investment program update
TRANSCRIPT
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© Wespath, a division of the General Board of Pension and Health Benefits of The United Methodist Church
Investment Program Update
AUMCPBO Annual MeetingOctober 24, 2014
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Sustainable Investment Update
Looking Forward to 2015
Best Investment Strategy—Past Five Years
Markets Overview
Investment Philosophy
Agenda
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statement
DiversifiedDiversified
DisciplinedDisciplined
Long-TermLong-Term
SustainableSustainable
Investment Philosophy
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Why Are the Markets so Volatile?
If you are not confused, you don’t understand things
very well.
Source: Charlie Munger/Berkshire Hathaway Annual Meeting April 5, 2013
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Recent Market Volatility Is the Mostin the Past Two Years
0
10
20
30
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14
Source: CBOE; FactSet
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CBOE Market Volatility Index (VIX)
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Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management
Catalyst: Europe Inflation Trending Lower
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German 5-Year Inflation Expectations (%)
0.0
0.5
1.0
1.5
2.0
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14
Source: Bloomberg
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We Must Pay for the Privilege of Depositing Money in European Banks
Source: Wall Street Journal
October 17, 2014
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U.S. Dollar Index
78
80
82
84
86
Source: FactSet
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10-Year U.S. Treasury Note Yield (%)
1.50
2.00
2.50
3.00
3.50
Source: FactSet
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U.S. 5-Year Inflation Expectations (%)
0.0
0.5
1.0
1.5
2.0
2.5
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14
Source: FactSet
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WTI Crude Oil ($/bbl)
$70
$80
$90
$100
$110
Jan-14 Apr-14 Jul-14 Oct-14
July through Oct price drop = 22%
Source: FactSet
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MSCI ACWI (ex-US) Performance Relative to S&P 500—Five Years
60%
65%
70%
75%
80%
85%
90%
95%
100%
Source: Wilshire Compass, Wespath
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Russell 2000 Performance Relativeto S&P 500–One Year
84%
86%
88%
90%
92%
94%
96%
98%
100%
102%
Source: Wilshire Compass, Wespath
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Reasons for Optimism
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U.S. Initial Jobless Claims (Thousands)
100
200
300
400
500
600
700
1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: U.S. Department of Labor; FactSet
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U.S. Hires and Quits (Thousands)
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
3,100
3,500
4,000
4,500
5,000
5,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
HiresQuits
Source: Bureau of Labor Statistics; FactSet
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Private Sector Has Driven Employment
Source: Bureau of Labor Statistics, Factset, J.. P. Morgan Asset Management
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U.S. Is Now the World’s Leading Oil Producer
Source: Economist
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Future Prospects Are Brightfor Abundant and Cheap Energy
Source: EIA, IMF, FactSet, J.P. Morgan Asset Management
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Corporate Sector Continuesto Reduce Borrowing
Source: BEA, Standard & Poor’s, Compustat, J.P. Morgan Asset Management
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Individuals Continue to Reduce Borrowing
Source: BEA, Standard & Poor’s, Compustat, J.P. Morgan Asset Management
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Plenty of “Dry Powder” in Corporate Sector
Source: The Economist
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Reasons for Concern
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European Employment Remains Stagnant
Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management
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U.S. Federal Budget Deficit
-$1,600
-$1,200
-$800
-$400
$0
$400
Source: Whitehouse.gov
$492 million
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U.S. Government Outstanding Debtas a Percent of GDP
0%
20%
40%
60%
80%
100%
120%
Source: Bureau of Economic Analysis, TreasuryDirect.gov, Wespath
103%
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2015 U.S. Government Budget
Interest5.6%
Health & Welfare27.9%
Education16.1%
Defense & Public Safety
16.8%
Other14.7%
Pension18.9%
Source: usgovernmentspending.com
Interest Expense = $369.4 Billion
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Average Interest on U.S. Government Debt
0%
1%
2%
3%
4%
5%
6%
7%
Source: TreasuryDirect
2.40%
6.64%
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