PDF FMPTF Participant Directed Mutual Fund Program 9/30/2018 ...
Fund Name
FMPTF Participant Directed Mutual Fund Program 9/30/2018 Return Summary
Net of Investment Expense
Ticker
Expense Ratio
Quarter
YTD
One Year Three Year
Five Year
Ten Year
Cash Vanguard Federal Money Market Investor Fixed Income The Vanguard Retirement Savings Trust Vanguard Total Bond Market Index Adm Vanguard Interm-Term Bond Index Adm Vanguard Long-Term Treasury Admiral Vanguard Inflation-Protected Secs Adm Balanced Vanguard Wellington Adm Domestic Equity Vanguard Windsor II Adm Vanguard Institutional Index I Vanguard PRIMECAP Adm Eaton Vance Atlanta Capital SMID-Cap R6 Vanguard Small Cap Index Adm International Equity Vanguard International Growth Adm Vanguard International Value Inv Vanguard Total Intl Stock Index Admiral Real Estate Vanguard REIT Index Adm Target Retirement Vanguard Target Retirement Income Inv Vanguard Target Retirement 2015 Inv Vanguard Target Retirement 2020 Inv Vanguard Target Retirement 2025 Inv Vanguard Target Retirement 2030 Inv Vanguard Target Retirement 2035 Inv Vanguard Target Retirement 2040 Inv Vanguard Target Retirement 2045 Inv Vanguard Target Retirement 2050 Inv Vanguard Target Retirement 2055 Inv Vanguard Target Retirement 2060 Inv
Data provided by Morningstar Direct.
VMFXX
NA VBTLX VBILX VUSUX VAIPX
VWENX
VWNAX VINIX VPMAX ERASX VSMAX
VWILX VTRIX VTIAX
VGSLX
VTINX VTXVX VTWNX VTTVX VTHRX VTTHX VFORX VTIVX VFIFX VFFVX VTTSX
0.11
0.48 0.05 0.07 0.10 0.10
0.17
0.26 0.04 0.32 0.84 0.05
0.32 0.40 0.11
0.12
0.13 0.13 0.13 0.14 0.14 0.14 0.15 0.15 0.15 0.15 0.15
0.48
0.54 0.03 0.18 -2.83 -0.79
4.84
6.98 7.70 9.61 7.94 4.77
-1.51 0.99 0.53
0.52
1.33 1.76 2.36 2.76 3.09 3.47 3.79 4.03 4.02 3.99 4.00
1.23
1.52 -1.61 -2.08 -5.93 -0.90
3.65
6.21 10.53 14.59 13.22 11.04
2.55 -2.86 -3.12
0.52
1.26 1.76 2.42 2.81 3.30 3.72 4.17 4.40 4.42 4.38 4.42
1.50
1.99 -1.21 -2.03 -3.72 0.28
8.35
12.48 17.86 22.95 23.40 16.71
6.78 1.90 1.61
1.92
3.31 4.54 5.87 6.79 7.65 8.51 9.37 9.85 9.84 9.79 9.81
0.79
1.87 1.28 1.17 0.63 1.91
11.22
13.75 17.27 21.39 19.13 16.34
16.99 9.98 9.95
7.00
5.36 7.15 8.68 9.71 10.66 11.61 12.54 12.91 12.90 12.89 12.89
0.48
1.85 2.09 2.40 4.31 1.29
9.12
10.71 13.92 17.27 14.71 11.48
8.57 3.93 4.47
8.68
4.52 5.92 6.92 7.56 8.13 8.69 9.17 9.39 9.38 9.34 9.35
0.34
2.27 3.70 4.95 5.37 3.16
9.49
10.16 11.96 14.14 15.11 12.36
8.54 4.95 5.17
7.50
5.67 6.91 7.56 7.98 8.36 8.78 9.14 9.24 9.24
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? 2018 Asset Consulting Group All Rights Reserved
FMPTF Participant Directed Mutual Fund Program
September 30, 2018
231 South Bemiston Avenue 14th Floor Saint Louis, Missouri 63105 314.862.4848
Table of Contents Tab 1 Market Overview Tab 2 Total Portfolio Performance Summary Tab 3 Investment Manager Analysis Appendix Definitions of Statistical Measures
? 2018 Asset Consulting Group All Rights Reserved
FMPTF Participant Directed Mutual Fund Program
Market Overview
5
? 2018 Asset Consulting Group All Rights Reserved
Global Long-Only Equity
Domestic Equities reached new highs in 3Q-18, while non-US markets continue to lag, particularly Emerging Markets.
US Large Caps led this quarter with an advance of 7.7%. Small Caps continued to trend higher but with a decelerated pace, albeit continuing to lead on a full-year basis. Reported and expected earnings have benefited from a healthy economic backdrop strengthened by tax cuts, more favorable repatriation dynamics, increasing wages, strong employment, and rising consumer sentiment. This has led to the rally being concentrated in higher growth areas such as Information Technology and Health Care.
Non-US markets, primarily Emerging Markets, were negatively impacted by weakness in both Consumer Discretionary and Technology sectors. Energy was a bright spot in both developed and emerging economies. Global desynchronization was most apparent in China, which accounts for approximately 30% of the EM benchmark and is one of the main targets of the Trump administration's trade actions. China was down almost 7% in the quarter, driven by weakness in large-cap IT names such as Tencent and Alibaba.
The strengthening US dollar once again negatively impacted non-US returns in the quarter. Year-to-date, US-based returns have been meaningfully impacted by US dollar strength, with local currency returns reduced by 483 bps (EM) and 282 bps (EAFE).
Non-US Markets Impacted by Strong Dollar & Trade Wars
Sources: Bloomberg, FactSet, ACG Research
Global Long/Short Equity
S&P Priced in Units of VIX (volatility)
300 250 200 150 100
50 0
SPX Priced in Units of VIX
Sources: Bloomberg, ACG Research
?2018 Asset Consulting Group All Rights Reserved
After a volatile start to the year, muted volatility and investor complacency has returned as the global indices continued their march to once again mark historic highs in September. Net exposure for managers, after hitting a peak in March, has continued to track downward and reached year-to-date lows in September. Concerns about the macro environment (trade wars, mid-term elections and Brexit) as well as being in the late innings of the market cycle, have been factors in the reduced exposure of portfolios. We anticipate these events may lead to increased volatility, which should provide opportunities for managers to generate returns on both the long and the short side of their investments. For this reason the gross exposure of managers has not decreased with the net but remains high at above the 90th percentile rank since 2010.
The likelihood of continued interest rate increases should have a positive impact on equity long/short managers as they finally start to earn rebates on their short portfolios.
The outlook for event driven strategies continues to be positive as M&A activity appears to be on pace for a record year. Announced mergers are at $3.3 trillion year-to-date with the tailwind from tax cuts and cash repatriation. Organic growth for companies is hard to come by, margins are near peak levels, and stock buybacks are not a good strategy at current equity valuation levels, so companies will look externally for growth.
Technology remains a key area of interest as the sector has been a major contributor to
returns and there continues to be a large amount of dispersion between winners and
losers. This creates a positive opportunity set for equity long/short stock pickers.
6
Global Private Equity
Much like public markets, valuations remain high for new deals in private markets,
though valuations have slightly moderated relative to recent history. The median
acquisition price for a private equity-backed company purchased in 2Q-18 was 9.8x 100%
EBITDA, down from 2017's all time high of 10.7x but still above the prior 2007 peak of 90%
9.7x. We will continue to watch pricing trends as time will tell if this drop represents a rationalization in purchase price multiples or a short-term deviation from the past few
80%
years' trend. Rising interest rates combined with the possibility of slowing economic 70%
growth continue to pose risks to private equity-backed companies.
60%
Private equity-backed companies are remaining private for longer, both from 50%
extended holding periods and an increasing trend of private equity funds exiting their 40%
investments through a sale to another private equity fund, also known as a secondary 30%
buyout ("SBO"). Several firms, including Blackstone and CVC, have recently raised 20%
private equity funds with 15+ year terms intended to hold investments for much longer than the traditional 3-5-year hold period. Year-to-date in the US, more private
10%
companies have been sold to another private equity sponsor than any other type of 0%
exit transaction.
SBOs BSBeOcsoBemcoinmge IInnccreraesainsgilny gColymmCoonmmon
2010 2011 2012 2013 2014 2015 2016 2017 1H 2018
High purchase prices today are likely to translate into lower returns for select vintages going forward. The best managers recognize that high multiples are unlikely to continue indefinitely and that patience and asset selection is key to driving strong investment outcomes in this environment.
Secondary Buyout Other
Sources: Pitchbook, ACG Research
Global Real Assets
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
NCREIF Income Return Spread to Treasuries
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Spread: 10-Year UST Rate to NCREIF Income Return (Annualized) NCRIEF Income Return (Annualized) Sources: NCREIF, ACG Research
?2018 Asset Consulting Group All Rights Reserved
Median Spread 10-Year Treasury Rate
US real estate assets continue to benefit from a solid economic outlook and generally low new supply. The NCREIF Property Index is expected to post its 34th consecutive quarter of positive appreciation in 3Q-18. This is 12 quarters longer than the second longest winning streak since the benchmark's inception in 1978. In 2Q-18, NCREIF annualized income returns (a proxy for cap rates) decreased 16 bps to end at 4.48%. As interest rates continue to rise, the spread between NCREIF income returns and the 10-year US Treasury yield ended the quarter at 170 bps, approximately 110 bps tighter than the median spread since 2000.
Though there have been no significant impacts to real estate valuations so far, the potential for higher interest rates could put upward pressure on cap rates and lower future core real estate returns. Real estate market fundamentals remain relatively solid, with no imminent signs of a dramatic imbalance between supply and demand outside of the long-challenged retail sector. Given the potential for rising cap rates and the length of the current economic cycle, core real estate funds focused on income may outperform those focused on generating appreciation in the intermediate term.
Down slightly more than 2.0% during the quarter, the Bloomberg Commodity Index (BCOM) underperformed the Bloomberg Barclays US Aggregate Bond Index by 2.0% and underperformed the S&P 500 and MSCI ACWI by 9.7% and 6.4%, respectively. Signs of rising inflation may be positive for commodities broadly, though ongoing uncertainty about international trade policy, the strength of the US dollar, and sanctions may drive further volatility in the near term.
7
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