MINUTES OF THE EMPLOYEE RETIREMENT ACCOUNT COMMITTEE REGULAR QUARTERLY MEETING OF FEBRUARY 29, 2024 Present: Chair Jeffrey Vredenburg, Treasurer Kelly Strickland, and Secretary Shayla Griggs. Others: Pension Plans Administrator Debra Martin and Pension Specialist Peter Gottlieb. Absent: Member Lauren Sullivan 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: Chair Vredenburg 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: Pension Plans Administrator Martin. Pension Plans Administrator Martin called roll. Member Sullivan was not present. Chair Vredenburg advised that the City Auditor and Clerk received an application from a member to serve on the ERAC and asked the Committee to discuss the matter after the Approval of Minutes; the Committee consented. 5. PUBLIC INPUT: None. 6. APPROVAL OF MINUTES: 6.1. Approval Re: Minutes of the Employee Retirement Account Committee Regular Quarterly Meeting of November 16, 2023. Presenter: Chair Vredenburg. Secretary Griggs made a motion to accept the minutes of the November 14, 2023, meeting; Treasurer Strickland seconded the motion. The motion passed unanimously (3-0). Secretary Griggs announced that Alexya Alveranga applied for the ERAC Seat 5; the seat is approved by the remaining members of the ERAC. To Treasurer Strickland's question, Secretary Griggs advised that Ms. Alveranga would be able to serve beginning with the ERAC's June 6, 2024, meeting. Book 1 Page 110 02-29-2024 11:30 a.m. Book 1 Page 111 02-29-2024 11:30 a.m. Treasurer Strickland made a motion to appoint Ms. Alveranga's application to the ERAC; Secretary Griggs seconded the motion. The motion carried unanimously (3-0). 7. NOMINATION OF BOARD OFFICERS: 7.1. Appointment Re: Selection of Vice Chair. Presenter: Chair Vredenburg. Chair Vredenburg asked for this item to be placed on the June 6, 2024, meeting agenda sO that Members Sullivan and Alvarenga could participate. The Committee agreed. 8. QUARTERLY INVESTMENT REPORTS: 8.1. Presentation and Discussion Re: VAILC Financial Advisors, ERAC Report for Quarter Ending December 31, 2023. Presenter(s): Trent Harris, Financial Advisor; David Allen, Divisional Vice President of Retirement Services VALIC Financial Advisors (Telephonic); Krista Hill Financial Advisor; Corebridge Financial (telephonic). Trent Harris of VALIC Financial Advisors appeared before the ERAC and introduced himself. Mr. Harris presented the engagement reports. During Q4 2023 in the top graph, Mr. Harris met in person or telephonically with 63 participants. The middle graph shows 30 participants engaged with VALIC's customer care group during Q4 2023. The bottom graph shows the number participants who logged into VALIC's website or mobile device application. The ERAC 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 around City facilities. 8.2. Presentation and Discussion Re: Daher Capital Group, Quarterly Investment Analysis Review Ending December 31, 2023. Presenter: Howard Daher, Principal, Daher Capital Group. Howard Daher of Daher Capital Group (DCG) appeared before the Board and introduced himself. Mr. Daher reviewed the DCG Market Summary for the City of Sarasota DC Plan Q4 2023 in the materials and asserted that declining inflation and the S&P 500's significant gains influenced the market. Considering the market's roller coaster performance from 2021 through 2023, performance in the current year has been largely positive. The Federal Reserve (Fed) has not given clear indication in 2024 whether it will raise or maintain short-term interest rates to control inflation, which has moved upwards; Mr. Daher suggested the Fed could lower rates in early summer 2024. While the market in general has performed well, it was driven by technology stocks in the S&P 500. Corporate earnings were strong, and if interest rates come down, the market may find even more momentum to continue its current trend. Bonds were up 7% in Q4 2024, responding to the Fed's 11 interest rate hikes over a 16-month period. Considering the dismal performance in 2022, the market rebounded throughout 2023 and finished with a strong quarter. Turning to the Executive Summary in the Investment Analysis Review, Mr. Daher discussed the funds on the watchlist. The Ariel Fund (Ariel) failed criteria scores every quarter for the last 2 years. The fund is composed of 38 stocks and 2 "other" securities. Ariel is more volatile than its index, and it gains more in up markets and loses more in down markets. Mr. Daher explained the difficulties active managers have in trying to outperform a concentrated benchmark while avoiding the risks which come with concentration. Participants have approximately $72 thousand in the fund, and it outperformed both the Russell Mid Cap Value fund and its peer group in Q4 2023 and on a rolling 1-year basis. As of close of business on February 28, 2024, it was up approximately 1.5% and close to the middle of its peer group. Considering Q1 2024 will end in 30 days, Mr. Daher proposed bringing alternative funds to the June 6, 2024, ERAC meeting for the Committee to decide if it would like to replace or supplement the Ariel fund with an altemative. He cautioned against providing too many options, lest participants become overloaded. He noted that Ariel is not losing money, however it is higher risk. The Fidelity Select Health Care (Fidelity) fund has $1.4 million in participant funds; relative to its benchmark, it underperformed in Q3 2023 but outperformed in Q4 2023. While it has performed well over the 5- and 10-year timeframes, it had remained closer to the middle of its peer groups over shorter timeframes. In 2024 year to date, it is in the top 40th percentile in its peer group. Mr. Daher noted that Putnam Global Health Care, one of the alternatives he brought which is performing very well, is highly concentrated in 34 stocks, some of which are international stocks. The other 2 alternatives are Vanguard Health Care (Vanguard) funds; 1 is a managed fund and the other is an index fund. The Vanguard index fund has low turnover and low fees; at its current return, it appears very attractive. Mr. Daher added that the Fidelity fund had, prior to 2022, outperformed its benchmark for 5 consecutive years; the fund manager has been with the firm for 13 years. While Mr. Daher does not recommend replacing the Fidelity fund at this time, the ERAC may consider revisiting it at some point in the future ifi its performance does not continue to improve. The last fund on watch is the American Funds Inflation Linked Bond (American) fund. Mr. Daher explained that 93% of the bonds in the American fund are AAA rated. The Alliance Bernstein Bond Inflation Strategy (AB Bond), one of the alternatives Mr. Daher brought which outperformed the American fund, holds only 75% in AAA rated bonds. In that context, investors are taking more risk for higher returns; the American fund is taking less risk in the form of lower default rates, and accordingly earning less return. Over the 10- year timeframe, the American fund has performed near the top of its peer group, but it has underperformed in the last 3 years. Year to date in 2024, the American fund is down slightly less than 1%; the AB Bond fund is down -0.34%. The Lord Abbot Inflation Focused fund has 27% of its portfolio in AAA bonds. Considering the Bloomberg US Treasury US TIPS is down -1% over the 3-year timeframe, Mr. Daher asserted the entire asset class is depressed. Mr. Daher does not recommend replacing the American fund at this time. Mr. Daher recommended the ERAC delay a decision regarding Ariel, Fidelity, and American until it may review the Q1 2023 performance at the ERAC's June 6, 2024, meeting. Mr. Daher discussed highlights of the investment menu available to participants. In the Large Cap Value sector on page 7 of the materials, Mr. Daher compared the Hartford Dividend & Growth fund's performance relative to the Russell 1000 Value Index and Peer Group Median and explained how to read the Performance Summary. Because indexes do not have management fees, actively managed funds need to outperform not just on a gross basis, but on net of expenses basis as well. Further, participants expect fees for active management to be commensurate with a fund's performance. In this context, astute investors will include a fund's expenses in their investment decision process. With the exception of the funds on the watchlist, Mr. Daher asserted the portfolio is robust and offers reasonable choices to participants. Mr. Daher discussed the Vanguard Wellington fund and iShares MSCI EAFE International Index fund, noting both are doing well. The American Century Global Real Estate is outperforming its peer group and index over all measurements; considering interest rates may begin to come down, real estate investments should be positively impacted. On the other hand, higher interest rates should push home prices down. The bond funds are underperforming. While the Target Date BlackRock funds, which each reduce their strategy's respective risk profile as the fund approaches its specified target date, are generally performing well, participants have been slow to move into these. Mr. Harris noted that participants are aware of the target funds and opined that younger participants may be more interested in managing their own portfolios. The Fidelity 500 Index and VALIC Company NASDAQ-100 index, which were recently added, also hold the Book 1 Page 112 02-29-2024 10:00 a.m. Book 1 Page 113 02-29-2024 11:30 a.m. largest amounts of participant funds; they are approximately 25% and 50% weighted in technology, respectively. While they hold a sizable percentage of participants' assets, Mr. Daher asserted they are not particularly high-risk funds. Mr. Daher and Mr. Harris briefly discussed the Secure 2.0 Act. Pension Plans Administrator Martin advised that she is aware of the appropriate provisions. Mr. Daher added that the Watchlist page of the materials shows the number of participants in each fund as well as the amount of funds invested, and therefore an average account balance per participant can be determined. Participants in the Fidelity fund average approximately $6,000 to $7,000 per investor. The Ariel fund has 14 investors over $72,841 invested and the American fund has 20 investors over $79,816. The Committee thanked Mr. Daher for his presentation. By consensus, the ERAC agreed to direct Mr. Daher to present alternative funds to the Ariel fund at its June 6, 2025, meeting and continue to monitor the American Fund and Fidelity funds on the watchlist. 9. UNFINISHED BUSINESS: None. 10. NEW BUSINESS: None. 11. OTHER MATTERS: None. 12. ADJOURN. Chair Vredenburg adjourned the Employee Retirement Account Committee (ERAC) Regular Quarterly Meeting at 12:11 p.m. 11 7 - K a Chair Jéffiréy Vredenburg Secretary Shayla Griggs