Pending Changes to Foreign Equities – Balanced and Foreign Equity Funds

Two changes to the foreign equity manager structure were recently approved by the Plan’s Board of Trustees that affect both the Balanced Fund and Foreign Equity Fund options.

There is no change in the total allocation to foreign equities in either fund option; however, there are changes in the manager/mandate allocations. These two changes are:

1. Adding a new Global equity Low Volatility manager, BlackRock Investments, and;
2. Changing the existing US S&P 500 index mandate to a new Global equity index mandate still with BlackRock Investments.

The objective of the new Low Volatility mandate is to provide a return similar to the global equity index but with a reduced level of risk (i.e. volatility). The aim is to smooth returns somewhat as the manager invests in stocks that have demonstrated a lower volatility of returns than the broader market index (i.e. MSCI World index). Adding a new mandate also broadens the diversification of the foreign equity manager structure given its large role (32% of the total assets) in our Plan.

The move from the existing US S&P 500 index mandate to a broader global equity index mandate is also to further enhance the diversification of the Plan’s foreign equities. This new global mandate has a larger opportunity set of investments than just a US equity only index, which will somewhat lessen the current high weighting in US equities of the Plan’s total foreign equities.

The fee impact of these changes on both the Balanced Fund and Foreign Equity Fund will be minimal.

The change in allocations among the managers and new mandates will be implemented in the fall of 2016 and are shown in the table below:

Foreign Equity Policy Weight Allocation Changes