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Home My WebLink About05. GASB 45 2nd Quarter Returns5. HIGH�RK® CAPITAL MANAGEMENT July 23, 2015 Thea Vassallo Finance Manager Central Contra Costa Sanitary District 5019 Imhoff Place Martinez, CA 94553 -4392 RE: 2nd Quarter OPEB returns CCCSD Dear Thea, Events in Greece and China dominated investor's focus during a volatile second quarter. That said, most equity markets were basically flat with the S &P 500 up +0.28 %, Russell 2000 Index +0.42 %, MSCI -EAFE Index +0.62 %, and the MSCI- Emerging Market Index +0.69 %. Greece seemed to garner most of the headlines in the second quarter, but the impact of a potential Greece default, and /or exit from the European Union does not have the impact as it might have five years ago. Most of the outstanding debt of Greece is held by the IMF, as well as governments. Events in China seem more daunting as the Chinese economy is much larger, and has the potential to impact global markets at a much higher level. China is working through potential bubbles in credit markets, inventories, investments, and stock market/margin debt. We are closely watching events in China with an eye as to how they impact both the consumer and the business community. Much like in 2014, the first quarter of 2015 saw a contraction in economic activity as witnessed by the -0.2% GDP print for the first quarter of 2015. Personal consumption was positive, but exports were weaker, as well as government spending declined. Most economists expect a strong rebound in economic activity in the second and third quarters of 2015 as encouraging signs are emerging from the consumer sector, housing, and the automobile industry. The automobile industry has been trending at a 17 million annual unit production rate, and housing prices have begun to increase as well. We have seen a strong trend in job gains, with nonfarm payroll employment increasing by an average of 207,000 jobs per month through the three month period ending in May. Unemployment is currently at 5.5 %. If Greece and China dominated the headlines for the second quarter of 2015, we would offer that the Federal Reserve will likely be the dominant story for the last two quarters of the year. Interest rates moved higher across most maturities during the quarter with the ten -year Treasury yield up 41 basis points, finishing the quarter at a 2.35% yield. This increase in yields was a reflection of the market beginning to anticipate a hike in rates in the later part of the year by the Fed. The Federal Reserve, in both the minutes from their most recent meeting, as well as from speeches from various committee members, seem to be telegraphing that rates might be likely headed up, although at a very moderate pace. Performance Review The Central Contra Costa Sanitary District PRHCP Plan returned -0.24% for the quarter. Our fixed income investments posted a -1.33% return, which lost less (outperformed) than the Barclays Aggregate return of - 1.68 %. We have maintained a tilt towards a shorter than benchmark duration target with our 6.5% allocation to the Vanguard Short - Term Corporate Bond Fund. This Fund returned -0.07% in the quarter, which declined less than the benchmark. The equity segment of the portfolio returned 0.85% in the second quarter. As mentioned previously, while most equity markets were in positive territory, the absolute gains for most markets were less than +11%. The exception was mid -cap, which returned -1.54% (Russell Mid -Cap Index). Relative underperformance carne in the international equity segment with the Plan's international equities lagging the benchmark by roughly 0.5% (0.18% Plan return vs. MSCI -EAFE Index 0.62 %). The main detractor in the international segment was Europe. Both from the performance from the Dow Jones Euro Stoxx 50 ETF which declined -2.03% in the quarter, as well as from European holdings in our manager portfolios: Dodge & Cox (- 0.30 %), and MFS International Growth ( +0.46 %). The impact from Greece weighed heavily on European equity performance, especially in June. A brighter note came from the performance from our large cap managers who have now posted outperformance in back to back quarters, post a very difficult 2014 period. While we eliminated the Sentinel Common Stock Fund in the quarter due to performance concerns, all five of the remaining large cap funds outperformed the S &P500 during the second quarter, with four of the five managers performing in the top quartile in their respective Morningstar peer universe categories. Strategy Positioning In the quarter, we did not make any changes to our targeted asset allocation. We maintain a slight underweight to equities, with a 47.5% stock allocation. Our fixed income allocation stands at 48.75 %, and cash is positioned at a 3.75% cash allocation. Best regards, Andrew Brown Central Contra Costa Sanitary District Second Quarter 2015 Presented by Andrew Brown, CFA -AHIGHMARK® CAPITAL MANAGEMENT CCCSD Asset Allocation Total Assets: $39,850,186 Period Ending 6 -30 -15 Year to Date (6 months) Return: 2,18% 1 Year Return: 2.78% Inception -to -Date Return: 11.33% Inception Date. 4 -1 -2009 JHIGHMARK° CAPITAL MANAGEMENT Fixed Income $19,384,641 48.6% Investment Summary Since Inception Beginning Value $ 566,683.26 Contributions 37,138,727.76 Withdrawals - 8,736,034.27 Gain (Loss) 5,720,017.49 Interest and Di\idends 5,160,814.41 Net Accrued Income 63,965.32 Ending Market Value $ 39,850,186.23 Cash $1.485.096 PARS: Central Contra Costa Sanitary District Equity $18,980,449 47.6% 2 Selected Period Performance PARS /CENTRAL CONTRA COSTA SANT PRHCP Account6746030600 Period Ending: 06/30/2015 Account Inception: 4/2009 Returns are gross -of -fees unless otherwise noted. Returns for periods over one year are annualized. The information presented has been obtained from sources believed to be accurate and reliable. Past performance is not indicative of future returns. Securities are not FDIC insured, have no bank guarantee, and may lose value. HIGHMARK® CAPITAL MANAGEMENT PARS: Central Contra Costa Sanitary District 3 Year Inception to Date to Date Sector 3 Months (6 Months) 1 Year 2 Years 3 Years 5 Years (75 Months) Cash Equivalents 0.01 .01 .02 .02 .02 .03 .10 iMoneyNet, Inc. Taxable 0.00 01 02 01 02 02 03 Total Fixed Income -1.33 .34 1.04 2.80 2.39 3.65 5.43 BC US Aggregate Bd Index -1.68 - 10 1.86 3 1, 1 83 3.35 447 Total Equities 0.85 4.06 4.58 14.01 15.91 15.16 17.46 Large Cap Funds 1.61 3.64 8.28 16.59 18.37 16.65 17.95 S &P 500 Composite Index 0.2.8 ; . 23 742 15.70 17.31 17.34 18.90 Mid Cap Funds -1.08 2.30 5.94 13.27 15.23 16.26 Russell Midcap Index -1.54 2.35 6.63 16.30 19.26 18.23 22.15 Small Cap Funds 0.82 6.02 7.25 16.87 19.60 19.89 22.83 Russell 2000 Index 0.42 4.75 6.49 14.74 17.81 17.08 20.61 International Equities 0.18 4.40 -3.59 7.43 7.81 6.77 11.87 MSCI SAFE Index 0.62 5.52 -4.23 8.79 11.97 9.54 12.56 MSCI EM Free Index 0.69 2.95 -5.12 4.14 3.71 3.68 11.62 Total Managed Portfolio -0.24 2.18 2.78 7.95 8.81 9.38 11.33 Account Inception: 4/2009 Returns are gross -of -fees unless otherwise noted. Returns for periods over one year are annualized. The information presented has been obtained from sources believed to be accurate and reliable. Past performance is not indicative of future returns. Securities are not FDIC insured, have no bank guarantee, and may lose value. HIGHMARK® CAPITAL MANAGEMENT PARS: Central Contra Costa Sanitary District 3 ASSET ALLOCATION As of June 30, 2015 Current Asset Allocation Investment Vehicle Equity 47.63% Range: 40 %-60% 18, 980,449 Large Cap Core 6.10% SMGIX Columbia Contrarian Core Cl Z 2,428,906 Large Cap Value 4.23% DODGX Dodge & Cox Stock Fund 1,686,526 4.83% LSGIX Loomis Sayles Value Fund 1,925,325 Large Cap Growth 4.53% HACAX Harbor Capital Appreciation Instl 1,803,530 4.52% PRGFX T. Rowe Price Growth Stock Fund 1,802,968 Mid Cap Value 1.86% TIMVX TIAA -CREF Mid -Cap Value Instl 743,194 Mid Cap Growth 1.87% IYMIX Ivy Mid Cap Growth Fund 1 746,253 Small Cap Value 3.36% NSVAX Columbia Small Cap Value Fund 11 1,337,141 Small Cap Growth 3.36% PRNHX T. Rowe Price New Horizons Fund 1,340,872 International Core 3.72% NWHNX Nationwide Bailard Intl Equities Fund 1,483,736 International Value 1.85% DODFX Dodge & Cox International Stock Fund 735,503 International Growth 1.85% MQGIX MFS International Growth Fund 736,742 Tactical - Europe 2.67% FEZ SPDR EURO STOXX50 ETF 1,065,595 Emerging Markets 2.87% SEMNX Schroder Emerging Market Equity 1,144,158 Fixed Income 48.64% Range: 40 %60% 19,384,641 Short -Term 6.20% VFSUX Vanguard Short-Term Corp Adm Fund 2,469,588 Intermediate -Term 20.02% NWJJX Nationwide HighMark Bond Fund 7,979,388 20.02% PTTRX PIMCO Total Return Instl Fund 7,976,415 High Yield 2.41% PHIYX PIMCO High Yield Instl 959,250 Cash 3.73% Range: 0%x-20 % 1,485,096 3.73% FPZXX Money Market 1,485,096 TOTAL 100.00% $39,850,186 HIGHMARK® CAPITAL MANAGEMENT PARS: Central Contra Costa Sanitary District 4 CENTRAL CONTRA COSTA SANITARY DISTRICT For Period Ending June 30, 2015 LARGE CAP EQUITY FUNDS BOND FUNDS Nationwide HighMark Bond Fid -1.36 29 0.25 30 3 -Month 47 YTD 41 1 -Year Pimco Total Return Instl -1.84 73 0.34 3 -Year 1.30 5 -Year 2.45 Fund Name Inception Return Rank Return Rank Return Rank Return Rank Return Rank Columbia Contrarian Core Cl Z (7/13) 1.78 4 3.00 14 9.51 9 19.60 8 18.72 5 Dodge & Cox Stock (8/14) 2.56 2 1.33 20 4.54 35 20.44 4 17.79 4 Harbor Capital Appreciation Instl Returns less than one year are not annualized. Past performance is no indication of future results. The information presented 2.88 4 8.60 3 14.28 8 19.69 14 19.03 14 Loomis Sayles Value Fund (7/11) 1.06 16 0.68 36 4.56 35 18.49 12 16.66 15 T. Rowe Price Growth Stock 1.02 35 7.12 11 13.47 13 19.43 18 19.42 9 S &P 500 Index 0.28 1.23 -- 7.42 17.31 17.34 Ivy Mid Cap Growth 1 (5/14) -0.52 67 3.44 81 7.71 62 16.46 63 16.62 55 Russell Mid Cap Growth Index -1.14 4.18 9.45 19.24 18.69 TIAA-Cref Mid -Cap Value Insti (2/10) -1.61 63 1.20 57 4.27 40 17.83 58 17.14 34 Russell Mid Cap Value Index -1.97 0.41 -- 3.67 19.13 -- 17.73 Russell Mid Cap Index -1.54 2.35 6.63 -- 19.26 -- 18.23 LL CAP EQUITY FUNDS Columbia Small Cap Value II Z 0.32 26 4.26 13 3.75 27 17.98 21 17.41 9 T. Rowe Price New Horizons 1.29 60 7.77 47 10.93 41 21.01 13 23.32 1 Russell 2000 Index 0.42 4.75 -- 6.49 -- 17.81 -- 17.08 -- INTERNATIONAL • Dodge & Cox Intl Stock -0.30 91 3.89 85 -3.64 53 15.44 3 11.24 10 Nationwide Bailard Intl Equities 1.54 30 6.10 49 -0.16 15 13.10 16 10.37 18 Schroder Emerging Market Equity (11/12) 0.00 61 2.94 34 -5.29 37 3.13 51 3.96 43 MFS International Growth 1 0.46 75 5.59 67 -3.47 83 8.67 86 9.11 61 SPDR Euro Stoxx 50 ETF (6/14) -2.03 2.41 -11.17 13.34 7.57 -- MSCI EAFE Index 0.62 5.52 -4.22 11.97 9.54 MSCI Emerging Markets Index 0.69 2.95 -5.12 3.71 3.68 BOND FUNDS Nationwide HighMark Bond Fid -1.36 29 0.25 30 1.26 47 2.42 41 3.88 43 Pimco Total Return Instl -1.84 73 0.34 25 1.30 45 2.45 40 4.03 36 Vanguard Short-Term Investment -Grade Adm -0.07 56 0.96 22 1.12 13 2.06 16 2.53 22 PIMCO High Yield Instl (11/14) -0.26 77 2.20 62 0.92 17 6.25 42 7.75 47 BarCap US Aggregate Bond -1.68 -0.10 1.86 1.83 3.35 Credit Suisse HY 0.30 2.90 -0.70 6.62 8.31 Source: SEllnvestments, Morningstar Investments Returns less than one year are not annualized. Past performance is no indication of future results. The information presented has been obtained from sources believed to be accurate and reliable. Securities are not FDIC insured, have no bank guarantee and may lose value. .J HIGHMARK ® PARS: Central Contra Costa Sanitary District CAPITAL MANAGEMENT