Oklahoma City Employee Retirement System Portfolio Review
July 2021
The Global Fixed Income Business of Prudential Financial, Inc. Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom.
One-on-One Presentation. Confidential – Not for further distribution. For Professional Investors Only. All investments involve risk, including possible loss of capital. Please see Notice Page for important disclosures regarding the information contained herein. PGIM FIXED INCOME Table of Contents
1 Organization & Team
2 Performance, Attribution, & Positioning
3 Market Review & Outlook
4 Reference
2 1 Organization & Team
3 PGIM FIXED INCOME Assets Under Management
Assets Under Management Firm Overview: Active Strategies Across Global Fixed Income Markets • Scale and breadth of capabilities Third Party Institutional • Global experience, stability and continuity $397 Billion • 331 investment professionals $919 • 916 institutional clients, 1,016 employees Billion
• Collegial culture with a heritage of honest debate Proprietary $326 Billion • Attract, develop, retain and promote diverse talent Third Party Retail • ESG factors are also integrated into our fundamental analysis, and are reflected in our proprietary $196 Billion ESG impact ratings framework
Expertise Across a Broad Range of Sectors
Corporates $353 Billion Governments $164 Billion
Other¹ $2 Billion Mortgages $22 Billion Municipals $30 Billion $919 Billion Money Markets $55 Billion
Securitized High Yield $76 Billion Products $111 Billion Emerging Bank Loans $35 Billion Markets $71 Billion
Assets as of March 31, 2021. Staffing as of March 31, 2021. Please see the Notice section for important disclosures, including risk. Source: PGIM Fixed Income. Assets under management (AUM) are based on company estimates and are subject to change. PGIM Fixed Income’s AUM includes the following businesses: (i) the PGIM Fixed income unit within PGIM, Inc, located in the USA; (ii) the public fixed income unit within PGIM Limited, located in London; (iii) PGIM Netherlands B.V. located in Amsterdam; (iv) locally managed assets of PGIM Japan Co., Ltd. (“PGIM Japan”), located in Tokyo; and (v) the public fixed income unit within PGIM (Singapore) Pte. Ltd., located in Singapore. Asset class breakdown based on company estimates and is subject to change. 1Other includes Japanese equities and Japanese real estate equities. 4 PGIM FIXED INCOME Senior Leadership Team
PGIM Fixed Income Michael Lillard, CFA, Head of Fixed Income and CIO
Quantitative Analysis and Multi-Sector, Liquidity Securitized Products Credit Emerging Markets and FX Risk Management and Strategy John Vibert Richard Greenwood, CFA Cathy Hepworth, CFA Stephen Warren Craig Dewling, Deputy CIO
Client Advisory Group Chief Operating Officer Chief Business Officer PGIM Japan Brad Blalock, CFA Paul Parseghian Daniel Malooly Taisaku Kunisawa
Human Resources Finance Legal Compliance Gill Murphy1 Vasel Vataj1 Yogesh Rai1 Matthew Fitzgerald1 Yuko Ikeda1
1Dedicated functional teams that have a direct, independent reporting relationship to corporate senior management of the company. As of March 2021. 5 PGIM FIXED INCOME Balanced and Deep Organization, Integrated Process
Number of Average Average 1,016 Employees Based Globally: Investment Firm Investment Team • 331 Investment Professionals Professionals Tenure Experience • 159 Client Advisory Group Professionals Portfolio Management1 128 19 Years 25 Years • 371 Operations, Technology and Data Professionals Fundamental Research 131 13 Years 24 Years • 95 Business Management, Finance and Administrative Staff Risk Management • 60 Legal and Compliance Professionals 72 16 Years 24 Years & Quantitative Research
Fundamental Portfolio Quantitative Analysis and Research Management1 Risk Management
Global Rates Global Macroeconomics Securitized Products Risk Management Investment Grade Corporates Corporates Emerging Markets High Yield Leveraged Finance
Bank Loans Municipals Quantitative Research Long/Short Emerging Market Corporates Money Markets
Municipals Multi-Sector Portfolio Analysis Insurance Securitized Products Liability Driven Investing
Staff as of March 31, 2021. 1Includes senior executives and product managers. Portfolio Management average years of experience and years at firm calculated at principal level and above 6 PGIM FIXED INCOME Gross Investment Performance—As of March 31, 2021
YTD 1 Year 3 Year 5 Year 10 Year SI2 Excess Excess Excess Excess Excess Excess Strategy Return Return Return Return Info Return Info Return AUM3 Strategy / Composite Inception Index / Objective (bps) (bps) (bps) (bps) Ratio1 (bps) Ratio1 (bps) ($ billions) Core Conservative (1989) Bloomberg Barclays U.S. Aggregate +25 -1 +75 +14 +11 0.35 +18 0.76 +26 23.8 Core (1991) Bloomberg Barclays U.S. Aggregate +60 -11 +394 +60 +77 0.51 +86 0.73 +60 45.5 Japan Core Bond4 (2003) Nomura-BPI Overall +45 +14 +79 +30 +40 1.63 +48 2.01 +37 8.9 Global Core (2008) Bloomberg Barclays Global Aggregate +100 -113 +391 +124 +148 0.84 +138 0.91 +170 6.2 Core Plus (1996) Bloomberg Barclays U.S. Aggregate +150 -99 +627 +80 +171 0.56 +173 0.66 +121 101.3 Multi Sector Global Total Return5 (2002)* Bloomberg Barclays Global Aggregate +200 -235 +646 +146 +258 0.67 +283 0.77 +230 23.9 Absolute Return (2011) ICE LIBOR 3-Month Average +300 -37 +1,515 +146 +325 0.53 - - +278 2.3 Multi-Asset Credit (2016) ICE LIBOR 3-Month Average +400 +38 +1,924 +306 - - - - +364 0.4 Strategic Bond (2015)** Bloomberg Barclays Intermediate U.S. Aggregate Bond Index +375 -72 +1,562 +234 +496 0.78 - - +457 2.0 Global Dynamic Bond (2016) ICE LIBOR 3-Month Average +500 -411 +2,164 +338 +621 0.65 - - +565 0.1 Short Duration Core Plus (2014) Bloomberg Barclays U.S. 1-3 Yr Govt/Credit +150 -77 +688 +94 +184 0.58 - - +163 2.7 Short Duration Short Term Corporate (1-5 Year) (1994) Bloomberg Barclays U.S. 1-5 Yr Credit +60 +9 +374 +50 +53 0.42 +48 0.52 +37 21.4 U.S. Short Duration Higher Quality High Yield (2012) Bloomberg Barclays U.S. HY 1-5 Yr Ba/B 1% Issuer Capped +100 +95 +141 +120 +29 0.29 - - +79 4.4 Long Duration Government/Credit (2009) Bloomberg Barclays U.S. Long Govt/Credit +60 +19 +365 +62 +62 0.49 +65 0.59 +77 9.0 Long Duration Long Duration Corporate (2008) Bloomberg Barclays U.S. Long Corporate +100 +72 +396 +100 +79 0.85 +90 1.12 +118 36.8 Long Duration LDI (1998) Client-Directed Liability Based Benchmark +57 +542 +89 +94 0.64 +95 0.80 +92 23.4 Securitized Prod. Securitized Products (2016) ICE BofA 3-Month Deposit Offered Rate Constant Mat Index +300 +299 +1,802 +178 +371 0.59 - - +343 1.2 U.S. Investment Grade Corporates (1991) Bloomberg Barclays U.S. Credit +60 +27 +510 +92 +103 0.70 +95 0.80 +94 48.6 Investment European Corporate (USD Hedged)6 (2008) Bloomberg Barclays Euro Aggregate Corporate USD Hedged +100 Grade Credit +11 +226 +105 +108 2.39 +99 2.20 +99 0.8 Global Corporate (Unhedged) (2010) Bloomberg Barclays Global Corporate (Unhedged) + 100 +13 +331 +93 +93 1.16 +91 1.20 +90 27.9 U.S. Higher Quality High Yield (1998) Bloomberg Barclays US HY Ba/B 1% Issuer Capped +125 +87 +289 +113 +68 0.62 +64 0.60 +134 4.5 U.S. Broad Market High Yield (2002)7 Bloomberg Barclays US High-Yield 1% Issuer Capped Index +125 +90 +237 +119 +84 0.83 +85 0.93 +46 34.5 U.S. Senior Secured Loans (2007) CS Leveraged Loan +100 +85 +672 +89 +73 0.55 +77 0.72 +48 22.6 Leveraged European High Yield ∩ (2010) ICE BofAML Euro HY ex Financials 2% Constrained +150 Finance +54 +516 +251 +154 1.57 +180 1.59 +196 6.7 European Senior Secured Debt (Constrained),∩ (2006) CS Western European Leveraged Loan (EUR Hedged) +150 -19 +534 +100 +98 0.56 +141 0.26 +108 11.8 Global High Yield (Euro Hedged) ∩ (2002) Bloomberg Barclays Global High Yield (EUR Hedged) +125 +65 +789 +158 +125 0.65 +83 0.54 +46 4.4 Global Sr. Secured Loans (USD Hedged) (2011) CS Blend U.S. & West Euro Lev Loan (USD Hedged) +100 +14 +607 +55 +43 0.31 - - +77 0.2 Emerging Markets Debt Hard Currency (1996) JPM EMBI Global Diversified +200 -15 +774 -33 +119 0.44 +115 0.47 +219 24.2 Emerging Markets Blend (2007) Blend: JPM EMBI Global Divers/GBI-EM Global Divers +200 -28 +750 +24 +111 0.45 +105 0.48 +120 18.0 Emerging Emerging Markets Blend Plus (2014) Blend: JPM EMBI Global Divers/GBI-EM Global Divers +500 Markets +320 +4,007 +295 +450 0.56 - - +379 0.2 Emerging Markets Local Currency (2011) JPM GBI-EM Global Divers +150 -65 +427 +2 +23 0.21 +49 0.35 +50 2.4 Emerging Markets Corporate Debt (2013) JPM CEMBI Broad Divers +150 +66 +971 +94 +123 0.49 - - +65 <0.1 National Municipal Bond (1994)*** Bloomberg Barclays 1-15 Yr. Muni Unhedged Index +85 +32 +219 +42 +47 0.36 +69 0.58 +27 0.9 Municipals High Income Municipal Bond (1994) Blend: Bloomberg Barclays Muni High Income/Muni +85 +27 +191 +6 +23 0.25 +99 0.77 +48 0.9 U.S. Liquidity Relative Value (2002)**** Max Return vs. ICE BofA US 3-Month Treasury Bill Index -158 +312 +318 +358 1.69 +471 2.14 +558 0.4 Global Liquidity Relative Value (2014)**** Max Return vs. ICE BofA US 3-Month Treasury Bill Index -281 +559 +399 +630 1.83 - - +698 3.8 Alternatives Emerging Market Long/Short (2007)**** Max Return vs. ICE BofA US 3-Month Treasury Bill Index +210 +3,354 +445 +635 0.67 +677 0.90 +824 0.4 U.S. Liquidity Relative Value (S&P Overlay)(2014) Max Return vs. S&P 500 Total Return -137 +378 +225 +271 1.38 - - +316 <0.1 Past performance is not a guarantee or a reliable indicator of future results. Please see the Reference section for important disclosures including risk, inception dates, net returns and benchmark descriptions. The value of investments can go down as well as up. Where overseas investments are held the rate of currency exchange may cause the value of investments to fluctuate. If applicable, investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets and non-USD securities are converted to USD using a spot rate conversion. All return periods longer than one year are annualized. Shown in USD unless otherwise noted. ∩Performance shown in EUR. Excess returns are over the stated composite benchmark. Returns are gross of investment management fees which would reduce an investor’s net return. All Non-USD securities are converted to USD using a spot rate conversion. PGIM Fixed Income’s Composite Performance Returns available upon request. There can be no guarantee that these objectives will be met. Source of benchmark returns: Bloomberg Barclays, JPMorgan Indices, iBoxx, Credit Suisse, ICE Data Indices, LLC, and Bloomberg. Source of custom Long Duration LDI benchmark returns: PGIM Fixed Income. 1Source of calculations: PGIM Fixed Income. 2Since Inception. 3As of March 31, 2021. Strategy assets may include additional assets not included in the primary marketing composite. 4Japan Core Bond performance shown in JPY. 5Represents excess returns vs. FTSE World Bond Index, the composite benchmark until March 31, 2011. As of April 1, 2011 composite benchmark was changed to the Bloomberg Barclays Global Aggregate Index. 6Represents excess returns vs. iBoxx Euro Corporate (USD Hedged) Index, the composite benchmark until December 31, 2019. As of January 1, 2020 composite benchmark was changed to the Barclays Euro Aggregate Corporate USD Hedged Index.7Effective October 1, 2020 the Benchmark changed to the Bloomberg Barclays US High-Yield 1% Issuer Capped Index, prior to that the Benchmark was the Bloomberg Barclays US Corporate High Yield Bond Index *Information Ratio calculated using quarterly returns since monthly returns were not available until 1/1/2010. *Effective January 1, 2020, the Global Aggregate Plus Composite was renamed the Global Total Return Composite. **Effective March 1, 2019, the Unconstrained Bond Composite was renamed the Strategic Bond Composite. The strategy benchmark also changed from the ICE LIBOR 3-Month Average to the Bloomberg Barclays Intermediate U.S. Aggregate Bond Index. ***Effective April 1, 2020 the Benchmark changed to the Bloomberg Barclays 1-15 Yr. Muni Unhedged Index, prior to that the Benchmark was the Bloomberg Barclays Municipal Bond index. ****Effective April 1, 2020 the Benchmark changed to the ICE BofA U.S. 3-Month Treasury Bill Index, 7 prior to that the Benchmark was 3-Month U.S. Dollar LIBOR. PGIM FIXED INCOME Multi Sector Team
Experienced and Stable Team • Team averages 22 years investment experience and 19 years tenure with the firm • Approach leverages firm’s full resources • $164.4 billion in multi sector strategy assets
Senior Portfolio Managers Gregory Peters / Michael Collins, CFA / Richard Piccirillo
Portfolio Construction
Sector Allocation Duration / Yield Curve Michael Collins, CFA / Gregory Peters / Richard Piccirillo Robert Tipp, CFA Lindsay Rosner, CFA
Security Selection
Governments / Agencies Agency Mortgages Investment Grade Corp Michael Meyler Stewart Wong David Del Vecchio (U.S.) Gary Wu, CFA Sydney Xu Danielle Navarro, CFA (U.S.) Scott Donnelly, CFA Andrew Harnischfeger, CFA Robert White (European)1
Securitized Products Municipals Emerging Markets / FX Global High Yield / Bank Loans Peter Freitag, CFA Susan Courtney2 Johnny Mak Rob Fawn (European)1 Thomas Chang, CFA Lee Friedman, CFA Mariusz Banasiak, CFA (Local Daniel Thorogood, CFA Edwin Wilches, CFA and FX)
Staff as of April 2021. Assets and years of experience as of March 31, 2021. 1European Team members are employees of a PGIM affiliate providing services to PGIM, Inc. who have been providing services to PGIM Limited, a UK subsidiary that is authorized and regulated by the Financial Conduct Authority. 2Retiring December 2021. 8 2 Performance, Attribution, & Positioning
9 PGIM FIXED INCOME Investment Performance
Institutional Business Trust Absolute Return Fund
Investment Performance As of May 31, 2021 Annualized 9/01/20- Since 1 YTD 5/31/21 1 Year 3 Year Inception
Portfolio (%) 0.09 2.95 6.74 3.42 3.66
Benchmark (%)2 0.08 0.16 0.26 1.57 1.47
Increment (bps) +0 +279 +647 +185 +219
Increment may not sum due to rounding. = Attribution to Follow
IBTABRET Source of portfolio returns: PGIM Fixed Income. Performance shown gross of fees. Performance reported in USD. Past performance is not a reliable indicator of future performance. Performance over one-year is annualized. 1. Inception Date: August 10, 2016 2. Benchmark: 3 Month Libor Average. Source of Benchmark: ICE Data Indices, LLC . Please see Notice for important disclosures regarding the information contained herein. 10 PGIM FIXED INCOME U.S. Interest Rates Yield Curve Across Maturities U.S. Interest Rates • Following the 3.5% decline in US GDP in 2020, we expect growth to rebound sharply to about 1Q2021 YTD 2021 6.5% in 2021; fiscal stimulus, including a potential infrastructure package later in the year will be Maturity 12/31/2020 5/31/2021 Change (bps)1 Change (bps) very supportive for growth. However, the quarter-over-quarter rate of growth is likely to peak soon and is expected to steadily decelerate over the next couple of years. European growth has Fed Funds 0.00%-0.25% 0.00%-0.25% 0 0 stalled out over the past two quarters but is expected to resume positive growth in 2Q 2021; Euro area is expected to grow about 5% for full year 2021. China has led the global recovery and will likely grow 9% in 2021. 3 month 0.07 0.01 -5 -6 • The Federal Reserve remains committed to a highly accommodative monetary policy stance in 2 year 0.12 0.14 4 2 line with their new policy framework whereby they will target an inflation rate that averages 2% over several years. Despite the fact that year-over-year inflation will likely exceed 2% throughout 5 year 0.36 0.80 58 44 parts of 2021, we believe the Fed will view this as transitory and the new policy will result in a lower fed funds rate for a longer period than in past cycles. Likewise, global rates should remain low and rangebound with the U.S. 10-year treasury yield likely to remain well below 2% over the 10 year 0.92 1.60 83 68 intermediate term.
30 year 1.65 2.28 77 64 • The key risks are: slow rollout of COVID vaccines and spikes in cases in certain countries, financial stability risks in asset markets, increasing concerns about rising U.S. long-term interest rates and inflation in 2021 if economic activity is hotter than expected, and abrupt changes in monetary policy. U.S. Treasury Yield Curve Yield Spread Between 3 Month and 10s Bps 2.8% 2.5% 12/31/2020 500 2.3% 5/31/2021 2.0% 400 1.8% 300 1.5% 1.3% 200 1.0% 0.8% 100 0.5% 0.3% 0 0.0% -100
Past performance is not a guarantee or a reliable indicator of future results. Please see Notice for important disclosures. There is no guarantee these expectations will be achieved. 1 Tables and charts as of May 31, 2021. Source: Bloomberg and PGIM Fixed Income. As of March 31, 2021. 11 PGIM FIXED INCOME Curve Adjusted Fixed Income Excess Returns Year-to-Date 2021 Excess Returns Curve-Adjusted Excess Returns
Excess Returns 2017 2018 2019 2020 1Q20212 YTD 2021 Aaa Corporate 336 -199 461 -32 120 148 Aa Corporate 209 -135 356 37 91 141 A Corporate 291 -315 544 68 45 96 Baa Corporate 419 -347 841 47 136 203 U.S. Corporate IG 346 -315 676 49 95 154 European Corporate IG 347 -249 515 181 33 72 Sterling Corporate IG 320 -310 638 380 14 59 U.S. Corporate Short (1-5) 162 -44 273 109 5 51 U.S. Corporate IG INT (1-10) 256 -153 454 117 3 57 U.S. Corporate IG Long (10+) 554 -651 1,160 -133 236 305 European Corporate IG Long (10+) 535 -707 949 339 28 66 Build America Bonds 552 -188 402 3 284 399 Crossover (including Fitch) 618 -382 996 881 285 363 Ba U.S. High Yield 575 -380 1,024 484 222 285 B U.S. High Yield 514 -286 1,004 14 227 298 Ba Euro High Yield 786 -378 1,075 192 163 254 B Euro High Yield 646 -449 1,035 -34 205 332 US Bank Loans1 314 -93 557 170 195 295 AAA CLOs1 156 -57 223 146 43 59 Asset-Backed Securities 92 13 71 106 15 33 Investment Grade CMBS 178 -17 190 15 64 144 AAA CMBS 143 -41 158 89 26 94 U.S. MBS: Agency Fixed Rate 52 -59 61 -17 15 -9 Emerging Markets (Investment Grade) 501 -198 691 -89 121 120 Emerging Markets (High Yield) 788 -587 532 -249 5 306
Past performance is not a reliable indicator of future results. Please see the Notice for important disclosures regarding the information contained herein. As of: May 31, 2021. Source: Bloomberg Barclays. You cannot invest directly in an index. 1Excess return represents CSFB Leveraged Loan index total return versus the total return for Merrill Lynch 3-month LIBOR. 2As of March 31, 2021. 12 PGIM FIXED INCOME Performance Attribution Summary Institutional Business Trust Absolute Return Fund Performance Attribution September 1, 2020 – May 31, 2021 Performance Impact Bps Duration -78 Curve -149 Attribution Commentary FX +17 Sector Allocation +328 Duration/Curve/FX Cash -12 Treasury 0 • Long duration positioning and curve flattening bias detracted from Sovereign 0 performance as US Treasury rates sold off and the curve steepened over Agency 0 the period. MBS/CMO 0 • Currency P&L was primarily driven by KRW, MXN, and EUR over the CMBS +16 period. CLO +52 ABS +4 Sector Allocation Municipals +3 • Overweights in High Yield, Investment Grade Corporates, CLOs, and Investment Grade Corporate +66 Emerging Markets added to performance as spreads tightened over the High Yield +170 period. Bank Loans +8 Emerging Market +22 Security Selection/Trading Security Selection +173 • Security Selection in Upstream Energy issuers such as Chesapeake Cash -1 Energy and Transocean as well as positioning in Aerospace & Defense Treasury +29 issuers such as Bombardier added to performance. Sovereign +10 Interest Rate Swaps -10 • Security selection in Cable & Satellite issuers such as CSC Holdings and Agency +1 CCO Holdings in addition to positioning in Banking issuers such as MBS/CMO 0 Citigroup and Goldman Sachs limited results. CMBS +35 • In Emerging Markets, positioning in issuers such as Petroleos Mexicanos, Non-Agency RMBS +9 Petrobras Global Finance, and Ghana positively contributed to returns. CLO +5 ABS +10 • Within Treasuries, positioning in Futures was positive. Municipals +2 • Outperformance in Sovereigns was led by positioning in Greece and Italy. Investment Grade Corporate +21 High Yield +14 • In CMBS, positioning in Single Asset Single Borrower added to results. Bank Loans +1 • Within ABS, positioning in Consumer Loans and Auto Loans was positive. Emerging Market +46 Other +3 Trading -12 Total +279
Source of portfolio attribution: PGIM Fixed Income. Attribution shown above is based on gross returns. Represents attribution vs. the 3 Month Libor Average. Source of Benchmark: ICE Data Indices, LLC. Totals may not sum due to rounding. Past performance is not a reliable indicator of future performance. Please see Notice for important disclosures regarding the information contained herein. 13 PGIM FIXED INCOME Performance Attribution—Industry & Issuer Institutional Business Trust Absolute Return Fund
Top Ten Contributors By Industry Top Ten Contributors By Issuer September 1, 2020 – May 31, 2021 September 1, 2020 – May 31, 2021 Active Active Contribution Active Market Duration Contribution Active Market Duration Industry (bps) Val % Contribution Issuers (bps) Val % Contribution ENERGY - UPSTREAM 42.47 3.01% 0.16 CHESAPEAKE ENERGY CORPORATION 21.85 0.19% 0.00 FOREIGN NON-CORPORATE 32.12 6.52% 0.38 BOMBARDIER INC 13.02 0.58% 0.01 AEROSPACE & DEFENSE 15.57 0.90% 0.03 PETROLEOS MEXICANOS 11.65 1.01% 0.05 ENERGY - MIDSTREAM 5.78 1.52% 0.08 TRANSOCEAN INC 6.55 0.07% 0.00 CHEMICALS 5.20 1.45% 0.05 GREECE REPUBLIC OF (GOVERNMENT) 6.00 0.80% 0.08 RETAILERS & RESTAURANTS 4.41 1.73% 0.04 PETROBRAS GLOBAL FINANCE BV 4.41 0.41% 0.02 GAMING & LODGING & LEISURE 4.08 1.41% 0.08 FERRELLGAS LP 4.12 0.04% 0.00 OTHER INDUSTRIAL 3.38 0.71% 0.02 CONCHO RESOURCES INC 3.83 0.39% 0.03 BROKERAGE & ASSET MANAGERS 3.25 0.53% 0.03 LEVIATHAN BOND LTD 3.79 0.29% 0.02 PAPER & PACKAGING 2.12 0.34% 0.02 ASCENT RESOURCES UTICA HOLDINGS 3.63 0.16% 0.00
Bottom Ten Contributors By Industry Bottom Ten Contributors By Issuer September 1, 2020 – May 31, 2021 September 1, 2020 – May 31, 2021 Active Active Contribution Active Market Duration Contribution Active Market Duration Industry (bps) Val % Contribution Issuers (bps) Val % Contribution CABLE & SATELLITE -8.81 2.29% 0.09 CSC HOLDINGS LLC -4.72 0.52% 0.03 HEALTH CARE & PHARMACEUTICAL -8.03 2.70% 0.24 CITIGROUP INC -4.50 0.60% 0.05 TELECOM -6.28 2.07% 0.18 ARGENTINA REPUBLIC OF GOVT -4.16 0.13% 0.01 BUILDING MATLS & HOME CONSTRN -5.39 1.57% 0.07 CALPINE CORP -3.96 0.29% 0.02 BANKING -5.06 3.48% 0.23 UNITED RENTALS (NORTH AMERICA) INC -3.40 0.51% 0.02 CAPITAL GOODS -4.52 0.96% 0.04 STANDARD INDUSTRIES INC -3.35 0.21% 0.02 CONSUMER NON-CYCLICAL -2.90 1.30% 0.05 AMERIGAS PARTNERS LP -2.94 0.32% 0.02 OTHER FINANCIAL -0.43 0.18% 0.00 CCO HOLDINGS LLC -2.92 0.81% 0.03 FINANCE COMPANIES -0.40 0.04% 0.00 ALTICE FRANCE SA (FRANCE) -2.43 0.32% 0.02 PROPERTY & CASUALTY -0.21 0.60% 0.05 BRISTOL-MYERS SQUIBB CO -2.37 0.53% 0.09
Source of portfolio attribution: PGIM Fixed Income. Attribution shown above is based on gross returns Represents attribution vs. the 3 Month Libor Average. Source of Benchmark: ICE Data Indices, LLC. Totals may not sum due to rounding. Past performance is not a reliable indicator of future performance. Please see Notice for important disclosures regarding the information contained herein. 14 PGIM FIXED INCOME Portfolio Positioning
Institutional Business Trust Absolute Return Fund
As of May 31, 2021
Characteristics Portfolio Benchmark
Market Value ($) 76,778,406 --- Client Market Value ($) 24,304,022 --- Effective Duration (yrs) 1.40 0.25 Effective Yield (%)1 2.14 0.13 Average Quality A2 Aa2 Option Adjusted Spread(bps) 166 0 Number of Issuers 283 1
Sector Distribution² Quality Distribution³ U.S. Govt 18% AAA 43% Mortgages 2% IG Corporates 12% AA 5% Active Non-US Govt Related 0% Exposure (%) A 4% CMBS 12% Industrials +25 BBB 18% CLO 22% Financials +7 ABS 6% BB 14% Non-U.S. Govt 0% Utilities +2 B 8% Municipals 0% Portfolio Portfolio CCC and Below 3% High Yield 16% Bank Loan 2% Not Rated 5% Emerging Markets 8% 0% 10% 20% 30% 40% 50% Cash & Equivalents 1%
0% 10% 20% 30% IBTABRET Source of portfolio data: PGIM Fixed Income. Benchmark: 3 Month Libor Average. Source of Benchmark: ICE Data Indices, LLC. Please see Notice for important disclosures regarding the information contained herein. Benchmark statistics based on PGIM analytics and may differ from published statistics by official benchmark vendors. 1. Effective yield is calculated excluding the yield impact of foreign exchange positions and derivatives (other than interest rate futures, which are included in the calculation). 2. Excludes swaps 3. Quality ratings exclude cash and FX hedges and are reported as the middle of Moody’s, S&P, and Fitch–excluding cash and cash equivalents. Current themes provided for discussion purposes only. Does not constitute a recommendation regarding the merits of any investments. Does not constitute investment advice and should not be used as the basis for any investment decision. Does not constitute a representation that the firm has purchased or would purchase any of the investments referenced or that any such investments would be profitable. 15 3 Market Review & Outlook
The comments, opinions, and estimates contained herein are based on and/or derived from publicly available information from sources that PGIM Fixed Income believes to be reliable. We do not guarantee the accuracy of such sources or information. This outlook, which is for informational purposes only, sets forth our views as of this date. The underlying assumptions and our views are subject to change. Past performance is not a guarantee or a reliable indicator of future results.
16 PGIM FIXED INCOME Global Economic Activity A Strong Global Recovery Has Taken Hold
Global Real GDP Global PMIs As of 2021Q1 As of April/May 2021 Index, 2019Q4=100 50+= Expansion 60 106 Pre-Pandemic 55 104 Projected Global Potential GDP* 102 50
100 45 98 Q4 Q1e 40 Services 96 Manufacturing
94 35
92 30 Global 90 Global (ex. China) 25 88
86 20 2019 2020 2021 2018 2019 2020 2021
Source: Haver Analytics, PGIM Fixed Income, JP Morgan. Note: Fourth quarter estimate is from JP Morgan. Source: Haver, PGIM Fixed Income, Markit *For more information see “Prospects for Global Potential Growth: The Next Decade”; https://www.pgim.com/fixed-income/white-paper/prospects-global-potential-growth-next-decade 17 PGIM FIXED INCOME Global Macro Outlook
The Global Economy is Now Rebounding From the Widespread Shutdowns
Annual Growth (%)
2015 2016 2017 2018 2019 2020 2021-Forecast1 2022-Forecast1
PGIM PGIM Actual Actual Actual Actual Actual Actual Bloomberg Fixed Bloomberg Fixed Survey Income Survey Income
Global 3.2 3.1 3.8 3.7 2.8 -3.2 6.6 6.5 4.5 4.2
U.S. 3.1 1.7 2.3 3.0 2.2 -3.5 6.6 6.4 4.1 4.5
Euro Area 2.0 1.9 2.6 1.9 1.3 -6.5 4.5 5.2 4.2 3.9
Japan 1.6 0.7 1.7 0.6 0.3 -4.9 2.6 3.0 2.4 1.8
United Kingdom 2.4 1.7 1.7 1.3 1.4 -9.8 6.7 6.4 5.4 4.2
China 4.8 7.7 6.9 6.7 6.0 2.3 8.5 9.0 5.5 4.5
Past performance is not a guarantee or a reliable indicator of future results. Please see Notice for important disclosures. The forecasts presented herein are for informational purposes. There can be no assurance that these forecasts will be achieved. As of June 30, 2021. Source: PGIM Fixed Income and Bloomberg. Survey forecast for global growth based on average forecast from several broker dealers and PGIM Fixed Income calculations.1Global growth aggregated with PPP weights. 18 PGIM FIXED INCOME Global Inflation Global Inflation Has Accelerated Recently
Inflation Expectations* Global Core Inflation As of June 2021 As of April 2021 12-Month, Percent Percent United States 2.5 5 Germany Global Japan Advanced Economies 2.0 Emerging Markets 4
1.5 3
1.0
2 0.5
1 0.0
-0.5 0 2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021
*10-year breakeven inflation rates. Source: Bloomberg. Source: Haver Analytics, PGIM Fixed Income. 19 PGIM FIXED INCOME Global Inflation Pandemic Has Led to a Shift in Relative Prices
Global Core CPI Inflation Core PCE Inflation As of May 2021 5 As of May 2021 3.5 Core Goods Positively Impacted Categories Neutral Categories 4 3.0 Core Services Negatively Impacted Categories
2.5 3
2.0 2
1.5 Month, Month, Percent
- 1
12 Month, Month, 12 Percent 12 1.0
0 0.5
0.0 -1 2008 2010 2012 2014 2016 2018 2020 2013 2014 2015 2016 2017 2018 2019 2020 2021
Selected Positively Impacted Categories Selected Negatively Impacted Categories Motor Vehicles Owner Equivalent Rents Furnishings/Household Equipment Public Transportation TVs/Tablets/Computers Accommodations Recreational Books Sports/Theatre/Park Tickets Games, Toys & Hobbies Higher Education Flowers & Potted Plants Child Care Household Supplies Clothing & Footwear Moving, Storage & Freight Luggage Gambling
Source: BEA, Haver Analytics, PGIM Fixed Income. 20 PGIM FIXED INCOME U.S. Fiscal Position Public Debt and Deficits Have Surged, Which Should Ultimately Slow Growth
Government Deficit Government Debt As of 2020 As of 2020
Percent of GDP Percent of GDP Projected > Projected > 16 120 Current Forecast 14 100 12 80 CBO Forecast 10 March 2020
8 60
6 40 4 20 2
0 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
Source: PGIM Fixed Income, CBO, UBS.
21 PGIM FIXED INCOME U.S. Monetary Policy
Fed Has Cut Rates to Zero Lower Bound
Fed Funds Rate Evolution of Fed Balance Sheet As of May 2021 As of April 2021 Percent Trillions USD 3.0 Fed Funds Rate 10 Market Implied 2.5 Mar 2021 FOMC Projection 9 Sell-Side Forecast
2.0 8
1.5 7
1.0 6 "Consensus" Tapering Timeline Discussed (Aug*) 0.5 5 Formally Announced (Nov) Begins (Jan) Concludes (End 2022)
0.0 4 Dec-19 Dec-20 Dec-21 Dec-22
*Jackson Hole. *Median projection. Source: Federal Reserve Board, BEA Source: Federal Reserve Board 22 PGIM FIXED INCOME Global Economy Central Bank Balance Sheets Are Surging
Central Bank Assets as a % of GDP Central Bank Assets (Billion $) As of December 2020 Billion $ As of December 2020 140% 30,000 Fed Fed BoE BoE 120% BoJ 25,000 BoJ ECB
ECB 100% 20,000
80%
15,000 60%
10,000 40%
20% 5,000
0% 0
*Q4-2020 nominal GDP for the Euro Area is a projection
Source: Haver Analytics and PGIM Fixed Income. As of December 2020. There is no guarantee that the projections shown will be achieved. Please see Reference for important disclosures regarding the information contained herein. 23 PGIM FIXED INCOME Forward Interest Rates Forward Rates and Inflation Expectations Have Already Likely Overshot on the Upside
U.S. Forward Interest Rates U.S. 5-Year Inflation Breakevens As of May 31, 2021 As of May 31, 2021
3.5% 5yr5yr Forward 3.0%
10yr10yr Forward
3.0% 2.5%
2.5% 2.0%
2.0% 1.5%
1.5% 1.0%
1.0% 0.5% 5yr5yr Forward Breakeven
0.5% 0.0%
Source: Bloomberg and PGIM Fixed Income.
24 PGIM FIXED INCOME Asset Allocation Despite Aging Population, U.S. Household Allocations to Equity Risk Near All Time Highs
Household Asset Allocation 1952 to 2020 0.7
0.6 55%
0.5 Avg 1952-2018: 46%
0.4
Avg 1952-2018: 32% 0.3 24% Avg 1952-2018: 22% 0.2 22%
0.1
0
Cash Bonds Equities
Source: Federal Reserve Board/Haver Analytics as of September 30, 2020. Look through approach for mutual funds, retirement funds excluded . Household sector includes nonprofits, domestic hedge funds, private equity funds, and personal trusts. Cash = Deposits + Money market mutual funds + Open market paper - consumer credit – bank loans – other loans 25 PGIM FIXED INCOME U.S. Corporate Bond Fundamentals Credit Fundamentals Weakened During Global Recession, but are Poised to Improve Leverage Ratios Likely to Decline Interest Coverage Weakened Modestly Total Debt / EBITDA (Pre-tax Profit plus Net Interest / Net Interest) As of March 31, 2021 As of March 31, 2021
30% 3.5x 21x 20% 3.0x 19x 17x 10% 2.5x 2.0x 15x 0% 1.5x 13x -10% 1.0x 11x -20% 0.5x 9x EBITDA Growth YoY% Total Debt/EBITDA (rhs) Coverage -30% 0.0x 7x
Source: JPMorgan. Source: Department of Commerce
Profit Margins Continue at Strong Levels Share Buybacks and Dividends Restrained As of March 31, 2021 As of March 31, 2021 $ (000’s) 32% 500,000 Share Buybacks (LTM) 30% 450,000 Dividends (LTM) 28% 400,000 26% 350,000 24% 300,000 250,000 22% 200,000 20% 150,000 18% Profit Margins 100,000 16% 50,000 14% 0
Source: JPMorgan. Source: JPMorgan. Share buybacks and dividends based on the companies in their Fundamentals analysis 26 PGIM FIXED INCOME U.S. Credit Spreads Corporate Spreads Have Narrowed—But Seem Poised to Grind Even Tighter
Investment-Grade Bond Index High-Yield Bond Index As of June 23, 2021 As of June 23, 2021 Bps Bps 400 1600 Corporate Index Current: 82 bps HY Index Current: 313 bps Avg Average: 150 bps Avg Average: 552 bps 350 Avg + 1 Std. 1400 Avg + 1 Std. Avg - 1 Std. Avg - 1 Std. 300 1200
250 1000
200 800
150 600
100 400
50 200
0 0
Source: ICE BofAML and PGIM Fixed Income. Source: Bloomberg Barclays.
Source ICE Data Indices, LLC, used with permission, ICE Data Indeces, LLC IS LICENSING THE DATA INDICES AND RELATED DATA ‘AS IS’ MAKES NO WARRANTIES REGARDING SAME, DOES NOT GUARANTEE THE SUITABILITY, QULITY, ACCURACY, TIMMELINESS, AND/OR COMPLETENESS OF THE ICE DATA INDICES IR ANY DATA INCLUDED IN, ASSUMES NO LIABILITY IN CONNECTION WITH THEIR USE, AND DOES NOT SPONSOR, ENDORSE, OR RECOMMEND PGIM FIXED INCOME, ORANY OF ITS PRODUCTS OR SERVICES 27 4 Reference
28 PGIM FIXED INCOME Client Team Biographies
Peter Taggart is a Principal, Client Advisory for PGIM Fixed Income. Mr. Taggart works with our largest institutional investors in developing fixed income solutions to meet their needs. Mr. Taggart has more than 20 years of experience in the investment management business, structuring and managing portfolios for U.S. and international institutions. Prior to joining the Firm in 2002, Mr. Taggart was Executive Director of Marketing with WestAM. Previously, Mr. Taggart was Managing Director with Forstmann-Leff, where he was responsible for marketing equity, fixed income and private equity investment services to institutions. Prior to Forstmann-Leff, Mr. Taggart was with Salomon Brothers Asset Management for nine years, in both bond portfolio management and client relations positions and at First Boston Asset Management, where he was a bond Portfolio Manager. Mr. Taggart received a BA in Computer Science from Colgate University.
Kate Strangfeld, CFA, is a member of the Client Advisory Group. Ms. Strangfeld works with our institutional investors in developing fixed income solutions to meet their needs. Ms. Strangfeld joined the Firm in 2013. Prior to joining the Client Advisory Group, Ms. Strangfeld was a member of PGIM Fixed Income's Operations Organization where she worked with clients and custodians to track portfolio flows, perform account reconciliations, and handled day-to-day client requests. Ms. Strangfeld received a BS in Business Management from Susquehanna University and holds the Chartered Financial Analyst (CFA) designation.
Scott DuCasse, CFA, is a Vice President in Client Management for PGIM Fixed Income. Mr. DuCasse is responsible for providing ongoing service to PGIM Fixed Income’s institutional clients. This includes development of customized client communication plans, responding to daily inquiries, and coordination of activity with our clients’ other service providers. Prior to joining the Firm in 2015, Mr. DuCasse spent 16 years at JPMorgan Asset Management in a variety of client service and project management roles, supporting U.S. public and private pension plans, defined contribution plans, and sovereign wealth funds to meet their servicing needs, as well as overseeing the bank's commingled pension trust funds. Mr. DuCasse received a BBA in Accounting from Adelphi University, and holds the Chartered Financial Analyst (CFA) designation.
Jacob Grimm is an Associate Manager in Client Management for PGIM Fixed Income. Mr. Grimm is responsible for providing comprehensive client service for PGIM Fixed Income’s institutional clients. Prior to joining Client Management in 2019, Mr. Grimm was a Senior Client Reporting Analyst where he assisted in managing the team responsible for both U.S. clients and hedge fund reporting. He joined the Firm in 2014 as a member of the Fixed Income Operations rotation program where he rotated through multiple teams including, Portfolio Administration, Securities Lending, Performance, and Collateral Management. Mr. Grimm received a BS in Finance and a minor in Economics from Rutgers Business School.
For purposes of the biographies, the “Firm” is defined as Prudential Financial, Inc. ("PFI"). All PGIM and Prudential named entities are subsidiaries or affiliates of PFI. PFI. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. 29 PGIM FIXED INCOME Portfolio Manager Biographies
Gregory Peters is a Managing Director and Head of PGIM Fixed Income’s Multi-Sector and Strategy. Mr. Peters is a senior portfolio manager for Core, Long Government/Credit, Core Plus, Absolute Return, and other multi-sector Fixed Income strategies, in addition to having oversight of the firm's investment strategy function. Prior to joining the Firm in 2014, Mr. Peters was the Chief Global Cross Asset Strategist at Morgan Stanley, responsible for the Firm's macro research and asset allocation strategy. In addition, he was Morgan Stanley's Global Director of Fixed Income & Economic Research. Earlier, he worked at Salomon Smith Barney and the Department of U.S. Treasury. He received a BA in Finance from The College of New Jersey and an MBA from Fordham University. Mr. Peters is a member of the Fixed Income Analyst Society and the Bond Market Association. Mr. Peters was named a 2019 winner of the Pension and Investment Provider Award for Global Multi-Asset Credit.
Michael J. Collins, CFA, is a Managing Director and Senior Portfolio Manager for Core, Core Plus, Absolute Return, and other Multi-Sector Fixed Income strategies. Previously, Mr. Collins was a High Yield Portfolio Manager and Fixed Income Investment Strategist. Earlier he was a credit research analyst, covering investment grade and high yield corporate credits. Additionally, he developed proprietary quantitative international interest rate and currency valuation models for our global bond unit. Mr. Collins began his career at the Firm in 1986 as a software applications designer. He received a BS in Mathematics and Computer Science from Binghamton University and an MBA in Finance from New York University. Mr. Collins holds the Chartered Financial Analyst (CFA) designation and is a Fellow of the Life Management Institute (FLMI). He currently serves as the Treasurer on the Board of CEA, a non-profit that provides education and employment for people with disabilities. Mr. Collins was named a 2019 winner of the Pension and Investment Provider Award for Global Multi-Asset Credit.
Richard Piccirillo is a Managing Director and senior portfolio manager for PGIM Fixed Income’s Core, Long Government/Credit, Core Plus, Absolute Return, and other multi-sector Fixed Income strategies. Mr. Piccirillo had specialized in mortgage-and asset-backed securities since joining the Firm in 1993. Before joining the Firm, Mr. Piccirillo was a fixed income analyst with Fischer Francis Trees & Watts. Mr. Piccirillo started his career as a financial analyst at Smith Barney. He received a BBA in Finance from George Washington University and an MBA in Finance and International Business from New York University. Mr. Piccirillo was named a 2019 winner of the Pension and Investment Provider Award for Global Multi-Asset Credit.
Lindsay Rosner, CFA, is Principal on the Multi-Sector Portfolio Management Team for PGIM Fixed Income. Her primary responsibilities are supporting our efforts in managing multi-sector portfolios across several mandates, including Core, Core Plus, and Core Conservative, both intermediate and long duration. Prior to joining the Firm in 2012, Ms. Rosner worked for Barclays Capital (and prior to that, Lehman Brothers) in New York City where she was a convertible bond trader, working with both hedge fund and traditional money management clients. Ms. Rosner is a graduate of Princeton University. She received a BA from the Woodrow Wilson School of Public and International Affairs. Ms. Rosner holds the Chartered Financial Analyst (CFA) designation.
30 PGIM FIXED INCOME Investment Performance
Institutional Business Trust Absolute Return Fund
Client Investment Performance As of May 31, 2021
Since YTD Inception1
Fund (Gross %) 0.00 2.46
Benchmark (%)2 0.08 0.18
Increment (bps) -8 +228
Increment may not sum due to rounding.
Source of Client Performance Data: Prudential Trust Company and/or certain affiliates. Performance shown gross of fees. Performance reported in USD. Past performance is not a reliable indicator of future performance. Performance over one-year is annualized. 1. Inception Date: August 10th, 2020. 2. Benchmark: 3 Month Libor Average. Source of Benchmark: ICE Data Indices, LLC Please see Notice for important disclosures regarding the information contained herein. 31 PGIM FIXED INCOME Fixed Income Market Outlook Investment Grade Corporate Bonds June 2021
Factors Outlook Comments Following the 3.5% decline in US GDP in 2020, we expect growth to rebound sharply to about 6.5% in 2021; fiscal stimulus, including a potential infrastructure package later in the year will be very supportive for growth. However, the quarter-over-quarter rate of growth is likely to peak soon and is expected to steadily decelerate over the next couple of Economic conditions/Corporate fundamentals + years. First quarter 2021 earnings increased about 50% over year ago levels and full year earnings growth is now expected to exceed 30%. Corporate management teams, primarily of BBB-rated issuers, remain aligned with bondholders and continue to reduce expenses, defer share buybacks, and improve free cash flow. Management teams were keenly focused on ensuring that they had sufficient liquidity to withstand a protracted slowdown and they increased debt to do so. However, we expect that companies’ focus will now shift to reducing debt and leverage Management Priorities – Industrials +/- as the economy rebounds. M&A Activity has increased recently particularly in higher quality industrials and bears close watching as the priorities of BBB and A management teams may diverge with the former focused on debt reduction and latter pursuing more shareholder friendly actions.
After building significant reserves, banks earnings are benefitting from reserve releases as loan losses remain well Management Priorities – Financials + contained. Capital levels exceed required levels and banks are starting to resume share buybacks within the constraints imposed by regulators.
Spreads tightened by 4 bps in May leaving the corporate index 84 bps cheap to Treasuries. Despite spreads at, or in Historical spreads vs. govt/other asset classes +/- some cases, tighter than the levels they were before the pandemic there are pockets of opportunity in Covid-impacted, Cyclical and low-BBB rated issuers. Liquidity is solid with active markets. Potential risks to the market include new variants of the Coronavirus, the pace of Liquidity/Spread Volatility + vaccinations, tight valuations an increase in M&A and/or share buybacks, and the potential for the administration to try to raise taxes and to implement more stringent regulations. Investment Grade bond issuance in May was $130 billion, which was 15% lower than the last four years’ May average of Supply/Demand + $156 billion (excluding Covid-driven supply in May 2020). Overseas demand has been robust benefitting from low global yields and a steep US yield curve (which increase the attractiveness on a hedge basis) Yield curve between 5-year and 30-year maturities steepened by 3bps in May. Low yields and steep curves could spur Yield Curve Shape + increased demand for US IG Corporate bonds. + Positive 0 Neutral – Negative
In anticipation of improving economic conditions, we are looking to take advantage of spread compression opportunities in Covid-impacted industries, cyclicals, and in 20yr “off-the- run” bonds. We also continue to favor US money center banks and electric utilities. Within industrials, BBB issuers that are focused on preserving or improving credit metrics, liquidity, and ratings are favored over their much tighter trading, higher-quality peers, which may be more likely to pursue aggressive financial policies at the expense of the balance sheet. We are also optimistic on the Upstream Energy sector as we expect companies to continue to deleverage and we anticipate global oil demand to continue to rebound this year.
Source: PGIM Fixed Income. Provided for discussion purposes only. The comments, opinions, and estimates contained herein are based on and/or derived from publicly available information from sources that PGIM Fixed Income believes to be reliable. We do not guarantee the accuracy of such sources or information. This outlook, which is for informational purposes only, sets forth our views as of this date. The underlying assumptions and our views are subject to change. Does not constitute a recommendation regarding the merits of any investments. Does not constitute investment advice and should not be used as the basis for any investment decision. Does not constitute a representation that PGIM 32 Fixed Income has purchased or would purchase any of the investments referenced or that any such investments would be profitable. Past performance is not a guarantee or a reliable indicator of future results. PGIM FIXED INCOME Fixed Income Market Outlook Agency Mortgages
June 2021
Factors Outlook Comments
Supply/Demand 0 Fed and bank demand remain, while net supply has been increasing.
Liquidity 0 Fed’s daily asset purchases are creating dislocations within certain coupons and settlement months.
Dollar Rolls (financing) + TBA dollar rolls are trading special due to strong demand technicals.
Aggregate prepayment speeds have slowed. Prepayments 0 However, Fed reinvestment needs will be less as prepayment speeds have declined.
Current Coupon / OAS - Nominal and option-adjusted spreads remain at the tight end of the range.
+ Positive 0 Neutral – Negative
Summary
• Nominal and option-adjusted spreads have tightened significantly on Fed and bank buying and remain near the tight end of the range. • We are currently leaning underweight versus intermediate rates, while strong dollar roll performance creates headwinds. • Net supply has been slowly increasing, while Fed reinvestment needs may be lower going forward due to slower aggregate prepayment speeds. • We prefer specified pools for better fundamental value vs. TBA generics.
Source: PGIM Fixed Income. Provided for discussion purposes only. The comments, opinions, and estimates contained herein are based on and/or derived from publicly available information from sources that PGIM Fixed Income believes to be reliable. We do not guarantee the accuracy of such sources or information. This outlook, which is for informational purposes only, sets forth our views as of this date. The underlying assumptions and our views are subject to change. Does not constitute a recommendation regarding the merits of any investments. Does not constitute investment advice and should not be used as the basis for any investment decision. Does not constitute a representation that PGIM Fixed Income has purchased or would purchase any of the investments referenced or that any such investments would be profitable. Past performance is not a guarantee or a reliable indicator of future results. 33 PGIM FIXED INCOME Fixed Income Market Outlook Securitized Products
June 2021
Factors Outlook Comments
The strong economic rebound, combined with aggressive fiscal stimulus, bodes well for consumer-related asset + Economy/Environment/Fed performance
Collateral Performance - Collateral performance is recovering slowly across many sector but tail risk remains, particularly in mezzanine classes
Net issuance is negative or only marginally positive across many securitized sectors. Seeing more investor demand at + Supply/Demand current levels, particularly given tight spreads in other front-end carry sectors
Liquidity 0 Liquidity is adequate but dealer risk appetite to position paper is increasingly fragile
Deals with significant enhancement (and lower downgrade risk) generally provide better relative value at current + Spreads/Valuations spreads.
+ Positive 0 Neutral – Negative
Positive on the following securities given attractive valuations relative to other fixed income sectors:
• CLO AAAs and AAs, which have significant collateral enhancement relative to collateral performance
• Conduit CMBS with significant credit enhancement and select single-asset/single-borrower mezzanines
Source: PGIM Fixed Income. Provided for discussion purposes only. The comments, opinions, and estimates contained herein are based on and/or derived from publicly available information from sources that PGIM Fixed Income believes to be reliable. We do not guarantee the accuracy of such sources or information. This outlook, which is for informational purposes only, sets forth our views as of this date. The underlying assumptions and our views are subject to change. Does not constitute a recommendation regarding the merits of any investments. Does not constitute investment advice and should not be used as the basis for any investment decision. Does not constitute a representation that PGIM Fixed Income has purchased or would purchase any of the investments referenced or that any such investments would be profitable. Past performance is not a guarantee or a reliable indicator of future results.
34 PGIM FIXED INCOME Notice Page
PGIM Fixed Income operates primarily through PGIM, Inc., a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended, and a Prudential Financial, Inc. (“PFI”) company. Registration as a registered investment adviser does not imply a certain level or skill or training. PGIM Fixed Income is headquartered in Newark, New Jersey and also includes the following businesses globally: (i) the public fixed income unit within PGIM Limited, located in London; (ii) PGIM Netherlands B.V. located in Amsterdam; (iii) PGIM Japan Co., Ltd. (“PGIM Japan”), located in Tokyo; (iv) the public fixed income unit within PGIM (Singapore) Pte. Ltd., located in Singapore (“PGIM Singapore”); and (v) the public fixed income unit within PGIM (Hong Kong) Ltd. located in Hong Kong. PFI of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. Prudential, PGIM, their respective logos and the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide.
In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V., an entity authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands and operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses available to PGIM Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. These materials are issued by PGIM Limited and/or PGIM Netherlands B.V. to persons who are professional clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II). In certain countries in Asia-Pacific, information is presented by PGIM (Singapore) Pte. Ltd., a Singapore investment manager registered with and licensed by the Monetary Authority of Singapore. In Japan, information is presented by PGIM Japan Co. Ltd., registered investment adviser with the Japanese Financial Services Agency. In South Korea, information is presented by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean investors. In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commission in Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 (paragraph (a) to (i) of the Securities and Futures Ordinance (Cap.571). In Australia, this information is presented by PGIM (Australia) Pty Ltd (“PGIM Australia”) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). PGIM Australia is a representative of PGIM Limited, which is exempt from the requirement to hold an Australian Financial Services License under the Australian Corporations Act 2001 in respect of financial services. PGIM Limited is exempt by virtue of its regulation by the FCA (Reg: 193418) under the laws of the United Kingdom and the application of ASIC Class Order 03/1099. The laws of the United Kingdom differ from Australian laws. In South Africa, PGIM, Inc. is an authorised financial services provider – FSP number 49012. In Canada, pursuant to the international adviser registration exemption in National Instrument 31-103, PGIM, Inc. is informing you of that: (1) PGIM, Inc. is not registered in Canada and is advising you in reliance upon an exemption from the adviser registration requirement under National Instrument 31-103; (2) PGIM, Inc.’s jurisdiction of residence is New Jersey, U.S.A.; (3) there may be difficulty enforcing legal rights against PGIM, Inc. because it is resident outside of Canada and all or substantially all of its assets may be situated outside of Canada; and (4) the name and address of the agent for service of process of PGIM, Inc. in the applicable Provinces of Canada are as follows: in Québec: Borden Ladner Gervais LLP, 1000 de La Gauchetière Street West, Suite 900 Montréal, QC H3B 5H4; in British Columbia: Borden Ladner Gervais LLP, 1200 Waterfront Centre, 200 Burrard Street, Vancouver, BC V7X 1T2; in Ontario: Borden Ladner Gervais LLP, 22 Adelaide Street West, Suite 3400, Toronto, ON M5H 4E3; in Nova Scotia: Cox & Palmer, Q.C., 1100 Purdy’s Wharf Tower One, 1959 Upper Water Street, P.O. Box 2380 - Stn Central RPO, Halifax, NS B3J 3E5; in Alberta: Borden Ladner Gervais LLP, 530 Third Avenue S.W., Calgary, AB T2P R3.
All investments involve risk, including the possible loss of capital.
These materials are for informational or educational purposes only. The information is not intended as investment advice and is not a recommendation about managing or investing assets. In providing these materials, PGIM is not acting as your fiduciary.
The information herein is provided for informational purposes and is not meant to be legal or tax advice for any particular investor, which can only be provided by qualified tax and legal counsel. This document may contain confidential information and the recipient hereof agrees to maintain the confidentiality of such information. Distribution of this information to any person other than the person to whom it was originally delivered and to such person’s advisers is unauthorized, and any reproduction of this document, in whole or in part, or the divulgence of any of its contents, without PGIM Fixed Income’s prior written consent, is prohibited. Notwithstanding anything to the contrary herein, the recipient may disclose to any and all persons, without information of any kind, the tax treatment and tax structure of the account and all materials of any kind (including opinions or other tax analyses) that are provided to the recipient relating to such tax treatment and tax structure. No liability whatsoever is accepted for any loss (whether direct, indirect, or consequential) that may arise from any use by the recipient or any third party of the information contained in or derived from this document.
This document contains the current opinions of the manager and such opinions are subject to change. Certain information in this document has been obtained from sources that PGIM Fixed Income believes to be reliable as of the date presented; however, PGIM Fixed Income cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.
Unless otherwise indicated, the information, including, without limitation, holdings, rating data and opinions, contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. Ratings are based upon current information which may be changed, suspended or withdrawn by the rating agencies due to changes in, or unavailability of, financial information. Management's discussion herein represent the views, opinions and recommendations of the applicable investment management team regarding the economic conditions, asset classes, securities, issuers or financial instruments referenced herein. PGIM Fixed Income has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to its completeness or accuracy. Any information presented regarding the affiliates of PGIM Fixed Income is presented purely to facilitate an organizational overview and is not a solicitation on behalf of any affiliate. PGIM Fixed Income and its affiliates may make investment decisions, including for their proprietary accounts, and/or provide oral and written commentary that are inconsistent with the recommendations or views expressed herein.
These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. These materials do not constitute investment advice and should not be used as the basis for any investment decision.
An investment in your account or any other strategy mentioned herein involves certain risks. Due to, among other things, the nature of the markets and the investment strategies applicable to the account, an investment may only be suitable for certain investors. With the exception of the portfolio review section of this document which provides details of your account, the information regarding any other strategy does not take into account individual client circumstances, objectives or needs, and no determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects with regard to such information.
Any discussion of risk management is intended to describe PGIM Fixed Income’s efforts to monitor and manage risk but does not imply low risk. No risk management technique can guarantee the mitigation or elimination of risk in any market environment. No assurance can be made that profits will be achieved or that substantial losses will not be incurred. These materials are not intended for distribution to or use by any person in any jurisdiction where such 35 distribution would be contrary to local law or regulation. PGIM FIXED INCOME Notice Page
Any references to specific securities and their issuers in any strategy other than your account are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Any securities referenced may or may not be held in portfolios managed by PGIM Fixed Income and, if such securities are held, no representation is being made that such securities will continue to be held. Attributions are calculated on a gross basis and do not take into account fees or expenses. Totals may differ from the sum of components due to rounding. Past performance is not a guarantee or a reliable indicator of future results. The information contained herein has not been audited.
Any financial indices referenced herein as benchmarks are provided for informational purposes only. The use of benchmarks has limitations because portfolio holdings and characteristics will differ from those of the benchmark(s), and such differences may be material. You cannot make a direct investment in an index. Factors affecting portfolio performance that do not affect benchmark performance may include portfolio rebalancing, the timing of cash flows, credit quality, diversification and differences in volatility. In addition, financial indices do not reflect the impact of fees, applicable taxes or trading costs which reduce returns. Unless otherwise noted, financial indices assume reinvestment of dividends.
Any projections or forecasts presented herein are as of the date of this presentation and are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. PGIM Fixed Income has no obligation to provide updates or changes to any projections or forecasts.
All performance targets contained herein are subject to revision and are provided solely as a guide to current expectations. There can be no assurance that any product or strategy described herein will achieve any targets or that there will be any return of capital. Past performance is not a guarantee or a reliable indicator of future results and an investment could lose value.
© 2021 PFI and its related entities.
36 PGIM FIXED INCOME Notes To Performance
Gross returns do not reflect the deduction of investment advisory fees or other expenses it may incur in the management of its investment advisory account, but are after transaction costs. A client’s return will be reduced by such advisory fees and other management expenses. For example, a 1.00% management fee deducted quarterly would result in the following cumulative compounded reduction in portfolio time- weighted rate of return: 1 year = 1.004%, 3 year = 3.042%, 5 year = 5.121% and 10 year = 10.5%. The investment advisory fees are described in Part 2A of the Adviser’s Form ADV which is publicly available on the SEC's website at www.sec.gov, and available upon request. Fees represent the highest standard advisory fees currently in effect and may have been higher or lower historically. Fees may be higher for commingled accounts, insurance company separate accounts, and trust, corporate, or bank-owned life insurance products. Performance has been calculated in US dollars, unless otherwise noted in composite descriptions, and reflects the deduction of transaction costs and withholding taxes, if any, and the reinvestment of income. Core Conservative Composite Net Disclosure (Inception Date: January 1, 1989)— An investment management fee of 0.12% would have reduced the since inception annualized return ending March 31, 2021 from 6.32% to 6.20%. Core Composite Net Disclosure (Inception Date: January 1, 1991)— An investment management fee of 0.28% would have reduced the since inception annualized return ending March 31, 2021 from 6.30% to 5.97%. Japan Total Core Bond Composite Net Disclosure (Inception Date: January 1, 2003)— An investment management fee of 0.25% would have reduced the since inception annualized return ending March 31, 2021 from 1.84% to 1.50%. Global Core Composite Net Disclosure (Inception Date: September 1, 2008)— An investment management fee of 0.30% would have reduced the since inception annualized return ending March 31, 2021 from 4.78% to 4.43%. Core Plus Composite Net Disclosure (Inception Date: January 1, 1996)— An investment management fee of 0.30% would have reduced the since inception annualized return ending March 31, 2021 from 6.17% to 5.82%. Global Total Return Composite Net Disclosure (Inception Date: November 1, 2002)— An investment management fee of 0.35% would have reduced the since inception annualized return ending March 31, 2021 from 6.66% to 6.21%. Effective January 1, 2020, the Global Aggregate Plus Composite was renamed the Global Total Return Composite. Absolute Return Composite Net Disclosure (Inception Date: May 1, 2011)— An investment management fee of 0.40% would have reduced the since inception annualized return ending March 31, 2021 from 3.65% to 3.19%. Multi-Asset Credit Composite Net Disclosure (Inception Date: November 1, 2016)— An investment management fee of 0.40% would have reduced the since inception annualized return ending March 31, 2021 from 5.21% to 4.79%. Strategic Bond Composite Net Disclosure (Inception Date: September 1, 2015)— An investment management fee of 0.45% would have reduced the since inception annualized return ending March 31, 2021 from 7.13% to 6.65%. Effective March 1, 2019, the Unconstrained Bond Composite was renamed the Strategic Bond Composite. The strategy benchmark also changed from the ICE LIBOR 3-Month Average to the Bloomberg Barclays Intermediate U.S. Aggregate Bond Index. Global Dynamic Bond Composite Net Disclosure (Inception Date: January 1, 2016)— An investment management fee of 0.45% would have reduced the since inception annualized return ending March 31, 2021 from 7.06% to 6.56%. Short Duration Core Plus Composite Net Disclosure (Inception Date: February 1, 2014)— An investment management fee of 0.30% would have reduced the since inception annualized return ending March 31, 2021 from 3.34% to 3.03%. Short Term Corporate Composite Net Disclosure (Inception Date: January 1, 1994)— An investment management fee of 0.30% would have reduced the since inception annualized return ending March 31, 2021 from 5.13% to 4.83%. U.S. Short Duration Higher Quality High Yield Composite Net Disclosure (Inception Date: December 1, 2012)— An investment management fee of 0.50% would have reduced the since inception return ending March 31, 2021 from 5.69% to 5.16%. Long Duration (Government/Credit) Composite Net Disclosure (Inception Date: December 1, 2009)— An investment management fee of 0.28% would have reduced the since inception return ending March 31, 2021 from 7.50% to 7.20%. Corporate Fixed Income (Long Duration) Composite Net Disclosure (Inception Date: July 1, 2008)— An investment management fee of 0.30% would have reduced the since inception annualized return ending March 31, 2021 from 9.05% to 8.72%. Long Duration Custom LDI Composite Net Disclosure (Inception Date: July 1, 1998)— An investment management fee of 0.30% would have reduced the since inception return ending March 31, 2021 from 7.32% to 7.00%. Securitized Product (Unconstrained) Composite Net Disclosure (Inception Date: January 1, 2016)— An investment management fee of 0.40% would have reduced the since inception return ending March 31, 2021 from 4.91% to 4.49%. Corporate Fixed Income Composite Net Disclosure (Inception Date: July 1, 1991)— An investment management fee of 0.30% would have reduced the since inception annualized return ending March 31, 2021 from 7.41% to 7.07%. European Corporate (USD Hedged) Composite Net Disclosure (Inception Date: February 1, 2008)— An investment management fee of 0.30% would have reduced the since inception annualized return ending March 31, 2021 from 5.84% to 5.53%. Global Corporate (Unhedged) Composite Net Disclosure (Inception Date: May 1, 2010)— An investment management fee of 0.30% would have reduced the since inception annualized return ending March 31, 2021 from 5.10% to 4.79%. 37 PGIM FIXED INCOME Notes To Performance
Gross returns do not reflect the deduction of investment advisory fees or other expenses it may incur in the management of its investment advisory account, but are after transaction costs. A client’s return will be reduced by such advisory fees and other management expenses. For example, a 1.00% management fee deducted quarterly would result in the following cumulative compounded reduction in portfolio time- weighted rate of return: 1 year = 1.004%, 3 year = 3.042%, 5 year = 5.121% and 10 year = 10.5%. The investment advisory fees are described in Part 2A of the Adviser’s Form ADV which is publicly available on the SEC's website at www.sec.gov, and available upon request. Fees represent the highest standard advisory fees currently in effect and may have been higher or lower historically. Fees may be higher for commingled accounts, insurance company separate accounts, and trust, corporate, or bank-owned life insurance products. Performance has been calculated in US dollars, unless otherwise noted in composite descriptions, and reflects the deduction of transaction costs and withholding taxes, if any, and the reinvestment of income. U.S. Higher Quality High Yield Composite Net Disclosure (Inception Date: July 1, 1998)—An investment management fee of 0.50% would have reduced the since inception annualized return ending March 31, 2021 from 7.81% to 7.27%. U.S. Broad Market High Yield Composite Net Disclosure (Inception Date: March 1, 2002)—An investment management fee of 0.50% would have reduced the since inception annualized return ending March 31, 2021 from 8.48% to 7.92%. U.S. Senior Secured Loans (Unconstrained) Composite Net Disclosure (Inception Date: May 1, 2007)—An investment management fee of 0.55% would have reduced the since inception annualized return ending March 31, 2021 from 5.08% to 4.50%. European High Yield Composite Net Disclosure (Inception Date: November 1, 2010)—An investment management fee of 0.50% would have reduced the since inception annualized return ending March 31, 2021 from 8.13% to 7.59%. Performance shown in EUR. European Senior Secured Debt (Constrained) Composite Net Disclosure (Inception Date: July 1, 2006)—An investment management fee of 0.55% would have reduced the since inception annualized return ending March 31, 2021 from 4.98% to 4.40%. Performance shown in EUR. Global High Yield (Euro Hedged) Composite Net Disclosure (Inception Date: May 1, 2002)—An investment management fee of 0.50% would have reduced the since inception annualized return ending March 31, 2021 from 7.74% to 7.18%. Performance shown in EUR. Global Senior Secured Loans Composite Net Disclosure (Inception Date: December 1, 2011)—An investment management fee of 0.55% would have reduced the since inception annualized return ending March 31, 2021 from 5.86% to 5.23%. Emerging Markets Debt Composite Net Disclosure (Inception Date: July 1, 1996)—An investment management fee of 0.55% would have reduced the since inception annualized return ending March 31, 2021 from 11.03% to 10.33%. Emerging Markets Blend Composite Net Disclosure (Inception Date: December 1, 2007)—An investment management fee of 0.55% would have reduced the since inception annualized return ending March 31, 2021 from 5.81% to 5.17%. Emerging Markets Blend Plus Composite Net Disclosure (Inception Date: August 1, 2014)—An investment management fee of 0.75% plus the actual incentive and certain other applicable fees and expenses would have reduced the since inception return ending March 31, 2021 from 5.98% to 3.86%. Emerging Markets Local Currency Composite Net Disclosure (Inception Date: January 1, 2011)—An investment management fee of 0.55% would have reduced the since inception annualized return ending March 31, 2021 from 1.27% to 0.68%. Emerging Markets Corporate Debt Composite Net Disclosure (Inception Date: March 1, 2013)—An investment management fee of 0.55% would have reduced the since inception annualized return ending March 31, 2021 from 5.49% to 4.92%. National Municipal Bond Composite Net Disclosure (Inception Date: January 1, 1994)—An investment management fee of 0.28% would have reduced the since inception annualized return ending March 31, 2021 from 5.18% to 4.88%. High Income Municipal Bond Composite Net Disclosure (Inception Date: January 1, 1994)—An investment management fee of 0.32% would have reduced the since inception annualized return ending March 31, 2021 from 5.87% to 5.53%. U.S. Liquidity Relative Value Composite Net Disclosure (Inception Date: July 1, 2002)—An investment management fee of 0.50% plus the actual incentive and certain other applicable fees and expenses would have reduced the since inception return ending March 31, 2021 from 7.23% to 5.26%. Effective April 1, 2020 the Benchmark changed to the ICE BofA U.S. 3-Month Treasury Bill Index, prior to that the Benchmark was 3-Month U.S. Dollar LIBOR. As of 6/1/2020 net returns were retroactively restated to reflect model management fees. Global Liquidity Relative Value Composite Net Disclosure (Inception Date: July 1, 2014)—An investment management fee of 1.00% plus the actual incentive and certain other applicable fees and expenses would have reduced the since inception return ending March 31, 2021 from 8.10% to 5.70%. Effective April 1, 2020 the Benchmark changed to the ICE BofA U.S. 3-Month Treasury Bill Index, prior to that the Benchmark was 3-Month U.S. Dollar LIBOR. As of 6/1/2020 net returns were retroactively restated to reflect model management fees. Emerging Markets Debt Long/Short Composite Net Disclosure (Inception Date: November 1, 2007)—An investment management fee of 0.75% plus the actual incentive and certain other applicable fees and expenses would have reduced the since inception return ending March 31, 2021 from 9.27% to 6.57%. Effective April 1, 2020 the Benchmark changed to the ICE BofA U.S. 3-Month Treasury Bill Index, prior to that the Benchmark was 3-Month U.S. Dollar LIBOR. As of 6/1/2020 net returns were retroactively restated to reflect model management fees. U.S. Liquidity Relative Value (S&P 500 Overlay) Composite Net Disclosure (Inception Date: April 1, 2014)—An investment management fee of 0.50% plus the actual incentive and certain other applicable fees and expenses would have reduced the since inception return ending March 31, 2021 from 16.75% to 15.39%. 38 PGIM FIXED INCOME Benchmark Descriptions
Bloomberg Barclays U.S. Aggregate Bond Index (Bloomberg Barclays U.S. Aggregate Index) (Core Fixed Income, Core Plus, Core Conservative) The Bloomberg Barclays U.S. Aggregate Index covers the USD-denominated, investment-grade, fixed-rate or step up, taxable bond market of SEC-registered securities and includes bonds from the Treasury, Government-Related, Corporate, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS sectors. Securities included in the index must have at least 1 year until final maturity and be rated investment-grade (Baa3/ BBB-/BBB-) or better using the middle rating of Moody’s, S&P, and Fitch.
Nomura-BPI Overall (Nomura-BPI Overall Index) (Japan Core Bond) The Nomura-BPI Overall index tracks total returns of all fixed income securities in the Japanese bond market that meet certain criteria. The intellectual property rights and any other rights in Nomura-BPI Overall Index belong to Nomura Securities Co., Ltd. Nomura Securities Co., Ltd. does not guarantee accuracy, completeness, reliability, usefulness, marketability, merchantability and fitness of the Index, and does not account for performance of the fund with the use of the Index. This disclaimer is applicable to Nomura-BPI Overall Index referenced herein.
Bloomberg Barclays Global Aggregate Bond Index USD Unhedged (Bloomberg Barclays Global Aggregate Index) (Global Core, Global Total Return) The Bloomberg Barclays Global Aggregate Index provides a broad-based measure of the global investment-grade fixed income markets. The three major components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian government, agency and corporate securities, and USD investment-grade 144A securities. Securities included in the index must have at least 1 year until final maturity and be rated investment-grade (Baa3/ BBB-/BBB) or better using the middle rating of Moody’s, S&P, and Fitch.
FTSE World Government Bond Index (Former benchmark for Global Total Return) FTSE World Government Bond Index is a market-capitalization-weighted benchmark that tracks the performance of the government bond markets. The composition of the index consists of sovereign debt denominated in the domestic currency. Securities must be rated BBB-/Baa3 by S& P or Moody's.
ICE BofA 3-Month Deposit Offered Rate Constant Maturity Index (Absolute Return, Multi-Asset Credit, Global Dynamic Bond) The ICE BofA 3-Month Deposit Offered Rate Constant Maturity Index tracks the performance of a synthetic asset paying Libor to a stated maturity. The index is based on the assumed purchase at par of a synthetic instrument having exactly its stated maturity and with a coupon equal to that day's fixing rate. That issue is assumed to be sold the following business day (priced at a yield equal to the current day fixing rate) and rolled into a new instrument.
ICE LIBOR 3-Month Average (ICE LIBOR 3-Month Average Index) (Former benchmark for Absolute Return, Multi-Asset Credit, Global Dynamic Bond) The 3 Month LIBOR (London Interbank Offered Rate) is the stated rate of interest at which banks in the London wholesale money markets may borrow funds from one another for three months. The 90-day average of the daily rates set by the Intercontinental Exchange Benchmark Administration Ltd ("IBA") is used to derive the return for the month. ICE Data Indices, LLC, used with permission. ICE Data Indices, LLC is licensing the ICE Data Indices and related data "as is," makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the ICE Data Indices or any data included in, related to, or derived therefrom, assumes no liability in connection with their use, and does not sponsor, endorse, or recommend PGIM Fixed Income, or any of its products or services. Effective March 1, 2019, the Unconstrained Bond Composite was renamed the Strategic Bond Composite. The strategy benchmark also changed from the ICE LIBOR 3-Month Average to the Bloomberg Barclays Intermediate U.S. Aggregate Bond Index.
Bloomberg Barclays Intermediate U.S. Aggregate Bond Index (Bloomberg Barclays Intermediate U.S. Aggregate Bond Index) (Strategic Bond Composite) The Bloomberg Barclays Intermediate U.S. Aggregate Bond Index covers the USD-denominated, investment-grade, fixed-rate or step up, taxable bond market of SEC-registered securities with maturities of 1-10 years. The index includes bonds from the Treasury, Government-Related, Corporate, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS and CMBS sectors. Securities must be rated investment-grade (Baa3/BBB-/BBB- or above) using the middle rating of Moody’s, S&: and Fitch and have at least 1 year until final maturity.
Bloomberg Barclays U.S. 1-3 Year Government/Credit Bond Index (Bloomberg Barclays U.S. 1-3 Year Government/Credit Index) (Short Duration Core Plus) Bloomberg Barclays U.S. 1-3 Year Government/Credit Bond Index covers USD-denominated and nonconvertible, publicly issued U.S. Government or investment-grade securities that are fixed-rate or step ups. Bonds must have a maturity from 1 up to (but not including) 3 years and be rated investment-grade (Baa3/ BBB-/BBB-) or better using the middle rating of Moody’s, S&P, and Fitch.
Bloomberg Barclays U.S. 1-5 Year Credit Bond Index (Bloomberg Barclays U.S. 1-5 Year Credit Index) (Short Term Corporate) Bloomberg Barclays U.S. 1-5 Year Credit Bond Index is a subset of the Bloomberg Barclays Credit Index with maturities of 1-5 years. The U.S. Credit Index is comprised of the U.S. Corporate Index and the non- native currency subcomponent of the U.S. Government-Related Index. The U.S. Credit Index includes publicly issued U.S. corporates, specified foreign debentures and secured notes denominated in USD. Securities must be rated investment-grade (Baa3/BBB-/BBB- or above) using the middle rating of Moody's, S&P, and Fitch, respectively.
Bloomberg Barclays U.S. High Yield 1-5 Year Ba/B 1% Issuer Constrained Index (Bloomberg Barclays U.S. HY 1-5 Year Ba/B 1% Issuer Capped Index) (U.S. Short Duration Higher Quality High Yield) The Bloomberg Barclays U.S. 1-5 Yr High Yield Ba-B 1% Issuer Constrained Index is an issuer-constrained version of the U.S. Corporate High-Yield Index that covers the 1-5 year maturing USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. The U.S. HY 1% Issuer Capped Index limits issuer exposures to a maximum 1% and redistributes the excess market value index-wide on a pro- 39 rata basis. Securities must be rated Ba/B using the middle rating of Moody’s, S&P, and Fitch, and have at least 1 year until final maturity. PGIM FIXED INCOME Benchmark Descriptions (cont’d)
Bloomberg Barclays U.S. Long Duration Government/Credit Index (Bloomberg Barclays U.S. Long Govt/Credit Index) (Long Duration Government/Credit) The Bloomberg Barclays U.S. Long Government/Credit Index covers USD-denominated and non-convertible, publicly issued U.S. Government or investment-grade securities that are fixed rate or step ups. Securities must have a maturity of 10 years or greater and be rated investment-grade (Baa3/ BBB-/BBB-) or better using the middle rating of Moody’s, S&P, and Fitch.
Bloomberg Barclays U.S. Long Corporate Bond Index (Bloomberg Barclays U.S. Long Corporate Index) (Long Duration Corporate) The Bloomberg Barclays U.S. Long Corporate Bond Index covers USD-denominated and non-convertible, publicly issued securities that are fixed-rate or step ups. Securities must have a maturity of 10 years and be rated investment-grade (Baa3/ BBB-/BBB-) or better using the middle rating of Moody’s, S&P, and Fitch.
Client-Directed Liability Based Benchmark (Long Duration LDI) The customized benchmark for the Long Duration Custom Composite is the weighted average of each composite member’s benchmark return rebalanced monthly. The benchmarks are market-based indices/sub-indices constructed to reflect the liabilities of the portfolios. The benchmarks consists of various weights of the sub indices of the Bloomberg Barclays Intermediate (maturities from 1 up to but not including10 years), and Long (maturities of 10+ years) Government/Credit and US Corporate Indices. All securities must be rated investment-grade (Baa3/ BBB-/BBB-) or above using the middle rating of Moody’s, S&P, and Fitch.
ICE BofA 3-Month Deposit Offered Rate Constant Maturity Index (Securitized Products) The ICE BofA 3-Month Deposit Offered Rate Constant Maturity Index tracks the performance of a synthetic asset paying Libor to a stated maturity. The index is based on the assumed purchase at par of a synthetic instrument having exactly its stated maturity and with a coupon equal to that day's fixing rate. That issue is assumed to be sold the following business day (priced at a yield equal to the current day fixing rate) and rolled into a new instrument.
Bloomberg Barclays U.S. Credit Bond Index (Bloomberg Barclays U.S. Credit Index) (Investment Grade Corporates) The Bloomberg Barclays U.S. Credit Index is comprised of the U.S. Corporate Index and the non-native currency subcomponent of the U.S. Government-Related Index. The U.S. Credit Index includes publicly issued U.S. corporate, specified foreign debentures and secured notes denominated in USD. Securities included in the index must have at least 1 year until final maturity and be rated investment-grade (Baa3/ BBB-/BBB-) or better using the middle rating of Moody’s, S&P, and Fitch.
Bloomberg Barclays Euro Aggregate Corporate Index USD Hedged (Bloomberg Barclays Euro Aggregate Corporate Index USD Hedged) (European Corporate Fixed Income (USD Hedged)) The Bloomberg Barclays Euro Aggregate Corporate Index USD Hedged Index is a benchmark that measures the corporate component of the Bloomberg Barclays Euro Aggregate Bond Index, a broad- based flagship benchmark that measures the investment grade, euro-denominated, fixed-rate bond market, including treasuries, government-related, corporate and securitized issues. Inclusion is based on currency denomination of a bond and not country of risk of the issuer. The index is hedged to USD. As of January 1, 2020 composite benchmark was changed to the Barclays Euro Aggregate Corporate USD Hedged Index from the iBoxx Euro Corporate (USD Hedged) Index. iBoxx Euro Corporate Index 100% USD Hedged (iBoxx Euro Corporate Index (USD Hedged)) (Former benchmark for European Corporate Fixed Income (USD Hedged)) The iBoxx EUR benchmark is made up of only fixed-rate bonds or step ups whose cash flow can be determined in advance. The indices are comprised solely of bonds. Treasury Bills and other money market instruments are not eligible. The iBoxx EUR indices include only Euro and legacy currency denominated bonds. Securities must be rated investment-grade (Baa3/ BBB-/BBB-) or above by at least one of the following rating agencies: Standard & Poor’s, Moody’s or Fitch and have at least 1 year until final maturity at the rebalancing date. Bloomberg Barclays Global Aggregate Corporate Index Unhedged (Bloomberg Barclays Global Corporate Index (Unhedged)) (Global Corporate (Unhedged)) The Bloomberg Barclays Global Corporate Aggregate Index is a component of the Global Aggregate Index that includes the global investment-grade, fixed-rate or step up, taxable securities sold by industrial, utility and financial issuers. The three major components of this index are the U.S. Aggregate Corporate, the Pan-European Aggregate Corporate, and the Asian-Pacific Aggregate Corporate indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian corporate securities, and USD investment-grade 144A securities. Securities included in the index must have at least 1 year until final maturity and be rated investment-grade (Baa3/ BBB-/BBB-) or better using the middle rating of Moody's, S&P, and Fitch. Bloomberg Barclays Global Aggregate Corporate Bond Index (USD Hedged) (Bloomberg Barclays Global Corporate Index (USD Hedged)) (Global Corporate (USD Hedged) The Bloomberg Barclays Global Aggregate Corporate Bond Index (USD Hedged) is a component of the Global Aggregate Index that includes the global investment-grade, fixed-rate or step up, taxable securities sold by industrial, utility and financial issuers. The three major components of this index are the U.S. Aggregate Corporate, the Pan-European Aggregate Corporate, and the Asian-Pacific Aggregate Corporate indices. The index also includes Eurodollar and Euro-Yen corporate bonds, Canadian corporate securities, and USD investment-grade 144A securities. Securities included in the index must have at least 1 year until final maturity and be rated investment-grade (Baa3/ BBB-/BBB-) or better using the middle rating of Moody's, S&P, and Fitch. The index is hedged to USD.
40 PGIM FIXED INCOME Benchmark Descriptions (cont’d)
Bloomberg Barclays U.S. Corporate High Yield Ba/B 1% Issuer Capped Bond Index (Bloomberg Barclays U.S. High Yield Ba/B 1% Issuer Capped Index) (Higher Quality High Yield) The Bloomberg Barclays U.S. High Yield Ba/B 1% Issuer Capped Index is an issuer-constrained version of the Bloomberg Barclays U.S. High Yield Index that covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. The Bloomberg Barclays U.S. High Yield 1% Ba/B Issuer Capped Index limits issuer exposures to a maximum 1% and redistributes the excess market value index-wide on a pro-rata basis. Securities must be rated below investment-grade (Ba1/BB+/BB+ or below) using the middle rating of Moody’s, S&P, and Fitch, and have at least a one year until final maturity.
Bloomberg Barclays US High-Yield 1% Issuer Capped Index (Bloomberg Barclays US High-Yield 1% Issuer Capped Index ) (Broad Market High Yield) The Bloomberg Barclays US High-Yield 1% Issuer Capped Index is an issuer-constrained version of the US High-Yield Index that covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. The US HY 1% Issuer Capped Index limits issuer exposures to a maximum 1% and redistributes the excess market value index-wide on a pro-rata basis. Securities must be rated below investment-grade (Ba1/BB+/BB+ or below) using the middle rating of Moody’s, S&P, and Fitch, and have at least 1 year until final maturity. Effective October 1, 2020 the Benchmark changed to the Bloomberg Barclays US High-Yield 1% Issuer Capped Index, prior to that the Benchmark was the Bloomberg Barclays US Corporate High Yield Bond Index.
Bloomberg Barclays U.S. Corporate High Yield Bond Index (Bloomberg Barclays U.S. High Yield Index) (Former benchmark for Broad Market High Yield) Bloomberg Barclays U.S. Corporate High Yield Bond Index covers the USD-denominated, non-investment grade, fixed-rate or step ups, taxable corporate bond market. The index excludes Emerging Markets debt. Securities must be rated below investment-grade (Ba1/BB+/BB+ or below) using the middle rating of Moody's, S&P, and Fitch, respectively and have at least 1 year until final maturity.
Credit Suisse Leveraged Loan Index (CS Leveraged Loan Index) (U.S. Senior Secured Loans) The Credit Suisse Leveraged Loan Index is a representative, unmanaged index of tradable, U.S. dollar denominated floating rate senior secured loans and is designed to mirror the investable universe of the U.S. dollar denominated leveraged loan market. The Index return does not reflect the impact of principal repayments in the current month.
ICE BofAML European Currency High Yield ex Finance 2% Constrained Index (ML Euro HY ex Finance 2% Constrained Index) (European High Yield (Euro Hedged)) The ICE BofAML European High Yield ex Finance 2% Constrained Index tracks the performance of EUR and GBP denominated below investment grade corporate debt publicly issued in the eurobond, sterling domestic or euro domestic markets. Qualifying securities must have a below investment grade rating and an investment grade country of risk. The index contains all non-Financial securities but caps issuer exposure at 2%. Source: ICE Data Indices, LLC, used with permission. ICE Data Indices, LLC is licensing the ICE Data Indices and related data "as is," makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the ICE Data Indices or any data included in, related to, or derived therefrom, assumes no liability in connection with their use, and does not sponsor, endorse, or recommend PGIM Fixed Income, or any of its products or services. Credit Suisse Western European Leveraged Loan Index (EUR Hedged) (CS Western European Leveraged Loan Index (EUR Hedged) (European Senior Secured Debt) Credit Suisse Western European Leveraged Loan Index: All Denominations Euro Hedged. The Index is a representative, unmanaged index of tradable, floating rate senior secured loans designed to mirror the investable universe of the European leveraged loan market. The index is hedged to EUR. The Index return does not reflect the impact of principal repayments in the current month. Bloomberg Barclays Global High Yield Index (Euro Hedged) (Global High Yield (Euro Hedged)) The Bloomberg Barclays Global High Yield Index provides a broad-based measure of the global high yield fixed income markets. It includes U.S. high yield, Pan-European high yield, U.S. emerging markets high yield, and Pan-European emerging markets high yield indices. Securities included in the index must be fully taxable, have at least on year until final maturity, and be rated high yield (Ba//BB+/BB+ or below) using the middle rating of Moody’s S&P and Fitch. CS Blend Lev. Loan & West European Lev. Loan: Euro Denominated (USD Hedged) (Global Senior Secured Loans) The custom benchmark for this composite is comprised of the Credit Suisse Leveraged Loan Index and the Credit Suisse Western European Leveraged Loan Index Euro Denominated (hedged to USD) and is rebalanced monthly. As of December 31, 2020, the weights are 81% and 19%, respectively. The Credit Suisse indices are representative unmanaged indices of tradeable, floating rate senior secured loans designed to mirror the investable universe of the U.S. and European Leveraged Loan markets. JP Morgan Emerging Markets Bond Index Global Diversified (JPM EMBI Global Diversified Index) (Emerging Markets Debt) The Emerging Markets Bond Index Global Diversified (EMBI Global) tracks total returns for USD-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, and Eurobonds. It limits the weights of those index countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts of debt outstanding. To be deemed an emerging market by the EMBI Global Diversified Index, a country must be rated Baa1/BBB+ or below by Moody’s/S&P rating agencies. Information has been obtained from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan's prior written approval. Copyright 2021, JPMorgan Chase & Co. All rights reserved. Blend: JPM EMBI Global Diversified & GBI-EM Global Diversified (Emerging Markets Blend, Emerging Markets Blend Plus) The customized benchmark for this composite is an even blend of the JPMorgan Government Bond Index-Emerging Markets Global Diversified Index and the JPMorgan Emerging Markets Bond Index Global Diversified Index. The Government Bond Index-Emerging Markets Global Diversified Index (GBI-EM Global) tracks total returns for local currency bonds issued by emerging market governments while the Emerging Markets Bond Index Global Diversified (EMBI Global) tracks total returns for USD-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, and Eurobonds. It limits the weights of those index countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts of debt outstanding. Copyright 2021, JPMorgan Chase & Co. All rights reserved. 41 PGIM FIXED INCOME Benchmark Descriptions (cont’d)
JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (JPM GBI-EM Global Diversified Index) (Emerging Markets Debt (Local Currency)) The Government Bond Index-Emerging Markets Global Diversified Index (GBI-EM Global) tracks total returns for local currency bonds issued by emerging market governments. Copyright 2021, JPMorgan Chase & Co. All rights reserved.
JPMorgan Corporate Emerging Markets Bond Index Broad Diversified (JPM CEMBI Broad Diversified) (Emerging Markets Corporate Debt) The CEMBI tracks total returns of US dollar-denominated debt instruments issued by corporate entities in Emerging Markets countries. The CEMBI Broad is the most comprehensive corporate benchmark followed by the CEMBI, which consists of an investable universe of corporate bonds. Copyright 2021, JPMorgan Chase & Co. All rights reserved.
Bloomberg Barclays US 1-15 Year Municipal Index (National Municipal Bond) The Bloomberg Barclays US 1-15 Year Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The bonds must be fixed-rate or step ups, have a dated date after Dec. 13, 1990, and must have a maturity from 1 up to (but not including) 15 years. Non- credit enhanced bonds (municipal debt without a guarantee) must be rated investment-grade (Baa3/ BBB-/BBB-) or better by the middle rating of Moody’s, S&P, and Fitch. Effective April 1, 2020 the Benchmark changed to the Bloomberg Barclays 1-15 Yr. Muni Unhedged Index, prior to that the Benchmark was the Bloomberg Barclays Municipal Bond index
Bloomberg Barclays Municipal Bond Index (Former benchmark for National Municipal Bond) The index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The bonds must be fixed-rate or step ups, have a dated date after Dec. 13, 1990, and must be at least 1 year from their maturity date. Non-credit enhanced bonds (municipal debt without a guarantee) must be rated investment grade (Baa3/BBB-/BBB- or better) by the middle rating of Moody's, S&P, and Fitch.
Blend: Bloomberg Barclays Muni High Income/Muni Index (High Income Municipal Bond) The customized benchmark for this composite is an even blend of the Bloomberg Barclays Municipal High Yield Bond Index and Bloomberg Barclays Municipal Bond Index. The Bloomberg Barclays Municipal Bond Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The bonds must be fixed-rate or step ups, have a dated date after Dec. 13, 1990, and must be at least 1 year from their maturity date. Non-credit enhanced bonds (municipal debt without a guarantee) must be rated investment-grade (Baa3/ BBB-/BBB- or better) by the middle rating of Moody’s, S&P, and Fitch. The Bloomberg Barclays Municipal High Yield Bond Index is the high yield component of the Bloomberg Barclays Municipal Bond Index.
ICE BofA US 3-Month Treasury Bill Index (U.S. Liquidity Relative Value, Emerging Markets Long/Short, Global Liquidity Relative Value) ICE BofA US 3-Month Treasury Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month that issue is sold and rolled into a newly selected issue. The issue selected at each month-end rebalancing is the outstanding Treasury Bill that matures closest to, but not beyond, three months from the rebalancing date. To qualify for selection, an issue must have settled on or before the month-end rebalancing date. Effective April 1, 2020 the Benchmark changed to the ICE BofA U.S. 3-Month Treasury Bill Index, prior to that the Benchmark was 3- Month U.S. Dollar LIBOR.
3 Month U.S. Dollar ICE LIBOR Reset Weekly (Former benchmark for U.S. Liquidity Relative Value) The 3 Month U.S. Dollar ICE LIBOR Reset Weekly, ICE LIBOR (formerly known as BBA LIBOR), is a widely used benchmark for short-term interest rates, providing an indication of the average rates at which LIBOR panel banks could obtain wholesale, unsecured funding for set periods in particular currencies. It is produced for five currencies (CHF, EUR, GBP, JPY and USD) and seven tenors (Overnight/Spot Next, 1 Week, 1 Month, 2 Months, 3 Months, 6 Months and 12 Months) based on submissions from a reference panel of between 11 and 16 banks for each currency, resulting in the publication of 35 rates every applicable London business day. The benchmark for the Composite uses the 3 Month USD rate on the 8th, 15th, 23rd and month end to derive the return for the subsequent period. If a reset day is a weekend or holiday, then the rate of the preceding business day is used.
3-Month U.S. Dollar ICE LIBOR Reset Monthly (Former benchmark for Emerging Markets Long/Short, Global Liquidity Relative Value) The 3-Month U.S. Dollar ICE LIBOR Reset Monthly, ICE LIBOR (formerly known as BBA LIBOR), is a widely used benchmark for short-term interest rates, providing an indication of the average rates at which LIBOR panel banks could obtain wholesale, unsecured funding for set periods in particular currencies. It is produced for five currencies (CHF, EUR, GBP, JPY and USD) and seven tenors (Overnight/Spot Next, 1 Week, 1 Month, 2 Months, 3 Months, 6 Months and 12 Months) based on submissions from a reference panel of between 11 and 16 banks for each currency, resulting in the publication of 35 rates every applicable London business day. The benchmark for the Composite uses the 3 Month USD rate of the prior month end to derive the return for the current month.
S&P 500 Total Return Index (S&P 500 Index) (U.S. Liquidity Relative Value (S&P 500 Overlay)) S&P 500 Total Return Index is a commonly recognized, market capitalization weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
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