Retirement Board - Regular Meeting

Welcome everyone. Uh we will call to order the May 1st, 2025 meeting of the Montgomery County Employee Retirement Board. I will ask uh who I ask now. I'll ask our deputy COO Stephanie Tipps. To the flag of the stands, one nation under God, indivisible, with liberty and justice for all. The number one power of the chair. Um what uh do we have any public comment? Yes. Okay. do not uh move. Is there an motion to approve the March 6, 2025 meeting minutes for retirement board? So moved by Commissioner Winer. Is there a second by Treasurer Salace? Any comment? Any All in favor? I uh the minutes are approved. Next we'll hear from our CFO on retirement updates. Yeah, just a few updates. Um, so the actual report

budget roughly 31 million annualized. Um, do you have any That's a two basically allocation. We have here we also have Zoom. Thanks. You're welcome. Welcome. I have information. Yes. I got Thank you. You have the handwritten notes here.

nothing in there. Um, so you'll see I have April 24th information in there and then I brought it back where we so certainly been very summary quarter. If you look at the executive summary here, a number of doctors were so in the very long time were negative. If you remember when I spoke last quarter, I think it's just so interesting about the slides that they should um I don't remember there were analy slides of you know predicting where the year and the majority of them were 20% you know we were kind of more conservative but there really the year started really strong. There was lots of optimism about tax cuts and regulation and just really consolidate out of the last calendar that the US has international 500 years. So what we saw for the first we also probably um consumer discretionary defensive needs better if you remember Magnificent 7 AI needs been leading pretty much large cap the last few years so we saw a big shift there so it's been a number of shifts and again when you think about you know I had a client that I visited last in the US partnership so well. So this really speaks to why you had those

versions all but when we look at your portfolio for the first quarter your equities were down to start. Um the good news is second point there you can see income which you know really provided a job that is meant to be in the portfolio that was and what you saw there is a bond they show you the Edwards time even after the portfolio last year emerging market and then finally your alternative they are meant to provide you know more diversity provided their friendship and you can see here they're number 15% and then your structure you know every day it's happening you can see here when I return down about one and a half they return down um about 85% and you can see that was effective given by 8% at that time. So that really speaks again to the a number of these um court today through the end of April was positive for the month and for the year. So um the April and that's not here these numbers this morning your April health for positive 45% and the um year to So it really speaks to again these

bottles of markets and we can certainly talk about it. Um I think that you know to sum it up the best you know everyone hears this every day uncertainty is really what's driving the markets um when we saw in February I think S&P 500 was down on losing% you know with couple down and it's really been 55 and you're all probably if you're looking at your own personal portfolios or 40k plan what have you know certainly market but when we look at you know when we look Twitter handled the fundamentals which were very strong you know we had even though we negative GDP works not necessary prior to that you know spending wrong are doing well but what seemed happening is all this instructions you can see a number of CEOs are coming out with you know United Airlines came out with two guidance they basically said either going to have a recession or they're not so here's our outlook but many Many many executives are withholding for their lunch and what that does it leads to you know do they do they fire you know do they testation same thing for consu make that purchase on vacation so we're seeing airlines restrict their guidance as well and the unfortunate part is that uncertainty can lead to downward growth within the marketplace so again it's kind of as we continue to move forward it's getting some information about a number of these policies and where they stand. If you think about this is a downward market policy when you think about other downward trends and a chart here's a number again our notion but you know there's there's more to come. So any questions on the executive

summary market just shows you're all familiar with that brief about it. This just shows the market for the quarter again here and you can see for the first time in a long time we see negative returns down small really challenging companies down 10% be challenged even in April when you think about local companies are very important to trades they're very sensitive to how the reacting so you're really seeing a number of those uh companies get um pulled downward especially in the first quarter and it continues to be but again I mentioned before look at internationally you see world equity and emerging market very there's a number of things that happened there um number one you know we saw the US put some more pressure upon European countries start spending more in their defense so we saw areas like Germany start spending more and dividing stimulus um even China stimulus so you see the reversal and when I look at your portfolio April, it continues to be your international and emerging market exposure that really benefits portfolio. And we've also seen the dollar decline with the supply. We've had years of of really strong dollar and now we're seeing I think a dollar to 98% already. So we're seeing that benefit that translation that's really helping internship. But if we continue down the page, you know, your fixed income areas continue to add value their four fixed income primary risk management investment funds there. You can see that was up about this quarter continues to add value. And then finally with high yield and emerging market debt to ask that we provide benefit there. market that I've actually highest performing extinct from and then finally um what I think is very interesting is when you look at commodities and inflation rates you know there's been lots of

conversation about inflation but um we have a fund within your portfolio that had commodities and we see areas like gold for copper doatingly well your portfolio almost 9% but that the value Um on the next slide I won't cover much of familiar with this. This just really reflects this price but the yield curve pretty much dropped throughout the quarter. We started that line that dark line at the top as early started the beginning of the year and you can see that blue where the quarter ended and for most durations yields come what we've seen for April significant volatility going up and coming back in the on the right here just spreads um you can see they widen it a little bit for the first time they were very tight um but still providing yield within the next slide. This is you know our view and our perspective given uncertain. So I think when you look at it's most important you said that we're going to look at your asset allocation. So for a few reasons number one we delay annually as your tributary partner we're looking for a team by we have the funds we carage a little bit so number one we're just looking at it on an annual basis we continue to satisfy the goals I know you cost living increases we want to make sure we have the right concern but we also want to make sure that we're being reflective of our view and a lot of that actually happened to surface So, you know, our response to everyone during these policy time, don't make changes, don't react, don't try to change the market. Um, so obviously you think that's common sense, but within your portfolios, we have

managers that have been very active looking at securities, looking at opportunities. Some of them have traveled to names that even some of the magnific. It's interesting. I don't know if you all heard that uh they said retail investors for the first time put in billions of dollars into the equity market. So usually you see the retail investor running scared and selling and this for the first year they actually last month they saw retailers um pretty much fine which I thought was very interesting but ours are listed on this page. We continue to think inflation is biased to the upside. Even we felt this way even before some concerns about trade war and fiscal uh stimulus. But we continue to believe that we do see growth data softening. You saw we had a negative G report. A big part of that report if you kind of look beneath the surface was due to significant energy shorts. Um you know I think a lot of organizations are running you know whether that be buying auto inventory just to prevent deterrence. So imports actually talk about what percentage um all those imports. So some of the information beneath the survey on GDP is still strong. It does it does some concerns as but right now again inflation type in a little bit and our risk asset view is to neutral diversification across all areas of risk and then I I'll skip over the next two but I do want to draw your attention to the strategic allocation box here on the right. If you look at all of these you know housing prices co great financial crisis. All of these we remember very well and they are all areas where you know there's lots of immunity. Even think about co I think the S&P 500 dropped 35% co but if you look at this this time

period from 2008 till April of 2025 the S&P earned the wise 9.7%. So this really speaks to the nature of we've been through market difficult markets like this before you know It's it's true to say your your strategic asset allocation and it's important that we keep that in perspective as we look through this. I'm happy to report that you still have a positive return in April even even year to date. This I won't go through but just to speaks to the good fiduciary of your plan. This is us and you you know what do you do at this time? We're looking at your investment policy data. We're rebalancing on behance of 2% plus or minus. So if the uh the back markets go down, we're buying it back into it, get them back to and then obviously the most important thing is making sure that you still your goals are still the same and we reinforce that with the rest and just jump to the portfolio and see if there are any questions on your um year to date your portfolio was positive 70 as the executive summary the one year number 7.5 and just remind you we look at calendar your your portfolio was up 11% last year and 15% the year before so two years have really shown down to double digits hopefully we are able to say we're going to have a positive year ahead but as we look at some of the contributions to that return um small as it may be for the year to date you can see US equity market um I was the biggest detractor you can see that was down about 4% and that contains your large cap and small cap um and you saw small cap price global equity on the reverse positive 5.5% again talked about a lot of the

areas such as Germany and China really contributing um and for the first time leaving the US a number of percentage points your fixed income you can see it's top line there responsible for over 2% return for the portfolio um your limited duration is a shorter duration continues to provide value but your core fixed income which is a large percentage of your allocation was up almost 3% and then your high yield bond fund contributing just under 1% if you look at the contribution from high yield that was up over 80% for the one year portfolio and all of these funds are active uh so they they're benchmark which provides additional for your alternative funds your structured credit items special fund uh we just moved those up% and then finally your dynamic accidental teaching fund. I think what's interesting when you look at this you can see that particular fund was down 2.98% for the first quarter but if you look at the benchmark was down 4.27 27. So you've got an extra it provided some risk management. And if you remember that's the time where we implement a lot of our points of view. We have commodities exposure in there. We have a number of anticipate higher inflation. We have a deepening yield curve. So this allows SEI to implement some of our short-term points of view and that protected you. So that did that benchmark to an S&P 500. So even though it was negative, it still benefited the portfolio because it was endowed at the S&P 500. And then the next slide just shows your calendar as I mentioned before 11% return uh returns from four and 13. So two strong years of growth uh within the portfolio and again I think that the consensus is you know if we get a little more certainty within the marketplace that will certainly help we've had a strong run. long. The market's been up about six days in a row, six, seven days in a row and we've seen that positivity

and speed we ended April. Believe it or not, the SBA was only down, you know, less than 1% for the month of April and it didn't feel like that a couple weeks ago. Um so it's it's really going to be a matter of continuing certainty and trade agreements as we go forward because some many businesses across the board who are impacted um from the American you know I saw that um trade you know shipments and ports were down about 30% in China there's even some numbers close to 60%. So the fear here that we're we're afraid of I think many businesses are afraid of are are we going to see supplies lighten up and have concerns over that. So it really becomes an inventory question at this point. Um and again a lot of people kind of frozen in on hold until there's more clarity in how they operate their businesses. Tomorrow uh is a jobs report number. So if you think about the Federal Reserve and their job their two goals. One their goal is to keep inflation in check and if that's going up they can't really cut interest rates right now and that's what I think the marketplace is looking for the Fed to come in and do that. Their other job is really to keep stable employment and um we'll see tomorrow what that looks like. I think a lot of the reports that you're seeing right now are still okay because a lot of it really hasn't implemented yet. So we don't we haven't seen companies being very significant laying off although UPS announced they're laying off a significant number of employees. But I think the real task will be as we move forward in the next month with our company's reacting with laying off employees and what are they doing to kind of save money and provide that risk management until there's more clarity what's happening. So there there are issues that we'll be looking at. So I think if we have a week employment report many may think that Federal Reserve may cut rates uh next time they meet but I think their their hands are right now in very difficult position because inflation which still remains high. So um again Well, UPS is laying off because of the

blast of the Amazon. Amazon. Yeah, exactly. No, I know a big part of it was because of the Amazon and they're going out with smaller companies, which is great. But I think they said given the uncertainty, it's probably a really good time to start laying off. But you're right. You're right. A lot of that was business related because they lost that deal. FedEx lost that deal last year, right? It's a really good business adventure to have. But Amazon clearly make a lot of money just on my doorstep. Any questions? That was everything I prepared to talk about. But overall, you know, I think that diversification and your ask allocation is really protecting, you know, um the year to date number so far and they continue to be watching it and then when we come in June, we're really going to look at, you know, are there is there opportunities for a little bit more active management? You know, that's that's your decision. you have as their 50% our active funds and equity have done really well. You know, we may look at alternatives but they continue to add that diversification. So, it'll be a good dialogue just to see you know how the portfolio has gone into projection to go to see how that impacts plan. So, right now and most recently we moved from 90% passive to 50%. Yeah.

Can you provide updates on the decisions that the active managers are making? Yes. So our managers I mean I don't bring them specifically but I verbally there's been um a couple of our international managers. So again, we're saying stay strategic in your long term, but a number of them have been looking. So some of our large managers were intentionally underweight about 57 were buying a little bit because they were down so bad, right? So they're still strong companies with strong balance sheets. Um so there was some slight buying there. Our international managers were being very cautious of companies that might um their auto industry I think is best example of what's you know of uncertainty, right? given I mean I think the administration caused additional tariffs on the 51 and that really helped the auto but there was some was that we pulled back on a little bit because there's a little bit of impact with that so those are some of the trades within our fixed income our managers have been very defensive so we're having some more quality mainten so those are the type things that are happening in the portfolio so some are putting on more risk because I think it's a great time to do that given the valuations and others are pulling back but that's in your solution because you have managers or overseeing them so we can see the tra but yet from an allocation thing allocation you know we can talk about funds we can talk about securities but a full spectrum of where you're allocated asset classes will really prove to be benefit returns over the long term to get questions. Thank you. Appreciate it.

[Music] Um, no other topics on the agenda. Uh, I'll make a motion to adjourn the May 1st, 2025 meeting the Montgomery County Employees Retirement Board. Is there a second? Seconded by Commissioner Deello. Any board comments? All in favor? I I meeting