Privileged and Confidential

Littleton Public Schools

Innovest’s Long-Term Outlook

for the Economy and Capital

Markets

January 2020

Portfolio Construction: Looking Forward

ASSET ALLOCATION

The largest impact on portfolio returns

FOCUSING ON PAST RETURNS

Dangerous for portfolio design

OPPORTUNITIES

Uncovered by thoughtful research

FORECASTS

Inevitably imprecise

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 2

Periodic Table of Returns 2008-2019

Source: Innovest Portfolio Solutions and Morningstar Direct.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Annualized

Return

'08 -19

Annualized

Std. Dev.

'08 -19

U.S. Fixed

IncomeMLPs MLPs MLPs

Emerging

MarketsU.S. Equity Real Estate Real Estate MLPs

Emerging

Markets

U.S. Fixed

IncomeU.S. Equity U.S. Equity U.S. Equity

5.24% 85.05% 34.98% 16.99% 18.22% 33.55% 31.78% 4.23% 18.74% 37.28% 0.01% 31.02% 9.07% 24.15%

Hedge

Funds

Emerging

MarketsReal Estate Real Estate Real Estate MLPs U.S. Equity

U.S. Fixed

IncomeU.S. Equity Int'l Equity

Hedge

FundsReal Estate Real Estate

Emerging

Markets

-21.37% 78.51% 28.60% 9.24% 17.59% 29.48% 12.56% 0.55% 12.74% 25.03% -3.48% 25.76% 7.63% 21.83%

Diversified

Portfolio

Diversified

Portfolio

Emerging

Markets

U.S. Fixed

IncomeInt'l Equity Int'l Equity MLPs U.S. Equity

Emerging

MarketsU.S. Equity Real Estate Int'l Equity

Diversified

PortfolioMLPs

-32.94% 32.43% 18.88% 7.84% 17.32% 22.78% 7.61% 0.48% 11.19% 21.13% -4.84% 22.01% 5.50% 19.68%

U.S. Equity Int'l Equity U.S. Equity U.S. Equity U.S. EquityDiversified

Portfolio

Diversified

Portfolio

Hedge

Funds

Diversified

Portfolio

Diversified

PortfolioU.S. Equity

Diversified

PortfolioMLPs Int'l Equity

-37.31% 31.78% 16.93% 1.03% 16.42% 17.59% 6.76% -0.27% 7.64% 14.32% -5.24% 19.37% 5.07% 17.64%

MLPs Real EstateDiversified

Portfolio

Diversified

Portfolio

Diversified

Portfolio

Hedge

Funds

U.S. Fixed

IncomeInt'l Equity Real Estate

Hedge

Funds

Diversified

Portfolio

Emerging

Markets

U.S. Fixed

IncomeReal Estate

-38.55% 28.60% 14.54% -0.98% 12.64% 8.96% 5.97% -0.81% 7.24% 7.71% -6.38% 18.42% 4.05% 15.45%

Real Estate U.S. Equity Int'l EquityHedge

Funds

Hedge

FundsReal Estate

Hedge

Funds

Diversified

Portfolio

U.S. Fixed

IncomeReal Estate MLPs

U.S. Fixed

IncomeInt'l Equity

Diversified

Portfolio

-39.20% 28.34% 7.75% -5.72% 4.79% 1.86% 3.37% -2.94% 2.65% 4.18% -11.94% 8.72% 2.04% 11.78%

Int'l EquityHedge

Funds

U.S. Fixed

IncomeInt'l Equity

U.S. Fixed

Income

U.S. Fixed

Income

Emerging

Markets

Emerging

MarketsInt'l Equity

U.S. Fixed

IncomeInt'l Equity

Hedge

Funds

Emerging

Markets

Hedge

Funds

-43.38% 11.47% 6.54% -12.14% 4.21% -2.02% -2.19% -14.92% 1.00% 3.54% -13.79% 7.76% 1.50% 4.96%

Emerging

Markets

U.S. Fixed

Income

Hedge

Funds

Emerging

MarketsMLPs

Emerging

MarketsInt'l Equity MLPs

Hedge

FundsMLPs

Emerging

MarketsMLPs Hedge Funds

U.S. Fixed

Income

-53.33% 5.93% 5.70% -18.42% 4.21% -2.60% -4.90% -31.74% 0.51% -8.81% -14.57% 6.68% 1.23% 3.26%

High

Low

U.S. Equities: Russell 3000, MLPs: Alerian MLP Infrastructure, Real Estate: Wilshire US REIT, U.S. Fixed Income: BbgBarc US Agg, Int'l Equity: MSCI EAFE, Emerging Markets: MSCI EM, Hedge Funds: HFRI Fund of Funds

Composite

Diversified Portfolio: Russell 3000: 31%, MSCI EAFE: 18%, MSCI EM: 6%, BbgBarc US Agg: 10%, Wilshire US REIT: 7%, Alerian MLP Infrastructure: 7%, HFRI Fund of Funds Composite: 15%, CSFB Leveraged Loans: 6%

High

Low

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 3

ASSET ALLOCATION WILL

DRIVE THE MAJORITY OF

INVESTMENT RESULTS.

• History provides some guidance

• Must be forward looking; back-testing

is flawed

• Continually consider risks and

opportunities

Design a forward-looking, custom portfolio

with an emphasis on downside risk mitigation

GLOBAL ECONOMICS

• Monetary Policy

• Inflation

• Employment & Wages

• Debt Levels

• Fiscal Policy & Politics

ASSET CLASS

FUNDAMENTALS

• Equities: Valuations,

Earnings Growth, and

Dividend Yields

• Fixed Income: Nominal

and Real Rates, Credit

Spreads

• Diversifiers: Valuations,

Quantitative and

Qualitative Assessments

ASSET CLASS

PROJECTIONS

• Returns

• Volatility

• Correlations

ASSET ALLOCATION

STUDIES

• Portfolio Risk

• Portfolio Range of

Returns

• Opportunities

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential

4

Long-Term Projections

Expected average annual returns over the next 5 to 10 years

PROJECTIONS (%)

Asset Class

2020

5-10 yr

Projection

2019

5-10 yr

Projection

ChangeStandard

Deviation

Broad Domestic Equity 6.25% 6.25% 0.00% 22.70%

Large Cap (U.S.) 6.00% 6.00% 0.00% 21.89%

Small/Mid Cap (U.S.) 6.50% 6.50% 0.00% 26.25%

International Equity 6.75% 6.75% 0.00% 26.35%

Int'l Small Equity 7.25% 7.25% 0.00% 29.82%

Global Equity 6.75% 6.75% 0.00% 24.53%

Emerging Market Equity 7.75% 7.75% 0.00% 32.24%

Domestic Fixed Income 2.00% 3.50% -1.50% 3.96%

Defensive Fixed Income 1.75% 3.00% -1.25% 2.37%

Float. Rate Corp Loans 5.00% 5.75% -0.75% 15.75%

High Yield Fixed Income 3.75% 4.25% -0.50% 16.65%

TIPS 1.75% 3.25% -1.50% 6.07%

Stable Value 1.75% 2.75% -1.00% 0.67%

Muni Fixed Income 1.75% 2.75% -1.00% 5.41%

Defensive Muni F.I. 1.25% 2.25% -1.00% 1.82%

Emerging Market Debt 5.50% 5.00% 0.50% 10.17%

Global Fixed Income 1.25% 2.25% -1.00% 6.98%

International Fixed Income 0.50% 1.00% -0.50% 10.65%

PROJECTIONS (%)

Asset Class

2020

5-10 yr

Projection

2019

5-10 yr

Projection

ChangeStandard

Deviation

Commodities 4.00% 4.00% 0.00% 25.44%

Low Correlated Hedge 4.75% 4.75% 0.00% 9.16%

Liquid Low Correlated Hedge 4.25% 4.25% 0.00% 9.15%

Hedge Funds 6.25% 6.25% 0.00% 10.16%

Private Equity 8.25% 8.25% 0.00% 13.74%

Listed Private Equity 6.75% 6.75% 0.00% 46.39%

Illiquid Credit 6.75% 7.25% -0.50% 11.66%

Real Estate 5.75% 6.00% -0.25% 11.92%

Domestic REITs 5.00% 5.25% -0.25% 36.88%

Global REITs 5.50% 5.75% -0.25% 31.67%

Reinsurance 6.00% 6.00% 0.00% 8.04%

Other Real Assets 7.75% 7.50% 0.25% 22.83%

Cash Equivalents 1.50% 1.75% -0.25% 1.08%

Inflation 2.25% 2.25% 0.00% 0.00%

See important disclosures at the end of this document.

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 5

Long-Term Projected Risk And Returns

Capital Markets Projections Risk vs. Return Scatter Chart

Source: Innovest Portfolio Solutions.

Large Cap Mid/Small Cap

International Equity

Emerging Mkt Equity

Domestic Fixed Income

Defensive Fixed Income

Float. Rate Corp Loans

Stable Value

Muni Fixed Income

International Fixed Income

Commodities

Low Correlated Hedge

Liquid Low Correlated

Hedge

Private Equity

Real Estate

Domestic REITs

Reinsurance

Other Real Assets

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Pro

jecte

d R

etu

rn

Projected Standard Deviation

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 6

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© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 7

Appendix

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 8

Projected Volatility

• Based on each asset class’s worst five-year standard deviation over the past

20 years.

• Combining low-correlated assets in a portfolio helps to reduce the volatility

of the portfolio.

• Maintain your focus on the whole portfolio.

• Portfolio rebalancing: a proven way to manage volatility.

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 9

Large Cap 1.0

Mid/Small Cap 0.9 1.0

International Equity 0.9 0.9 1.0

Emerging Mkt Equity 0.8 0.8 0.9 1.0

Domestic Fixed Inc. (0.4) (0.3) (0.3) (0.2) 1.0

Defensive Fixed Inc. (0.4) (0.4) (0.3) (0.2) 0.8 1.0

Muni Fixed Income (0.1) (0.1) (0.0) 0.0 0.8 0.5 1.0

High Yield Fixed Income 0.7 0.7 0.7 0.7 (0.1) (0.1) 0.2 1.0

Float. Rate Corp Loans 0.6 0.6 0.6 0.6 (0.2) (0.2) 0.1 0.9 1.0

Stable Value (0.3) (0.1) (0.1) (0.0) 0.3 0.6 0.1 (0.1) (0.0) 1.0

Low Correlated Hedge 0.7 0.8 0.8 0.8 (0.2) (0.2) 0.0 0.6 0.6 0.0 1.0

Liquid Low Corr Hedge 0.7 0.8 0.8 0.8 (0.2) (0.2) 0.0 0.6 0.6 0.0 1.0 1.0

Private Equity 0.7 0.7 0.7 0.7 (0.4) (0.4) (0.2) 0.5 0.5 (0.2) 0.8 0.8 1.0

Illiquid Credit 0.7 0.7 0.7 0.7 (0.1) (0.1) 0.2 1.0 0.9 (0.1) 0.6 0.6 0.5 1.0

Commodities 0.3 0.4 0.5 0.5 (0.1) (0.0) 0.0 0.4 0.5 0.2 0.5 0.5 0.4 0.4 1.0

Other Real Assets 0.4 0.5 0.3 0.4 0.1 0.1 0.2 0.6 0.5 0.1 0.4 0.4 0.3 0.6 0.4 1.0

Real Estate 0.2 0.1 0.1 0.0 (0.2) (0.2) (0.2) (0.1) (0.0) (0.2) 0.2 0.2 0.4 (0.1) 0.2 (0.1) 1.0

Global REITs 0.7 0.8 0.8 0.7 0.1 (0.1) 0.2 0.7 0.7 (0.1) 0.6 0.6 0.5 0.7 0.4 0.4 0.2 1.0

Reinsurance 0.3 0.2 0.3 0.2 0.0 (0.1) 0.1 0.3 0.3 (0.2) 0.2 0.2 0.2 0.3 0.1 0.2 0.0 0.3 1.0

Cash Equivalents (0.2) (0.1) (0.1) (0.0) 0.2 0.6 0.0 (0.2) (0.1) 0.7 0.1 0.1 0.0 (0.2) 0.2 0.1 0.2 (0.0) (0.1) 1.0

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Projected Correlations

See important disclosures at the end of this document.

Combining asset classes with low correlations can

provide potentially lower portfolio volatility.

Correlations measure the degree of co-movement

between asset classes. Projected correlations use 20

years of historical data to encompass multiple

market cycles and economic conditions.

• Correlation of 1.0: The two asset classes move in

the same direction, in lockstep

• Correlation of (1.0): The two asset classes move

in the exact opposite direction

• Correlation of 0.0: No relationship in the

movement of the two asset classes

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 10

Given the complexity of the financial markets, individual circumstances, and risk-reward trade-offs of portfolio construction, we believe it is not

prudent or advisable to rely solely on forecasts and quantitative modeling. The material herein has been prepared for informational purposes

only and is not intended to provide, and should not be relied on for, tax, accounting, or legal advice. No representation is being made as to

whether any investment product, strategy, or security is suitable or appropriate for an investor’s particular circumstances. Assumptions,

opinions, and forecasts herein constitute our judgment and are subject to change without notice.

While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The statistical analysis herein

was prepared by Innovest Portfolio Solutions LLC with data provided by Investment Metrics (IM). Innovest and IM assume no responsibility for

the accuracy of these valuations or return methodologies. Reasonable care has been taken to assure the accuracy of the MPI computer

software and database. Innovest and IM disclaim responsibility, financial or otherwise, for the accuracy and completeness of this report. ©

Copyright 2020 by Innovest Portfolio Solutions LLC and Investment Metrics.

Asset Class Projections

Expected returns are the long-term projected total rate of return (income and capital gains) for each asset class and is shown in annualized

form. Innovest’s 2020 long-term research on the capital markets includes, but is not limited to, resources from Aon Hewitt, Bank of New York

Mellon, Callan Associates, Horizon Actuarial Services, JP Morgan Asset Management, Merrill Lynch Global Institutional Consulting, Morgan

Stanley Wealth Management, SEI, UBS, Voya Investment Management, Wells Fargo Investment Institute, and Willis Towers Watson.

Volatility

Standard deviation is a statistical measure of the variability of potential returns around the expected return. Approximately 68% of the returns

are expected to fall within plus or minus one standard deviation of the expected return in any single year. Standard deviation is also

represented in annualized form. We utilize the single five-year period with the highest standard deviation over a 20-year period for each asset

class. For asset classes without a 20-year history, we use the longest data series available.

Correlations

Our projections of asset class correlations are based on 20-year historical correlations between asset classes, as they incorporate several

economic and market cycles. The illiquid credit correlation projection uses the Bloomberg Barclays Corporate HY Bond Index as its proxy

benchmark, which gives it a perfect correlation of 1.0 with high yield fixed income.

Disclosures

© 2020 Innovest Portfolio Solutions, LLC Privileged and Confidential 11