Book 1 Page 99 6-1-2023 10:00 a.m. MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF JUNE 1; 2023 Present: Chair Jeffrey Vredenburg, Vice Chair Aaron Olson, Treasurer Kelly Strickland, Secretary Shayla Griggs, and Member Lauren Sullivan. Others: Senior Pension Analyst Anthony Ferrer and Pension Specialist Peter Gottlieb. Absent: None 1. CALL THE MEETING TO ORDER: Presenter: Chair Vredenburg. Chair Vredenburg called the meeting to order at 10:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter: Secretary Griggs. Secretary Griggs led the Board and meeting attendants in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Vice Chair Olson stated for the record, "We may disagree, but we will be respectful of one another. We will direct all comments to issues. We will not engage in personal attacks. 4. ROLL CALL: Presenter: Senior Pension Analyst Ferrer. Senior Pension Analyst Ferrer called roll. All Committee members were present. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Employee Retirement Account Committee Regular Quarterly Meeting of February 16, 2023. Presenter: Chair Vredenburg. Vice Chair Olson made a motion to accept the minutes of the February 16, 2023, meeting; Secretary Griggs seconded the motion. The motion passed unanimously (5-0). 7. NOMINATION OF BOARD OFFICERS: 7.1. Appointment Re: Selection of Chair. Presenter(s): Secretary Griggs. Vice Chair Olson nominated Jeffrey Vredenburg to retain his position as Committee Chair; Treasurer Strickland seconded the motion. The motion passed unanimously (5-0). 7.2. Appointment Re: Selection of Vice Chair. Presenter(s): Secretary Griggs. Treasurer Strickland nominated Aaron Olson to retain his position as Committee Vice Chair; Member Sullivan seconded the motion. The motion passed unanimously (5-0). 8. QUARTERLY INVESTMENT REPORTS: 8.1. Presentation and Discussion Re: AIG Retirement Services, ERAC Report for Quarter Ending March 31, 2023. Presenter(s): Trent Harris, Financial Advisor VALIC Financial Advisors Inc. Mr. Harris appeared before the Committee and introduced himself. Mr. Harris stated that, with the assistance of Pension Administration, he continues to hold in-person meetings at City office locations with participants. Chair Vredenburg, Secretary Griggs, and Senior Pension Analyst Ferrer noted they have each reçeived positive feedback regarding Mr. Harris and expressed their appreciation for his engagement with participants and visibility on City campuses. The Committee thanked Mr. Harris for his presentation. 8.2. Presentation and Discussion Re: Quarterly iInvestment Analysis Review Ending March 31, 2023. Presenter: Howard Daher, Principal, Daher Capital Group. Mr. Daher appeared before the Board and introduced himself. Mr. Daher reviewed highlights from the Market Summary for Q1 2023 and noted that as of market close on May 31, 2023, the S&P was up more than 9.5% on the year. He cautioned that the thin leadership in the latest rally may be indicative of a downturn. The market's attention is shifting away from the US debt ceiling crisis and back to the Federal Reserve's (Fed's) efforts to control inflation. Forecasters expect the Fed to raise short term interest rates in June 2023 and again before the end of 2023 and begin to lower rates by mid-2024. Bonds currently offer attractive prices for guaranteed returns which has been drawing investors away from equities; this suggests the gains equities made in 2023 year-to-date may not be lasting and the second half of 2023 will be indicative of the economy's overall health. While there are concerns for negative Gross Domestic Product during the next 18 months, 2024 is an election year which is a period during which the stock market tends to rise. Mr. Daher discussed each of the funds-on the Watch List as listed in the Executive Summary and Performance Summary in the presentation materials. The Vanguard Equity-Income Adm is a dividend fund and not designed for capital appreciation. While it was in the bottom 91% of its peer group Q1 2023, it has risen over the last 12 months to be in the top 20%. Because the Vanguard Equity-Income Adm fund has not been on the Watch List previously and it has solid long-term performance, Mr. Daher recommends monitoring it for the time being; he expects the fund, due it its low downside capture rate, to outperform should the market decline. Book 1 Page 100 6-1-2023 10:00 a.m. Book 1 Page 101 6-1-2023 10:00 a.m. The MFS Growth Fund has been on the Watch List for the last 5 consecutive quarters, which is reasonable considering growth was out of favor and it has a heavy weighting in technology, which, as a sector, underperformed in 2022. In Q1 2023 and year to date, technology stocks have led the market and the MFS Growth fund returned 10.75%. Approximately 32% of the MFS Growth fund's holdings are in technology, while the VALIC Company NASDAQ-100 Index is approximately 50% in technology and had almost twice the return. As of close of business on May 30, 2023, MFS Growth fund was up 18.22% year to date, and is in the middle of its peer group. Mr. Daher recommends leaving it on the Watch List as it trends upward. Vice Chair Olson expressed concern for the MFS Growth fund considering its relative underperformance over most timeframes. Mr. Daher agreed but cautioned that the technology rally in Q1 2023 which led to outperformance in tech-heavy funds should not be used as the only performance metric; how MFS Growth fund performs in a declining market will provide a more accurate picture of whether to search for a replacement. He recommended allowing the market to normalize before making a decision regarding this fund. He added that, because 2022 was such a disastrous year for the entire market, he was reluctant to criticize any underperforming fund. Mr. Daher also noted that over the 10-year period, the MFS Growth fund has outperformed the index by 4% per year. Vice Chair Olson agreed and reiterated that his concern was due to its underperformance during the down market. Mr. Daher advised he would bring 3 alterative funds for the Committee to consider if it decides to replace the MFS Growth fund. The Ariel Fund Investor is, not surprisingly, on the Watch List as it is known to outperform in up markets and underperform in down periods. Year-to-date, it ranks in the top 1%, but in the bottom 84% over the trailing 12 months. Considering the amount invested and its predictability, Mr. Daher recommends keeping the Ariel Fund on the Watch List. The Fidelity Select Health Care fund had, until 2022, always been in the top 50th percentile. In Q1 2023, it outperformed both its benchmark and peer group. While it underperformed over the 3-year average, it outperformed over every other timeframe and is also one of the top 5 invested funds in the portfolio. Mr. Daher recommends keeping this fund on the Watch List. The last fund on the Watch List is the American Funds Inflation Linked Bd; Mr. Daher noted that this asset class is trending similarly to a total return fund; as inflation comes down, bond funds are outperforming inflation-protected bond funds. He expressed concern as this fund appears to offer no diversity to the bond asset class in the portfolio because quality, high grade bonds offer comparable returns. At Mr. Daher's request, Mr. Harris noted that VALIC/AIG's guaranteed account is offering 2%, which would be preferrable to the inflation-protected bond fund. Mr. Daher suggested there are other, more attractive bond funds available and recommends keeping it on the Watch List until the next meeting. Mr. Daher noted that, as a whole, the portfolio is performing well and has a diverse selection for all ranges of investors. There appears to be an appropriate amount of risk with nominal expenses. As such, he has no recommendations to close any funds. He reviewed the Asset Allocation by Fund and the Watch List. He noted that, because there are no new Plan members, the majority of the increase in value of the portfolio is due to market lift. Vice Chair Olson asked how much change in value is a result of participants retiring and withdrawing their funds. Mr. Harris and Senior Pension Analyst Ferrer noted that a combination of the down market in 2022 and a few highly compensated employees who have transitioned their assets out of the Plan will account for the drop in the total portfolio's value since Q4 2021. Vice Chair Olson thanked Mr. Harris and Mr. Daher for their presentations. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: Chair Vredenburg and Secretary Griggs noted that Committee members financial disclosures must be filed by July 1. 11. OTHER MATTERS: None. 12. ADJOURN. Chair Vredenburg adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 10:37 a.m. Chair Jéffey Vedenburg Secretary Shayla Griggs Book 1 Page 102 6-1-2023 10:00 a.m.