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TRANSCRIPT
Presentation To:
City of Miami General Employees’ & Sanitation
Employees’ Retirement Trust
Friday, March 21, 2014
Derik Coffey – Portfolio Specialist
Marc V. Reid – Director of Marketing & Client Services
Marc O. Sydnor – Senior VP, Marketing & Client Services
FIRM OVERVIEW
Legacy & Strategies
Assets Under Management
LARGE CAP VALUE STRATEGY
Manager Commentary
Philosophy & Process
Risk Management
Investment Results for City of Miami GE & SE Retirement Trust
APPENDIX
PERFORMANCE DISCLOSURES
T A B L E O F C O N T E N T S
2
O U R L E G A C Y
WHO WE ARE
Herndon Capital Management, LLC
Herndon Capital Management, LLC is an institutional investment management firm specializing in large and mid
capitalization equity strategies. Founded and registered with the SEC in 2001, the firm is an affiliate of the Atlanta
Life Financial Group, a 108 year old financial services firm. The three lead portfolio managers have an ownership
stake in the firm.
As of December 31, 2013, Herndon Capital Management managed approximately $10.21 billion* in institutional
client assets.
Our institutional products allow us to provide investment solutions to our clients in both the domestic and
international equity markets.
* Includes discretionary and non-discretionary assets
Large Cap Core
International
Equity
Large Cap
US Growth
Equity
Large Cap
US Value
Equity
Large Cap
US Core
Equity
Mid Cap
US Value
Equity
3
4
GROWTH IN AUM (in millions)
A S S E T S U N D E R M A N A G E M E N T
$52 $54 $156 $453
$665
$1,093 $884
$1,577
$2,484
$4,798
$7,562
$10,210
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
12/31/2002 12/31/2003 12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013
Total Assets as of December 31, 2013: $10.21 billion (220 accounts)
by Client Type (in millions): by Strategy (in millions):
A S S E T S U N D E R M A N A G E M E N T
5
*All month-end assets are not available for the model accounts.
** Core assets represented in Large Cap Value & Large Cap Growth Strategies / Total Core AUM : $188,667,222
For one-on-one use only.
LCV $9,359.5
LCG $90.8 LCCI $551.3
MCV $193.9
Other $14.7
Public Funds $3,219.6
Mutual Funds $2,261.8
WRAP Platforms $1,401.8
Corporate Assets $584.8
UMA (Non-Discretionary
Models) $1,506.2
Endowment/ Foundations/Other/
Hospital Plans $903.8
Taft Hartley $172.0
Commingled Trusts $138.8
ALFG (Affiliates) Assets $21.5
Strategy # of Accounts % of Market Value
Large Cap Value* 178 92%
Large Cap Core International 15 5%
Large Cap Growth 12 1%
Mid Cap Value 12 2%
Other 3 0%
Large Cap Core** 11 2%
Client Type # of Accounts % of Market Value
Public Funds 87 32%
Mutual Funds 7 22%
WRAP Platforms 16 14%
Corporate Assets 12 6%
UMA (Non-Discretionary Models) 13 15%
Foundations 21 3%
Taft Hartley 18 2%
Commingled Trusts 8 1%
Other 18 2%
Endowments 6 0%
ALFG (Affiliates) Assets 8 0%
Hospital Plans 6 4%
SUB-ADVISORY
• Aston Funds’ Aston Herndon LCV Fund
• Delaware Investments’ Optimum LCV Fund
• HSBC Global Asset Management (Canada) Limited
• Principal Financial Group
• Scotia Asset Management
MANAGER OF MANAGERS PROGRAMS
• Attucks Asset Management
• FIS Funds Management
• Northern Trust Global Advisors
• North Point Advisors
• Progress Investment Management
DIRECT
• Blue Cross Blue Shield of Michigan
• Chicago Transit Authority
• City of Atlanta Firefighters Pension Fund
• Cook County Employees’ Annuity & Benefit Fund
• Dillard University
• Florida A&M University
• Illinois State Board of Investment
• Memphis Light Gas & Water Retirement & Pension
• Oklahoma Firefighters Pension and Retirement Board
• PepsiCo, Inc.
• Retirement Plan for CTA Employees
• Shelby County, Tennessee, Retirement System
• State Universities Retirement System of Illinois
• Teachers’ Retirement System of the State of Illinois
• Veterans of Foreign Wars
• Winthrop Rockefeller
The clients listed above were selected to demonstrate a sample of clients within our various strategies. These clients have provided permission to use
their names on a representative client list. Performance was not a criteria for inclusion on the provided client list.
For one-on-one use only.
R E P R E S E N T A T I V E C L I E N T L I S T
6
O R G A N I Z A T I O N A L S T R U C T U R E
Executive Committee
Investment
Management
&
Trading
Marketing &
Client
Services
Compliance Operations Financial
Analytics
Administrative
Services
7
I N V E S T M E N T M A N A G E M E N T T E A M
Lead Portfolio Managers
Randell Cain, CFA - Value Equity
Drake Craig, CFA - Growth Equity
Kenneth Holley, CFA - International Equity
Team Members
J. Keith Buchanan, CFA, Senior Investment Analyst
Derik Coffey, Portfolio Specialist
Loren Compton-Williams, Senior Investment Analyst
Kenneth Grimes, Deputy CIO
James Nelson, CFA, Associate Portfolio Manager
Arlene Pine, CFA, Investment Analyst
Khadir Richie, Senior Investment Analyst
Jazmin Williams, Investment Analyst
Romerro Williams, Investment Analyst
Sector
Assignments
Consumer
Discretionary
Consumer Staples
Energy
Financial Services
Healthcare
Industrials
Information Technology
Materials
Telecom
Utilities
Primary
Romerro Williams
James Nelson, CFA
Jazmin Williams
Loren Compton-
Williams
J. Keith Buchanan, CFA
J. Keith Buchanan, CFA
Khadir Richie
J. Keith Buchanan, CFA
Khadir Richie
Khadir Richie
Secondary
Khadir Richie
Khadir Richie
Loren Compton-
Williams
Jazmin Williams
Romerro Williams
Jazmin Williams
Arlene Pine, CFA
Romerro Williams
Loren Compton-
Williams
Arlene Pine, CFA
J. Keith Buchanan, CFA
8
HERNDON CAPITAL MANAGEMENT US LARGE CAP VALUE
FOURTH QUARTER 2013 REVIEW
9 Annual Review
All good things must come to an end. After 6 consecutive years of outperforming the Russell 1000 Value, we missed the mark…by 79 basis points. Not much in
terms of a margin of coming up short but we came up short. For only the second time at Herndon Capital Management in our large cap value strategy, beginning in
2002, we failed to outperform in a calendar year. I just heard the violins stop playing and the mourners have wiped away their tears. Why? I invest for tomorrow
every day. In most years, the return we generated this year would have resulted in cheers not jeers. The questioners will wonder have we lost our way, has
something changed, has something gone awry. The answer is a resounding No. We simply came up a little short. What happened?
For the year, 4 out of 10 sectors outperformed the respective sector and/or the overall benchmark, the Russell 1000 Value. Stock selection contributed 100% of
the underperformance and sector allocation was slightly positive.
Performance for the Russell 1000 Value was quite broad with six sectors outperforming – Technology, Consumer Discretionary, Industrials, Health Care,
Financials, and Consumer Staples. With the absence of the more commodity cyclical sectors such as Energy and Materials, it appears that the market has begun to
believe again that the economy has turned the corner and growth is returning.
Throughout the year, our overweight sectors were Energy, Consumer Staples, Consumer Discretionary, Materials, and Technology. We were most significantly
underweight the aforementioned Financial and Health Care along with negligible exposure in Utilities that was not initiated until the latter half of the year. We had
no exposure to Telecom. We were close to market weight Industrials.
The three sectors with the highest contribution for the year were Health Care, Financials, and Utilities. Health Care was led by strong performances from Endo
Health Solutions and United Therapeutics which has transformational catalysts revealed via acquisitions and drug approvals, respectively. Market-related holdings
drove our Financials with Waddell & Reed nearly doubling for the year coupled with CBOE Holdings rising over 80%. In the case of Utilities, sometimes what you
don’t own can be as important as what you own. We had no exposure in this sector until the latter part of the year which helped derive a positive contribution as
Utilities battled Telecom as the worst performing sectors for the year. Telecom was actually our fourth highest contributor and we had no exposure whatsoever.
The sectors with the lowest level of contribution were Consumer Discretionary, Materials, and Industrials. Of the six holdings we had in Consumer Discretionary,
only 1, TJX Companies, was able to outperform the respective sector. Simply put, we were out of step with some holdings that had a very contrarian performance
experience such as Coach and Yum Brands. The lackluster performance in Materials was primarily attributable to two stocks – Southern Copper and Cliffs Natural
Resources – which suffered from a lack of confidence in China-related infrastructure spending. While China is clearly a swing factor, it is not the sole destination
for the mined metal products delivered by these companies.
10 Nevertheless, market sentiment won out for 2013. We are more optimistic than current valuations suggest. Industrials were held to some of the same concerns
regarding our Materials holdings as our mining equipment companies – Joy Global and Caterpillar – were held in less than high regard in 2013. We continue to think
we will be benefited by owning such firms over the full market cycle, especially if the recent upturn in economic growth continues.
The three top positive individual stock contributors were Endo Health Solutions (+156.79%), Western Digital (+100.80%), and CBOE Holdings (+80.77%). Endo
Health Solutions has been maligned by the market due to the generic competition it faced with Lidoderm coming off-patent. In 2012, the stock was our third worst
contributor in the portfolio with a -23.92% return. Our patience and persistence were rewarded as the company has made acquisitions that are transforming the long-
term growth trajectory. Western Digital has continued to make the transition from being viewed as a commodity component maker in the technology area to one that
has value-added products in the transitioning world of cloud-computing. While the doubling of the stock validates the strategy, we still see further upside. CBOE
Holdings has benefited from the volatility in the market. Uncertainty still exists and we expect for the markets to continue to illustrate the value the company brings.
The stocks with the greatest negative contribution were Cliffs Natural Resources (-54.37%), Southern Copper (-22.58%), and American Capital Agency (-22.42%).
For the second consecutive year, Cliffs Natural Resources was our greatest negative contributor. Continued weakness in the iron ore market due to overcapacity for
the current level of demand has made it challenging to return to previous levels of profitability. While we still like the long-term fundamentals for a company
producing materials that are keys to the infrastructure building and maintenance that is world-wide, our process dictated that we remove our exposure to the
company; but, we could revisit the position in the future. Southern Copper has also been victimized by short-term concerns regarding overall growth, primarily in the
developing markets. American Capital Agency, an agency mortgage REIT, has been swept in concerns regarding the anticipated tapering moves of the Federal
Reserve as well as challenges in declining book value resulting in dividend cuts. While we agree with many of the concerns, we continue to believe a great deal of this
bad news has been discounted in the valuation. Of the two remaining holdings, if true to form, we would not be surprised to see one or both lead the portfolio in
gains in 2014.
Fourth Quarter Review
Dare we say it? Yes. We dare. It appears a new streak has begun. We have had two consecutive quarters of outperformance. The last quarter left us a whisper of
being able to outperform for the year after starting off the first half of the year more than a little behind. As we were being questioned about the underperformance in
terms of what was wrong, changed or gone off track, we can assure you that nothing changed. We simply became the beneficiaries of fortuitous timing with our
portfolio holdings of significantly undervalued assets.
For the quarter, 6 out of 10 sectors outperformed the respective sector and/or the overall benchmark, the Russell 1000 Value. Sector allocation and stock selection
was positive with the overwhelming amount of performance coming from stock selection.
HERNDON CAPITAL MANAGEMENT US LARGE CAP VALUE
FOURTH QUARTER 2013 REVIEW
11
Performance for the Russell 1000 Value was fairly broad with five sectors outperforming – Industrials, Technology, Consumer Staples, Consumer Discretionary,
and Materials. All of these sectors, with the exception of Consumer Staples, are typically thought of as having a pro-cyclical growth tilt. We were overweight each
of these sectors.
In addition to the previously mentioned sectors, we were also overweight Energy. We were most significantly underweight Financials, Utilities, Health Care, and
Telecom.
The three sectors with the highest contribution for the quarter were Health Care, Energy, and Technology. 3 out of 4 stocks outperformed in the Health Care
sector with 40%+ gains with Endo Health Solutions and United Therapeutics on the back of transformative acquisitions and product approvals, respectively.
Refiners led our Energy holdings to solid gains with Marathon Petroleum and HollyFrontier rising 43.39% and 20.05%, respectively. Frequently doubted and
questioned, three holdings in Technology yielded strong returns – Western Digital (+32.82%), Apple (+18.38%), and Microsoft (+13.23%).
The sectors with the lowest level of contribution were Consumer Staples, Consumer Discretionary, and Industrials. Our Consumer Staples holdings began to be a
bit out of sync as the market continued to embrace more domestic oriented holdings and not give as much attention to our multinational exposure. Only one of
our holdings outperformed the sector. Altria returned +13.27% and is our only purely domestic holding. Our expectation is that as ex-US growth eclipses that
starting to gain traction in the US, multinational staples will perform better. Our Industrials actually outperformed the Russell 1000 Value for the quarter but
lagged the sector as higher expectations correlated with a broader swath of holdings, airlines in particular.
The three top positive individual stock contributors were Endo Health Solutions (48.46%), Marathon Petroleum (+43.39%), and Western Digital (+32.82%).
These stocks represent holdings from the Health Care, Energy, and Technology sectors. As previously mentioned, Endo Health Solutions continues to revamp its
portfolio of holdings. The most recent acquisition of a Canadian pharmaceutical company was well-received by the market. Marathon Petroleum, along with other
refiners, are benefiting from the prospects of improved demand with a stronger economy. Finally, Western Digital continues to surprise on the upside as the
cyclicality typically associated with the hard disk drive makers is being muted by investments in a more diversified platform of offerings. Each of these stocks is still
a portfolio holding as we continue to view them as value creating opportunities.
The stocks with the greatest negative contribution were American Capital Agency (-11.64%), Apartment Investment and Management (-6.42%) and Ross Stores
(-1.36%).These stocks represent holdings from the Finance and Consumer Discretionary sectors. American Capital Agency and Apartment Investment and
Management are REITs which have been lumped together with other REITs. Unfortunately, guilt by association seems to be playing a role in the current levels of
underperformance as we discriminately see value in these stocks in contrast to the bulk of the stocks in this industry group. The concerns regarding tapering have
been overblown from our perspective and we think the stocks have a better than average chance of delivering superior returns as we move forward. Ross Stores
has been caught in the concerns regarding retail during the holiday season. All three stocks are still portfolio holdings.
HERNDON CAPITAL MANAGEMENT US LARGE CAP VALUE
FOURTH QUARTER 2013 REVIEW
12
Stocks eliminated due to sector adjustments and/or valuation/fundamental issues were Mastercard, Federated Investors, and Copa Holdings. These changes were
primarily driven by the dynamic interrelationships of the sectors as we position the portfolio to exploit value creating opportunities. As we share regarding our
investment philosophy, “We have a core process but no core holdings.”
The higher level of stocks being eliminated caused positions to be initiated in Kellogg, Ross Stores, AES Corporation, Herbalife, Oasis Petroleum, and SM Energy.
Each stock was purchased after first being identified as a value creating opportunity followed up with fundamental analysis to vet out the potential as a portfolio
holding.
The result of this and related activity during the quarter was that we increased our exposure to Energy, Consumer Staples, Utilities and Consumer Discretionary.
We decreased our exposure to Industrials, Health Care and Financials. All other sectors essentially remained the same with the exception of market appreciation
or depreciation.
All was related to our quest of seeking out value creating opportunities for our clients.
First Quarter Outlook
Entitlement reform. Talk about a flashpoint issue in Washington, DC politics. One side wants to provide for the continuation at a certain level of support. The
other side says we cannot afford to continue to do so. Who is right? Time will tell.
In investing, there is another type of entitlement reform that is taking place. It is the constant reevaluation of the proper price for individual stocks that make up
the stock market. As conditions change, the proper price should change as well. For some investors, certain stocks and sectors have reached a state that makes
entitlement a proper title to be accorded to them. For example, in spite of lagging returns, increased regulation, and more moderate business platforms, some
investors still compare pre-2008 valuations to current valuations for stocks in the Finance sector. We cry foul.
Coaching youth basketball for my youngest son, foul is the word I hear most often at his games. Sometimes, I agree (when it is in our team’s favor). Other times, I
disagree (when the referee clearly has it wrong).
For the largest sector in my benchmark dominated by diversified financials and banks, I cry foul when the fundamentals clearly do not support current valuations
and investors simply replay the same valuation tape of old. As a result, as some investors hearken for the good ole days, we gauge our weighting and exposure
based off of the current situation. Therefore, we are underweight Financials.
HERNDON CAPITAL MANAGEMENT US LARGE CAP VALUE
FOURTH QUARTER 2013 REVIEW
13
Financials is just one example of how we enact our own entitlement reform and try to wisely allocate capital to the sectors most undervalued and therefore truly
the most deserving.
Our entitlement reform has our allocation positioned for overweight positions in Energy, Materials, Technology, Consumer Staples and Consumer Discretionary.
Beyond Financials, we are also underweight Utilities, Telecom, and Health Care. Industrials continue to be near a market weight position.
This positioning continues to be skewed towards an economy that will strengthen, inflation will rise, and interest rates will increase. We believe that tapering will
continue on a measured pace as the economy allows; but, the pace will likely quicken. While some investors fear negative stock results as a consequence of the
tapering, we think that being positioned in undervalued stocks provides a measure of protection that makes us confident in our sector allocations and individual
stock positions.
Will 2014 mimic 2013? I don’t know. The question we constantly seek to answer in the affirmative is, “Are our portfolios populated with value creating
opportunities?” The answer is an unequivocal yes. There is always value in the market. Our quest, objective, and reason for being are to find it.
Randell A. Cain, Jr., CFA
Principal and Portfolio Manager
Herndon Capital Management
January 5, 2014
HERNDON CAPITAL MANAGEMENT US LARGE CAP VALUE
FOURTH QUARTER 2013 REVIEW
O U R I N V E S T M E N T P R O C E S S
Large Cap US Value Equity Investment Philosophy & Strategy
committed to excellence
“To everything there is a season…” (Ecclesiastes 3:1). True value is defined by companies that trade at
a discount to what their fundamentals merit. Identifying sound companies out of favor with
investors due to temporary conditions has historically proven to be a successful strategy as their
true value is ultimately recognized in the marketplace. We call these companies value creating
opportunities.
Our process identifies stocks based upon relative value versus the other stocks in the Russell 1000
universe. We combine fundamental analysis in a valuation-oriented framework with risk
assessment. We do not want to own stocks merely because they appear “cheap”. We screen our
value candidates for performance-based characteristics to avoid “value traps”. The stocks we own
tend to have low valuation metrics, but they also have sound fundamental characteristics, hopefully
leading to outperformance as their value is recognized in the market.
14
Herndon Capital Management Large Cap Value Investment Process
Value Creating Opportunities
Value Traps
15
Herndon Capital Management Large Cap Value Investment Process
Step 4: Fundamental Analysis - Analyze ranked companies
on 4 dimensions to answer 4 questions.
16
Large Cap US Value Equity Characteristics as of 12/31/2013
O U R I N V E S T M E N T R E S U L T S
17
Portfolio R1000 Value
Price/Earnings Ratio (TTM) 13.9x 15.6x
S&P Quality Ranking A- B+
Dividend Yield 2.1% 1.9%
Weighted Avg Market Cap $62.4b $114.2b
Avg Market Cap $54.8b $18.8b
Median Market Cap $16.2b $6.5b
Avg Return on Equity (5yr) 36.7% 21.9%
Earnings LT Future Growth 9.0% 9.0%
LT Debt/Capitalization 38.0% 39.0%
Number of Securities 51 662
Portfolio Fundamental Characteristics
Security Weight
WESTERN DIGITAL 3.6%
TJX COMPANIES INC 3.2%
MARATHON PETR CORP COM 3.0%
AFLAC INC 3.0%
APPLE INC 2.9%
CBOE HOLDINGS 2.8%
UNITED THERAPEUTICS 2.8%
WADDELL & REED FINANCIAL 2.8%
LOCKHEED MARTIN 2.7%
DISCOVER FINANCIAL SERVICES 2.5%
Total: 29.2%
Top Ten Largest Holdings
Portfolio
Rolling 3 Year Batting Average 97.0%
Upside Capture Ratio 113.0%
Downside Capture Ratio 84.4%
Tracking Error 6.0
Information Ratio 0.8
R-squared 0.9
Beta 1.0
Annualized Since Inception Turnover 66.6%
Portfolio Performance Characteristics*
*Performance Characteristics provided are since inception and represent the Large
Cap Value representative portfolio. Please see APPENDIX for GIPS presentation. The
Large Cap Value Equity Characteristics are shown as supplemental information only
and complements Large Cap Value Composite presentation which is located in the
APPENDIX. For one-on-one use only.
Large Cap US Value Characteristics as of 12/31/2013
*Relative to the Russell 1000 Value
Sector Allocation*
O U R I N V E S T M E N T R E S U L T S
18
Cons. Disc. Cons. Stap. Energy Financials Healthcare Industrials Materials Technology Telecom Utilities
Portfolio 7.8% 10.2% 23.3% 19.3% 6.6% 10.2% 5.3% 13.4% 0.0% 1.0%
Benchmark 6.4% 5.9% 15.0% 29.0% 12.9% 10.5% 2.9% 8.9% 2.7% 5.7%
Relative Weight 1.4% 4.3% 8.3% -9.7% -6.3% -0.3% 2.4% 4.5% -2.7% -4.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
The Large Cap Value Equity Characteristics are shown as supplemental information only and complements the Large Cap Value
Composite presentation which is located in the APPENDIX. The Large Cap Value representative portfolio was utilized for these
characteristics. For one-on-one use only.
City of Miami GE & SE Retirement Trust: Equity Investment History as of 12/31/2013
*Since inception annualized 5/23/2012. Past performance is not indicative of future results.
O U R I N V E S T M E N T R E S U L T S
19
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
QTD 6 Months 1 Year Inception*
Gross 12.48% 18.08% 31.48% 24.87%
Net 12.31% 17.73% 30.89% 24.24%
Russell 1000 Value 10.01% 14.34% 32.53% 28.72%
Large Cap US Value Equity Investment History as of 12/31/2013
*Since inception annualized 6/30/2002. See APPENDIX for performance disclosures. Past performance is not
indicative of future results. Preliminary performance is shown above. For one-on-one use only.
O U R I N V E S T M E N T R E S U L T S
20
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
QTD 1 Year 3 Year 5 Year 10 Year Inception*
Gross 12.61% 31.74% 16.29% 20.64% 12.67% 12.50%
Net 12.50% 31.24% 15.86% 20.21% 12.28% 12.14%
Russell 1000 Value 10.01% 32.53% 16.06% 16.67% 7.58% 7.89%
City of Miami GE & SE Retirement Trust: 09/30/2013 - 12/31/2013
O U R I N V E S T M E N T R E S U L T S
21
Past performance is not indicative of future results. For one-on-one use only.
Sector NameAvg Port
Wt
Avg Bmrk
Wt
Port
Return
Bmrk
Return
Port
Contrib
Bmrk
Contrib
Alloc
Effect
Select
Effect
Total
Effect
Total Portfolio 100.00 100.00 12.45 10.00 12.45 10.00 0.64 1.82 2.46
Health Care 7.39 13.06 34.32 8.86 2.43 1.16 0.12 1.83 1.95
Energy 21.24 14.96 13.21 9.97 2.78 1.49 0.00 0.65 0.65
Information Technology 12.38 8.82 15.09 12.03 1.80 1.06 0.16 0.32 0.48
Utilities 0.52 6.04 -0.34 2.66 -0.04 0.17 0.41 -0.02 0.39
Financials 21.21 28.98 9.54 9.34 2.09 2.72 0.04 0.07 0.11
Materials 5.44 2.89 12.43 11.13 0.68 0.32 0.04 0.06 0.10
Telecomm Service 0.00 2.55 0.00 7.16 0.00 0.18 0.08 0.00 0.08
Industrials 11.60 10.23 12.56 14.87 1.46 1.49 0.08 -0.29 -0.21
Consumer Discretionary 7.98 6.50 6.03 11.25 0.50 0.73 0.00 -0.37 -0.37
Consumer Staples 9.95 5.95 7.28 11.63 0.75 0.68 0.03 -0.42 -0.39
Cash & Equivalents 2.28 0.00 0.02 0.00 0.00 0.00 -0.33 0.00 -0.33
City of Miami GE & SE Retirement Trust: 06/30/2013 - 12/31/2013
O U R I N V E S T M E N T R E S U L T S
22
Past performance is not indicative of future results. For one-on-one use only.
Sector NameAvg Port
Wt
Avg Bmrk
Wt
Port
Return
Bmrk
Return
Port
Contrib
Bmrk
Contrib
Alloc
Effect
Select
Effect
Total
Effect
Total Portfolio 100.00 100.00 18.09 14.32 18.09 14.32 1.59 2.19 3.78
Health Care 7.91 13.04 53.32 13.68 3.66 1.78 0.11 2.81 2.92
Financials 21.56 29.12 15.25 11.93 3.29 3.52 0.15 0.79 0.94
Utilities 0.26 6.16 -0.34 2.57 -0.04 0.17 0.72 -0.02 0.70
Information Technology 12.29 8.88 21.03 17.93 2.48 1.56 0.24 0.25 0.50
Energy 20.92 14.98 15.98 13.67 3.35 2.06 -0.04 0.47 0.42
Materials 5.51 2.83 25.64 24.03 1.38 0.65 0.24 0.07 0.31
Telecomm Service 0.00 2.61 0.00 4.21 0.00 0.11 0.29 0.00 0.29
Industrials 11.51 10.00 20.17 24.78 2.21 2.37 0.20 -0.55 -0.35
Consumer Discretionary 8.11 6.42 10.85 20.30 1.06 1.27 0.09 -0.83 -0.74
Consumer Staples 9.48 5.97 5.87 13.82 0.70 0.82 -0.02 -0.80 -0.82
Cash & Equivalents 2.46 0.00 0.02 0.00 0.00 0.00 -0.39 0.00 -0.39
City of Miami GE & SE Retirement Trust: 12/31/2012 - 12/31/2013
O U R I N V E S T M E N T R E S U L T S
23
Past performance is not indicative of future results. For one-on-one use only.
Sector NameAvg Port
Wt
Avg Bmrk
Wt
Port
Return
Bmrk
Return
Port
Contrib
Bmrk
Contrib
Alloc
Effect
Select
Effect
Total
Effect
Total Portfolio 100.00 100.00 31.40 32.47 31.40 32.47 0.40 -1.47 -1.07
Health Care 7.46 12.41 114.56 36.41 6.54 4.37 -0.22 4.56 4.34
Utilities 0.13 6.31 -0.34 14.03 -0.04 1.00 1.19 -0.03 1.16
Financials 20.36 28.51 40.23 33.53 7.58 9.44 -0.19 1.31 1.12
Telecomm Service 0.38 2.89 -14.73 12.65 -0.32 0.43 0.51 -0.45 0.06
Energy 22.25 15.36 25.29 24.17 6.06 3.87 -0.66 0.48 -0.18
Information Technology 11.16 7.77 36.66 48.32 3.93 3.42 0.58 -1.04 -0.46
Consumer Staples 9.88 6.62 22.25 33.08 2.32 2.20 0.00 -1.19 -1.19
Industrials 10.56 9.53 27.69 43.13 3.10 3.99 0.25 -1.59 -1.35
Materials 5.75 3.21 1.65 20.93 -0.04 0.61 -0.33 -1.36 -1.69
Consumer Discretionary 9.43 7.39 22.46 44.29 2.27 3.13 0.20 -2.15 -1.95
Cash & Equivalents 2.64 0.00 0.06 0.00 0.00 0.00 -0.93 0.00 -0.93
Shown as supplemental information only. See APPENDIX for fully compliant performance
disclosure. Past performance is not indicative of future results. For one-on-one use only.
GROSS PERFORMANCE
O U R I N V E S T M E N T R E S U L T S
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Glass Lewis
Proxy Voting Report
Oct. 31, 2013 – Dec. 31, 2013
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Glass Lewis
Proxy Voting Report
Oct. 31, 2013 – Dec. 31, 2013
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Glass Lewis
Proxy Voting Report
Oct. 31, 2013 – Dec. 31, 2013
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Glass Lewis
Proxy Voting Report
Oct. 31, 2013 – Dec. 31, 2013
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Glass Lewis
Proxy Voting Report
Oct. 31, 2013 – Dec. 31, 2013
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Walter Lindsay, Jr. – Senior Vice President of Marketing & Client Services
Anthony Pinkston – Marketing & Client Services Associate
Marc V. Reid – Director of Marketing & Client Services
Antoinette Scroggins – Director of Marketing & Client Services
S. Dawn Swift – Vice President of Marketing & Client Services
Marc Sydnor – Senior Vice President of Marketing & Client Services
Leah Williams – Marketing & Client Services Associate
Shannon Barnes – Director of Operations
Lorraine Betts – Operations Analyst
David Collins – Senior Operations Analyst
Shantell Hall – Operations Analyst
Alexandria Jenkins – Operations Analyst
Kara Rainey – Operations Manager I – Settlements/Reconciliations
Rachel Roffman – Operations Manager I – Wrap
Christine Wizzard – Operations Manager II
Corey Beezhold – Junior Trader
Diane Bromfield – Senior Equity Trader
Adrian Chastain – Equity Trader
Kenneth Jackson – Head Trader
Shawn Ayton – Network Manager
Chanelle Belton – Administrative Assistant
Kathi Edwards – Director of Administrative Services
Lydia Hancock – Human Resources Manager
Tonya Lynch – Business Process Analyst
Matt Walker – Business Process Manager
Todd Campbell – Compliance Officer
Matt Carney – Senior Compliance Officer
Annette Marshall, CSCP – Chief Compliance Officer
Colette Ray – Compliance Specialist
Nino Chiappetta – Assistant Controller
Sandy Petty – Director of Financial Analytics
Jocelyn Smith – Accounting & Payroll Assistant
Varsha Telang – Senior Accountant
J. Keith Buchanan, CFA – Senior Investment Analyst
Randell Cain, Jr., CFA – Principal/Portfolio Manager
Derik Coffey – Portfolio Specialist
Loren Compton-Williams – Senior Investment Analyst
Drake Craig, CFA – Principal/Portfolio Manager/President
Kenneth Grimes – Deputy CIO
Kenneth Holley, CFA – Principal/Portfolio Manager/CIO
Audley Mackel IV – Junior Analyst, Portfolio Analytics
James Nelson III, CFA – Associate Portfolio Manager
Arlene Pine, CFA – Investment Analyst
Khadir Richie – Senior Investment Analyst
Jazmin Williams – Investment Analyst
Romerro Williams – Investment Analyst
H C M T E A M M E M B E R S
Executive Management Team
Investments
Compliance
Trading
Marketing & Client Services
Operations
Administrative Services
Financial Analytics
Randell Cain, Jr., CFA – Principal
Drake Craig, CFA – Principal/President
Kenneth Holley, CFA – Principal/CIO
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RANDELL A. CAIN, JR., CFA Principal / Portfolio Manager 22 years experience
Randell (“Randy”) Cain is the portfolio manager responsible for managing Herndon Capital Management, LLC’s Large
Cap US Value Equity and Mid Cap US Value product. Randy is also one of the three portfolio managers responsible for
managing the Large Cap US Core Equity product.
Prior to joining Herndon Capital Management, LLC in 2002, Randy spent five years at NCM Capital managing large-cap
core equities while also analyzing the financial, basic material, energy and utility sectors. In addition, in his last two years
he managed a large-cap value portfolio. Randy’s experience includes equity and fixed income analysis at TradeStreet
Investment Associates, a former subsidiary of Bank of America, and Putnam Investments as well as a one-year fellowship
with JP Morgan to gain experience in international investing.
Mr. Cain received an MBA from Harvard Business School in 1994, a Bachelor of Industrial Engineering degree from the
Georgia Institute of Technology in 1991, and an interdisciplinary Bachelor of Science from Morehouse College in 1991.
He earned the Chartered Financial Analyst designation in 1997.
O U R M A N A G E M E N T T E A M
DRAKE CRAIG, CFA Principal / Portfolio Manager / 24 years experience
President
Drake Craig is the portfolio manager responsible for managing Herndon Capital Management, LLC‘s Large Cap US
Growth Equity product. Drake is also one of the three portfolio managers responsible for managing our Large Cap US
Core Equity product.
Prior to joining the company in January 2002, he spent 7 years at NCM Capital Management Group in Durham, N.C.
rising from senior equity analyst to Senior Vice President and Director of Equities where during that period, he oversaw a
9-member equity investment team that managed approximately $5 billion in equity assets. Drake managed one of the
firm's largest products, an approximate $1.5 billion broad growth portfolio which included a sub-advisory relationship
with the Calvert Group. Prior to that he was an equity analyst at Edward Jones & Co. responsible for making stock
recommendations in consumer oriented sectors.
Drake received a Bachelor of Arts in Business Administration from Morehouse College in 1989, the Chartered Financial
Analyst designation in 1997 and an Executive Master of Business Administration from the Kenan Flagler School of
Business at the University of North Carolina.
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O U R M A N A G E M E N T T E A M
KENNETH R. HOLLEY, CFA Principal/ Portfolio Manager 27 years experience
CIO
Ken oversees the firm's investment activities: setting policy and directing the activities of the investment staff. He is the
portfolio manager responsible for Herndon Capital Management, LLC’s Large Cap Core International Equity product and
one of the three portfolio managers responsible for managing our Large Cap US Core Equity product.
Before coming to Herndon Capital Management, LLC, Ken spent more than 8 years at Morgan Stanley Asset Management.
In his first four years there he managed a domestic intermediate fixed-income portfolio. For the last four years at Morgan
Stanley he was the co-manager of an international equity portfolio. In addition, he served on Morgan Stanley's Asset
Allocation Committee which determined MSAM's investment policies and positions in the various asset classes. Prior to
that Ken spent almost three years at the African Development Bank in Abidjan, Cote d'Ivoire as the Senior Finance Officer
where he developed and implemented the investment philosophy and trading strategies for the Bank's portfolios in U.S.
dollars, Canadian dollars, French francs, Deutsche marks and Japanese yen. Before the ADB he managed the portfolios at
Ward & Associates Asset Management, a fixed-income asset management firm serving public and private pension plans.
Ken began his career in finance as a fixed-income salesman at Salomon Brothers in 1986.
Ken’s education includes a Bachelor of Science in Engineering from the University of Pennsylvania and an Master of
Business Administration from the Wharton School at the University of Pennsylvania. He also earned the Chartered
Financial Analyst designation in 1995.
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O U R M A N A G E M E N T T E A M
39 DERIK D. COFFEY Portfolio Specialist 13 years experience
Derik Coffey is a Portfolio Specialist for Herndon Capital Management focused primarily on the Large Cap Value and
Mid Cap Value strategies.
Prior to joining Herndon Capital Management in 2013, Derik was an analyst at UBS Financial Services in the Investment
Manager Research Group responsible for conducting ongoing due diligence on investment managers and searches on
manager candidates. He was responsible for the strategies in the small and mid-cap space as well as general equity due
diligence for Institutional Consultants. Prior to working in the Manager Research Group, Derik was business manager
for the Investment Solutions at UBS business where he worked with senior management to coordinate financial and
business activities for alternative investments, mutual funds, managed accounts, retirement, ETFs, UITS and
institutional consulting businesses. Prior to joining UBS, Derik was an Assistant Vice President for Mergers &
Acquisitions at New York Life Insurance where he focused on Insurance and Asset Management M&A. He started his
career at Lehman Brothers as an analyst in the Global Mergers and Acquisitions group focused on technology and
healthcare M&A.
Derik has 13 years of experience in finance, including 11 years of investment management experience. He graduated
summa cum laude and earned a Bachelor of Arts in Political Science and Economics from Tuskegee University and a
Master of Science in International Finance degree from Georgetown University's Edmund M. Walsh School of Foreign
Service. He holds the Series 66.
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R E S E A R C H T E A M
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MARC V. REID Director of Marketing & Client Services 19 years experience
Marc brings 19 years of experience in the financial services industry to the firm. Previously, Marc served as Director of
Client Services for NCM Capital Management Group where he managed client communication, reporting and requests
with a focus on client retention. Additionally, he assisted with new business development. He identified, researched and
qualified institutional investors for pipeline and oversaw the consultant database and RFP process. Prior to that he worked
as a broker for a boutique firm where he made investment recommendations for stocks, mutual funds and insurance
products.
Marc received a Bachelor of Arts in Economics from the University of North Carolina at Chapel Hill. He successfully
passed the FINRA licensing exams: Series 7, 65 and 63.
M A R K E T I N G & C L I E N T S E RV I C E S
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MARC O. SYDNOR Senior VP, Marketing & Client Services 20 years experience
Marc is our Senior Vice President of Marketing & Client Services and brings his experience in the financial and asset
management industry to effectively meet our current and future client requirements. Having worked on the product /
portfolio side for many years he brings a tremendous amount of product knowledge to this position.
Prior to joining Herndon Capital Management, LLC Marc was a Senior Economist and Equity Portfolio Manager at MDL
Capital Management, where he created the MDL Economic Matrix, an economic forecasting product. His tenure also
includes serving as Investment Manager Search Consultant for Gray & Company. Sydnor began his career as a Broker for
Oppenheimer & Company.
Marc holds a Bachelor of Arts in Economics from the University of Delaware. Marc also currently holds the Series 65
registration.
M A R K E T I N G & C L I E N T S E RV I C E S
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