AgdaPkt 2018-05-21 Joint SA PFA - Laserfiche WebLink

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PFM Asset Management LLC REDWOOD CITY For the Quarter Ended March 31, 2018 Portfolio Review The combined effects of less predictable U.S. politics and policy (e.g., tariffs, trade wars, Facebook, global relations, bud get deficits, etc.) created an environment of heightened volatility. The “risk off” sentiment triggered wider credit spreads. •Wider spreads caused corporate-related investments to underperform for the quarter. While portfolios typically benefit from increased credit allocations, returns in the first quarter were negatively affected. •Federal agency yield spreads remained very narrow throughout the quarter. Generally, the agency sector added modest positive excess returns in the first quarter (returns in excess of similar -duration Treasuries) across much of the yield curve, benefiting portfolio performance. •Supranational seasonal supply increased as expected in the first quarter, and we utilized the opportunity to purchase a supranational for the portfolio at an attractive yield spread. This incremental income helped boost sector returns. •After yield spreads in the corporate sector reached another new post-recession low in January, we shifted our generally constructive view of the corporate sector to a slightly more defensive posture by holding current positions (and letting them drift shorter over time) rather than adding to allocations. In the second half of the quarter, the story shifted abruptly as market volatility pushed credit spreads markedly wider through quarter-end. As a result, we began to add corporate exposure (including negotiable CDs) again in late February and March. •Asset-backed securities (ABS) were also impacted by adverse spread widening during the quarter but prompted no change in our fundamental view of the sector. We continued to select ABS issues we found attractively priced during the quarter. Portfolio Recap 3 6.1.B. - Page 9