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Quarterly Participant Webinar Outlook 2018 November 8, 2017 WELCOME
Transcript of Quarterly Participant Webinar - rpb.org › uploads › documents ›...
Quarterly Participant WebinarOutlook 2018
November 8, 2017
WELCOME
What We’ll Cover Today
Opening Remarks: Len Teitelbaum
How Our Plan and the Markets Performed: David Baskin
Outlook 2018: Chris Moore and David Baskin
What does this mean for you?
Q&A
2
MARKET & PLAN PERFORMANCE UPDATE
3
4
2017 Q3 Key Themes
• Strengthening Global Economy led to strong
equity performance
• Fading Optimism in US Policy Changes causing
relative underperformance of US assets and the US
Dollar
• Technology and Internet Strength led value
stocks to underperform
• Slightly Disappointing Inflation Data resulted in
mixed commodity performance and rally in interest
rates
• Continued Central Bank Policy Tightening with
continued interest rate hikes and exit of QE
5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20162017
YTDDescription
MLP
47.9%
MLP
44.4%
Core
Bonds
10.3%
EM
55.8%
REITs
31.5%
EM
34.0%
REITs
35.9%
EM
39.4%
Core
Bonds
5.2%
EM
78.5%
MLP
35.9%
MLP
13.9%
EM
18.2%
US
Equities
33.6%
REITs
30.4%
REITs
2.5%
MLP
18.3%
EM
27.8%Emerging Market Stock Index
REITs
26.8%
REITs
12.8%
REITs
3.6%
MLP
41.6%
EM
25.6%
EAFE
13.5%
EM
32.2%
MLP
12.4%
High
Yield
-26.2%
MLP
76.4%
REITs
28.5%
REITs
8.7%
REITs
17.8%
MLP
27.6%
US
Equities
12.6%
Core
Bonds
0.5%
High
Yield
17.1%
EAFE
20.0%Developed Market International Stock Index
Core
Bonds
11.6%
Core
Bonds
8.4%
MLP
0.2%
EAFE
38.6%
EAFE
20.2%
REITs
12.1%
MLP
27.6%
EAFE
11.2%
MLP
-36.8%
High
Yield
58.2%
EM
18.9%
Core
Bonds
7.8%
EAFE
17.3%
EAFE
22.8%
Core
Bonds
6.0%
US
Equities
0.5%
US
Equities
12.7%
US
Equities
13.9%
US Large and Small Stock Index
High
Yield
-5.9%
High
Yield
5.3%
High
Yield
-1.4%
REITs
36.8%
MLP
15.9%
US
Equities
6.1%
EAFE
26.3%
Core
Bonds
7.0%
US
Equities
-37.3%
EAFE
31.8%
US
Equities
16.9%
High
Yield
5.0%
US
Equities
16.4%
High
Yield
7.4%
MLP
4.8%
EAFE
-0.8%
EM
11.2%
High
Yield
7.0%
High Yield Bonds (Non-Investment Grade Bonds) Index
US
Equities
-7.5%
EM
-2.6%
EM
-6.2%
US
Equities
31.1%
US
Equities
11.9%
MLP
5.2%
US
Equities
15.7%
US
Equities
5.1%
REITs
-38.0%
REITs
28.6%
High
Yield
15.1%
US
Equities
1.0%
High
Yield
15.8%
REITs
2.5%
High
Yield
2.5%
High
Yield
-4.5%
REITs
8.6%
REITs
3.6%Real Estate Investment Trust Index
EAFE
-14.2%
US
Equities
-11.5%
EAFE
-15.9%
High Yield
29.0%
High Yield
11.1%
High
Yield
2.7%
High
Yield
11.9%
High
Yield
1.9%
EAFE
-43.4%
US
Equities
28.3%
EAFE
7.8%
EAFE
-12.1%
MLP
4.8%
Core
Bonds
-2.0%
EM
-2.2%
EM
-14.9%
Core
Bonds
2.7%
Core
Bonds
3.1%
Diversified US Investment Grade Bond Index
EM
-30.8%
EAFE
-21.4%
US
Equities
-21.5%
Core
Bonds
4.1%
Core
Bonds
4.3%
Core
Bonds
2.4%
Core
Bonds
4.3%
REITs
-16.8%
EM
-53.3%
Core
Bonds
5.9%
Core
Bonds
6.5%
EM
-18.4%
Core
Bonds
4.2%
EM
-2.6%
EAFE
-4.9%
MLP
-32.6%
EAFE
1.0%
MLP
-5.6%Master Limited Partnerships (Pipelines) Index
Be
st P
erf
orm
ing
Wo
rst
Pe
rfo
rmin
g
Asset Class Performance Comparison
6
RPB Fund Management Based on 2017 Themes
• Decreased US Equity Allocation in Capital
Appreciation Fund: Raised cash for opportunistic
re-allocation on potential equity market pull-back
• Added US Value Tilt: Increased exposure to US
value equity index on valuation difference in Capital
Appreciations and Appreciation & Income Funds
• Rebalanced Appreciation & Income Fund to
55/45: Modestly increasing defensive position
• MLP’s: Maintained overweight based on yields
and ‘toll road’ revenue model
• Emerging Market Equities: Maintained
overweight based on valuations and strong earnings
7
RPB Trailing 12-Months Investment ReturnsOctober 1, 2016 through September 30, 2017
17.22%
18.73%
11.14% 10.94%
2.56%
0.07%1.03%
0.50%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
*As of September 30, 2017, net of investment management fee.**Barclays Global Aggregate January 1, 2013 through September 30, 2016, Barclays US Aggregate thereafter.
9.27%
10.08%
6.22%6.46%
3.06%
4.14%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
CapitalAppreciation
Fund
MSCI ACWIIMI
Appreciation& Income
Fund
60% MSCIACWI
IMI/40% FixedIncome
Composite*
IncomeFocused Fund
Fixed IncomeComposite*
Sta
nd
ard
De
via
tio
n
8
Since Inception Volatility – Lower is Less RiskyJanuary 1, 2013 through September 30, 2017
*Barclays Global Aggregate January 1, 2013 through September 30, 2016, Barclays US Aggregate thereafter.
14.23% 14.24%
10.60% 10.59%
21.01% 20.65%
23.60% 23.18%
3.49% 3.61%3.14% 3.14%
4.95% 5.11%
0.61% 0.67%1.48% 1.58%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
9
RPB Year-to-Date Tier II Investment Returns*January 1, 2017 through September 30, 2017
*Net of investment management fees.
ECONOMIC & MARKET OUTLOOK 2018
10
11
Key Themes 2018
• Continued question of policy impacts on market returns
– Trump Administration: Potential tax/health care reform
• Central Banks
– Global tightening
– New Fed Chairman – Jerome Powell – likely to maintain status quo
• Geopolitical risks (i.e., North Korea)
• Certain factors already priced into the market
• Timing of when, or if, inflation and volatility return
• Past performance not indicative of future results
12
What Tax Reform May Look Like
Individuals
• Mix of decreasing tax rates and brackets versus eliminating deductions
• Elimination of Alternative Minimum Tax and Estate Tax
Corporates
• Lower corporate tax rate from 35% to 20%
• Tax repatriation of foreign profits at 12%
• Additional mix of deductions (interest expense) and incentives (capital expenditure)
Estimated cost of $1.5 to $2 trillion
13
4.9%
1.5%1.8%
-4%
-2%
0%
2%
4%
6%
8%
10%
1980 1985 1990 1995 2000 2005 2010 2015 2020
Real GDP Growth (YoY)
Emerging
Developed (G7)
US
Economic Growth Expectations
• Future expectation of ‘long and low’ growth cycle
• With lower growth and full valuations, long-run future asset returns are expected to be
lower than historical averages
14
4.2%
2.2%
0.5%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Sep
-97
Sep
-99
Sep
-01
Sep
-03
Sep
-05
Sep
-07
Sep
-09
Sep
-11
Sep
-13
Sep
-15
Sep
-17
Labor Market Strength vs. Inflation
Unemployment Rate
Source: Bloomberg.
CPI
10-Year Real Yield
Does Labor Market Strength Impact Inflation?
• Historically, at current levels of low unemployment, inflation (CPI) has been much stronger
15
4.7%
0.3%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Sep
-97
Sep
-99
Sep
-01
Sep
-03
Sep
-05
Sep
-07
Sep
-09
Sep
-11
Sep
-13
Sep
-15
Sep
-17
S&P 500 Earnings Yield vs. 10-Year Real Yield
S&P 500 Earnings Yield
Source: Bloomberg.
10-Year Real Yield
The Equity Risk Premium
• The extra return equity investors get from assuming more risk is higher than at most
times in past 20 years
16
• This economic cycle is one of the longest on record
• Current cycle near historical expansion end points
Prior Expansion
Peak
Economic Cycle Duration
(Quarters)
4Q 1948 19
3Q 1953 16
3Q 1957 11
2Q 1960 38
4Q 1969 16
4Q 1973 25
1Q 1980 6
3Q 1981 36
3Q 1990 42
1Q 2001 27
4Q 2007 39
Average Duration 25
Markets: Beginning of the end?
current cycle duration since prior peak
17
• Stock markets have been strong and also abnormally calm
• Potential catalysts for return to normal volatility?
2%
68%
1%
Median, 20%
0%
10%
20%
30%
40%
50%
60%
70%
80%S&P 500: Percentage of Trading Days with Price Swings >1.5%
* 2017 through 10/13.
Potential Return to Normal Volatility
18
Asset Class Expectations
• Smooth annual return over time; actual experience is bumpier
• Market timers typically sell too late and buy too late; few achieve
the return from ‘buy and hold’
• A well-diversified portfolio with international exposure and
variety of asset classes can smooth out some of the bumps
VALUE OF A $1,000 INVESTMENT IN S&P 500 OVER 20 YEAR
7.5% compounded rate of return per year
19
• Lower expectation of stock market appreciation going forward
• Long and low global interest rate environment
• Upside surprise is possible – requires change in status quo
• Focus on your time horizon, risk tolerance, and lifestyle
– May be time to rebalance based on moves in the market
– Reassess holistic financial plan as you age
• The markets cannot correct for low contribution rates or
living beyond one’s means
What Does This Mean For You?
Q&A
20
