City of Colorado Springs Cemetery Endowment...

City of Colorado Springs Cemetery Endowment Fund

Client Management Team PFM Asset Management LLC

633 17th Street

Suite 2250

Denver, CO 80202

303-467-1114

1735 Market Street

43rd Floor

Philadelphia, PA 19103

215-567-6100

Investment Performance ReviewFor the Quarter Ended December 31, 2018

Chris Blackwood, Managing DirectorEllen Clark, Senior Managing ConsultantMarc McClure, CFA, Senior Managing ConsultantJoseph Federico, Senior Analyst

Financial Markets & Investment Strategy Review

QUARTERLY MARKET SUMMARYFor the Quarter Ended December 31, 2018

Multi-Asset Class Management

QTD YTD 1 Year 2 Years 3 Years 5 Years 7 Years 10 YearsDOMESTIC EQUITY

S&P 500 Index -13.52% -4.39% -4.39% 16.47% 9.24% 8.48% 12.68% 13.10%Russell 3000 Index -14.31% -5.25% -5.25% 14.76% 8.95% 7.90% 12.45% 13.17%Russell 1000 Value Index -11.73% -8.28% -8.28% 4.24% 6.93% 5.93% 11.01% 11.16%Russell 1000 Growth Index -15.89% -1.52% -1.52% 28.24% 11.14% 10.40% 14.13% 15.27%Russell Midcap Index -15.38% -9.08% -9.08% 7.74% 7.02% 6.24% 11.48% 14.00%Russell 2500 Index -18.50% -10.02% -10.02% 5.08% 7.30% 5.13% 10.97% 13.14%Russell 2000 Index -20.21% -11.03% -11.03% 1.99% 7.34% 4.40% 10.43% 11.95%Russell 2000 Value Index -18.68% -12.85% -12.85% -6.04% 7.36% 3.60% 9.56% 10.38%Russell 2000 Growth Index -21.66% -9.34% -9.34% 10.73% 7.20% 5.11% 11.24% 13.50%

INTERNATIONAL EQUITYMSCI EAFE (net) -12.49% -13.32% -13.32% 8.95% 3.44% 1.10% 6.34% 6.91%MSCI AC World Index (net) -12.67% -8.95% -8.95% 13.50% 7.19% 4.85% 8.99% 10.08%MSCI AC World ex-U.S. (net) -11.44% -13.81% -13.81% 10.18% 5.01% 1.20% 5.39% 7.12%MSCI AC World ex-U.S. Small Cap (net) -16.02% -17.59% -17.59% 10.00% 4.07% 3.40% 9.13% 10.88%MSCI EM (net) -7.58% -14.48% -14.48% 17.84% 9.60% 1.97% 3.56% 8.35%

ALTERNATIVESFTSE NAREIT Equity REIT Index -6.06% -4.04% -4.04% 4.28% 4.24% 8.32% 9.06% 12.52%FTSE EPRA/NAREIT Developed Index -3.94% 0.29% 0.29% -1.86% 2.02% 9.30% 10.18% 12.70%Bloomberg Commodity Index Total Return -9.41% -11.25% -11.25% -9.73% 0.30% -8.80% -7.83% -3.78%

FIXED INCOMEBloomberg Barclays U.S. Aggregate 1.64% 0.01% 0.01% 3.55% 2.05% 2.52% 2.10% 3.48%Bloomberg Barclays U.S. Government/Credit 1.46% -0.42% -0.42% 3.56% 2.19% 2.53% 2.14% 3.46%Bloomberg Barclays Intermediate U.S. Gov/Credit 1.65% 0.88% 0.88% 3.03% 1.70% 1.85% 1.75% 2.90%Bloomberg Barclays U.S. Treasury: 1-3 Year 1.31% 1.56% 1.56% 1.99% 0.95% 0.81% 0.69% 0.96%Bloomberg Barclays U.S.-Corp: High Yield -4.53% -2.08% -2.08% 5.27% 7.22% 3.83% 5.98% 11.12%Credit Suisse Leveraged Loan Index -3.08% 1.14% 1.14% 2.68% 5.02% 3.32% 4.57% 8.29%BofAML Global HY Constrained (USD) -4.99% -8.05% -8.05% -3.44% 0.42% -2.31% -0.35% 3.78%Bloomberg Barclays Global Aggregate ex-USD 0.91% -2.15% -2.15% 8.14% 3.15% -0.01% 0.12% 1.73%JPM EMBI Global Diversified -1.26% -4.26% -4.26% 2.74% 5.15% 4.79% 4.99% 8.20%

CASH EQUIVALENT90-Day U.S. Treasury Bill 0.56% 1.87% 1.87% 1.37% 1.02% 0.63% 0.47% 0.38%

Market Index PerformanceAs of December 31, 2018

Source: Investment Metrics. Returns are expressed as percentages. Please refer to the last page of this document for important disclosures relating to this material.

1.1



T H E E C O N O M Y

• Real gross domestic product (GDP) for the fourth quarter of 2018 is projected to be 2.8 percent by the Federal Reserve Bank of Atlanta (Atlanta Fed) GDPNow forecast. The forecast is based on many factors including manufacturing, trade, home sales and inflation estimates. This is down from the third quarter’s real GDP growth of 3.4 percent.

• The U.S. labor market continued its strong momentum through the fourth quarter. In December alone, nonfarm payrolls surged by 312,000, and the labor force participation rate increased to 63.1 percent, tied for highest rate since September 2013. The unemployment rate rose to 3.9 percent as of the end of 2018, as more Americans entered the labor force. Average hourly earnings also rose 3.2 percent from a year ago.

• The current inflation rate for the U.S. is 1.9 percent for the 12 months ended December 2018, meeting expectations. Disposable personal income (DPI) increased 0.3 percent and 0.2 percent in October and November respectively, while personal consumption expenditures (PCE) increased by 0.2 percent in October and 0.1 percent in November. The December Purchasing Managers’ Index (PMI) registered 54.1 percent, a decrease of 5.2 percent from the November reading of 59.3 percent. Overall, the U.S. economy is exhibiting signs of strong, albeit moderating growth.

• The International Monetary Fund and the World Bank lowered global growth forecasts for 2018 and 2019 during the fourth quarter, citing trade headwinds, and growing geopolitical uncertainty. Global growth is projected at 3.7 percent in 2018 and 2019, down from 3.9 percent.

U.S. Real GDP Growth(Seasonally Adjusted)

Source: Bloomberg. Blue bars indicate actual numbers; taupe bars indicate forecasted estimates.

Change in NonFarm Payrolls

Source: Bloomberg.

2.3%2.2%

4.2%

3.4%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2014 2015 2016 2017 2018 '19

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4%

5%

6%

7%

8%

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0

100

200

300

400

Dec '13 Jun '14 Dec '14 Jun '15 Dec '15 Jun '16 Dec '16 Jun '17 Dec '17 Jun '18 Dec '18

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Change in NonFarm Payrolls (left) Unemployment Rate (right)

Unemployment Rate: 3.9%

1.2



W H A T W E ’ R E W A T C H I N G

• Market volatility spiked in the fourth quarter of 2018, as uncertainty surrounding various economic conditions across the globe took a toll on the capital markets. The VIX volatility index peaked at 36.12 in December, and the S&P 500 saw a -13.52 percent correction during the quarter, pulling down 2018 returns to -4.39 percent.

• The U.S. and China finished the third quarter of 2018 by imposing additional tariffs and cancelling trade talks. Now the two sides enter 2019 under a 90-day trade truce with negotiations beginning to give investors hope of a deal in the near term. China’s economy has shown signs of slowing growth as year over year GDP fell to 6.5 percent in the third quarter, its weakest pace since 2009. Estimates of China’s 2019 GDP show a similar trajectory. U.S. GDP ticked down to 3.4 percent in the third quarter missing estimates of 3.5 percent.

• Uncertainty in the Eurozone kept global markets jittery approaching 2019. Brexit remains a focal point as the UK’s deadline to leave the European Union looms. Prime Minister Theresa May’s proposed exit deal was defeated in Parliament by historic margins with less than 80 days before the UK is scheduled to officially withdraw from the bloc. Elsewhere in Europe, Italy’s banking system lost nearly 30 percent of its market value during 2018, and now seeks to navigate difficult political conditions to extend its debt crisis recovery.

• In December, the Federal Open Market Committee (FOMC) raised its benchmark interest rate range a quarter percentage point for the fourth time in 2018. Afterwards, Federal Reserve Chairman Jerome Powell offered guidance suggesting that the Fed would lower its 2019 rate hike estimate to two. With growth moderating, market participants were encouraged when Chairman Powell stated that the Fed would “be patient” with its policy in the coming year.

• Oil prices began the fourth quarter of 2018 at multi-year highs, but fell to near multi-year lows by the end of the year. Despite OPEC’s December decision to cut supply, fears about the strength of the global economy have kept prices low. The West Texas Intermediate Index (WTI) finished the year at $45.41 a barrel, down from its 2018 high of $76.41 a barrel in October.

Federal Funds Target Rate

Source: Bloomberg.

ISM Manufacturing & Services PMI

Source: Bloomberg.

30

35

40

45

50

55

60

65

70

Dec '10 Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18

Manufacturing Services

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Dec '09 Dec '10 Dec '11 Dec '12 Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18 Dec '19

Mid Fed Funds Fed Futures (Dec 31, 2018) Fed Futures (Sep 30, 2018)

1.3



D O M E S T I C E Q U I T Y

• The S&P 500 Index (S&P) posted a negative return of -13.52 percent for the quarter, resulting in a 2018 return of -4.39 percent. For the quarter, according to FactSet Earnings Insight, the expected earnings growth is 10.6 percent and expected revenue growth is 5.9 percent. This is lower than the growth we have seen in 2018. Analysts are expecting lower earnings growth for 2019, impacted by lower global growth expectations. Returns were weakened by slowing economic growth and future uncertainty.

• Within the S&P 500, Energy was the worst performing sector, returning -23.78 percent due to oversupply and slowing global growth. IT and Industrials followed at -17.34 percent and -17.32 percent respectively, with trade tensions taking their toll, and end-of-year Purchasing Managers’ Index readings slipping from recent highs. Utilities saw a boost with a return of 1.36 percent, followed by Real Estate and Consumer Staples returning -3.84 percent and -5.22 percent respectively, as investors moved into more defensive sectors.

• Value stocks, as represented by the Russell 1000 Value Index returned -11.73 percent, and outperformed Growth stocks, as represented by the Russell 1000 Growth Index which returned -15.89 percent. Value’s outperformance over Growth stocks was seen across all market capitalizations.

• Small caps were the worst performers for the quarter, returning -20.21 percent, as represented by the Russell 2000 Index. Small caps were followed by mid-caps (Russell Mid Cap Index), which returned -15.38 percent. Large caps (S&P 500 Index) were the best performers returning -13.52 percent for the quarter.

Source: Bloomberg.

S&P 500 Index Performance by SectorPeriods Ended December 31, 2018

Source: Bloomberg.*P/E ratios are calculated based on one-year forward estimates and adjusted to include only positive earnings results for consistency.

P/E Ratios of Major Stock Indices*

ConsumerDisc.

ConsumerStaples Energy Financials H'lthcare Industrials Info. Tech Materials Real

Estate Telecom Utilities

QTD -16.42% -5.22% -23.78% -13.12% -8.72% -17.32% -17.34% -12.31% -3.84% -13.19% 1.36%

YTD 0.82% -8.39% -18.10% -13.04% 6.47% -13.32% -0.29% -14.70% -2.23% -12.53% 4.11%

1 Year 0.82% -8.39% -18.10% -13.04% 6.47% -13.32% -0.29% -14.70% -2.23% -12.53% 4.11%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

12

13

14

15

16

17

18

19

20

21

22

Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18S&P 500 S&P 500 5-Year AverageRussell 2000 Russell 2000 5-Year Average

1.4



N O N - U . S . E Q U I T Y

• Markets outside of the U.S., as measured by the MSCI ACWI ex USA Index, fell -11.46 percent in the fourth quarter. The Utilities sector held up best returning 0.48 percent, followed by Telecom and Consumer Staples with returns of -5.53 percent and -7.44 percent respectively. Energy was the worst performing sector in the quarter, with a return of -16.31 percent, followed by Information Technology at -14.60 percent.

• Emerging markets (EM) did better than Developed markets in the quarter, but lagged for the year. EM Latin America, was the only region to post positive returns for the quarter at 0.36 percent, as record-low interest rates and tax incentives boosted growth in the region’s largest economy, Brazil. Japan was the worst performer in the fourth quarter, with a return of -14.23 percent, as the country’s economy continues its sluggish recovery.

• Trade tensions between the United States and China have improved, due to the truce called in early December, but uncertainty about a deal still looms over capital markets across the globe. Fears heightened in the fourth quarter as evidence surfaced of an economic slowdown in China. In the Eurozone, Brexit continues to threaten stability, as the UK continues to struggle finding a deal that will pass Parliament just 10 weeks before the UK’s scheduled departure date from the EU.

Source: Bloomberg.

MSCI ACWI ex-U.S. SectorsPeriods Ended December 31, 2018

Source: Bloomberg. *P/E ratios are calculated based on one-year forward estimates and adjusted to include only positive earnings results for consistency.

P/E Ratios of MSCI Equity Indices*

ConsumerDisc.

ConsumerStaples Energy Financials Healthcare Industrials Info Tech Materials Real

Estate Telecom Utilities

QTD -14.12% -7.44% -16.31% -10.66% -11.16% -13.66% -14.60% -13.39% -3.71% -5.53% 0.48%

YTD -20.17% -11.15% -8.09% -16.99% -6.19% -15.06% -17.64% -15.92% -8.74% -11.87% -0.85%

1 Year -20.17% -11.15% -8.09% -16.99% -6.19% -15.06% -17.64% -15.92% -8.74% -11.87% -0.85%

-25%

-20%

-15%

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-5%

0%

5%

8

9

10

11

12

13

14

15

16

17

Dec '13 Dec '14 Dec '15 Dec '16 Dec '17 Dec '18MSCI EAFE MSCI EAFE 5-Year AverageMSCI Emerging Markets MSCI Emerging Markets 5-Year Average

1.5



F I X E D I N C O M E

• The U.S. bond market, represented by the Bloomberg Barclays U.S. Aggregate (Aggregate) Index, rose 1.64 percent in the fourth quarter.

• Rates were volatile during the quarter having initially risen before a sharp decline toward the end of the year. Intermediate rates represented by the 5- and 10-year Treasury decreased 43 and 36 basis points (bps) respectively in yield.

• Long-term Treasury yields also fell during the quarter, with the 30-year bond ending December at a yield of 3.02 percent. The selling of risk assets during the quarter led to the decline in rates of the treasury curve.

• Investment-grade (IG) corporate spreads rose during the quarter. The Bloomberg Barclays U.S. Corporate Index fell 18 bps (after rising 97 bps the prior quarter). High yield bonds, as represented by the Bloomberg Barclays U.S. Corporate High Yield (HY) Index had a sharp selloff, falling 4.53 percent. Spreads widened out to 2016 levels but remain relatively tight.

• The fixed-rate mortgage market, as measured by the Bloomberg Barclays U.S. Mortgage-Backed Securities (MBS) Index, gained 2.08 percent, while the Bloomberg Barclays U.S. CMBS Index (measuring commercial MBS) gained 1.67 percent.

• Global bond markets were generally positive during the quarter partially due to the slight weakening of the U.S. dollar and equity market declines. Emerging market local market bonds, as represented by the JP Morgan GBI-EM indices, rose over 3 percent.

Source: Bloomberg. “Blmbg BC” is Bloomberg Barclays.

Returns for Fixed-Income SegmentsPeriods Ended December 31, 2018

Source: Bloomberg.

U.S. Treasury Yield Curve

2.49%2.51%

2.69%

3.02%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

12/31/20179/30/201812/31/2018

3-mo 2-yr 5-yr 10-yr 30-yr

Blmbg BC U.S.Aggregate

Blmbg BC U.S.Treasury Blmbg BC U.S. MBS Blmbg BC U.S.

CorporateBlmbg BC U.S. High

YieldQTD 1.64% 2.57% 2.08% -0.18% -4.53%YTD 0.01% 0.86% 0.99% -2.51% -2.08%1 Year 0.01% 0.86% 0.99% -2.51% -2.08%

-5%

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3%

1.6



A L T E R N A T I V E S• REITs, as measured by the FTSE NAREIT Equity REITs Index, returned -6.73

percent in the fourth quarter. The sector losses were led by Lodging/Resorts, Data Centers, and Offices with returns of -20.46 percent, -13.34 percent, and -11.87 percent, respectively. Healthcare and Self-Storage were the only sectors to post gains in the fourth quarter with returns of 3.08 percent and 2.09 percent, respectively.

• Private real estate, as measured by the NCREIF Property Index of 7,786 commercial properties, totaling $592 billion of market value, generated a total return of 1.67 percent in the third quarter, down slightly from 1.81 percent last quarter. U.S. Industrial properties, which are primarily warehouses, continue to be the top performing sector with a return of 3.36 percent for the quarter. Hotels followed closely with a return of 3.22 percent. Offices was third highest at 1.69 percent followed closely by Apartments at 1.55 percent. Retail was again in last place at 0.56 percent.

• Hedge funds experienced losses. In the fourth quarter and in fiscal year 2018 respectively the HFRI Fund Weighted Composite Index returned -5.34 percent and -4.07 percent; the HFRI Equity Hedge (Total) Index returned -8.26 percent and -6.90 percent; the HFRI Macro (Total) Index returned -1.43 percent and -3.21; and the HFRI Fund of Funds Index returned -6.66 percent and -3.48 percent.

• Private equity fundraising was strong in 2018, while capital continues to concentrate at the top end of the market. In 2018, 1,175 private equity funds raised a total of $426 billion, down from 1,639 funds that raised $552 billion in 2017. Funds of one billion dollars or more in size secured $264 billion, 62 percent of total fundraising, and the 10 largest funds alone accounted for nearly a quarter of capital raised. The average fund size reached $363 million, surpassing 2017 ($339 million), and is the highest level since 2007 ($422 million). Private equity dry powder continues to climb, setting a new record at $1.20 trillion as of December 2018.

• Commodity futures, represented by the Bloomberg Commodity Index of 19 raw materials futures, fell 9.95 percent in the fourth quarter. Overall, the index declined 12.99 percent in 2018. The factors that impacted the lowering of the spot prices of commodities included a stronger U.S. dollar, rising U.S. interest rates, and concerns over international trade and the global economy. The U.S. Dollar Index (DXY), a measure of the value of the United States dollar relative to a basket of foreign currencies, increased 1.09 percent in the fourth quarter and increased 4.40 percent YTD.

Source: Bloomberg.

FTSE Nareit SectorsPeriods Ended December 31, 2018

Sources: Bloomberg and Hedge Fund Research, Inc.

Returns for Alternative AssetsPeriods Ended December 31, 2018

Apartments Diversified Healthcare Hotels Industrial Office Retail StorageQTD -1.64% -8.20% 3.08% -20.46% -9.19% -11.87% -5.86% 2.09%YTD 3.70% -12.52% 7.58% -12.82% -2.51% -14.50% -4.96% 2.94%1 Year 3.70% -12.52% 7.58% -12.82% -2.51% -14.50% -4.96% 2.94%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

U.S. REITs International REITs Commodity Futures Commodities HFRI Fund WeightedComp.

QTD -6.73% -4.87% -9.96% -23.47% -5.34%YTD -4.62% -5.79% -12.99% -21.07% -4.07%1 Year -4.62% -5.79% -12.99% -21.07% -4.07%

-25%

-20%

-15%

-10%

-5%

0%

1.7

For the Quarter Ended December 31, 2018Multi-Asset Class Management QUARTERLY MARKET SUMMARY

Asset Class Our Investment Preferences Comments

U . S . E Q U I T I E S • U.S. fundamentals are still in tact though concerns of slowing global growth have been a headwind. We expect stronger relative growth in the U.S. compared to the rest of the world and expect equities to be attractive after the recent sell-off.

• Stronger earnings growth, lesser exposure to international revenues that could be impacted by global slowdown and attractive valuations after recent sell-off are tailwinds.

Large-Caps

Small-Caps

N O N - U . S . E Q U I T I E S • International equity valuations remain cheap relative to U.S. market but growing concerns around China’s possible slowdown, end of European Central Bank stimulus at a time that major Eurozone economies have shown signs of slowdown, and lack of clarity over Brexit remain headwinds.

• Trade war with China and its impact on China’s economic growth are growing risks to overall outlook for Emerging Markets. We remain neutral

Developed Markets

Non-US Small-Caps

Emerging Markets

F I X E D I N C O M E • Fed’s guidance of two rate hikes in 2019 is in contrast with market expectations of no hikes or possible rate cut in 2019. Stable rates are less of a headwind for longer duration, interest sensitive fixed income securities.

• Wider spreads make credit relatively more attractive. Currently, we remain positive on credit due to continuing economic growth, but we are carefully monitoring credit market fundamentals for any deterioration due to high corporate debt levels.

Long Duration, Interest-Rate-Sensitive Sectors

Credit-Sensitive Sectors

R E A L E S T A T E• REITs underperformed in 2018 and as a result, they

are trading at a wide discount to underlying property values. Stable interest rates in 2019 will also help, while a slowing economy is a tailwind.

A L T E R N A T I V E S • Select hedge fund strategies may be more attractive in a higher volatility and higher uncertainty market

• Private equity may provide higher returns relative to public markets, however proliferation of funds requires stronger manager selection

Hedge Funds

Private Equity

Current outlook Outlook one year ago

Investment Strategy OverviewFor the First Quarter 2019

1.8

Plan Performance Summary

Allocation

MarketValue

($)%

Performance(%)

1Quarter

20181

Year3

Years5

YearsSince

InceptionInception

Date

Total Fund 10,003,587 100.00 -6.84 -4.03 -4.03 5.16 N/A 4.69 12/01/2015

Blended Benchmark -5.97 -3.97 -3.97 4.92 N/A 4.38 12/01/2015

Domestic Equity 3,133,729 31.33 -14.53 -5.57 -5.57 8.55 N/A 7.66 12/01/2015

Russell 3000 Index -14.30 -5.24 -5.24 8.97 7.91 7.99 12/01/2015

Vanguard Total Stock Market Index 2,832,124 28.31 -14.26 -5.17 -5.17 8.99 7.90 8.01 12/01/2015

Russell 3000 Index -14.30 -5.24 -5.24 8.97 7.91 7.99 12/01/2015

iShares Edge MSCI USA Quality ETF 152,983 1.53 -14.71 -5.77 -5.77 7.95 8.19 -7.25 07/01/2018

S&P 500 -13.52 -4.38 -4.38 9.26 8.49 -6.85 07/01/2018

iShares Core S&P Small-Cap ETF 148,622 1.49 -20.10 -8.43 -8.43 9.45 6.31 -9.92 05/01/2018

S&P SmallCap 600 -20.10 -8.48 -8.48 9.46 6.34 -9.93 05/01/2018

International Equity 1,673,388 16.73 -12.37 -12.47 -12.47 4.07 N/A 3.51 12/01/2015

MSCI AC World ex USA (Net) -11.46 -14.20 -14.20 4.48 0.68 3.71 12/01/2015

Vanguard Total International Stock Index Fund 536,711 5.37 -11.68 -14.43 -14.43 4.54 0.94 3.07 10/01/2016


Vanguard International Value 349,475 3.49 -12.01 -14.52 -14.52 4.54 -0.05 4.35 05/01/2016


J. O. Hambro International Select 419,913 4.20 -12.62 -8.27 -8.27 5.84 3.69 5.84 01/01/2016


Oppenheimer Int'l Small Mid Company 195,229 1.95 -16.91 -9.25 -9.25 7.78 7.67 7.81 12/01/2015

MSCI AC World ex USA Smid Cap Index (Net) -13.97 -17.06 -17.06 3.84 1.75 3.49 12/01/2015

Hartford Schroders Emerging Markets Equity 172,059 1.72 -8.83 -15.45 -15.45 9.69 N/A -17.92 03/01/2018

MSCI EM (net) -7.47 -14.58 -14.58 9.25 1.65 -17.34 03/01/2018

Asset Allocation & Performance

City of Colorado Springs Cemetery Endowment Fund As of December 31, 2018

Returns are net of mutual fund fees.

Returns are expressed as percentages.

2.1

Asset Allocation & Performance


Allocation

MarketValue

($)%

Performance(%)

1Quarter

20181

Year3

Years5

YearsSince

InceptionInception

Date

Other Growth Assets 328,743 3.29 1.36 8.22 8.22 N/A N/A 5.33 04/01/2016

Boyd Watterson GSA Fund 328,743 3.29 1.36 8.22 8.22 N/A N/A 8.72 12/01/2016

NCREIF Property Income 1.11 4.56 4.56 4.67 4.88 4.63 12/01/2016

Fixed Income 4,851,574 48.50 0.51 -0.63 -0.63 2.60 N/A 2.38 12/01/2015

Blmbg. Barc. U.S. Aggregate 1.64 0.01 0.01 2.06 2.52 1.89 12/01/2015

Baird Core Plus 1,403,702 14.03 0.91 -0.51 -0.51 2.92 3.08 2.63 12/01/2015

Blmbg. Barc. U.S. Aggregate 1.64 0.01 0.01 2.06 2.52 1.89 12/01/2015

DoubleLine Core Fixed Income 1,395,518 13.95 0.60 -0.02 -0.02 2.90 3.22 0.06 09/01/2017

Prudential Total Return Bond Fund 984,678 9.84 1.37 -0.63 -0.63 3.59 3.60 0.10 09/01/2017

Blmbg. Barc. U.S. Aggregate 1.64 0.01 0.01 2.06 2.52 -0.06 09/01/2017

Vanguard Intermediate-Term Investment Grade 737,550 7.37 1.12 -0.47 -0.47 2.55 3.03 2.31 12/01/2015

Blmbg. Barc. U.S. Credit 5-10 Year Index 0.49 -1.55 -1.55 3.03 3.41 2.66 12/01/2015

Vanguard High Yield Corporate 330,126 3.30 -4.36 -2.87 -2.87 5.02 3.66 4.61 04/01/2016

Blmbg. Barc. U.S. Corp: High Yield -4.53 -2.08 -2.08 7.23 3.83 6.63 04/01/2016

Cash Equivalent

First American Government Obligation 16,154 0.16 0.46 1.43 1.43 0.64 0.39 0.62 12/01/2015



2.2

2017 2016 2015 2014 2013

Total Fund 13.60 6.67 N/A N/A N/A

Blended Benchmark 12.99 6.43 N/A N/A N/A

Domestic Equity

Vanguard Total Stock Market Index 21.17 12.66 0.39 12.56 33.52

Russell 3000 Index 21.13 12.74 0.48 12.56 33.55

iShares Edge MSCI USA Quality ETF 22.26 9.18 5.56 11.62 N/A

S&P 500 21.83 11.96 1.38 13.69 32.39

iShares Core S&P Small-Cap ETF 13.20 26.49 -2.00 5.67 41.36

S&P SmallCap 600 13.23 26.56 -1.97 5.76 41.31

International Equity

Vanguard Total International Stock Index Fund 27.55 4.67 -4.26 -4.17 15.14

Vanguard International Value 27.96 4.46 -6.44 -6.69 22.15

J. O. Hambro International Select 22.89 5.20 -4.05 5.35 38.21

MSCI AC World ex USA (Net) 27.19 4.50 -5.66 -3.87 15.29

Oppenheimer Int'l Small Mid Company 38.30 -0.24 15.15 0.38 45.26

MSCI AC World ex USA Smid Cap Index (Net) 30.35 3.57 0.44 -3.05 17.79

Hartford Schroders Emerging Markets Equity 41.09 10.64 -12.63 N/A N/A

MSCI EM (net) 37.28 11.19 -14.92 -2.19 -2.60

Comparative Performance




2.3

Comparative Performance


2017 2016 2015 2014 2013

Other Growth Assets

Boyd Watterson GSA Fund 8.85 N/A N/A N/A N/A

NCREIF Property Income 4.68 4.76 5.01 5.36 5.61

Fixed Income

Baird Core Plus 4.65 4.73 0.14 6.59 -1.32

DoubleLine Core Fixed Income 4.66 4.11 0.63 6.86 -1.20

Prudential Total Return Bond Fund 6.71 4.83 0.09 7.25 -0.91

Blmbg. Barc. U.S. Aggregate 3.54 2.65 0.55 5.97 -2.02

Vanguard Intermediate-Term Investment Grade 4.26 3.93 1.63 5.91 -1.27

Blmbg. Barc. U.S. Credit 5-10 Year Index 5.57 5.23 0.69 7.38 -2.05

Vanguard High Yield Corporate 7.13 11.30 -1.30 4.69 4.64

Blmbg. Barc. U.S. Corp: High Yield 7.50 17.13 -4.47 2.45 7.44

Cash Equivalent

First American Government Obligation 0.48 0.01 0.01 0.01 0.01



2.4

QTR

Market ValueAs of

10/01/2018Net Flows

Return OnInvestment

Market ValueAs of

12/31/2018

Total Fund 11,053,837 (308,831) (741,418) 10,003,587

YTD

Market ValueAs of

01/01/2018Net Flows

Return OnInvestment

Market ValueAs of

12/31/2018

Total Fund 10,986,850 (564,624) (418,638) 10,003,587

1 Year

Market ValueAs of

01/01/2018Net Flows

Return OnInvestment

Market ValueAs of

12/31/2018

Total Fund 10,986,850 (564,624) (418,638) 10,003,587

Financial Reconciliation


2.5

AssetAllocation

(%)

TargetAllocation

(%)

MinimumAllocation

(%)

MaximumAllocation

(%)

Differences(%)

Total Fund 100.0 100.0 N/A N/A 0.0

Domestic Equity 31.3 33.0 10.0 60.0 -1.7

International Equity 16.7 17.0 0.0 40.0 -0.3

Other Growth Assets 3.3 0.0 0.0 20.0 3.3

Fixed Income 48.5 50.0 20.0 80.0 -1.5

Real Return Assets 0.0 0.0 0.0 20.0 0.0

Cash Equivalents 0.2 0.0 0.0 20.0 0.2

Target Allocation Actual Allocation Allocation Differences

0.0% 15.0% 30.0% 45.0% 60.0% 75.0%-15.0 %-30.0 %

Cash Equivalents$16,154

Real Return Assets

$0

Fixed Income$4,851,574

Other Growth Assets

$328,743

International Equity$1,673,388

Domestic Equity$3,133,729

0.0%

0.0%

50.0%

0.0%

17.0%

33.0%

0.2%

0.0%

48.5%

3.3%

16.7%

31.3%

0.2%

0.0%

-1.5 %

3.3%

-0.3 %

-1.7 %

Asset Allocation Compliance - Total Fund


2.6

Allocation Mandate Weight (%)

Dec-2015

Russell 3000 Index 33.0

MSCI AC World ex USA (Net) 17.0

Blmbg. Barc. U.S. Aggregate 50.0

Historical Hybrid Composition - Blended Benchmark


2.7

Investment Manager Review

Investment Manager Overview – Domestic Equity As of December 31, 2018

Vanguard Total Stock Market Index

Management: Gerard C. O’Reilly has managed the Fund since its inception in 1994. Walter Nejman is now a co-portfolio manager for the fund. They

have been in the investment management industry since 1992 and 2008, respectively.

Objective: The Fund seeks to track the performance of a benchmark index that measures the investment return of the overall stock market.

Strategy: The Fund employs a “passive management” – or indexing – investment approach designed to track the performance and characteristics of

the CRSP US Total Market Index. These key characteristics include industry weightings and market capitalization, as well as c ertain financial

measures, such as price/earnings ratio and dividend yield.

iShares Edge MSCI USA Quality Factor ETF (QUAL)

Management: BlackRock Fund Advisors: Diane Hsiung (since 2013), Jennifer Hsui (since 2013), Alan Mason (since 2016) and Greg Savage (since

2013)

Objective: The Fund seeks to replicate the performance of MSCI USA Sector Neutral Quality Index.


the MSCI USA Sector Neutral Quality Index. These key characteristics include industry weightings and market capitalization, as well as certain

financial measures, such as price/earnings ratio and dividend yield. MSCI USA Sector Neutral Quality Index consists of stocks represented within

MSCI USA Index that have a higher quality score based on Return on Equity, Debt/Equity and Earnings Variability.

iShares Core S&P Sm all Cap ETF (IJR)

Management: BlackRock Fund Advisors: Diane Hsiung (since 2008), Jennifer Hsui (since 2012), Alan Mason (since 2016) and Greg Savage (since

2008)

Objective: The Fund seeks to replicate the performance of S&P SmallCap 600 Index.


the S&P SmallCap 600 Index. These key characteristics include industry weightings and market capitalization, as well as certain financial measures,

such as price/earnings ratio and dividend yield. S&P SmallCap 600 Index is a float adjusted market cap weighted index consisting of US smaller

capitalization companies.

3.1

Portfolio Characteristics

Portfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 164,737 167,103

Median Mkt. Cap ($M) 1,035 1,418

Price/Earnings ratio 17.01 16.99

Price/Book ratio 3.04 3.04

5 Yr. EPS Growth Rate (%) 15.92 15.88

Current Yield (%) 2.14 2.14

Number of Stocks 3,480 3,015

Sector Weights (%)

Vanguard Total Stock Market Index Russell 3000 Index

0.0 4.0 8.0 12.0 16.0 20.0 24.0

Cash

Utilities

Real Estate

Materials

Information Technology

Industrials

Health Care

Financials

Energy

Consumer Staples

Consumer Discretionary

Communication Services

0.9

3.3

3.9

3.0

19.5

9.9

15.0

13.7

4.9

6.7

10.2

9.0

0.0

3.3

3.9

3.0

19.9

9.9

15.1

13.9

5.0

6.7

10.3

9.1

Top Ten Equity Holdings

PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

Microsoft Corp 3.11 3.06 0.05 -10.80

Apple Inc 2.67 2.98 -0.31 -29.88

Amazon.com Inc 2.47 2.43 0.04 -25.01

Berkshire Hathaway Inc 1.53 1.57 -0.04 -4.64

Johnson & Johnson 1.37 1.38 -0.01 -6.01

JPMorgan Chase & Co 1.29 1.29 0.00 -12.89

Facebook Inc 1.25 1.24 0.01 -20.29

Alphabet Inc 1.24 1.24 0.00 -13.43

Alphabet Inc 1.22 1.25 -0.03 -13.23

Exxon Mobil Corp 1.14 1.15 -0.01 -18.98

% of Portfolio 17.29 17.59 -0.30

Ten Best Performers

PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

Harrow Health Inc 0.00 0.00 0.00 104.68

Intersections Inc 0.00 0.00 0.00 103.87

Avenue Therapeutics Inc 0.00 0.00 0.00 91.49

TESARO Inc 0.01 0.01 0.00 90.34

Adial Pharmaceuticals Inc 0.00 0.00 0.00 87.89

Inuvo Inc 0.00 0.00 0.00 72.58

Electro Scientific Industries Inc 0.00 0.00 0.00 71.69

Fluent Inc 0.00 0.00 0.00 67.44

American Superconductor Corp 0.00 0.00 0.00 60.43

XBiotech Inc 0.00 0.00 0.00 59.75

% of Portfolio 0.01 0.01 0.00

Vanguard Total Stock Market Index vs. Russell 3000 Index

Portfolio Characteristics As of December 31, 2018

3.2


Portfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 145,657 198,165

Median Mkt. Cap ($M) 21,457 18,449





Number of Stocks 126 505

Sector Weights (%)

iShares Edge MSCI USA Quality Factor ETF

S&P 500

0.0 5.0 10.0 15.0 20.0 25.0

Cash

Utilities

Real Estate

Materials


Industrials

Health Care

Financials

Energy

Consumer Staples



0.2

3.3

2.9

2.7

20.1

9.0

15.4

13.5

5.3

7.1

10.3

10.2

0.0

3.3

3.0

2.7

20.1

9.2

15.5

13.3

5.3

7.4

9.9

10.1


PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

Johnson & Johnson 4.49 1.65 2.84 -6.01

Apple Inc 3.83 3.38 0.45 -29.88

Facebook Inc 3.63 1.50 2.13 -20.29

Mastercard Inc 3.30 0.82 2.48 -15.16

Visa Inc 3.19 1.10 2.09 -11.94

Exxon Mobil Corp 3.13 1.37 1.76 -18.98

Altria Group Inc 2.90 0.44 2.46 -16.73

Amgen Inc 2.80 0.59 2.21 -5.44

Lockheed Martin Corp 2.67 0.31 2.36 -23.76

3M Co 2.19 0.53 1.66 -8.95

% of Portfolio 32.13 11.69 20.44

Ten Best Performers

PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

Starbucks Corp 2.04 0.38 1.66 13.91

Realty Income Corp. 0.23 0.09 0.14 11.99

National Retail Properties Inc 0.11 0.00 0.11 9.37

OGE Energy Corp. 0.92 0.00 0.92 8.95

Omnicom Group Inc. 0.25 0.08 0.17 8.57

Pinnacle West Capital Corp 1.12 0.05 1.07 8.57

Eli Lilly and Co 1.92 0.52 1.40 8.39

Hershey Co (The) 0.35 0.07 0.28 5.79

Clorox Co (The) 0.43 0.09 0.34 3.12

Public Storage 0.70 0.14 0.56 1.34

% of Portfolio 8.07 1.42 6.65

iShares Edge MSCI USA Quality Factor ETF vs. S&P 500


3.3


Portfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 1,699 2,012

Median Mkt. Cap ($M) 1,028 707





Number of Stocks 605 2,032

Sector Weights (%)

iShares Core S&P Small-Cap ETF Russell 2000 Index

0.0 4.0 8.0 12.0 16.0 20.0 24.0

Cash

Utilities

Real Estate

Materials


Industrials

Health Care

Financials

Energy

Consumer Staples



0.1

2.6

6.6

4.1

14.4

18.6

11.6

18.9

3.4

3.6

13.9

2.0

0.0

3.8

7.2

3.7

14.7

14.8

15.6

18.2

3.5

2.9

12.2

3.3


PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

First Financial Bankshares Inc 0.59 0.21 0.38 -2.05

Green Dot Corp 0.57 0.21 0.36 -10.47

Spire Inc 0.56 0.20 0.36 1.47

Selective Insurance Group Inc 0.53 0.20 0.33 -3.72

Ingevity Corp 0.53 0.20 0.33 -17.85

Trex Co Inc 0.53 0.20 0.33 -22.89

Amedisys Inc 0.51 0.17 0.34 -6.28

Glacier Bancorp Inc 0.50 0.19 0.31 -6.95

EastGroup Properties Inc. 0.50 0.18 0.32 -3.31

FirstCash Inc 0.48 0.18 0.30 -11.51

% of Portfolio 5.30 1.94 3.36

Ten Best Performers

PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

Electro Scientific Industries Inc 0.15 0.05 0.10 71.69

Investment Technology Group Inc. 0.15 0.05 0.10 39.94

Belmond Ltd 0.34 0.13 0.21 37.15

eHealth Inc 0.09 0.04 0.05 35.95

Xperi Corporation 0.13 0.05 0.08 25.68

Barnes & Noble Inc 0.06 0.02 0.04 24.94

Crocs Inc 0.26 0.10 0.16 22.03

El Pollo Loco Holdings Inc 0.05 0.02 0.03 20.88

QuinStreet Inc 0.09 0.04 0.05 19.60

EVERTEC Inc 0.26 0.10 0.16 19.30

% of Portfolio 1.58 0.60 0.98

iShares Core S&P Small-Cap ETF vs. Russell 2000 Index


3.4

Investment Manager Overview – International Equity As of December 31, 2018

Vanguard Total International Stock Index

Management: The Fund is co-managed by Michael Perre and Michelle Louie. Mr. Perre has advised the Fund since 2008 and Ms. Louie has advised

the fund since 2016. They have been in the investment industry since 1990 and 2011, respectively.

Objective: The Fund seeks to track the performance of a benchmark index that measures the investment return of stocks across all market

capitalizations issued by companies domiciled in both emerging markets and developed markets outside the United States.

Strategy: The Fund employs a “passive management” – or indexing – investment approach that seeks to track the investment performance of the

FTSE Global All Cap ex U.S. Index, an unmanaged benchmark representing stocks from global developed and emerging markets, excluding the

United States, across the market capitalization spectrum.

Vanguard International Value

Management: Sub-advised by ARGA, Edinburgh Partners, and Lazard since 2012, 2008, and 2010, respectively.

Objective: The Fund seeks capital appreciation

Strategy: By combining elements of deep value, traditional value, and relative value investing, the Fund is expected to temper some of the cyclicality

that is inherent in value investing, while retaining exposure to the alpha generation capabilities of all three sub-styles. In addition, the Fund provides

access to the three underlying strategies that are otherwise not available to mutual fund investors. The Fund is designed to give total international

equity exposure, including both developed and emerging markets.

J O Hambro International Select

Management: The fund is co-managed by Christopher Lees and Nudgem Richyal. Both the senior fund managers joined the firm in 2008, having

previously worked together at Baring Asset Management.

Objective: The fund managers aim to exploit market anomalies via an investment process that combines both top-down and bottom-up research.

Strategy: The fund managers target multiple sources of performance, looking for stocks, sectors, and countries with rising earnings estimates, rising

or high and sustainable return on equity, appropriate valuation, and attractive mean reversion and momentum characteristics. They evaluate the

correlation between each stock and its sector or country in order to avoid buying “good stocks in bad neighborhoods”. A ruthless sell discipline is

employed, whereby a stock is immediately sold to zero weight when its fundamentals or technicals deteriorate, or when there is contagion from

deteriorating fundamentals or technicals in a stock’s sector or country.

3.5

Investment Manager Overview – International Equity As of December 31, 2018

Oppenheimer International Small-Mid Company Fund

Management: Frank Jennings has taken over as portfolio manager for this fund effective the end of September, 2018. Mr. Jennings has managed a

global small-mid cap strategy at Oppenheimer since 1995, and has on two previous occasions held portfolio management responsibilities for the

International Small-Mid Company fund. He has over forty years of experience in the investment management industry.

Objective: The Fund seeks capital appreciation.

Strategy: The Fund invests primarily in small- and mid-cap companies domiciled outside the U.S. that offer opportunities for growth. Rigorous,

fundamental analysis is employed to identify future leaders that operate in industries driven by structural growth and high barriers to entry. The Fund

seeks companies with meaningful competitive advantages such as technological leadership, intellectual property, strong brands, or industries favoring

natural monopolies. Oppenheimer’s Global Equity Team uses several secular growth themes as a way to focus attention on certain segments of the

global marketplace, which they refer to as MANTRA (Mass Affluence, New Technology, Restructuring and Aging).

Hartford Schroders Emerging Markets Equity

Management: The fund is managed by a team of five portfolio managers led by Tom Wilson, Schroders’ Head of Emerging Markets Equity. He has

worked at Schroders since 2001 and has been involved with emerging markets equities at Schroders since 2004.

Objective: The Fund seeks capital appreciation.

Strategy: The Fund employs an actively managed approach that combines fundamental, bottom-up stock research with a quantitative country

allocation process. Country rankings are prepared through evaluation of valuation, growth, currency, momentum, and interest rates. Stock level

research targets a core universe of the most liquid stocks in the emerging markets universe, utilizing a relative value approach for stocks across the

growth/value spectrum without any systematic style bias. Comprehensive risk controls are employed to keep factor exposures in check and constrain

strategy-level tracking error to moderate levels.

3.6


Portfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 47,717 58,116






Number of Stocks 6,328 2,136

Sector Weights (%)

Vanguard Total International Stock Index MSCI AC World ex USA (Net)

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Cash

Other

Utilities

Real Estate

Materials


Industrials

Health Care

Financials

Energy

Consumer Staples



2.3

0.2

3.4

4.0

7.9

8.1

13.1

7.6

20.1

6.5

8.4

11.0

7.4

0.0

0.0

3.4

3.4

7.7

8.0

11.7

8.4

22.2

7.3

9.9

10.6

7.6


PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

CASH 2.33 0.00 2.33 N/A

Nestle SA, Cham Und Vevey 1.18 1.34 -0.16 -3.25

Tencent Holdings LTD 1.10 1.24 -0.14 -2.93

Novartis AG 0.90 1.00 -0.10 -1.23

Taiwan Semicon Manufctrg Co Ltd 0.85 0.98 -0.13 -14.43

Roche Holding AG 0.83 0.94 -0.11 1.55

Alibaba Group Holding Ltd 0.80 0.96 -0.16 -16.81

Samsung Electronics Co Ltd 0.79 0.90 -0.11 -16.16

Toyota Motor Corp 0.71 0.72 -0.01 -6.61

Royal Dutch Shell PLC 0.65 0.73 -0.08 -13.19

% of Portfolio 10.14 8.81 1.33

Region Weights (%)

Vanguard Total International Stock Index MSCI AC World ex USA (Net)

0.0 10.0 20.0 30.0 40.0 50.0

Cash

Other

Pacific

North America

Middle East

Europe ex EMU

EMU

EM Latin America

EM Europe + Middle East + Africa

EM Asia

2.3

0.5

30.7

6.8

0.4

14.4

22.5

3.2

3.7

15.6

0.0

0.4

29.2

6.5

0.4

19.1

22.9

3.1

3.7

14.7

Vanguard Total International Stock Index vs. MSCI AC World ex USA (Net)


3.7


Portfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 53,037 58,116

Median Mkt. Cap ($M) 24,674 7,298






Sector Weights (%)

Vanguard International Value MSCI AC World ex USA

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Cash

Other

Utilities

Real Estate

Materials


Industrials

Health Care

Financials

Energy

Consumer Staples



5.3

0.4

2.0

2.2

2.5

12.7

11.7

8.9

22.9

7.6

4.5

8.1

11.4

0.0

0.0

3.4

3.4

7.7

8.0

11.7

8.4

22.2

7.3

9.9

10.6

7.6


PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

CASH 5.27 0.00 5.27 N/A

Novartis AG 2.70 1.00 1.70 -1.23

Icici Bank Ltd 2.18 0.07 2.11 21.20

Royal Dutch Shell PLC 1.99 0.73 1.26 -13.21

Roche Holding AG 1.83 0.94 0.89 1.55

TOTAL SA 1.71 0.68 1.03 -17.40

DBS Group Holdings Ltd 1.61 0.17 1.44 -8.91

Sanofi 1.53 0.53 1.00 -2.62

Sumitomo Mitsui Financial Group Inc 1.51 0.24 1.27 -17.79

Vodafone Group PLC 1.45 0.28 1.17 -6.63

% of Portfolio 21.78 4.64 17.14

Region Weights (%)

Vanguard International Value MSCI AC World ex USA

0.0 8.0 16.0 24.0 32.0 40.0 48.0

Cash

Other

Pacific

North America

Middle East

Europe ex EMU

EMU

EM Latin America


EM Asia

5.3

0.3

28.1

3.5

0.0

20.0

29.0

1.0

1.3

11.5

0.0

0.4

29.2

6.5

0.4

19.1

22.9

3.1

3.7

14.7

Vanguard International Value vs. MSCI AC World ex USA


3.8


Portfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 43,310 58,116

Median Mkt. Cap ($M) 28,993 7,298






Sector Weights (%)

J O Hambro International Select MSCI AC World ex USA

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Cash

Utilities

Real Estate

Materials


Industrials

Health Care

Financials

Energy

Consumer Staples



12.1

2.6

0.0

12.5

8.6

10.6

15.3

10.2

6.5

9.4

2.0

10.2

0.0

3.4

3.4

7.7

8.0

11.7

8.4

22.2

7.3

9.9

10.6

7.6


PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

CASH 12.13 0.00 12.13 N/A

Kao Corp 2.75 0.20 2.55 -7.35

Orsted A/S 2.57 0.07 2.50 -1.70

Terumo Corp 2.53 0.09 2.44 -4.35

PeptiDream Inc 2.38 0.00 2.38 -0.91

Kddi Corp 2.37 0.23 2.14 -13.54

BHP Group Ltd 2.33 0.38 1.95 -3.76

Koninklijke Ahold Delhaize NV 2.32 0.17 2.15 10.13

Newcrest Mining Ltd 2.32 0.06 2.26 9.36

Nippon Telegraph & Telephone 2.32 0.15 2.17 -9.67

% of Portfolio 34.02 1.35 32.67

Region Weights (%)

J O Hambro International Select MSCI AC World ex USA

0.0 15.0 30.0 45.0 60.0

Cash

Other

Pacific

North America

Middle East

Europe ex EMU

EMU

EM Latin America


EM Asia

12.1

0.0

43.7

1.4

2.2

10.9

28.2

0.0

0.0

1.5

0.0

0.4

29.2

6.5

0.4

19.1

22.9

3.1

3.7

14.7

J O Hambro International Select vs. MSCI AC World ex USA


3.9


Portfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 4,233 5,079







Sector Weights (%)

Oppenheimer International Small-Mid Company

MSCI AC World x USA SMID Cap Index

0.0 5.0 10.0 15.0 20.0 25.0 30.0

Cash

Utilities

Real Estate

Materials


Industrials

Health Care

Financials

Energy

Consumer Staples



7.5

0.0

0.7

5.6

22.0

14.5

22.8

7.7

0.0

5.6

10.7

2.9

0.0

3.9

9.3

11.2

8.7

19.7

7.3

11.7

3.3

7.1

13.0

4.8


PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

CASH 7.49 0.00 7.49 N/A

NICE Ltd 3.33 0.10 3.23 -5.47

Carl Zeiss Meditec AG, Jena 2.08 0.05 2.03 -7.17

Aston Martin Lagonda Glbl Hlds plc 1.91 0.00 1.91 N/A

Obic Co Ltd 1.70 0.08 1.62 -18.31

Tecan Group AG, Maennedorf 1.57 0.03 1.54 -18.49

LivaNova PLC 1.37 0.00 1.37 -26.22

Ossur HF 1.34 0.00 1.34 -9.96

Amarin Corp PLC 1.31 0.00 1.31 -16.35

Mellanox Technologies Ltd 1.26 0.00 1.26 25.77

% of Portfolio 23.36 0.26 23.10

Region Weights (%)

Oppenheimer International Small-Mid Company

MSCI AC World x USA SMID Cap Index

0.0 10.0 20.0 30.0 40.0 50.0

Cash

Other

Pacific

North America

Middle East

Europe ex EMU

EMU

EM Latin America


EM Asia

7.5

1.3

21.7

6.0

4.7

32.9

25.4

0.4

0.0

0.0

0.0

0.2

32.2

6.5

1.0

22.7

19.7

3.0

3.1

11.6

Oppenheimer International Small-Mid Company vs. MSCI AC World x USA SMID Cap Index


3.10


Portfolio Benchmark

Wtd. Avg. Mkt. Cap ($M) 89,521 70,373

Median Mkt. Cap ($M) 14,086 4,928






Sector Weights (%)


MSCI EM (net)

0.0 6.0 12.0 18.0 24.0 30.0 36.0

Cash

Utilities

Real Estate

Materials


Industrials

Health Care

Financials

Energy

Consumer Staples



0.9

0.6

0.2

4.8

17.5

2.6

0.9

29.1

12.2

7.2

10.9

13.0

0.0

2.7

3.0

7.7

14.3

5.5

2.8

24.8

8.0

6.7

10.4

14.1


PortfolioWeight

(%)

BenchmarkWeight

(%)

ActiveWeight

(%)

QuarterlyReturn

(%)

Samsung Electronics Co Ltd 6.26 3.48 2.78 -16.16

Tencent Holdings LTD 6.23 4.76 1.47 -2.93

Taiwan Semicon Manufctrg Co Ltd 5.63 3.77 1.86 -14.43

Alibaba Group Holding Ltd 4.22 3.69 0.53 -16.81

China Construction Bank Corp 3.07 1.65 1.42 -5.64

Oil Co LUKOIL PJSC 2.82 0.73 2.09 -4.92

Itau Unibanco Holding SA 2.36 0.92 1.44 25.03

AIA Group Ltd 2.33 0.00 2.33 -7.09

H D F C Bank Ltd 2.03 0.00 2.03 10.24

Infosys Ltd 1.91 0.69 1.22 -4.91

% of Portfolio 36.86 19.69 17.17

Region Weights (%)


MSCI EM (net)

0.0 20.0 40.0 60.0 80.0 100.0

Cash

Other

Pacific

North America

Europe ex EMU

EMU

EM Latin America


EM Asia

0.9

1.3

19.6

0.0

0.0

0.3

13.0

17.5

47.5

0.0

0.4

16.6

0.1

0.1

0.1

11.8

14.3

56.6

Hartford Schroders Emerging Markets Equity vs. MSCI EM (net)


3.11

Investment Manager Overview – Real Estate As of December 31, 2018

Boy d Watterson GSA Fund, LP

Management: Brian L. Gevry, CFA, serves as the CEO. The co-Portfolio Manager on the team is Robert Law, who is the CIO of Real Estate.

Another key team member is EVP Steven Perry, who joined the firm in 2014. Mr. Perry is a former Administrator of the GSA and brings deep

knowledge into their leasing strategies and practices.

Objective: The Fund seeks to provide a high level of income and moderate risk below equities and real estate but higher than fixed income.

Strategy: The team seeks properties delivering high current income, which is distributed quarterly. As valuations for secure, GSA occupied

properties are less volatile than even core traditional real estate, the strategy is able to take advantage of the current attractive cost of capital and

high spread between operating yield and financing costs to further enhance income generation / cash on cash yield. The team focuses on properties

in the small to mid‐sized market of $5‐$25 million which offer more attractive attributes.

3.12

Investment Manager Overview – Fixed Income

As of December 31, 2018

Baird Core Plus

Management: The Fund has been managed by a team of six portfolio managers since its inception in 2000. The most senior trio of the management

team has been working together for over 30 years.

Objective: The Fund seeks to maximize long-term total return and achieve an annual return that exceeds its benchmark.

Strategy: The Fund normally invests at least 80% of assets in the following types of U.S. dollar-denominated debt securities: U.S. government, U.S.

government agencies, asset-backed and mortgage-backed obligations of U.S. issuers and corporate debt of U.S. and foreign issuers. It invests

primarily in investment-grade debt securities, but can invest up to 20% of net assets in non-investment grade securities.

DoubleLine Core Fixed

Management: Jeff Gundlach, CEO/CIO of DoubleLine Capital has been managing the Fund since 2010. Jeff Sherman, Deputy CIO, has co-managed

the Fund since 2016.

Objective: The Fund seeks to maximize current income and total return.

Strategy: The Fund may invest in fixed income securities of any credit quality including up to a third of its net assets in junk bonds, bank loans and

assignments rated below investment grade or unrated but determined by the Adviser to be of comparable quality, and credit default swaps of

companies in the high yield universe. The Fund may also invest a portion of its net assets in fixed income instruments issued or guaranteed by

companies, financial institutions and government entities in emerging market countries. The Fund may pursue its investment objective and obtain

exposures to some or all of the asset classes described above by investing in other investment companies, including, ETFs and investment companies

sponsored or managed by the Adviser and its affiliates. In managing the Fund’s investments, under normal market condi tions, the portfolio manager

intends to seek to construct an investment portfolio with a weighted average effective duration of no less than two years and no more than eight years.

PGIM Total Return

Management: Senior portfolio managers Michael Collins (since 2009), Rich Piccirillo (2012) and Greg Peters (2014) have managed the Fund joined

by Chief Investment Strategist Robert Tipp (2002). PGIM Fixed Income is the primary public fixed-income asset management unit of PGIM, a wholly-

owned subsidiary of Prudential Financial, Inc.

Objective: The Fund seeks total return by investing in a diversified portfolio of bonds from multiple fixed income sectors.

Strategy: The Fund allocates assets among different debt securities, including (but not limited to) US Government securities, mortgage-related and

asset-backed securities, corporate debt securities and foreign securities. The Fund may invest up to 30% of its investable assets in high risk, below

investment-grade securities having a rating of not lower than CCC. The Fund may invest up to 30% of its investable assets in foreign debt securities.

The Fund has the flexibility to allocate its investments across different sectors of the fixed-income securities markets at varying duration. Up to 25%

may be expressed through various derivative strategies.

3.13

Investment Manager Overview – Fixed Income

As of December 31, 2018

Vanguard Intermediate-Term Investment Grade

Management: The Fund is managed by Samuel Martinez and Daniel Shaykevich (since 2018).

Objective: The Fund seeks to provide a moderate and sustainable level of current income.

Strategy: The Fund invests in a variety of high-quality and, to a lesser extent, medium-quality fixed income securities, at least 80% of which will be

short- and intermediate-term investment-grade securities. High-quality fixed income securities are those rated the equivalent of A3 or better by

Moody’s Investors Service, Inc., or another independent rating agency; medium-quality fixed income securities are those rated the equivalent of Baa1,

Baa2, or Baa3 by Moody’s, or another independent rating agency. Investment-grade fixed income securities are those rated the equivalent of Baa3

and above by Moody’s. The fund is expected to maintain a dollar-weighted average maturity of 5 to 10 years.

Vanguard High-Yield Corporate Fund

Management: The Fund is managed by Michael L. Hong, CFA, Vice President and Portfolio Manager of Wellington Management Company, LLP. Mr.

Hong, CFA, leads the firm’s high-yield credit research team and has worked in investment management with Wellington since 1997.

Objective: The Fund seeks to provide a high level of current income.

Strategy: The Vanguard High-Yield Corporate Fund invests in a diversified portfolio of medium- and lower-quality corporate bonds, often referred to

as “junk bonds.” Created in 1978, this fund seeks to purchase what the advisor considers higher-rated junk bonds. This approach aims to capture

consistent income and minimize defaults and principal loss. Although this is a bond fund, high-yield bonds tend to have volatility similar to that of the

stock market. The Fund’s internal benchmark includes a 5% target to shorter maturity treasuries to aid in liquidity.

3.14


Portfolio Benchmark

Effective Duration 5.67 5.87

Yield To Maturity (%) 3.88 3.28

Avg. Maturity 7.82 8.20

Avg. Quality A AA

Coupon Rate (%) 3.70 3.20

Credit Quality Distribution (%)

Baird Core Plus Blmbg. Barc. U.S. Aggregate

0.0

50.0

100.0

150.0

AAA/Aaa

AA/Aa A

BBB/Baa

BB/Ba B

Below

B

Cas

h or

NR

72.8

3.610.0 13.6

0.0 0.0 0.0 0.0

43.1

4.5

18.3

28.3

2.6 0.5 1.2 1.5

Sector Distribution (%)

Baird Core Plus Blmbg. Barc. U.S. Aggregate

0.0

20.0

40.0

60.0

80.0

U.S

. G

ov't &

Relat

ed

Mun

i/Loca

l Aut

hority

ABS

Mortg

ages

Inv G

rade

Cor

p

High Yie

ld Cor

ps

Cas

h/O

ther

44.1

0.9 0.5

30.2

24.3

0.0 0.0

15.2

0.6 1.7

31.5

47.4

2.5 1.1

Baird Core Plus vs. Blmbg. Barc. U.S. Aggregate


3.15


Portfolio Benchmark




Avg. Quality A AA



DoubleLine Core Plus Blmbg. Barc. U.S. Aggregate

0.0

50.0

100.0

150.0

AAA/Aaa

AA/Aa A

BBB/Baa

BB/Ba B

Below

B

Cas

h or

NR

72.8

3.610.0 13.6

0.0 0.0 0.0 0.0

44.8

1.9

14.7 16.3

5.6 5.8 2.58.5


DoubleLine Core Plus Blmbg. Barc. U.S. Aggregate

0.0

20.0

40.0

60.0

80.0

U.S

. G

ov't &

Relat

ed

Mun

i/Loca

l Aut

hority

ABSC

LO

Mortg

ages

Inv G

rade

Cor

p

High Yie

ld Cor

ps

Emg M

arke

ts

Non

-U.S

. D

ev

Cas

h/O

ther

44.1

0.9 0.5 0.0

30.2

24.3

0.0 0.0 0.0 0.0

23.2

0.1 2.2 2.9

32.6

11.88.1 7.8

4.47.0

DoubleLine Core Plus vs. Blmbg. Barc. U.S. Aggregate


3.16


Portfolio Benchmark




Avg. Quality A AA



PGIM Total Return Bond Blmbg. Barc. U.S. Aggregate

0.0

50.0

100.0

150.0

AAA/Aaa

AA/Aa A

BBB/Baa

BB/Ba B

Below

B

Cas

h or

NR

72.8

3.610.0 13.6

0.0 0.0 0.0 0.0

39.9

6.714.5

19.4

7.0 4.1 0.48.1


PGIM Total Return Bond Blmbg. Barc. U.S. Aggregate

0.0

20.0

40.0

60.0

80.0

U.S

. G

ov't &

Relat

ed

Mun

i/Loca

l Aut

hority

ABSC

LO

Mortg

ages

Inv G

rade

Cor

p

High Yie

ld Cor

ps

Emg M

arke

ts

Non

-U.S

. D

ev

Cas

h/O

ther

44.1

0.9 0.5 0.0

30.2

24.3

0.0 0.0 0.0 0.04.4

1.36.0

20.618.1

24.2

7.1 8.4 8.2

1.8

PGIM Total Return Bond vs. Blmbg. Barc. U.S. Aggregate


3.17


Portfolio Benchmark




Avg. Quality A A



Vanguard Interm-Term Investment Grade

Blmbg. Barc. U.S. Credit 5-10 Year Index

0.0

20.0

40.0

60.0

80.0

AAA/Aaa

AA/Aa A

BBB/Baa

BB/Ba B

Cas

h or

NR

5.1 6.8

35.4

52.7

0.0 0.0 0.0

27.3

10.5

39.2

19.8

1.7 0.4 1.1


Vanguard Interm-Term Investment Grade Blmbg. Barc. U.S. Credit 5-10 Year Index

0.0

50.0

100.0

150.0

U.S

. G

ov't &

Relat

ed

Mun

i/Loca

l Aut

hority

ABS

Mortg

ages

Inv G

rade

Cor

p

High Yie

ld Cor

ps

Cas

h/O

ther

10.21.2 0.0 0.0

88.6

0.0 0.08.3

0.0

12.3 8.8

67.3

2.1 1.2

Vanguard Interm-Term Investment Grade vs. Blmbg. Barc. U.S. Credit 5-10 Year Index


3.18


Portfolio Benchmark




Avg. Quality BB B



Vanguard High Yield

Blmbg. Barc. U.S. Corp: High Yield

0.0

20.0

40.0

60.0

80.0

AAA/Aaa

BBB/Baa

BB/Ba B

Below

B

Cas

h or

NR

0.0 0.0

46.1

39.7

14.0

0.22.5 3.4

44.8

39.1

8.0

2.2


Vanguard High Yield Blmbg. Barc. U.S. Corp: High Yield

0.0

50.0

100.0

150.0

U.S

. G

ov't &

Relat

ed

Inv G

rade

Cor

p

High Yie

ld Cor

ps

Cas

h/O

ther

0.0 0.0

100.0

0.02.8 3.4

91.8

2.0

Vanguard High Yield vs. Blmbg. Barc. U.S. Corp: High Yield


3.19

PFM is the marketing name for a group of affiliated companies providing a range of services. All services are provided through separateagreements with each company. This material is for general information purposes only and is not intended to provide specific advice or a specificrecommendation, as it was prepared without regard to any specific objectives or financial circumstances.

Investment advisory services are provided by PFM Asset Management LLC which is registered with the Securities and Exchange Commissionunder the Investment Advisers Act of 1940. The information contained is not an offer to purchase or sell any securities. Additional applicableregulatory information is available upon request.

PFM asset management professionals have exercised reasonable professional care in the preparation of this performance report. Information inthis report is obtained from sources external to PFM’s asset management business and is generally believed to be reliable and available to thepublic; however, we cannot guarantee its accuracy, completeness or suitability. We rely on the client's custodian for security holdings and marketvalues. Transaction dates reported by the custodian may differ from money manager statements. While efforts are made to ensure the datacontained herein is accurate and complete, we disclaim all responsibility for any errors that may occur. References to particular issuers are forillustrative purposes only, and are not intended to be recommendations or advice regarding such issuers.

It is not possible to invest directly in an index. The index returns shown throughout this material do not represent the results of actual trading ofinvestor assets. Third-party providers maintain the indices shown and calculate the index levels and performance shown or discussed. Indexreturns do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition ofthese fees and charges would cause investment performance to be lower than the performance shown.

The views expressed within this material constitute the perspective and judgment of PFM’s asset management business at the time of distributionand are subject to change. Any forecast, projection, or prediction of the market, the economy, economic trends, and equity or fixed-income marketsare based upon certain assumptions and current opinion as of the date of issue, and are also subject to change. Some, but not all assumptions arenoted in the report. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your orour control. Changes in assumptions may have a material effect on results. Opinions and data presented are not necessarily indicative of futureevents or expected performance.

For more information regarding PFM’s services or entities, please visit www.pfm.com.

© 2018 PFM Asset Management LLC. Further distribution is not permitted without prior written consent.

IMPORTANT DISCLOSURES

December 3, 2018

1 © PFM | Multi-Asset Class Portfolio Update

EVENT SUMMARY In light of recent economic data and increased risks that suggest a slower pace of global growth, the Multi-Asset Class Investment Committee (Committee) has decided to rebalance client portfolios to maintain an overweight to domestic equity and an underweight to fixed income, with international equity being at its target allocation. Within fixed income, the allocation has been rebalanced to reduce corporate credit exposure.

ASSESSMENT While 2017 was a year of synchronized global growth, we have recently observed a divergence in growth in the U.S. relative to international economies. The recent two quarters saw strong gross domestic product (GDP) growth in the U.S., while we observed a slowdown during the year in the Eurozone, Japan and China. Within the Eurozone, the uncertainty around the Brexit deal and reining in of Italy’s fiscal deficit have been contributing to recent volatility. The economic activity slowdown at a time when the European Central Bank (ECB) is expected to end the stimulus program at the end of the year raises concerns for future growth. In China, the third-quarter GDP growth rate came in lower than expected at 6.5%, and some of the recent economic data has pointed to a slowdown in consumer spending as a result of the rise in uncertainty stemming from prolonged trade friction with the U.S.

In light of this increased uncertainty, the Committee has decided to bring the overweight to international equity to equal weight within all client portfolios. The attractive valuations within international equity markets after the sell-off this year lead us to an equal weight position, despite the rise in some of the risks. However, U.S. equities continue to look attractive as a result of strong earnings growth and attractive forward P/E ratios following the recent sell-off. We expect to see continued growth in the U.S. over the next year and, therefore, will maintain our overweight to domestic equity. With an expected increase in the short-term federal funds rate at the upcoming December meeting and into next year, we will also maintain our underweight to fixed income within client portfolios.

Within fixed income, the Committee has held an overweight to corporate credit. This position has been based on a continued positive outlook on the U.S. economy and corporate fundamentals. However, with the recent increase in volatility, the Committee has decided to reduce the overweight to corporate credit by reallocating among the existing fixed income managers.

Market volatility has increased in the fourth quarter due to a combination of lower global growth expectations, effects of rising rates, trade uncertainty and future profit growth expectations. It is important to note that we do not believe there has been a turn in the business cycle; we remain in an expansionary phase, but with rising risks. We continue to monitor corporate leverage, interest coverage ratios and equity growth as signals for a change in the cycle.

CONCLUSION

We believe that the current rebalancing positions client portfolios to align better with our expectations. We appreciate your continued confidence in PFM. Should you have any specific questions or wish to discuss this topic in more detail, please contact your client manager directly.

The information contained in this report is not an offer to purchase or sell any securities. This is for general information purposes only and is not intended to provide specific investment advice or a specific recommendation. PFM Asset Management LLC is an investment advisor registered under the Investment Advisers Act of 1940.

January 7, 2019


SUMMARY • After suffering a correction earlier in the year, the S&P 500 Index (S&P) fell just shy of 20% in the

last quarter. Small-caps, which had been outperforming large-caps, entered a bear market as investors began to be concerned about a recession in 2019. Within credit markets, high-yield (HY) credit spreads (as measured by the yield of the BofAML U.S. High Yield Master II Index) widened by 100 basis points (bps) during December.

• A combination of economic and political uncertainties precipitated the higher volatility in capital markets, such as Federal Reserve (Fed) Chair Jerome Powell’s suggestion that the federal funds rate was far from neutral, softening global economic data, slowing global trade, China slowing consumer demand, continuing U.S.-China trade tensions, political gridlock and dysfunction in the U.S., uncertainties in the EU driven by rising populism, possible Brexit negotiations fallout and Italy’s fiscal deficit.

• The U.S. economy continues to show signs of strength, albeit at a slower pace leading to concerns of an impending recession.

STRATEGY • We believe that the fundamentals within the U.S. economy continue to be positive, and as a

result, we maintain a slight overweight to U.S. equities. This position is driven by our belief that the Fed will moderate its guidance in 2019 and that the U.S. will avoid a recession.

• We believe that equity valuations are at or below historical averages and equity returns will rebound in 2019, rewarding patient long-term investors.

UPDATE ON RECENT MARKET VOLATILITY 2018 marked the return of volatility to equity markets with U.S. stocks (as represented by the S&P 500 Index) returning -4.39%, the lowest annual return since the financial crisis.

Dec 2018 Q4 2018 2018 3 Year

S&P 500 Index -9.03% -13.52% -4.39% 9.44%

Russell 2000 Index -11.88% -20.21% -11.03% 7.34%

MSCI ACWI ex-U.S. Index -4.53% -11.46% -14.20% 4.47%

MSCI Emerging Markets Index -2.66% -7.47% -14.58% 9.24%

Bloomberg Barclays Aggregate Index 1.84% 1.64% 0.01% 2.05%

Bloomberg Barclays U.S. Corporate High Yield Index -2.14% -4.53% -2.08% 7.22%

Source: Bloomberg as of December 31, 2018

Over the past few weeks, concerns around a global slowdown have precipitated as a result of weaker economic data (especially manufacturing data) across China and the eurozone. The worsening of U.S.-China trade negotiations over the course of the quarter also added to uncertainty around the slowdown in China and the subsequent impact on the global economy. Within the U.S., data has been mixed. The recent ISM manufacturing index came in at below consensus estimates (at 54.1). While this is lower than the recent highs showing some softening in manufacturing activity, it still points toward overall growth in manufacturing. The labor market continues to be strong with recent private payrolls growing at the fastest rate in 10 months. According to the December Employment report, employment data continues to be strong - the unemployment rate slightly increased


to 3.9% (from 3.7%) because labor force participation jumped while the December numbers showed that there was strong wage growth of 3.2%. Corporate earnings growth remained strong throughout 2018 as a result of tax reform as well as domestic economic growth. According to FactSet Earnings Insight (as of 12/21/18), the estimated earnings growth for 2018 is 20.3%, which is expected to slow down to 7.9% in 2019. Similarly, the estimated revenue growth for 2018 is 8.9%, which is expected to ebb to 5.3% in 2019. Investors are concerned that the 2019 estimates are too high. Looking ahead, slowing global demand and rising input costs are expected to put pressure on both earnings as well as net profit margins. As a result of slowing economic growth and possible margin pressure, investors are concerned that we may see an earnings recession in 2019.

ASSESSMENT In our prior note, we observed that the risks to global growth are increasing, and we are seeing that continue into 2019. Over the next quarter, we could expect to see some resolution around U.S.-China trade negotiations and U.S. government shutdown negotiations, which could provide some respite, but overall volatility is still expected to remain elevated.

The synchronized global growth narrative decoupled in 2018 with divergence in growth across major economies. The eurozone’s economic growth remains below the recent highs, and concerns around Brexit negotiations, Italy’s fiscal deficit and France’s domestic unrest continue to challenge investors. The European Central Bank (ECB) ended the quantitative easing program in December, which has raised concerns about the resilience of the eurozone economy at a time of elevated risks. Emerging markets (EM) economies have become more stable since the financial crisis, but the threat of China’s slowdown and its impact on various trade partners looms large over the expected growth. In addition, the significant growth in debt in EM concerns investors. The Bank of Japan continues to maintain its accommodative policy as the Japanese economy showed recent weakness in third-quarter 2018.

We have been constructive on the intermediate outlook for the U.S. economy following the tax bill and have continued to be constructive as the manufacturing activity data, employment data and other indicators are still positive, albeit falling from their recent highs. We believe the U.S. economy will continue to grow at a decent pace with the possibility of a slowdown toward the end of 2019, however we do not foresee a recession this year. The increased risks – the impact of a trade war with China, slowing Chinese consumer demand, falling earnings growth expectations across the U.S. and international equities, the possibility of fallout from Brexit negotiations, the end of the ECB’s stimulus program, rising political risks in the U.S. along with a partial government shutdown – lead to an increase in uncertainty over expected growth in 2019 along with an increase in volatility within equity and credit markets. The primary risk the U.S economy faces in 2019 is if the Fed raises rates in the face of softer economic data. Our view is that the Fed will act on its mantra of being data dependent and will adjust its forward guidance. Currently, the Fed has provided guidance for two rate increases in 2019 and plans to continue to raise rates in 2020; the market believes the Fed will cut rates in 2019 and 2020. We believe the truth is somewhere in between.

With this backdrop, we continue to maintain a tactical overweight to domestic equity relative to fixed income within our multi-asset class portfolios. While we have not been reactive to the recent market volatility, we are contemplating changes to make the portfolios more defensive. We will continue to monitor market developments and economic fundamentals and will take appropriate action when needed.

We appreciate your continued confidence in PFM. Should you have any specific questions or wish to discuss this topic in more detail, please contact your client manager directly.

The information contained in this report is not an offer to purchase or sell any securities. This is for general information purposes only and is not intended to provide specific investment advice or a specific recommendation. PFM Asset Management LLC is an investment advisor registered under the Investment Advisers Act of 1940.

© PFM | pfm.com 1

Capital Market AssumptionsEconomic AnalysisThe global economy entered 2018 on a strong note, with synchronized growth from late 2017 continuing across all major regions. As the year progressed, growth began to diverge and slow. The U.S. economy was buoyed by tax reform, deregulation and rising business confidence, especially in the second and third quarters, posting a real Gross Domestic Product (GDP) growth rate of 4.2% and 3.4%, respectively. U.S. capital markets also continued their strong performance in the first three quarters of the year, but not without more volatility than in recent years. Tariffs on aluminum and steel, the renegotiation of North American Free Trade Agreement (NAFTA) and its possible impact on auto manufacturing and agricultural industries, along with the possibility of a trade war with China, weighed on the markets. One of the most pronounced sell-offs in the equity and credit markets came in the latter half of the year. Failed negotiations between the U.S. and China, the prospect of slowing global growth, and guidance from the Fed reiterating its expectation for continued interest rate increases all combined to rile markets and heighten recession concerns. In the fixed income markets, investment grade spreads started to widen against Treasuries starting in February and have widened 159 basis point (bps) for the year. Increasing corporate leverage and the upcoming maturities have been weighing on the investor’s mind. High yield spreads, while more range bound until the fourth quarter, also became more volatile and have started to widen. Despite the volatility in economic growth and capital markets, the labor market continued to improve and, after many years of subdued inflation, CPI and core CPI remained well-behaved at 1.9% and 2.2%, respectively.

Economies outside of the U.S. experienced more relative weakness when compared to the U.S. The Eurozone, which had showed signs of improvements in 2017, began

to report disappointing economic data. GDP growth, which was a strong 0.7% quarter over quarter in the fourth quarter of 2017, did not reach 0.5% growth for the next three quarters. Japan, which had reported the longest string of quarter over quarter growth since the 1990s, contracted in the first and third quarter by 0.2% and 0.3% quarter over quarter respectively. However, emerging markets took the most hits. Investors took note of rising trade tensions, a strong U.S. dollar and rising U.S. interest rates. Emering Markets (EM) equities underperformed both U.S. and non-U.S. developed markets while some EM currencies weakened to multi-year lows.

PFM’s ProjectionsFor 2019, we expect economic growth to continue in both the U.S. and international markets, but with heightened risks. In the U.S., the Federal Reserve (Fed) expects to raise the federal funds rate in both 2019 and 2020. That forecast appears at odds with the market – following the most recent hike, the market indicators priced in a cut in 2019 and in 2020.

Around the globe, the Eurozone faces rising political risk including the popularity of political parties that question some of the basic rules of the EU. Japan expected to increase its consumption tax from 8% to 10%, but delayed the increase to October of 2019 after the economy slowed. It is uncertain what impact this will have on the economy and consumer spending. China is facing rising debt and slowing economic growth. In addition, trade frictions with the U.S. are currently not resolved adding to concerns over slowing Chinese consumer demand and falling manufacturing output. While overall fundamentals in EM are better than they were in 2018, some factors bear watching, such as rising U.S. interest rates, the impact of a slowdown in China and political risks in countries such as Turkey, Brazil and others.

2019

(Continued on pg. 4)

© PFM | pfm.com 3

0%

6%

12%

18%

24%

30%

0%

2%

4%

6%

8%

10%

Expe

cted

Ret

urn

Intermediate-Term Expected Return (%)Intermediate Expected Risk (%)

Expe

cted

Risk

Long-Term Expected Return (%)Long-Term Expected Risk (%)

U.S

. Equ

ity

U.S

. Sm

all-

Cap

Int'l

Dev

elop

ed E

quity

EM E

quity

Non

-U.S

. Sm

all-

Cap

Shor

t Bon

ds

Core

Bon

ds

Glo

bal C

ore

Inte

rmed

iate

IG C

orp

Long

IG C

orp

EM D

ebt

Hig

h Yi

eld

Bank

Loa

ns

REIT

s

PE R

E

Infra

stru

ctur

e

Com

mod

ities

HFs PE

Cash

Intermediate-Term Annualized Assumptions (Over the Next 5 Years)Expected Return (%) 6.0 6.3 6.6 6.1 6.6 3.1 3.0 0.7 3.7 2.9 4.0 4.3 4.4 5.7 6.5 6.6 4.9 5.5 7.1 3.2

Expected Risk (%) 16 19 17 20 20 3 4 5 6 8 10 9 6 12 15 18 16 15 25 1

Long-Term Annualized Assumptions (Over the Next 30 Years)Expected Return (%) 7.5 8.0 7.4 7.5 7.9 4.3 5.1 5.0 6.1 6.5 6.7 6.6 5.4 6.5 7.8 7.9 5.5 7.2 9.5 3.5

Expected Risk (%) 16 19 17 20 20 3 4 5 6 8 10 9 6 12 15 18 16 15 25 1

U.S. Equity

U.S. Sm

all-Cap

Int'l Developed Equity

EM Equity

Non-U

.S. Small-Cap

Short Bonds

Core Bonds

Global Core

Intermediate IG

Corp

Long IG Corp

EM D

ebt

High Yield

Bank Loans

REITs

PE RE

Infrastructure

Comm

odities

HFs

PE

Cash

U.S. Equity 1

U.S. Small-Cap

0.9 1

Int'l Devel-oped Equity

0.8 0.8 1

EM Equity 0.7 0.7 0.7 1

Non-US Small-Cap

0.8 0.8 0.9 0.8 1

Short Bonds 0.2 0.2 0.1 0.1 0.1 1

Core Bonds 0.3 0.3 0.2 0.2 0.2 0.5 1

Global Core 0.2 0.2 0.2 0.2 0.2 0.4 0.4 1

Intermediate IG Corp

0.3 0.3 0.2 0.2 0.2 0.7 0.9 0.9 1

Long IG Corp 0.3 0.3 0.2 0.2 0.2 0.7 0.9 0.9 0.9 1

EM Debt 0.5 0.5 0.5 0.5 0.5 0.3 0.4 0.4 0.4 0.4 1

High Yield 0.7 0.7 0.5 0.5 0.5 0.3 0.4 0.4 0.4 0.4 0.4 1

Bank Loans 0.4 0.4 0.3 0.3 0.3 0.4 0.3 0.3 0.3 0.3 0.7 0.7 1

REITs 0.5 0.5 0.4 0.4 0.4 0.2 0.3 0.3 0.3 0.3 0.3 0.4 0.4 1

PE RE 0.4 0.4 0.3 0.3 0.3 0.2 0.3 0.3 0.3 0.2 0.2 0.4 0.2 0.8 1

Infrastructure 0.3 0.3 0.3 0.2 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.3 0.2 0.4 0.5 1

Commodities 0.1 0.1 0.1 0.2 0.1 0.4 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.1 0.1 0.1 1

HFs 0.6 0.6 0.5 0.5 0.5 0.3 0.4 0.4 0.4 0.3 0.3 0.4 0.4 0.4 0.3 0.3 0.2 1

PE 0.7 0.7 0.6 0.6 0.6 0.2 0.3 0.3 0.3 0.3 0.3 0.5 0.2 0.4 0.4 0.4 0.1 0.5 1

Cash 0.1 0.1 0.1 0.1 0.1 0.5 0.2 0.2 0.2 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.1 1

Long- and Intermediate-Term Capital Market Assumptions Asset Class Correlation Assumptions

© PFM | pfm.com 4

DisclosuresPFM is the marketing name for a group of affiliated companies providing a range of services. All services are provided through separate agreements with each company. Investment advisory services are provided by PFM Asset Management LLC which is registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. For more information regarding PFM’s services or entities, please visit www.pfm.com. The views expressed constitute the perspective of PFM’s asset management professionals at the time of distribution and are subject to change. The content is based on sources generally believed to be reliable and available to the public; however, PFM cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation, or to employ a specific investment strategy. It is intended solely for the information of those to whom it is distributed by PFM. No part of this material may be reproduced or retransmitted in any manner without the prior written permission of PFM. The information provided reflects PFM’s projections based on the historical performance and characteristics of each asset class. The assets classes were selected based on the assumption that they will exhibit fairly stable behavior over long time periods. The data is hypothetical in nature and should not be relied upon as independently verifiable information. There is no guarantee that the projected returns can or will be achieved. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon or used in substitution for the exercise of independent judgment. Past performance is not a guarantee of future results. Prior to investing, you should consult your accounting, tax, and legal advisors to understand the implications of such investment.

In previous years, we presented our capital market assumptions (CMAs) for long-term related to longer than 30 years. Our clients asked us for 30-year capital market assumptions, which are more in line with their financial planning. For 2019 and going forward, we will present CMAs for Intermediate (next five years) and Long-term (next 30 years).

EquitiesOver the intermediate term, we expect U.S. equities to return 6.0%, which represents a slight decrease from last year. We believe that non-U.S. developed markets equities will achieve a slightly higher return than U.S. equities. The difference is primarily the result of more attractive relative valuations. In 2019, we believe that EM economies will continue to face risks. Following a period of strong capital flows into EM, in 2018 we saw slowing inflows and some outflows as investors once again focused on the risks to EM.

Fixed IncomeOur intermediate fixed income estimates include expected interest rate increases over the next several years combined with credit spreads returning to long term averages. We expect default rates to rise from current low levels. While the yield curve has remained flat, we do not believe that it is predicting a recession. As a result, we expect that fixed income returns will be modest for the next several years as interest rates slowly rise from current levels. We believe that credit returns will be more modest over the next several years as corporate borrowers adjust to the rising interest rates and increased leverage.

AlternativesOver long periods of time, we believe that real estate investment trusts (REITs) will return more than fixed income, but less than equities, with their yield approximating the income component of total return and inflation approximating the capital gain component.

Institutional investors pay particular attention to the so-called “commodities super cycle.” We believe commodities are unlikely to experience a comparable cycle over the intermediate term, or see a secular rise in commodity prices that surpasses inflation over the longer term. We estimate that commodities will return approximately 4.9% over the intermediate term and 5.5% over the long term, which makes the asset class less desirable than equities.

We believe alternative investments, such as hedge funds and private equity, are unlikely to outperform publicly-traded markets once we normalize for the incremental leverage embedded in these investments. Relative outperformance in more niche strategies is more possible. We believe this will continue to be the case over the longer term.

For an in-depth review of global economic fundamentals and how they have led us to our assumptions, please see 2019 Overview of Economic Fundamentals. A copy is available upon request.

For More Information, Please Contact

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