HomeMy Public PortalAboutPension Plan 2009 4th Quarter ReportMetropolitan St. Louis Sewer DistrictMetropolitan St. Louis Sewer DistrictMetropolitan St. Louis Sewer DistrictMetropolitan St. Louis Sewer DistrictFourth Quarter 2009IttPf AliRtInvestment Performance Analysis ReportFebruary 2010D i V E i CAIADion StevensDoris V. Ewing, CAIAPartnerDion StevensConsultantNEPC, LLCOne Main Street, Cambridge, MA 02142T l 6173741300 F 6173741313Tel: 617-374-1300 Fax: 617-374-1313www.nepc.comCAMBRIDGE I CHARLOTTE I DETROIT LAS VEGAS I SAN FRANCISCORegistered Investment Advisors
Metropolitan St. Louis Sewer DistrictTable of Contents•Market Commentary & Update•Executive Summary•Asset Allocation Analysis•Investment Performance Analysis•Appendix1
Metropolitan St. Louis Sewer District Market Commentary and Update2
ICC Market EnvironmentPeriod Ending December 31, 2009INDEPENDENT CONSULTANTS COOPERATIVE MARKET ENVIRONMENT Q4 2009 GeneralComments•Welcome to the latest issue of “State Street Investment Analytics Market Environment”, a companion newsletter to “State Street Investment Analytics Market Commentary.” It is designed to summarize key market indicators for our institutional clients. While the “Environment” keeps you up to date on market changes the “Commentary” is designed to keep you up to date on the research generated by various specialty units within State Street Investment Analytics (SSIA). We hope you find both reports useful and relevant in your investment endeavors. General Comments•The final quarter of 2009 closed on a positive note as the Dow Jones Industrial Average passed 10,000 for the first time since October 2008 and the U.S. economy showed modest signs of improvement. During the quarter, the Dow rose 8.1%, the S&P 500 gained 6.0% and the NASDAQ advanced 6.9%. Over the 1-year period, the Dow rose 22.6%, S&P gained 26.5% and the tech-heavy NASDAQ climbed 43.9%. •After experiencing the sharpest economic contraction since 1982, the Commerce Department reported that the U.S. economy grew 2.2% during the 3-month period from July to September. A number of economists noted thatthird quarterGDP growth was due in large part to unprecedented governmentmonth period from July to September. A number of economists noted thatthird quarterGDP growth was due in large part to unprecedented governmentstimulus and remained cautious on the sustainability of economic growth in the United States.•In December, President Obama’s top economic advisor Larry Summers predicted job growth would return in the United States as early as the spring. According to a Fed report, an additional 85,000 jobs were lost during the month of December and U.S. unemployment remained steady at 10%. In a separate report, the U.S. Labor Department noted that the number of Americans filing for unemployment benefits fell to its lowest level since August 2008.•Commodities rallied in the final quarter of 2009, as crude oil futures settled above $80/barrel, gold topped $1,100/ounce, and home heating oil hit a 16-month high. Increases in commodity pricing were driven in part by the continued weakening of the U.S. dollar, which has declined 12% since hitting a 5-year peak in early March. •In international markets, the National Institute of Economic and Social Research reported that the U.K. economy grew 1.6% between August and December. Simultaneously, Germany’s Economics Ministry noted that the eurozone’s largest economy growth was flat in the fourth quarter.•After a 4-month slide, the State Street Investor Confidence Index® rose to 103.9 in December. The index, which measures investor confidence by analyzing buying and selling patterns of institutional investors, benefited most from an increase in investor confidence in Asia which hit an 8-month high during the month. Harvard University professor, Ken Froot noted, “Institutions are continuing to add to their risky asset positions, but at a slower pace than was evident earlier in the year.”3
ICC Market Environment Market SummaryPeriod Ending December 31, 20090.2 5.9 6.0114
ICC Market Environment Domestic MarketsPeriod Ending December 31, 20095
ICC Market Environment International MarketsPeriod Ending December 31, 20096
ICC Market Environment International MarketsPeriod Ending December 31, 20097
ICC Market Environment Private Equity MarketsPeriod Ending December 31, 20098
ICC Market Environment Currency and Bond MarketsPeriod Ending December 31, 20099
ICC Market Environment Bond MarketsPeriod Ending December 31, 200910
ICC Market Environment Style & Capitalization Period Ending December 31, 200911
Investment Market UpdateJanuary Market Update Period Ending January 31, 2010PERFORMANCE THRU 1/31/20102010SectorIndex2003200420052006200720082009Jan2010CommoditiesDJ UBS Commodity 24.0% 9.2% 21.4% 2.1% 16.2%-35.7%18.9% 7.3% 7.3%Core FI BC Aggregate 4.1% 4.3% 2.4% 4.3% 7.0% 5.2% 5.9% 1.5% 1.5%Bank LoansLeveraged Loans # 11.0% 5.6% 5.7% 7.3% 1.9%-28.8%45.0% 1.5% 1.5%Hi h Yi ldBC HY29 0%11 1%27%11 9%19%26 2%58 2%13%13%High YieldBC HY29.0%11.1%2.7%11.9%1.9%-26.2%58.2%1.3%1.3%Emerging FI BC Emerging ($US) 26.9% 11.9% 12.3% 10.0% 5.2%-14.8%34.2% 0.8% 0.8%Muni BondsBC Muni (unadj) 5.3% 4.5% 3.5% 4.8% 3.4%-2.5%12.9% 0.5% 0.5%Global FI Citigroup WGBI 14.9% 10.4%-6.9%6.1% 11.0% 10.9% 2.6% 0.1% 0.1%BalancedDiversified* 26.5% 12.8% 6.4% 15.2% 5.9%-26.9%24.8%-2.2% -2.2%LC ValueR1000 Value30 0%16 5%71%22 3%-02%-36 8%19 7%-28%-28%LC ValueR1000 Value30.0%16.5%7.1%22.3%0.2%36.8%19.7%2.8%2.8%SC Value R2000 Value46.0% 22.3% 4.7% 23.5%-9.8% -28.9%20.6%-2.9% -2.9%Large CapRussell 1000 29.9% 11.4% 6.3% 15.5% 5.8%-37.6%28.4%-3.6% -3.6%S&P 500 S&P 50028.7% 10.9% 4.9% 15.8% 5.5%-37.0%26.5%-3.6% -3.6%Small Cap Russell 2000 47.3% 18.3% 4.6% 18.4%-1.6% -33.8%27.2%-3.7% -3.7%LC Growth R1000 Growth 29.8% 6.3% 5.3% 9.1% 11.8%-38.4%37.2%-4.4% -4.4%Intl. Dev. EAFE (net)38.6% 20.3% 13.5% 26.3% 11.2%-43.4%31.8%-4.4% -4.4%SC Growth R2000 Growth 48.5% 14.3% 4.1% 13.4% 7.1%-38.5%34.5%-4.5% -4.5%Intl. Emerging EM (net)55.8% 25.6% 34.0% 32.2% 39.4%-53.3%78.5%-5.6% -5.6%REITS Wilshire REIT 36.2% 33.2% 13.8% 36.0%-17.6% -39.2%28.6%-5.6% -5.6%#CSFBL dL I d h t d Pi t CSFB t S&P/LSTAUS L dL 100IdSources: Lehman Live, MSCI Equity, Standard and Poor’s, Russell Investments, Citigroup Global Fixed Income, DGAIG Index, Wilshire, CSFB Leveraged Loan# CSFB Leveraged Loan Index when reported. Prior to CSFB report: S&P/LSTA U.S. Leveraged Loan 100 Index* 35% LC, 10% SC, 12% Intl, 3% Emerging, 25% FI, 5% HY, 5% Global FI, 5% REITS12
Investment Market UpdateDecember Market Update Period Ending December 31, 20092009SectorIndex200320042005200620072008QTR 1QTR 2QTR 3OctNovDecQTR 42009Intl. Emerging EM (net)55.8% 25.6% 34.0% 32.2% 39.4%-53.3%0.9% 34.7% 20.9% 0.1% 4.3% 4.0% 8.5% 78.5%High Yield BC HY29.0% 11.1% 2.7% 11.9% 1.9%-26.2%6.0% 23.1% 14.2% 1.8% 1.0% 3.3% 6.2% 58.2%Bank LoansLeveraged Loans # 11.0% 5.6% 5.7% 7.3% 1.9%-28.8%7.2% 18.6% 10.0%-0.6%0.2% 4.2% 3.7% 45.0%PERFORMANCE THRU 12/31/09gLC Growth R1000 Growth 29.8% 6.3% 5.3% 9.1% 11.8%-38.4% -4.1%16.3% 14.0%-1.4%6.1% 3.1% 7.9% 37.2%SC Growth R2000 Growth 48.5% 14.3% 4.1% 13.4% 7.1%-38.5% -9.7%23.4% 16.0%-7.0%3.1% 8.6% 4.1% 34.5%Emerging FI BC Emerging ($US) 26.9% 11.9% 12.3% 10.0% 5.2%-14.8%4.8% 12.4% 11.3% 0.6% 1.6% 0.2% 2.4% 34.2%Intl. Dev. EAFE (net) 38.6% 20.3% 13.5% 26.3% 11.2%-43.4% -13.9%25.4% 19.5%-1.3%2.0% 1.4% 2.2% 31.8%REITS Wilshire REIT 36.2% 33.2% 13.8% 36.0%-17.6% -39.2% -33.9%31.7% 35.4%-4.5%6.9% 6.9% 9.2% 28.6%Large CapRussell 100029 9%11 4%63%15 5%58%-37 6%-10 5%16 5%16 1%-2 2%59%24%61%28 4%Large CapRussell 100029.9%11.4%6.3%15.5%5.8%-37.6%-10.5%16.5%16.1%-2.2%5.9%2.4%6.1%28.4%Small Cap Russell 2000 47.3% 18.3% 4.6% 18.4%-1.6% -33.8% -14.9%20.7% 19.3%-6.8%3.1% 8.1% 3.9% 27.2%S&P 500 S&P 50028.7% 10.9% 4.9% 15.8% 5.5%-37.0% -11.0%15.9% 15.6%-1.9%6.0% 1.9% 6.0% 26.5%BalancedDiversified* 26.5% 12.8% 6.4% 15.2% 5.9%-26.9% -8.5%15.2% 14.1%-1.7%3.6% 1.8% 3.7% 24.8%SC Value R2000 Value 46.0% 22.3% 4.7% 23.5%-9.8% -28.9% -19.6%18.0% 22.7%-6.6%3.2% 7.6% 3.6% 20.6%LC Value R1000 Value 30.0% 16.5% 7.1% 22.3%-0.2% -36.8% -16.8%16.7% 18.2%-3.1%5.6% 1.8% 4.2% 19.7%CditiDJ UBS C dit24 0%92%21 4%21%16 2%35 7%63%11 7%42%33%35%20%90%18 9%CommoditiesDJ UBS Commodity24.0%9.2%21.4%2.1%16.2%-35.7%-6.3%11.7%4.2%3.3%3.5%2.0%9.0%18.9%Muni Bonds BC Muni (unadj) 5.3% 4.5% 3.5% 4.8% 3.4%-2.5%4.2% 2.1% 7.1%-2.1%0.8% 0.3%-1.0%12.9%Core FI BC Aggregate 4.1% 4.3% 2.4% 4.3% 7.0% 5.2% 0.1% 1.8% 3.7% 0.5% 1.3%-1.6%0.2% 5.9%Global FI Citigroup WGBI 14.9% 10.4%-6.9%6.1% 11.0% 10.9%-4.8%3.5% 6.2% 0.1% 3.2%-5.0% -1.9%2.6%# CSFB Leveraged Loan Index when reported. Prior to CSFB report: S&P/LSTA U.S. Leveraged Loan 100 IndexSources: Lehman Live, MSCI Equity, Standard and Poor’s, Russell Investments, Citigroup Global Fixed Income, DGAIG Index, Wilshire, CSFB Leveraged Loan* 35% LC, 10% SC, 12% Intl, 3% Emerging, 25% FI, 5% HY, 5% Global FI, 5% REITS13
Metropolitan St. Louis Sewer DistrictExecutive Summary14
Metropolitan St. Louis Sewer District Executive Summary - Total FundPeriod Ending December 31 2009Asset Growth and AllocationPeriod Ending December 31, 2009•At quarter end, the assets in the Fund totaled approximately $179.4 million, an increase of $6.5 million over the quarter, reflecting investment gains of $5.3 million and net inflows of $1.2 million.•The Fund’s allocation to equities was 49.0% at the end of the quarter (including equity allocations of GMO d PIMCO All A t) ll b l th di bli f d’ ll ti t iti f 55 6%and PIMCO All Asset), well below the median public fund’s allocation to equities of 55.6%.•The Fund’s equity commitment ranked in the 77thpercentile of the public funds universe*.PerformanceThF d td 32% t ith t ki ith57thtil f bli f d ti id•The Fund posted a 3.2% return in the quarter, ranking in the 57thpercentile of public funds, nationwide. – Active Management added 30 basis points.•For the one-year period ending December 2009, the Fund posted a 20.8% return, ranking in the 34th percentile of public funds. Diversification strategies have helped returns versus the median public fund th tover the past year. •For the three-year period performance was 2.5% with returns ranking in the 11thpercentile of public funds. The five-year return of 5.1% ranked in the 5thpercentile.– Higher relative returns were earned with lower levels of risk than the median public fund over the three- and five- year idperiods.*As of December 31, 2009, the public funds universe included 161 funds with assets of approximately $843 billion. 15
Metropolitan St. Louis Sewer District Executive Summary - Total FundPeriod Ending December 31, 2009g,What helped performance in the quarterDuring the quarter active management added 30 basis points Significant contribution to performance came from theDuring the quarter active management added 30 basis points. Significant contribution to performance came from the following managers:–Vanguard Windsor II outperformed the Russell 1000 Value index by 251 bps, ranking in the 15thpercentile in their peer group. Underweight to financials as well as stock selection in this sector added 179 bps.–Kennedy’s returns ranked in the 18thpercentile, outperforming the Russell MidCap Value index by 106 bps. The strategy was mostly helped by overweight to healthcare sector and stock selection in industrials and consumer staples sectorsmostly helped by overweight to healthcare sector and stock selection in industrials and consumer staples sectors. –Times Square had a strong quarter, posting a return 405 bps above the of Russell 2000 growth index and ranking in the 8thpercentile of small cap growth managers. Most of the excess returns came from stock selection in the healthcare, industrials and information technology sectors.–Morgan Stanley International ranked in the 54th percentile, outperforming the MSCI EAFE by 25 bps. The portfolio benefited from d i ht t fi i l i ht tt l ll t k l ti i i d t i l d tilitian underweight to financials, overweight to consumer staples, as well as stock selection in industrials and utilities.–Income Research returned 59 basis points above the Barclays Intermediate Gov’t./Corp. index, ranking in the 49th percentile of core fixed income managers. An underweight to treasuries, overweight to corporates and an allocation to CMBS (which benefited from TALF buying) contributed to most of the out performance. –Brandywine ranked in the 62ndpercentile of global bond managers, exceeding the Citi World Gov’t. index by 239 bps. Being i ht th d ll d d i ht th Y d E ) dd d b t 180 b t t f I dditi th ti d toverweight the dollar and underweight the Yen and Euro) added about 180 bps to out performance. In addition they continued to be overweight the commodity oriented currencies which benefited from improving global demand. Also, the portfolio benefited from US non-agency MBS positions, that rallied on the news of improving housing data.– Pimco All Asset posted 48 bps of outperformance, ranking in the 68thpercentile of balanced funds. Allocations to investment grade, high yield, and the emerging market debt sector (both dollar denominated and local currency bonds) contributed to return. Additionally, exposure to commodities helped, which gained from stronger industrial production data indicating global recovery. y, pp , ggpg gy– GMO outperformed its custom benchmark by 89 bps, ranking in the 21stpercentile of balanced managers. Within their asset allocation decisions, the biggest driver of outperformance was the overweight to U.S. equities vs. developed equities. Withinimplementation, their fixed income strategies continued to recover lost ground as policies rolled out by central banks to improve lending conditions continued to stabilize fixed income markets.16
Metropolitan St. Louis Sewer District Executive Summary - Total FundPeriod Ending December 31, 2009g,What hurt performance in the quarterA few equity managers trailed their respective benchmarks–BDH&S continued to post disappointing results, lagging the index by 555 bps and ranking in the 99th percentile of large cap growth managers. The primary detractor from return was stock selection, notably in the healthcare, industrials and consumer discretionary sectors. Five-year return is disappointing as well, ranking in the 97th percentile.W dd ll & R d l d th i d b 185 b ti 78th til ki P fi l h t d t–Waddell & Reed lagged the index by 185 bps, posting a 78th percentile ranking. Performance was mainly hurt due to security selection decisions in consumer discretionary and information technology sectors. Five-year result remains strong, ranking in the 11th percentile of large cap growth managers.–Morgan Stanley Emerging markets portfolio lagged the MSCI Emerging Markets index by 42 bps, but ranked in the 41st percentile of emerging markets equity managers. An underweight to Brazil and stock selection in Korea and Mexico detracted from performance relative to the index Performance over the threeyear year period ranked in the 68thdetracted from performance relative to the index. Performance over the three-year year period ranked in the 68th percentile.Penn Capital trailed by 116 bps, ranking in the 57thpercentile of high yield managers. The broad high yield market performance continued to be dominated by the lowest quality segment (companies with ratings of CCC and below). The defensive high yield strategy underperformed the index mainly due to its avoidance of this segment, which the d iid li Thii h91 ilstrategy cannot own due to investment guidelines. Three-year return is in the 91st percentile.Pyramis lagged its benchmark by 192 bps, ranking in the 95thpercentile in the hedge funds universe. Performance was hurt due to some of the pair trades in the consumer discretionary, utilities and consumer staples sectors. Three-year performance is strong, with returns in the 11th percentile.UBS l d th NCREIF i d b 88 b R t k d i th 69th til Thlt i th 32 dUBS lagged the NCREIF index by 88 bps. Returns ranked in the 69th percentile. Three-year results are in the 32nd percentile.17
Metropolitan St. Louis Sewer DistrictCOMPOSITEPeriods Ending December 31, 2009Total Fund Asset Growth Summary ($000)One Quarter Year to Date One Year Since InceptionCOMPOSITE Beginning Market Value172,851 151,078 151,078 96,401 Net External Growth1,172 -2,307 -2,307 -12,036 Return on Investment5,362 30,614 30,614 95,020 Income Received1,141 3,731 3,731 25,563 Gain/Loss4,221 26,883 26,883 69,457Ending Market Value179,385 179,385 179,385 179,38518
One Quarter One Year Two Years Three Years Four Years Five Years Seven Years Ten YearsCOMPOSITE 3.2 57 20.8 34 -1.6 13 2.5 11 4.9 3 5.1 5 7.9 15 4.6 23COMPOSITE Allocation Inde2.9 70 19.1 48 -1.9 14 1.5 13 4.2 9 4.4 18 7.6 22 4.8 20POLICY INDEX2.8 76 19.6 44 -2.5 16 0.9 18 3.8 18 4.2 20 7.3 27 3.5 565th Percentile4.5 27.5 1.7 3.4 4.6 5.1 8.6 5.5 25th Percentile3.7 22.1 -3.8 0.1 3.2 4.1 7.4 4.5 50th Percentile3.3 18.5 -5.1 -1.1 2.4 3.3 6.8 3.8 75th Percentile2.8 15.7 -6.7 -1.9 1.8 2.8 6.1 3.1 95th Percentile2.1 10.1 -9.6 -3.5 0.7 1.9 5.3 2.3 Metropolitan St. Louis Sewer DistrictTotal Fund - Universe: PUBLIC FUNDS (DB)Periods Ending December 31, 2009Total Fund Performance - Trailing Periods-13%-7%-1%5%11%17%23%29%19
2009200820072006200520042003200220012000COMPOSITE 20.8 34 -19.9 10 11.2 4 12.3 75 5.9 76 9.2 82 21.5 52 -7.6 39 -1.1 30 1.3 56COMPOSITE Allocation Ind19.1 48 -19.1 9 8.6 41 12.9 66 4.9 89 9.6 78 22.6 39 -6.2 21 -0.4 22 3.0 37POLICY INDEX19.6 44 -20.5 11 8.3 48 13.0 64 5.7 79 11.0 51 20.4 64 -9.6 68 -3.3 56 -1.4 855th Percentile27.5 -13.1 11.2 16.2 10.4 14.2 27.3 -0.3 3.2 9.3 25th Percentile22.1 -23.3 9.6 14.8 8.3 12.3 23.6 -6.7 -0.9 4.5 50th Percentile18.5 -25.6 8.2 13.7 7.2 11.1 21.7 -8.8 -2.9 1.9 75th Percentile15.7 -27.6 6.8 12.2 6.0 9.8 19.2 -10.4 -5.1 -0.5 95th Percentile10.1 -30.3 5.3 9.2 4.3 8.0 14.5 -12.3 -9.6 -3.4 Metropolitan St. Louis Sewer DistrictTotal Fund - Universe: PUBLIC FUNDS (DB)Period Ending December 31, 2009Total Fund Performance - One Year Time Periods-36%-27%-18%-9%0%9%18%27%20
RORStd Dev (Qtrly)ReturnStandardDeviationSharpeRatioNAMECOMPOSITE 2.5 11 12.7 25 0.0 13COMPOSITE Allocation Index1.5 13 12.2 18 -0.1 15POLICY INDEX0.9 18 13.4 33 -0.1 19S&P 500-5.6 100 22.2 100 -0.4 92MSCI EAFE (NET)-6.0 100 28.2 100 -0.3 80BC AGGREGATE6.0 1 3.7 1 1.0 1CITIGROUP WORLD GOVT BOND8.1 1 10.3 10 0.5 1Median-1.1 14.4 -0.2 Metropolitan St. Louis Sewer DistrictTotal Fund - Universe: PUBLIC FUNDS (DB)Period Ending December 31, 2009Risk vs. Return - 3 Year* Standard deviation is based on quarterly returns-7-6-5-4-3-2-10123456789135791113151719212325272931MedianMedian21
RORStd Dev (Qtrly)ReturnStandardDeviationSharpeRatioNAMECOMPOSITE 5.1 5 10.1 21 0.2 11COMPOSITE Allocation Index4.4 18 9.9 18 0.1 20POLICY INDEX4.2 20 10.7 29 0.1 24S&P 5000.4 100 17.6 100 -0.1 100MSCI EAFE (NET)3.5 43 22.9 100 0.0 59BC AGGREGATE5.0 6 3.6 1 0.5 1CITIGROUP WORLD GOVT BOND4.5 16 8.5 12 0.2 14Median3.3 11.6 0.0 Metropolitan St. Louis Sewer DistrictTotal Fund - Universe: PUBLIC FUNDS (DB)Period Ending December 31, 2009Risk vs. Return - 5 Year* Standard deviation is based on quarterly returns-0.10.40.91.41.92.42.93.43.94.44.95.45.96.424681012141618202224MedianMedian22
Metropolitan St. Louis Sewer District Manager Executive SummaryPeriod Ending December 31, 2009g,ProductExcess Return Vs. BenchmarkAsset Class / ManagerBenchmarkOrganizationProduct &ProcessLast 3 Months YTD 1 Year 3 Years 5 YearsDOMESTIC EQUITYVanguard President and CEO F. William McNabb III succeeded John J.Brennan as chairman, effective January 1, 2010.Sanders Capital LLC has been added to the investmentadvisoryteamVanguard Windsor IIRussell 1000 ValueSanders Capital, LLC, has been added to the investment advisory team. Two investment management industry veterans, Lewis A. Sanders, CEO and co-CIO of Sanders Capital, and John P. Mahedy, co-CIO and research director, serve as portfolio managers for the firm's portion of the large-cap value fund. Sanders Capital has been allocated about 8.5% of the fund's assets.Stable 2.51% 8.0% 8.0% 3.4% 1.7% BDH&SRussell 1000 Growth No changes to note Stable(5.55)% (23.8)% (23.8)% (3.2)% (3.3)%Waddell & ReedRussell 1000 Growth No changes to note Stable(1.85)% (8.8)% (8.8)%3.1% 2.8% Vanguard Institutional IndexS&P 500Vanguard President and CEO F. William McNabb III succeeded John J. Brennan as chairman, effective January 1, 2010.Stable 0.05% 0.9% 0.9% 0.3% 0.2% Kennedy Russell MidCap ValueNo changes to noteStable 1.06% 1.2% 1.2% n/a n/aTimes SquareRussell 2000 Growth No changes to note Stable 4.05% 2.6% 2.6% 5.4% 6.2% INTERNATIONAL EQUITYMorgan Stanley International MSCI EAFE No changes to note Stable 0.25% (9.0)% (9.0)%3.3% n/aMSCI Emerging MktsMorgan Stanley EmergingMSCI Emerging Mkts FreeNo changes to noteStable(0.42)% (6.8)% (6.8)% (2.1)%n/aDOMESTIC FIXED INCOMEIncome ResearchBarclays Capital Gov't/CorpAdded one analyst and lost two analysts.Stable 0.59% 9.4% 9.4% 1.6% 1.3% Penn CapitalMerrill Lynch High Yield Cash PayNo changes to noteStable(1.16)% (17.6)% (17.6)% (1.4)%n/aCash Pay23
Metropolitan St. Louis Sewer District Manager Executive SummaryPeriod Ending December 31, 2009g,ProductExcess Return Vs. BenchmarkAsset Class / ManagerBenchmarkOrganizationProduct &ProcessLast 3 Months YTD 1 Year 3 Years 5 YearsGLOBAL / INT'L FIXED INCOMEBrandywine Global Bond FundCiti World Gov't IndexAs of 12/31/2009 Brandywine’s Managing Partner resigned to pursue her philanthropic endeavors. They will be beginning a search for a replacement during the first quarter of 2010. This change did not impact managementofthe portfolioStable 2.39% 18.2% 18.2% (1.2)%n/amanagement of the portfolio.TACTICAL ASSET ALLOCATION65% MSCIWorld /35%Effective October 1, 2009, Arjun Divecha was appointed Chairman of the GMO Board of Directors, succeeding Mr. Jeremy Grantham. Mr. Divecha joined the firm in 1993 and is the Director of GMO’s Emerging Markets Equity Division. He has been a Board member since 2002 and had previouslyserved as the Board’s Vice Chairman.GMO65% MSCI World / 35% Barclays Aggpreviously served as the Board s Vice Chairman.Mr. Grantham continues to be a member of the GMO Board of Directors and continues to serve as the firm’s Chief Investment Strategist. He concentrates his energy working on investment related issues, particularly within GMO’s Asset Allocation Team.Stable 0.89% 1.8% 1.8% 4.1% n/a24
Metropolitan St. Louis Sewer District Manager Executive SummaryPeriod Ending December 31, 2009g,Product Excess Return Vs. BenchmarkAsset Class / ManagerBenchmarkOrganization&ProcessLast 3 Months YTD 1 Year 3 Years 5 YearsALTERNATIVE ASSETSPyramis90 Day T-Bill + 300bpsNo changes to noteStable(1.92)%1.4% 1.4% 0.5% n/aIn December 2009, PIMCO formally announced its expansion into active equity investment management with the hiring of Charles Lahr, Anne Gudefin, and Neel Kashkari. Anne and Charles are executive vice presidents and portfolio managers who come to PIMCO from the Mutual Series Group of Franklin Templeton Investments, having most recently served as co-portfolio managers for the Franklin Mutual Global Discovery Fund. They will be charged with establishing and managing new PIMCO equity strategies based on a "deep value" approach. Neel is a managing director and joins after serving as the Assistant Secretary of the Treasury, where he led the Office ofFinancial Stability.Neel will help directthe firm'sPimco All AssetCPI + 500bpswhere he led the Office of Financial Stability. Neel will help direct the firm s expansion into new investment initiatives, including their new equities business. John Loftus, who has been a consultant to PIMCO since 2006 and most recently worked with PIMCO's ETF team, retired in December 2009. John was elected a managing director in 2000, and in 2006 transitioned to a reduced schedule as a consulting managing director.Stable 0.48% 16.2% 16.2% (2.2)%n/a In December 2009, Changhong Zhu, managing director and portfolio manager, announced that he will be leaving PIMCO at the end of February to return to China where he will assume the role of CIO of the State Administration of Foreign Exchange. In November 2009, PIMCO hired Andrew Jessop as an executive vice president and portfolio manager. Mr. Jessop will be a senior member of ppgpPIMCO's high yield team and lead portfolio manger for the PIMCO High Yield Fund. Mr. Jessop has over 22 years of investment experience in the high yield market, and was most recently a managing director, portfolio manager and co-head of the high yield group at Goldman Sachs Asset Management where he spent 12 years. UBS RealtyNCREIF Property No changes to note Stable(0.88)% (4.4)% (5.4)% (3.1)%n/a25
Metropolitan St. Louis Sewer District Asset Allocation Analysis26
Metropolitan St. Louis Sewer District Total FundPeriod Ending December 31, 2009Target Asset AllocationAsset AllocationTotal Int’lEq13 0%Domestic Equity 30%GAA10%Alternatives 14%Total Fixed Income 33 %Total Int l Eq. 13.0%Domestic Equity 30%GAA10%Alternatives 14%Total Fixed Income 33 %3.0%10.0%10.0%20.0%10.0%20.0%5.0% 8.0%5.0%4.0% 5.0%Actual Asset AllocationActual Asset AllocationTotal Domestic Equity 28.8%Total Int’l Eq. 12.8%Total Fixed Income 28.0%Alternatives 13.5%GAA 10.2%3.3%9.5%9.7%19.1%10.2%14.8%5.3%7.9%3.9%3.9%5.7%6.8%Emerg. Mkts..Int. Dev. Small CapLarge CapGA ACore FIHigh YieldGlobal BondsReal EstateAbsolute ReturnHedge FundCash27
Metropolitan St. Louis Sewer DistrictCOMPOSITEAsset Allocation HistoryPeriod Ending December 31, 2009* Allocations exclude manager cashAsset Allocation History28
200420052006200720082009COMPOSITE 58.5 67 54.3 84 50.0 80 43.6 89 43.0 66 49.0 775th Percentile74.5 72.3 73.0 72.7 63.9 73.1 25th Percentile66.7 66.9 66.5 64.0 54.1 63.3 50th Percentile61.5 61.2 61.0 59.3 46.8 55.6 75th Percentile56.2 56.1 52.8 54.1 34.5 49.7 95th Percentile42.8 44.4 0.0 39.7 0.0 26.7 Metropolitan St. Louis Sewer DistrictTotal Fund Allocation - Universe: PUBLIC FUNDS (DB)Period Ending December 31, 2009Commitment to Equity (%)-7%2%11%20%29%38%47%56%65%74%29
Metropolitan St. Louis Sewer District NEPC 2010 Capital Market Observations & Expectations•2009 was a welcome respite for investors–Recovery across all risky markets; a strong reversal of 2008–Credit recovered faster than expected–Financial system away from brink on Fed/Treasury actions, without current inflation–Despite recovery, major structural imbalances remainOtittfik tfttt–Opportunity to re-focus on risk management after a strong return year•Risk of long-term inflation is at highest level in nearly thirty years–Short-term inflation remains contained–What will Federal Reserve do if inflation increases before employment picks up?S i fl ti ld i th f f f lli US d ll–Some inflation could come in the form of a falling US dollar•Dollar expected to continue long-term weakening trend along with other developed currencies–Expect strong dollar rallies but also large drops, despite “everyone’s best interest” in a gradual decline–Global diversification away from US dollar as primary reserve currencyDitiltit i idtl thdkbl ht–Depreciation relative to emerging currencies due to lower growth and weaker balance sheet•Forward-looking expected returns have declined–Based on consistent NEPC long-term expectations adjusted for 2009 gains–Unemployment, high debt levels, and general uncertainty impair the real economyR b dt ti i t d fd ll b i EPC 2010 C it l M k t–Recovery based on government actions instead of consumers and small businesses EPC 2010 Capital Market Observations & Expectations30
Metropolitan St. Louis Sewer District NEPC 2010 General Actions for Clients•Continue to assess the future from a risk management perspectiveCfi lldbji–Confirm long-term goals and objectives•Where is risk being taken? – Risk budgeting•What environments are unlikely but harmful? – Scenario analysis–Avoid chasing returns in a lower return environment•Review the role of fixed incomeReview the role of fixed income–Meeting program objectives – liquidity, timing, duration, nominal/real commitments–Tail-risk management for deflation and inflation–Short-term yields are low, the yield curve is steep and credit spreads have tightened –Future credit opportunities involve manager skill more than just market exposure•Give greater discretion to managers with a broad credit skill set•Lend with favorable terms in distressed debt and mezzanine lending•Build strategic exposure to real assets–Higher inflation expectations may already be priced into some marketsConsider illiquid investments for increased expected returns•Consider illiquid investments for increased expected returns–Demand continues, while traditional suppliers of capital have exited the market–Lock-ups protect investors from “fast money”–Measure sizing and pacing using project plans and liquidity analysis•Overweight emerging market investments to protect from dollar lossesOverweight emerging market investments to protect from dollar losses•Retain focus on diversification in a time of uncertainty31
Metropolitan St. Louis Sewer District NEPC 2010 Focused Action for Public Funds•Exploit the Illiquidity Premiumpqy–Long-term investment horizons help mitigate lock-up concerns–Investment horizons reconcile with illiquid asset comment/investment horizons–With subdued expectations for traditional asset returns, illiquid assets offer some Total Return recapture•Continue with Non-Dollar Diversification–Consider higher allocations to Emerging Market Debt and Equity…again, liquidity horizons match-up well for public funds–In the current environment, an ideal approach to mitigating US dollar concentration risk•Re-focus on Inflation Protection–Renewed attention on Real Return–High inflation would likely lead to pressure for COLAs (or higher COLAs)32
Metropolitan St. Louis Sewer DistrictNEPC 2010 5-to-7 Year ForecastsGeometric Expected ReturnVolatilityGeometric Expected ReturnVolatilityAsset Class2008 2009 2010 2010-2008 2010-2009 Asset Class2008 2009 2010 2010-2008 2010-2009Cash4.00% 3.00% 2.00%(2.00%) (1.00%)Cash1.50% 2.00% 1.50% 0.00%(0.50%)Treasuries2.75%Treasuries5.50%Credit5.50%Credit7.00%MBS4 00%MBS900%MBS4.00%MBS9.00%TIPS4.75% 6.00% 3.50%(1.25%) (2.50%)TIPS6.00% 7.50% 7.00% 1.00%(0.50%)High-Yield Bonds 6.75% 11.00% 8.00% 1.25%(3.00%)High-Yield Bonds 10.75% 18.00% 12.00% 1.25%(6.00%)Global Bonds4.00% 4.25% 3.25%(0.75%) (1.00%)Global Bonds9.25% 9.75% 10.00% 0.75% 0.25%Emerg Market Debt 6.50% 8.00% 6.50% 0.00%(1.50%)Emerg Market Debt 15.00% 19.00% 15.00% 0.00%(4.00%)Large Cap Equity 8.50% 9.25% 7.75%(0.75%) (1.50%)Large Cap Equity 16.00% 20.00% 18.00% 2.00%(2.00%)Small/Mid Cap Equity8 75%950%8 00%(0 75%)(1 50%)Small/Mid Cap Equity21 00%24 00%23 00%200%(1 00%)Small/Mid Cap Equity8.75%9.50%8.00%(0.75%)(1.50%)Small/Mid Cap Equity21.00%24.00%23.00%2.00%(1.00%)Int'l Equities9.00% 9.75% 8.00%(1.00%) (1.75%)Int'l Equities19.00% 24.00% 21.00% 2.00%(3.00%)Emerging Mkt Equity 9.50% 10.50% 9.50% 0.00%(1.00%)Emerging Mkt Equity 27.00% 32.00% 29.00% 2.00%(3.00%)Commodities5.00% 5.25% 4.75%(0.25%) (0.50%)Commodities15.00% 20.00% 22.00% 7.00% 2.00%Real Estate6.75% 7.00% 7.00% 0.25% 0.00% Real Estate11.50% 13.00% 15.00% 3.50% 2.00%Private Equity10.50% 11.50% 10.00%(0.50%) (1.50%)Private Equity27.00% 32.00% 30.00% 3.00%(2.00%)Pi t D bt10 00%Pi t D bt19 00%Private Debt10.00%Private Debt19.00%Hedge Funds - Low Vol6.50% 6.50% 6.25%(0.25%) (0.25%)Hedge Funds - Low Vol7.00% 8.00% 7.00% 0.00%(1.00%)Hedge Funds - Mod Vol8.00% 8.00% 7.50%(0.50%) (0.50%)Hedge Funds - Mod Vol10.00% 15.00% 12.00% 2.00%(3.00%)Core Bonds 5.00% 5.50% 3.75%(1.25%) (1.75%)Core Bonds 6.75% 7.00% 7.00% 0.25% 0.00%33
Metropolitan St. Louis Sewer DistrictTarget Allocation with 2010 assumptionsPliPliProposed Target /R lA t Asset ClassPolicy w/ 2009 AssumptionsPolicy w/ 2010 Assumptionsw/ Real Assetsw/ 2010 Assumptions Core Bonds 15% 15% 15% Global Bonds 8% 8% 8% High-Yield Bonds 5% 5% 5% Credit Opportunities 5% 5% 5%TtlFi dI33%33%33% Total Fixed Income 33%33%33% Large Cap Equities20%20%20% Small/Mid Cap Equities10%10%5% Int'l Equities10%10%10% Emerging Int'l Equities3%3%3%TtlE iti43%43%38% Total Equities43%43%38% GAA - GMO Global Balanced10%10%10% GAA 10%10%10% PIMCO All Asset4%4%4%RlEtt5%5%5% Real Estate5%5%5% Real Assets0%0%5% Market Neutral5%5%5% Total Alternative Assets14%14%19% Expected Return8.9%7.3%7.2%Asset Risk11.8%10.4%9.7%Expected return and risk is lower with the 2010 assumptions With the inclusion of real assets return per unit of risk improves Asset Risk11.8%10.4%9.7% Return/Risk0.75 0.70 0.7434
Metropolitan St. Louis Sewer District Asset Allocation Recommendation•Recommend adding a 5% allocation to Real AssetsAsset Allocation Recommendationg–Gain exposure to inflation sensitive assets–Further diversify the portfolio away from public equities•Hire Welllington Management Company to manage the Real Asset allocation–Invest in the Diversified Inflation Hedges (DIH) fund35
Metropolitan St. Louis Sewer DistrictReal Assets ExposurePeriod Ending December 31, 2009 TotalCurrent Real Assets ExposureTIPS Commodities Real Estate REITSGlobal Natural Resources Equities BondsTotal Plan 179,385 100.0%Real EstateUBS Realty691439%6914100 0%6914ManagersMarket Value $000s% of Total PlanTotal Manager Real Assets Exposure% of Manager PortfolioManager Exposure ($000) UBS Realty6,9143.9%6,914100.0%--6,914-- --Absolute Return PIMCO All Asset7,069 3.9% 2,531 35.8% 2,227 283- 21 - 749 3,789Total Plan Real Assets Exposure9,4452,227 283 6,914 21 0 749 3,789% of Total Plan Assets5.3%1.2% 0.2% 3.9% 0.0% 0.0% 0.4% 2.1%Real Assets Exposure After Wellington FundingTIPS Commodities Real Estate REITSGlobal Natural Resources Equities BondsManagersMarket Value $000s% of Total PlanTotal Manager Real Assets Exposure% of Manager PortfolioManager Exposure ($000)Total Plan179,385 100.0%Real Estate UBS Realty6,914 3.9% 6,914 100.0% - - 6,914 - -- -Real Assets Wellington Diversified Inflation Hedge * 8,970 5.0% 8,970 100.0% 1,794 2,243 - 449 4,485 - -Absolute ReturnPIMCO All Asset706939%253135 8%2227283217493789The portfolio’s exposure to real assets increases to 10% PIMCO All Asset7,0693.9%2,53135.8%2,227283-21-7493,789Total Plan Real Assets Exposure18,4154,021 2,525 6,914 470 4,485 749 3,789% of Total Plan Assets10.3%2.2% 1.4% 3.9% 0.3% 2.5% 0.4% 2.1%* To be funded36
Metropolitan St. Louis Sewer District Investment Performance Analysis37
Metropolitan St. Louis Sewer DistrictActual versus Policy Weights (Including real assets allocation)Period Ending December 31, 2009 gCurrent AllocationLong-Term Target12/31/2009 Actual Target TargetNetMarket ValueWeightWeightAssetsDifferenceMarket ValueWeightWeightAssetsDifferenceTOTAL FUND$179,385 100.0%100.0% $179,385 ($0)TAA$18,286 10.2%10% $17,938 $348GMO$18,286 10.2%10.0% $17,938 $348Large Cap$34,296 19.1%20% $35,877 ($1,581)Vanguard Windsor II$11,693 6.5%7.0% $12,557 ($864)$$$BDH&S$4,3292.4%3.0%$5,382 ($1,052)Waddell & Reed $11,756 6.6%7.0% $12,557 ($801)Vanguard 500 Fund $6,518 3.6%3.0% $5,382 $1,136Small Cap$17,313 9.7%5% $8,969 $8,344Kennedy$7,7104.3%2.5% $4,485 $3,225Times Square$9,6035.4%2.5% $4,485 $5,118International Developed$17,0789.5%10%$17,938($860)International Developed$17,0789.5%10%$17,938($860)Morgan Stanley$17,078 9.5%10.0% $17,938 ($860)Emerging Markets$5,8673.3%3% $5,382 $485Morgan Stanley$5,8673.3%3.0% $5,382 $485Core Fixed Income$26,552 14.8%15% $26,908 ($356)Income Research$26,552 14.8%15.0% $26,908 ($356)High Yield$9,5055.3%5%$8,969$536High Yield$9,5055.3%5%$8,969$536Penn Capital$9,5055.3%5.0% $8,969 $536Global Bonds$14,129 7.9%8% $14,351 ($222)Brandywine$14,129 7.9%8.0% $14,351 ($222)Credit Opportunity$00.0%5% $8,969 ($8,969)Loomis Sayles$00.0%5.0% $8,969 ($8,969)(To be Funded)Market Neutral$10,169 5.7%5%$8,969 $1,200Pyramis (Fidelity) $10,169 5.7%5.0% $8,969 $1,200Absolute Return$7,0693.9%4% $7,175 ($107)PIMCO All Asset$7,0693.9%4.0% $7,175 ($107)Real Estate$6,9143.9%5% $8,969 ($2,055)UBS Realty$6,9143.9%5.0% $8,969 ($2,055)Real Assets$00.0%5%$8,969 ($8,969)Wellington Diversified Inflation Hedge$00.0%5.0% $8,969 ($8,969)(To be Funded)Cash$12,207 6.8%0%$0$12,207Cash$12,207 6.8%0.0%$0$12,20738
Metropolitan St. Louis Sewer District Performance SummaryPeriod Ending December 31, 2009Target WeightLastLastThreeFiveEndingAnnualized ReturnsWeight in Fund3 Months Rank Year Rank Years Rank Years Rank Market Value100.0% 100.0% Composite (Gross)3.2% 57 20.8% 34 2.5% 11 5.1% 5 $179,384,938Allocation Index2.9%19.1%1.5%4.4%Policy Index2.8%19.6%0.9%4.2%30.0% 28.8% Total Domestic Equity$51,608,86920 0%19 1%Large Cap Equity Composite58%6725 9%7029%1020%24$34 296 12120.0%19.1%Large Cap Equity Composite5.8%6725.9%70-2.9%102.0%24$34,296,121S&P 5006.0% 26.4% -5.6% 0.4%6.5% Vanguard Windsor II 6.7% 15 27.7% 36 -5.6% 18 1.5% 24 $11,693,186Russell 1000 Value 4.2% 19.7% -9.0% -0.3%Median Large Cap Value Manager 4.8% 25.4% -7.9% 0.5%2.4% BDH&S 2.4% 99 13.4% 97 -5.0% 90 -1.7% 97 $4,329,3286.6% Waddell & Reed 6.1% 78 28.4% 75 1.2% 19 4.5% 11 $11,755,707Russell 1000 Growth79%37 2%19%16%Russell 1000 Growth7.9%37.2%-1.9%1.6%Median Large Cap Growth Manager 7.3%34.3%-2.0%2.0%3.6% Vanguard Institutional Index6.1% 36 27.3% 37 -5.3% 46 0.6% 55 $6,517,900S&P 5006.0%26.4%-5.6%0.4%Median Large Cap Core Manager6.1%26.7%-5.4%0.7%10.0% 9.7% Small Cap Equity Composite7.3% 11 36.3% 42 -0.9% 27 4.7% 25 $17,312,748Russell 20003.9%27.2%-6.1%0.5%43%Kd63%1835 4%55//$7 709 7874.3%Kennedy 6.3%1835.4%55n/an/a$7,709,787Russell MidCap Value5.2%34.2%-6.6%2.0%Median Mid Cap Value Manager5.3%38.8%-3.8%3.4%5.4% Times Square8.2% 8 37.1% 44 1.4% 19 7.0%7$9,602,961Russell 2000 Growth4.1%34.5%-4.0%0.9%Median Small Cap Growth Manager5.1%36.2%-2.1%3.0%13.0% 12.8% Total International Equity$22,944,75110.0%9.5% International Equity Composite 2.4% 54 22.8% 90 -2.7% 31 3.8% 80 $17,078,227Citigroup PMI EPAC2.4% 34.3% -4.9% 4.4%10.0% 9.5% Morgan Stanley International 2.4% 54 22.8% 90 -2.7% 31 n/a $17,078,227 MSCI EAFE 2.2% 31.8% -6.0% 3.5%Median International Manager 2.7% 33.4% -4.4% 5.2%3.0% 3.3% Morgan Stanley Emerging 8.1% 41 71.7% 74 3.0% 68 n/a $5,866,524MSCI Emerging Mkts Free 8.5% 78.5% 5.1% 15.5%*Composite ranked in the public funds universe and Managers ranked in their respective style universe.Median Emerging Manager7.7%77.8%5.2%15.2%43.0% 41.6% Total Equity$74,553,62039
Metropolitan St. Louis Sewer District Performance SummaryPeriod Ending December 31, 2009TtWihtLtLtThFiEdiAnnualized ReturnsTarget WeightWeight in FundLast3 Months RankLastYear RankThreeYears RankFiveYears RankEndingMarket Value33.0% 28.0% Total Fixed Income$50,185,71425.0% 20.1% Domestic Fixed Income Composite 1.8% 35 19.3% 27 7.1% 30 6.0% 25 $36,056,66220.0% 14.8% Income Research 0.9% 49 14.7% 26 7.5% 21 5.9% 20 $26,551,632Barclays Capital Gov't/Corp 0.3% 5.2% 5.9% 4.7%C%%%%Median Core Fixed Income Manager 0.9%11.1%6.7%5.4%5.0% 5.3% Penn Capital4.7% 57 38.7% 56 4.2% 91 n/a$9,505,030Merrill Lynch High Yield Cash Pay 5.8%56.3%5.6%6.2%Median High Yield Manager4.9%41.7%5.7%6.1%8.0% 7.9% Total Global/Int'l Fixed Income$14,129,0528.0% 7.9% Brandywine Global Bond Fund0.5% 62 20.8% 41 6.9% 66 5.6% 33 $14,129,052Citi World Gov't Index-1.9%2.6%8.1%4.5%Median Global Bond Manager0.8%18.3%7.4%5.4%10.0% 10.2% TAA Composite4.5% 4 23.6% 60 3.4% 30 5.7% 11 $18,285,99710.0% 10.2% GMO4.5% 21 23.6% 60 3.4% 30 n/a$18,285,99765% MSCI World / 35% Barclays Agg3.6%21.8%-0.7%3.3%Median Balanced Manager2.5%24.1%0.6%3.6%14.0% 13.5% Total Alternative Assets$24,152,4445.0%MARKET NEUTRAL5.7% Pyramis-1.1% 95 4.6% 89 6.0% 11 n/a$10,169,36390 Day T-Bill + 300bps0.8%3.2%5.5%6.1%4.0%ABSOLUTE RETURN3.9% Pimco All Asset2.4% 68 24.1% 56 5.1% 21 n/a$7,068,646CPI + 500bps1.9%7.8%7.3%7.6%5.0%REAL ESTATE3.9%UBS Realty-3.0%69-22.3%35-6.5%32n/a$6,914,4353.9%UBS Realty3.0%6922.3%356.5%32n/a$6,914,435NCREIF Property-2.1%-16.9%-3.4%4.8%NCREIF ODCE-3.4%-29.7%-9.8%0.3%0.0% 6.8% Cash0.0%0.5%2.8%3.2%$12,207,16390 Day T-Bill0.0%0.2%2.4%3.0%Notes: Results for periods longer than one year are annualized. Total percentages may add to more than 100% due to rounding*GMO and PIMCO are ranked in the Balanced Funds universe. Pyramis is ranked in the Hedge Funds universe. Other Managers are ranked in their respective style universe.Total percentages may add to more than 100% due to rounding.All returns are gross of fees.40
Capitalization (Size)Style (Value / Growth)Style (Value / Growth) Capitalization (Size)FUNDCOMPOSITE 53.2 82.1LARGE CAP EQTY 46.1 143.3S&P 5004.2 148.9VANG WINDSOR II-47.3 144.2RUSSELL 1000 VALUE-79.8 124.4B D H & S 73.4 105.3WADDELL & REED 149.4 154.6RUSSELL 1000 GROWTH89.6 136.7VANG INST INDEX-0.4 146.6SMALL CAP EQTY 68.1 -46.7RUSSELL 200021.9 -116.9KENNEDY -15.3 19.3RUSSELL MIDCAP VALUE-78.6 6.1TIMES SQUARE 126.0 -92.5RUSSELL 2000 GROWTH106.5 -112.3Metropolitan St. Louis Sewer DistrictEquity FundsPeriod Ending December 31, 2009Equity Style Analysis - Drift Over Time* Equity style analysis is based on Morningstarý Size and VCG Scores and Morningstar Style Box(TM) methodology-250-200-150-100-50050100150200250-250-190-130-70-1050110170230ValueCoreGrowthSmallMidLarge41
Metropolitan St. Louis Sewer District Domestic Equity Period Ending December 31, 2009Vanguard Institutional FundCharacteristics Top 10 Holdings ManagerBenchmarkMVWeight (%)pggg()Number of Issues497500Market Cap (000's)76,50780,612P/E Ratio34.5533.82P/B Ratio3.353.41EXXON MOBIL CORP $212,5053.4APPLE INC $124,5952JOHNSON +JOHNSON $116,6601.9PROCTER AND GAMBLE CO $116,2861.8Dividend Yield1.951.94Return on Equity20.0620.35INTERNATIONAL BUSINESS MACHS $112,8771.8AT+T INC $108,5801.7JPMORGAN CHASE + CO $107,7941.7GENERAL ELEC CO $105,7521.7CHEVRON CORP $101,3961.6BANK OF AMERICA CORP$98 23616Sector Over / Under vs. Return BANK OF AMERICA CORP $98,2361.61520OVER / UNDERMANAGERBENCHMARK24MANAGERBENCHMARK3Yr. Risk vs. Return (Large Core)15-10-50510-10-8-6-4-202Return-15-100 5 10 15 20 25 30 35 40Std Dev.Benchmark: S&P 50042
Metropolitan St. Louis Sewer District Domestic Equity Period Ending December 31, 2009Vanguard Windsor IICharacteristics Top 10 Holdings ManagerBenchmarkMVWeight (%)pggg()Number of Issues209678Market Cap (000's)65,76668,390P/E Ratio41.4662.43P/B Ratio3.01.84INTERNATIONAL BUSINESS MACHS $398,0303.6PFIZER INC $362,8443.2JPMORGAN CHASE + CO $357,1973.2CONOCOPHILLIPS $355,6853.2Dividend Yield2.562.23Return on Equity20.4311.93HEWLETT PACKARD CO $344,8663.1BRISTOL MYERS SQUIBB CO $336,3273WELLS FARGO + CO $312,4932.8IMPERIAL TOB GROUP PLC $307,0422.7RAYTHEON CO $292,3382.6PHILIP MORRIS INTL ORD SHR$284 12325Sector Over / Under vs. Return PHILIP MORRIS INTL ORD SHR $284,1232.51015OVER / UNDERMANAGERBENCHMARK3-1MANAGERBENCHMARK3Yr. Risk vs. Return (Large Value)15-10-505-15-13-11-9-7-5-3Return-15-150 5 10 15 20 25 30 35 40Std Dev.Benchmark: Russell 1000 Value43
Metropolitan St. Louis Sewer District Domestic Equity Period Ending December 31, 2009BDH&SCharacteristics Top 10 Holdings ManagerBenchmarkMVWeight (%)pggg()Number of Issues211000Market Cap (000's)35,37176,421P/E Ratio16.626.05P/B Ratio4.864.84MCDONALDSCORP $280,9806.7ABBOTT LABS $280,7486.6HEWLETT PACKARD CO $257,5506.1QUEST DIAGNOSTICS INC $241,5205.7Dividend Yield1.611.53Return on Equity30.8926.52ADOBE SYSTEMS INC $224,3585.3GENERAL MLS INC $219,5115.2BMC SOFTWARE INC $216,5405.1UNUM GROUP $214,7205.1CAMPBELL SOUP CO $212,9405.1ROGERS COMMUNICATIONS INC$207 7005Sector Over / Under vs. Return ROGERS COMMUNICATIONS INC $207,70051520OVER / UNDERMANAGERBENCHMARK24MANAGERBENCHMARK3Yr. Risk vs. Return (Large Growth)10-50510-10-8-6-4-202Return-10-100 5 10 15 20 25 30 35 40Std Dev.Benchmark: Russell 1000 Growth44
Metropolitan St. Louis Sewer District Domestic Equity Period Ending December 31, 2009Waddell & ReedCharacteristics Top 10 Holdings ManagerBenchmarkMVWeight (%)pggg()Number of Issues511000Market Cap (000's)76,42176,426P/E Ratio25.1026.05P/B Ratio4.394.84APPLE INC $582,6685GOOGLE INC $567,2824.9HEWLETT PACKARD CO $553,7334.8VISA INC $518,2014.5Dividend Yield1.171.53Return on Equity20.9026.52COLGATE PALMOLIVE CO $503,1694.3QUALCOMM INC $498,4524.3MICROCHIPTECHNOLOGY INC $494,5764.3CISCO SYSINC $466,8304JPMORGAN CHASE + CO $466,7044SCHLUMBERGER LTD$444 23938Sector Over / Under vs. Return SCHLUMBERGER LTD $444,2393.81520OVER / UNDERMANAGERBENCHMARK24MANAGERBENCHMARK3Yr. Risk vs. Return (Large Growth)10-50510-10-8-6-4-202Return-10-100 5 10 15 20 25 30 35 40Std Dev.Benchmark: Russell 1000 Growth45
Metropolitan St. Louis Sewer District Domestic Equity Period Ending December 31, 2009Kennedy Characteristics Top 10 Holdings ManagerBenchmarkMVWeight (%)pggg()Number of Issues512500Market Cap (000's)7,2745,899P/E Ratio35.79n/aP/B Ratio2.221.72DPL INC $194,8562.9FOREST LABS INC $189,1282.8CENTERPOINT ENERGY INC $174,6282.6AMERIPRISEFINL INC $172,3612.5Dividend Yield1.512.11Return on Equity13.796.93ST MARY LD+ EXPL CO $169,1462.5ABERCROMBIE + FITCH CO $166,5832.4FALCONBRIDGE LTD NEW $166,5432.4PRECISIONCASTPARTS CORP $165,5252.4COMERICA INC $165,2962.4INTUIT$161 48624Sector Over / Under vs. Return INTUIT $161,4862.4101214OVER / UNDERMANAGERBENCHMARK3Yr. Risk vs. Return (Mid Value)6-4-20246810N/A-6Benchmark: Russell Mid Cap Value46
Metropolitan St. Louis Sewer District Domestic Equity Period Ending December 31, 2009Times SquareCharacteristics Top 10 Holdings ManagerBenchmarkMVWeight (%)pggg()Number of Issues1082000Market Cap (000's)1,4131,088P/E Ratio44.47n/aP/B Ratio3.513.76SOLERA HLDGS INC $272,0982.9GLOBAL PMTS INC $264,9952.8CONCHO RESINC $165,6171.7BIO RAD LABORATORIES INC $161,0221.7Dividend Yield0.410.53Return on Equity11.8412.45ARENA RESINC $159,1151.7TRANSDIGMGROUP INC $152,2921.6STANCORP FINL GROUP INC $151,1921.6CHATTEM INC $148,0411.6ULTIMATE SOFTWARE GROUP INC $146,7731.5WRIGHT EXPRESS CORP$140 32215Sector Over / Under vs. Return WRIGHT EXPRESS CORP $140,3221.5202530OVER / UNDERMANAGERBENCHMARK02MANAGERBENCHMARK3Yr. Risk vs. Return (Small Growth)15-10-505101520-10-8-6-4-20Return-15-100 5 10 15 20 25 30 35 40Std Dev.Benchmark: Russell 2000 Growth47
Metropolitan St. Louis Sewer District International Equity Period Ending December 31, 2009CharacteristicsSector AllocationMorgan Stanley International EquityManagerBenchmarkManagerBenchmarkCharacteristics Sector Allocation ManagerBenchmarkManagerBenchmarkWtd. Avg. Market Cap$44.0 B$47.2 BPrice Free Cash22.4x28.9xP/E Ratio (trailing 12 months)19.3x28.6xConsumer Discretionary7.609.67Consumer Staples21.5210.07Energy8.978.36Financials11.9225.47Health Care9.268.40Price/Cash Flow9.6x9.7xPrice/Book1.9x1.6xReturn on Equity22.714.3Industrials11.2211.22Information Technology4.464.76Materials8.0110.39Telecommunication Services6.355.81Utilities7.285.86Cash3.41--Country Allocation 24MANAGERBENCHMARK3Yr. Risk vs. Return (International Equity Universe)BenchmarkManagerFrance8.2811.06Euro Europe x- France15.6922.37Japan23.7620.68-10-8-6-4-20ReturnAsia/Pacific x-Japan4.2912.36United Kingdom34.6321.63Non-Euro Europe x- U.K.8.5711.90Russia0.370.00Canada1.000.00CASH3.41--0 5 10 15 20 25 30 35 40Std Dev.Benchmark: MSCI EAFE48
Metropolitan St. Louis Sewer District Emerging Market Equity Period Ending December 31, 2009Characteristics*Sector AllocationMorgan Stanley Emerging EquityManagerBenchmarkManagerBenchmarkCharacteristics Sector Allocation ManagerBenchmarkManagerBenchmarkConsumer Discretionary10.15.8Consumer Staples9.75.6Energy9.214.7Financials27.224.2Health Care1.22.2Annualized Return16.2117.31Alpha-1.09Sharpe Ratio0.460.51Industrials4.66.7Information Technology13.813.5Materials9.714.9Telecommunication Services7.78.6Utilities2.23.7Cash3.6--Information Radio-0.27Historical Tracking Error3.99Prospective Tracking Error3.82Country Allocation 6810MANAGERBENCHMARK3Yr. Risk vs. Return (Emerging Markets)BenchmarkManagerAsia56.155.7Emerging Europe, Middle East, Africa22.520.4Latin America17.723.9-10-8-6-4-20246ReturnCash3.60-100 5 10 15 20 25 30 35 40Std Dev.Benchmark: MSCI Emerging Mkts. Free* As of 9/30/0949
Metropolitan St. Louis Sewer District Fixed Income (Core)Period Ending December 31, 2009Sector AllocationIncome ResearchCharacteristics ManagerBenchmarkgAverage Coupon4.874.03Average Life57.1053.18Number of Issues82368226.146.4253035404550Average QualityAA-2AA-1Yield to Maturity3.712.711.216.16.83.00.405101520Credit Distribution 30.632.92530358910MANAGERBENCHMARK3Yr. Risk vs. Return (Core Bonds)19.711.74.4510152025012345678Return0.30.4000 5 10 15 20 25 30 35 40Std Dev.Benchmark: Barclays Capital Gov’t/Corp50
Metropolitan St. Louis Sewer District Fixed Income (High Yield)Period Ending December 31, 2009Average Maturity % HeldPenn CapitalCharacteristics ManagerBenchmarkgygAverage Coupon8.498.31Average Life65.1181.45Number of Issues112183816.722.615.815.511.7152025Average QualityBA-3B-1Yield to Maturity8.719.091.43.71.51.44.45.30510Credit Distribution 22.628.425308910MANAGERBENCHMARK3Yr. Risk vs. Return (High Yield)4.27.819.15.65.25101520012345678Return0.61.21.72.41.20500 5 10 15 20 25 30 35 40Std Dev.Benchmark: Merrill Lynch High Yield Cash Pay51
Metropolitan St. Louis Sewer District Global Fixed Income Period Ending December 31, 2009Sector AllocationBrandywineCharacteristics ManagerBenchmarkgAverage Maturity15.518.02Average Duration7.146.12Average Coupon5.973.2442.824.314.7202530354045Number of Issues78782Average QualityA2AA+Yield to Maturity6.682.252.09.61.65.1-0.1-5051015Credit Distribution 35.238.03540MANAGERBENCHMARK1214MANAGERBENCHMARK3Yr. Risk vs. Return (Global Bonds)4523.021.25.65.85.321.917.011.71015202530024681012Return4.52.12.52.61.01.60500 5 10 15 20 25 30 35 40Std Dev.Benchmark: Citi World Gov’t Index52
Metropolitan St. Louis Sewer District Tactical Asset AllocationPeriod Ending December 31, 2009Asset Allocation Historical Allocation GMO Global BalancedBenchmarkCurrentRisk vs. Return (Three Year) 111315MANAGERBENCHMARK-5-3-11357911Return-50510152025Std Dev.Source: GMO53
Metropolitan St. Louis Sewer District Hedge FundPeriod Ending December 31, 2009Pyramis Market NeutralPortfolio CharacteristicsSector Allocation Source: Pyramis54
Metropolitan St. Louis Sewer District Absolute ReturnPeriod Ending December 31, 2009PIMCO All AssetSource: Pimco55
Metropolitan St. Louis Sewer District Real EstatePeriod Ending December 31, 2009UBS TPF Geographic Diversification Strategy / Fund DetailsgpgyTotal Return by Property TypeProperty Type DiversificationSource: UBS56
Metropolitan St. Louis Sewer District Appendix57
Metropolitan St. Louis Sewer DistrictRe-balancing ScheduleCurrent AllocationLong-Term Target Transition Plan12/31/2009 Actual Target TargetNet Proposed NewNew DifferenceMarket ValueWeightWeightAssetsDifferenceChangeAssetsWeightfrom TargetMarket ValueWeightWeightAssetsDifferenceChangeAssetsWeightfrom TargetTOTAL FUND$179,385 100.0%100.0% $179,385 ($0)$0 $179,385 100.0% ($0)TAA$18,286 10.2%10% $17,938 $348$0$18,286 10.2% $348GMO$18,286 10.2%10.0% $17,938 $348$0$18,286 10.2% $348Large Cap$34,296 19.1%20% $35,877 ($1,581)$0$34,296 19.1% ($1,581)Vanguard Windsor II$11,693 6.5%7.0% $12,557 ($864)$0$11,693 6.5% ($864)BDH&S$4,3292.4%3.0% $5,382 ($1,052)$0$4,329 2.4% ($1,052)Waddell & Reed$11,756 6.6%7.0% $12,557 ($801)$0$11,756 6.6% ($801)Vanguard 500 Fund$6,5183.6%3.0% $5,382 $1,136$0$6,518 3.6% $1,136Small Cap$17,313 9.7%5% $8,969 $8,344($8,000) $9,313 5.2% $344Kennedy$7,7104.3%2.5% $4,485 $3,225($3,000) $4,710 2.6% $225Times Square$9,6035.4%2.5% $4,485 $5,118($5,000) $4,603 2.6% $118International Developed$17,078 9.5%10% $17,938 ($860)$0$17,078 9.5% ($860)Morgan Stanley$17,078 9.5%10.0% $17,938 ($860)$0$17,078 9.5% ($860)Emerging Markets$5 86733%3%$5 382$485$0$5 86733%$485Emerging Markets$5,8673.3%3%$5,382$485$0$5,8673.3%$485Morgan Stanley$5,8673.3%3.0% $5,382 $485$0$5,867 3.3% $485Core Fixed Income$26,552 14.8%15% $26,908 ($356)$0$26,552 14.8% ($356)Income Research$26,552 14.8%15.0% $26,908 ($356)$0$26,552 14.8% ($356)High Yield$9,5055.3%5% $8,969 $536$0$9,505 5.3% $536Penn Capital$9,5055.3%5.0% $8,969 $536$0$9,505 5.3% $536Global Bonds$14,129 7.9%8% $14,351 ($222)$0$14,129 7.9% ($222)Brandywine$14,1297.9%8.0%$14,351($222)$0$14,1297.9%($222)Brandywine$14,1297.9%8.0%$14,351($222)$0$14,1297.9%($222)Credit Opportunity$00.0%5% $8,969 ($8,969)$8,970 $8,970 5.0% $1Loomis Sayles$00.0%5.0% $8,969 ($8,969)$8,970 $8,970 5.0% $1(To be Funded)Market Neutral$10,169 5.7%5% $8,969 $1,200$0$10,169 5.7% $1,200Pyramis (Fidelity)$10,169 5.7%5.0% $8,969 $1,200$0$10,169 5.7% $1,200Absolute Return$7,0693.9%4% $7,175 ($107)$0$7,069 3.9% ($107)PIMCO All Asset$7,0693.9%4.0% $7,175 ($107)$0$7,069 3.9% ($107)Real Estate$6,9143.9%5% $8,969 ($2,055)$0$6,914 3.9% ($2,055)UBS Realty$6,9143.9%5.0% $8,969 ($2,055)$0$6,914 3.9% ($2,055)Real Assets$00.0%5% $8,969 ($8,969)$8,970 $8,970 5.0% $1Wellington Diversified Inflation Hedge$00.0%5.0% $8,969 ($8,969)$8,970 $8,970 5.0% $1(To be Funded)Cash$12,207 6.8%0%$0$12,207($9,940) $2,267 1.3% $2,267Cash$12,207 6.8%0.0%$0$12,207($9,940) $2,267 1.3% $2,267Equity$74,554 41.6%38.0% $68,166 $6,387($8,000) $66,554 37.1% ($1,613)Fixed$50,186 28.0%33.0% $59,197 ($9,011)$8,970 $59,156 33.0% ($41)TAA & Cash$30,493 17.0%10.0% $17,938 $348$0$20,553 11.5% $34858
Metropolitan St. Louis Sewer DistrictNEPC 2010 Asset Class Correlation ForecastsGlobal Large SmidAsset ClassCash LIBOR Treas. Credit MBS TIPS HY Bonds EMD Cap Cap Int'l Emer. PE PD REComm.Cash 1.00LIBOR 0.75 1.00Treasuries 0.20 0.05 1.00Credit 0.150.100.951.00MBS 0.250.150.900.901.00TIPS0.00 0.00 0.80 0.70 0.70 1.00High-Yield Bonds -0.05 0.10 0.35 0.50 0.45 0.20 1.00Global Bonds0.10 -0.05 0.55 0.50 0.45 0.40 0.10 1.00EMD0.10 -0.05 0.10 0.30 0.20 0.20 0.60 -0.15 1.00Large Cap Equities 0.05 0.10 0.40 0.45 0.45 -0.10 0.60 0.00 0.60 1.00Small/Mid Cap Equities-005000010025020-010060-010055080100Small/Mid Cap Equities0.050.000.100.250.200.100.600.100.550.801.00Int'l Equities-0.10 -0.10 0.15 0.20 0.20 -0.10 0.40 0.40 0.50 0.60 0.50 1.00Emerging Int'l Equities -0.10 -0.05 0.00 0.10 0.05 -0.10 0.45 -0.05 0.80 0.45 0.55 0.50 1.00Private Equity-0.10 -0.10 0.05 0.25 0.15 0.00 0.60 0.00 0.25 0.75 0.85 0.50 0.25 1.00Private Debt0.00 0.05 -0.25 0.05 0.00 0.05 0.65 -0.40 0.55 0.40 0.50 0.40 0.45 0.00 1.00Real Estate0.40 0.45 0.00 -0.05 0.00 -0.05 -0.10 -0.05 -0.10 0.10 -0.05 0.00 -0.20 0.00 -0.30 1.00Commodities010005005005005020010000010010010000015000010000100Commodities0.100.05-0.05-0.05-0.050.20-0.100.000.10-0.10-0.100.00-0.150.000.100.001.0059
Metropolitan St. Louis Sewer District •NEPC uses, as its data source, the plan’s custodian bank or fund service company, and NEPC relies on those Information Disclosure,,ppy,sources for security pricing, calculation of accruals, and all transactions, including income payments, splits, and distributions. While NEPC has exercised reasonable professional care in preparing this report, we cannot guarantee the accuracy of all source information contained within. •The Investment Performance Analysis (IPA) is provided as a management aid for the client’s internal use only. e est et eo ace ayss( )spo dedasa aage etadotecets te auseo yPortfolio performance reported in the IPA does not constitute a recommendation by NEPC. •Information in this report on market indices and security characteristics is received from sources external to NEPC. While efforts are made to ensure that this external data is accurate, NEPC cannot accept responsibility for errors that may occurmay occur60