NEW JERSEY DIVISION OF
INVESTMENT
Director’s Report
March 29, 2017
State Investment Council Meeting
“The mission of the New Jersey Division of Investment is to achieve the best
possible return at an acceptable level of risk using the highest fiduciary
standards.”
Agenda Item 3a
2Source: Bloomberg
Calendar Year 2014 Equity Market Returns Calendar Year 2014 U.S. Treasury Yields
2
Fiscal Year 2016 Equity Market Returns Fiscal Year 2016 U.S. Treasury Yields
Capital Markets Update (through February 28, 2017)
2.29
1.47
1.00
0.58
1.26
3.00
1.93
2.39
February 28, 2017 MTD % CYTD% FYTD % 1 Yr % 3 Yrs % 5 Yrs % 10 Yrs %
Domestic S&P 500 3.97 5.94 14.22 24.97 10.63 14.00 7.62 1
Equity Russell 2000 1.93 2.33 21.42 36.08 6.92 12.89 7.21 2
International MSCI EAFE 1.43 4.37 10.30 15.75 (0.62) 5.16 1.03 3
Equity MSCI EMF 3.06 8.70 13.58 29.46 1.35 (0.37) 2.86 4
Barclays Agg 0.67 0.87 (1.68) 1.42 2.64 2.24 4.28 5
Barclays HY 1.46 2.93 10.55 21.83 4.72 6.84 7.49 6
Barclays US Tips 0.47 1.31 (0.17) 3.36 1.89 0.77 4.27 7
Commodity Bloomberg 0.17 0.26 (1.24) 15.53 (13.16) (9.93) (6.46) 8
Real Estate Bloomberg REIT 4.10 4.31 0.34 18.49 11.48 11.77 4.82 9
Hedge Funds HFRI Composite Index* 1.02 2.23 6.54 10.73 2.68 3.97 3.40 10
*Preliminary
Bond
(1) Pension Fund return excludes Police and Fire Mortgage Program
*Benchmark return not available for 20 and 25-Year period
Total Fund(1) Performance for Periods Ended February 28, 2017
**1.90
3.61
8.62
15.26
5.75
7.87
5.65
7.06
8.00
1.65
3.11
8.62
15.42
5.58
7.11
4.81
0.25 0.50
0.01 (0.16) 0.17
0.76 0.84
(2.00)
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
1 Month CYTD FYTD 1 Year 3 Year 5 Year 10 Year 20 Year 25 Year
Total Fund Benchmark* Difference
3
Asset Class Returns through February 28, 2017 4
0.82%
2.63%
2.00% 2.11%2.66%
0.55%
2.26%
3.43% 3.21% 3.16%
0.00%
1.00%
2.00%
3.00%
4.00%
YTD FYTD 1 Year 3 Year 5 Year
Risk Mitigation
Portfolio Benchmark
0.61%
-1.40%
0.03%
0.50% 0.59%0.31%
-0.91%
0.27%
1.80%
0.40%
-2.00%
-1.00%
0.00%
1.00%
2.00%
YTD FYTD 1 Year 3 Year 5 Year
Liquidity
Portfolio Benchmark
2.09%
4.64%
10.39%
5.02% 6.09%
1.73%5.31%
12.43%
3.84% 4.48%
0.00%
5.00%
10.00%
15.00%
YTD FYTD 1 Year 3 Year 5 Year
Income
Portfolio Benchmark
1.53%3.53%
11.28%
7.57% 7.61%
0%
5.46%7.16%
4.27%
5.94%
0.00%
5.00%
10.00%
15.00%
YTD FYTD 1 Year 3 Year 5 Year
Real Return
Portfolio Benchmark
5.06%
12.61%
21.16%
6.79%
9.84%
4.79%
12.36%
21.12%
6.95% 9.25%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
YTD FYTD 1 Year 3 Year 5 Year
Global Growth
Portfolio Benchmark
1 Current assets are based on preliminary values and do not include receivables of $308 million primarily related to Real Estate secondary sale2 Unaudited and based on preliminary market values3 Total Fund Performance excludes Police & Fire Mortgage Program
5
Asset Class Mkt Value Actual (%) Target (%) Difference NJ Bench NJ Bench NJ Bench NJ Bench Long Term CMA
RISK MITIGATION
Absolute Return HFs 3,091 4.32% 5.00% -0.68% 0.82% 0.55% 2.63% 2.26% 2.00% 3.43% 2.11% 3.21% 5.39%Risk Mitigation Hedging 191 0.27% 0.00% 0.27%
TOTAL RISK MITIGATION 3,282 4.58% 5.00% -0.42% 0.82% 0.55% 2.63% 2.26% 2.00% 3.43% 2.11% 3.21%
LIQUIDITY
Cash Eqv 2,945 4.11% 5.50% -1.39% 0.21% 0.09% 0.77% 0.27% 1.29% 0.39% 1.04% 0.16% 1.00%Short Term 606 0.85% 0.00% 0.85% 0.26% 0.09% 0.75% 0.27% 1.57% 0.39% 0.58% 0.16%TIPS 454 0.63% 0.00% 0.63% 1.58% 0.72% -1.02% -2.73% 1.97% 0.88% 0.80% 2.10%US Treasuries 1,306 1.82% 3.00% -1.18% 0.94% 0.72% -5.30% -3.42% -3.43% -1.24% 0.78% 2.46% 1.73%
TOTAL LIQUIDITY 5,311 7.41% 8.50% -1.09% 0.61% 0.31% -1.40% -0.91% 0.03% 0.27% 0.50% 1.80%
INCOME
Investment Grade Credit 6,397 8.93% 10.00% -1.07% 1.14% 1.15% -0.84% -0.89% 4.14% 5.15% 3.53% 3.16% 3.54%Public High Yield 1,592 2.22% 2.50% -0.28% 3.10% 2.93% 10.30% 10.55% 19.42% 21.83% 5.06% 4.73% 6.49%Global Diversified Credit 3,218 4.49% 5.00% -0.51% 3.22% 2.93% 11.06% 10.55% 17.96% 21.83% 9.37% 4.73% 6.80%Credit-Oriented HFs 2,073 2.89% 1.00% 1.89% 3.19% 3.81% 9.20% 11.83% 14.94% 18.87% 4.27% 2.68% 6.38%Debt-Related PE 705 0.98% 2.00% -1.02% 0.84% 0.37% 5.09% 13.49% 8.40% 15.51% 7.18% 7.37% 9.29%Debt Related Real Estate 438 0.61% 1.00% -0.39% 0.50% -3.35% -2.18% 1.02% -0.15% 1.59% 3.83% 6.41% 6.00%
TOTAL INCOME 14,422 20.13% 21.50% -1.37% 2.09% 1.73% 4.64% 5.31% 10.39% 12.43% 5.02% 3.84%
REAL RETURN
Commodities 263 0.37% 0.00% 0.37% 3.28% 0.35% -0.32% -0.97% 13.65% 15.96% 4.28%Private Real Assets 1,755 2.45% 2.50% -0.05% -0.31% 0.00% 6.46% 11.40% 9.04% -0.78% 9.56%Equity Related Real Estate 3,869 5.40% 6.25% -0.85% 2.24% 0.00% 2.69% 3.77% 11.70% 9.08% 12.64% 11.42% 8.09%
TOTAL REAL RETURN 5,887 8.22% 8.75% -0.53% 1.53% 0.00% 3.53% 5.46% 11.28% 7.16% 7.57% 4.27%
GLOBAL GROWTH
US Equity 21,759 30.38% 30.00% 0.38% 6.28% 5.66% 16.59% 14.61% 27.62% 25.77% 9.36% 10.51% 6.80%Non-US Dev Market Eq 7,846 10.95% 11.50% -0.55% 4.57% 4.26% 9.52% 10.34% 16.06% 16.55% -0.39% -0.53% 7.28%Emerging Market Eq 4,370 6.10% 6.50% -0.40% 8.67% 8.84% 13.06% 13.54% 29.66% 29.38% 0.76% 1.60% 8.60%Buyouts/Venture Cap 6,820 9.52% 8.25% 1.27% 0.26% 0.00% 4.26% 6.58% 8.99% 7.35% 15.38% 10.31% 10.08%Equity-Oriented HFs 1,470 2.05% 0.00% 2.05% 2.49% 2.50% 11.03% 9.06% 8.79% 14.61% 1.82% 4.70% 7.79%
TOTAL GLOBAL GROWTH 42,265 59.00% 56.25% 2.75% 5.06% 4.79% 12.61% 12.36% 21.16% 21.12% 6.79% 6.95%
OTHER
OPPORTUNISTIC PE 288 0.40% 2.58% 5.60% 6.42%OTHER 178 0.25%
TOTAL FUND(3) 71,633 100.00% 3.61% 3.11% 8.62% 8.62% 15.26% 15.42% 5.75% 5.58%
S&P 500
Russell 2000
MSCI EAFE
MSCI EMF
Barclays Agg
Barclays HY
Bloomberg Commodities
Bloomberg REIT
HFRI 2.23%
PERFORMANCE (for periods ending February 28, 2017)(2)
5.94%
2.33%
10.73%6.54%
18.49%0.34%
15.53%-1.24%
4.37%
8.70%
0.87%
2.93%
0.26%
4.31%
ASSET ALLOCATION (1)
14.22% 24.97% 10.63%
21.42% 36.08% 6.92%
Trailing Three YearsTrailing Twelve MonthsFYTDCalendar YTDAs of February 28, 2017
2.68%
-13.16%
11.48%
10.30% 15.75% -0.62%
13.58% 29.46% 1.35%
-1.68% 1.42% 2.64%
10.55% 21.83% 4.72%
-0.17%
2.58%2.70%
-0.13%
-1.13%
-0.22%-0.12%
-0.27%
-0.53%
0.04%
-0.03%
-0.32%
-0.10% -0.07%
0.08% 0.08% 0.11%
-0.05%
-1.09%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
Absolu
te R
etu
rn H
Fs
LIQ
UID
ITY
Ca
sh
Eq
uiv
ale
nts
US
Govt
INC
OM
E
Inve
stm
ent
Gra
de C
redit
Hig
h Y
ield
Fix
ed
Incom
e
Glo
bal D
ive
rsifie
d C
red
it
Cre
dit-O
rien
ted
HF
s
De
bt-
Rela
ted P
E
De
bt R
ela
ted R
eal E
sta
te
RE
AL
RE
TU
RN
Private
Real A
ssets
Equity R
ela
ted R
eal E
sta
te
US
E
quity
No
n-U
S D
ev M
ark
et
Eq
Em
erg
ing
Ma
rket
Eq
Buyouts
/Ven
ture
Ca
p
Equity-O
rie
nte
d H
Fs
The increased cash position resulted primarily from $1 billion in hedge fund redemptions, as well
as net sales within global equities as valuations expanded.
Pension Fund Update: Change in Sector Allocation from December 31, 2016 – February 28, 2017
Allocation to Liquidity moved
more in line with Policy
Benchmark (7.4% vs 8.5%).
Pension contributions and
further HF redemptions
are expected to further increase
the allocation to cash.
Modest Underweight to Real
Return (8.2% vs 8.75%);
Within Real Return, pacing
analysis suggests Equity Related
Real Estate (5.4% vs 6.25%) will
move more in line with targeted
allocation over time.
Overweight allocation to Global
Growth (59.0% vs 56.25%) reflects
strong equity market returns
somewhat offset by net sales in an
environment increasingly
characterized by higher valuations.
Allocation to Income is modestly
below target (20.1% vs 21.5%);
Within Income, allocation to IG
Credit (8.9% vs 10%) tempered by
tighter spreads.
Over the past two months, the
U.S. equity portfolio realized
strong returns (+6.3%). The Fund
took advantage of higher
valuations and maintained a
largely unchanged allocation via
net sales of $550 million.
Net sales of public equities and
redemptions from hedge fund strategies
increased the overall allocation to cash in
the midst of a move to higher financial
market valuations.
The allocation to Credit-Oriented
HF declined by 0.5% following
redemptions of $130 million.
Allocation to
Absolute Return
HF is modestly
below target
(4.6% vs 5.0%).
Risk Mitigation Liquidity Income Real Return Global Growth
The Emerging
Market Equity
portfolio was the
best performing
asset class over
the past two
months, up
+8.7%. Net sales
of $150 million
kept the allocation
at 6%.
The allocation
to Equity-
Oriented HF
declined by
1.1% following
redemptions of
$900 million.
6
Hedge Fund Redemption Update
The chart below shows the progress to date towards the target allocation of 6% to
hedge fund strategies. The allocation has been reduced from 11.2% in September
2016 to 9% as of the end of February 2017. Based on projected cash flows, the
allocation is expected to be 8.6% by the end the fiscal year and 7.4% by the end of
the calendar year.
* Jun-17 and Dec-17 projections are based on expected cash flows and do not take into account future performance for hedge funds or the Total Fund
7
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Jun-17 (Projected) Dec-17(Projected)
New Jersey Hedge Fund Allocation
Absolute Return Hedge Funds Credit-Oriented Hedge Funds Equity-Oriented Hedge Funds
Pension Fund Attribution vs. Benchmark
Fiscal Year through February 28th, 2017
Allocation Effect indicates the effect of asset allocation overweights or underweights vs. the target allocations
Performance by Asset ClassFiscal Year to Date through February 28th, 2017
Contribution
to Pension Fund
Excess Return By
Asset Class
Basis Points
8
The Total Pension Fund is in line with the Policy
Benchmark return
Allocation Effect, -2
Other, 6
Global Growth, 23
Real Return, -17
Income, -15
Liquidity , 0
Risk Mitigation, 5
-20 -15 -10 -5 0 5 10 15 20 25 30 35 40
8.62
12.36
5.46
5.31
(0.91)
2.26
8.62
12.61
3.53
4.64
(1.40)
2.63
(4.00) (2.00) - 2.00 4.00 6.00 8.00 10.00 12.00 14.00
Total Pension Fund Policy Benchmark
Policy Benchmark
Risk Mitigation
Global Growth
Real Return
Income
Liquidity
Total Pension Fund
9
Since the U.S. elections, equities have outperformed fixed income, U.S. equities have outperformed non-U.S. equities,
small caps have outperformed large caps, and developed markets have outperformed emerging markets. While returns
have remained favorable during the first quarter of 2017, global equities have outperformed U.S. equities, large caps
have outperformed small caps, and emerging markets have outperformed developed markets.
Nov 7, 2016 –
Dec 31, 2016
Global Equity Markets Have Performed Well Since the U.S. Elections
Dec 31, 2016 –
Mar 23, 2017
Nov 7, 2016 –
Mar 23, 2017
U.S. Elections
thru YE 16YTD thru
Mar 23
Total Returns since
U.S. Elections
Total Returns (%) in US$
Source: Bloomberg
Global Equities (ACWI) 3.32 6.46 10.00
U.S. Large Cap (S&P 500) 5.42 5.29 11.00
U.S. Small Cap (Russell 2000) 14.13 -0.01 14.13
Non-U.S. Developed Mkts (EAFE) 2.44 6.96 9.56
Emerging Markets (MSCI EM) -3.31 12.49 8.77
U.S. Fixed Income (U.S. Aggregate) -2.26 0.64 -1.63
Commodities (Bloomberg Commodities Index) 4.40 -3.34 0.91
U.S. Dollar (Bloomberg Trade-Weighted) 5.65 -3.70 1.74
10
Financial Market Returns Have Been Supported By More Favorable Economic Data and Sentiment
Source: Bloomberg
50
52
54
56
58
60
62
Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16
Com
posite P
urc
hasin
g M
grs
Index
US Europe
-100
-80
-60
-40
-20
0
20
40
60
80
Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
Citi E
conom
ic S
urp
rise I
ndex
US Europe
PMI Suggests Further Economic Expansion
U.S. and European PMI have both remained
in expansionary territory over the past two
years, with European expansion appearing
to accelerate more recently
Economic Data Has Surprised to the Upside
U.S. and European economic data have been beating estimates
Better than expected economic data and more favorable trends in measures of
consumer and business sentiment have led to strong global equity market returns
60
70
80
90
100
110
120
80
90
100
110
120
130
Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
Eu
rop
ean
Co
mm
issio
n E
co
no
mic
Sen
tiM
en
t In
dic
ato
r
Co
nfe
ren
ce B
oard
Lead
ing
Eco
no
mic
In
dex (
U.S
.)
US (LHS) Europe (RHS)
Leading Economic Indicators Have Improved
In the US, the Conf Board’s LEI measure is at its highest
level of the past decade, while the EU’s SentiMent
Indicator reached its highest level since 2011.
Stronger than expected economic data and improving
consumer and business sentiment have buoyed year-
to-date global equity returns of 7%. The Economic
Surprise Index and PMI Surveys suggest the near-
term economic momentum in Europe is somewhat
stronger relative to the U.S., albeit from a lower base.
In the meantime, the Conference Board’s Leading
Economic Indicators (LEI) Index reached its highest
level in more than a decade in the U.S. in February.
11
U.S. equities have meaningfully outperformed the global equity market over the past decade.
Valuations for U.S. equities are now higher versus non-U.S. equities on an historical basis.
Global Equity Returns and Valuations
Source: Bloomberg
U.S. Equities Have Outperformed Non-U.S. Equities
-1
0
1
2
3
4
5
6
-1
0
1
2
3
4
Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
S&
P 5
00 F
orw
ard
P/E
min
us M
SC
I E
M F
orw
ard
P/E
S&
P 5
00 F
orw
ard
P/E
min
us E
AF
E F
orw
ard
P/E
S&P 500 vs EAFE (LHS) Avg S&P 500 vs EAFE S&P 500 vs MSCI EM (RHS) Avg S&P 500 vs MSCI EM
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
Cum
ula
tive T
ota
l R
etu
rn (
%)
S&P 500 EAFE MSCI EM
11
12
13
14
15
16
17
18
19
20
Feb-02 Feb-03 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17
12M
Forw
ard
P/E
Multip
le
S&P 500 12M Forward P/E 15 yr average
U.S. Equity Valuations Are Higher vs Non-U.S. Equities
Over the past decade, U.S. equities (+108%) have
significantly outperformed non-U.S. Developed Markets
(11%) and Emerging Markets (+33%)
The S&P 500 recently traded at its highest forward looking multiple since 2002
U.S. Equity Valuations Appear High in Historical Context
The P/E for the S&P 500 is 18.3x vs 15.3x
for the EAFE and 12.5x for the MSCI EM
While recent strong returns for the S&P 500 have been
driven by multiple expansion, investors may also be
anticipating reflationary policies that would accelerate
earnings growth. Notwithstanding favorable 2017
year-to-date returns for non-U.S. equities, valuations
remain lower relative to U.S. equities. More favorable
economic data and sentiment may be somewhat
tempered by heightened geopolitical risk ahead of key
elections and the formal process to begin Brexit.
Higher U.S. valuations
Lower U.S. valuations
NJ Global Equity Allocation as of February 28, 2017
12
1.57% 1.27%2.18% 1.49%2.09% 3.15%3.94% 5.91%
5.22%7.79%
10.64%
14.93%
10.72%
11.77%
63.65%
53.68%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
NJ Global Equity Allocation MSCI ACWI
Africa/Middle East South America & Mexico Canada
UK Japan Europe ex-UK
Asia ex Japan USSource: MSCI and State Street
0%
2%
4%
6%
8%
10%
12%
Equity - US Equity - Global US High Yield US Bank Loans Real Estate Commodities Private Equity Infrastructure
Ao
n H
ew
itt
5 Y
ea
r S
ce
na
rio
Re
turn
s (
An
nu
aliz
ed
)
Base Case High Inflation
13
Implied Probabilities for Targeted Fed Funds RateDecember 13, 2017 Meeting
The Fed is expected to maintain a gradual approach towards more normalized monetary policy, provided inflation remains
in line with longer-term objectives. Higher than expected inflation could prove detrimental to financial market returns.
The Outlook for U.S. Monetary Policy and Inflation
Source: Aon Hewitt and Bloomberg
Aon Hewitt’s projected returns suggest a less favorable financial market environment if
inflation unexpectedly accelerates and remains high (above 4%).
0.00
0.50
1.00
1.50
2.00
2.50
3.00
Aug-98 Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12 Aug-14 Aug-16
10yr
Bre
akeven I
nflation R
ate
(%
)
10yr Breakeven Inflation Average
The market appears to be
pricing in a move to more
normalized rates of inflation that
are consistent with a “base
case” outlook
Breakeven Inflation Rates Have Risen
Following the Fed’s March 15th decision to tighten
monetary policy, markets have consolidated around the
Fed’s own expectations for an additional one or two
rate increases for the rest of the year. Tighter monetary
policy coincides with more normalized market
expectations for inflation that is also in line with the
Fed’s own targeted inflation rate. While this “base
case” outlook for inflation is expected to be a
constructive backdrop for financial markets, if inflation
further accelerates and remains elevated financial
market returns would likely be adversely impacted.
0%
5%
10%
15%
20%
25%
30%
35%
40%
3/22/20172/16/20171/13/201712/12/201611/8/201610/5/2016
Fe
d F
und
Ma
rket
Imp
lied P
roba
bili
ty
1-1.25% 1.25-1.50% 1.50-1.75%
The market’s
expectations for a
higher Fed Funds
rate has increased
Select Asset Class Five Year Scenario Returns
Noteworthy DevelopmentsNJDOI Staff Departure: Meghna Desai, Portfolio Manager, Alternative
Investments has resigned from her position effective March 17, 2017. Meghna
directly managed a number of the Division’s most important relationships and was
responsible for conceptualizing and structuring a number of innovative
transactions in the last several years. Upon the departure of Jason MacDonald,
Head of Alternative Investments, Meghna took on additional responsibilities in
managing the portfolio and the team. This marks the third significant departure
from the alternative investment team in the last 8 months following the
resignations of Jason MacDonald and Lou Kish. Samantha Rosenstock is now
the interim head of Alternative Investments.
Police and Fire Pension Bill: Senate Bill 3040, introduced in February, would
transfer investment authority over PFRS assets from the Division to the PFRS
Board of Trustees, among other changes. The bill was approved by the Senate
and by the Assembly.
14
15
The Fund’s net returns ranked above the median peer universe of gross returns for the
three, five and ten year periods ended December 31, 2016.
The Fund’s risk-adjusted returns ranked in the top quartile for the five and ten year periods.
NJ Pension Fund Performance Comparison versus Peers
Source: Aon Hewitt, BNY Mellon and State Street
Note: While the peer comparison is presented using a universe of gross returns, the NJ Fund’s returns are presented on a net of all fees basis
Periods Ending December 31, 2016
EQT Infrastructure III, L.P.
A proposed investment in this Fund was presented to the Council at its November 2016 meeting. At
that meeting, Staff noted that it would be working with representatives of the Division of Law and
outside counsel to negotiate legal documents governing the investment. After extensive negotiations,
the Division and the Fund were unable to reach agreement on the terms of the legal documents, and
the Division did not participate in the Fund’s February closing. The Division continues to seek attractive
investment opportunities in this asset class.
Purpose of Notification: The Division is notifying the SIC of this modification under its Modification Procedures.
Alternative Investment Notifications
16
Performance Appendix
17
U.S. Equity Portfolio – As of February 28th 2017
The 16.59% return for the US equities portfolio outpaced the S&P 1500benchmark by 198 basis points during the Fiscal 2017 year-to-date time period. USequity markets continued to rally as President Trump took office on optimism foreconomic and earnings reflation predicated on corporate tax reform, deregulation,and increased infrastructure spending. Improving economic data led tospeculation that the Federal Reserve would raise interest rates during the MarchFOMC meeting. Therefore, financials continued their outperformance, increasing23.39% since the election, and 36.07% fiscal year-to-date. Telecom services, realestate and utilities were the laggards on higher interest rate expectations. Stockselection for the fund was strongest among financials and information technologysecurities, while consumer staples lagged the benchmark.
Portfolio Return:
+16.59% Benchmark Return:
+14.61% Excess Return:
+1.98%Portfolio Sector Attribution FYTD% - Breakdown of Excess Return:
Source: State Street, Factset
%
18
12.18
8.66
5.77
14.5713.02
9.75
24.19
3.69 3.46 2.38 2.34
12.11
8.796.41
15.0413.40
10.84
21.09
3.293.53
2.213.29
0
5
10
15
20
25
30
Con.Disc.
Staples Energy Fin. HC. Indus. Tech. Mat. RE Tel. Utils.
Sector Ending Weights %
US Equity Portfolio S&P 1500
12.88
0.39 3.31
42.09
5.91
23.26
28.66
21.72
2.93
-3.77
1.53
11.76
1.63
3.62
36.07
5.96
18.39
25.51
16.88
-0.54-3.91
0.94
-10
0
10
20
30
40
50
Con.Disc.
Staples Energy Fin. HC. Indus. Tech. Mat. RealEst.
Tel. Utils.
Sector Performance %
US Equity Portfolio S&P 1500
0.00 0.020.13
-0.21
0.02 0.00
0.18
0.00 0.02
-0.05
0.120.14
-0.10 -0.01
0.63
-0.01
0.500.62
0.14 0.140.00 0.02
-0.40
-0.20
--
0.20
0.40
0.60
0.80
Con. Disc. Staples Energy Fin. HC. Indus. Tech. Mat. Real Est. Tel. Utils.
Allocation Effect Selection Effect
6.28
16.59
27.62
9.36
13.49
5.66
14.61
25.77
10.51
14.02
0
5
10
15
20
25
CYTD FYTD 1Yr 3Yr 5Yr
Returns %
US EquityPortfolio
S&P 1500Benchmark
-0.02 -0.02
0.08
-0.22
-0.03
-0.22
0.02 0.01 0.02 0.03 0.040.01
-0.07
0.04
-0.00 -0.03
0.00
-0.01 -0.01
-0.09-0.06 -0.03
0.05 0.05
-0.30
-0.20
-0.10
--
0.10
Con. Disc. Staples Energy Fin. Funds HC. Indus. Tech. Mat. Real Estate Tel. Utils.
Allocation Effect Selection Effect
Non-US Developed Markets Equity Portfolio – As of February 28th 2017 In USD
Portfolio Sector Attribution FYTD% - Breakdown of Excess Return: Portfolio Return:
+9.52% Benchmark Return:
+10.34% Excess Return:
-0.82%
Source: State Street, Factset
%
Top 3 best and 3 worst
contributors to return from
investment decisions regarding
Country Allocation
Top 3 best and 3 worst contributors to return from investment decisions regarding Stock Selection
0.02 0.02 0.02
-0.03 -0.03 -0.04
-0.06
-0.05
-0.04
-0.03
-0.02
-0.01
0.00
0.01
0.02
0.03
UnitedKingdom
Israel France Mexico Switzerland UnitedStates
Allo
cati
on
Eff
ect
%
ETFs
0.080.05 0.04
-0.08
-0.20
-0.27-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
0.05
0.10
Canada Norway Finland Australia France Japan
Sele
ctio
n E
ffe
ct %
For the fiscal year through February 28th, the Non-US Developed Markets Equity Portfolioreturned 9.52% versus the Benchmark return of 10.34%. Over this time period, themarkets experienced a recovery from the Brexit-related sell-off, the surprise USpresidential election outcome, and rising European political risk following the unexpectedresignation of the Italian PM. In addition, the Federal Reserve raised interest rates for asecond time in a decade. But the optimism for renewed global growth stemming from theproposed fiscal policies of the new US Administration spurred a strong rally in marketsand a move toward a risk-on sentiment. Portfolio performance benefitted from stockselection in Canada and Norway, which offset the negative impact of both Frenchselection and Japanese selection effect, which was the worst among countries (primarilyfrom Healthcare exposure). From a Sector perspective, positioning was the dominantimpact on return - the underweight allocation to Telecom along with good stock selection,and the underweight in Energy added the most to performance. Detracting the most wasthe overweight allocation to Health Care and the underweight to Financials.
19
4.57
9.52
16.06
(0.39)
5.104.26
10.34
16.55
(0.53)
4.89
(5.00)
0.00
5.00
10.00
15.00
20.00
CYTD FYTD 1Yr 3Yr 5Yr
Ret
urn
%
Non-USDevelopedMarkets EquityPortfolio
EAFE + Canadaex ProhibitedBenchmark
0.34
0.260.19
-0.23 -0.26-0.33
-0.35
-0.25
-0.15
-0.05
0.05
0.15
0.25
0.35
0.45
Malaysia Brazil Panama UnitedStates
China Turkey
Allo
cati
on
Eff
ect
%
ETFs
0.050.18
-0.06 -0.03
-0.31
0.18
-0.01
-0.30 -0.22
0.16
-0.05-0.16
0.38
-0.27
0.22
--
0.23
0.44 0.38
0.04 0.00
-0.09-0.40
-0.20
--
0.20
0.40
0.60
Con. Disc. Staples Energy Fin. Funds HC. Indus. Tech. Mat. Real Estate Tel.
Allocation Effect Selection Effect
Emerging Markets Equity Portfolio – As of February 28th 2017 In USD
Portfolio Sector Attribution FYTD% - Breakdown of Excess Return: Portfolio Return:
+13.06% Benchmark Return:
+13.54% Excess Return:
0.48%
Source: State Street, Factset
%
Top 3 best and 3 worst contributorsto return from investment decisions regarding Country Allocation
0.47 0.44
0.24
-0.09 -0.11
-0.51-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
Korea SouthAfrica
China Poland Taiwan Brazil
Sele
ctio
n E
ffe
ct %
Top 3 best and 3 worst contributorsto return from investment decisions regarding Stock Selection
20
For the fiscal year through February 28th, the Emerging Markets Equity portfolio returned13.06% versus the Custom Benchmark return of 13.54%. Emerging Markets equitiesoutperformed Developed Markets equities over the time period (13.6% vs. 10.3%) primarilyas a risk-on sentiment took hold led by strengthening commodity prices as concernsregarding China’s economic and currency stability eased and global growth prospectsbegan to improve. Despite a few major events - a failed coup in Turkey, two impeachments(the presidents of Korea and Brazil), and the surprise outcome of the US presidentialelections (possible trade wars/protectionism) – the EM markets proved resilient. Theportfolio benefitted from strong stock selection overall - especially in Korea and South Africa- but despite an overweight position in top performer Brazil, poor stock selection (the worstdetractor from portfolio return) offset the positive allocation effect. Regarding sectors, theunderweight in Staples and stock selection had the largest positive impact followed by stockselection in Industrials. An overweight position in underperforming Turkey and anunderweight allocation to China were among the largest detractors from return in addition tocertain Fund positions and the underweight position and stock selection in Energy.
8.67
13.06
29.66
0.76
(0.62)
8.84
13.54
29.38
1.60 0.17
(10.00)
0.00
10.00
20.00
30.00
40.00
CYTD FYTD 1Yr 3Yr 5Yr
Re
turn
%
EmergingMarkets EquityPortfolio
EM Benchmarkex Prohibited
Domestic Fixed Income Portfolio – As of February 28, 2017
For F17 year-to-date performance, the US Fixed Income portfolioreturned 0.37% versus the benchmark return of 0.45%. Relativereturns were adversely impacted by under allocating to higherrisk asset classes and higher beta securities within IG Credit andHigh Yield. Through February 28th, the Barclays High Yield Index,Custom IG Credit and US Government Benchmarks returned10.55%, -0.89% and -3.08%, respectively. The portfolio’sdefensive positioning to these sectors led to underperformanceas credit spreads tightened. This was partially offset by a shortduration profile as interest rates have risen since the start of thefiscal year. Fiscal-year-to-date, TIPS have outperformed nominalTreasuries by approximately 325 basis points. The Portfolio’soverweight allocation to TIPS has helped temper relativeunderperformance versus the composite index.
Source: State Street and FactSet
Portfolio Sector Attribution – Weights and Performance
21
0.90
1.46
0.37
0.95
1.37
0.45
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
MTD CYTD FYTD
Fixed Income Portfolio
Fixed Income PolicyBenchmark
Returns %