Fresno County Employees Retirement Association

Transcription

1 Investment Review Fresno County Employees Retirement Association July 19, 2006 Representing Wellington Management Sue Bonfeld Vice President Wellington Management Company, llp

2 Contents Section One Section Two Section Three Section Four Wellington Management Company, llp Update and Relationship Review Research Value Approach Research Value Portfolio Review Global Economic Outlook _6.30

3 Wellington Management Unique Organization Ownership Structure Business Model Investment Platform Culture Private partnership since 1979 Stable Long-term oriented Attracts/retains talent Interests aligned with clients Investment management only Research for client portfolios only People-, not capital-intensive Diversified Global Multiple investment approaches and research disciplines Empowered teams Independent research Career analysts Freedom to disagree Global Client-oriented Performance driven Professional/collegial Humanistic True partnership Sustainable competitive advantage _6./G1039

4 Wellington Management Client Assets Under Management US$542 Billion Security Type Investment Orientation Equities 68% Bonds 29 Cash 3 Equity 60% Fixed Income 28 Balanced 12 3/31/ _6./G1039

5 Investment Professionals Depth, Experience, and Continuity Number of Professionals Average Years of Experience Central Research Global Industry Analysis Asset Allocation Analysis Quantitative Analysis Global Macroanalysis Technical Analysis Portfolio Coordinators Equities Portfolio Management Research Analysis Regional Analysis Product Management Fixed Income Portfolio Management Credit Analysis Quantitative Analysis Product Management Portfolio Analysis Trading Research Assistants Total Number of Investment Professionals Average Years with Wellington Management Average Years of Experience 15 Average Years with Wellington Management 8 Average Years of Experience 17 Average Years with Wellington Management 8 Average Years of Experience 15 Average Years with Wellington Management 7 3/31/ _6.3/G1039 3

6 Fresno County Employees Retirement Association Relationship Review April 5, 2000 June 30, 2006 Fresno County Employees Retirement Association retained Wellington Management Company, llp to manage a $139.1 million Research Value Portfolio Market value: $165.5 million Annualized Total Returns Periods Ended June 30, 2006 Since YTD 3 Mos 1 Yr 3 Yrs Inception* Fresno County 4.5% 0.6% 10.9% 15.9% 7.8% Fresno County Net of Fees Russell 1000 Value *Inception date: 4/30/ _6.4 4

7 Research Value Portfolio Management Team Portfolio Management Portfolio Oversight Product Manager Global Industry Analysts Mark D. Mandel, CFA, Director of Global Industry Research Christine Fuchs, CFA, Associate Director of Global Industry Research Cheryl M. Duckworth, CFA, Senior Portfolio Coordinator Camilla Martin, Portfolio Coordinator Edward B. Baldini, CFA, Equity Product Manager _6.5/G1303 5

8 Wellington Management Portfolio Management Team Industry Coverage Director, Global Industry Research Mark Mandel Consumer/Services Nick Booth Belinda Cavazos Jeffrey Dorsey Christine Fuchs* Sabre Mayhugh Brian O Connor Jawan Parker Steven Richter Steve Soderberg Scott Utzinger Energy/Utilities Mark Beckwith Greg LeBlanc Thomas Levering Nilesh Undavia *Associate Director of Global Industry Research 3/31/06 Technology/Telecom John Averill Archana Basi Nicolas Boullet Bruce Glazer Anita Killian David Nincic Scott Simpson Eric Stromquist Industrial/ Capital Equipment Rob Hayes Claude Staehly Suzanne Stefany Matthew Stover Tee Taggart Will Wrightson Health Care Robert Deresiewicz Ann Gallo Jean Hynes Kirk Mayer Ed Owens Joe Schwartz Finance Jonathan Ashe Andrea Finger Andrew Heiskell Jim Hoffmann Mark Lynch Jennifer Nettesheim Mary Pryshlak Ted Shasta Bradford Stoesser Other Resources 19 Research Associates _6.6/G1092 6

9 Research Value Investment Objective and Approach Investment objective Consistently outperform the Russell 1000 Value Index Investment approach Add value through bottom-up security selection Select stocks from a value universe Analysts use their best ideas within their industry Maintain Industry weights close to the index (generally ±1%) Remain fully invested _6.7 G1303/

10 Analyst Managed Portfolios Portfolio Construction Benchmark Global Industry Analysts Portfolio Hynes: Pharmaceuticals Wrightson: Transportation Pharmaceuticals Transportation Electric Utilities Hynes Wrightson Beckwith Beckwith: Electric Utilities Nettesheim: Capital Markets Glazer: Computer Services Capital Markets Nettesheim Computer Services Glazer Other Analyst Portfolios _6.8/G1303 8

11 Research Value Analyst Portfolio Weight and Performance Benchmark Electric Utilities Industry Analyst: Mark Beckwith Company Market Cap Exelon $ 38.0 bil Duke Energy 36.3 Southern 3.8 FirstEnergy 7.9 Public Service Enterprise 6.6 FPL 6.3 Entergy 5.0 PG&E 3.6 American Electric Power 3.2 Edison International.7 PPL.3 Consolidated Edison 0.8 Progress Energy 0.7 Ameren Corporation 9.9 Constellation Energy 9.7 Xcel Energy 7.7 Company DTE Energy $ 7.1 bil Allegheny Energy 6.0 Pepco Holdings 4.4 SCANA 4.4 Alliant Energy 4.0 Pinnacle West Capital 3.9 Centerpoint Energy 3.9 Energy East 3.5 DPL 3.4 OGE Energy 3.2 Northeast Utilities 3.1 TECO Energy 3.1 NSTAR 3.0 CMS Energy.8 6 Other Companies.5 Total of 36 Companies Market Cap $ bil Russell 1000 Value Electric Utilities Market Cap $333 bil Russell 1000 Value Market Cap $6,942 bil = Analyst Target Weight: 5.1% 6/30/ _6.9 /G1092 9

12 Research Value Research Drives Stock Selection Global Industry Analyst Mark Beckwith: Electric Utilities Industry Weighting Portfolio 4.7% Russell 1000 Value 5.1 Investment Strategy Focus on managements with sound long term strategies Analyze regional competitive positions Beware the regulator during the transition to market pricing Holdings Sub-Portfolio Benchmark Name Weights Weights Exelon 52.0%.4% FPL TXU PG&E Northeast Utilities Total 00.0%.3% 6/30/ _6.10/G

13 Best Valuation Technique Provides Blend of Styles and Consistency of Performance Electric Utilities P/E Relative to Growth Rate Analyst Managed Portfolios Consumer Durables Normalized Earnings Peak to Peak Growth Consumer Staples Volume Growth & Free Cash Flow Insurance Price/Book Value Technology Sequential Earnings Growth Pharmaceuticals Future Drug Pipeline _6.11/G

14 Fresno County Research Value Performance Attribution: One Year Ended June 30, 2006 Portfolio: 10.9%; Russell 1000 Value: 12.1% 100 Value Added 50 Basis Points Utilities Health Care Financials Energy Industrials Info Technology Cons Staples Cons Discretionary Materials Telecom Svcs Selected Outperforming Sectors Utilities Health Care Financials Selected Underperforming Sectors Telecom Svcs Materials Cons Discretionary Stocks Contributing to Performance TXU Pfizer*, King Pharmaceuticals, Merck* UBS, Fannie Mae*, Goldman Sachs Stocks Detracting from Performance Deutsche Telekom, BellSouth*, Qwest Communications* Bowater, Nucor*, Dow Chemical Viacom, Lennar, Delphi *Represents positions which were not held or underweight the benchmark _6.12 G1303/

15 Fresno County Research Value Ten Largest Holdings as of June 30, 2006 % of % of Russell Company Industry Equities 1000 Value Bank of America Diversified Financials 6.6% 3.5% Citigroup Diversified Financials Chevron Energy Occidental Petroleum Energy ConocoPhillips Energy ExxonMobil Energy Exelon Utilities Deutsche Telekom Telecom Services Merrill Lynch Diversified Financials Golden West Financial Banks Total of Top Ten 32.6% 19.8% Total Number of Holdings _6.13 G1303/

16 Fresno County Research Value Portfolio Characteristics as of June 30, 2006 Portfolio Russell 1000 Value Size Asset-weighted Market Cap $77.2 bil $85.6 bil Greater than $50 billion 44% 45% $10 50 billion $2 10 billion 7 7 Less than $2 billion Valuation Projected P/E.2x.8x Projected EPS Growth (5-Yr) 0.7% 9.4% Price/Book.2x.1x Yield.3%.5% Risk Historical Beta (3-Yr).02 Historical R 2 (3-Yr) 0.94 Historical Tracking Risk (3-Yr).0% Turnover 54.0% _6.14 G1303/

17 Global Economic Outlook July 2006 Global economy takes a pause US slowdown is here, world will follow Emerging markets and Japan will slow temporarily Continental European growth will fade in 2007 Emerging Markets and Europe: country differentiation matters again Stronger 2007 earnings growth in the UK and Japan than in the US and Euro Area Global inflation remains under control Global bond yields are around fair value _6.15/G

18 Global Economy Takes a Pause Real GDP Growth, Y/Y % Ch 12 US China World Emerging _6.16/G

19 US Housing Slowdown Impacts Consumption 40 Sales Minus Supply of Single Family Homes & Home Prices, Y/Y % Ch Sales Growth Minus Supply Growth (LHS) Home Prices (RHS) _6.17/G

20 But the US Is No Longer the Only Game in Town US Consumption; % Share of World Economy vs MSCI US Market Capitalization; % Share of All Countries US Nominal Consumption as % of World GDP (LHS) US Market Cap as % of World (RHS) _6.18/G

21 Asian Economies Breaking Free from US Consumer Asia, Exports to US as a % of Total Exports _6.19/G

22 Country Differentiation Matters Again, Especially in Emerging Markets Current Account, % of GDP, As of 2006 Hungary Turkey India Chile Mexico Brazil China _6.20/G

23 Optimistic Japan 60 Japan, Consumer & Industrial Confidence Industrial Confidence (LHS) Consumer Confidence (RHS) _6.21/G

24 German Tax Hike Will Hurt Euro Area, Consumer & Industrial Confidence Industrial Confidence (LHS) Consumer Confidence (RHS) _6.22/G

25 Stronger 2007 Earnings Growth in the UK and Japan Stock Market Earnings Growth, % 20 FY05 FY06e FY07e US Euro Area UK Japan* *TOPIX recurring profits (pre-tax). Japanese companies have March year-end _6.23/G

26 Global Inflation Is Kept at Bay World, CPI, Y/Y % Ch US Euro Area Japan UK China Emerging Markets _6.24/G

27 Stable and Predictable: The UK as a Leading Example Real GDP, Y/Y % Ch 12 US 10 UK _6.25/G

28 Surprisingly Few Inflationary Pressures 12 UK: Wage Growth vs Unemployment Rate 4 Wage Growth (LHS) Unemployment Rate (RHS, Inverted) _6.26/G

29 What Are Our Biggest Out-of Consensus Calls? Growth Above consensus Above consensus China (10.1% vs 9.6%) China (10.5% vs 8.9%) Brazil (4.8% vs 3.5%) Below consensus Below consensus US (2.8% vs 3.4%) US (2.5% vs 2.9%) Japan (2.4% vs 2.9%) Inflation Above consensus Above consensus China (3.2% vs 2.5%) Brazil (5.0% vs 4.4%) Below consensus Below consensus China (1.6% vs 2.1%) UK (1.7% v. 2.3%) Earnings Above consensus Above consensus Japan* (13% vs 8%) Euro Area (12% vs 9%) *TOPIX-All Recurring Profits Pre-tax **IBES Bottom-UP Earnings Below consensus Below consensus US** (5% vs 11%) Euro Area (6% vs 10%) _6.27/G

30 Global Economic Forecasts July 2006 Central Bank Policy Rates Real GDP Inflation (%, Year End) US Euro Area UK Japan Emerging World Stock Market Earnings* P/E* US Euro Area UK Japan* *Fiscal year earnings and P/E: S&P 500, MSCI Euro Area, FTSE-All Share, and TOPIX. Japanese companies have March fiscal year-end. Note: Annual average percent change unless otherwise noted P/E as of 6/7/ _6.28/G