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Investment Advisory Committee (IAC) Report
Navy Supply Corps Foundation
May 2016
IAC Report
IAC MembersEconomic Review IAC Process & MethodologyActions Taken Since Last Board Meeting 04/30/16 Portfolio ReviewComments / Recommendations
A G E N D A
IAC MembersDennis Collins, MBA, CFP, CIMA, CPWA (Chairman)
Craig Doyle, MA, MBA
John Drerup, MBA, MS
Joe Dunn, MSc, MS
Pete Eltringham, MBA, MS
Jack Evans (Chief Staff Officer)
Nate Johnston, MBA
Mike Kalas, MBA, CFP (Past Chairman)
Chuck Parker, MBA, PhD (Treasurer)
Dan Pionk, MBA, MS
Eric Schuck, PhD
Bill Withrow
Dennis Collins, CFP®, CIMA®, CPWA®• BS - DePaul University; MBA- University of Denver
• Partner, Chapel & Collins Wealth Management
• Registered Principal, Raymond James Financial Services, Inc.
• 20+ years of financial industry experience advising families, foundations and corporate clients
• Commander, Supply Corps, US Navy Reserve
Meet the IAC
Guide to DesignationsCFP® Certified Financial Planner™AIF® Accredited Investment FiduciaryCIMA® Certified Investment Management AnalystCPWA® Certified Private Wealth Advisor
Peter S. Eltringham• BS – University of South Carolina; MBA- Bryant
University; MS – National Defense University (ICAF)• Principal, At Turning Point LLC -1 year; Not So Silent Partner,
Nice Legs LLC Wine Distributors; Chair, Fauquier County, Virginia Transportation – 4 years; Former Vice President, TelosCorporation - 9 years
• 29 years of USN service - 12 in major command and headquarters staff financial/budget positions
• Captain (Retired), Supply Corps, US Navy
John W. Drerup, Jr.• BS – U. S. Naval Academy, MS- University of Florida; MS-Personal Financial Planning, The College for Financial Planning
• Investment Management, The Burney Company, since 2004
• Captain (Retired), Supply Corps, US Navy
Joe Dunn• BA – University of Denver; MS – London Business
School; MS – Naval Post Graduate School; Senior Executive Program – Columbia University
• Director, Vendor Governance, Prudential Financial
• Chartered Financial Analyst Candidate
CDR Nathan Johnston, SC, USN• BS – U. S. Naval Academy; MBA – Naval Post
Graduate School
• CNRFC Supply Community Manager
• 15+ years of Government Financial Management, General Supply, Training/Operational Certification, and Expeditionary Logistics Experience
Craig P. Doyle• BA – Arizona State University; MBA – Wharton, University
of Pennsylvania; MA - U.S. Army War College
• President, Sequence Media Group
• 30+ years of financial industry experience in commercial banking, and consulting to financial institutions on strategy, operations and credit risk management
• Captain, Supply Corps, US Navy Reserve
Meet the IAC
Eric Schuck, PhD• BA – Pacific Lutheran University; MA – University of
Montana; PhD – Washington State University
• Professor of Economics at Linfield College
• 15 years experience as a professor. Author of 17 journal articles and two-time Fulbright Specialist grant recipient . Expertise in agricultural and natural resource economics.
• Lieutenant Commander, Supply Corps, US Navy Reserve
Bill Withrow• BS – University of Colorado; MBA – Harvard University
• Former Mayor and Councilmember, Alameda, CA
• 20+ years experience in financial industry, retiring from Wells Fargo and Company. Former Chair of the Robert Lippert Foundation and current Trustee of Peralta Colleges.
• Captain (Retired), Supply Corps, US Navy
Charles W. Parker, III
• BA – Yale; MBA- University of Chicago; PhD – LondonSchool of Economics
• Senior Consultant, Control Risks, Mexico City, Mexico
• Prior experience as Adjunct Professor of economics, business and international relations and as Client Executive at IBM
• Captain, Supply Corps, US Navy Reserve
Daniel Pionk• BS – Ferris State University; MA – U.S. Army War College;
MBA – Regis Jesuit University• Self-Employed Commodities and Futures Trader• 20+ years risk management and executive management
consulting to Manufacturing and Consumer Product corporations
• Captain, Supply Corps, US Navy Reserve
Michael R. Kalas, CFP®, AIF®• BS – USNA, Annapolis, MD; MBA – Southern Illinois University, Edwardsville, IL
• Owner/President, Potomac Financial Private Client Group, LLC, McLean, VA
• Registered Principal, Commonwealth Financial Network, LLC
• 20+ years of financial industry experience advising families, foundations and corporate clients
• Captain (Retired), Supply Corps, US Navy
|GTM – U.S.
7
-1%
3%
7%
11%
15%
19%
23%
'12 '13 '14 '15 '16
-$3.0
-$1.0
$1.0
$3.0
$5.0
'12 '13 '14 '15 '16-$1
$3
$7
$11
$15
$19
$23
$27
$31
$35
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Source: Compustat, FactSet, Standard & Poor’s, J.P. Morgan Asset Management; (Top right) Federal Reserve, S&P 500 individual company 10k filings, S&P Index Alert.EPS levels are based on operating earnings per share. *1Q16 earnings estimates are Standard & Poor’s consensus analyst expectations, based on actual earnings for the 73% of Standard & Poor’s companies that have reported and earnings estimates for the remaining 27% of companies. Past performance is not indicative of future returns. Currencies in the Trade Weighted U.S. Dollar Major Currencies Index are: British pound, euro, Swedish kroner, Australian dollar, Canadian dollar, Japanese yen and Swiss franc. **Year-over-year change is calculated using the quarterly average for each period. Guide to the Markets – U.S. Data are as of April 30, 2016.
Corporate profits 7
S&P 500 earnings per shareIndex quarterly operating earnings
Energy sector earningsEnergy sector contribution to S&P 500 EPS, quarterly
1Q16*: $24.97
S&P consensus analyst estimates
U.S. dollarYear-over-year % change**, quarterly, USD major currencies index
1Q16: 4.2%
1Q16*:-$0.22
S&P 500 revenues U.S. 52%International 48%Eq
uitie
s
|GTM – U.S.
11
26
-10
1517
1
26
15
2
12
27
-7
26
47
-2
34
20
3127
20
-10-13
-23
26
9
3
14
4
-38
23
13
0
13
30
11
-1
1
-17 -18 -17
-7
-13
-8 -9
-34
-8 -8
-20
-6 -6 -5-9
-3
-8-11
-19
-12
-17
-30-34
-14
-8 -7 -8-10
-49
-28
-16-19
-10-6 -7
-12 -11
-60%
-50%
-40%
-30%
-20%
-10%
%
10%
20%
30%
40%
'80 '85 '90 '95 '00 '05 '10 '15
Annual returns and intra-year declines
Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2015, except for 2016, which is year to date.Guide to the Markets – U.S. Data are as of April 30, 2016.
11
S&P 500 intra-year declines vs. calendar year returnsDespite average intra-year drops of 14.2%, annual returns positive in 27 of 36 years
YTD
Equi
ties
|GTM – U.S.
12
10
20
30
40
50
'10 '11 '12 '13 '14 '15 '16
1,000
1,200
1,400
1,600
1,800
2,000
2,200
'10 '11 '12 '13 '14 '15 '16
Market volatility
Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management; (Bottom) CBOE.Drawdowns are calculated as the prior peak to the lowest point. Guide to the Markets – U.S. Data are as of April 30, 2016.
12
Major pullbacks during current market cycleS&P 500 Price Index
VolatilityVIX Index
Aug. 25, 2015: -12.4%
Jul. 2, 2010: -16.0%
Oct. 3, 2011: -19.4%
Jun. 1, 2012: -9.9%
Jun. 24, 2013: -5.8%
Oct. 15, 2014: -7.4%
VIX Level’08 Peak 80.9Average 18.3Latest 15.7
Jul. ’10:Flash Crash,BP oil spill, Europe/Greece
Oct. ’11:U.S. downgrade,Europe/periphery stress
Jun. ’12:Euro double dip Jun. ’13:
Taper Tantrum
Oct. ’14:Global slowdown fears, Ebola
Aug. ’15:Global slowdown fears, China, Fed
uncertainty
Equi
ties
Feb. 11, 2016:-13.3%
Feb. ’16:Oil, U.S.
recession fears, China
|GTM – U.S.
14
$20
$40
$60
$80
$100
$120
$140
$160
$15
$19
$23
$27
$31
$35
$39
$43
$47
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
4%
5%
6%
7%
8%
9%
10%
11%
'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management; (Top right) BEA, Compustat; (Bottom right) Bloomberg, FRB.M&A activity is the quarterly value of officially announced transactions, and capital expenditures are for non-farm non-financial corporate business. *S&P 500 Operating EPS % of Sales per Share fell to 0% in 4Q2008 and is adjusted on the chart. Guide to the Markets – U.S. Data are as of April 30, 2016.
Corporate financials 14
Corporate cash as a % of current assetsS&P 500 companies – cash and cash equivalents, quarterly
Cash returned to shareholdersS&P 500 companies, rolling 4-quarter averages, $bn
Corporate growthNon-farm non-financial capex, quarterly value of deals announced, $tn
Dividends per share
Share buybacks
Profit margins
S&P 500 operating EPS % of sales per share*
4Q15:7.6%
After-tax, adj. corp. profits, % of GDP
4Q15:8.0%
Capital expenditures M&A activity
Equi
ties
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
$1.8
$0.9$1.0$1.1$1.2$1.3$1.4$1.5$1.6$1.7$1.8$1.9$2.0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
|GTM – U.S.
16
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Stock market since 1900
Source: FactSet, NBER, Robert Shiller, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only. Guide to the Markets – U.S. Data are as of April 30, 2016.
16
S&P Composite IndexLog scale, annual
1,000 -
100 -
10 -
Major recessions
Tech boom(1997-2000)
End of Cold War
(1991)
Reagan era(1981-1989)
Post-Warboom
New Deal(1933-1940)Roaring 20s
Progressive era (1890-1920)
World War I(1914-1918) Great
Depression(1929-1939)
World War II(1939-1945)
Korean War(1950-1953)
Vietnam War(1969-1972)Oil shocks
(1973 & 1979)
Stagflation (1973-1975)
Global financial crisis (2008)
BlackMonday(1987)
Equi
ties
|GTM – U.S.
17
0
25
50
75
100
125
1900 1912 1921 1933 1949 1961 1980 2001
Source: BEA, NBER, J.P. Morgan Asset Management. *Chart assumes current expansion started in July 2009 and continued through April 2016, lasting 82 months so far. Data for length of economic expansions and recessions obtained from the National Bureau of Economic Research (NBER). These data can be found at www.nber.org/cycles/ and reflect information through April 2016.Guide to the Markets – U.S. Data are as of April 30, 2016.
The length and strength of expansions
Length of economic expansions and recessions Strength of economic expansionsCumulative real GDP growth since prior peak, percent
Prior expansion peak
— 4Q48 — 1Q80
— 2Q53 — 3Q81
— 3Q57 — 3Q90
— 2Q60 — 1Q01
— 4Q69 — 4Q07
— 4Q73
Expansions: 46 months
Recessions: 15 months
Average length (months):
82 months*Ec
onom
y
Number of quarters
17
-6%
4%
14%
24%
34%
44%
54%
0 8 16 24 32 40
|GTM – U.S.
18
-$1
$1
$3
$5
$7
$9
$11
$13
$15
$17
$19Real GDP
Source: BEA, FactSet, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. Quarter-over-quarter percent changes are at an annualized rate. Average represents the annualized growth rate for the full period. Expansion average refers to the period starting in the second quarter of 2009.Guide to the Markets – U.S. Data are as of April 30, 2016.
Economic growth and the composition of GDP 18
Real GDPYear-over-year % change
1Q16
YoY % chg: 1.9%
Components of GDP1Q16 nominal GDP, USD trillions
12.9% Investment ex-housing
68.7% Consumption
17.6% Gov’t spending
3.6% Housing
- 2.8% Net exports
Average: 2.8%
QoQ % chg: 0.5%
Expansion average:
2.1%
Econ
omy
|GTM – U.S.
19
4Q07:13.2%
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
Source: FactSet, FRB, J.P. Morgan Asset Management; (Top and bottom right) BEA. Data include households and nonprofit organizations. SA – seasonally adjusted. *Revolving includes credit cards. **1Q16 household debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Values may not sum to 100% due to rounding.Guide to the Markets – U.S. Data are as of April 30, 2016.
Consumer finances 19
Household debt service ratioDebt payments as % of disposable personal income, SA
1Q80: 10.6% 1Q16**:
10.1%
Household net worthNot seasonally adjusted, USD billions
2Q07:$67,667
Consumer balance sheet4Q15, trillions of dollars outstanding, not seasonally adjusted
Total assets: $101.3tn
Total liabilities: $14.5tn
Homes: 25%
Deposits: 10%
Pension funds: 21%
Other financial assets: 39%
Other tangible: 6%
Mortgages: 67%
Other non-revolving: 1%Revolving*: 6%Auto loans: 7%
Other liabilities: 9%Student debt: 9%
3Q-’07 Peak: $81.9tn1Q-’09 Low: $68.7tn
Econ
omy
1Q16**:$88,017
|GTM – U.S.
20
8
10
12
14
16
18
20
22
24
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14
$40
$45
$50
$55
$60
$65
$70
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
Source: J.P. Morgan Asset Management; (Top left) BEA; (Top and bottom right, bottom left) Census Bureau, FactSet.Capital goods orders deflated using the producer price index for capital goods with a base year of 1982. SA – seasonally adjusted. Guide to the Markets – U.S. Data are as of April 30, 2016.
Cyclical sectors 20
Light vehicle salesMillions, seasonally adjusted annual rate
Average: 15.5
Apr. 2016:17.6
Mar. 2016:1,089
Housing startsThousands, seasonally adjusted annual rate
Average: 1,326
Real capital goods ordersNon-defense capital goods orders ex-aircraft, USD billions, SA
Average: 56.8
Mar. 2016:56.0
Manufacturing and trade inventoriesDays of sales, seasonally adjusted
Feb. 2016: 42.9
Econ
omy
|GTM – U.S.
23
0%
1%
2%
3%
4%
5%
6%
7%
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24 '2620%
40%
60%
80%
100%
120%
'40 '48 '56 '64 '72 '80 '88 '96 '04 '12 '20
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
'90 '95 '00 '05 '10 '15 '20 '25
Source: CBO, J.P. Morgan Asset Management; (Top left and bottom left) BEA; (Bottom right) Federal Reserve.2016 Federal Budget is based on the Congressional Budget Office (CBO) March 2016 Baseline Budget Forecast. Other spending includes, but is not limited to, health insurance subsidies, income security and federal civilian and military retirement. Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2015 numbers are CBO estimates as of March 2016. Interest rate projections are actual historical data from the Federal Reserve through 1Q16 and a quarterly forecast from the CBO’s January 2016 baseline economic projections afterwards.Guide to the Markets – U.S. Data are as of April 30, 2016.
Federal finances
2016 Federal Budget - SpendingFederal budget surplus/deficit% of GDP, 1990-2026, 2016 CBO Baseline
Federal net debt (accumulated deficits)% of GDP, 1940-2026, 2016 CBO Baseline, end of fiscal year
CBO interest rate projections
23
Forecast2015: -2.5%
2026: 85.6%2015:
73.6%
Forecast
2021-2026: 4.1%
2021-2026: 3.2%
10-year U.S. Treasury3-month U.S. T-bill
Forecast
Econ
omy
Medicare & Medicaid
27%
Social Security
23%Defense15%
Non-def. discr.16%
Net interest6%
Other12%
|GTM – U.S.
24
10%
20%
30%
40%
50%
60%
70%
80%
90%
1949 1959 1969 1979 1989 1999 2009
12.0%
6.3%
-15%-10%
-5%
0%5%
10%15%
20%25%
30%
S&P 500 Return **40%
50%
60%
70%
80%
1949 1961 1973 1985 1997 2009
70%
75%
80%
85%
90%
95%
100%
1901 1919 1937 1955 1973 1991 2009
Source: U.S. House of Representatives, U.S. Senate, Gallup Inc., FactSet, Standard and Poor’s, BEA, J.P. Morgan Asset Management. *In roll call votes where the majority in one party voted the opposite way to the majority in the other. Data compiled by Professors Keith T. Poole and Howard Rosenthal, available at www.voteview.com. Data on voting records are not yet available for the 114th Congress.**Stock market returns are price returns and do not include dividends. Average annual returns are calculated using year-end to year-end and fourth quarter to fourth quarter numbers for both the S&P 500 and real GDP, respectively. Guide to the Markets – U.S. Data are as of April 30, 2016.
U.S. political perspectives
Congressional & presidential approval ratingsPolitical polarization% of representatives voting with the majority of their party*
Political party dominanceDemocratic % of major party seats
Market and economic performance under presidentsAvg. annual GDP growth & S&P 500 returns, std. dev., 1949 – 2015
24
Democratic president
Senate
House
SenateHouse
Presidential
Congressional
Econ
omy
Democratic presidentRepublican president
3.9%
2.6%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Real GDP Growth
|GTM – U.S.
25
Unemployment and wages
Source: BLS, FactSet, J.P. Morgan Asset Management.Guide to the Markets – U.S. Data are as of April 30, 2016.
25
Civilian unemployment rate and year-over-year growth in wages of production and non-supervisory workersSeasonally adjusted, percent
50-yr. average: 4.3%Mar. 2016: 5.0%
Oct. 2009: 10.0%
Mar. 2016: 2.3%
50-yr. average: 6.2%
Wage growth
Unemployment
Econ
omy
|GTM – U.S.
26
62%
63%
64%
65%
66%
67%
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Source: BLS, FactSet, J.P. Morgan Asset Management. (Bottom right) Info. fin. & bus. svcs. = Information, financial activities and professional and business services; Mfg. trade & trans.= Manufacturing, trade, transportation and utilities; Leisure, hospt. & other svcs.: Leisure, hospitality and other services; Educ. & health svcs.: Education & health services; Mining and construct: Natural resources mining & construction; Gov’t: Government. *Aging effect on the labor force participation rate is the estimated number of people who are no longer employed or looking for work because they are retired. Cyclical effect is the estimated number of people who lose their jobs and stop looking for work or do not look for work because of the economic conditions. Other represents the drop in labor force participation from the prior expansion peak that cannot be explained by age or cyclical effects. Estimates for reason of decline in labor force participation rate are made by J.P. Morgan Asset Management.Guide to the Markets – U.S. Data are as of April 30, 2016.
Labor market perspectives
Employment – Total private payrollTotal job gain/loss, thousands
Labor force participation rate decline since 2007 peak*Population employed or looking for work as a % of total, ages 16+
Net job creation since Feb. 2010 Millions of jobs
26
8.8mmjobs lost
14.4mm jobs
gained
Mar. 2016: 63.0%
Econ
omy
AgingCyclical
OtherLabor force participation rate
4.03.6
2.9 2.8
1.2
-0.4-1
0
1
2
3
4
5
Info. Fin &Bus. Svcs.
Mfg. Trade &Trans.
Leisure,Hospt. &
Other Svcs.
Educ. &Health Svcs.
Mining &Construct.
Gov't
|GTM – U.S.
30
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16$0
$20
$40
$60
$80
$100
$120
$140
$1602013 2014 2015 2016* Growth since 2013Production
U.S. 12.4 14.1 15.0 14.5 17.0%OPEC 37.3 37.2 38.2 39.1 4.7%Global 90.9 93.3 95.8 96.3 5.9%
ConsumptionU.S. 19.0 19.1 19.4 19.5 3.0%China 10.5 10.9 11.2 11.5 9.5%Global 91.4 92.4 93.7 94.9 3.8%
Inventory Change -0.4 0.9 2.1 1.4
Source: J.P. Morgan Asset Management; (Top and bottom left) EIA; (Right) FactSet; (Bottom left) Baker Hughes. *Forecasts are from the April 2016 EIA Short-Term Energy Outlook and start in 2016. **U.S. crude oil inventories include the Strategic Petroleum Reserve (SPR). Active rig count includes both natural gas and oil rigs. Brent crude prices are monthly averages in USD using global spot ICE prices. Guide to the Markets – U.S. Data are as of April 30, 2016.
Oil markets
U.S. crude oil inventories and rig count**Million barrels, number of active rigs
30
Change in production and consumption of oilProduction, consumption and inventories, millions of barrels per day
Apr. 2016: $41.85
Jul. 2008: $135.73
Dec. 2008: $43.09
Jun. 2014: $111.93
Price of oilBrent crude, nominal prices, USD/barrel
Inventories (incl. SPR) Active rigs
Econ
omy
0
500
1,000
1,500
2,000
2,500
950
1,000
1,050
1,100
1,150
1,200
1,250
'13 '14 '15 '16
|GTM – U.S.
32
-5%
0%
5%
10%
15%
20%
'58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08 '13
Interest rates and inflation
Source: BLS, Federal Reserve, J.P. Morgan Asset Management.Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core CPI inflation for that month except for April 2016, where real yields are calculated by subtracting out March 2016 year-over-year core inflation. Guide to the Markets – U.S. Data are as of April 30, 2016.
32
Nominal and real 10-year Treasury yields
Apr. 29, 2016: -0.37%
Sep. 30, 1981: 15.84%
Apr. 29, 2016: 1.83%
Nominal 10-year Treasury yield
Real 10-year Treasury yield
Fixe
d in
com
e
Average(1958-YTD 2016) 4/29/2016
Nominal yields 6.20% 1.83%
Real yields 2.44% -0.37%
Inflation 3.76% 2.20%
|GTM – U.S.
33
0.59%0.89%
1.14%
0.38%
0.88%
1.88%
3.00%
3.25%
0%
1%
2%
3%
4%
5%
6%
7%
'99 '03 '07 '11 '15 '19
FOMC March 2016 forecasts* Percent
2016 2017 2018 Long run
Change in real GDP, 4Q to 4Q 2.2 2.1 2.0 2.0
Unemployment rate, 4Q 4.7 4.6 4.5 4.8
PCE inflation, 4Q to 4Q 1.2 1.9 2.0 2.0
The Fed and interest rates
Source: FactSet, Federal Reserve, J.P. Morgan Asset Management.Market expectations are the federal funds rates priced into the fed futures market as of the date of the March 2016 FOMC meeting. *Forecasts of 17 Federal Open Market Committee (FOMC) participants, midpoints of central tendency except for federal funds rate, which is a median estimate.Guide to the Markets – U.S. Data are as of April 30, 2016.
33
Federal funds rate expectationsFOMC and market expectations for the Fed Funds rate
Federal funds rate
FOMC long-run projection
FOMC year-end estimatesMarket expectations on 3/16/16
Longrun
Fixe
d in
com
e
|GTM – U.S.
59
-3 -2 -1 0 1 2 3 4 5
Bloombergcommodity
index
Crude oil
Industrial metals
Natural gas
Agriculture
Livestock
Silver
Gold
Source: FactSet, J.P. Morgan Asset Management; (Left) Bloomberg, CME; (Top right) BLS, CME; (Bottom right) Bloomberg, BLS.Commodity prices are represented by the appropriate Bloomberg Commodity sub-index. Crude oil shown is Brent crude. Other commodity prices are represented by futures contracts. Z-scores are calculated using daily prices over the past 10 years.Guide to the Markets – U.S. Data are as of April 30, 2016.
Global commodities 59
Commodity prices Commodity price z-scores
Commodity prices and inflationYear-over-year % change
Headline CPI Bloomberg Commodity Index
Gold pricesUSD per ounce
Gold, inflation adjustedGold
Apr. 2016:$1,286
ExampleHigh level
CurrentLow level
$45.9
$99.1
$17.8
$1290.5
$26.2 $145.3
$266.8
$48.6
$1891.9$566.5
$8.8
$84.2
$13.6$1.8$2.1
$101.8$47.7$57.1
$73.4$28.0$30.0
$238.0$72.9$85.5
Oth
eras
set c
lass
es
|GTM – U.S.
61
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Ann. Vol.
Comdty. REITs Comdty. EM Equity REITs EM
Equity REITs EM Equity
Fixe d Inc ome
EM Equity REITs REITs REITs Sma ll
Ca p REITs REITs Comdty. REITs EM Equity
3 1.8 % 13 .9 % 2 5 .9 % 5 6 .3 % 3 1.6 % 3 4 .5 % 3 5 .1% 3 9 .8 % 5 .2 % 7 9 .0 % 2 7 .9 % 8 .3 % 19 .7 % 3 8 .8 % 2 8 .0 % 2 .8 % 9 .0 % 12 .0 % 2 5 .4 %
REITs Fixe d Inc ome
Fixe d Inc ome
S ma ll Ca p
EM Equity Comdty. EM
Equity Comdty. Ca sh High Y ie ld
S ma ll Ca p
Fixe d Inc ome
High Y ie ld
La rge Ca p
La rge Ca p
La rge Ca p
High Y ie ld
High Y ie ld REITs
2 6 .4 % 8 .4 % 10 .3 % 4 7 .3 % 2 6 .0 % 2 1.4 % 3 2 .6 % 16 .2 % 1.8 % 5 9 .4 % 2 6 .9 % 7 .8 % 19 .6 % 3 2 .4 % 13 .7 % 1.4 % 7 .7 % 7 .9 % 2 2 .0 %
Fixe d Inc ome Ca sh High
Y ie ldDM
EquityDM
EquityDM
EquityDM
EquityDM
EquityAsse t Alloc .
DM Equity
EM Equity
High Y ie ld
EM Equity
DM Equity
Fixe d Inc ome
Fixe d Inc ome
EM Equity
Sma ll Ca p
Sma ll Ca p
11.6 % 4 .1% 4 .1% 3 9 .2 % 2 0 .7 % 14 .0 % 2 6 .9 % 11.6 % - 2 5 .4 % 3 2 .5 % 19 .2 % 3 .1% 18 .6 % 2 3 .3 % 6 .0 % 0 .5 % 6 .4 % 6 .6 % 2 1.2 %
Ca sh S ma ll Ca p REITs REITs Sma ll
Ca p REITs Sma ll Ca p
Asse t Alloc .
High Y ie ld REITs Comdty. La rge
Ca pDM
EquityAsse t Alloc .
Asse t Alloc . Ca sh REITs EM
EquityDM
Equity6 .1% 2 .5 % 3 .8 % 3 7 .1% 18 .3 % 12 .2 % 18 .4 % 7 .1% - 2 6 .9 % 2 8 .0 % 16 .8 % 2 .1% 17 .9 % 14 .9 % 5 .2 % 0 .0 % 3 .9 % 5 .9 % 19 .6 %
High Y ie ld
High Y ie ld Ca sh High
Y ie ldHigh Y ie ld
Asse t Alloc .
La rge Ca p
Fixe d Inc ome
S ma ll Ca p
Sma ll Ca p
La rge Ca p Ca sh Sma ll
Ca pHigh Y ie ld
Sma ll Ca p
DM Equity
Fixe d Inc ome
Asse t Alloc . Comdty.
1.0 % 2 .3 % 1.7 % 3 2 .4 % 13 .2 % 8 .1% 15 .8 % 7 .0 % - 3 3 .8 % 2 7 .2 % 15 .1% 0 .1% 16 .3 % 7 .3 % 4 .9 % - 0 .4 % 3 .4 % 5 .8 % 18 .7 %
Asse t Alloc .
EM Equity
Asse t Alloc .
La rge Ca p
Asse t Alloc .
La rge Ca p
Asse t Alloc .
La rge Ca p Comdty. La rge
Ca pHigh Y ie ld
Asse t Alloc .
La rge Ca p REITs Ca sh Asse t
Alloc .Asse t Alloc .
Fixe d Inc ome
La rge Ca p
0 .0 % - 2 .4 % - 5 .9 % 2 8 .7 % 12 .8 % 4 .9 % 15 .3 % 5 .5 % - 3 5 .6 % 2 6 .5 % 14 .8 % - 0 .7 % 16 .0 % 2 .9 % 0 .0 % - 2 .0 % 2 .7 % 5 .4 % 16 .7 %
Sma ll Ca p
Asse t Alloc .
EM Equity
Asse t Alloc .
La rge Ca p
Sma ll Ca p
High Y ie ld Ca sh La rge
Ca pAsse t Alloc .
Asse t Alloc .
Sma ll Ca p
Asse t Alloc . Ca sh High
Y ie ldHigh Y ie ld
La rge Ca p
La rge Ca p
High Y ie ld
- 3 .0 % - 3 .9 % - 6 .0 % 2 6 .3 % 10 .9 % 4 .6 % 13 .7 % 4 .8 % - 3 7 .0 % 2 5 .0 % 13 .3 % - 4 .2 % 12 .2 % 0 .0 % 0 .0 % - 2 .7 % 1.7 % 4 .1% 11.5 %
La rge Ca p
La rge Ca p
DM Equity Comdty. Comdty. High
Y ie ld Ca sh High Y ie ld REITs Comdty. DM
EquityDM
EquityFixe d
Inc omeFixe d
Inc omeEM
EquityS ma ll Ca p Ca sh DM
EquityAsse t Alloc .
- 9 .1% - 11.9 % - 15 .7 % 2 3 .9 % 9 .1% 3 .6 % 4 .8 % 3 .2 % - 3 7 .7 % 18 .9 % 8 .2 % - 11.7 % 4 .2 % - 2 .0 % - 1.8 % - 4 .4 % 0 .1% 2 .8 % 11.2 %
DM Equity Comdty. Sma ll
Ca pFixe d
Inc omeFixe d
Inc ome Ca sh Fixe d Inc ome
Sma ll Ca p
DM Equity
Fixe d Inc ome
Fixe d Inc ome Comdty. Ca sh EM
EquityDM
EquityEM
EquityDM
Equity Ca sh Fixe d Inc ome
- 14 .0 % - 19 .5 % - 2 0 .5 % 4 .1% 4 .3 % 3 .0 % 4 .3 % - 1.6 % - 4 3 .1% 5 .9 % 6 .5 % - 13 .3 % 0 .1% - 2 .3 % - 4 .5 % - 14 .6 % 0 .0 % 1.8 % 3 .4 %
EM Equity
DM Equity
La rge Ca p Ca sh Ca sh Fixe d
Inc ome Comdty. REITs EM Equity Ca sh Ca sh EM
Equity Comdty. Comdty. Comdty. Comdty. Sma ll Ca p Comdty. Ca sh
- 3 0 .6 % - 2 1.2 % - 2 2 .1% 1.0 % 1.2 % 2 .4 % 2 .1% - 15 .7 % - 5 3 .2 % 0 .1% 0 .1% - 18 .2 % - 1.1% - 9 .5 % - 17 .0 % - 2 4 .7 % 0 .0 % 0 .8 % 1.0 %
2000 - 2015
Asset class returns
Source: Barclays, Bloomberg, FactSet, MSCI, NAREIT, Russell, Standard & Poor’s, J.P. Morgan Asset Management. Large cap: S&P 500, Small cap: Russell 2000, EM Equity: MSCI EME, DM Equity: MSCI EAFE, Comdty: Bloomberg Commodity Index, High Yield: Barclays Global HY Index, Fixed Income: Barclays Aggregate, REITs: NAREIT Equity REIT Index. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Barclays Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the Barclays Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. Annualized (Ann.) return and volatility (Vol.) represents period of 12/31/99 – 12/31/15. Please see disclosure page at end for index definitions. All data represents total return for stated period. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of April 30, 2016.
61
Inve
stin
gpr
inci
ples
|GTM – U.S.
67
0% 1% 1% 1%5%
9%
27% 29%
20%
7%
17%
13%
17%
28%
17%
6%2% 0% 0% 0%
0%
10%
20%
30%
40%
< 6% 6 to6.5%
6.5 to7%
7 to7.5%
7.5 to8%
8 to8.5%
8.5 to9%
9 to9.5%
9.5 to10%
> 10%4.0%
3.0%
2.0%
2.0%
4.0%
38.0%
48.0%
3.0%
7.3%
17.7%
15.9%
20.1%
9.0%
27.0%
0% 10% 20% 30% 40% 50% 60%
Cash
Other
Real Estate
Private Equity
Hedge Funds
Fixed Income
Equities
Source: J.P. Morgan Asset Management; (Left) NACUBO (National Association of College and University Business Officers), Towers Watson; (Top right) Bloomberg, Russell 3000 corporate 10-Ks; (Bottom right) Compustat/FactSet, S&P 500 corporate 10-Ks.Asset allocation as of 2012. Endowments represents dollar-weighted average data of 842 colleges and universities. Pension Return Assumptions based on all available and reported data from S&P 500 Index companies. Pension Assets, Liabilities and Funded Status based on Russell 3000 companies reporting pension data. Return assumption bands are inclusive of upper range.All information is shown for illustrative purposes only. Guide to the Markets – U.S. Data are as of April 30, 2016.
Institutional investor behavior 67
Asset allocation: Corporate DB plans vs. endowments
Endowments
Corporate DB plans
Funded status (%)
Assets ($tn)
Liabilities ($tn)
Defined benefit plans: Russell 3000 companies
Pension return assumptions: S&P 500 companies
Return assumption
% o
f com
pani
es
2015: Average 6.8%1999: Average 9.2%
USD trillions
Inve
stin
gpr
inci
ples
70%
75%
80%
85%
90%
95%
100%
105%
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
'07 '08 '09 '10 '11 '12 '13 '14 '15 Q1 '16
IAC Process & Methodology
Monthly Meetings conference calls and web conferences
Strict investment discipline Guided by NSCF Investment Policy Statement (IPS)Blend of active and passive approaches with selection emphasis on risk adjusted return and costs
Periodic evaluation of strategy vis a vis other foundations/institutions
Actions Taken Since Last Board Meeting
Monthly Conference calls/web conferences
Reallocated a portion of fixed income positions multi-sector and short/intermediate term bonds
Continued to reduce exposure to alternative investments
Increased exposure to low cost, index funds
Cash Flows $40,000 dispersed for expenses$7,600 contributed to portfolio via stock donations
4.7%
24.0%
30.1%
16.1%
20.7%
4.4%
Cash & Cash Alternatives
Fixed Income
Large Cap US Equity
Mid/Sm Cap US Equity
Non-US Equity
Alternatives
04/30/16 Portfolio Review
04/30/16 Portfolio Review
Benchmark was not assigned to portfolio during highlighted time periods.
Comments ǀ Recommendations
04/30/16 Portfolio Review
-
- -
- - -
- -
LITMAN GREGORY MASTERS INTERNATIONAL FUND - - -
$255,444
-
-VANGUARD FTSE ALL-WORLD EX-US ETFVEU
ABC AMERISOUCEBERGEN CO - - $851 -
WARIX WESTERN ASSET TOAL RETURN UNCONSTRAINED - $191,318 -
- $200,449 -
-
RPSIX T. ROWE PRICE SPECTRUM INCOME FUND - $160,809 -
AMERICAN CENTURY INTERNATIONAL GROWTH
VB
Current Allocation 4.7% 24.0% 30.1% 16.1% 20.7%
5.0%
4.4%
$1,120,212 $237,089
N/A CASH
NSCF
$269,660
GTCSX GLENMEDE SMALL CAP EQTY - - -
MSILX
NSCF
NSCF
NSCF
NSCF
$872,391
$171,303
$1,630,802$1,300,129
VANGUARD SMALL CAP ETF
VNQ VANGUARD REIT
IVW ISHARES S&P 500 GROWTH -
Target Allocation: IPS 5.0% 25.0% 28.0% 16.0% 21.0%
Account
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
NSCF
$5,417,254
$256,631$256,631 - - - --
$161,204
- - - - - $171,303
- - - - $161,204-
$256,631
-
- - -
POAGX PRIMECAP ODYSSEY AGGRESSIVE GROWTH FUND - - -
VASVX
DODFX
VANGUARD SELECTED VALUE FUND - -
DODGE & COX INTERNATIONAL STOCK -
HAINX
PCRIX PIMCO COMMODITY REAL RETURN STRAT INSTL - -
-
VWNFX VANGUARD WINDSOR II FUND INV
$158,928
-
--
- $456,786 --
- $571,609
$286,716 - $286,716
$75,885 $75,885
-
-
-
- - $158,928
$275,096-$275,096-
-
$456,786
$234,707
$200,449
-
-
$234,707
-
- -
$191,318
$571,609-
-
-
-
$447,956
-
$235,104
Alternatives
N/A AMERICAN EXPRESS BK 1.1% - $180,481 - - -
TotalMid/Sm Cap US Equity
- $180,481
$105,646
-
$235,104
Symbol Asset Description Cash & Cash Alternatives Fixed Income Large Cap US
EquityNon-US Equity
- -
-
VFICX VANGUARD INTERMEDIATE TERM INVESTMENT GRADE FUND INV
DODGX DODGE & COX STOCK FUND - - $447,956 - -
HARBOR INTERNATIONAL FUND INSTL -
TWIEX
$269,660
- - - -
- - -
-
-
$182,494
$130,828
- $160,809
- - $851
NSCF VOO VANGUARD S&P 500 ETF - - $146,646 - - - $146,646
PONDX PIMCO INCOME D - $130,828 -
LSBRX LOOMIS SAYLES BOND FUND R - $182,494
$255,444
$105,646
TSS TOTAL SYSTEMS SERVICES - - $6,955 - - - $6,955
VFSTX VANGUARD SHORT TERM INVESTMENT GRADE FUND INV - $253,750 - - - - $253,750
