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6.A. - Page 14 of 46 <br />REDWOOD CITY <br />Investment Strategy Outlook <br />For the Quarter Ended June 30, 2020 <br />Outlook <br />• A cloud of uncertainty hangs over the U.S. and global economies entering the second half of 2020. Economic data has rebounded <br />significantly from the April lows but remains well below pre -pandemic levels. To recapture previous economic highs, it will be <br />important that COVID-19 hotspots are contained so that public confidence can be restored. <br />Considering these uncertainties, we plan on maintaining the portfolio's neutral duration position relative to the benchmark. <br />• Our outlook for major investment grade sectors includes the following: <br />• We plan to focus the majority of new federal agency purchases in maturities beyond three years as yield spreads on <br />shorter maturities are now back near pre -pandemic levels. Some callable agencies also appear to have value given low <br />yields and narrowing yield spreads. <br />• The agency MBS sector continues to benefit from the Fed's large-scale purchase program, which the central bank has <br />signaled will continue in the coming months. However, near-term prepayment risk remains elevated in the low rate <br />environment as refinancings remain robust. Allocations to the sector will likely be maintained, with additions focused on <br />structures that mitigate prepayment risk. <br />• The investment grade corporate market should continue to benefit from Fed support moving into the third quarter. Yield <br />spreads for shorter corporates are back to near pre -crisis levels, but the credit curve is relatively steep. As a result, longer <br />maturity corporates appear attractive, as the "roll down" effect in the credit curve is back in play. We will continue our <br />enhanced due diligence to track the progress of individual issuers as they navigate the recovery phase of the coronavirus <br />pandemic. <br />• ABS allocations are expected to remain stable. Liquidity has improved and spreads have narrowed due to Fed support. We <br />continue to carefully follow consumer trends for signs of material deterioration in collateral performance. <br />• While tax-exempt municipal spreads have narrowed to historical levels and are no longer attractive, taxable municipals <br />appear to be one of the more attractive investment-grade sectors available for purchase. Value remains, and supply is <br />expected to pick up over the coming months. As a result, we expect to add to the sector through participation in new <br />issues. <br />PFM Asset Management LLC 20 <br />