HomeMy WebLinkAbout2017-10-26-RB-min (meeting materials) Town of Lexington
Retirement System
Meeting Mateirialls
October 26, 2017
Confidentiality: This evaluation is prepared by Meketa Investment Group,Inc.for the exclusive use of the Town of Lexington Retirement System. This evaluation is not to be used for any other purpose
or by any parties other than the Retirement System,its Board Members,employees,agents,attorneys,and/or consultants. No other parties are authorized to review or utilize the information contained
herein without expressed written consent.
A F IK F "Y" A I ti' V F S "Y" A F ti' "Y" G IY CD Ii II"
JWS1oN CHICAGO MIAMI POR ILAND SAN DIEGO I.INI)oN
MASSAQHUSF.LTS ILLINols FLORIDA OREGON CALMORNIA UNI T iYi) K INGDOM
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Town of Lexington Retirement System
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The material contained in this report is confidential and may not be reproduced, disclosed, or distributed, in whole or
in part, to any person or entity other than the intended recipient. The data are provided for informational purposes
only, may not be complete, and cannot be relied upon for any purpose other than for discussion.
Meketa Investment Group has prepared this report on the basis of sources believed to be reliable. The data are
based on matters as they are known as of the date of preparation of the report, and not as of any future date, and
will not be updated or otherwise revised to reflect information that subsequently becomes available.
....................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
Prepared by Meketa Investment Group
Page 2 of 17
linterillm
As of September 30,
2017
Page 3 of 17
Town of Lexington Retirement System
III u u Ili II �I I II II III
As of September 30,2017
Allocation by Manager Level Allocation by Security Level
International
Real Estate Hedge Emerging Private International
Fixed Income 5.9/o
® High Fundy Debt Debt Developed Bands
Hard Yield 9.4% 0 1°I 7 01 0
113,60/6 Hedge Funds °
Asseta bonds
9A% Inveshneni Grade <01°!m 1 °° _....__
Global Tactical Gash Bands Peal Estate
Asset 7�/�
36%
ash 5 9%
Allocation 40%
11r9%
lnternahanal
Global Equity
J!Ijo
Developed Equ
7.3°Pb 23.7%
TAPS Domestic°Equhyr
Equity 03%
34.71
a
Bank ILcan�s
32.4✓b
International
°.
International 17ra EmecgingEqu,ity
Equity 66%
18.8%
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Town of Lexington Retirement System
III a i® I®� II �I I II II II III II I���I�I IIS Ilf �I II I I SII III�I I
As of September 30,2017
Actual Asset Target Target PRIT Asset
Allocation Allocation Range Allocation'
N N N N
Total Retirement System NA NA NA NA
Public Equity 66 65 NA 45
Domestic Equity 35 35 20-50 19
International Developed Equity 24 20 10-30 18
International Emerging Equity 7 10 0-20 8
Absolute Return Hedge Funds/Portfolio Completion 9 10 5-15 10
Private Equity NA NA NA 11
Core Fixed Income 5 5 0-20 13
Domestic Investment Grade 4 NA NA -
International Developed Bond 1 NA NA
TIPS <1 NA NA -
Value-Add Fixed Income 11 10 0-25 8
High Yield Bond 2 NA NA -
Bank Loans 2 NA NA
International Emerging Bond <1 NA NA
Private Senior Loans 7 NA NA -
Real Assets 6 10 0-20 12
Real Estate 6 NA 3-7 8
Timber/Natural Resources NA NA NA 4
Hard Assets <1 NA NA -
Cash 4 0 <10 2
PRIT allocation is as of Se tember 30,2017.
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Page 5 of 17
Town of Lexington Retirement System
III u u Ili II �I I II II III
As of September 30,2017
Actual Asset Allocations
Domestic
Market Percent Intl Intl Inv. High Intl Intl
Value of Domestic Dev Emg Grade Yield Bank Dev Emg Private Real Hard Hedge
Fund Name (mm) System Equity Equity Equity Bonds TIPS Bonds Loans Bonds Debt Debt Estate Assets Funds Currency
Fidelity Contrafund $21.9 14% 90% 9% 1% -
Fiduciary Large Cap $5.3 3% 79% 21% 0%
Rhumbline Russell 1000 Index $19.3 12% 100% 0% 0% --
Kayne Anderson SMID $6.1 4% 94% 4% 3%
Acadian $24.8 15% 2% 91% 7% 0%
Wellington Enduring Assets $11.9 7% 36% 61% 3% 5%
Matthews $5.7 3% 3% 7% 90% -- -- -- -- -- -- --
Wellington Opportunistic $14.4 9% 16% 28% 20% 5% 4% 1% 4% 12% 0% <1% 9%
William Blair Global Allocation $4.9 3% 2% 191/0 41/o 51/o -- 41/o -- -4% 41/o - 661/o
Beacon $0.1 0% -- 100%
PRIT Core Real Estate $9.6 6% 100%
PRIT Hedge Fund $15.2 9% -- 100%
Monroe $4.8 3% 100%
White Oak Summit Fund $3.1 2% 100%
Golub 9 $3.5 2% 100%
Loomis Credit Asset Fund $10.6 7% 46% 25% 21% 1% -- 7%
Cash $1.2 1% -- -- -- -- -- 100%
Total $162.2 100% 35% 24% 7% 4% 0% 2% 2% 1% 0% 7% 6% 0% 9% 4%
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Town of Lexington Retirement System
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As of September 30,2017
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Current Current
Balance Allocation
Global Equity $11,853,492 7%
US Equity $52,571,962 32%
International Equity $30,460,308 19%
Fixed Income $21,992,667 14%
Real Estate $9,648,974 6%
Hedge Funds $15,226,508 9%
Tactical Asset Allocation $19,287,660 12%
Cash $1,203,917 1%
Total $162,245,488 100%
I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I
_ Prepared by Meketa Investment Group
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Town of Lexington Retirement System
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�I�wp As of September 30,2017
Yml ii i i' l i `i �� i Ifi�i fl l i II li fl��fi lil I
Market Value %of 1 Mo YTD 1 Yr3 Yrs 5 Yrs 10 Yrs Return Since
($) Portfolio (%) (%) (%) (%) (%) (%) (%)
Total Retirement System 162,245,488 100.0 1.3 14.7 15.1 7.9 9.0 4.5 5.9 Jan-99
Consumer Price Index 0.5 2.2 2.2 1.2 1.3 1.7 2.2 Jan-99
60%MSCI ACWI/40%Barclays Global Aggregate 0.8 12.7 10.3 5.16.3 4.0 5.0 Jan-99
PRIT Core Fund 1.7 13.2 13.0 8.1 9.7 5.2 72 Jan-99
Total Equity 94,885,762 58.5 1.5 20.3 20.0 9.9 13.3 5.4 6.8 Jan-01
MSCI ACWI IMI Net USD 2.1 172 18.7 77 10.4 4.2 5.7 Jan-01
PRIT Global Equity 2.1 19.5 20.2 8.6 11.0 -- -- Jan-01
Domestic Equity Assets 52,571,962 32.4 1.8 17.3 19.5 10.1 14.4 6.9 6.9 Jan-01
Russell 3000 2.4 13.9 18.7 10.7 14.2 76 6.4 Jan-01
S&P 500 2.1 14.2 18.6 10.8 14.2 74 6.0 Jan-01
PRIT Domestic Equity 2.7 13.7 18.6 10.6 14.1 6.3 6.0 Jan-01
International Equity Assets 30,460,308 18.8 2.0 28.0 25.0 9.5 10.5 2.6 6.0 Jan-01
MSCI ACWI ex USA IMI 1.9 21.5 19.6 5.2 73 1.6 5.6 Jan-01
Global Equity Assets 11,853,492 7.3 -1.1 18.4 11.4 7.7 9.6 10.5 Jun-12
MSCI ACWI IMI Net USD 2.1 172 18.7 77 10.4 4.2 12.1 Jun-12
PRIT Global Equity 2.1 19.5 20.2 8.6 11.0 -- 12.7 Jun-12
Global Tactical Asset Allocation Assets 19,287,660 11.9 1.0 12.4 12.4 6.1 4.8 3.9 6.5 Dec-04
Custom Benchmark 1.1 12.1 11.8 5.9 74 4.3 5.3 Dec-04
PRIT Hedge Fund(net) 0.5 5.4 8.1 3.0 5.7 3.0 4.4 Dec-04
Fixed Income Assets 21,992,667 13.6 0.5 5.9 6.4 5.2 4.9 6.3 6.3 Jan-01
BBgBarc US Universal TR -0.4 3.7 1.0 3.1 2.5 4.6 5.1 Jan-01
PRIT Core Fixed Income -1.0 3.7 -4.5 4.4 3.6 4.9 5.5 Jan-01
PRIT Public Value-Added Fixed Income 0.4 8.0 6.6 3.8 3.2 5.5 -- Jan-01
Absolute Return Assets 15,226,508 9.4 0.5 5.4 8.1 3.0 -- 4.4 Oct-13
HFRI Fund of Funds Composite Index 0.5 5.6 6.5 2.2 3.9 1.1 3.2 Oct-13
Real Estate Assets 9,648,974 5.9 0.5 6.0 4.8 6.9 5.7 -7.0 -7.0 Oct-07
PRIT Real Estate 0.6 6.1 5.6 8.8 9.6 5.8 5.8 Oct-07
Cash 1,203,917 0.7
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
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Page 8 of 17
Town of Lexington Retirement System
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As of September 30,2017
Market Value %of %of 1 Mo YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since
($) Portfolio Sector (%) (%) (%) (%) (%) (%) (%)
Total Retirement System 162,245,488 100.0 -- 1.3 14.7 15.1 7.9 9.0 4.5 5.9 Jan-99
Consumer Price Index 0.5 2.2 2.2 1.2 1.3 1.7 2.2Jan-99
60%MSCI AC W1
/40%Barclays Global Aggregate 0.8 12.7 10.3 5.1 6.3 4.0 5.0 Jan-99
PRIT Core Fund 1.7 13.2 13.0 8.1 9.7 5.2 72 Jan-99
Total Equity 94,885,762 58.5 58.5 1.5 20.3 20.0 9.9 13.3 5.4 6.8 Jan-01
MSCI ACWIIMI Net USD 2.1 172 18.7 7.7 10.4 4.2 5.7 Jan-01
PRIT Global Equity 2.1 19.5 20.2 8.6 11.0 -- -- Jan-01
Domestic Equity Assets 52,571,962 32.4 55.4 1.8 17.3 19.5 10.1 14.4 6.9 6.9 Jan-01
Russe113000 2.4 13.9 18.7 10.7 14.2 76 6.4 Jan-01
S&P 500 2.1 14.2 18.6 10.8 14.2 74 6.0 Jan-01
PRIT Domestic Equity 2.7 13.7 18.6 10.6 14.1 6.3 6.0 Jan-01
Fidelity Contrafund(net) 21,908,487 13.5 41.7 0.8 23.9 23.2 12.0 14.6 8.5 11.4 May-94
Russell 1000 2.1 14.2 18.5 10.6 14.3 75 9.9 May-94
S&P 500 2.1 14.2 18.6 10.8 14.2 74 9.7 May-94
RhumbLine Russell 1000 Index 19,255,452 11.9 36.6 2.1 14.1 18.5 10.6 -- -- 12.8 Jun-13
Russell 1000 2.1 14.2 18.5 10.6 14.3 75 12.8 Jun-13
Fiduciary Large Cap(net) 5,278,265 3.3 10.0 2.7 12.4 17.9 9.6 13.0 -- 14.0 Jun-12
S&P 500 2.1 14.2 18.6 10.8 14.2 74 15.5 Jun-12
S&P 500 Value 3.3 8.5 16.5 8.9 13.2 5.6 14.6 Jun-12
Kayne Anderson SMID Cap Core(net) 6,129,758 3.8 11.7 3.2 -- -- -- -- -- 3.3 May-17
Russell 2500 4.5 11.0 178 10.6 13.9 8.2 6.2 May-17
_ Prepared by Meketa Investment Group
Page 9 of 17
Town of Lexington Retirement System
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As of September 30,2017
Market Value %of %of 1 Mo YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since
($) Portfolio Sector (%) (%) (%) (%) (%) (%) (%)
International Equity Assets 30,460,308 18.8 32.1 2.0 28.0 25.0 9.5 10.5 2.6 6.0 Jan-01
MSCI ACWI ex USA IMI 1.9 21.5 19.6 5.2 73 1.6 5.6 Jan-01
Matthews Pacific Tiger Fund(net) 5,651,639 3.5 18.6 0.8 26.0 14.0 7.2 8.7 10.5 Sep-09
MSCI AC Asia Pacific ex Japan -0.3 26.9 20.7 6.8 6.7 2.8 79 Sep-09
Acadian Non-U.S.All-Cap Equity(net) 24,808,669 15.3 81.4 2.2 28.4 28.3 10.9 12.4 0.9 5.3 Aug-05
MSCI EAFE 2.5 20.0 19.1 5.0 8.4 1.3 5.0 Aug-05
Global Equity Assets 11,853,492 7.3 12.5 -1.1 18.4 11.4 7.7 9.6 10.5 Jun-12
MSCI ACWI IMI Net USD 2.1 172 18.7 7.7 10.4 4.2 12.1 Jun-12
PRIT Global Equity 2.1 19.5 20.2 8.6 11.0 12.7 Jun-12
Wellington Enduring Assets(net) 11,853,492 7.3 100.0 -1.1 18.4 11.4 7.7 9.6 10.5 Jun-12
MSCI ACWI IMI Net USD 2.1 172 18.7 7.7 10.4 4.2 12.1 Jun-12
PRIT Global Equity 2.1 19.5 20.2 8.6 11.0 12.7 Jun-12
Global Tactical Asset Allocation Assets 19,287,660 11.9 11.9 1.0 12.4 12.4 6.1 4.8 3.9 6.5 Dec-04
Custom Benchmark 1.1 12.1 11.8 5.9 74 4.3 5.3 Dec-04
PRIT Hedge Fund(net) 0.5 5.4 8.1 3.0 5.7 3.0 4.4 Dec-04
Wellington Opportunistic Investment Allocation 14,357,556 8.8 74.4 1.0 15.2 15.0 8.1 8.3 5.5 7.8 Dec-04
Custom Benchmark 1.1 12.1 11.8 5.9 74 4.3 5.3 Dec-04
William Blair Global Allocation 4,930,104 3.0 25.6 1.2 4.8 5.6 1.7 Sep-15
Custom Benchmark 1.1 12.1 11.8 5.9 74 4.3 9.2 Sep-15
11
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Page 10 of 17
Town of Lexington Retirement System
YIIII t
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As of September 30,2017
Market Value %of %of 1 Mo YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since
($) Portfolio Sector (%) (%) (%) (%) (%) (%) (%)
No
Fixed Income Assets 21,992,667 13.6 13.6 0.5 5.9 6.4 5.2 4.9 6.3 6.3Jan-01
BBgBarc US Universal TR -0.4 3.7 1.0 3.1 2.5 4.6 5.1 Jan-01
PRIT Core Fixed Income -1.0 3.7 -4.5 4.4 3.6 4.9 5.5 Jan-01
PRIT Public Value-Added Fixed Income 0.4 8.0 6.6 3.8 3.2 5.5 -- Jan-01
Loomis Credit Asset Fund 10,594,405 6.5 48.2 0.5 5.9 6.5 5.2 5.4 -- 7.3 Nov-09
Custom Benchmark 0.2 5.0 4.5 4.5 4.3 6.3 Nov-09
Monroe Capital Senior Secured Direct Loan Fund 4,788,568 3.0 21.8
Golub Capital Partners 9,L.P. 3,500,000 2.2 15.9
White Oak Summit Fund,L.P. 3,109,694 1.9 14.1
Absolute Return Assets 15,226,508 9.4 9.4 0.5 5.4 8.1 3.0 -- 4.4 Oct-13
HFRI Fund of Funds Composite Index 0.5 5.6 6.5 2.2 3.9 1.1 3.2 Oct-13
PRIT Hedge Fund(net) 15,226,508 9.4 100.0 0.5 5.4 8.1 3.0 -- -- 4.4 Oct-13
HFRI Fund of Funds Composite Index 0.5 5.6 6.5 2.2 3.9 1.1 3.2 Oct-13
Real Estate Assets 9,648,974 5.9 5.9 0.5 6.0 4.8 6.9 5.7 -7.0 -7.0 Oct-07
PRIT Real Estate 0.6 6.1 5.6 8.8 9.6 5.8 5.8 Oct-07
Beacon Fund V(net) 53,329 0.0 0.6
PRIT Core Real Estate(net) 9,595,645 5.9 99.4 0.5 6.0 5.5 -- -- -- 6.6 Jul-16
PRIT Real Estate 0.5 5.9 5.4 8.8 9.5 5.7 6.5 Jul-16
Cash 1,203,917 0.7 0.7
State Street Bank STIF 1,203,917 0.7 100.0
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
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Page 11 of 17
IID iii III iii mer, Glossary, aind I
Page 12 of 17
Town of Lexington Retirement System
IIS �
III I II II IIII ��II
The material contained in this report is confidential and may not be reproduced, disclosed, or distributed, in whole or in part, to any
person or entity other than the intended recipient. The data are provided for informational purposes only, may not be complete, and
cannot be relied upon for any purpose other than for discussion.
Meketa Investment Group has prepared this report on the basis of sources believed to be reliable. The data are based on matters as
they are known as of the date of preparation of the report, and not as of any future date, and will not be updated or otherwise revised to
reflect information that subsequently becomes available.
In general, the valuation numbers presented in this report are prepared by the custodian bank for listed securities, and by the fund
manager or appropriate General Partner in the case of unlisted securities. The data used in the market comparison sections of this
report are sourced from various databases. These data are continuously updated and are subject to change.
This report does not contain all the information necessary to fully evaluate the potential risks of any of the investments described
herein. Because of inherent uncertainties involved in the valuations of investments that are not publicly traded, any estimated fair
values shown in this report may differ significantly from the values that would have been used had a ready market for the underlying
securities existed, and the differences could be material. Note that for unlisted securities the valuations may be lagged by one or more
calendar quarters,or may reflect original cost.
This document may contain certain forward-looking statements, forecasts, estimates, projections, and opinions ("Forward Statements").
No representation is made or will be made that any Forward Statements will be achieved or will prove to be correct. A number of
factors, in addition to any risk factors stated in this material, could cause actual future results to vary materially from the Forward
Statements. No representation is given that the assumptions disclosed in this document upon which Forward Statements may be
based are reasonable. There can be no assurance that the investment strategy or objective of any fund or investment will be achieved,
or that the Retirement System will receive a return of the amount invested.
In some cases Meketa Investment Group assists the Retirement Board in handling capital calls or asset transfers among investment
managers. In these cases we do not make any representations as to the managers' use of the funds, but do confirm that the capital
called or transferred is within the amounts authorized by the Retirement Board.
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Page 13 of 17
Town of Lexington Retirement System
�IIII I II I II In I
Credit Risk: Refers to the risk that the issuer of a fixed income security may default (i.e., the issuer will be unable to make timely
principal and/or interest payments on the security.)
Duration: Measure of the sensitivity of the price of a bond to a change in its yield to maturity. Duration summarizes, in a single
number, the characteristics that cause bond prices to change in response to a change in interest rates. For example, the price of a
bond with a duration of three years will rise by approximately 3% for each 1% decrease in its yield to maturity. Conversely, the price
will decrease 3% for each 1% increase in the bond's yield. Price changes for two different bonds can be compared using duration. A
bond with a duration of six years will exhibit twice the percentage price change of a bond with a three-year duration. The actual
calculation of a bond's duration is somewhat complicated, but the idea behind the calculation is straightforward. The first step is to
measure the time interval until receipt for each cash flow(coupon and principal payments)from a bond. The second step is to compute
a weighted average of these time intervals. Each time interval is measured by the present value of that cash flow. This weighted
average is the duration of the bond measured in years.
Information Ratio: This statistic is a measure of the consistency of a portfolio's performance relative to a benchmark. It is calculated
by subtracting the benchmark return from the portfolio return (excess return), and dividing the resulting excess return by the standard
deviation (volatility) of this excess return. A positive information ratio indicates outperformance versus the benchmark, and the higher
the information ratio,the more consistent the outperformance.
Market Capitalization: For a firm, market capitalization is the total market value of outstanding common stock. For a portfolio, market
capitalization is the sum of the capitalization of each company weighted by the ratio of holdings in that company to total portfolio
holdings; thus it is a weighted-average capitalization. Meketa Investment Group considers the largest 65% of the broad domestic
equity market as large capitalization, the next 25% of the market as medium capitalization, and the smallest 10% of stocks as small
capitalization.
Market Weighted: Stocks in many indices are weighted based on the total market capitalization of the issue. Thus, the individual
returns of higher market-capitalization issues will more heavily influence an index's return than the returns of the smaller market-
capitalization issues in the index.
Maturity: The date on which a loan, bond, mortgage,or other debt/security becomes due and is to be paid off.
Prepayment Risk: The risk that prepayments will increase (homeowners will prepay all or part of their mortgage) when mortgage
interest rates decline; hence, investors' monies will be returned to them in a lower interest rate environment. Also, the risk that
prepayments will slow down when mortgage interest rates rise; hence, investors will not have as much money as previously anticipated
in a higher interest rate environment. A prepayment is any payment in excess of the scheduled mortgage payment.
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Page 14 of 17
Town of Lexington Retirement System
�IIII I II I II In I
Price-Book Value (P/B) Ratio: The current market price of a stock divided by its book value per share. Meketa Investment Group
calculates P/B as the current price divided by Compustat's quarterly common equity. Common equity includes common stock, capital
surplus, retained earnings, and treasury stock adjusted for both common and nonredeemable preferred stock. Similar to high P/E
stocks, stocks with high P/B's tend to be riskier investments.
Price-Earnings (P/E) Ratio: A stock's market price divided by its current or estimated future earnings. Lower P/E ratios often
characterize stocks in low growth or mature industries, stocks in groups that have fallen out of favor, or stocks of established blue chip
companies with long records of stable earnings and regular dividends. Sometimes a company that has good fundamentals may be
viewed unfavorably by the market if it is an industry that is temporarily out of favor. Or a business may have experienced financial
problems causing investors to be skeptical about is future. Either of these situations would result in lower relative P/E ratios. Some
stocks exhibit above-average sales and earnings growth or expectations for above average growth. Consequently, investors are willing
to pay more for these companies' earnings, which results in elevated P/E ratios. In other words, investors will pay more for shares of
companies whose profits, in their opinion, are expected to increase faster than average. Because future events are in no way assured,
high P/E stocks tend to be riskier and more volatile investments. Meketa Investment Group calculates P/E as the current price divided
by the I/B/E/S consensus of twelve-month forecast earnings per share.
Quality Rating: The rank assigned a security by such rating services as Fitch, Moody's, and Standard & Poor's. The rating may be
determined by such factors as (1) the likelihood of fulfillment of dividend, income, and principal payment of obligations; (2) the nature
and provisions of the issue; and (3)the security's relative position in the event of liquidation of the company. Bonds assigned the top
four grades (AAA, AA, A, BBB) are considered investment grade because they are eligible bank investments as determined by the
controller of the currency.
Sharpe Ratio: A commonly used measure of risk-adjusted return. It is calculated by subtracting the risk free return (usually three-
month Treasury bill) from the portfolio return and dividing the resulting excess return by the portfolio's total risk level (standard
deviation). The result is a measure of return per unit of total risk taken. The higher the Sharpe ratio, the better the fund's historical risk
adjusted performance.
Standard Deviation: A measure of the total risk of an asset or a portfolio. Standard deviation measures the dispersion of a set of
numbers around a central point (e.g., the average return). If the standard deviation is small, the distribution is concentrated within a
narrow range of values. For a normal distribution, about two thirds of the observations will fall within one standard deviation of the
mean, and 95%of the observations will fall within two standard deviations of the mean.
STIF Account: Short-term investment fund at a custodian bank that invests in cash-equivalent instruments. It is generally used to
safely invest the excess cash held by portfolio managers.
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Style: The description of the type of approach and strategy utilized by an investment manager to manage funds. For example, the
style for equities is determined by portfolio characteristics such as price-to-book value, price-to-earnings ratio, and dividend yield.
Equity styles include growth, value, and core.
Yield to Maturity: The yield, or return, provided by a bond to its maturity date; determined by a mathematical process, usually
requiring the use of a "basis book." For example, a 5% bond pays $5 a year interest on each $100 par value. To figure its current
yield, divide $5 by$95—the market price of the bond—and you get 5.26%. Assume that the same bond is due to mature in five years.
On the maturity date, the issuer is pledged to pay$100 for the bond that can be bought now for$95. In other words, the bond is selling
at a discount of 5% below par value. To figure yield to maturity, a simple and approximate method is to divide 5% by the five years to
maturity,which equals 1% pro rata yearly. Add that 1%to the 5.26%current yield, and the yield to maturity is roughly 6.26%.
5% (discount) 1% pro rata, plus _ o
5 (yrs. to maturity) - 5.26%(current yield) - 6.26/o(yield to maturity)
Sources: Investment Terminology, International Foundation of Employee Benefit Plans, 1999.
The Handbook of Fixed Income Securities, Fabozzi, Frank J., 1991.
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Town of Lexington Retirement System
The Russell IndicesO,TM, SM are trademarks/service marks of the Frank Russell Company.
Throughout this report, numbers may not sum due to rounding.
Returns for periods greater than one year are annualized throughout this report.
Values shown are in millions of dollars, unless noted otherwise.
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