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Home My WebLink About07. Review and discuss HighMark Capital Management Governmental Accounting Standards Board (GASB) 45 Trust First Quarter Report dated April 25, 2017 7 m HIGHM �rO / x�va� cxp/rxL MAmAasmEmr April 25, 2O17 TheaVaoseUo Finance Manager Central Contra Costa Sanitary District 5019 Imhoff Place Martinez. [}A 94553_4392 RE: 1 s quarter 2017 (]PEB Report Dear Thea, Political news (and occasional tweets) dominated global financial markets again in the first quarter with the inauguration of a new president followed by a frenzied pace of new policies and legislative activity. President Trump inherits a stable, a(beito|ow+growing, economy that continues to show improvement on many fronts. With the Republican Party controlling both houses of Congress, the political gridlock of the past six years is expected to abate. Last year's Presidential election ushered in a new paradigm for how investors view the domestic economy. With the House, Senate and Executive branch now controlled by the Republican Party, companies and consumers alike quickly pivoted to the notion that fiscal stimulus is the likely outcome. Promises oftax cuts, deregulation and infrastructure spending made on the campaign trail are expected by many to reinvigorate on economy that has averaged just 2% real growth since the end of the financial crisis. Optimism thus far has been clearly observed in measures of consumer and business sentiment, referred to as "aoft data." Not surprisingly, measures of actual economic activity, or "hard data", have yet to materially benefit from the enthusiasm surrounding the expected end of the status quo in Washington. Soft data is more volatile than hard data and the two series are not perfectly correlated. This historical perspective reminds us that optimism alone cannot jump-start the virtuous cycle of economic activity. Globally, economic data has been dominated by upside surprises and equity markets have continued to advance following a strong fourth quarter' while domestic bonds regained some lost ground as longer-term interest rates fell modestly. Historically /om/ realized and forecast stock market volatility further underscores resilience in the face of growing uncertainty related to U.S. fiscal policy. Underlying the brood market rnomee' however, signs of afading "Trump trode^' have begun to emerge. Cyclical s1ooko, which performed well in the fourth quarter of 2016. trailed defensive and growth names in the first quarter — a clear sign of waning confidence that the new administration's agenda will come to full fruition. The U.S. dollar, viewed as a proxy for Trump policies, gave up ground against a basket of foreign currencies. At its March meeting, the Fed raised short-term interest rates for the second time in three months. It also indicated that two additional hikes are likely /n 2017. Meanwhile, on the long end of the yield oun/e, interest rates have risen considerably off the |ovva of July 2018' when the 10'year Treasury bond yielded just 1.36%. At the end of the first quarter' the yield had climbed over 100 basis points from its /ow to 2.38%. In add/tion to rate hikes, the Fed has also indicated plans to unwind its $4.5 trillion balance sheet through the suspension of the reinvestment of interest payments from the current holdings they have purchased, a policy that could put additional pressure on borrowing costs. Bond investors have been aware of what the Fed is up to, but stock investors have been less worried that the "punch bowl" is being taken away. For its part, the Fed has stressed it will take a gradual approach to raising rates and has no set path. In other words, it will remain "data dependent." This is good news for both U.S. bonds and equities, as an overly-aggressive Fed could trip up the economy and financial markets. The Central Contra Costa Sanitary District OPEB Plan returned 3.81% for the quarter, gross of investment fees. Our fixed income investments in the quarter posted a 1.25% return, which outperformed the Bloomberg Barclays Aggregate return of 0.82%. The fixed income markets rallied somewhat in the quarter in the face of another Fed hike in March. Some worries have emerged that given the current defeat for President Trump with respect to the repeal of Obamacare, the President might have a difficult time passing his tax reform legislation. And if this were to occur, growth estimates might be reduced. With the exception of the Nationwide HighMark Bond Fund, all managers outperformed the Bloomberg Barclays Aggregate Index. The equity segment returned 6.67%Q. With the exception of REITs, all equity segments posted positive performance in the quarter. The large cap equity segment outperformed the S&P500 Index due mainly to the strong performance of the two large cap growth managers: Harbor Capital Growth (+10.6%0) and the T. Rowe Price Growth Fund (+11.1%). The small cap equity segment also posted strong outperformance, returning 5.5%, vs. the Russell 2000 Index return of 2.4%. The most significant contributor to Plan performance in the quarter was the international equity segment. Our overweight and outperformance in this category benefitted Plan returns. All of our four managers outperformed the MSCI-SAFE Index with the Dodge & Cox International Fund (+9.3%a) and the Hartford Schroders Emerging Market Equity Fund (+12.5%) aiding performance the most. Our target asset allocation at quarter-end was: equities 50%, bonds 47% and cash/money market 3%. Andrew Brown PARS: Central Contra Costa Sanitary District First Quarter 2017 Presented by Andrew Brown, CFA HIGHMAR.,We CAPITAL MANAGEMENT CCCSDInception Beginning Value $ 566,683.26 Asset Allocation Contributions 451401,317.51 Withdrawals -10,195,066.57 Total Assets: $50,266,113 Gain (Loss) 5,536,244.87 Interest and Dividends 81957,638.32 Period Ending 3-31-2017 Net Accrued Income 551074.12 1 Q 17 Return: 3.81% Ending Market Value $5093219891.51 1 Year Return: 9.73% Inception-to-Date Return: 9.82% Inception Date:4-1-2009 Cash $1,400,257 2.79% .r' Equity $25,253,455 50.24% Fixed Income $23,612,401 46.97% * Ending Market Value differs from total market value on page 3 due to differences in reporting methodology. The above ending market value is reported as of trade date and includes accruals. The Asset Allocation total market value is reported as of settlement date. JK� PARS: Central Contra Costa Sanitary District HIGH��IAR CAPITAL MANAGEMENT 2 ASSET ALLOCATION -- CentralSanitaryontra Costa. As of First Quarter 2017 Current Asset Allocation Investment vehicle Equity 50.24% Range: 40Vo-60% 25,253,455 Large Cap Core 4.97% SMGIX Columbia Contrarian Core Cl Z 21496,940 11-51% VGIAX Vanguard Growth & Income Adm 57877980 980 Large Cap Value 4.29% DODGX Dodge & Cox Stock Fund 2,157,697 Large Cap Growth 2.14% HACAX Harbor Capital Appreciation Instl 190787093 2.15% PRUFX T. Rowe Price Growth Stock 1 170807344 Mid Cap Core 3.61% 1WR iShares Russell MidCap Index Fund 1 814 897 Small Cap Value 181% UBVLX Undiscovered Mgrs Behavioral Value Inst 179167137 Small Cap Growth 3.80% PRJIX T. Rowe Price New Horizons Fund 1 119087149 International Core 4.02% NWHMX Nationwide Bailard Intl Equities 1 210207164 International Value 2.60% DODFX Dodge & Cox International Stock Fund 17305,685 International Growth 2.60% MQGIX MFS International Growth Fund 173067494 Emerging Markets 3.22% SEMNX Hartford Schroders Emerging Mkts Eq 1 176187933 Real Estate 1.52% FARCX Nuveen Real Estate Securities 1 761 942 Fixed Income 46.9 7% Range: 40Vo-60% 23,612,401 Short-Terre 6.30% VFSUX Vanguard Short-Term Corp Adm Fund 311697228 Intermediate-Term 15.60% NWJIX Nationwide HighMark Bond Fund Inst 77 843,840 10.04% PTTRX PIMCO Total Return Instl Fund 57047,888 12.53% PTRQX Prudential Total Return Bond Q 672997575 Floating Rate Notes 2.49% E IFHX Eaton Vance Floating-Rate and Hi Inc 1 11251,871 Cash 2.79% Range: 0%-20% 194009257 2.79% FGZ>OC First American Government Oblig Z 114003257 TOTAL 100.00% $50,266,113 -AHIGHM 10 PARS: Central Contra Costa Sanitary District CAPITAL MANAGEMENT 3 Selected Period Performance PARS/CENTRAL CONTRA COSTA SANT PRHCP Account 6746030600 Period Ending: 03/31/2017 Year Inception to Date to Date Sector (3 Months) 1 Year 3 Years 5 Years (8 Years) Cash Equivalents .12 .32 .15 .10 .13 iMoneyftt, Inc. Taxable 37 48 09 Total Fixed Income 1.25 2.00 2.38 2.67 4.77 BC US Aggregate Bd Index 82 .44 2.68 2.34 4.00 Total Equities 6.67 18.32 6.67 10.60 14.98 Large Cap Funds 6.51 19.46 9.26 12.87 15.85 S&P 500 Composite Index 6.07 17.17 10.37 13.30 16.99 Mid Cap Funds 4.75 17.69 6.41 10.12 Russell Midcap Index 5.15 17.03 8.48 13.09 18.86 Small Cap Funds 5.51 22-80 8.16 13.64 19-56 Russell 2000 Index 2.47 26:22 7.22 12.35 17-60 International Equities 9.26 14.21 1.19 3.20 9.51 MSCI SAFE Index 7.25 11.67 .50 5.83 9.93 MSCI EM Free Index 11.44 17.21 1.18 .81 9.30 RE IT Funds -.14 2.67 Wilshire REIT Index J3 1.98 10.19 9.76 21.74 Total Managed Portfolio 3.81 9.73 4.55 6.48 9.82 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. HIGHMAR - PARS: Central Contra Costa Sanitary District IN. CAPITAL MANAGEMENT PARS/CENTRAL CONTRA COSTA SANITARIA DISTRICT For Period Ending March 31, 2017 LARGE CAP EQUITY FUNDS 3-Month YTD 1-Year 3-Year 5-Year Fund Name Inception Return Rank Return Rank Return Rank Return Rank Return Rank Columbia Contrarian Core Z (7113) 6.80 14 6.80 14 15.32 59 10.14 10 13.66 4 Dodge& Cox Stock (8114) 4.97 13 4.97 13 28.58 1 9.44 8 15.24 1 Harbor Capital Appreciation Instl (7110) 10.64 18 10.64 18 15.83 36 10.17 23 12.30 36 Vanguard Growth& Income Adm (12116) 5.28 63 5.28 63 16.43 46 10.57 3 13.54 6 T. Rowe Price Growth Stock Fund 1 11.17 11 11.17 11 19.27 11 11.34 8 13.63 10 l d x: S&P 500 6.07 -- 6.07 -- 17.17 -- 10.37 13.30 -- iShares Russell Mid-Cap (3116) 5.10 21 5.10 21 16.79 57 8.30 28 12.90 24 Idx: Russell Mid Cap 5.15 -- 5.15 -- 17.03 -- 8.48 -- 13.09 -- Undiscovered Managers Behavioral Val b (9116) 2.09 17 2.09 17 18.24 86 9.67 7 14.32 3 Idx: Russell 2000 Value -0.13 -- -0.13 -- 29.37 -- 7.62 -- 12.54 T. Rowe Price New Horizons Fund 1 10.15 4 10.15 4 23.92 31 9.05 12 14.52 4 Idx: Russell 2000 Growth 5.35 -- 5.35 -- 23.03 -- 6.72 -- 12.10 -- Dodge& Cox International Stock 9.32 9 9.32 9 22.97 1 0.72 41 7.32 6 Nationwide Ballard Intl Equities 1 7.64 59 7.64 59 7.46 85 0.93 36 6.41 13 MFS International Growth 1 8.04 69 8.04 69 9.20 38 2.13 25 4.66 72 Idx: MSCI EAFE 7.25 -- 7.25 -- 11.+67 -- 0.50 -- 5.83 -- Hartford Schroders Emerging Mkts Eq 1 (11112) 12.51 35 12.51 35 20.57 17 2.04 27 1.58 36 Idx: MSCI Emerging Markets 11.44 -- 11.44 -- 17.21 -- 1.18 -- 0.81 -- Data Source: Morningstar, SEI Investments Returns less than one year are not annualized. Past performance is not indicative of future returns. The information presented has,been obtained from sources believed accurate and reliable. Securities are not FDIC insured, have no bank guarantee and may lose value. A AO PARS: Central Contra Costa Sanitary District AHIGHM CAPITAL MANAGEMENT 5 s, PARS/CENTRAL CONTRA COSTA SANITARY DISTRICT For Period Ending March 31, 2017 REIT EQUITY FUNDS 3-Month YTD 1-Year 3-Year 5-Year Fund Name Inception Return Rank Return Rank Return Rank Return Rank Return Rank Nuveen Real Estate Secs Y (10115) 0.45 55 0.45 55 2.39 42 9.66 27 9.55 18 Idx: Wilshire REIT Index 0.03 -- 0.03 -- 1.98 -- 10.19 -- 9.76 -- Pimco Total Return Inst'l 1.63 10 1.63 10 2.44 30 2.77 29 2.96 30 Prudential Total Return Bond Q (5116) 1.84 5 1.84 5 3.43 15 3.83 4 4.06 3 Vanguard Short-Term Investment-Grade Adm 0.83 15 0.83 15 1.88 33 1.94 8 2.14 12 Nationwide HighMark Bond Fund Inst 0.78 75 0.78 75 1.53 49 2.64 38 2.73 40 Idx: BarCap US Aggregate Bond 0,82 __ Q.82 _- 0.44 __ 2,68 -- 2.34 -_ Eaton Vance Floating-Rate& Hi Inc Inst (12116) 1.55 6 1.55 6 10.90 24 3.71 9 4.58 19 Data Source: Morningstar, SEI Investments Returns less than one year are not'annualized. Past perfomnance is not indicative of future returns. The information presented has been obtained from sources believed accurate and reliable. Securities are not FDIC insured, have no bank guarantee and may lose value. E IGHMAR HIN. PARS: Central Contra Costa Sanitary District CAPITAL MANAGEMENT 6