INVESTMENT PORTFOLIO REVIEW

Transcription

1 INVESTMENT PORTFOLIO REVIEW PRESENTED TO: EPISCOPAL DIOCESE OF CT JOSEPH A. MCCOURT, CFA MANAGING DIRECTOR, SENIOR INSTITUTIONAL PORTFOLIO STRATEGIST PATRICK J. STAFFARONI SVP, PHILANTHROPIC CLIENT MANAGER ELIZABETH A. CAHILL MANAGING DIRECTOR, PRIVATE CLIENT ADVISOR G. DIANN PETRINO MANAGING DIRECTOR, INSTITUTIONAL CLIENT EXECUTIVE MARCH 31, 2018

2 TABLE OF CONTENTS INTRODUCTION Investment Strategy Committee Viewpoint Economic & Market Quad Chart Our Philosophy PORTFOLIO REVIEW Executive Summary Risk Analytics Attribution Investment Performance (Calendar Returns bar chart) Current Asset Allocation (IPS) Investment Performance (IPS) APPENDIX Investment Policy Statement Investment Performance (Product View) 2

3 INTRODUCTION 3

4 ECONOMIC OUTLOOK U.S. U.S. growth picked up to about 3 percent last spring which we expect to continue in 2018 despite some temporary winter weather disruptions. Stronger capital spending accounts for most of the rise in growth. U.S. consumers have tailwinds from decent wage growth, rising home prices, still-low interest rates and very positive labor market dynamics. We expect housing and business investment spending to be cyclical tailwinds for the overall economy, extending the cycle. Pro-business policies are helping: Tax cuts, tax reform, repatriation and regulatory relief should boost nominal growth. GLOBAL WATCH LIST U.S. Inflation U.S. Fiscal Policy Earnings China Central Bank Meetings Brexit negotiations U.S. Trade Policy The synchronized global growth upturn that began in 2016 continues. Purchasing Managers Indexes show the global expansion is picking up. Capital spending plans are rising with global growth. Corporate profits are rising around the world as global growth improves. We expect real global GDP growth around 4 for EMPLOYMENT, INFLATION & INTEREST RATES Job growth remains steady and the current trend is sufficient to keep the unemployment rate at 4, or lower, for the next year. Wage growth is moderate and suggests inflation is well anchored or picking up. We expect the Fed to continue to gradually remove monetary accommodation through rate hikes and balance sheet tapering. PROFITS DOLLAR & COMMODITIES In our view, the dollar is near fair value on a tradeweighted basis, but interest rate differentials are favorable. We expect an orderly depreciation of the dollar over the rest of the year. We expect WTI oil prices to remain in the $60 to $70 range in Higher nominal growth and a lower corporate tax rate add to the upside risks to profits. S&P 500 earnings per share are expected to rise by double-digits in Source: Global Wealth & Investment Management Investment Strategy Committee (ISC) as of March ARPMMY9C. 4

5 ECONOMIC AND MARKET FORECASTS Q Q Q Q4 2017E E 2018 E Real global GDP ( y/y annualized) Real U.S. GDP ( q/q annualized) CPI inflation ( y/y)* Core CPI inflation ( y/y)* Unemployment rate, period average () Fed funds rate, end period ()** year Treasury, end period () S&P 500, end period*** S&P operating earnings ($/share) $/, end period /$, end period Oil ($/barrel), end period Percent calendar-year average over calendar-year average annualized unless stated. E = Estimate. *Latest 12-month average over previous 12-month average. **Fed funds rate, end period based on market indications. ***Our 2018 S&P 500 end period forecast: 2830 is the equilibrium target with potential for 3000 post tax reform, which could underpin earnings in the high $150s, or an increase of $9 to $10 above the upper end of our range. Past performance is no guarantee of future results. Economic or financial forecasts are inherently limited and should not be relied on as indicators of future investment performance. Source: Global Wealth & Investment Management Investment Strategy Committee. Data as of March, ARPMMY9C. 5

6 PORTFOLIO STRATEGY AND ASSET ALLOCATION TACTICAL SHIFTS March 2018: Lowering our Small Cap exposure slightly in order to fund an increase in Large Caps given the valuation adjustment that has occurred in the U.S. Large Cap stocks. January 2018: Moderated our view of U.S. municipals to neutral as muni-to-treasury ratios are less compelling versus last year FIXED INCOME Neutral-to-slightly-short duration is warranted, balancing expectations for higher short-term rates over time and periods of flight-to-quality given political and geo-political headwinds. Prefer credit over Treasurys, emphasizing corporates particularly banks with some allocation to Treasurys for liquidity and relative safety. Volatility, compressed yields and risk premiums around the world present unfavorable risk/reward conditions on international. Slightly negative global high yield taxable as valuations are rich; allocations to leveraged MARKET VIEWS loans and active manager favoring higher-quality securities in our opinion. Active management can potentially help improve risk-adjusted returns in a rising rate environment. EQUITIES From secular stagnation to fiscal reflation and synchronized economic expansion Equities remain attractive vs. Fixed Income on relative basis Utilize a barbell strategy in Fixed Income to accumulate cash flow Non-U.S. economies gather momentum Emerging Markets remain a tailwind to world growth Portfolios are being repositioned for higher nominal growth and rising interest rates which continues our positive view on equities. We emphasize international equities, such as those of Europe, Japan and emerging markets given their more attractive valuations and better earnings prospects. We expect higher levels of volatility to persist as global yields rise and central banks normalize. We prefer exposure to industries that offer earnings streams from secular themes such as technology (digital revolution, artificial intelligence, cloud computing, etc.) and to ones offering cyclical value such as financials (rising rates, deregulation). ALTERNATIVE INVESTMENTS Low correlations, widening dispersion, and a return of market volatility should benefit hedge funds this year therefore upgraded our view on equity market-neutral to moderately positive and believe these strategies will be able to capitalize on greater alpha opportunities this year while providing important diversification benefits to portfolios. U.S. real estate markets appear to be generally healthy with supply and demand largely in balance for most property sectors. We currently see opportunities in special situations, private credit and infrastructure within private equity for the long-term potential. Over the long term, we expect tangible assets to benefit portfolios through increasing portfolio diversification, protecting against the corrosive effects of inflation, producing growing streams of investment cash flow and providing favorable social impact opportunities. *Many products that pursue Alternative Investment strategies, specifically Private Equity and Hedge Funds, are available only to pre-qualified clients. Asset Allocation and diversification do not ensure a profit or protect against loss in a declining market. Source: Global Wealth & Investment Management Investment Strategy Committee (ISC) as of March ARPMMY9C. 6

7 ASSET CLASS VIEWS Global Equities U.S. Large Cap U.S. Mid Cap U.S. Small Cap International Developed Emerging Markets Global Fixed Income U.S. Investment Grade Taxable International Global High Yield Taxable Alternative Investments* Hedge Funds Private Equity Real Estate Tangible Assets/ Commodities Cash Slightly Slightly Negative Negative Neutral Positive Positive CORE PORTFOLIO FUNDAMENTALS Generate attractive cash flows across asset classes Active rebalancing during periods of outsized weakness and strength Focus on risk-adjusted returns and goal alignment When assessing your portfolio in light of our current guidance, consider the tactical positioning around asset allocation in reference to your own individual risk tolerance, time horizon, objectives and liquidity needs. Certain investments may not be appropriate, given your specific circumstances and investment plan. Certain security types, like hedged strategies and private equity investments, are subject to eligibility and suitability criteria. Your financial advisor can help you customize your portfolio in light of your specific circumstances. *Many products that pursue Alternative Investment strategies, specifically Private Equity and Hedge Funds, are available only to pre-qualified clients. Source: Global Wealth & Investment Management Investment Strategy Committee (ISC) as of March ARPMMY9C 7

8 MARKET PERFORMANCE As of March 31, 2018 Equity Market Performance Equity Style Performance 30 March Last three months Last 12 months Total Return () Dow S&P 500 Nasdaq Composite Source: Bloomberg. Data as of 03/31/2018. Russell Midcap Russell 2000 MSCI EAFE MSCI Emerging Markets Source: Bloomberg. Data as of 03/31/2018. Fixed Income Market Performance Treasury Yield Curve The Citigroup Pension Liability Index provides an investment performance benchmark for asset/liability management of a typical pension plan. * The Barclays Capital Fixed Income Indices were recently acquired by Bloomberg and are now branded Bloomberg Barclays Indices. Source: Bloomberg. Data as of 03/31/2018. Source: FactSet. Data as of 03/31/2018. The performance for above markets are represented by their respective indexes Past performance is no guarantee of future results. Performance results are extremely short-term and may not provide an adequate basis for evaluating performance potential over varying market conditions or economic cycles. Please see end of presentation for asset class disclosures and index definitions. 8

9 OUR PHILOSOPHY We believe that using multiasset class portfolios developed to benefit from multiple sources of return is the best way to have a portfolio support the mission of its organization. Please see back for important information. ARR5L938 9

10 PORTFOLIO REVIEW 10

11 Executive Summary As of March 31, 2018 May you live in interesting times. Chinese Curse Remember last year? Equities sleepily drifted upward every day. It was all one series of boring new highs after another. The only question was as to whether we would have four up market days each week, or five. Welcome to a new and much more interesting world. Sometimes a Curse is also a Blessing. We had all been concerned last year by the lack of volatility in markets, even as we benefitted from same. At mid-year, we moved to adopt a somewhat less-aggressive allocation, and by combining passive options with active anticipated that at some juncture that the world would become more interesting. When it did so, while we weren t protected from the absolute change in valuation, neither were we as damaged by the result as we might have been. Further, a return of volatility in the environment we foresee for world markets offers opportunities we can exploit which did not exist in the far less interesting days of We anticipate that 2018 will not only be interesting, but also a very good year. The global expansion that began 18 months ago continues to gather steam. Our forecast in such a globally growing environment for real domestic GDP stands at 4, the highest pace since Strong U.S. consumption and tight labor markets, along with the still-unexperienced benefit of the results of tax reform should keep consumer confidence high throughout the year. International Developed markets are inexpensive in our estimate, and we continue to expect Emerging Markets to grow strongly. This supports our continued expectation of S&P 500 earnings in the $148-$158 range, continued sales growth, and an increase in capital spending. This should support the S&P in rising to the 3000 level by year end. What can turn the Blessing into a Curse? Certainly Geopolitical Risk. As this is written, the U.S. and Russia seem about to square off in Syria over retaliation for gas warfare. Bluster over tariff policy stoked fears of an all-out trade war in early April, fears which abated when China indicated a desire for accommodation. As the Trump administration enters it s second year, one begins to understand the Commander-in-Chief s negotiating style much more sound and fury, then negotiation. It appears to be sufficiently different from past practice to put the subjects of negotiation off base, and largely works. It does however create considerable volatility while in process. Within the D&B account, Q1 ended nearly flat, down by The revised benchmark was down by Most managers finished close to their benchmarks. Of note was US MidCap, in which Baird Growth had an excellent quarter (4.38 vs. 2.17), which Wedge Value was behind to On a since-inception basis we continue to be ahead of benchmark 5.98 versus 5.18, with a standard deviation of 7.01, nearly exactly that of the benchmark. 11

12 RISK ANALYTICS (SINCE INCEPTION) As of March 31, 2018 Episcopal Diocese of CT RETURN VS. RISK RISK STATISTICS *Episcopal CT Benchmark II **ICE BofAML US 3 Month T-Bill Index Past performance is no guarantee of future results. The risk/potential reward spectrum is intended to provide a general evaluation of the risk and potential return of each asset category. It is not meant to predict future performance or the volatility of any investment option or category. Investors should carefully consider the investment objectives, risks, charges and expenses before investing. RETURN STANDARD DEVIATION BETA ALPHA R- SQUARED SHARPE RATIO TREYNOR RATIO TRACKING ERROR INFORMATION RATIO Total Portfolio Policy Benchmark*

13 ATTRIBUTION ANALYSIS (TRAILING 12 MONTHS) As of March 30, 2018 Episcopal Diocese of CT Asset allocation effect () Selection effect () Sector allocation effect () Total effect () ASSET CLASS ASSET ALLOCATION EFFECT () SECTOR ALLOCATION EFFECT () SELECTION EFFECT () TOTAL EFFECT () CASH/CURRENCY EQUITIES U.S. Large Cap Growth U.S. Large Cap Value U.S. Mid Cap Growth U.S. Mid Cap Value U.S. Small Cap Growth U.S. Small Cap Value Large Cap International Growth Large Cap International Value Smid Cap International Emerging Markets FIXED INCOME Investment Grade Taxable International Unhedged Global High Yield Taxable Fixed Income Other REAL ESTATE TANGIBLE ASSETS TOTAL Percentages are rounded by nearest hundredth. 13

14 INVESTMENT PERFORMANCE CALENDAR RETURNS As of March 31, 2018 Episcopal Diocese of CT * Episcopal CT Benchmark II consists of a blend of the following: 13.5 Russell 1000 Growth, 13.5 Russell 1000 Value, 2.5 Russell Midcap Growth,2.5 Russell Midcap Value, 2.5 Russell 2000 Growth, 2.5 Russell 2000 Value, 4 MSCI EAFE Growth(Net), 4 MSCI EAFE Value(Net), 2 S&P Developed Ex-US Small Cap (US Dollar), 10 MSCI EMF TR Net EmrgMrkts, 16.5 BBG BARC US Aggregate Bond Index, 5 ICE BofAML U.S.HY Master II, 5 BBG BARC Global Aggregate ex-usd, 5 MSCI US REIT Index, 5 Bloomberg (DJ UBS) Commodity Index, 3 ICE BofAML US 3 Month T-Bill Index and 3.5 ICE BofAML Core Fixed Rate Preferred Securities Index. Past Performance is no guarantee of future results. All returns are gross of fees unless otherwise noted. For periods longer than one year, the return is annualized. Periods less than one year utilize a cumulative return. Returns may include a partial month. Benchmark performance returns for the Since Inception period are based on the inception date of the sector or the account under which they are displayed. Market value does not include accrued income, but is included in the return calculation. 14

15 CURRENT ASSET ALLOCATION (IPS) As of March 31, 2018 Episcopal Diocese of CT ASSET CATEGORY MARKET VALUE OF PORTFOLIO TOTAL COST ESTIMATED ANNUAL INCOME CURRENT YIELD EQUITIES $73,582, $61,667,822 $1,321, U.S. Large Cap $33,913, $27,222,711 $584, U.S. Mid Cap $6,171, $5,418,486 $85, U.S. Small Cap $8,001, $7,191,678 $122, International Developed $13,695, $12,357,784 $346, Emerging Markets $11,800, $9,477,163 $181, FIXED INCOME $40,081, $40,696,217 $1,348, Investment Grade Taxable $30,392, $30,905,251 $1,012, International Developed Bonds $4,720, $4,737,448 $56, Global High Yield Taxable $4,968, $5,053,518 $279, TANGIBLE ASSETS $6,161, $7,515,705 $ CASH/CURRENCY $4,235, $4,235,397 $61, TOTAL PORTFOLIO $124,060, $114,115,142 $2,731, Allocation percentages of charts do not include negative market values. Due to rounding, percentages presented may not add up precisely to the totals provided. 15

16 INVESTMENT PERFORMANCE (IPS) As of March 31, 2018 Episcopal Diocese of CT ASSET CATEGORY MARKET VALUE ALLOCATION 1 MO 3 MOS YTD 1 YR 2 YRS 3 YRS SINCE INCEPTION (09/02/14) INCEPTION DATE TOTAL PORTFOLIO $124,060, /02/14 TOTAL PORTFOLIO - NET OF FEES Episcopal CT Benchmark II* $124,060, /02/ S&P, 40 BC Agg EQUITIES $73,582, /03/14 U.S. Large Cap $33,913, /03/14 Russell Top 200 Index /03/14 S&P 500 TR /03/14 U.S. Mid Cap $6,171, /03/14 Russell Mid Cap Index TR /03/14 U.S. Small Cap $8,001, /03/14 Russell 2000 TR /03/14 International Developed $13,695, /03/14 MSCI EAFE Net TR USD Index /03/14 Emerging Markets $11,800, /03/14 MSCI EMF TR Net EmrgMrkts /03/14 * Episcopal CT Benchmark II consists of a blend of the following: 13.5 Russell 1000 Growth, 13.5 Russell 1000 Value, 2.5 Russell Midcap Growth,2.5 Russell Midcap Value, 2.5 Russell 2000 Growth, 2.5 Russell 2000 Value, 4 MSCI EAFE Growth(Net), 4 MSCI EAFE Value(Net), 2 S&P Developed Ex-US Small Cap (US Dollar), 10 MSCI EMF TR Net EmrgMrkts, 16.5 BBG BARC US Aggregate Bond Index, 5 ICE BofAML U.S.HY Master II, 5 BBG BARC Global Aggregate ex-usd, 5 MSCI US REIT Index, 5 Bloomberg (DJ UBS) Commodity Index, 3 ICE BofAML US 3 Month T-Bill Index and 3.5 ICE BofAML Core Fixed Rate Preferred Securities Index. Past Performance is no guarantee of future results. All returns are gross of fees unless otherwise noted. For periods longer than one year, the return is annualized. Periods less than one year utilize a cumulative return. Returns may include a partial month. Benchmark performance returns for the Since Inception period are based on the inception date of the sector or the account under which they are displayed. Market value does not include accrued income, but is included in the return calculation. 16

17 INVESTMENT PERFORMANCE (IPS) As of March 31, 2018 Episcopal Diocese of CT ASSET CATEGORY MARKET VALUE ALLOCATION 1 MO 3 MOS YTD 1 YR 2 YRS 3 YRS SINCE INCEPTION (09/02/14) INCEPTION DATE FIXED INCOME $40,081, /03/14 Investment Grade Taxable $30,392, /03/14 BBG BARC US Aggregate Bond Index International Developed Bonds Citigroup Non-US World Gov Bond Index /03/14 $4,720, /04/ /04/14 Global High Yield Taxable $4,968, /03/14 BBG BARC Global High Yield Index /03/14 TANGIBLE ASSETS $6,161, /04/14 Bloomberg (DJ UBS) Commodity Index /04/14 CASH/CURRENCY $4,235, /02/14 ICE BofAML 0-3 Month T- Bills /02/14 Past Performance is no guarantee of future results. All returns are gross of fees unless otherwise noted. For periods longer than one year, the return is annualized. Periods less than one year utilize a cumulative return. Returns may include a partial month. Benchmark performance returns for the Since Inception period are based on the inception date of the sector or the account under which they are displayed. Market value does not include accrued income, but is included in the return calculation. 17

18 APPENDIX 18

19 IPS CLIENT SUMMARY Episcopal Diocese of CT IPS AS OF DATE REPORT TITLE PORTFOLIO PURPOSE AND BACKGROUND INVESTMENT OBJECTIVE CUSTOMIZED OBJECTIVE INFORMATION TIME HORIZON Episcopal Pooled Fund of CT This is the Donations and Bequests Fund of the Episcopal Diocese of Connecticut. Approximately half of the account is the endowment of the Diocese, the remainder the interest of the 120 Episcopal churches of the state, held as a pooled fund. Customized Objective Objective established by the Trustees of the D&B Fund, with the consultation of the Investment Manager. 10+ years ASSET ALLOCATION ASSET CLASS STRATEGIC POLICY RANGE CASH EQUITY U.S. Large Cap U.S. Mid Cap U.S. Small Cap International - Developed Emerging Markets FIXED INCOME Investment Grade International Developed Bonds High Yield Fixed Income - Other REAL ESTATE TANGIBLE ASSETS The asset allocation ranges are current as of the creation of this summary. This information may differ from the asset allocation ranges outlined in the investment policy statement signed by you. 19

20 IPS CLIENT SUMMARY Episcopal Diocese of CT PORTFOLIO BENCHMARK ASSET CLASS CURRENT CURRENT BENCHMARK NAME WEIGHTING CASH 3.0 ICE BofAML 0-3 Month T-Bills U.S. Large Cap 27.0 Russell Top 200 Index U.S. Mid Cap 5.0 Russell Mid Cap Index TR U.S. Small Cap 5.0 Russell 2000 TR International - Developed 10.0 MSCI World ex US Net Emerging Markets 10.0 MSCI EMF TR Net EmrgMrkts Investment Grade Taxable 16.5 BBG BARC US Aggregate Bond Index International Developed Bonds 5.0 ICE BOFAML Global Broad Market ex USD Global High Yield Taxable 5.0 BBG BARC Global High Yield Index Fixed Income - Other 3.5 REAL ESTATE NCREIF TBI, 50 NCREIF PROPERTY TANGIBLE ASSETS 5.0 Bloomberg (DJ UBS) Commodity Index DISTRIBUTION NEEDS-OTHER LIQUIDITY NEEDS NEED Other Distributions take place monthly, based on the demand of participants. The portfolio has no specific requirements to maintain liquidity for short-term cash flow needs. INVESTOR TAX SENSITIVITY CUSTOM RESTRICTIONS PERFORMANCE REVIEW FREQUENCY This portfolio is constructed without a need to consider taxability of ordinary income and capital gains from investments. Unrelated business tax income may be a consideration. Trustees of the Donations and Bequests Committee of the Diocese have requested that preferred stocks be included as a potential asset class within the fixed income allocation. The strategic target for such assets shall be 3-4, with a policy range of 0-6. This is reflected in the "fixed income other" category of the asset allocation portion of this document. periodically The asset allocation ranges are current as of the creation of this summary. This information may differ from the asset allocation ranges outlined in the investment policy statement signed by you. 20

21 IPS CLIENT SUMMARY Episcopal Diocese of CT OWNER & SIGNATORY OWNER(S) AND SIGNATORY(S) ROLE for the Donations & Bequests Committee, Episcopal Diocese of CT. Owner & Signatory The asset allocation ranges are current as of the creation of this summary. This information may differ from the asset allocation ranges outlined in the investment policy statement signed by you. 21

22 INVESTMENT PERFORMANCE (PRODUCT VIEW) As of March 31, 2018 Episcopal Diocese of CT ASSET CATEGORY MARKET VALUE ALLOCATION 1 MO 3 MOS YTD 1 YR 2 YRS 3 YRS SINCE INCEPTION INCEPTION DATE TOTAL PORTFOLIO $124,060, /02/14 TOTAL PORTFOLIO - NET OF FEES $124,060, /02/14 Episcopal CT Benchmark II* S&P, 40 BC Agg EQUITIES $73,582, U.S. Large Cap Growth $16,940, ishares Russell 1000 Growth ETF $8,460, /04/14 Russell 1000 Growth Index Loomis Large Cap Growth $8,480, /03/14 Russell 1000 Growth Index U.S. Large Cap Value $16,972, ishares Russell 1000 Value ETF $8,493, /05/17 Russell 1000 Value Index MFS Investment Large Cap Value $8,479, /03/14 Russell 1000 Value Index * Episcopal CT Benchmark II consists of a blend of the following: 13.5 Russell 1000 Growth, 13.5 Russell 1000 Value, 2.5 Russell Midcap Growth,2.5 Russell Midcap Value, 2.5 Russell 2000 Growth, 2.5 Russell 2000 Value, 4 MSCI EAFE Growth(Net), 4 MSCI EAFE Value(Net), 2 S&P Developed Ex-US Small Cap (US Dollar), 10 MSCI EMF TR Net EmrgMrkts, 16.5 BBG BARC US Aggregate Bond Index, 5 ICE BofAML U.S.HY Master II, 5 BBG BARC Global Aggregate ex-usd, 5 MSCI US REIT Index, 5 Bloomberg (DJ UBS) Commodity Index, 3 ICE BofAML US 3 Month T-Bill Index and 3.5 ICE BofAML Core Fixed Rate Preferred Securities Index. Past Performance is no guarantee of future results. All returns are gross of fees unless otherwise noted. For periods longer than one year, the return is annualized. Periods less than one year utilize a cumulative return. Returns may include a partial month. Benchmark performance returns for the Since Inception period are based on the inception date of the sector or the account under which they are displayed. Market value does not include accrued income, but is included in the return calculation. 22

23 INVESTMENT PERFORMANCE (PRODUCT VIEW) As of March 31, 2018 Episcopal Diocese of CT ASSET CATEGORY MARKET VALUE ALLOCATION U.S. MidCap Core $2,464, MO 3 MOS YTD 1 YR 2 YRS 3 YRS SINCE INCEPTION INCEPTION DATE ishares Russell Mid Cap ETF $2,464, /03/17 Russell Mid Cap Index TR U.S. MidCap Growth $1,869, Baird Mid Cap Growth $1,869, /03/14 Russell MidCap Growth Index U.S. MidCap Value $1,837, Wedge Capital Mid Cap Value $1,837, /03/14 Russell MidCap Value Index U.S. Small Cap Growth $3,713, Granite Small Cap Growth $3,713, /03/14 Russell 2000 Growth Index U.S. Small Cap Value $4,287, Fuller & Thaler Small Cap Value $4,287, /03/14 Russell 2000 Value Index International Developed $13,695, Vanguard FTSE Developed Markets ETF $4,678, /04/14 MSCI EAFE Net TR USD Index Past Performance is no guarantee of future results. All returns are gross of fees unless otherwise noted. For periods longer than one year, the return is annualized. Periods less than one year utilize a cumulative return. Returns may include a partial month. Benchmark performance returns for the Since Inception period are based on the inception date of the sector or the account under which they are displayed. Market value does not include accrued income, but is included in the return calculation. 23

24 INVESTMENT PERFORMANCE (PRODUCT VIEW) As of March 31, 2018 Episcopal Diocese of CT ASSET CATEGORY MARKET VALUE ALLOCATION 1 MO 3 MOS YTD 1 YR 2 YRS 3 YRS SINCE INCEPTION INCEPTION DATE Schroders Int'l Growth ADR $4,528, /03/14 MSCI EAFE Growth Net Cambiar International Value $4,487, /03/14 MSCI EAFE Value (Net) Emerging Markets $11,800, Emerging Markets Funds (SEMNX + VWO) $11,800, /03/14 MSCI EMF TR Net EmrgMrkts FIXED INCOME $40,081, Investment Grade Taxable $30,392, Neuberger Berman Core FI Taxable $24,786, /03/14 BBG BARC US Aggregate Bond Index Preferred Stock $5,605, Spectrum Principal Preferred BofA Merrill Lynch Core Fixed Rate Preferred Index $5,605, /12/ Past Performance is no guarantee of future results. All returns are gross of fees unless otherwise noted. For periods longer than one year, the return is annualized. Periods less than one year utilize a cumulative return. Returns may include a partial month. Benchmark performance returns for the Since Inception period are based on the inception date of the sector or the account under which they are displayed. Market value does not include accrued income, but is included in the return calculation. 24

25 INVESTMENT PERFORMANCE (PRODUCT VIEW) As of March 31, 2018 Episcopal Diocese of CT ASSET CATEGORY MARKET VALUE ALLOCATION 1 MO 3 MOS YTD 1 YR 2 YRS 3 YRS SINCE INCEPTION INCEPTION DATE International Developed Bonds $4,720, PIMCO Foreign Bond Fund $4,720, /04/14 JP Morgan GBI Global ex US Global High Yield Taxable $4,968, Seix High Yield Bond $4,968, /03/14 Merrill Lynch High Yield Master Index TANGIBLE ASSETS $6,161, Credit Suisse Commodity Fund $6,161, /04/14 Bloomberg (DJ UBS) Commodity Index CASH/CURRENCY $4,235, Cash $4,235, /02/14 ICE BofAML US 3 Month T-Bill Index Past Performance is no guarantee of future results. All returns are gross of fees unless otherwise noted. For periods longer than one year, the return is annualized. Periods less than one year utilize a cumulative return. Returns may include a partial month. Benchmark performance returns for the Since Inception period are based on the inception date of the sector or the account under which they are displayed. Market value does not include accrued income, but is included in the return calculation. 25

26 DISCLOSURE This document is provided for informational purposes only and is not issued in connection with any proposed offering of securities. This Furthermore, it is not used with regard to any specific investment objectives, financial situation or particular needs of any specific recipient and does not contain investment recommendations. IMPORTANT: The material presented is designed to provide general information about ideas and strategies. It is for discussion purposes since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Economic or financial forecasts are inherently limited and should not be relied on as an indicator of future investment performance. Alternative investments are sold to qualified investors only by a Confidential Offering Memorandum or Prospectus. Alternative investments may provide limited liquidity and include, among other things, the risks inherent in investing in securities and derivatives, using leverage and engaging in short sales. An investment in an alternative investment fund is speculative, involves substantial risks and should not constitute a complete investment program. An alternative investment fund may be highly leveraged. The volatility of the price of its interests may involve complex tax structures and there may be delays in distributing important tax information. These funds may not be subject to the same regulatory requirements as registered mutual funds, and their fees and expenses may be high. Interests in alternative investments are not deposits or obligations of, or guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency. An investment in alternative investments is not suitable or desirable for all investors. Investors may lose all or a portion of the capital invested. Nonfinancial assets, such as closely held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors. Always consult with your independent attorney, tax advisor, insurance agent or other professional advisors for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. Client eligibility may apply. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Diversification does not ensure a profit or protect against loss in declining markets. Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value Institutional Investments & Philanthropic Solutions (II&PS) is part of U.S. Trust, Bank of America Corporation (U.S. Trust). U.S. Trust operates through Bank of America, N.A. and other subsidiaries of Bank of America Corporation (BofA Corp.). Trust and fiduciary services and other banking products are provided by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A. Bank of America, N.A., Member FDIC. Bank of America, N.A. makes available investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. This document may not be reproduced or distributed without prior written consent of U.S. Trust Bank of America Corporation. All rights reserved. ARR5L938 02/

27 RISK ANALYTICS STATISTICS DEFINITIONS GLOSSARY Standard Deviation A gauge of volatility which measures the spread of the difference of returns from their average. The more a portfolio s returns vary from its average, the higher the standard deviation. It is important to note that higher than average returns affect the standard deviation just as lower than average returns. Thus, it is not a measure of downside risk. Since it measures total variation of return, standard deviation is a measure of total risk. Beta A relative measure of the risk level of a manager. Beta measures the systematic risk, or the return that is attributable to market movements. This measure is relative to the benchmark defined (i.e. Standard and Poor s 500, Russell 2000 Growth). A beta equal to one indicates a risk level equivalent to the benchmark defined. Higher betas are associated with higher risk levels, while lower betas are associated with lower risk levels. Alpha A measure of the difference between a portfolio s actual return and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the portfolio has performed better than its beta would predict. R-Squared It is used to show how much a manager s variability can be accounted for by the market. For example, if a portfolio s R-squared is 0.79, then 79 of the manager s variability is due to market conditions. As R-squared approaches 100, the portfolio is more closely correlated with the market. Sharpe Ratio A ratio that measures risk-adjusted performance. The Sharpe Ratio is calculated by subtracting the risk-free rate such as that of the 90-Day Treasury Bill from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. Treynor Ratio A risk-adjusted measure of return based on systematic risk. The ratio measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk. It is similar to the Sharpe Ratio, with the difference being that the Treynor Ratio uses beta as the measurement of volatility. Tracking Error A divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark. Information Ratio A ratio of portfolio returns above the returns of a benchmark (usually an index) to the volatility of those returns. The information ratio (IR) measures a portfolio manager s ability to generate excess returns relative to a benchmark, but also attempts to identify the consistency of the investor. AR8F3XJX 27

28 DISCLOSURES AND DEFINITIONS IMPORTANT INFORMATION The information and views contained in this presentation are as of date specified and are subject to change. These views are not necessarily representative of the opinions and views of other portfolio managers or of the firm as a whole. Past performance is no guarantee of future results. The investment services of U.S. Trust / Bank of America are not guaranteed and are not insured by the FDIC and could result in the loss of value to your account. The actual return and value of an account will fluctuate and at any point in time could be worth more or less than the amount invested. Your account is tailored towards your individual needs based on your investment objectives, restrictions and strategies, including tax strategies. Clients performance and risk tolerance preferences may require deviation from this guidance when implementing investment solutions. Accounts subject to laws that may be more restrictive as to permissible investments require portfolio manager review. For daily benchmarks, benchmark performance for the Since Inception period is based on the inception date for the corresponding sector or account. Monthly benchmark returns will be as of the first day of the month when the corresponding account or sector inception date is mid-month. Indices shown are to make general risk and return comparisons. They are shown for informational purposes only and cannot be invested in directly. Securities in your account differ from securities comprising an index thus the risk, performance and investment style of your account will vary, sometimes significantly from that of the index. Statistics have been obtained from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. Hypothetical illustrations do not reflect the performance of any specific investment. Actual rates of return cannot be predicted and will fluctuate. Your results may be more or less. The illustrations assume no withdrawals or distribution, and reinvesting of all dividends and capital gains. Performance results are gross of fees and therefore do not reflect the deduction of investment advisory fees, however, such results would have been reduced by advisory fees as described in standard fee schedules. Performance for new asset classes to an account may be for a partial period while many benchmarks for the asset class may reflect the entire reporting period. All sector and asset allocation recommendations must be considered in context of an individual investor s goals, time horizon and risk tolerance. Not all recommendations will be suitable for all investors. Important Notes Concerning Alternative Investments and Hedge Funds: Market prices for Hedge Funds, Private Equity Funds and Real Estate Funds normally lag 30 days or more from the previous closing period and therefore returns are for the same period. Benchmarks may not reflect the same time period. Loss information for the Bank of America Hedge Fund should not be used for tax reporting purposes. Please refer to Schedule K-1 reporting to complete tax returns for the appropriate tax year. Oil, Gas and Mineral Interests To holders of Oil, Gas and Mineral properties: Market Value for Oil, Gas and Mineral properties represent an estimate only, calculated from the most recent 12 months net income from producing properties and includes nominal value applied to non-producing properties. GLOSSARY Accrued Interest: Accrued interest is the interest that has been earned, but not paid. Bonds typically pay accrued interest every six months. Average Coupon: Average coupon is the weighted average gross interest rate of a pool of securities. Average Quality: Average Quality is the average credit quality of the bond portfolio. Beta: Beta is a measure of systematic risk or the sensitivity of a manager to movements in the benchmark. A beta of 1 implies that you can expect the movement of a manager s return series to match that of the benchmark. Cash/Currency: Cash/Currency include cash and may include other highly liquid investments that mature within one year, such as commercial paper, treasury bills, money market funds and CDs. Change in Value: Change in value is the change in value of the portfolio during the statement period. It is the ending value of the account less the beginning value of the account taking into consideration additions and withdrawals. Current Price: Current price is the value of the share, unit or contract as priced at the close of the market on the last day of the statement period or the last available price. Current Yield: Current yield reflects the percentage return that results from estimated annual income or capital gains or losses realized upon the disposition of a security. It is calculated by dividing estimated annual income by total market value. Estimated Annual Income: Estimated annual income is the income that is expected to be received from an asset over the next 12 months, based on the current level of income produced by the asset. It may include interest and dividends, but not capital gains or losses realized upon the disposition of the security. For holder of Fiduciary Shares, estimated annual income includes the Rebate. Income Assets: Income assets consist of the earnings, such as interest, dividends and royalties and rent from assets in the portfolio or assets purchase or held as a re-investment of accumulated income, which have not been added to principal. Modified Duration: Modified duration is a formula that expresses the measurable change in the value of a security in response to a change in interest rates. Net Margin: Net margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage that shows how much of each dollar earned by the company is translated into profits N/A: Not Applicable/ Not Available Other Assets: The summarization of other assets, includes assets that do not fall into the Cash & Cash Equivalents, Fixed Income or Equity categories, such as real estate and mineral holdings, warrants and options. of Total Assets: Percent of total assets is the total market value of an individual asset divided by the total market value of the portfolio. Price/Book: Price/Book is a ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Price/Earnings: Price/Earnings is a valuation ratio of a company's current share price compared to its pershare earnings. Price/Sales: Price/Sales is a valuation ratio that compares a company s stock price to its revenues. Principal Assets: Principal assets are assets that are the property of a trust or estate, but are not Income assets. 28

29 DISCLOSURES AND DEFINITIONS Return on Equity: Return on Equity is the amount of net income returned as a percentage of shareholder equity. It measures profitability by revealing how much profit is generated with the money a shareholder has invested. Tax Cost: Tax cost is the cost basis of an asset as carried on the books of the account. In the Detail of Realized Capital Gain/Loss schedule, tax cost information may include adjustments to the cost basis of the Common Trust Funds, as applicable. Transaction Date: Transaction date is the date on which a transaction (such as a purchase or a sale) is initiated. When trade date reporting is used, transactions are reported only if the transaction date falls within the current statement period. Weighted Average Market Capitalization: Weighted average market capitalization is the mean of the market capitalizations of the common stocks held in the portfolio. Weighted Average Maturity of Bonds: Weighted average maturity of bonds is the average amount of time remaining until the maturity date for the entire bond portfolio. The average amount is computed by weighting each maturity date by the market value of the security. Yield to Maturity at Market: Yield to maturity at market reflects the return that will be achieved if the security was purchased on the last day of the statement period. If yield to maturity at market is less/greater than yield to maturity at cost, the market value of the security has increased/decreased during the time since the security was purchased. When finding the after-tax yield to maturity of a bond, it is customary to use the approximate relationship: after-tax yield = (1- tax rate) x (before tax-yield.) ASSET CLASS DISCLOSURES Alternative Investments: Alternative investments are intended for qualified and suitable investors only. Alternative Investments such as derivatives, hedge funds, private equity funds and funds of funds can result in higher return potential but also higher risk loss potential. Changes in economic conditions or other circumstances may adversely affect your investments. Before investing in alternative investments, you should consider your overall financial situation, how much money you have to invest, your need for liquidity and your tolerance for risk. Asset Allocation: Asset Allocation cannot eliminate the risk of fluctuating process and uncertain returns. Asset Class: All asset classes are not suitable for all investors. Each investor should select the asset classes for investment based on his or her goals, time horizon and risk tolerance. Commodities: There are special risks associated with an investment in commodities including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Convertibles: Most convertible securities are not investment grade and are therefore more speculative in nature than securities with higher ratings. Diversification: Diversification does not ensure a profit or protect against loss in declining markets. Emerging Markets: Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Equities: Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. Fixed Income: Investing in fixed income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Hedge Funds: An investment in a hedge fund involves a substantially more complicated set of risk factors than traditional investments in stocks or bonds, including the risks of using derivatives, leverage, and short sales which can magnify potential losses or gains. Restrictions exist on the ability to redeem units in a hedge fund. Hedge funds are speculative and involve a high degree if risk. High-Yield (Junk Bonds): Investments in high-yield bonds (sometimes referred to as junk bonds ) offer the potential for high current income and attractive total return, but involve certain risks. International: International investing involves special risks, including foreign taxation, currency risks, risks associated with possible difference in financial standards and other risks associated with future political and economic developments. Real Estate/REITs: Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risks related to renting properties, such as rental defaults. As the REIT market has evolved, REIT s performance and risk characteristics are more closely correlated with the Equity asset category. In September 2016 the Global Industry Classification Standard (GICS) removed Real Estate from the Financial sector and created a separate Real Estate sector within the Equities asset category. Effective in 2017 U.S. Trust moved REITs from Real Estate to Equities. Small/Mid Cap: Stock of small- and mid-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Specialty/Non-Financial Assets: Non-financial assets, such as closely-held businesses, real estate, oil, gas and mineral properties, timber, farm and ranch land are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations, and lack of liquidity. Non-financial assets are not suitable for all investors. Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy. Tax-exempt: Tax-exempt investing offers current tax-exempt income, but it also involves special risks. Single-state municipal bonds pose additional risks due to limited geographical diversification. Interest income from certain tax-exempt bonds may be subject to certain state and local taxes and, if applicable, the alternative minimum tax. Any capital gains distributed are taxable to the investor. INDEX DEFINITIONS Bloomberg Barclays (BBG BARC) High Yield Municipal Bond Index is an unmanaged index made up of municipal bonds that are non-investment grade, unrated, or rated below Ba1. Bloomberg Barclays (BBG BARC) Municipal Index is a rules-based, market-value-weighted index engineered for the long-term tax-exempt bond market. Bloomberg Barclays (BBG BARC) US Aggregate Bond Index represents securities that are U.S. domestic, taxable, and dollar denominated. The index covers the US investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and assetbacked securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. Bloomberg Barclays (BBG BARC) Global High Yield Index provides a broad-based measure of the global high yield fixed income markets. The Index represents the union of the US High Yield, Pan-European High Yield, U.S. Emerging Markets High Yield, CMBS High Yield, and Pan-European Emerging Markets High Yield Indices. The Index is a component of the Bloomberg Barclays Multiverse Index, along with the Bloomberg Barclays Global Aggregate Bond Index. The Global High Yield Index was created on January 1, 1999, with index history backfilled to January 1,