Building the Optimal Portfolio Geoffrey “Jeff” Smith Institutional Fixed Income Sales Representative All information contained in this document is the.

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Presentation transcript:

Building the Optimal Portfolio Geoffrey “Jeff” Smith Institutional Fixed Income Sales Representative All information contained in this document is the confidential property of Balance Sheet Solutions, LLC. Distribution outside of the credit union is strictly prohibited. The information contained herein is prepared for general circulation and is distributed for general information only. This information does not consider the specific investment objectives, financial situations or particular needs of any specific individual or organization that may receive this report. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. All opinions, prices, and yields contained herein are subject to change without notice. Investors should understand that statements regarding future prospects might not be realized. Please contact Balance Sheet Solutions to discuss your specific situation and objectives. Balance Sheet Solutions, LLC only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow- up and individualized responses that involve either the affecting or attempting to affect transactions in securities, or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. Balance Sheet Solutions, LLC is a SEC Registered Investment Advisor SEC# CRD#

Investment Outlook from BSS Economic headwinds abound The Three D’s –Demographics –Deficits/Debt –Deflation Rates likely to stay low for longer

Demographics Aging Boomers are savers not spenders People 65 and older outnumber children under 5 Social Security obligations will dwarf the rest of the budget 40-year lows in the labor force participation rate

Deficits/Debt Entitlements will consume all tax revenue in 2019 Potential recession in 2018 will create massive deficits Marginal value of a new dollar of debt is declining

Deflation Slow economic growth will put pressure on prices Massive monetary stimulus has not budged prices Sluggish economies around the globe

Portfolio Strategy and Themes No secular bear market in bonds Do not take on excessive duration risk Buy short duration high quality debt Diversify, Diversify, Diversify

Optimal Portfolio Objectives  Maintain Neutral Duration  Maintain Stable Cash Flow  Optimize Yield (Income)

Laddered Agency Portfolio Average Duration Average Yield Annual Income Average Quality 100% Agency Portfolio $580KAaa Total Rate of Return (12 Months) Aged -50bps-25bps % Agency Portfolio

SimpliCD Brokered deposits issued by credit unions and banks All NCUA or FDIC insured Bullet structures Safekeeping not an issue Single check on dividend payment date and maturity

Add 20% SIMPLICD to Agency Ladder Average Duration Average Yield % Annual Income Average Quality 100% Agency $580KAaa 80% Agency/20% SIMPLICD $597KAaa Total Rate of Return (12 Months) Aged -50bps-25bps All Agency Portfolio %Agency/20% SIMPLICD

Bank Notes Non-FDIC insured bank investments, but at the bank level not the holding company Solid credit ratings with available credit support from BSS Bullet structures with excellent liquidity Authorized investment for Federal Credit Unions and State-chartered Utah Credit Unions

Sample Bank Note Key Bank /15/19 · 3.6-year maturity · Offered at +105/3-yr · Currently yielding 1.92% · Rated A3 / A Independent research provided on all issuers as needed

Add 20 % Bank Notes to Ladder Average Duration Average Yield Annual Income Average Rating 100% Agency Portfolio $580KAaa 80% AGY/20% SIMPLICD $597KAaa 60% AGY/20% SIMPLICD/20% BNs $717KAa2 Total Rate of Return (12 Months) Aged -50bps-25bps All Agency Portfolio %Agency/20% SIMPLICD % AGY/20% SIMPLICD/20% BNs

Add 20% 10Y MBS to Ladder Average Duration Average Yield Annual Income Average Rating 100% AGY $580KAaa 80% AGY/20% SIMPLICD $597KAaa 60%AGY/20%SIMPLICD/20%BNs $717KAa2 40% AGY /20% SIMPLICD/20% BN /20% MBS $772KAa2 Total Rate of Return (12 Months) Aged -50bps-25bps % Agency %AGY/20% SIMPLICD % AGY/20% SIMPLICD /20% BNs %AGY/20%SIMPLICD/20% BNs/20% MBS

Taxable Munis Issued by state and local governemnt authorities Liquidity is good Bullet structures plentiful

Sample Taxable Muni Louisiana St Unlimited GO 1.989% 8/1/21 AA dated Yield is 1.654%

Add 10% Muni to Ladder Average Duration Average Yield Annual Income Average Rating 100% AGY $580KAaa 80% AGY/20% SIMPLICD $597KAaa 60%AGY/20%SIMPLICD/20%BNs $717KAa2 40% AGY /20% SIMPLICD/20% BN /20% MBS $772KAa2 30%AGY/20%SIMPLICD/20%BNs/20%MBS/10% MUNI $800KAa2 Total Rate of Return (12 Months) Aged -50bps-25bps % Agency %AGY/20% SIMPLICD % AGY/20% SIMPLICD /20% BNs %AGY/20%SIMPLICD/20% BNs/20% MBS %AGY/20%SIMPLICD/20%BNs/20%MBS/ 10% Muni

Total Rate of Return

Optimal Portfolio Results  Maintained 3.8 Year Duration  Enhanced Income by $220,000 per Year  Maintained Stable Cash Flows  Reduced Agency Exposure  Takes a Little Extra Time  Worth the Effort

Questions?

Thank you!