market & portfolio update · s&p 500 index -2.7% s&p 500 growth index 7.2% s&p 500...
TRANSCRIPT
Market & Portfolio UpdateAmy C. McGarrityChief Investment Officer
June 19, 2020
2
-0.9%
13.1%
14.3%
14.5%
16.5%
18.0%
18.1%
23.4%
24.4%
26.4%
31.5%
34.4%
2.5%
-0.7%
-1.9%
4.8%
-26.3%
-10.3%
-6.6%
1.6%
-11.7%
-6.4%
-2.4%
-60.1%
-70% -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40%
US Dollar Index
Emerging U.S. Dollar Debt
U.S. Corporate High Yield Debt
U.S. Corporate Investment Grade Debt
Broad Commodities
Emerging Market Equities
Japanese Equities
Chinese Equities
European Equities
Global Equities
U.S. Equities
WTI Crude Oil
Return
2020 YTD Return
2019 Return
All returns are presented in unhedged USD terms
*YTD performance as of 6/17/2020
2019 Highest
Performers
“Risk assets” rebounded in 2019, but turned broadly negative in 2020
Market Performance
2020 YTD* vs. 2019 Calendar Year
3
Global Equity Market Volatility
-19%
17%
-7%
22%
3%
17%
11%13%
20%
25%
-15%-17%
-21%
32%
13%
9%
19%
10%
-44%
32%
10%
-9%
13%
20%
2%
-4%
6%
22%
-11%
24%
-7%
-26%
-11%-13%
-6%-8%
-4%-6%
-11%
-21%
-7%
-20%
-32% -31%
-14%
-9%-7%
-13% -11%
-53%
-27%
-16%
-24%
-14%
-9% -10%
-16%
-12%
-2%
-21%
-6%
-34%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020YTD
(6/17)
MSCI ACWI Intra-Year Declines vs. Calendar Year Returns Despite average intra-year decline of 15.2%, annual returns were positive in 21 of 30 years
Price Return
Intra Year Price Drop
4
Share of S&P 500’s Total Market Value,
Five Biggest Stocks, Monthly
Company/IndexReturn 01/2014-
06/2020
S&P 500 Index 68%
Amazon.com Inc 562%
Microsoft Corp 419%
Apple Inc 339%
Facebook Inc 331%
Alphabet Inc (Google) 159%
Berkshire Hathaway Inc 53%
Exxon Mobil Corp -54%
5
Jobless Claims
Weekly Jobless Claims – Global Financial Crisis vs. COVID-19 Pandemic
0
5,000
10,000
15,000
20,000
25,000
0
1,000
2,000
3,000
4,000
5,000
Avg
Wee
kly
Co
nti
nu
ing
Job
less
Cla
ims
(00
0s)
Avg
Wee
kly
Init
ial J
ob
less
Cla
ims
(00
0s)
Continuing Jobless Claims Initial Jobless Claims
2004 - 2008
Global Financial Crisis
2010 - 2019
COVID Pandemic
6
Style & Quality Returns – Perspective
Benchmark YTD Return
S&P 500 Index -2.7%
S&P 500 Growth Index 7.2%
S&P 500 Value Index -14.0%
Benchmark YTD Return
Bbg Barc US Agg 5.8%
Bbg Barc US Corp High Yield -1.9%
60
70
80
90
100
110
31-Dec 31-Jan 29-Feb 31-Mar 30-Apr 31-May
Growth vs. Value YTD Returns
S&P 500 Index
S&P 500 Growth Index
S&P 500 Value Index
All Indexes set to 100 as of 12/31/2019
75
80
85
90
95
100
105
110
31-Dec 31-Jan 29-Feb 31-Mar 30-Apr 31-May
Investment Grade vs. High Yield YTD Returns
Bbg Barc US Agg
BBg Barc US Corp High Yield
All Indexes set to 100 as of 12/31/2019
7
Asset Class Returns – Perspective
Benchmark Annualized Return
MSCI ACWI IMI NR w/US Gross 8.7%
Bbg Barc US Agg 3.9%
FTSE 3 Mo T Bill 0.6%
Bbg Commodities TR -6.0%
Benchmark YTD Return (6/17)
MSCI ACWI IMI NR w/US Gross -6.4%
Bbg Barc US Agg 5.8%
FTSE 3 Mo T Bill 0.5%
Bbg Commodities TR -20.5%
50
100
150
200
250
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Comparative Investment Returns - Prior Decade
Stocks
Bonds
Cash
Commodities
All Indexes set to 100 as of 05/31/201065
70
75
80
85
90
95
100
105
110
12
/31
1/7
1/1
4
1/2
1
1/2
8
2/4
2/1
1
2/1
8
2/2
5
3/3
3/1
0
3/1
7
3/2
4
3/3
1
4/7
4/1
4
4/2
1
4/2
8
5/5
5/1
2
5/1
9
5/2
6
6/2
6/9
6/1
6
Comparative Investment Returns - YTD 2020
Stocks
Bonds
Commodities
Cash
All Indexes set to 100 as of 12/31/2019
8
Forecasting and market timing is extremely difficult
Strategic Asset Allocation vs. Tactical Asset Allocation
There are two classes of forecasters: those who don’t
know – and those who don’t know they don’t know
Ken Galbraith
Forecasts create the mirage that
the future is knowablePeter Bernstein
Forecasts usually tell us more of the
forecaster than of the futureWarren Buffett
PERA focuses on strategic asset allocation at the total fund level, with individual views expressed
via portfolio construction/management
9
PolicyAsset class weights will be within permissible ranges
StatusAll asset class weights within permissible ranges
Asset Allocation Policy
Asset Class 2020 Policy
Benchmark Weight
Actual Weight*(May 31, 2020)
Range Risk Weight (March 31, 2020)
Global Equity 56.0% 55.7% 48%–60% 63.0%
Fixed Income 23.5% 21.9% 18%–28% 1.2%
Private Equity 8.5% 8.6% 4%–13% 19.2%
Real Estate 8.5% 9.2% 4%–13% 13.0%
Alternatives 3.5% 4.0% 0%–12% 2.3%
Cash/Short Term** 0.0% 0.6% 0%–3% 1.3%
Total 100% 100% 100%
* Transitional cash remains within respective asset classes
** Includes Cash Overlay
10
Investments-Related Strategic Initiative Projects
Project Status
Updated Proxy
Voting Statement
In progress – evaluating 2020 proxy season themes and potential Policy
enhancements; expected completion by 1Q2021
Participation on
Secure Savings
Board
Bill to create the Colorado Secure Savings Plan passed the House and Senate
in June. Expected to be signed by Governor Polis prior to July 15, 2020.
Refreshed
technology
roadmap
In progress – currently reviewing a consulting firm’s proposal to complete a
private asset class fund expense review; expected completion mid-2020
DC plan: improved
alignment of
preferences and
product offerings
In progress – member research, evaluation of current and proposed options
by Defined Contribution Committee; recordkeeper RFP process; expected
completion 2021
11
Investment Activities
New hires in Equities, Fixed Income, Operations, and Private Equity
Internally-managed Asset-Backed Securities portfolio to commence in July
in Fixed Income
Refreshed Investment FactSheets for Private Equity and Internal Costs
Savings with 2019 data
12
Updated Investment FactSheets
13
COPERA’s Venerable* Investments Department
* Venerable – accorded a great deal of respect, especially because of age, wisdom, or character
14
APPENDIX
15
Portfolio Monitor
ASSET CLASS STRATEGY
Global EquityPortfolio retains higher quality bias. No material sector or geographic overweights or
underweights relative to the benchmark.
Fixed Income
The current environment is volatile. Treasury yields are at historic lows while
valuations in other asset classes have become more attractive. The portfolio is
positioned with a modest overweight to spread products and has no significant
duration deviation versus the benchmark.
Private EquityIn process with several re-up strategies, including an opportunistic distressed credit
fund. Most fund commitments are closing well in advance of initial deployment. PE
team will be reviewing portfolio management opportunities in the coming months.
Real Estate
Currently a challenging investment environment. Prices in aggregate are in early
stages of cyclical downtrend with deepest impact to service retail, lodging, and open
plan office environments. Focus remains on tenant rent preservation and
stabilization of internal portfolio.
Alternatives
Allocating to opportunistic and special situations funds, which can tactically invest
across multiple asset classes. In addition, new investments have been made in
diversifying strategies, including private global infrastructure, royalties and
permanent crops/agriculture.
16
Active Risk Policy
PolicyActive risk within marketable securities asset classes (i.e., Global Equity and Fixed Income) and
total marketable securities portfolios will not exceed maximums
StatusActive risk levels are within policy limits
Active Risk
Portfolio
Five-Year Historical Tracking
Error in Basis Points
March 31, 2020
Active Risk Policy Maximum
in Basis Points
Global Equity 121 225
Fixed Income 18 100
Total Marketable Securities 90 150
17
Calendar Year Returns
*Large Growth – Russell 1000 Growth; Large Value – Russell 1000 Value; Small Growth – Russell 2000 Growth; Small Value – Russell 2000 Value; ACWI – MSCI ACWI; EAFE – MSCI EAFE; EM – MSCI EM; REITs – FTSE NAREIT All Equity REITs; Bonds – Bloomberg Barclays Aggregate; High Yield – Bloomberg Barclays U.S.Corporate High Yield; Cmdty – S&P GSCI Composite Index; HFOF – HFRI FOF Composite Index; NCREIF – NCREIF ODCE Index
**2020 Returns are through May 31. 2020. NCREIF ODCE Index returns are through March 31, 2020.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020**
Sm Growth NCREIF REITs Sm Growth REITs NCREIF Sm Value EM NCREIF Lg Growth Bonds
29.1 15.0 19.7 43.3 28.0 14.0 31.7 37.3 7.4 36.4 5.5
REITs REITs EM Sm Value Lg Value Lg Growth Lg Value Lg Growth Bonds REITs Lg Growth
27.9 8.3 18.2 34.5 13.5 5.7 17.3 30.2 0.0 28.7 5.2
Sm Value Bonds Sm Value Lg Growth Lg Growth REITs High Yield EAFE Lg Growth Sm Growth NCREIF
24.5 7.8 18.1 33.5 13.1 2.8 17.1 25.0 -1.5 28.5 0.8
EM High Yield Lg Value Lg Value NCREIF Total Fund Cmdty ACWI High Yield ACWI Total Fund
18.9 5.0 17.5 32.5 11.5 1.5 11.4 24.0 -2.1 26.6 -2.3
Lg Growth Lg Growth EAFE ACWI Bonds Bonds Sm Growth Sm Growth Total Fund Lg Value HFOF
16.7 2.6 17.3 22.8 6.0 0.5 11.3 22.2 -3.5 26.5 -3.6
Lg Value Total Fund ACWI EAFE Total Fund HFOF EM Total Fund REITs EAFE High Yield
15.5 1.9 16.1 22.8 5.7 -0.3 11.2 18.1 -4.0 22.0 -4.7
NCREIF Lg Value High Yield Total Fund Sm Growth EAFE REITs Lg Value HFOF Total Fund Sm Growth
15.3 0.4 15.8 15.6 5.6 -0.8 8.6 13.7 -4.1 20.3 -6.6
High Yield Cmdty Lg Growth NCREIF ACWI Sm Growth ACWI REITs Lg Value EM ACWI
15.1 -1.2 15.3 12.9 4.2 -1.4 7.9 8.7 -8.3 18.4 -9.2
Total Fund Sm Growth Sm Growth HFOF Sm Value ACWI NCREIF Sm Value ACWI Cmdty EAFE
14.0 -2.9 14.6 9.0 4.2 -2.4 7.8 7.8 -9.4 17.6 -14.3
ACWI Sm Value Total Fund High Yield HFOF Lg Value Total Fund HFOF Sm Growth Sm Value REITs
12.7 -5.5 12.9 7.4 3.4 -3.8 7.3 7.7 -11.7 15.5 -15.3
Cmdty HFOF NCREIF REITs High Yield High Yield Lg Growth High Yield Sm Value High Yield Lg Value
9.0 -5.7 9.8 2.9 2.5 -4.5 7.1 7.5 -12.9 14.3 -15.7
EAFE ACWI HFOF Cmdty EM Sm Value Bonds NCREIF EAFE Bonds EM
7.8 -7.3 4.8 -1.2 -2.2 -7.5 2.6 6.7 -13.8 8.7 -16.0
Bonds EAFE Bonds Bonds EAFE EM EAFE Cmdty Cmdty HFOF Sm Value
6.5 -12.1 4.2 -2.0 -4.9 -14.9 1.0 5.8 -13.8 6.4 -25.6
HFOF EM Cmdty EM Cmdty Cmdty HFOF Bonds EM NCREIF Cmdty
5.7 -18.4 0.1 -2.6 -33.1 -32.9 0.5 3.5 -14.6 3.1 -39.4