1. Market Insights from a Trusted Leader - Wilshire Associates
August 2017
Market Insights from a Trusted Leader
Wilshire Associates

2. INSTITUTIONAL EXPERTISE
Wilshire Associates
INSTITUTIONAL EXPERTISE
Over
$942 billion
(as of March 31, 2017 )
in institutional consulting assets advised
Advises on
$179 billion
(as of March 31, 2017)
in assets for
financial intermediaries
Approximately
300 associates
worldwide, 70+
of whom contribute to
manager research
40+ years
of experience
Wilshire Total Stock Market IndexSM created
1974
Began asset allocation modeling for pension plans
1980
Wilshire U.S. Real Estate Securities IndexSM launched
1991
Wilshire Mutual Funds established
1997
Hedge fund platform created
2005
System
Man Power
Storage
security
1972
Firm founded. Early innovator of equity risk models.
1978
Wilshire TUCS® created. Currently captures information on over $3.5 trillion in institutional holdings
1981
Pension consulting practice started
1996
Private equity Fund of Funds platform launched
1998
Asset advisory service started for financial advisors
2014
Wilshire launches Liquid Alternatives Indexes

3. Market Review

4. MARKET PERFORMANCE Wilshire Funds Management 2nd Quarter 2017
Year to Date
2017
Proxy Indices: Wilshire 5000 Total Market IndexSM, MSCI EAFE Index, MSCI Emerging Markets Index, Barclays U.S. Aggregate Index, Barclays Global Aggregate Bond Index,
J.P. Morgan EMBI Global Index, Wilshire Global RESISM, S&P Goldman Sachs Commodity Index, and the HFRI Fund Weighted Composite Index
Source: Wilshire Compass

5. 2ND QUARTER 2017: U.S. EQUITY MARKET
Wilshire Funds Management
2ND QUARTER 2017: U.S. EQUITY MARKET
U.S. Equity Markets
The U.S. stock market, represented by the Wilshire 5000 Total Market IndexSM, was up 2.95% for the second quarter of
Economic releases during the second quarter were solid, with growth in both the economy and the labor markets.
The Federal Open Market Committee raised the Fed Funds rate in June by 0.25%, the second such increase this year.
Large capitalization stocks outperformed their smaller capitalization counterparts, with the Wilshire U.S. Large Cap IndexSM up 3.08% versus a gain of 1.65% for the Wilshire U.S. Small Cap IndexSM.
The Wilshire U.S. Micro Cap IndexSM was up 3.53% for the quarter and 28.34% for the one year.
Growth stocks led value stocks during the second quarter in both the large and small cap spaces.

6. 2ND QUARTER 2017: GICS SECTOR RETURNS
Wilshire Funds Management
2ND QUARTER 2017: GICS SECTOR RETURNS
GICS Sector Returns
The best performing sector was Health Care (+7.1%), with Industrials (+4.8%) and Financials (+4.3%) close behind.
Two sectors were in negative territory, Energy (--6.4%) and Telecom Services (-7.1%).

7. Wilshire Funds Management
TRUMP TRADE MONITOR
Data Source: Bloomberg

8. 2ND QUARTER 2017: INTERNATIONAL EQUITY MARKETS
Wilshire Funds Management
2ND QUARTER 2017: INTERNATIONAL EQUITY MARKETS
International Equity Markets
Developed and emerging non-U.S. equity markets produced strong returns during the second quarter of The U.S. dollar continued to weaken during the quarter, providing an additional boost for U.S. investors holding foreign currencies.
While economic releases out of Europe continue to improve, Britain is showing signs of struggling with Brexit, although stocks in the U.K. are still producing positive returns.
Japanese equities lifted the MSCI Pacific Index higher as the labor market in Japan improved during the quarter, as did domestic demand and consumption.
Emerging markets are up most significantly in 2017 among the three major global equity market segments. Returns have been broad based, with 21 of the 24 countries in the index (representing more than 95% of the market value) producing gains.

9. 2ND QUARTER 2017: FIXED INCOME MARKETS
Wilshire Funds Management
2ND QUARTER 2017: FIXED INCOME MARKETS
Fixed Income Markets
The U.S. Treasury yield curve continued to flatten during the quarter, with the one year yield up 21 basis points and the thirty year down 18 basis points. The bellwether 10 year Treasury yield ended the quarter at 2.31%, down slightly but still much higher than a year ago (1.49%).
The Federal Open Market Committee decided to increase their overnight rate by 0.25% at their June meeting, their fourth increase since 2008.
Credit spreads continued to move lower during the quarter in both investment grade and high yield bonds. High yield spreads, which have averaged 6% during the past decade, were below 4% during the quarter and stood at 3.6% as of June 30.

10. 2ND QUARTER 2017: REAL ESTATE AND COMMODITY MARKETS
Wilshire Funds Management
2ND QUARTER 2017: REAL ESTATE AND COMMODITY MARKETS
Real Estate and Commodity Markets
In the second quarter real estate securities were up in the U.S. and globally, the latter due in part to a weakening U.S. dollar.
Commodities were down for the quarter as crude oil fell -9.0% to $46.04 per barrel. Oil is down -14.3% for the first six months of 2017.
Natural gas prices were down as well, posting a loss of -4.9% to end the quarter at $3.04 per million BTUs.
MLP returns were negative for the quarter and roughly flat for the past 12 months.
Gold prices fell, finishing the quarter at approximately $1,242 per troy ounce, down -0.7% from last quarter.

11. Market Outlook

12. INVESTMENT STRATEGY COMMITTEE’S VIEWS - JULY 2017
Wilshire Funds Management
INVESTMENT STRATEGY COMMITTEE’S VIEWS - JULY 2017
Nationwide ProAccount Implementation
Removing the High Yield overweight vs. Equities
Moving from an overweight of Credit vs. Government to an underweight position
Moving from an overweight to a large overweight of Foreign Equity vs. Domestic Equity

13. 2ND QUARTER 2017: FIXED INCOME MARKETS
Wilshire Funds Management
2ND QUARTER 2017: FIXED INCOME MARKETS

14. 2ND QUARTER 2017: INTEREST RATES AND INFLATION
Wilshire Funds Management
2ND QUARTER 2017: INTEREST RATES AND INFLATION
Interest Rates: The Treasury curve flattened during the quarter, with yields for maturities three years and lower moving higher and longer term rates falling. The 10 year Treasury was down just nine basis points, finishing at 2.31%.
Inflation: Consumer price increases have moderated during much of The Consumer Price Index was down - 0.2% for the three months ending in May, and up 1.9% for the one year period. The 10 year breakeven inflation rate closed the second quarter at 1.73%, down from 1.97% at the end of March. Inflation expectations are still up, however, from a year ago.

15. 2ND QUARTER 2017: INVESTMENT GRADE BOND SPREADS
Wilshire Funds Management
2ND QUARTER 2017: INVESTMENT GRADE BOND SPREADS
Investment grade spreads compressed to remain below their historical average as market conditions remained stable and investors increasingly sought higher quality credits.

16. 2ND QUARTER 2017: HIGH YIELD BOND SPREADS
Wilshire Funds Management
2ND QUARTER 2017: HIGH YIELD BOND SPREADS
The average high yield option-adjusted spread continued to narrow in the second quarter from 383 to 364 basis points.

17. 2ND QUARTER 2017: 10-YEAR SOVEREIGN DEBT YIELDS
Wilshire Funds Management
2ND QUARTER 2017: 10-YEAR SOVEREIGN DEBT YIELDS
10-year sovereign debt yields fell across U.S.A., Spain, Italy, Greece and France. The 10-year sovereign debt yields rose in the U.K., Japan, Germany and Canada.

18. 2ND QUARTER 2017: REAL U.S. GDP Wilshire Funds Management
Real GDP growth slowed to 1.40% annualized during the first quarter of This was not much lower than the 1.60% pace set in 2016.
Both consumer and business spending contributed to growth.
In an encouraging sign, nonresidential fixed investment was up a little more than 10%, thanks in part to increased spending on gas and oil well drilling.
A shrinking trade deficit contributed to growth as well, with a contraction in government spending representing the only detractor.

19. GLOBAL GDP GROWTH (NORMALIZED, 5 YEARS)
Wilshire Funds Management
GLOBAL GDP GROWTH (NORMALIZED, 5 YEARS)
Data Source: Bloomberg

20. ECONOMIC MOMENTUM IN EUROPE VS UNITED STATES
Wilshire Funds Management
ECONOMIC MOMENTUM IN EUROPE VS UNITED STATES
Data Source: Bloomberg

21. 2ND QUARTER 2017: EQUITY MARKET VOLATILITY
Wilshire Funds Management
2ND QUARTER 2017: EQUITY MARKET VOLATILITY
Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), remained low throughout the second quarter following the presidential elections.
The VIX dropped to 11.2 at the end of the quarter, remaining below its historical average of 19.5.

22. 2ND QUARTER 2017: S&P 500 P/E RATIO
Wilshire Funds Management
2ND QUARTER 2017: S&P 500 P/E RATIO
The relative value of the U.S. equity market, measured here by the trailing price-to-earnings ratio, remained above its historical average of 16.6x, with a value of 21.5x at the end of the second quarter.

23. 2ND QUARTER 2017: EUROPE Wilshire Funds Management
Eurozone government debt, as a percentage of GDP, continued to level off as many countries within the European Union were stabilizing or reducing government bond buying programs.

24. 2ND QUARTER 2017: EMERGING MARKETS
Wilshire Funds Management
2ND QUARTER 2017: EMERGING MARKETS
The MSCI Emerging Markets Index Price to Book ratio rose from 1.55x at the end of March 2017 to 1.64x at the end of June 2017, rising above its historical average of 1.55x.

25. 2ND QUARTER 2017: COMMODITY PRICES
Wilshire Funds Management
2ND QUARTER 2017: COMMODITY PRICES
Grains and Livestock experienced quarterly gains while Energy, Industrial Metals and Precious Metals suffered quarterly losses.

26. CURRENCY MARKETS - YEAR TO DATE 2017
Wilshire Funds Management
CURRENCY MARKETS - YEAR TO DATE 2017
Source: Bloomberg

27. 2ND QUARTER 2017: HISTORICAL ASSET CLASS RETURNS
Wilshire Funds Management
2ND QUARTER 2017: HISTORICAL ASSET CLASS RETURNS
The value of holding a diversified portfolio has been consistently illustrated over the past 10 calendar years.
Best
Worst

28. 2ND QUARTER 2017: ASSET CLASS CORRELATIONS AND VOLATILITY
Wilshire Funds Management
2ND QUARTER 2017: ASSET CLASS CORRELATIONS AND VOLATILITY
Below are correlations across multiple asset classes for the trailing 5 years (blue) and 10 years (green).