investment program update
TRANSCRIPT
© Wespath, a division of the General Board of Pension and Health Benefits of The United Methodist Church
Investment Program Update
AUMCPBO Annual MeetingOctober 24, 2014
Sustainable Investment Update
Looking Forward to 2015
Best Investment Strategy—Past Five Years
Markets Overview
Investment Philosophy
Agenda
2
statement
DiversifiedDiversified
DisciplinedDisciplined
Long-TermLong-Term
SustainableSustainable
Investment Philosophy
3
Why Are the Markets so Volatile?
If you are not confused, you don’t understand things
very well.
Source: Charlie Munger/Berkshire Hathaway Annual Meeting April 5, 2013
4
Recent Market Volatility Is the Mostin the Past Two Years
0
10
20
30
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14
Source: CBOE; FactSet
5
CBOE Market Volatility Index (VIX)
Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management
Catalyst: Europe Inflation Trending Lower
6
German 5-Year Inflation Expectations (%)
0.0
0.5
1.0
1.5
2.0
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14
Source: Bloomberg
7
We Must Pay for the Privilege of Depositing Money in European Banks
Source: Wall Street Journal
October 17, 2014
U.S. Dollar Index
78
80
82
84
86
Source: FactSet
9
10-Year U.S. Treasury Note Yield (%)
1.50
2.00
2.50
3.00
3.50
Source: FactSet
10
U.S. 5-Year Inflation Expectations (%)
0.0
0.5
1.0
1.5
2.0
2.5
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14
Source: FactSet
11
WTI Crude Oil ($/bbl)
$70
$80
$90
$100
$110
Jan-14 Apr-14 Jul-14 Oct-14
July through Oct price drop = 22%
Source: FactSet
12
MSCI ACWI (ex-US) Performance Relative to S&P 500—Five Years
60%
65%
70%
75%
80%
85%
90%
95%
100%
Source: Wilshire Compass, Wespath
13
Russell 2000 Performance Relativeto S&P 500–One Year
84%
86%
88%
90%
92%
94%
96%
98%
100%
102%
Source: Wilshire Compass, Wespath
14
Reasons for Optimism
15
U.S. Initial Jobless Claims (Thousands)
100
200
300
400
500
600
700
1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: U.S. Department of Labor; FactSet
16
U.S. Hires and Quits (Thousands)
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
3,100
3,500
4,000
4,500
5,000
5,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
HiresQuits
Source: Bureau of Labor Statistics; FactSet
17
Private Sector Has Driven Employment
Source: Bureau of Labor Statistics, Factset, J.. P. Morgan Asset Management
18
U.S. Is Now the World’s Leading Oil Producer
Source: Economist
19
Future Prospects Are Brightfor Abundant and Cheap Energy
Source: EIA, IMF, FactSet, J.P. Morgan Asset Management
20
Corporate Sector Continuesto Reduce Borrowing
Source: BEA, Standard & Poor’s, Compustat, J.P. Morgan Asset Management
21
Individuals Continue to Reduce Borrowing
Source: BEA, Standard & Poor’s, Compustat, J.P. Morgan Asset Management
22
Plenty of “Dry Powder” in Corporate Sector
Source: The Economist
23
Reasons for Concern
24
European Employment Remains Stagnant
Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management
25
U.S. Federal Budget Deficit
-$1,600
-$1,200
-$800
-$400
$0
$400
Source: Whitehouse.gov
$492 million
26
U.S. Government Outstanding Debtas a Percent of GDP
0%
20%
40%
60%
80%
100%
120%
Source: Bureau of Economic Analysis, TreasuryDirect.gov, Wespath
103%
27
2015 U.S. Government Budget
Interest5.6%
Health & Welfare27.9%
Education16.1%
Defense & Public Safety
16.8%
Other14.7%
Pension18.9%
Source: usgovernmentspending.com
Interest Expense = $369.4 Billion
28
Average Interest on U.S. Government Debt
0%
1%
2%
3%
4%
5%
6%
7%
Source: TreasuryDirect
2.40%
6.64%
29
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