AGENDA Budget and Finance Investment Committee Meeting Date: February 6, 2020 Meeting Time: 10:30 – 12:00 PM Location: Salem Convention Center, Conference Room Santiam 3 Chair: John Grant Members: Eric Foster, Bik-Na Han, Rob Milesnick, Michael Rondeau, David Wade, Eddie Medina (alt). Member Liaison: Keith Palevsky ______________________________________________________________________________ 1. Snapshot overview of current portfolio position and recent trends in the market. Exhibit Inform 2. Presentation by Washington Trust. Summary of 2019 performance and 12 – 18 month horizon. (30 minutes) Exhibit Inform 3. Presentation by Becker Capital (Columbia Trust). Summary of 2019 performance and 12-18 month horizon outlook. Exhibit Inform 4. Review status and adequacy of reserves. Exhibit Inform 5. Cy Pres Request for Proposal response summary. Exhibit Inform 6. September 27th meeting minutes for approval by the Investment Committee. Exhibit Action OREGON STATE BAR Budget and Finance Investment Committee Meeting Date: February 6, 2020 From: Keith Palevsky, Chief Financial Officer Subject: Investment Portfolio – Current Position % Change (Adj) Value $ 2/20/19 4/5/19 5/10/19 6/19/19 7/15/19 8/30/19 12/31/19 1/31/20 since 5/10 S&P 500 Index 2780 2893 2880 2926 3014 2926 3231 3244 12.6% Washington Trust$ 3,007 $ 2,775 $ 2,515 $ 2,558 $ 2,597 $ 2,572 $ 2,693 $ 2,702 7.4% Becker Capital$ 2,993 $ 2,533 $ 2,414 $ 2,474 $ 2,520 $ 2,450 $ 2,640 $ 2,624 8.7% Total OSB Portfolio$ 6,000 $ 5,308 $ 4,929 $ 5,032 $ 5,117 $ 5,022 $ 5,333 $ 5,326 LGIP$ 800 $ 1,100 $ 1,100 $ 1,100 $ 1,100 $ 1,100 $ 1,100 Earned Interest *$ 2.4 $ 5.3 $ 8.6 $ 10.8 $ 14.5 $ 24.3 $ 30.6 2.52% Grand Total$ 6,000 $ 6,110 $ 6,035 $ 6,141 $ 6,228 $ 6,136 $ 6,458 $ 6,456 7.60% Note(*): LGIP interest rate changed from 2.75% to 2.60% on August 9, 2019. LGIP interest rate changed from 2.60% to 2.45% on September 24, 2019. LGIP interest rate changed from 2.45% to 2.25% on November 15, 2019. S&P 500 Trend Line (Feb 20 – Jan 30): US Treasury Note Yield Curve 10-Year v 3-Month (Feb 20 – Jan 30): 1 Washington Trust Bank February 2020 Performance Review A Tradition Of Trust Since 1902 Table of Contents Portfolio Summary …………………………………………………. 1-2 Asset Allocation ……………………………………………….......... 3 Growth Since Inception ……………………………………………. 4 Performance by Allocation ………………………………....... 5-6 Equity Risk Analysis ………………………………………………….. 7 Portfolio Holdings ……………………………………………….. 8-10 By major asset class, alphabetized Portfolio Holdings .……………………………………………. 11-12 By major and minor asset class Wealth Management Insights ……………………………. 13-18 Oregon State Bar #618684013 Quarterly investment review 09/01/2019 – 12/31/2019 Portfolio Summary Long Term Investment Portfolio: Investment Objective: Balanced Growth Target Asset Allocation: 60% Equity / 39% Fixed / 1% Cash Allocation as of 12/31/2019: 60% Equity/ 37.7% Fixed/ 2.3% Cash Market Value as of 12/31/2019: $2,693,307.11 Performance as of 12/31/2019 Year to 12/31/19: 16.02%; 2 year: 4.26%; Inception to Date: 6.18% Blended Benchmark: Year to 12/31/19: 16.35%; 2 year: 5.93%; Inception to Date: 6.26% Investment Strategy and Changes: Washington Trust Bank’s investment philosophy is to remain fully invested in diversified, high-quality securities. All of the investment holdings in the Oregon State Bar account are monitored daily and replaced when analysis and/or performance warrants a change. Accordingly, our portfolio management group has maintained its commitment to managing both risk and return and by doing so, managed an optimized portfolio for Oregon State Bar. Quarter to date changes in the portfolio are detailed below: Domestic Large-cap Strategy: We continue to reassess this area of the portfolio in light of economic and political uncertainty. Previously, we had reviewed our positioning in the financials sector and specified that we had sold both Prudential Financial (PRU) and Invesco LTD (IVZ). The proceeds for each were directed to cash while we researched suitable replacements. As of September of 2019, we purchased Intercontinental Exchange Inc. (ICE) and Progressive Corp. (PGR), respectively. In October and December, we also made the following changes: October: Sold FedEx Corp (FDX) and purchased Union Pacific Corp. (UNP) December: Sold Cisco Systems Inc. (CSCO) and purchased Palo Alto Networks Inc. (PANW) Market Outlook: Like the majority of 2019, the fourth quarter was strong. The S&P 500 returned 9.06% for Q4 and 31.5% for the entire year. Notably, consumer confidence was robust, wages increased, and retail sales ticked up from the prior year. In regard to the global backdrop, trade tensions with China eased with optimism about a Phase 1 deal, and uncertainty around Brexit subsided with Boris Johnson achieving a clear mandate to exit the EU. As we look forward, 2020 has the potential to be a very interesting year. The US economy’s expansion is the longest on record and, notably, turns 11 in June. It is a presidential election year with an impeachment backdrop, and there are new trade negotiations in the works between the U.S. and the EU and the U.S. and the UK. If negotiations with those two areas become anything like they were with China, we could see renewed and intermittent volatility. We still have concerns about the global economy, such as, a synchronized economic slow-down coupled by geopolitical tensions. As such, we continue to manage the portfolio with an emphasis on managing risk, while also actively looking for opportunities to maximize return. Questions to Answer for Each Quarterly Report to OSB Budget & Finance Committee 1. Are there any corporate bonds with one issuer above $100,000? No 2. Are there any transactions that directly involve short sales or derivatives? No 3. Are there any bonds that exceed 84 months to maturity? No 4. Are there any Federal Agency Obligations with one issue that exceed $250,000 or exceed 25% of total invested assets? No 5. Are there any investments in one specific security or issuer which represent 10% of the portfolio’s assets? (Bequests of stocks or bonds to the Fund may necessitate short-term deviations from this guideline.) No 6. Any non-publicly traded limited partnerships in the portfolio? No 7. Is there any non-publicly traded real estate in the portfolio? No 8. Are there any securities purchased with borrowed funds or on margin? No 9. Do any of the investments represent more than 5% of the available securities of the issuer? No 10. Are there any direct investments in mortgage-backed securities? No Annual Withdrawals and Cash Flow Summaries No regular distributions are being made. No disbursements made between Sep 2019 and Dec 2019 Bond Maturities Sep 2019-Dec 2019 o $50,000 Ally Bank 1.7% October 7, 2019 Bond Maturities to occur in 2020 o $30,000 JPMorgan Chase & Co 4.95% March 25, 2020 o $15,000 Morgan Stanley Private Bank 2.65% April 27, 2020 o $30,000 Goldman Sachs Bank USA 2.45% July 24, 2020 o $40,000 Synchrony Bank 2.2% September 4, 2020 Sarie Crothers Rick Cloutier Vice President & Relationship Manager Vice President & Chief Investment Strategist Wealth management & advisory services Wealth Management & Advisory Services (503) 778-7071 (509) 353-4074 [email protected] [email protected] Asset Allocation Reporting Period Ending December 31, 2019 Oregon State Bar Managed since: June 01, 2010 Investment Objective: Balanced Growth The Balanced Growth investment objective has dual purposes: to both preserve capital and to also obtain capital growth. This investment objective indicates a need for a balance between capital preservation and long-term growth and the strategy is to position high quality fixed rate securities, equity components and risk protections for a portfolio that will accomplish both growth and income over a longer period of time. % of Market Value Mkt Val 2.3 Growth Assets 1,619,948 60.0 Income Assets 1,016,297 37.7 Cash and Equivalents 62,009 2.3 Total 2,698,254 100.0 37.7 60.0 3 Growth Since Inception Reporting Period Ending December 31, 2019 Oregon State Bar Managed since: June 01, 2010 Year Inception to Date to Date Market Value (1 Year) 1 Year 2 Years 3 Years 5 Years 06/01/2010 Total Managed 2,698,254 16.02 16.02 4.26 7.23 5.31 6.18 Asset Class Benchmark 16.35 16.35 5.93 7.85 5.56 6.26 Equities 1,064,188 29.01 29.01 7.64 13.58 9.74 12.30 Fixed Income 938,181 7.46 7.46 3.36 3.79 3.03 2.16 Alternatives 633,876 10.75 10.75 -.43 1.89 1.33 3.45 Cash and Equivalents 62,009 3.12 3.12 2.84 2.18 1.37 .74 4 Performance by Allocation Reporting Period Ending December 31, 2019 Oregon State Bar Managed since: June 01, 2010 Year Inception to Date to Date Market Value (1 Year) 1 Year 2 Years 3 Years 5 Years 06/01/2010 Total Managed 2,698,254 16.02 16.02 4.26 7.23 5.31 6.18 Equities 1,064,188 29.01 29.01 7.64 13.58 9.74 12.30 Energy 29,675 20.67 20.67 -3.61 -1.37 3.78 7.76 Materials 16,721 25.84 25.84 7.93 15.03 8.67 8.06 Industrials 55,407 23.27 23.27 4.95 7.16 .08 6.49 Consumer Discretionary 63,741 33.37 33.37 17.56 18.77 16.45 20.63 Consumer Staples 45,935 27.24 27.24 2.88 10.74 8.01 13.83 Health Care 89,189 24.12 24.12 18.34 21.90 13.32 18.29 Financials 76,345 27.27 27.27 -3.44 3.68 6.68 9.11 Information Technology 145,809 45.31 45.31 14.75 21.82 17.35 16.79 Communication Services 62,205 40.44 40.44 16.72 18.89 14.46 15.82 Utilities 20,831 21.10 21.10 23.53 41.31 21.13 19.12 Real Estate 18,110 35.33 35.33 13.77 16.71 Domestic Equity Funds 145,370 31.77 31.77 9.77 12.38 9.97 13.34 International Equity Funds 294,849 22.97 22.97 .95 10.41 5.67 7.66 Fixed Income