City of Portsmouth, New Hampshire Trustees of Trust Funds, 20 Apr 2022

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4.20.2022 Trustees of Trust Funds

A

There we go okay, so we'll call the meeting to order, and the first item on the agenda is well.

A

I guess we don't need to take attendance anymore because we're not doing this via zoom.

A

Approval of the minutes of the march 17th meeting I'll move approval. Second, all right, any.

A

Comments changes, additions, deletions hearing then I'll call the question all in favor, aye, aye, okay,.

A

All right do we. The next item is the historic cemetery trust request. I actually put that.

B

On because I knew that they were going to the city council monday night, I have not.

B

Received any further correspondence yet as far as with the requests for monies, so um basically.

C

To table to the next room able to the next meeting, um just because did it did they did approve it.

A

But we're still required to get a written request right exactly how much I think they approved up to.

B

2500, that's right. My understanding is that they'll provide the backup for exactly how much they want.

B

We have not received that yet, okay, so nice. We have a motion of the table to hear a second second.

A

All in favor bye, bye, okay, so I don't have any checks. This is so um not this month anyway,.

B

No checks, yeah, no chat, you got no money. Well, we got money, we're just not issuing any checks.

B

um Yeah, what's this david moore community development director, oh, this is when this was yeah.

D

I see okay long time ago, yeah yeah quite a few years ago. I did see david, he did how's. He doing.

A

He's doing well, yeah he's uh king of the hill over there in greenland, now yeah no stronger yeah, yeah.

A

He was at nancy conrad's, yes, it was retirement thing, were you there? I was, I didn't see you.

D

I meant to go. I felt bad. I had to miss that.

A

All right any other business. Anybody wants to talk about before.

A

Dd gets here so I didn't know if um dana you might want to elaborate a little bit on what.

B

You were looking for off as far as the esgs. I did forward everything over to um john the.

B

Little report that you, the sample report that you had gotten so um as far as you know, esg investing.

B

Goes, I don't know if there's anything, no, I don't have any preconceived uh notions. I just feel.

D

In my travels, this is this is talk topic to jour, and all these investment managers are.

D

Are making offerings available and I thought it was just by happenstance. I came. I.

D

Happened to speak with a gentleman from durham and they were pursuing a different investment in.

D

And esg investing was going to be one of their priority concerns so.

D

And what you saw was how they had handled it. Okay and at I think I had in conversation.

D

With tom had mentioned the reason it came about in their case and why they pursued it.

D

Was because of citizen action and concern, and we had that one letter and at some point.

D

uh I think we just have to recognize we might be getting more inquiries on the matter. Fair enough.

A

Yeah so they received that they also had received earlier the summary sheet. We're.

A

Looking for yes, we'll see what they come in with right.

C

We don't have any trust that got two million dollars in it. That.

C

Can be used for michael caine to it.

B

No, oh, do you see that term that uh lawson yeah? Well, you know I saw the article on it.

A

Whenever those articles, I always love to print out the complaint just to see.

A

What their pitch is, so I haven't got one of those yet but.

A

I'm interested, how do you access the complaint? Well, lots of times, they're links.

A

Not so much with the herald, but with other newspapers, they give you online versions, they'll.

A

Give you a link right to the complaint, the filing of the suit yep? Really well, if you're in a butter.

C

Apparently, you automatically can.

C

File to get a copy according to bill, okay, with the court you mean, or with the city, okay, yeah, yeah,.

A

Yeah you you can nowadays, because a lot of the filings are done electronically. You can file to.

A

Particularly federal court, I could go on to any lawsuit and file to get to receive copies of the.

A

Decisions as they're issued, this isn't a federal court one, but that's a clear wave of the future.

A

Who was the council.

A

It didn't say that didn't say in the paper: that's why I was curious yeah. I don't know.

C

A strange group of names yeah, I said some different names in there yeah.

D

I didn't know most of them.

C

Well, silverstein owns a lot of property commercial alley yeah. I know that name.

C

Bill downey, of course, I knew.

C

It was different from the names of the normal lawsuits right. You want to say something. I was.

B

Just um an update on the monies that was in the bangor savings account that we were going to move.

B

Tom, I need to get with you. They need you to go in again they're asking for the chair to go in.

B

Just like they did um at one of the other banks, if you could go in and they will just have you sign.

B

Off on it and issue the check so give me the check and I'll bring it to you. Okay, yeah, we'll make it.

B

Out of city reports but I'll send it all to you in an email again and then, whenever you're ready, you.

B

Can go if you could stop over sometime in the next couple of weeks and get it okay. So there's no time.

A

Since the time sensitive, it's just that we wanted to move the money out that account. So I did hear.

B

Back from them, it took them a little bit to get back to me and they were like you know, I'm not.

B

Authorized to go in and get it for you, they said if the chairman could come in and I said well, it.

B

Shouldn't be a problem, they don't let you get the signature card for them. um They said that.

B

Literally, they want an id and everything when they go in so um the days of me being able to you know.

B

With bank fraud and everything you just can't, do it the same way anymore. All the bolt slips spoken.

D

For spoken for and the cities received the monies for them, so, in fact, I think a couple of boats are.

B

Supposed to be going in very very shortly so um yep spoke before and with a big wait list.

D

With a big weight, that was my question: yeah, that's awesome. Yep and a lot of people have been calling.

B

That aren't even on the wait list. How long is the wait list? Can I get on the wait list? I'm like.

B

I don't think that you'll see a slip this season so where most of them portsmouth.

D

Residents, they are all portsmouth all portsmouth residents, and everyone on the wait list is from.

B

Portsmouth, that's incredible yeah well time to raise the rates yeah seriously.

B

Seriously, it's it's something. That's probably going to come up for discussion again.

C

Obviously not but not for the season, and it won't be for 2023. It will go through the fee committee.

B

And that will be for fiscal year 24, because they've already met for fiscal year, 20. well,.

D

That whole situation has worked out fabulous better than I ever expected. Yeah.

B

Yeah peter rice has done a great job with prescott park and over the overseeing of prescott park.

B

He's got a great staff over there and then the rec department has got the um the doc tim bailey who's.

B

Great he's been here forever and um he's just a jack of all trades. He really is, he really is and.

B

He's a nice person, so um we've got a good control of that, though he's gonna know if he watches.

B

um He um they've got a good group, they've got a good group, and uh so we've got the.

B

Flowers ordered for prescott park and all of that good stuff, so things are moving right along and.

B

um The reservations for fortree island are being handled by the rec department so and the weddings.

B

Are being done by the city clerk's office, so it's all being handled very efficiently, which is great.

A

Well, I expect that the arts festival is hoping for a big.

A

Summer afternoon they are yeah, they've got they've come in with their.

B

Agenda, you know their schedule and that's been approved and they're ready to go and.

B

You know um they had a few more concerts approved, they did.

A

They did yeah, I haven't seen the the schedule. Well, they they uh they keep.

A

Announcing them, if they commit you with an addendum or something yeah, they get some off.

C

While school's still in session, they had a couple, they wanted to do, and council approved.

B

So yeah how's the master plan going well we're we're trying to figure out how to get some.

A

Money at this point, in fact we applied for two grants. Last week one was a state.

A

Coastal flood in resiliency grant and the other one was a federal one.

A

You know each of them were two and a half million dollar grants. Now that doesn't mean we're going to.

A

Get either or doesn't mean we get 2.5, but the state one in particular, there's about 4.7 for.

A

The 20 communities that are considered close to coastal, new hampshire and so.

A

That money would have to be split by, however money I mean many communities applied, but.

A

You know: we've got enough money in already approved cips to do uh most of the infrastructure.

A

But the big thing that has thrown us off is as a result of the uh climate change.

A

Flood waters and high water tables we're going to have to move shaw and build an addition on shaw.

A

And so that's a that's! A big ticket tom! You don't qualify, you wouldn't qualify for any of this.

C

Infrastructure money, that's part of what, where we've got the application import.

C

No, no, the that the city has uh you mean the uh a our pa or something like that.

C

They get 12 and a half million dollars yeah. I think they've already spent that I don't know.

B

What's here well, no, they haven't because they they get 6.4. That's coming in in may.

A

Isn't that what the what the council approved that was last year's on monday, they took a.

A

Lot of monday yeah that that was to reallocate it from the community campus.

C

To other projects, because the community campus was going to be a problem using that federal.

C

Money for now there's another 6.4 that'll come this month or next month may and they're. Looking.

C

For ideas of how to spend that okay, I thought that was part of what was voted on monday night.

A

But okay: well, I can tell you: we've got our hand out to whoever's willing to listen to us.

A

It you know we still got a lot of permitting to do. Yeah des historic district commissioners.

B

You have to go through the htc too.

B

Yeah I mean any questions regarding that. I would shoot over to judy belanger.

B

Thanks director, well, I've been working directly with peter and karen there you go perfect.

A

It would be nice if we can find some money and go forward on it. You gonna do a fundraiser.

B

For to raise funds at all, or is that down the road that well, uh I don't think the.

A

Any decisions have been made as to when and how, but the original master plan envisioned.

A

It would be a public private partnership. uh You know the difficulty at this stage, which is the.

A

Primarily underground utilities, infrastructure, that's a hard sell once once we kind of can get.

A

Past that and then we can show the vision of what the new park will look like. I think there'll be.

A

An effort to raise monies in the community who's, the new council rep on assistant mayor.

B

The community scholarships got um one or two more donations online, so people are starting.

B

To use that, so that's great! Well, you know that press release we issued continues to make it in.

A

Paper yeah just about like 10 days ago, stephanie sent me a copy of another, so I bet so that's.

A

Where it's coming from yeah, which is a good thing so.

B

Once people get used to having it out there, but we have seen um you know: 100 donation come in and.

B

I think a 50 donation community anything on the funding of the yellow scholarship, the tommy mccann.

B

One yeah: no, I know that um kathleen was going to reach back out. um She said that sometimes it takes.

B

A while for the estate to go through its spinal settlement, that's kind of what she was waiting.

B

To hear back, but she said she would reach out, but I haven't heard anything further on it. So.

A

It just seemed to take a little longer than I expected yeah I mean it sounded like well. You.

C

And I got the call it's over a year ago- oh well, considerably over here, and I got the impression.

A

They were going to release the monies early, even if the estate needed to be wrapped up, but.

A

Maybe maybe that's right, I know that we haven't received any monies. I know I know that so.

B

I don't know if anything started to be drafted or anything like that.

B

Illegal, I have no idea, I haven't heard anything.

C

Real certain week is back another miss restaurant week this week.

A

So when you're, when you're down in hilton head, do you ever get into savannah? Actually we land.

C

In savannah yeah, but you ever go in for dinner or anything we went. uh We took a boat trip. One time.

C

And took a a tour and had lunch and then took the boat back. But that's the extent of what we.

C

Long did you and tom morgan stay outside uh too long? I was chilled by. I was going to say.

A

I know we were probably about half hour well good morning good morning.

D

Good morning, hi john, how are you great? How are you good? Thank you great to see you all.

D

Don't remember win from dc, I did. I see you had a visitor yesterday other than me.

D

How come you didn't hook a ride on his plane? It's okay ready to get shot down.

E

That was very fun, let's see well, so I just as I said to the other folks here.

A

I have a little head coal, I did test myself at home and I was tested negative for cover.

A

But I'm happy to wear a mask if you're more comfortable with it, I'm living dangerously okay.

F

After not really getting sick for two years, I got sick for the entire month of what is.

F

This april 20th, like late february through about two weeks ago, wow started with tonsillitis, which.

F

I've never had in my life, then I hung out with my two four and six-year-old niece and nephews.

F

For a weekend, they wanted to catch everything they spread, uh that turned into a head cold and then.

F

You're, making me nervous, stop well yeah and I'm not the only one right.

F

There's stuff going around, but I I finally feel immune to everything right now.

F

um Well, I think everyone's been slathering themselves in in wearing so now, if you get the.

E

Slightest thing it's gonna knock you down. Thank you listen. I was uh I printed this last night.

C

And I told tom walking in this morning, if I'm gonna have to continue to do this, the.

C

Next time, I'm in td I'm going to ask for a couple of reams of paper yeah I uh I guess.

F

The 43 pages there I will, if hopefully it'll, make you feel better to know I'm not going to walk you.

F

Through all 43 pages, but I do feel obliged to give you the detail on all four portfolios, even though.

F

It's more information than you than you probably want, and I will always bring copies for you. Okay,.

C

Or you could get them to us ahead of time yeah I apologize for that. I said to suzanne yesterday.

F

They should have gone out to you monday and you didn't get them till late yesterday. So yeah.

A

All right, you have the floor. Okay, so everybody's got the main deck here and.

F

Let me just also pass out: uh we won't go through this in detail, but it was an attachment for you.

F

So if I can start you with the big deck, the 43 pager uh and just in terms of an.

F

Agenda um this morning- and please tell me how much of your time do we have.

F

Well, you're the only thing left on our agenda, so we would like to you.

A

Know go home before dark, but we're willing to give you as much time as you need. Okay,.

F

So on the agenda for our purposes, I want to walk you through the portfolio detail that I brought.

F

um Talk about balances, reporting the model, some changes that I uh will throw out there um and then.

F

Judy had highlighted uh to suzanne- and I think on monday, that we wanted to have a discussion around.

F

Esg right and then lastly, she had shared with me some reporting that she's been working on and so.

F

Save time for that as well, is there anything else that we need to fit in today, just to clarify on.

A

The idea of the reporting, one of the things that we had asked her to send to you a while ago, was.

A

I think each of us thinks it would be helpful if we had some type of a summary sheet or dashboard.

A

That we could get every month because the the current statements you receive just have each.

A

Individual account there's no right, consolidation, there's! No! uh You have to dig in order to get the.

A

Questions answered yep, perfect, so we'll chat about that. uh So with that, let me did you bring any.

C

Did you bring any ideas uh you want to start with that part? uh Well, no, but I did.

F

In preview, I am confident that we can get you everything that you're looking for the only.

F

Challenge is I can't do manual. I can't provide anything to you that isn't system generated by td.

F

So what I can do is judy's. Actually, it seems to me already sort of mocked up. That must be.

F

In excel that you created that that's correct yeah, what I can do is help judy build whatever.

F

Summary you need from the data that we provide so that you've got the dashboard you need. I don't. I.

B

Mean we do that you do that now anyway, I do yeah. Well, let's, let's go through the review and then.

A

Talk about the esg and then talk about that as our last item sounds good. Okay. So if I can direct you.

F

To page it says page four at the bottom, so this deck is organized by all four portfolios and.

F

I just want to tell you at the outset the first three scholarship endowment and housing endowment.

F

All have exactly the same model, so I'll go through it in detail and and then prescott at the very end.

F

Is almost the same, so I'm really going to speak primarily to the first four or five pages here.

F

But we can go through any of the other additional detail, as you wish.

F

This is, if you look at the upper left second row down, you can see. This is the scholarship fund.

F

And just as a at a high level when I say they're the same model, um the first three portfolios.

F

Are identical, prescott's a little different where they're different is with the first three we have.

F

An allocation to dividend paying stocks as well as a reit holding in real estate, investment, trust.

F

As well as a slightly higher allocation to high yield stocks, that was all intentional when we.

F

Built the portfolios, because those were the three who were uh subject to income only distributions.

F

So the intent was to try to construct a portfolio with a higher level of income. Okay,.

F

Prescott uh conversely's got slightly less slightly less high yield.

F

And no uh explicit exposure to value stocks, even though, by virtue of its s, p, 500, holding.

F

It, of course, you know, has about half of the value stocks that are out there in the s p, 500.

F

So with that, if I turn you to the table in the upper left first column there, you.

F

Can see that at this is at march 31st, so a few weeks ago scholarship fund was at 10.2 million.

F

And then, if you go down just to the bottom of that table, you'll see 10.004 million. That was the.

F

Systems, calculation of the inception value. So when we built the model and turned the system on.

F

That was the value says: may 28 2021 so we're a couple months shy of a year.

F

You can pretty quickly do the math right, you're up 220 000 on 10 million, that's just over two percent.

F

And if you look at the table uh just below that and you look at the column, labeled investment.

F

That's the uh time weighted rate of return for the portfolio net of fees; okay, so 2.18 since inception,.

F

We gave back about five percent in the first quarter, which you can see year to date or.

F

Quarter to date same number and then that benchmark is not an apples to apples. Comparison.

F

To your benchmark, that's just a system generated benchmark that gets applied to pretty much every.

F

Portfolio with roughly 75 equities, it has no emerging market, no small cap, so I created a.

F

Custom benchmark for you, which I'll show you in a couple of pages: okay, just as a better comparison.

F

uh Very bottom of the page you can see the yield on the portfolio is just over two percent.

F

So going back to my comment earlier about the differential between these three portfolios and.

F

Prescott prescott's yielding about 1.8, so we're picking up roughly an extra 20 basis points now.

F

Keep in mind when we built the portfolios roughly a year ago, rates across the whole yield curve were.

F

You know below one and a half percent, so it was really difficult to pick up a meaningful yield.

F

Regardless of what we did but 20 basis points is, is the difference that you see there.

F

And you'll see that grow over time, just based on the movement and rates that we've had.

F

On the right hand, side of the page I'll start with the pie chart and just remind you, blue and purple.

F

Shades of blue and purple are equities. Gold brown is fixed income, so you can pretty quickly see it's.

F

75 percent equities, 25 percent fixed income and then, if you look at the table to the right, we.

F

Get much more granular largest exposure across the three portfolios is to u.s large cap stocks.

F

You can see the large cap core holding is the largest in the portfolio. That's your s. P 500.

F

Index fund we've got two allocations to a large value dividend strategy in.

F

The portfolio again, that was, that was for yield five percent allocation to smit cap.

F

Now, that's small in mid cap, a five percent allocation to reits, a roughly 13 percent.

F

Allocation international across the msci efa in developed markets and an emerging markets, etf.

F

And then, within your 25 exposure to fixed income on the bottom, you diversified across.

F

Two intermediate bond strategies, which is the you know, a little more than half of the portfolio as.

F

Well, as an exposure to high yield in cash, now we'll come back to this after the esg discussion.

F

I don't want to propose any changes on top of any additional changes that we might be considering.

F

But I will just tell you, while we're looking at this particular chart, that td's current.

F

Asset allocation committee views with regards to tactical adjustments to a portfolio we're.

F

Currently underweight international from when we built the portfolio. So if you said john yeah,.

F

Let's go ahead and implement that I would take international down from roughly 13 to 10 percent.

F

uh We're overweight, large cap value, which you're already expressing in this portfolio.

F

If you look at the third line down by virtue of that allocation, what's that the 11 exactly yep.

F

But we are not expressing that in the prescott portfolio, uh so we could add.

F

An allocation to large value if we so chose so what what's the allocation on on the td.

F

Yeah, so we there's no one right answer to that, because it depends on the specific risk.

F

Objective, but in a 75 25 you know an overweight would be somewhere between five and ten percent.

F

So in the case of all right, I get it yeah, so you we're eleven. So that's why we're overweight.

F

No, no, no, no. The reason. We're overweight in this portfolio is because we built that into.

F

Our original portfolio, dana just to generate additional income. Okay, we wanted more dividend.

F

Stocks in these funds, but I guess all I'm asking is- are if we had none. If we had no value dividend.

F

Exposure today, the overweight would probably take us to 10 so, for example, on prescott, where we have.

F

None if we were to express that I'd, add a 10 exposure to large value, okay and then.

F

We are, we had an overweight to investment grade corporate bonds, which we have expressed in these.

F

Portfolios, um we're now neutral corporate, so I'd probably dial that back a little bit.

F

um And then, lastly, we're underweight now high yield. um Interestingly high yield has been the.

F

Best performing you know, part of the fixed income portfolio, but it's an exposure. So if we wanted.

F

To express that I'd take high yield down from uh down to four percent, so you know these are minor.

F

Adjustments but but ones that I would definitely support. You know I'm not down to four percent four.

D

Percent from roughly seven and a half percent in this portfolio- oh okay, you're considering.

D

The bank loan hi; yes, yes, okay, yeah, so again, let's I'd like to get through the esg discussion. First.

F

And then we can come back to that, but I would I would support all those tactical adjustments. I.

F

Would tell you you know the biggest exposure that we have in the portfolio 75 stocks, so the biggest.

F

Exposure we have is to just the overall stock market, but within fixed income. You know we do.

F

Have exposure by virtue of our slight overweight to corporate bonds to spreads widening? If we end.

F

Up you know if the fed makes a mistake and over tightens- and we end up in a recession, spreads will.

F

Widen um we can't predict that, but that's what we're trying to protect so we'll come back to that.

F

With that, let me turn you to page six.

F

Page six is giving you just a longer term view of performance. Now again we don't even have a year.

F

To look at, but if you look at that table in the upper left, you'll see the middle column.

F

Twrr is time weighted rate of return net of fees. You see the same negative 5.08 for q1.

F

And then what's new on this report is three lines down or two lines down. You see cop.

F

Ips and so that's my short cut for city of portsmouth investment policy statement.

F

And you see minus 5.21 okay, so what that allocation is, is.

F

It's I'll tell you specifically what it is: it's 50 s, p, 500, 10, msc, ifa, 5, russell 2500, uh 5, reit, 5,.

F

Emerging markets, it's the asset allocation, that's detailed in your investment policy. Okay, based on.

F

The target allocations, so that just gives you a better apples to apples comparison to to the way.

F

We have the portfolio constructed now. Obviously, there's no fees, it doesn't precisely align with.

F

Your allocation in terms of exact percentages but you're, paying 20 basis points and fees.

F

We shouldn't see a dramatic uh difference between your performance in any given quarter and your ips.

F

Target weightings as currently constructed, and you see that as you go down the line.

F

The last thing I'll point out on this slide is these funds were really activated.

F

In late may or very early june, so we had one month of the second quarter last year,.

F

And then a full quarter three, so you know again we're not at a point yet. This is basically 10.

F

Months of data, where you're, seeing they don't give you a full q2 2021, just because it was only.

F

A month, but it is captured in the very bottom number, uh which is inception to date of 2.18.

F

And then just for additional, oh and just lastly, on this page, if you look at the bottom right, you see.

F

The growth versus benchmark that chart- um that was one of the charts judy that I think was on.

F

You know how is just the portfolio done over time: yeah.

F

Yeah so so I just wanted to point that out to you, which benchmark is that that is the um blue.

F

Is the that's a good question that is the standard benchmark uh the system default benchmark.

F

And that's something judy we can easily add to.

F

The excel reports just to try to get it all in one place. But um when I looked when I looked.

F

At what was asked for across those pages, I don't think there was anything that I didn't have. It was.

F

Just a question of where it was and what report it fell on and then, if you turn to page eight.

F

This is giving you and so there's two identical reports here that look like page eight. um This is.

F

Performance by holding within the portfolio, and so if you look at the far left in gray.

F

You see your specific holding, so I'm on page eight, just looking at the top left, you see the fidelity.

F

500 index, so that is your exposure to the s p 500. That's a passive etf strategy with a one basis.

F

Point expense ratio, it's the most cost efficient way. I have to offer you exposure to the s p, 500.

F

You can see the percentage allocation. 41 percent in these portfolios shows you the style name and.

F

Then it shows you the start date, so this is really as close as I can get to inception on this report.

F

And then you see the performance from the start date and then below that you see a benchmark.

F

Comparison so on this report- and this is this- is as of march 31st from inception.

F

Large cap core, you know that very top line item um has been the strongest contributor with the.

F

Exception of, if you look four lines down you'll see the reit was 9.4 percent over this time period.

F

Large cap core did better than large cap value. So if you look at the two large value holdings.

F

Below that the vanguard, dividend, appreciation, etf and the vanguard, russell 1000 value, etf,.

F

uh You know almost twice as good of performance at a large cap core over this time period. Emerging.

F

Market was by far our largest detractor. It's also our smallest allocation, but emerging markets.

F

Have really struggled in light of china's slow down relative to covet, as well as.

F

Their ties to russia with regards to the the war going on in ukraine right now,.

F

On the fixed income side over this time period, your bank loan fund, which is one two three four.

F

Five up from the bottom one point: four: two percent you'll notice: um the only positive.

F

Contributor on the fixed income side, so this is significant. You know the this is the most risky.

F

Allocation that we have in fixed income right high yield are all below investment grade bonds.

F

And your bank loan fund is the only one. That's been a positive contributor.

F

The allocation here has benefited you in two ways: one the income that this asset throws off is the.

F

Highest amongst your fixed income holdings and, secondly, bank loan. I'll just remind you.

F

Bond prices move inversely to interest rates, so when interest rates go up, bond prices go down.

F

There's no getting around that math bank loans are floating rate.

F

uh So all the the fixed income instruments in this product are floating and so.

F

You it's mitigates the risk to rising rates because they're floating as rates rise, so do.

F

uh The returns on these bonds, so we've benefited from that. However, they are not risk-free. These.

F

Are all below investment grade credits and what they're really susceptible to is spreads widening.

F

And there's no getting around that, so it's been a good holding. It's worked for us so far, we'll.

F

Conclude later whether we want to train, can you explain what you mean by.

D

Susceptible to spread wide range yep. So let's take a simple example: where an investor is trying.

F

To decide between buying a five-year coca-cola bond and a five-year us treasury well, I think we.

F

Would all agree that you should be paid more for taking the risk of coca-cola defaulting.

F

Versus what we perceive to be the risk-free treasury asset? So if a five-year treasury was.

F

At two and a half you'd expect to earn something over two and a half to take coke credit risk.

F

Well, let's say today that spread is 40 basis points okay, so if the market decides tomorrow.

F

That coke is now a riskier credit risk and that spread should be 80 basis points. That's.

F

Equivalent dana to a 40 basis, point increase in rates. So even if five-year treasury rates.

F

Stay unchanged: if the market determines that, we need to earn a higher spread to take the risk of.

F

Buying coca-cola paper yeah, it's like an interest rate income. I get that, but but isn't that risk.

D

Somewhat mitigated by the fact these are floating rates that only protects you from interest rates.

F

Going up, but if the spread that investors demand changes, that's equivalent to rates going up.

D

So it protects you from rates rising, but it doesn't protect. You from credit spreads about.

F

Widening the underlying cost of the bond. No, I I right, but these are mutual funds right, so.

D

Aren't they constantly reinvesting so and capturing.

D

Rising spreads in the fund, yes, with their new cash or cash that comes from coupon.

F

Payments that doesn't get distributed, but the on any given day when the portfolio is marked.

F

To market from a pricing standpoint, any bond that they hold can depreciate if spreads, widen,.

F

Just purely price you're right that the yield will go up, but the price can still go down. Okay,.

F

Yep uh and then so that's the time period from from inception and then, if you turn to page 10.

F

uh This is showing you just the first quarter, so exactly the same.

F

uh Data exactly the same format, just a different time period, and here you'll notice. You know the.

F

First quarter there was no place to hide in the first quarter of this year. Traditionally.

F

You would think of bond portfolios is acting as a a cushion in the event of stock selling off, but.

F

We've been in a rising rate environment, which negatively impacts, bonds and we've seen higher.

F

Levels of equity market volatility, in light of the events of the first quarter. So as you.

F

Look down this page just a couple of things. You know all negative returns on the equity side.

F

All negative returns on the fixed income side. But what are the themes that have.

F

Emerged this quarter. So if you look at the top line, s p 500 down, call it roughly five percent.

F

uh Two lines down: look at your russell 1000 value index down less than one percent. So in this first.

F

Quarter value style stocks really outperformed. um The reit wasn't immune from the downturn.

F

And then again, going down to fixed income on the bottom of the page. High yield was best again. You.

F

Can see your floating rate, this is one two three four five lines up from the bottom.

F

Your bank loan fund- these are the floating rate high yield bonds. You know basically flat.

F

um Your fixed rate high yield fund, which is second from the bottom, minus four and a half percent. You.

F

Know both better significantly from the treasury uh exposure at minus six percent and the corporate.

F

Bond exposure minus eight wait a minute where's the treasury exposure. uh It's the fourth lines.

F

Up from the bottom yep, fourth, one, two, three, four minus six point: two eight uh sorry, four grey lines.

F

Yeah, okay, one two yeah, okay, and so so again nowhere to hide in the first quarter. That said,.

F

You know if I, if mike, if I had a crystal ball and I was looking at it on december 31st and it told.

F

Me that in the first quarter of this year we were going to see a near 150 basis, point increase in.

F

Rates that the fed was going to go from a fairly dovish stance on the markets to a dramatically.

F

Hawkish stance with regards to not only raising rates for the first time, but talking about.

F

uh Possibly raising rates in 50 basis point increments, going forward. If you told me that.

F

um Russia was going to invade the ukraine. If you told me about the omicron variant, if you told me.

F

You know china was going to lock down a city of 20 million people. I would have guessed that we.

F

Would have seen stocks off significantly more than you know the five-ish percent that you see here so.

F

By and large stocks have held up remarkably well in this environment going into the year td was.

F

Actually pretty constructive on stocks we didn't expect to see you know. Mid-20S type returns like.

F

We did in 2021, but corporate balance sheets are exceptionally strong. uh We were optimistic about.

F

Just coming out of the covet environment and the overall reopening of the economy.

F

This is sex success that we've seen and um in the uh the inoculation of the country.

F

And and just overall sort of herd, immunity with regards to covid, uh etc, etc, etc.

F

And so I think that strength, you know you got unemployment below uh well below four percent.

F

uh Us gdp, you know north of five percent um inflation. You know was sort of the big variable.

F

And we did expect the fed to tighten this year, probably not as aggressively as we think they're.

F

Going to, but but all in all, I've been pleasantly surprised with how the markets have held up.

F

And then, lastly, the damage is probably done on the fixed income side, meaning right now. The yield.

F

Curve so us treasury rates from one month out to 30 years. Most of the curve is north of two percent.

F

Okay, the market has already anticipated and priced in what it perceives to be the full.

F

Fed tightening cycle and I'll show you a chart at the end here, but the fact that the yield curve it.

F

Doesn't look like this, it really looks like this. It's pretty flat from two years out to 10 years.

F

That's the market telling you you know, we don't think the fed is going to tighten dramatically.

F

Beyond what they're forecasting to do, and we're also not concerned about these levels of inflation,.

F

Persisting deep into the future, so even though you're seeing these negative returns on bonds and.

F

Again, there's no escaping the fixed income math. When rates go up, bond prices go down.

F

Based on td economics forecast, the damage is already done, so I think from this point on you're.

F

Probably looking at low single digit returns on fixed income through the rest of the year.

D

Can I ask a question- and we can defer this to later- if we on the discussion on reporting.

D

But if I wanted to look in a snapshot, how our 75 allocation inequities did, where do I see that.

F

You see it across the like on page 10.

F

You see it across the individual holdings.

D

But it's not, I guess my question would be, isn't it like if you go to pay your page four.

D

You do the allocation, well, you have it aggregated large cap, you know, etc. I guess at.

D

At some point or somewhere, it would be good to see.

D

Equities performance act, aggregated and and bond performance, aggregated.

F

I understand what you're saying dana yeah I'll do a little digging on that all right.

F

In summary, form.

F

The last thing I just wanted to point out on this deck. If I ask you to just turn the page.

F

40 three pages from the back 41.

F

41 yep should be the third to last page.

F

Look at the very bottom right. I just wanted to show you a snapshot of the yield curve.

F

Just to illustrate what I was just talking about, so what you have there is that green.

F

Line- and this is as of march, 31st is, if you look at the x axis there, it's overnight the.

F

Overnight rate, all the way out to the 30-year rate- and these are u.s treasury yields.

F

So it's in the lighter green color, it's showing you just a few weeks ago and then it's showing you.

F

A year prior in the darker green color, and so like I said, the treasury market has essentially.

F

Completely priced in the fed tightening to roughly two to two and a half percent now.

F

Does that mean it's a precisely accurate predictor of what the fed's going to do? No, even the fed.

F

Doesn't know how far they're going to tighten, but you can see when I say the damage and fixed income.

F

Is probably done, it's reflected in that very flat line and then just on the bottom left, that's the.

F

10-Year u.s treasury going back to may of 2020. So almost a couple of years worth of data there.

F

And you can see the dramatic increase that we've seen you know from one and.

F

A half to north of two and a half percent- it's about 290 today, um just year to date,.

F

So with that that captures everything I really wanted to share with regards to the portfolio.

F

And an economic update, um if there's any questions we'll deal with that, otherwise.

F

I'd say: let's go to the esg discussion. I think it looked just really quick at the.

F

Press guitar piece because it is a really good one. Yes, page 31,.

B

Just so that everyone understands you know the difference in the allegations a little bit.

F

Yeah so let's look at the table on the far right um and I will um just going to reference.

F

The first one that we looked at uh so large cap, 51.94 percent versus 51.91 for the other.

F

Three portfolios in this case: it's all in the s p, 500, fund, okay versus the 10 allocation to.

F

Value so you got that differential and again, that was because we were trying to drive more.

F

Income for the other portfolios um in terms of smid cap we've got a 10 allocation versus.

F

Five, because, in the other portfolios that other five is going to the reit holding.

F

And then the only other differential is high yield is a little bit less uh 5.7 versus 7.6.

F

Again, we were trying to drive income in the other portfolios and, over this less than one year time,.

F

Period, um you know in the first quarter of this year um it underperformed the other portfolios by.

F

44 basis points um and then since inception it's about 50 basis points, but it's the the starting.

F

Time period is is a little bit different prescott, even though it shows 5 28 on here.

F

The investments weren't made till 6, 1 or 6 2, so there's a little bit of a timing difference there.

F

Does that answer your question judy it does. I guess my question and I'm just kind of throwing.

B

It out is out of all of our investments. I mean we religiously spend you know.

B

A significant amount each year in.

B

Transferring funds over to the city to help the maintenance of the park.

B

um And it's from the prescott fund you're talking about yeah and where it's slightly underperforming.

B

The other investments- I don't know if that's something that the trustees might want. Oh sorry,.

B

Sorry, um I don't know if it's something that the trustees want to look at or if there's a.

B

Reason why we've got it invested in those allocations? The way that we do, but I mean.

B

We're spending 180 000 every year, approximately out I mean, and it's slightly underperforming.

F

That's my question to be just kind of yeah, so I would only interject that.

F

This is a really well the differentials. If you look at the quarterly differential.

F

It's it's quite small. This is a really short time period. Would you know it isn't you can't project.

F

This performance long term had, if we were looking at a year prior, this would have been the.

F

Higher performing portfolio because the s p, 500 outperformed, the you know, value dividend stocks.

F

That said, in light of what the opportunities are in the market, I don't have any objection to.

F

Aligning the portfolio aligning the models for the portfolios, if, if that's a more consistent, I'm just.

B

Growing, I'm just throwing it out there, because I I anybody that would look at this- can see that.

B

There's a difference and that's just kind of what I'm just asking the question: if the obviously, if.

B

The trustees are comfortable with the allocation, as is then, we will continue down that path.

B

I was just asking the question and I'll just add: if we were to implement the tactical changes we.

F

Actually would be adding a large value allocation to prescott so that that would more than anything.

F

More closely align them yeah. What do you think dana just leave it, as is yeah.

D

Wait where would you do take, take uh s and p down to 40 percent and 10 exactly.

D

Yeah, I'm just curious. Typically, I mean how often are you making portfolio allocation changes.

F

So we have not made any changes since inception as part of our original investment agreement.

F

The trustees need to sign off on anything, not not us, but in general uh td wealth with your clients.

F

Yeah so with the majority of uh institutional clients like yourselves, um we are implementing.

F

Tds asset allocation changes, you know no less than once a year.

D

Overall, I'm not a big fan of making portfolio allocation changes. I know this market is a.

D

Little bit dynamic, so I mean I, I think this is a fairly if we did, that would be a fairly.

D

Minor change and I would have no objection myself but uh but I just didn't, want to see every time.

D

We meet with you another change in allocation. We can wait another quarter dana I mean no. I I mean.

D

I mean I understand what what you're saying, what what were the other changes. You would be.

D

Recommending yep, uh just taking international down to just a few percent down to 10 percent from 13.

F

um Taking high yield down a few percent from like seven to four and then not overweighting corporate.

F

Bonds as we are today versus treasuries, so what gets from so? What gets an increase.

D

From what you're taking down yeah in this case, in the case of treasuries, uh I could do it one of two.

F

Ways, I could add an all treasure, etf or I could add exposure to another passive bond strategy. The.

F

U.S government aggregate bond index, which, which has like a 60 weighting of treasuries versus 40,.

F

For corporates, so all consistent with you know sort of the passive etf low-cost approach that.

F

We're employing in the portfolio just taking the corporate exposure down a little bit.

D

So these recommendations for every portfolio, yeah and three of the models are identical.

F

And there's no reason not to express them in prescott as well. I don't know.

D

What are you guys feeling on this? Well, let me ask you discussing prescott, you said ordinarily, if.

A

The market was where it was in the in the large cap equities that we wouldn't see the result.

A

We're looking at and so the question is, are we going to be back here this time next year saying.

A

We shouldn't have made that adjustment because, oh how I wish I could.

F

Yeah, I guess I'd tell you this.

F

Td, as an organization uh has an asset allocation committee whose job it is to.

F

Constantly analyze market conditions and make recommendations.

F

To the portfolios that we manage, we have all of our institutional clients, have.

F

Custom portfolios: you have investment policy statements, they're, not managed by a model.

F

But we do have what we call td managed portfolios where those portfolios automatically get changed.

F

Based on the tactical uh decisioning of the asset allocation committee, some of my clients like to.

F

Express those changes in their portfolios, some don't want to that's entirely up to the client. I.

F

Do support making you know, probably at least once a year tactical changes to the portfolio.

F

In light of the fact that the environment changes and you're paying td to you know.

F

To hopefully, add value with regards to these changes, none of the changes that we're describing.

F

Are going to allow you to dramatically increase your budget or force you to decrease your budget.

F

Based on what the market does, you know, you're still going to have a 75 allocation to equities.

F

And a 25 allocation to fixed income: these are changes at the margin that will hopefully add.

F

Value and that to me makes sense in light of the environment that we're in obviously, we.

F

Can't go back in time and change the portfolio, so I do support them, but I won't lose any sleep.

F

If we decide not to make any changes either, if we, if you said john, if you had to pick one.

F

I'd probably dial back the corporate exposure on the fixed income side, because the the.

F

The exposure to spread widening is, if we don't know, you know, if the fed, if the stock market.

F

Really starts to to suffer this quarter and then all of a sudden the fed gets nervous and takes.

F

Down their projections of how far they're going to raise rates spreads will probably come in because.

F

The market will again be be reaching for yield, but if inflation continues in a way that doesn't.

F

Seem to be abating and the fed continues to speak hawkishly, and you know, history suggests that the.

F

Fed typically tightens into an economic slowdown, you know that to me uh suggests that spreads have.

F

Probably a higher risk of widening than tightening, but again we're not talking about eliminating high.

F

Yield we're talking about you know reducing it from seven percent to four percent, so.

F

But I'm supportive of all of those, those slight adjustments and it would.

F

More closely align prescott with the other two three portfolios, which you might find beneficial.

B

Again, I was just asking the question because there is a difference. I can see that there's a.

F

Difference, that's a good question. Ultimately, if you want to leave it, that's fine again.

F

Not change still 75 25, you know still, in conformance with your investment policy,.

F

Across your exposure to asset classes, just changing the allocation a little bit.

A

So a related question, is you say that, typically you would look to adjust accounts.

A

For investors, once a year at least once a year, when would that normally take place in your year?.

F

It's going to be entirely depending on the client in the market conditions. We.

F

The asset allocation committee uh produces their update every month. I tell you.

F

Half the time they're unchanged right, um you know so maybe six times a year, they're making slight.

F

Adjustments but the you know, the markets in the environment does change meaningfully. You know on.

F

A yearly basis so as to when we'll put, I guess I'd, say, put it this way. I wouldn't wait for a.

F

Meeting like this to recommend a change if, if lights were flashing,.

F

Red or there was some compelling opportunity, it really depends on market conditions. Okay,.

F

Well, I was going to say: the market conditions would drive, yeah would drive it. We wouldn't.

E

Wait until if we waited the opportunity would pass well, and ultimately, this would lead to a.

A

Conversation I anticipate having at the end of the discussion about when we should be.

A

Having these meetings, so I'm not trying to time the market, but I am trying to get an idea of.

A

Of how often we should be realistically looking at this conversation and adjustments.

A

So if we do something now, what's the opportunity to reverse that or go in a different direction, if.

A

The market starts moving quickly. Well, I would. What I would suggest is that, if something.

E

Dramatic were to occur and we think that something needs to be changed in the portfolio. We wouldn't.

E

Necessarily wait for a meeting. We would pick up the phone and call you okay. Maybe we need to.

E

Have an ad hoc discussion and say: can we make these adjustments have a 15-minute webex or.

E

Conference call and make our argument as to why we think that change needs to be made.

B

If you're more comfortable, we can always wait until we're a full year in I mean technically.

B

We're not quite a full year in yet I mean as far as these this current investment mix, so I mean.

A

That's not really my my. What I'm trying to do is figure out how we're going to do this going.

A

Forward as much as anything else, so we really have sort of got to the point where we're 10 months in.

A

But it took a long time to do. Adjustments get the monies to you and everything else like that. So.

A

You know as far as the issue uh right now is: I'm I'm comfortable with your recommendations, but.

A

What are you you're thinking, hesitant about it on dana? I I'm I'm, I'm not hesitant, I'm not.

D

I'm on the fence, I mean, I don't think it's gonna significantly change much! Well, I I'd either. Do I.

A

That's why I'm I just look at him he's tweaking in general on principle, I don't like changing asset.

D

Allocations and it's only but but I bet you know, he has some valid points and your point is you.

D

Can see on the margin what the difference does make on the two portfolio, so I mean.

E

The argument I would make is that you've engaged us as a discretionary partner.

E

And this allows us to demonstrate the value that we bring to the table. Yeah.

E

John is is a brilliant advisor. I have the privilege of working with him. He has a.

E

Lot of expertise behind him and I have you've- got to pull the mic down. Thank you.

A

Brother, um I would just think you hired us for a reason. Let us let us do yeah.

C

Like all right peter, I guess I would say the same thing if we don't like what you're doing you'll.

E

Tell us we'll tell you and if you don't improve, we have the opportunity to change and if we don't.

C

If we hire you, we hide you for a reason, and that was to bring us your expertise and.

C

Currently, I I want to follow your expertise.

A

Okay, so you ready to fall off the fence, tina.

C

Yep all right, I'm ready, so let's go ahead and make those adjustments.

F

Thank you for the direction there, john, when you take down international from 13 to 10.

D

Where's, the uh extra three percent go, uh it'll go to domestic and it will go to.

F

Your large cap core, so your s, p 500. on the three but on the other, one you're going to add 10.

D

Value on the prescott right, so yeah it'll be allocated across those okay, yep, okay,.

F

Okay, esg: um oh wait. Excuse me one more question.

D

When you're taking the 13 to 10 down on international, are you staying in emerging.

D

Markets at all- yes, it'll pro rata get cut down, but I won't take it to zero. Okay.

D

I'll keep it but look good. Do your thing.

F

Yes, um before we start into it, can you walk us precisely how like what exactly is? How can.

F

We leading us to this discussion and how we can address it best for you well. This first came up.

A

During the process that we were first retaining you, where we had a citizen reach out to us,.

A

And said you know, what is the city going to be doing about? You know esg, investing getting out of.

A

Carbon and that type of thing- and you know at the time we said we're just going through this process-.

A

I think we had a brief conversation with you early on about. You know what type of sacrifices might we.

A

Face if we decided to jump into that pool- and we also reached out to the uh the charitable trustee.

A

The division of the attorney general's office that manages charitable trust and and that type.

A

Of thing and and get some opinions from them and then most recently, dana happened to come across.

A

Another town that is jumping into that pool so to speak, and so we thought now that we've.

A

Got about 10 months under our belt, it's a good time to have that conversation, because I suspect.

A

We'll be asked that question again in the near future: that's that's the background. Really. Okay,.

E

So well, you want to go or you want me well, we well. We talked earlier about the potential sacrifices.

E

And benefits of engaging in esg investing there are costs to it and potential sacrifices in yield.

E

Depending on the mandates you want to pursue, you have the risk of making certain.

E

Residents in the city happy other residents, maybe not so happy depending on the mandates. You're.

E

Pursuing that's one perspective. Alternatively, there are ways of engaging esg strategies that.

E

Are pretty benign that kind of make everyone happy so I'll? Let john talk about some of those that are.

E

Sort of kind of make everyone feel good and address your investment needs. At the same time,.

F

um So I guess the best way to answer that is. There are.

F

There are products called esg aware so similar to what we're.

F

Constructing the portfolios from today passive approaches, you know, index based approaches.

F

Similar to what we're doing today, with with an esg aware label to them now, what does that mean.

F

It means that whether they're relying on morningstar ratings or msci ratings right.

F

There's a database quantitative database assigned to thousands of companies where.

F

The companies are rated on various criteria from the environmental impact that they have.

F

To their social and governance uh policies, their sustainability policies, they.

F

You know uh the makeup of their boards uh gender makeup minority makeup.

F

Etc, etc, right and they've quantified this and assigned a number to every company and then.

F

Portfolios will be constructed to try to tilt the portfolio towards higher rated companies.

F

Does that does that make sense from a in terms of what the products are doing.

F

As it relates to the report that you shared with me, those were all morning star labels.

F

And so I looked up the morningstar sustainability rating for all the products that we're using today.

F

In the portfolio, this is a zero to five scale, and the vast majority of them were three um as.

F

An example of the s p 500 index fund that we're using, which has a sustainability rating of three.

F

There is an esg aware, russell 1000, etf product that we have, um which is from a.

F

Risk-Based perspective, you know u.s large risk, essentially identical to the s p, 500.

F

Has a morning star sustainability rating of four okay is that is that the objective is that.

F

You know what the goal of your your esg investing would be. I can't answer for you, but that would be.

F

One way to approach it, if you wanted to measure yourselves against, say a morningstar esg rating.

D

How would you feel about that so, in the case of a u.s large cap fund.

F

I I wouldn't try to talk you out of it.

F

Cost wise, it's 14 basis, points more expensive.

F

In terms of its internal expenses versus the one basis, point that you have today.

F

So you know you can probably call that your I mean that's your expense difference.

F

Performance difference cannot be predicted, as you would expect.

F

Many of the esg aware etfs will underweight energy carbon producing.

F

That would have caused them to outperform up until 2021, where the energy sector was by far.

F

The highest performing sector and is one of only two positive sectors year to date. So I don't say.

F

That, with any judgment, good or bad, it's just these are the nuances of the market right.

F

And so we have to accept um drift if you will from the benchmark it's not going to precisely track it.

F

um There's going to be periods where it's going to do better, there's going to be periods where it's.

F

Going to do worse, so, if that, if that were a way for you to achieve the goals that you're you're.

F

Thinking about in this regard, I wouldn't have any issues with that. uh Similarly, in the bond space.

F

There is an esg aware: u.s aggregate bond, passive etf.

F

Seven basis points more expensive in terms of its internal uh expense ratio, performance.

F

Has been identical, um there's there hasn't been a meaningful performance difference.

F

So I wouldn't have any issues there and what would the ratings be?.

D

Again, four, it would take four versus the other one's three. um However, in the so just two caveats.

F

In in light of the time horizon for the funds and the fund's objectives, if you were to tell me.

F

John, this is extremely important. We need to get to a and you know a morningstar sustainability.

F

Rating of four for the whole portfolio, I am confident based on the products that td offers.

F

That we could do that, for you consistent with uh you know, a passive kind of low-cost.

F

Approach to investing get you broad exposure to the markets where I would be challenged.

F

Is in the high yield space, for example, I think I'd struggle to come up with a solution. There.

F

And then small cap could be another one, so I'd have to do some work there, but at the same time,.

F

Those allocations are small enough within the portfolio that, over you know, the infinite time.

F

Horizon, um I don't think you would look back 20 years from now and have regret over that decision.

F

Just based on the sizing of mid cap and high yield in the portfolios, but it's just a consideration.

F

Right, I wouldn't necessarily be able to deploy that strategy across all the asset classes.

F

Which would force us to either eliminate them or just you know, live with a lower rating. There.

D

On the lodge cap core, it was the the fund. We're in is one basis point the expense.

D

Ratio is one basis versus 14 basis, points versus 15, 15 basis points which is still okay.

F

Yep for what it's worth, which may not be much in the context of.

F

Your preference for passive strategies, what some of my clients do.

F

For example, I work with a boys and girls club that doesn't want to hold any alcohol.

F

Tobacco or firearm stocks in their portfolio, I can't do that through a mutual fund or an etf.

F

That's going to contain broad exposure to all the names in the index. I can only do it by virtue of.

F

Having them in a separately managed account that is just wealth industry nomenclature for.

F

It's not a pooled product, like a mutual fund in a separately managed account. The client sees all.

F

The individual stock holdings and then what I can do is I can exclude either a sp. I can.

F

Exclude philip morris to never be purchased in the portfolio, I can exclude an entire industry.

F

Like alcohol or firearms, so that's a different way in a more precise and direct way to express.

F

An esg preference, but it's entirely different from you know it's a higher cost solution.

F

Because separately, managed accounts are more expensive, but it does allow you to more surgically.

F

uh Eliminate exposure to either certain industries or certain names, so I just want you to know. That's.

F

Something that's an option that we have is t. Has td developed, esg fund, not in no proprietary fund.

F

What we have done is uh you may remember going back to the early days, I described our platform as.

F

An open architecture platform, meaning we have our proprietary products and then the majority of the.

F

Products I have at my disposal or what we call best-in-class third-party products. Oh yeah, you.

F

Don't have any proprietary td products in the portfolio today we have been largely.

F

Expressing our ability to meet clients esg needs through third-party products. At this point,.

E

That's a bank you're doing a lot of yes. Dana definitely knows that um and then just lastly, and.

F

This isn't to sway you one way or the other, but in the uh in the small cap space, um just one data.

F

Point um we offer a fund that has underperformed the in the passive strategy that you're in by.

F

200 basis points over the past 10 years, um so that's not a great result. It's got a four rating.

F

What was this funding? It's? It's a small cap.

F

It's a small, yeah and half of that under performance is due to cost, so your etf is.

F

A six basis point expense ratio. This fund has a 94 basis, point expense ratio. So that's one.

F

In light of this discussion and kind of how we've described it, um I probably avoid that one.

F

It's you know, that's 94 basis points is, is a tough hurdle to overcome.

F

Cost wise yep, but in the us large cap space in the u.s aggregate bond space and in the developed.

F

International space, um we can definitely get there so four to four.

F

Does that help in terms of at least sort of framing the product opportunity set, and it does.

A

So what we've been advised by the attorney general's office is that.

A

That our fiduciary obligation to the city is to you know, manage the funds for a not necessarily.

A

The highest possible return, but balancing risk and that type of thing for an appropriate.

A

Return that if we were to simply decide we want to just get into all esg investments.

A

And it resulted in the significant uh lesser return that that would not be appropriate.

A

If we were a private fund that, for instance, the boy scouts are something in which certain.

A

Investments would be contrary to the purpose of our organization, then it is appropriate to.

A

You know give up some of the return in order to stay.

A

Pure so to speak, and so um so from my perspective, sort of coming into this, you you've.

A

Been very helpful in coming up with that three out of five, because I had no idea what our.

A

Current portfolio is so I'd be interested if you could sort of elaborate on that in in a report.

A

Or something just a one-page summary or something like that, because I think that would be helpful to.

A

Our citizens, who say well, where are you at so we can say well. This is what.

A

It is, uh you know, so, um so I think the gray area is- uh and this is a conversation for the three.

A

Of us is, um is it worthwhile uh pursuing esg investments for a slight loss? um I I wouldn't.

D

Assume that would be the case. Well, I'm not assuming anything yeah and you know, but but if.

A

You're talking, like you know, the cost is going to go up. You don't know if the performance is going.

F

To be better or worse, and we will only know that in in hindsight, you know, looking back, I wouldn't.

F

Expect it to be significant one way or the other for u.s large cap and the u.s aggregate bond index.

F

Just based on what I've seen you know the composition of the portfolios, they're just they're.

F

Not different enough to get to a super meaningful difference, so I don't think your performance. It.

F

Might be better, it might be worse, we'll only know in hindsight it won't be significant. Your costs.

F

Will definitely be higher, but not you know we can define what significant is. um You can tell me what.

F

Significant is but yeah there will be a little bit of a cost, but but the the change in the difference.

A

In return might be market issues, not the nature of the investments. Right I mean it could be.

A

Whatever that line is or something just loses, interest in the market.

A

But that's how I summarize it so what's your thinking on it.

D

Yeah, I think it'd be good to benchmark our portfolio.

D

On the morningstar, now, if you could go through, which I guess you've done.

D

Already just so, we have a starting point and we can have our discussion from.

D

Know, as you say, if someone asks are we sensitive to esg, we can say this is where our portfolio.

D

Is today and amongst us we can decide if we want to do anything about it, yeah, I I I don't.

A

I'm not just pursuing this to give out to somebody in case they ask us, you know, are.

A

You are you being good good people. um You know, I think I'd want to look into that type of stuff.

A

But I feel my fiduciary obligation is not to do so at the cost of of.

A

You know a significant return yeah on the portfolio.

A

Peter you as such, oh, I think I think that's good all right. So, let's, let's do that at the beginning.

A

uh And assume that we may want to come back and have this conversation next time. I don't.

A

Think we'll change anything at this point, but I think, having the uh you know the base for what.

A

Our current investments are doing, and I would say if, if you subject to your thoughts on it, if.

A

If you see the market develop so that there are products in that area in the.

A

Esg that are not additional cost and look like they're likely to have same a similar return. I'd.

A

I'd be interested in hearing about them when you're coming in esg has.

E

Evolved over the last 25 years tremendously, I mean it started years ago really with the.

E

Founder of domino's pizza, who was a ardent roman catholic and was trying to find ways to.

E

Assist catholic organizations who are subject to the us conference of catholic bishops, who had very.

E

Specific rules for how they should invest their portfolios and they didn't have a place to go.

E

So he provided seed money to create the ave maria funds and they were the first sort of mutual funds.

E

That complied with the rules very expensive and very time consuming because they had to sit there.

E

And weed through all the different securities to make sure they complied with the rules.

E

But more and more funds added on calvert got in with the environmental ones, and things like that.

E

And people started to catch on they're, adding on and on and on. But what ends up happening is.

E

There's no uniform definition for various mandates and what have you so you have to look very closely.

E

At each fund to see okay, this one says it's about uh the mandate, is you know no carbon emissions.

E

Well, this one is 100, no carbon emissions, this one is um only 10 of the revenue can be carbon.

E

Emissions, this one allows companies that only 25 percent is carbon emissions, so you know it.

E

Becomes a very slippery slope and, and you have to look really carefully as to what which companies.

E

Are allowed in it and how strict do you want to be, and so there's there are companies who their sole.

E

Job is to sit there and score these companies, and so um we have one client that.

E

Not only do they have a third party manager that has positive and negative screens on their.

E

Portfolio but then they have another outside firm that scores all the companies within it.

E

To double check everything yeah, you know people in portsmouth at least my impression is have.

A

Have known about this for a while the original sort of socially appropriate.

A

Investment was pax world, which was started by a couple of unh professors in portsmouth and.

A

So there are people around here who have been in that fund for many years. So I again.

A

I think it's an issue with it will become a bigger issue with our citizens.

A

Once they, you know, you're both referring to actively managed funds. You know pax world or.

D

Calvert funds- oh no! I I in my case I would not ever want to give up on.

D

Passive, I don't know strategy yeah. No, I I that's. Certainly I just use pax world the fact that.

A

People around here are familiar with this, and so um no, I don't think we want to change our basic.

A

Approach an investment strategy just for this, but I I the first step is: I do think we should be.

A

Prepared to discuss it with with people and that why, having that type of a report would be helpful.

A

um But I I do think this is going to continue to be a developing thing in the market. There.

A

Will end up being some uniform scoring that will allow you to really judge these companies.

A

You know you got companies out there, particularly in the uh in the energy sector, who uh say they're.

A

Carbon, but they really just go out and buy a bunch of credits in order to get there and they're still.

A

Producing carbon, so you know, um I just think this will probably be an ongoing conversation.

A

That we'll have over time I yeah. I agree. It's we're having this conversation more and more and.

E

More with clients, so um it's definitely out there, but then the challenge is with passive. The whole.

E

Idea with passive is that you get the full basket of the market, so it's a yeah, but you know if you.

D

Can increase your esg responsiveness by a third going from three to four without sacrificing.

D

Your passive strategy or performance, I agree performance is, you know paramount, but you can.

D

Do it on on a on the large cap core and the bond and fun something to at least look at absolutely.

E

So we have some homework. Okay, all right. Let's talk about the summary reports, yeah so again, just going.

F

Back uh to the beginning of our conversation, I'm when I looked at everything that was in.

F

The reports that you sent me I can provide all of that information, but it's in different places for.

F

Example, your monthly statements actually contain some of what you were looking for, so what I can't.

F

Manually create something for you that doesn't exist on my system, but I can work with you to.

F

Create a document that I think that I I can do a dashboard based on the documents I I get.

B

From you I mean what you provide to me is very informative and I go through them every month.

B

Line by line, so I think what basically was being looked at at is that.

B

To be honest, your predecessor had a dashboard and it had everything on it for a one page, snapshot.

B

And I think the trustees were wondering if it was something that you could system.

B

Generate so that I wouldn't have to go in and monthly manipulate and create a dashboard.

B

Correct me: if I'm wrong, we don't want to have to take this report and manually come up with.

C

What our total investment uh should be a cover sheet that says, that's the monthly one. Yes yeah.

D

I'm honestly, I I almost prefer not to get that because it doesn't help me at all. You know I mean.

C

I don't know why you shouldn't: have the ability to do a cover sheet. That says.

C

This fund, the three different funds and what the total is this month get a date quantitative date.

C

You know I mean this is this is not helpful.

F

That's your that's just a that's your essentially your custody statement. That's a monthly account.

F

I don't want a custom statement: custody yeah. No, I okay. I want.

C

And we've been asking for it for several months.

F

Yeah, so I can't I can't create for you something that my system doesn't automatically generate.

E

Our compliance team is very strict. They will not. Let us generate anything manually.

A

So, what's the theory behind that that you'll mistakenly.

A

Calculate the rate of return of something or yeah.

E

We're not put the proper disclosure disclaimer.

E

But we'll we'll look at our system again make sure that we're not missing.

E

Some sort of report- that's out there, that we haven't.

B

Pulled I'll make sure I mean I can I can sit with the trustees and we'll dev. I can devise.

B

Something with them I mean, obviously they need. They need something that they're not getting.

B

So and if there's something another report monthly that I need to get to give them the full snapshot.

B

Of what they're looking for, then, what can I give you to make that process as easy as possible? I'll.

B

Have to go back and look and see what's missing from the mountain, because I really I like from for.

B

What I do I, like the monthly report, I'm getting it, but I'm down in the nitty-gritty of it. They they.

B

It's easier for them to have a snapshot of the big picture, so I understand um one question I had.

F

Is the percent changes that you had indicated on the the dashboard? Are those intended to be actual.

F

Neta fees, total rate of return calculations, or is that just a simple? They were just the bottom line.

B

Fair market value across the board for them just so that they could kind of see a snapshot of.

B

What the percentage change so that isn't a figure that any of my systems would even.

F

Produce but easy enough to do in excel, which I think you built it in so yeah.

F

Yeah so I'll, let's just work together to one come up with a report dashboard that meets the.

F

Trustees needs and then two, how can I best and most easily and efficiently get you the data.

F

That you need to put it in. Okay, sounds like a plan, so there's just no way you can produce that type.

A

Of a summary report, if I could push a button and replicate, I believe me I'd, be telling you I could.

A

So um it just seems like this is going to be as much work for you as it is for judy.

A

We're trying to get this off her back because she's, not our dedicated employee. She has other.

A

Jobs as well um so if you're going to be sending an email or something with.

A

Numbers that you've extracted off of the report now I've got you spending a bunch.

A

Of time doing something for her to spend a bunch of time, it just doesn't seem efficient.

F

No, but I'd like to get to a point where we figure out how much time it really is because.

F

If we organize it properly well, it might just be you know, I I mean what I have right now.

B

Honestly, for what I give them, I mean I have. I have my calculations built in and my formulas.

B

And I just go and I change my numbers and it calculates across and then populates a graph.

B

So I mean once it's set up, it just would be the setup of it and and formulating exactly you know.

B

What it is that they they want if anything further so and a lot of that I get off of the reports.

B

I already get so, um but I will reach out I'll figure out we'll set up yeah. Let's set up a time.

F

To go I'd like to see that spreadsheet and yeah, maybe there's a couple of tricks we can deploy.

A

All right, so any other thoughts on that before I have one other question just one time my.

D

My last thought on reporting for you to take away, if you back to page four eve on that right hand on.

D

The asset allocation side, which is great, I think, what we're looking for if we could see performance.

D

Down along the same side, you know of each of those asset allocations or similarly on page 8,.

D

Where you have each of them individual performance, if it could be aggregated to equities cash bonds,.

F

Yeah, okay, that'll get us close to what we're looking for.

C

When you're talking, that would be a quarterly report that you were looking for.

B

That on it yeah I mean be great if it'd be monthly, but I mean quarterly, certainly yeah perfect.

A

So my my last question, uh we talked about this in the beginning and you saw we've.

A

Included this in our investment policy, we'd also like to do some comparison to peer groups.

A

um I don't know when a good time to do that would be in january for the prior year or.

A

July or august for the prior fiscal year, but now that we're coming up on a year.

A

Is that something that you could do for us? Would you be able to access.

A

What, for instance, in new hampshire charitable foundation and places like that? Well, I can.

E

I could tell you that nakubo, which is the national association of college university.

E

Business officers, they just released their uh survey from 2021, okay, so the tables just were.

E

Released so I can, I can pull those those numbers and get those out to you sure that would be great.

A

um Any thoughts on who you'd want to see, as other peer groups.

A

Of course, you're going to be comparing us to harvard and yale yeah right, no, no, what they.

E

Do is they break it down, they break it down in cohort groups, so they do the entire universe.

E

Of 800 college and university endowment foundations, but then they break it down.

E

By 25 to 50 million or under 25 million and 25 to 50 million 50 to 100 and so forth,.

E

So it's broken down according to performance in one three one year.

E

uh Three or five-year 10-year performance, then they uh break it down by asset allocation as well.

A

Yeah so the reason it wasn't so much the value that I was, the total account value is just I know.

A

In most of those large university endowments the private ones that they can hold on to individual.

A

Stocks like apple or you know, tesla or something like that, and so a lot of those get a major payout.

A

When those stocks appreciate and they're sold- and obviously we don't do that, so it's.

A

It's an apple orange situation, yeah some of them have a lot of private equity, but but.

E

The uh under 25, when you look at the asset allocation, you'll, see that they don't have the the.

E

The allocations to private equity and and holdings like that, okay. Well, I would like to see that that.

A

Would be helpful, but I I I would you know I know in the past, we've had various peer groups and I.

A

I think of the new hampshire retirement system.

A

We looked at, I think.

B

I can look and see what we used to compare yeah. I think I might have it too.

D

Okay, we have four or five hands on it and maybe give them samples of what it is.

A

We'll try to do that to get that to you and if you could think about maybe.

A

After june 1st do it for the fiscal year sure that would be. That would be helpful.

A

Other comments, questions dana, no good all right. Thank you all for your time appreciate it. No.

D

Thank you good to see you some homework to do. Judy will follow up absolutely I'll. Take it from.

F

There good to see you too where'd you stay last night. I mixed it up and I went to the sheridan.

C

Okay, yesterday I got lucky. I was the first person to drive my rental car and I think I was the.

E

First person to stay in my newly renovated room there you go you're the good luck. Charm, oh yeah,.

B

What time did you come in these quarters? um Okay, so the road was open. Then uh oh yeah, everything.

E

Was open, why didn't I I landed in boston at 3 30. I couldn't get into manchester. I think I.

E

Know why now yeah all the flights were sold out yeah the press corps took off every everything.

F

In there it's a one-off report that I can go into. Why is manchester.

C

Yeah we need to set up some meeting, I'm going to do that quarterly before.

F

There is there's just a hundred different reports that you choose from.

C

I don't want to do thirsties.

A

Sounds like tuesday's to be our lucky morning.

D

All right, we don't have anything said in may right, right so wednesday and fridays.

A

Don't work wednesday thursday fridays don't work. How do your tuesday mornings look mine.

B

Are fine? I can make it work, okay, all right so either in may. We can do the 17th to the 24th.

C

uh Let me just check both of those.

C

17Th yeah good okay uh june 14th.

D

May wait, what do we say? 17. may 17th, you guys are too fast.

A

That's because I just write them down on the paper and stick them in there. um I do know just.

B

To let you know that this room is used by the city manager for her core group meetings at nine, so we.

B

Would need to be done by nine that shouldn't be a problem during the summer. It's usually usually.

B

When we run over, it's one is when we have someone come in so just an fyi okay and we pretty much.

A

Have to use this because the recording equipment, everything okay june, what 14 you say, uh june 14.

C

July july 12th: let's do the 19th now wait a minute hold on. I might have a problem enjoy.

D

Trustee meaning june 14th I'm slow.

D

D

What did you say, 19th is better, I think 19th yeah is that, where a few dinners at a problem.

D

I'm out of town the amount of time the 14th through the 9th through the.

D

I don't know 13th through the 19th okay, so the 12th is yeah. Is the 12th? Okay with you.

C

Not really, but I'll make it work is that okay I'll make it work.

A

All right july 12 and then let's pick the august one and that would be the 16th.

C

Yeah right, okay august 16, yes, yep.

A

All right, any other new business and I'll entertain a motion to adjourn.

A

So move don't move I'll! Consider that a second all in favor aye, yes, very much! I'm focused here on my.