EVESTMENT WEBINAR Investor and Consultant Sentiment Toward Fixed Income
Agenda Current interest- rate environment How investors are responding Peer benchmarking with investment and consultant sentiment
Peter Laurelli, CFA Global Head of Research Morgan Steadwell Analyst, Public Plans John Alexander, CFA Client Success Director Consultants
CURRENT INTEREST- RATE ENVIRONMENT
Rising consistently since 2017 Federal Funds Target Range Upper Limit Source: Board of Governors of the Federal Reserve System (US)
Yield Curve Continues to Flatten Change in US Treasury Yield Curve 2013-2018
Spreads narrowing since 2015 Spread between 10- and 2-Year Rates Source: Federal Reserve Bank of St. Louis
PROJECTED FIXED- INCOME RETURNS
Consultant Capital Markets Assumptions: Intermediate Term NEPC 5-7 Yr Projections RVK 10 Yr Projections Source: evestment Public Plan IQ
Consultant Capital Markets Assumptions: Long-Term NEPC 30 Yr Projections AON 30 Yr Projections Source: evestment Public Plan IQ
CASE STUDY 1 INVESTORS ARE SHORTENING DURATION
Ohio Bureau of Worker s Compensation Seeking Intermediate Duration Source: evestment Public Plan IQ
Asset Flows Favoring Shorter Duration Fixed Income Q1 evestment Universe Public Plan Assets (M) Q1 2018 Public Plan Flows (M) Q1 Universe Rank US Passive Short Duration Fixed Income $ 14,673.06 6,678.00 US Interm Duration Fixed Income $ 34,514.21 2,830.54 Q2 $ 1 $ 2 Public Plan Assets (M) Q2 2018 Public Plan Flows (M) Q2 Universe Rank US Passive Short Duration Fixed Income $ 14,673.06 $ 5,352.65 1 US Short Duration Fixed Income $ 44,499.47 $ 2,272.29 2 US Long Duration Fixed Income $ 73,986.87 $ (5,729.24) 240 Source: evestment
CASE STUDY 2 INVESTORS INCREASING ALLOCATIONS TO CREDIT + INFLATION HEDGES
Los Angeles County ERA (LACERA) Increasing Credit Allocation and U.S TIPS Source: evestment Public Plan IQ
US TIPS Allocations Have Increased Since 2015 1.20% 1.10% 1.00% 0.90% 0.80% 0.70% 0.60% Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 TIPS proportion of Public Plan Traditional Portfolios Rolling Average Source: evestment
Bank Loan AUM Doubled in Five Years 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 All Institutional AUM Net Flow- All Institutional Public Plan AUM (right) Net Flow - Public Plans (right) Source: evestment
Bank Loan Allocations Increasing Significantly for Public Plans 1.10% 1.00% 0.90% 0.80% 0.70% 0.60% 0.50% 0.40% Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Bank Loans proportion of Public Plan Traditional Portfolios Rolling Average Source: evestment
EMERGENCE OF PRIVATE DEBT
The Role of Private Credit
PEER BENCHMARKING WITH INVESTOR AND CONSULTANT SENTIMENT
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