MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF JUNE 6, 2024 Present: Treasurer Kelly Strickland, Secretary Shayla Griggs. Member Lauren Sullivan, and Member Alexya Alvarenga. Others: Senior Pension Analyst Anthony Ferrer and Pension Specialist Peter Gottlieb. Absent: Chair Jeffrey Vredenburg 1. CALL THE MEETING TO ORDER: Presenter: Chair Vredenburg. Secretary Griggs called the Employee Retirement Account Committee (Committee) meeting to order at 10:00 a.m. 2. PLEDGE OF ALLEGIANCE: Presenter: Secretary Griggs. Secretary Griggs led the Committee and meeting attendants in the Pledge of Allegiance. 3. PLEDGE OF CIVILITY: Secretary Griggs 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. Chair Vredenburg was not 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 29, 2024. Presenter: Secretary Griggs. Treasurer Strickland made a motion to accept the minutes of the February 29, 2024, meeting; Member Sullivan seconded the motion. The motion passed unanimously (4-0). 7. NOMINATION OF COMMITTEE OFFICERS: Secretary Griggs noted that she and Treasurer Strickland were not eligible to serve as Chair or Vice Chair as they already hold Officer positions on the Committee. 7.1. Appointment Re: Selection of Chair. Book 1 Page 114 06-06-2024 11:30 a.m. Book 1 Page 115 06-06-2024 11:30 a.m. Presenter: Secretary Griggs. Secretary Griggs nominated Member Alvarenga as Chair; Treasurer Strickland seconded the motion. The Committee approved by consensus. 7.2. Appointment Re: Selection of Vice Chair. Presenter: Secretary Griggs. Secretary Griggs nominated Member Sullivan as Vice Chair; Treasurer Strickland seconded the motion. The Committee approved by consensus. 8. QUARTERLY INVESTMENT REPORTS: 8.1. Presentation and Discussion Re: VAILC Financial Advisors, ERAC Report for Quarter Ending March 31, 2024. Presenter(s): Trent Harris, Financial Advisor; David Allen, Divisional Vice President of Retirement Services VALIC Financial Advisors; Krista Hill Relationship Manager; Corebridge Financial. Trent Harris of VALIC Financial Advisors appeared before the ERAC and introduced himself. Mr. Harris presented the engagement reports. During Q1 of calendar year 2024 in the top graph, Mr. Harris met in person or telephonically with 85 participants. The middle graph shows 45 participants engaged with VALIC's customer care group during Q1 2024. In the bottom graph, the darker blue shows that 343 participants accessed their account through VALIC's website during the timeframe; the lighter blue shows that 99 participants accessed their account through VALIC's mobile device application. Secretary Griggs asked Mr. Harris if future reports could be more legible; Mr. Harris agreed. Secretary Griggs expressed her appreciation to Mr. Harris for his engagement with participants and noted his visibility at City facilities. 8.2. Presentation and Discussion Re: Daher Capital Group, Quarterly Investment Analysis Review Ending March 31, 2024. Presenter: Howard Daher, Principal, Daher Capital Group. Howard Daher of Daher Capital Group appeared before the Board and introduced himself. Mr. Daher discussed the bullet points listed on the Market & Plan Summary, noting the S&P, from March 31, 2024, through June 5, 2024, was up approximately 12%, suggesting the market is slowing; he anticipates the market to, as it usually does, progress even slower over the summer than it had during the winter. The market was led by Growth, Technology, and Communication stocks, specifically Nvidia and Meta. Bonds, on the other hand, suffered as the Bond Aggregate Index lost slightly more than 1% year to date as of March 31, 2024, likely in response to the Federal Reserve's (Fed's) pause to adjusting short- term interest rates. The bond market in general was turbulent as the Fed raised interest rates; he cautioned that turbulence may occur again until bond returns normalize. Mr. Daher asserted that, in its efforts to control inflation, the Fed failed to contemplate the economic consequences beyond inflation as the market continues to react. Domestic equities led international equities, and despite challenges to global economies, such as 2 wars and national elections, analysists predict the market will have a strong performance in 2024. Turning to page 3 of the Market & Plan Summary, Mr. Daher reviewed the Investment Alternatives for Watch Listed Funds. While the Ariel Fund Investor (Ariel) has had respectable returns on an absolute basis, it continues to underperform its benchmark over long periods of time; Mr. Daher suggested the Committee has given it ample opportunity to outperform yet it has not. He noted that he applied the investment scoring criteria to each oft the alternative funds to demonstrate how they would have performed had theyl been offered through the Plan. The Invesco Value fund (Invesco) outperformed the alternatives in 3 of the last 5 years and had positive absolute performance in 2022 while the other 2 funds had negative performance. Invesco has a lower-than- average expense ratio, holds almost twice as many stocks as the. Ariel fund, meaning it is more diversified, and it can drift from value to growth and between mid-cap and large-cap. He reminded the Committee that alpha is the risk-adjusted expected return and beta is the amount of risk relative to the market; the market's beta is 1.00, and a higher beta should corollate to a higher alpha. He added that standard deviation measures volatility relative to the benchmark. Invesco has higher beta, but it is justified by higher alpha; it has a higher standard deviation, meaning its highs and lows will be greater than the benchmark's. He noted that the Committee, in considering alternates to Ariel, is trying to replace a riskier, more volatile fund to avoid having funds cycle on and off the watchlist. The John Hancock Disciplined Value fund (Hancock) is a straightforward mid-cap value fund. It is more diversified than Ariel and Invesco, does not have a high conviction in its top 10 stocks, and does have lower risk sores than the category. It has more alpha than the category, but less than Invesco. He characterized it as less risky than both Ariel and Invesco. The Victory Integrity Mid Cap Value (Integrity) has slightly lower quarterly scores than Invesco, strong manager tenure, good annualized returns, and the lowest expense ratio of the 3 alternatives. He added that 57% of the portfolio is weighted in the top 10 stocks, meaning 43% of the portfolio is diluted amongst the remaining 103 stocks; this represents a significant risk in Mr. Daher's opinion. That risk notwithstanding, the fund has provided good returns. Mr. Daher summarized the alternatives to the Ariel fund as being reasonable and well-scoring. He noted that only $80.000 is invested in Ariel and therefore the participants invested are looking for higher risk investments. He recommended the Committee consider how Ariel serves the menu of investments, as well as how a replacement should fit into that menu. Treasurer Strickland noted that the Victory fund seemed to have too much risk, while Hancock was too conservative, and expressed a preference for Invesco as being the most comparable to Ariel. Treasurer Strickland made a motion to replace the Ariel fund with the Invesco Value Fund; Secretary Griggs seconded the motion. The motion passed unanimously (4-0). The Fidelity Select Healthcare fund (Fidelity) had a decent first quarter in 2024, but it still struggles to outperform the benchmark. It holds 91 stocks in the portfolio, but more than half the assets are in the top 10 stocks. The Janus Henderson Global Life Sciences fund (Janus) has good historical scores, strong manager tenure, and good returns over the last 5 calendar years. Its annualized returns are not the strongest of the 31 Fidelity alternatives, but it has a lower expense ratio, and 35% of its assets are in its top 10 stocks. Janus has lower beta than the market and higher alpha, but also more volatility. Putnam Global HC (Putnam) has the strongest criteria scores and best performance of the 3 alternative funds however it is more conçentrated with only 54 stocks in its portfolio, and 57% of assets in the top 10 Book 1 Page 116 06-06-2024 10:00 a.m. Book 1 Page 117 06-06-2024 11:30 a.m. holdings; he noted that the average health care fund holds approximately 90 stocks. It has low beta, strong alpha, and lower standard deviation. The Vanguard HC Index (Vanguard) is considered to be passively managed with low turnover, high diversity, and a lower expense ratio. The risk in this strategy is the concentration in the health care industry. To Secretary Griggs' question, Mr. Daher opined on how health care funds could be impacted by the development and approval of a cancer vaccination. If the company developing the vaccine is public, it will garner significant attention and investment. Mr. Daher discussed the advantages and disadvantages of active management versus index funds. Turning to page 18 of the Investment Analysis Review, he compared Janus' and Vanguard's 1 YR Peer, 1 YR, 3 YR, and 5 YR returns noting that Janus outperformed only in the shortest timeframes; as the period increases, the performances become very similar. He explained that this shows active manager returns are slightly better than passive, but only in the short-term. The question then becomes whether active manager returns are more than the difference in fees from passive funds. He asserted that both. Janus and Vanguard are good replacements as they trend similarly over time; while Putnum has a significant concentration risk, it still meets the investment criteria. Approximately $1.5 million is invested in the Fideiity fund, meaning there is significant interest in the sector. Secretary Griggs expressed support for both Janus and Vanguard. Treasurer Strickland noted that Vanguard has lower expenses, which is preferrable. To Senior Pension Analyst Ferrer's question, Mr. Daher explained that the Vanguard fund has .5% of the portfolio in international stocks; the remaining 99.5% are in domestic stocks. Mr. Harris observed that several of the other funds offered by the Plan are index funds which are managed by Vanguard. Mr. Daher explained that approximately 20% of the Janus fund portfolio is in international equities with the remaining 80% in domestic. To Treasurer Strickland's question, Mr. Harris and Mr. Daher discussed the index funds offered in the portfolio as well as those managed by Vanguard. Mr. Daher noted that many of his clients are focused on fund manager fees and the majority of lawsuits filed by Employee Retirement Income Security Act employers are due to excessive fees charged by fund managers. As an active manager, the Janus fund is a reasonable alternative to the Fidelity fund. Secretary Griggs reiterated her support for both Janus and Vanguard. Treasurer Sirickland suggested replacing an active manager with an active manager. Treasurer Strickland made a motion to replace the Fidelity Select Health Care fund with the Janus Henderson Global Life Sciences fund; Secretary Griggs seconded the motion. The motion passed unanimously (4-0). Mr. Daher explained that the American Funds Inflation Linked (American) fund holds approximately $88,000 of participants' funds; while none of the funds are keeping up with inflation, it may be a worthwhile asset class to explore in the future. American was a reasonable fund when the Committee chose to offer it, it has low fees, and is very conservative with all assets having AAA credit ratings. Alliance Bernstein Inflation Strategy (Bernstein) has good scores, but a relatively short manager tenure and the expense ratio is approximately twice that of American. Its portfolio has a lower credit rating than American's. Mr. Daher reminded the Board that bonds with BBB or higher credit ratings are those which assure the return of principle and the promised rate and yield; lower credit ratings have higher chances of default, and the interest rate and yield are not as assured. He noted that the bond market in general is not performing well. Returning to Bernstein, Mr. Daher noted it has a 24% position in cash; this is advantageous as money- market funds are paying 4-5%, and when interest rates start changing, Bernstein can invest in bonds with higher yields. This represents an atypical approach that is needed to outperform in the bond market. The Lord Abbett Inflation fund (Abbett) has a low expense ratio, strong diversification, and strong manager tenure, and has 5% of the portfolio in stocks which boosts performance. Approximately 25% of the portfolio is AAA rated and 44% is BBB rated, meaning it generates yield by lowering the quality of its holdings. While this may not likely present a strong risk of default, it is important for investors to understand how returns are generated. The Vanguard Short Term Inflation (VSTI) is very conservative; it holds 28 Treasury Inflation-Protected Securities (TIPS) and has an expense ratio of 6 basis points. It is nearly 100% AAA. Mr. Daher noted that inflation-protected bond funds are not drivers of returns, but that the alternatives represent reasonable improvements from the American fund. While VSTI represents a solid performing, inexpensive fund, Bernstein and Abbett provide higher returns, but at higher costs. Both Bernstein and Abbett take unconventional approaches for the asset class which may be necessary for outperformance. He suggested. Abbett's BBB rating is farther outside of quality than the other 2 funds, but it provides returns. Currently, $88,000 is in the American Fund. Treasurer Strickland expressed support for Bernstein and was not comfortable with the higher risk associated with Abbett; Vanguard appeared too conservative. Secretary Griggs agreed. Treasurer Strickland made a motion to replace the American Funds Inflation Linked fund with Alliance Bernstein Inflation Strategy fund; Secretary Griggs seconded the motion. The motion passed unanimously (4-0). Treasurer Strickland and Secretary Griggs advised Mr. Daher that they appreciated thel layout of the Market & Plan Summary more than directly reviewing the Investment Analysis Review. Mr. Daher explained that he will incorporate his comments about the funds on the Watchlist on the Market & Plan Summary in future meetings. Mr. Daher briefly reviewed the 5 largest funds, noting the Vanguard Wellington fund remains the most popular in the Plan with more than $5.5 million invested. He commended the Committee for transitioning to the Fidelity 500 Index fund as it reduced the expense ratio by 2 basis points; he noted the Committee is duty-bound to offer the most cost-efficient options for participants. The top 5 funds represent approximately 64% of participants invested assets under the Defined Contribution Plan. There does not appear to be significant interest in the target date funds. The Committee thanked Mr. Daher for his presentation. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: None. 11. OTHER MATTERS: Book 1 Page 118 06-06-2024 10:00 a.m. Book 1 Page 119 06-06-2024 11:30 a.m. 11.1. Presentation and Discussion: ERAC Seat 5 Currently Held By Alexya Alvarenga. Presenter(s): Anthony Ferrer, Senior Pension Analyst. Secretary Griggs announced this item was listed in error. 12. ADJOURN. Secretary Griggs adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 10:55 a.m. 56 Alinki Qhupn Chair Alexy/Alvarenga Secretzny Shayla Grggs