.1%

JPM GBI-EM16.8%

Cambridge PE17.5%

NCREIF ODCE12.5%

CPI+5%5.8%

BLOOM Cmdty11.8%

Russell 3000 7.1%

BLOOM Cmdty16.2%

Cambridge PE-5.6%

Russell 300028.3%

BLOOM Cmdty16.8%

BC US Univl7.4%

Russell 300016.4%

NCREIF ODCE13.9%

CPI+5%5.8%

Russell 30000.5%

MSCI EM11.2%

CPI+5%6.9%

NCREIF ODCE16.0%

NCREIF ODCE-10.0%

JPM GBI-EM22.0%

NCREIF ODCE16.4%

High Yield4.4%

Cambridge PE16.1%

OCERS10.9%

BC US Univl5.6%

BC US Univl0.4%

JPM GBI-EM9.9%

NCREIF ODCE5.8%

MSCI EAFE11.2%

OCERS-21.0%

BLOOM Cmdty18.9%

JPM GBI-EM15.7%

Russell 30001.0%

High Yield15.6%

HFRI FoF9.0%

OCERS4.7%

OCERS-0.1%

NCREIF ODCE8.8%

OCERS5.0%

OCERS10.4%

HFRI FoF-21.4%

OCERS18.3%

High Yield15.2%

OCERS0.5%

OCERS12.0%

High Yield7.4%

HFRI FoF3.4%

HFRI FoF-0.2%

Cambridge PE8.7%

BC US Univl4.6%

HFRI FoF10.3%

High Yield-26.4%

HFRI FoF11.5%

OCERS11.2%

JPM GBI-EM-1.8

NCREIF ODCE10.9%

CPI+5%6.6%

High Yield2.5%

MSCI EAFE-0.8%

OCERS8.5%

JPM GBI-EM3.8%

CPI+5%9.1%

BLOOM Cmdty-35.7%

BC US Univl8.6%

MSCI EAFE7.8%

HFRI FoF-5.7%

CPI+5%6.8%

BC US Univl-1.4%

MSCI EM-2.2%

High Yield-4.6%

CPI+5%7.2%

MSCI EM1.8%

BC US Univl6.5%

Russell 3000-37.3%

CPI+5%7.7%

BC US Univl7.2%

MSCI EAFE-12.1%

BC US Univl5.5%

MSCI EM-2.6%

MSCI EAFE-4.9%

JPM GBI-EM-14.9%

BC US Univl3.9%

HFRI FoF1.3%

Russell 30005.1%

MSCI EAFE-43.4%

Cambridge PE-9.6%

CPI+5%6.6%

BLOOM Cmdty-13.3%

HFRI FoF4.8%

JPM GBI-EM-9.0%

JPM GBI-EM-5.7%

MSCI EM-14.9%

MSCI EAFE1.0%

MSCI EAFE0.8%

High Yield2.2%

MSCI EM-53.3%

NCREIF ODCE-29.8%

HFRI FoF5.7%

MSCI EM-18.4%

BLOOM Cmdty-1.1%

BLOOM Cmdty-9.5%

BLOOM Cmdty-17.0%

BLOOM Cmdty-24.7%

HFRI FoF0.5%

BLOOM Cmdty-5.6%

© 2017 OCERS 34

Prepared by:Stina Walander‐Sarkin Tel: (714) 569‐4898Investment Analyst [email protected]

Adam Cheng Tel: (714) 558‐6225Investment Officer [email protected]

Disclaimer & Contact Information

Orange County Employees Retirement System2223 East Wellington Avenue, Suite 100 Tel: (714) 558‐6200Santa Ana, CA 92701 www.ocers.org

OCERS provides copies of its Economic Dashboards to other public pension plans as a professional courtesy without representation or warranty. This information is not to be construed as investment advice. Although these documents are public records, they are not approved for re‐distribution without express permission from OCERS, except for the incidental and occasional fair use of individual pages or charts by public pension plan professionals and their governing bodies. Commercial use of this material is expressly prohibited. OCERS assumes no liability for the accuracy of the information provided.

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