WELCOME
RPB Participant Webinar
How to Use Investment Choice
to Your Advantage
JANUARY 25, 2016
Agenda
Opening Remarks
Plan Performance Update
2017 Market Outlook
How to Use Investment Choice to Your Advantage
Q&A
2
PLAN PERFORMANCE UPDATE
3
RPB Investment Philosophy
Tier 1 Managed Funds: Spectrum of return and risk profiles
Capital Appreciation, Appreciation & Income, Income Focused
•
•
•
•
Focus on risk-adjusted returns
Keep pace with up markets and protect
capital in down markets
Volatility (risk) matters
Add value by allocating capital based
on longer-term trends
•
•
•
Don’t attempt to time the market
Managers hold stocks/bonds of companies with
strong balance sheets, expectations of earnings
growth, and differentiated products/services
Avoid speculative or momentum stocks
Capital Preservation
•
Stability of principal through multiple insurance contracts
Tier 2 Index Funds: Passive asset class exposure to build diversified portfolio
•
•
•
Fully participate in up and down markets
Hold both ‘good’ and ‘bad’ stock according to index weight
Diversification required
4
PLAN PERFORMANCE UPDATE
2016 Key Themes
•
Strengthening US economy led to December interest rate increase
•
Expected growth from deregulation and business approach to
government fueled US stock market rally
•
Inflation expectations caused losses in the fixed income markets
•
Oil rebound in Q4 boosted commodities and MLPs
•
US Dollar appreciated resulting in headwind to international investing
5
Worst Performing
Best Performing
Asset Class Performance Comparison
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2014
2015
2016
MLP
47.9%
MLP
44.4%
Core
Bonds
10.3%
EM
55.8%
REITs
31.5%
EM
34.0%
REITs
35.9%
EM
39.4%
Core
Bonds
5.2%
EM
78.5%
MLP
35.9%
MLP
13.9%
US
EM
REITs
Equities
18.2%
30.4%
33.6%
REITs
2.5%
MLP
18.3%
REITs
26.8%
REITs
12.8%
REITs
3.6%
MLP
41.6%
EM
25.6%
EAFE
13.5%
EM
32.2%
MLP
12.4%
High
Yield
-26.2%
MLP
76.4%
REITs
28.5%
REITs
8.7%
REITs
17.8%
US
Core
MLP
Equities Bonds
27.6%
12.6% 0.5%
High
Yield
17.1%
Core
Bonds
11.6%
Core
Bonds
8.4%
MLP
0.2%
EAFE
38.6%
EAFE
20.2%
REITs
12.1%
MLP
27.6%
EAFE
11.2%
MLP
-36.8%
High
Yield
58.2%
EM
18.9%
Core
Bonds
7.8%
EAFE
17.3%
EAFE
22.8%
Core
US
US
Bonds Equities Equities
6.0%
0.5%
12.7%
High
Yield
-5.9%
High
Yield
5.3%
High
Yield
-1.4%
REITs
36.8%
US
MLP
EAFE
Equities
15.9%
26.3%
6.1%
High
Yield
5.0%
US
Equities
16.4%
High
Yield
7.4%
MLP
4.8%
EAFE
-0.8%
EM
11.2%
US
Equities
-7.5%
EM
-2.6%
EM
-6.2%
High
US
High
Yield Equities Yield
15.1%
1.0% 15.8%
REITs
2.5%
High
Yield
2.5%
High
Yield
-4.5%
REITs
8.6%
EAFE
7.8%
EAFE
-12.1%
MLP
4.8%
Core
Bonds
-2.0%
EM
-2.2%
EM
-14.9%
Core
Bonds
2.6%
Core
Bonds
6.5%
EM
-18.4%
Core
Bonds
4.2%
EM
-2.6%
EAFE
-4.9%
MLP
-32.6%
EAFE
1.0%
US
EAFE
EAFE
Equities
-14.2%
-15.9%
-11.5%
EM
-30.8%
US
US
Equities Equities
31.1% 11.9%
MLP
5.2%
Core
US
US
EAFE
Bonds Equities
Equities
31.8%
7.0% -37.3%
16.9%
US
US
REITs
Equities Equities
-38.0%
15.7%
5.1%
High
Yield
29.0%
High
Yield
11.1%
High
Yield
2.7%
High
Yield
11.9%
High
Yield
1.9%
US
Core
EAFE
Equities Bonds
-21.4%
-21.5% 4.1%
Core
Bonds
4.3%
Core
Bonds
2.4%
Core
Bonds
4.3%
REITs
-16.8%
Source: Bloomberg
REITs
28.6%
US
EAFE
Equities
-43.4%
28.3%
EM
-53.3%
Core
Bonds
5.9%
2013
RPB Calendar Year To Date Investment Returns*
January 1, 2016 through December 31, 2016
*As of December 31, 2016, net of investment management fee.
**Barclays Global Aggregate January 1, 2013 through September 30, 2016, Barclays US Aggregate thereafter.
7
Since Inception Volatility – Lower is Less Risky
January 1, 2013 through December 31, 2016
*Barclays Global Aggregate January 1, 2013 through September 30, 2016, Barclays US Aggregate thereafter.
8
MARKET OUTLOOK 2017
9
2017 Key Themes
•
Unknown impact of Trump administration policies
–
Global trade
–
Government spending
–
Taxes
–
Healthcare
•
Global interest rate environment
•
Magnitude and timing of inflation
•
Increasing populism
•
Some factors already priced into the market
•
Past performance not indicative of future results
10
Stock Market Rally - Is It Sustainable?
•
Historical relationship between stock market and GDP growth
•
Stock market has grown faster than US economy since 2009
•
Current trend may not be sustainable in a low growth environment
Equities (Stocks)
Fixed Income (Bonds)
Real Assets
Source: Bloomberg. As of September 30, 2016
11
Stock Market Valuations Matter
•
S&P 500 considered fairly valued to rich
•
How much upside potential is possible
•
Can earnings catch up to prices
Source: Bloomberg. As of December 31, 2016
12
Fixed Income Expectations
•
Historical relationship between US Growth and US Interest Rates
•
Future expectation of “long and low” growth cycle
•
Bond exposure alone unlikely to meet future growth and income generation needs
Source: Bloomberg. As of 9/20/2016
13
What Does This Mean For You?
•
Lower expectation of stock market appreciation going forward
•
Long and low global interest rate environment
•
Upside surprise is possible – requires change in status quo
•
Reassess holistic financial plan as you age
14
HOW TO USE INVESTMENT CHOICE
TO YOUR ADVANTAGE
15
Maximum Flexibility
•
Invest only in Tier 1 managed funds
•
Invest entirely in Tier 2 index funds
•
Use combination of both
How to Choose?
•
What kind of investor are you?
•
How much risk are you willing to take?
•
Do you want to coordinate with investments outside the plan?
16
Investor Profile: Do It For Me
LEVEL OF INTEREST/EFFORT
INVESTMENT SOLUTION
• No extra time
• Tier 1 Managed Funds
• Limited investment knowledge
• Pre-packaged diversified solution based on
investment objectives
• No desire to actively manage
accounts
• Set it and forget it until your investment
objectives change
17
Investor Profile: Engaged
LEVEL OF INTEREST/EFFORT
INVESTMENT SOLUTION
• Wants to be involved, likes to use
resources and tools
• Tier 1 or Tier 2
• Seeks advice but comfortable
making final decisions
• If Tier 1, allocations should reflect goals and
risk tolerance
• If Tier 2, make sure you diversify
• Has a point of view on the markets
18
Investor Profile: Do It Myself
LEVEL OF INTEREST/EFFORT
INVESTMENT SOLUTION
• Wants customized portfolio
solution
• Tier 2 [9 passive asset classes to choose from]
• In-depth financial knowledge and
understanding of risk
• Requires active management and periodic
reassessment of markets
• Optimal flexibility
• Does own research and/or works
with financial advisor
19
Risk / Reward by Asset Class
Best / Worst asset class 12 month period over trailing 10 years
Source: Bloomberg
20
Holistic Investing
Coordinate RPB and Non-RPB Retirement Investments
Tier 1: Broader level of coordination
•
Each fund has multiple asset classes
•
Coordinate based on investing objective
Tier 2: Finer level of coordination
•
Each fund is a single asset class
•
Invest in specific funds to meet desired asset
allocation/objectives across all your investments
•
Unlimited LifeWorks financial counseling available through
RPB for participants
21
Financial Planning Elements
1
Investment
Objectives
What are your
savings goals?
2
Timeframe
How long do
you have to
build savings?
Risk
Tolerance
What is your
tolerance for
loss and
volatility?
6
5
4
3
Budget
Invest
Track
With current/
expected
lifestyle, can
you maximize
retirement
savings?
Allocate assets.
Markets can’t
make up for low
contributions
or costly
lifestyles
Rebalance
portfolio or
reassess based on
life changes.
22
QUESTIONS?
23
THANK YOU
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