NCPERS Trustee Education Seminar

Transcription

1 NCPERS Trustee Education Seminar PUBLIC EQUITIES 101 May 20, 2017 Steve Eitel Senior Vice President Senior Institutional Client Advisor

2 What is a Stock or Equity Security Issuing equity securities is a financing strategy which enables companies to raise capital without incurring debt but in doing so gives up a portion of ownership of their company. Investor Gives $1,000 Possible Dividend Company XYZ Company Gives Up Part of Their Ownership

3 What Does the Global Stock Market Look Like? U.S. makes up roughly one-half of the world equity market capitalization. Global equity market as of November 30, 2016 was approximately $67T according to the Bloomberg. Global Equity Market Capitalization (March 31, 2016) North America Europe Pacific Emerging Mkts Middle East 13.8% 21.3% 8.6% 0.2% 56.1% Source: Vanguard

4 Types of Stocks Common vs Preferred Common Stock a security that represents ownership in a company, the right to vote on corporate policy, and last in line in the capital structure for claims Preferred Stock a security the represents ownership in a company, usually has no no voting rights, typically receive dividends, and are higher up in the capital structure for claims

5 Common Characteristics of Stocks Common Stock Preferred Stock Priority of Dividends Lowest Priority Highest Priority Dividend Payments Can Vary Usually Fixed Voting Rights Usually Have Rights Limited or No Rights Bankruptcy Lowest Priority Higher Than Common but behind bond holders Liquidity Usually Highly Liquid and Sold at Owners Discretion Less Liquid and May Be Callable By Issuer

6 A Way to Think of Equity Asset Classes Large Cap Small Cap Domestic International Growth Value

7 What is Market Capitalization? MARKET CAP Number of shares x Price per share Company XYZ as of Feb 15, ,880,241 shares outstanding x $41.30 per share equals to Market capitalization of $614,553,953

8 Capitalization Continued. Market Cap Ranges Example Large Cap Stocks Over $10B Microsoft ~ $505B Mid Cap Stocks $2B $10B Harley Davidson ~$6B Small Cap Stocks $250M $2B Triumph Group ~$1.3B Source: CNBC.com as of April 18, 2017

9 How Could Different Types of Stock Portfolios Perform? Large Cap Vs Small Cap 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 10.00% % 30.00% 40.00% 50.00% Russell 1000 Index Russell 2000 Index Source: FTSE Russell Index Calculator Indices are unmanaged, is not available for direct investment and not subject to management fees, transaction costs or other types of expenses that a managed account may incur. Past performance Not indicative of future results.

10 Growth vs. Value Stocks GROWTH STOCK Has some combination of higher earnings growth rates, lower dividend yield (if any), higher price/earnings (P/E) ratio. VALUE STOCK Has some combination of lower earnings growth rates, higher dividend, lower price/earnings (P/E) ratio, undervalued assets.

11 Stock Valuation Characteristics Growth Stocks Tend To Be Value Stocks Tend To Be Price Earnings Ratio Higher Lower EPS Growth Rate Higher Lower Price Book Ratio Higher Lower Price Cash Flow Ratio Higher Lower Dividend Yield Lower Higher Debt Equity Ratio Lower Higher

12 Risks to Stock Investing - Stock Market Returns Intrayear Declines in the S&P 500, percent ( ) In 27 of the past 36 years, the S&P 500 had positive returns despite a number of midyear drops. The average intrayear decline is 14.7%. Declines in 2013, 2014, 2015, and 2016 were smaller than normal. Note: Blue bars represent price returns for each year. Orange squares represent the peak-to-trough returns during each year. Source: J.P. Morgan Asset Management, Bloomberg L.P., Standard and Poor s, PNC Indices are unmanaged, is not available for direct investment and not subject to management fees, transaction costs or other types of expenses that a managed account may incur. Past performance Not indicative of future results.

13 Domestic vs. International vs. Global Domestic = Companies based in the US International = Companies NOT based in the US Global = Domestic + International Note: Most major companies have sales and profits from many countries

14 International Investing Risks All of the same risks as domestic investing plus potential social, political and economic instability Country specific investment restrictions Currency fluctuations Possible lack of liquidity Potential lack of uniform accounting, auditing and reporting standards Differing legal structures (or lack thereof)

15 How do Different Types of Stock Portfolios Perform? Domestic Vs International 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 10.00% % 30.00% 40.00% 50.00% Russell 1000 Index MSCI EAFE Index ($ Net) Source: NCPERS April 26 th Investments 101 Presentation Indices are unmanaged, is not available for direct investment and not subject to management fees, transaction costs or other types of expenses that a managed account may incur. Past performance Not indicative of future results.

16 Equity Total Return by Asset Class Em g Intl Sm Cap Val Em g Intl Mid Cap Gro Lg Cap Gro Em g Intl Sm Cap Gro Lg Cap Gro Lg Cap Gro Sm Cap Val 39.8% -28.9% 79.0% 30.6% 4.7% 18.6% 43.3% 14.9% 5.5% 31.7 Mid Cap Gro Mid Cap Val Mid Cap Gro Sm Cap Gro Lg Cap Val M id Cap Val Sm Cap Val Lg Cap Val Mid Cap Gro Mid Cap Val 13.5% -34.9% 41.1% 29.1% -0.5% 18.5% 34.5% 12.4% 2.0% 26.5 Dev Intl Lg Cap Gro Sm Cap Gro Sm Cap Val Mid Cap Gro Sm Cap Val M id Cap Val M id Cap Val Dev Intl Lg Cap Val 11.6% -34.9% 34.5% 24.5% -0.9% 18.1% 34.3% 12.1% -0.4% 17.4 Lg Cap Gro Mid Cap Gro Mid Cap Val M id Cap Val M id Cap Val Dev Intl M id Cap Gro M id Cap Gro Sm Cap Gro M id Cap Gro 9.1% -37.6% 33.7% 22.8% -2.4% 17.9% 32.8% 7.6% -1.4% 14.8 Sm Cap Gro Sm Cap Gro Dev Intl Em g Intl Sm Cap Gro Lg Cap Val Lg Cap Gro Sm Cap Gro Lg Cap Val EM G Intl 7.0% -38.5% 32.5% 19.2% -2.9% 17.7% 32.8% 5.6% -3.1% 11.6 Mid Cap Val Lg Cap Val Lg Cap Gro Lg Cap Val Sm Cap Val Mid Cap Gro Lg Cap Val Sm Cap Val M id Cap Val Sm Cap Gro 2.6% -39.2% 31.6% 15.1% -5.5% 17.3% 32.0% 4.2% -6.7% 11.3 Lg Cap Val Dev Intl Lg Cap Val Lg Cap Gro Dev Intl Lg Cap Gro Dev Intl Em g Intl Sm Cap Val Lg Cap Gro 2.0% -43.1% 21.2% 15.1% -11.7% 14.6% 23.3% -1.8% -7.5% 6.9 Sm Cap Val Em g Intl Sm Cap Val Dev Intl Em g Intl Sm Cap Gro Em g Intl Dev Intl Em g Intl Dev Intl -9.8% -53.2% 20.6% 8.2% -18.2% 14.6% -2.3% -4.5% -14.6% 1.5 The categories above are represented by the following indexes: Large Cap Growth S&P 500 Growth; Large-Cap Value S&P 500 Value; MidCap Growth S&P Midcap Growth; MidCap Value S&P Midcap Value; Small-Cap Growth Russell 2000 Growth; Small-Cap Value Russell 2000 Value; Developed International MSCI EAFE Index ; Emerging International MSCI Emerging Markets Index Source: Standard and Poor s, Morningstar, Bloomberg L.P., PNC Indices are unmanaged, is not available for direct investment and not subject to management fees, transaction costs or other types of expenses that a managed account may incur. Past performance Not indicative of future results. 16

17 Key Equity Indexes # of stocks Style S&P Stocks Large Cap DJIA 30 Stocks Large Cap NASDAQ Stocks All Cap MSCI EAFE 3235 Stocks Large Cap Russell Indices - Russell 1000 Index 1000 Stocks Large Cap - Russell 2000 Index 2000 Stocks Small Cap - Russell 3000 Index 3000 Stocks All Cap Indices are unmanaged, not available for direct investment.

18 Equity Investment Strategies Bottom Up a.k.a. Stock Selection - Attempts to pick the best stocks irrespective of sector Top Down a.k.a. Sector Allocation - Decides optimal sector weights then picks stocks in those sectors Core - Mixes top down and bottom up using a broad benchmark such as S&P 500 Regional Manager focuses only on a specific region such as Japan only or Pacific basin Passive/Index mirror a representative index in order to keep expenses low and get the market exposure you are seeking without earning more/less than the market

19 Disclosure This presentation is for informational purposes only. Nothing herein is or should be construed as an offer to buy or sell, nor a recommendation to buy or sell, any security or adopt any particular investment strategy or asset allocation. The PNC Financial Services Group, Inc. ( PNC ) uses the marketing name PNC Institutional Asset Management for various discretionary and non discretionary institutional investment activities conducted by PNC Bank, National Association ( PNC Bank ), which is a Member FDIC, and investment management activities conducted by PNC Capital Advisors, LLC, a registered investment adviser ( PNC Capital Advisors ). PNC Bank uses the marketing names PNC Retirement Solutions and Vested Interest to provide defined contribution plan services and PNC Institutional Advisory Solutions to provide discretionary investment management, trustee, and other related services. Standalone custody, escrow, and directed trustee services; FDICinsured banking products and services; and lending of funds are also provided through PNC Bank. Securities products, brokerage services, and managed account advisory services are offered by PNC Investments LLC, a registered broker dealer and a registered investment adviser and member of FINRA and SIPC. Insurance products may be provided through PNC Insurance Services, LLC, a licensed insurance agency affiliate of PNC, or through licensed insurance agencies that are not affiliated with PNC; in either case a licensed insurance affiliate may receive compensation if you choose to purchase insurance through these programs. A decision to purchase insurance will not affect the cost or availability of other products or services from PNC or its affiliates. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd Frank Wall Street Reform and Consumer Protection Act ( Act ). Investment management and related products and services provided to a municipal entity or obligated person regarding proceeds of municipal securities (as such terms are defined in the Act) will be provided by PNC Capital Advisors. Vested Interest, PNC Institutional Asset Management, PNC Retirement Solutions, and PNC Institutional Advisory Solutions are registered service marks of The PNC Financial Services Group, Inc.