Quarterly Participant Webinar Outlook 2018 November 8, 2017 What - PowerPoint PPT Presentation

WELCOME Quarterly Participant Webinar Outlook 2018 November 8, 2017

What We’ll Cover Today Opening Remarks: Len Teitelbaum How Our Plan and the Markets Performed: David Baskin Outlook 2018: Chris Moore and David Baskin What does this mean for you? Q&A 2

MARKET & PLAN PERFORMANCE UPDATE 3

2017 Q3 Key Themes • Strengthening Global Economy led to strong equity performance • Fading Optimism in US Policy Changes causing relative underperformance of US assets and the US Dollar • Technology and Internet Strength led value stocks to underperform • Slightly Disappointing Inflation Data resulted in mixed commodity performance and rally in interest rates • Continued Central Bank Policy Tightening with continued interest rate hikes and exit of QE 4

Asset Class Performance Comparison 2017 Description 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD Best Performing Core Core US MLP MLP EM REITs EM REITs EM EM MLP MLP EM REITs REITs MLP EM Emerging Market Stock Index Bonds Bonds Equities 47.9% 44.4% 55.8% 31.5% 34.0% 35.9% 39.4% 78.5% 35.9% 13.9% 18.2% 30.4% 2.5% 18.3% 27.8% 10.3% 5.2% 33.6% High US Core High REITs REITs REITs MLP EM EAFE EM MLP MLP REITs REITs REITs MLP EAFE Developed Market International Stock Index Yield Equities Bonds Yield 26.8% 12.8% 3.6% 41.6% 25.6% 13.5% 32.2% 12.4% 76.4% 28.5% 8.7% 17.8% 27.6% 20.0% -26.2% 12.6% 0.5% 17.1% Core Core High Core Core US US US MLP EAFE EAFE REITs MLP EAFE MLP EM EAFE EAFE US Large and Small Stock Index Bonds Bonds Yield Bonds Bonds Equities Equities Equities 0.2% 38.6% 20.2% 12.1% 27.6% 11.2% -36.8% 18.9% 17.3% 22.8% 11.6% 8.4% 58.2% 7.8% 6.0% 0.5% 12.7% 13.9% High High High US Core US US High US High High REITs MLP EAFE EAFE MLP EAFE EM High Yield Bonds (Non-Investment Grade Bonds) Index Yield Yield Yield Equities Bonds Equities Equities Yield Equities Yield Yield 36.8% 15.9% 26.3% 31.8% 4.8% -0.8% 11.2% -5.9% 5.3% -1.4% 6.1% 7.0% -37.3% 16.9% 5.0% 16.4% 7.4% 7.0% US US US US US High US High High High EM EM MLP REITs REITs REITs REITs REITs Real Estate Investment Trust Index Equities Equities Equities Equities Equities Yield Equities Yield Yield Yield -2.6% -6.2% 5.2% -38.0% 28.6% 2.5% 8.6% 3.6% -7.5% 31.1% 11.9% 15.7% 5.1% 15.1% 1.0% 15.8% 2.5% -4.5% Worst Performing US High High High US Core Core Core EAFE EAFE High Yield High Yield EAFE EAFE EAFE MLP EM EM Diversified US Investment Grade Bond Index Equities Yield Yield Yield Equities Bonds Bonds Bonds -14.2% -15.9% 29.0% 11.1% -43.4% 7.8% -12.1% 4.8% -2.2% -14.9% -11.5% 2.7% 11.9% 1.9% 28.3% -2.0% 2.7% 3.1% US Core Core Core Core Core Core Core EM EAFE REITs EM EM EM EAFE MLP EAFE MLP Master Limited Partnerships (Pipelines) Index Equities Bonds Bonds Bonds Bonds Bonds Bonds Bonds -30.8% -21.4% -16.8% -53.3% -18.4% -2.6% -4.9% -32.6% 1.0% -5.6% -21.5% 4.1% 4.3% 2.4% 4.3% 5.9% 6.5% 4.2% 5

RPB Fund Management Based on 2017 Themes • Decreased US Equity Allocation in Capital Appreciation Fund: Raised cash for opportunistic re-allocation on potential equity market pull-back • Added US Value Tilt: Increased exposure to US value equity index on valuation difference in Capital Appreciations and Appreciation & Income Funds • Rebalanced Appreciation & Income Fund to 55/45: Modestly increasing defensive position • MLP’s: Maintained overweight based on yields and ‘toll road’ revenue model • Emerging Market Equities: Maintained overweight based on valuations and strong earnings 6

RPB Trailing 12-Months Investment Returns October 1, 2016 through September 30, 2017 20.00% 18.73% 18.00% 17.22% 16.00% 14.00% 12.00% 11.14% 10.94% 10.00% 8.00% 6.00% 4.00% 2.56% 2.00% 1.03% 0.50% 0.07% 0.00% *As of September 30, 2017, 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 September 30, 2017 12.00% 10.08% 10.00% 9.27% 8.00% 6.46% 6.22% 6.00% Standard Deviation 4.14% 4.00% 3.06% 2.00% 0.00% Capital MSCI ACWI Appreciation 60% MSCI Income Fixed Income Appreciation IMI & Income ACWI Focused Fund Composite* Fund Fund IMI/40% Fixed Income Composite* *Barclays Global Aggregate January 1, 2013 through September 30, 2016, Barclays US Aggregate thereafter. 8

RPB Year-to-Date Tier II Investment Returns *January 1, 2017 through September 30, 2017 25.00% 23.60% 23.18% 21.01% 20.65% 20.00% 14.23% 14.24% 15.00% 10.60% 10.59% 10.00% 4.95% 5.11% 5.00% 3.49% 3.61% 3.14% 3.14% 1.48% 1.58% 0.61% 0.67% 0.00% *Net of investment management fees. 9

ECONOMIC & MARKET OUTLOOK 2018 10

Key Themes 2018 • Continued question of policy impacts on market returns Trump Administration: Potential tax/health care reform – Central Banks • – Global tightening – New Fed Chairman – Jerome Powell – likely to maintain status quo • Geopolitical risks (i.e., North Korea) • Certain factors already priced into the market • Timing of when, or if, inflation and volatility return • Past performance not indicative of future results 11

What Tax Reform May Look Like Individuals • Mix of decreasing tax rates and brackets versus eliminating deductions • Elimination of Alternative Minimum Tax and Estate Tax Corporates • Lower corporate tax rate from 35% to 20% • Tax repatriation of foreign profits at 12% • Additional mix of deductions (interest expense) and incentives (capital expenditure) Estimated cost of $1.5 to $2 trillion 12

Economic Growth Expectations Future expectation of ‘long and low’ growth cycle • With lower growth and full valuations, long-run future asset returns are expected to be • lower than historical averages Real GDP Growth (YoY) 10% 8% Emerging 6% 4.9% US 4% 1.8% 2% 1.5% Developed (G7) 0% -2% -4% 1980 1985 1990 1995 2000 2005 2010 2015 2020 13

Does Labor Market Strength Impact Inflation? • Historically, at current levels of low unemployment, inflation (CPI) has been much stronger Labor Market Strength vs. Inflation 12.0% Unemployment Rate 10.0% 8.0% 6.0% 4.2% 4.0% CPI 2.2% 2.0% 0.5% 0.0% -2.0% 10-Year Real Yield -4.0% Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Source: Bloomberg. 14

The Equity Risk Premium • The extra return equity investors get from assuming more risk is higher than at most times in past 20 years S&P 500 Earnings Yield vs. 10-Year Real Yield 10.0% S&P 500 Earnings Yield 8.0% 6.0% 4.7% 4.0% 2.0% 0.3% 0.0% 10-Year Real Yield -2.0% Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Source: Bloomberg. 15

Markets: Beginning of the end? • This economic cycle is one of the longest on record • Current cycle near historical expansion end points Prior Expansion Economic Cycle Duration Peak (Quarters) 4Q 1948 19 3Q 1953 16 3Q 1957 11 2Q 1960 38 4Q 1969 16 4Q 1973 25 1Q 1980 6 3Q 1981 36 3Q 1990 42 1Q 2001 27 4Q 2007 39 current cycle duration since prior peak Average Duration 25 16

Potential Return to Normal Volatility Stock markets have been strong and also abnormally calm • Potential catalysts for return to normal volatility? • S&P 500: Percentage of Trading Days with Price Swings >1.5% 80% 68% 70% 60% 50% 40% 30% Median, 20% 20% 10% 2% 1% 0% * 2017 through 10/13. 17

Asset Class Expectations Smooth annual return over time; actual experience is bumpier • • Market timers typically sell too late and buy too late; few achieve the return from ‘buy and hold’ • A well-diversified portfolio with international exposure and variety of asset classes can smooth out some of the bumps VALUE OF A $1,000 INVESTMENT IN S&P 500 OVER 20 YEAR 7.5% compounded rate of return per year 18

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 • Focus on your time horizon, risk tolerance, and lifestyle – May be time to rebalance based on moves in the market – Reassess holistic financial plan as you age • The markets cannot correct for low contribution rates or living beyond one’s means 19

Q&A 20