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6.A. - Page 7 of 44 <br />REDWOOD CITY <br />Portfolio Recap <br />Our strategy throughout the quarter included the following elements: <br />For the Quarter Ended June 30, 2019 <br />Portfolio Review <br />Broad diversification, generally including the widest range of permitted investments, which reduces the overall risk in the <br />portfolio and provides the opportunity for better returns over the long term. <br />We maintained a portfolio duration in line with the benchmark. Maintaining a neutral duration—despite the inverted yield <br />curve—drove strong market -value returns across most fixed-income sectors as market prices on fixed-income securities <br />tend to rise as yields fall. <br />Yields on federal agency and supranational securities did not offer much value compared to treasury alternatives. This <br />was been driven mainly by a lack of new supply, particularly in supranationals. Non -callable agencies generated small <br />out -performance due to their modestly higher yields, but callable agencies underperformed as lower rates increased the <br />likelihood of a call before maturity. <br />Corporate yield spreads remain tight by historical standards but widened briefly amid trade tensions. Corporates generated <br />excess returns for the second consecutive quarter. We focused allocations on high quality issuers with relatively less <br />exposure to international trade risks. We also had a slight preference for industrials over financials in the quarter. <br />Asset-backed securities (ABS) saw spreads decline to 10 -year lows throughout the first half of the quarter, providing <br />incremental returns relative to Treasuries. By June, ABS spreads began to widen slightly but still remained low by historical <br />standards. <br />Negotiable bank CD yield spreads narrowed in the second quarter, reducing their overall attractiveness. By quarter -end, <br />the money market yield curve was also inverted. <br />PFM Asset Management LLC <br />11 <br />