1. 1
Semi-Annual Report
April 1, 2016 - September 30, 2016
Williams College of Business
Xavier University
3800 Victory Parkway
Cincinnati, OH 45207-51
XAVIER STUDENT
BOND
INVESTMENT FUND

2. 2
Table Of Contents
Xavier Student Bond Investment Fund 3
Investment Policy Statement 4
Executive Summary 5
Operations Strategy 6
Fund Performance 8
Portfolio Characteristics 12
Fall Semester Highlights 15
Horizon Analysis 18
Sector Analysis 21
Trades Executed During the Period 43
Current Holdings 44
Economic & Investment Climate 45
Future Fund Manager Recommendations 53

3. 3
Xavier Student Bond Investment Fund
Fund Managers
Alexander Atkinson ■ Joseph Belluscio ■ Andrew Goodin ■ Andrew Javosky ■ Kiran Kc ■
Eric O’Brien ■ Dion Roberts ■ Daniel Seifried ■ Owen Sizemore ■ David Starvaggi
■ Smit Vora ■ James Westerfield ■ Gali Zummar
Fund Professor
Professor Kim Renners
Department of Finance
XSBIF Committee Members
Bill Effler
Former Senior Vice President
American Money Management
Doug Gerstle
Assistant Treasurer
Procter and Gamble
Brian Gilmartin
Portfolio Manager
Trinity Asset Management
Tami Hendrickson
Vice President, Treasurer
Federal Home Loan Bank
Bill Hogan
Senior Vice President
American Money
Management
Becky Wood
Managing Principal
Fund Evaluation Group
Fort Washington Investment Advisors, Inc.
Paul Tomich, CFA Dan Carter, CFA Austin Kummer, CFA
Roger Lanham, CFA Tim Policinski, CFA

4. 4
Investment Policy Statement
The Xavier Student Bond Investment Fund (XSBIF) manages a portion of the Xavier University
Endowment as a fixed-income fund. The Fund seeks total return benchmarked against the
Barclay's Government Credit Index. The main investments of the fund are investment-grade
corporate credits, U.S. Treasuries and agencies. Other investments may include Treasury
Inflation Protected Securities (TIPS), taxable municipals, sovereign credits, agency pass-through
mortgage backed securities, floating-rate notes, preferred stock and the Fort Washington High
Yield Fund, LLC. The primary objective of the Fund is to provide preservation of capital with
an emphasis on long-term growth of capital without undue exposure to risk.
Guidelines
• Duration of the portfolio is based on current and expected market conditions that will yield
optimal performance given investment objectives and risk profiles.
• Exposure to the high yield market is accomplished through investments in the Fort Washington
High Yield Fund, LLC. No more than 10% of the market value of the portfolio may be
allocated to this high yield fund.
• All positions must be denominated in U.S. dollars.
• With the exception of the U.S. Treasuries, no more than 5% of the portfolio market value may
be invested in a single issue or corporate entity.
• With the exception of the high yield exposure, each debt instrument must be investment grade
prior to inclusion in the portfolio.
• Preferred stock must be investment grade trust preferred stocks.
• No more than 10% of the market value of the portfolio may be invested in preferred stock.
• The portfolio will be rebalanced at least annually to maintain target allocations.
• Debt issues with split ratings from Standard & Poor’s, Moody’s, and Fitch rating services will
be governed by the lowest rating.
• The fund managers will make management decisions in accordance with the Xavier University
Endowment Fund Investment Policy Statement and the Investment Objectives.

5. 5
Executive Summary
From our sixth month evaluation of our fund’s performance, we can determine that the XSBIF
outperformed the Bloomberg Barclays US Government/Credit Bond Index. From April 1st to
September 30th, the fund returned 3.63% versus the benchmark return of 3.03%. We attribute
our higher performance to the fund’s overweight position in investment grade corporate debt as
well as expanded allocation into high yield and mortgage backed securities. Additionally, the
outperformance of the fund in comparison to the benchmark can be attributed to the shorter
duration of the fund, making a correct call on interest rates.
The XSBIF maintained a conservative approach as we adapted to the economic changes of an
impending rate rise during the sixth month term. From Q2 to Q3, the U.S. economy saw a
continuous increase in the Gross Domestic Product. Q2 reflected a Real GDP of 1.4% that
underperformed analysts’ projections, but bounced back above expectations in Q3 reporting a
GDP of 2.9%. Inflation is still positioned below 2% as the CPI is currently calculating an
inflationary percentage of 1.7%. Another economic indicator that the fund has been monitoring
is the unemployment rate. The percentage of unemployed Americans has steadily decreased
since the beginning of early 2010. Currently, U.S. unemployment is 4.6%, the lowest since 2008.
Given these current economic indicators, we expect the Federal Reserve to raise rates at the
December meeting.
In order to account for these economic changes, the XSBIF maintained a duration shorter than
the benchmark. As of 11/30/2016, the fund’s duration was 5.99 years compared to the
benchmark of 6.34 years. From our diversification into Mortgage-Backed Securities as well as
maintaining an overweight allocation to corporate credit, we believe that the fund is positioned to
handle the current economic conditions as well as a moderately rising rate market.

6. 6
Operations Strategy
In order to effectively manage the Xavier Student Bond and Investment Fund the team was
organized into three functional groups:
 Credit – Responsible for actively analyzing our credit holdings and providing
buy/hold/sell recommendations.
 Economics – Responsible for monitoring and reporting on market news and events.
 Operations – Responsible for monitoring and reporting on the performance of the
portfolio, as well as, other administrative activities.
Although the team was organized into three groups, each member of the fund management team
participated cross functionally in activities outside of their group. To some capacity each
management team member was expected to deliver credit analysis reports and actively share
economic topics that could impact the portfolio’s performance and the team’s decisions.
In order to consistently maintain the performance of the Xavier Student Bond Investment Fund,
there is a partnership between the faculty advisor, student fund managers, and the seasoned
professionals at Fort Washington. During the respective fall and spring semesters, student fund
managers take responsibility of all aspects of the fund. Students monitor the performance of the
fund, analyze investment risks and opportunities, and make decisions on purchases and sales
based on their outlook and research. The class meets formally one night per week during the
semester. Also during the semester, the fund is under the supervision of the Fort Washington
advisory partners. Fort Washington has discretionary authority over the account and will make
trades if necessary. During the summer when student fund managers are not enrolled in the Bond
Portfolio Management class, the Fort Washington advisory partners maintain full control of the
student bond fund ensuring the continuity of the fund's strategy and performance.
In an effort to ensure the student fund managers were aligned and had the knowledge to
successfully manage the fund, several processes and components were implemented throughout
the semester.
 A few weeks before the semester began, the faculty advisor provided each student
manager with the fund's prospectus, a list of current holdings, and the previous annual
and semi-annual performance reports. Each student was expected to review the material
prior to day one of class in order to hit the ground running.

7. 7
 Establishment of daily class operations - The Operations Group prepared a consistent
weekly meeting agenda which was designed to help progress efforts to manage the fund.
It included dedicated time for each of the following:
o Operations reporting which included periodic fund performance and other
administrative topics.
o Economics analysis reporting which would highlight key economic and
geopolitical topics impacting the teams fund performance decisions.
o Credit analysis reporting which would provide information on selected bonds in
the portfolio to determine investment opportunities or risk mitigation.
 Expert Speakers – Representatives from different specialties within the bond portfolio
management industry shared their time and experience to provide the student fund
managers insight in evaluating and approaching investment opportunities.
 Compliance Guidelines – Formal compliance guidelines and reporting was maintained.
The guidelines are noted in the fund prospectus and were monitored and reported to the
group on a monthly basis.
In conclusion, there were several components that contributed to the successful management of
the bond portfolio from an operations perspective. Team structure helped organize and improve
activity efficiencies by giving each team member a specific focus eliminating the possibility of
neglecting key investment aspects and spreading resource capacity unevenly. Fort Washington's
partnership with Xavier and the XSBIF team played a critical role in ensuring the bond portfolio
was performing optimally between MBA semesters, as well as, the partnership ensured success
for the MBA management team through initial startup transition support and ongoing investment
support throughout the performance period. Daily class operation structure helped ensure each
team meeting was effective and covered all critical aspects in order to evaluate the respective
position of the portfolio against changing market events and credit analysis recommendations.
Team development via expert speakers and Bloomberg training empowered the team to begin to
confidently work independently and knowledgeably in the market with the toolsets available.
Lastly, compliance guidelines helped ensure the team stayed in line with the investment
objectives and policies of the bond fund resulting in the mitigation of undue risk.

8. 8
Fund Performance
The Xavier Student Bond Investment Fund began on September 30, 2004, with a starting amount
of one million dollars. For the period ended on September 30, 2016, the fund had a market value
of $1,471,491. The benchmark for the fund’s performance is the Bloomberg Barclays US
Government/Credit Bond Index (LUGCTRUU Index). Since inception (September 30, 2004), the
fund has returned 4.89% outperforming the benchmark by 35 basis points.
Figure 1: Asset Value (since inception)
Figure 2: XU Student Bond Fund Historical Performace, for the Period Ended 09/30/16
QTD 6 Months YTD 1 Year 3 Year 5 Year 10 Year Inception
Portfolio 1.05% 3.63% 7.41% 7.18% 4.37% 3.63% 5.33% 4.89%
Barclays Gov/Credit 0.40% 3.08% 6.66% 5.86% 4.22% 3.24% 4.86% 4.54%
Outperformance 0.65% 0.55% 0.75% 1.32% 0.15% 0.39% 0.47% 0.35%
XSBIF vs. Benchmark
Historical Performance for the Period Ended 09/30/16

9. 9
For the six month period starting on April 1st 2016 and ending on September 30th 2016 the fund
returned 3.63% and the benchmark returned 3.08%. The bond fund outperformed the benchmark
by 55 basis points.
Figure 3: Total Return vs. Benchmark, Six Month Period
The fund’s performance is primarily driven by three factors: the fund’s duration, the fund’s
allocation between government and credit positions, and the selection of individual bonds within
each sector. As of September 30th 2016, the fund’s option adjusted duration was 6.30 years, slightly
shorter than the benchmark’s at 6.65 years. With high expectations of a rate hike during upcoming
periods, the analysts reached a consensus to keep the fund’s duration shorter than the benchmark
in order to mitigate the risks of price volatility.
A detailed attribution analysis (Figure 4) demonstrates that most of the fund’s return was driven
by an overweight allocation on credits. Credit holdings composed 58.84% of the fund, compared
to 36.23% of the benchmark. Treasuries were underweighted at 27.54% compared to 52.20% for
the benchmark. The fund also held three Mortgage Backed Securities during the six month period
yielding a total return of 1.86%. The benchmark does not hold any mortgages.
Figure 4: Attribution Analysis
4/1/2016 - 9/30/2016 Allocationi Effect Selection Effect Total Curve Effects Total Attribution
Total 0.82 -0.27 0.00 0.55
High Yield 0.16 0.00 0.01 0.17
U.S. Treasury 0.30 -0.07 -0.52 -0.29
Government Related 0.02 -0.02 -0.10 -0.10
Corporates 0.38 -0.18 0.59 0.79
Securitized -0.02 0.00 0.02 0.00
Cash/Other -0.02 0.00 0.00 -0.02
White Line, Xavier Student Bond Investment Fund, Returned 3.63%
Orange line, Bloomberg Barclays US Government/Credit Bond Index, Returned 3.08%

10. 10
Figure 5: Top Holdings, Top Performers, Worst Performers
A flattening of the yield curve for the six month period also had a favorable effect on our credit
holdings. The fund’s allocation in U.S. Treasuries positively affected the return, but these positive
returns were nullified by a slight rise in the yield curve for short term holdings that mature in less
than three years. The fund’s investment in Fort Washington’s High Yield Fund was second to
corporates in driving total return as it barely was affected by the movement of the yield curve.
Figure 6: Shift in Yield Curve, Six Month Period
Tot Rtn %
F 4.75 1/15/2043 -3.28
MSFT 3.7 8/8/2046 -1.98
KHC 3.95 7/15/2025 -0.37
CELG 2.875 8/15/2020 -0.31
FTV 2.35 6/15/2021 -0.15
Security
Worst Performers
% of Fund
T 2.75 2/15/2019 4.79
T 1.25 10/31/2019 3.58
T 6.25 5/15/2030 3.48
GS 5.25 7/27/2021 2.78
T 1.875 6/30/2020 2.74
Top Holdings
Security
Tot Rtn %
BPL 4.15 7/1/2023 13.15
CBS 4.9 8/15/2044 11.67
PEMEX 4.5 1/23/2026 11.06
WBA 4.65 6/1/2046 10.76
ACACN 3.6 3/15/2027 10.4
Top Performers
Security
Yield Graph
I25 04/01/16 USTreasury
Actives
I25 09/30/16 USTreasury
Actives

11. 11
Figure 7 ranks Xavier University’s Student Bond Fund, the Bloomberg Barclays U.S. Aggregate
Bond Index, and the Bloomberg Barclays U.S. Intermediate Government/Credit Bond Index
against the entire Fixed Income Universe. Since inception in the year 2004, the Student Bond Fund
has been in the top 30 percentile, outperforming the Barclays Aggregate Bond Index and the
Barclays Intermediate Government/Credit Index. For the one year period ending on September
30, 2016, the Student Bond Fund placed in the top 14 percentile of the Fixed Income Universe.
Figure 7: XU Student Bond Fund vs. Fixed Income Universe

12. 12
Portfolio Characteristics
Figure 8 summarizes the fund’s characteristics as of September 30, 2016 in comparison to a year
prior and in comparison the Barclay’s Index.
Figure 8: Portfolio Snapshot
3/31/2016 9/30/2016 9/30/2016 11/30/2016 11/30/2016
Indicator Portfolio Portfolio Benchmark Portfolio Benchmark
Market Value ($) 1,418,395 1,471,491 -
1,419,469
-
Number of Holdings 61 65 - 64 -
Coupon (%) 3.62 3.71 3.04 3.52 2.99
Composite Rating A+ A AA A AA
Yield to Worst (%) 2.45 2.31 1.92 2.84 2.48
Option Adjusted
Duration
6.15 6.30 6.65 5.99 6.33
Option Adjusted
Convexity
0.49 0.61 0.93 0.57 0.852
Figure 9 summarizes the fund’s securities allocations between government and credit positions
as of September 30, 2016. The fund is significantly underweight U.S Treasuries and overweight
corporate bonds compared to the Bloomberg Barclays US Government/Credit Bond Index. The
fund’s composite rating of A compared to the index’s AA composite rating demonstrates that the
fund, as a whole, is composed of riskier positions. This credit profile is riskier than the March
31, 2016 position to obtain a greater yield. Figure 10 further details that the fund is overweight
BBB credit positions while underweight AAA credit positions. This correlates to a higher
average coupon and a higher average yield.
The fund’s duration of 6.30 years is slightly shorter than the Barclay’s Index’s duration of 6.65
years. Figure 11 further details the fund’s duration distribution compared to the index. The fund
is currently concentrated on securities with durations 3 – 5 years and is overweight in these
tenors compared to the index. Conversely, the fund is underweight the shorter tenors (0 – 3
years) and the higher tenors (10+ years) of the yield curve compared to the index. This positions
the fund to outperform the index when the positively sloped portion of the yield curve remains
stable or shifts down.

13. 13
Figure 9: Sector Allocations
Figure 10: Credit Quality
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00%
Supranational
Sovereign
Cash & Equivalents
U.S. Agency
Municipals
High Yield
MBS & ABS
U.S Treasuries
Corporate Bonds
2.28%
1.78%
0.00%
5.65%
1.71%
0.00%
0.00%
51.79%
36.79%
0.00%
0.00%
1.31%
1.45%
1.64%
2.16%
4.32%
26.90%
62.22%
XSBIF
Benchmark
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
AAA AA A BBB High Yield
26.96%
5.08%
16.35%
43.89%
7.72%
55.3%
7.84%
15.60%
19.85%
1.36%
XSBIF
Benchmark

14. 14
Figure 11: Duration Distribution
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
0 - 1 1 - 3 3 - 5 5 - 7 7 - 10 10+ High
Yield
Fund
3.60%
15.76%
33%
9.65%
17.91%
17.24%
2.16%
1.62%
28.71%
23.04%
14.37%
11.71%
20.55%
0.00%
XSBIF
Benchmark

15. 15
Fall 2016 Semester Highlights
The Semester began with getting up to speed on the Bloomberg technology and listening to guest
speakers with industry experience increasing our understanding of the bond market and operating
the fund. The majority of the trades took place after the 9/30/16 period cutoff date of this semi-
annual report. During the period of 9/30/16 to 11/30/16 the portfolio outperformed the index by
0.18%. Highlights are listed below:
 During Fall Semester 2016, bond fund managers made the decision to maintain the
duration of the fund to be slightly lower than the index. This was achieved through the
reallocation of treasury positions. Specifically, we sold a 30 year treasury bond and
swapped into 2 year treasury notes (Figure 12). The duration shift was made in the light
of moderately rising rates, allowing our bonds to mature sooner and be reinvested as rates
rise.
 Bond fund managers also sought to maintain an overweight position in corporate debt
whose increased yields are a primary reason the Xavier Student Bond Fund Portfolio has
been able to consistently outperform the Bloomberg Barclays US Government/Credit
Bond Index. The XSBIF portfolio has 62.22% of the portfolio allocated to corporates
versus an allocation of 36.79% in the benchmark.
 With moderately rising rates and strong economic indicators in place, managers felt that
the bull equity market was set to continue for some time and felt comfortable adding
more High Yield to the portfolio. High Yield is somewhat de-risked as borrowers are
expected to more easily cover their payments in a bull market. It should be noted that the
Ft. Washington High Yield Fund is underweight in Energy/Oil names which is a very
volatile sector right now, increasing the fund manager’s confidence in the High Yield
trade.
 Fund Managers made the decision to increase our position in Mortgage-Backed
Securities (MBS) to strengthen and diversify our holdings. One reason for this decision
is that these types of securities offer a higher yield than that of Treasuries, while offering
a similar credit profile. We increased our allocation in MBS from 4% to 6% of our total
holdings in the portfolio. Mortgage-backed securities have historically performed well in
rising interest rate environments as prepayments slow down. As the interest rate
expectations became clearer throughout the semester (slower but still increasing), the fall
fund managers decided that increasing this allocation positions the fund to perform well
in this environment.

16. 16
Figure 12: Trade Activity October 1st 2016 - November 30th 2016
Sales
Purchases
Security
Trade
Price
Total Amount Credit Rating*
CVS CORP 06/01/26 2.875 100.84 25,494.75 BBB+
FNMA MA2781 POOL # MA2781 10/01/46 2.500 100.19 30,011.54 AA+
BUCKEYE PARTNERS 07/01/23 4.150 104.08 16,862.75 BBB-
OMEGA HEALTHCARE 04/01/24 4.950 103.25 10,395.33 BBB-
U S TREASURY 08/31/18 0.750 99.56 20,940.92 AA+
FORT WASHINGTON HIGH YIELD LLC 100.00 16,000.00 -
*S&P Credit Rating
Performance Post Six Month Reporting Period (October 1st 2016 - November 30th 2016)
During the six month reporting period there was a slight steepening of the yield curve with yields
shifting up in the highest tenors and shifting down in the short tenors. Two months post the
September 30th reporting period, the yield curve materially shifted upwards across all maturities.
Figure 13, below, depicts the slight steepening of the yield curve for the six month reporting
period as well as the upward shift across all maturities on November 30th. The 10-year yield has
moved upwards by almost 1 percentage point, a substantial increase over a short period of time.
Higher yields translate to lower bond prices, leading to one of the worst fixed income retreats in
the past three years.
Figure 13: Shifts in Yield Curve
Yield Graph
I25 04/01/16 USTreasury
Actives
I25 09/30/16 USTreasury
Actives
I25 11/30/16 USTreasury
Actives
Security
Trade
Price
Total Amount Credit Rating*
NEWELL BRANDS INC 04/01/26 4.200 109.32 10,951.83 BBB-
U S TREASURY 08/31/18 0.750 99.80 9,989.59 Aaa**
DUKE ENERGY CORP 09/15/21 3.550 106.98 32,211.43 BBB+
U S TREASURY 05/15/30 6.250 144.24 21,643.45 Aaa**
WESTLAKE CHEMICAL CORP 08/15/26 3.600 96.96 5,878.92 BBB-

17. 17
The Xavier Student Bond Investment Fund displayed negative returns as yields rose and prices
fell. The fund was able to outperform the index by 18 basis points for the two month period ending
on November 30th. As yields continued to rise, the fund’s outperformance has weakened. The
month to date return for November was -2.69%, underperforming the index by 4 basis points. It is
important to note that the yields on corporate credits have risen less than treasuries. This means
that the prices of corporates have dropped less than government bonds, having a favorable effect
on the fund as we are overweight credits. We believe our overweight in credits and shorter duration
will help mitigate the risks of a fixed income portfolio in a rising rate environment.
Figure 14: XU Student Bond Fund Historical Performance, for the Period Ended 11/30/16
Portfolio Performance vs. Benchmark
MTD QTD 3 Months YTD 1 Year 3 Year 5 Year 10 Year Inception
Portfolio -2.69% -3.41% -3.52% 3.74% 3.33% 2.88% 2.87% 4.78% 4.53%
BarclaysGov/Credit -2.65% -3.59% -3.77% 2.83% 2.38% 2.75% 2.51% 4.29% 4.17%
Outperformance
(Underperformance)
-0.04% 0.18% 0.25% 0.91% 0.95% 0.13% 0.36% 0.49% 0.36%

18. 18
Horizon Analysis
The portfolio is positioned to outperform the index if the yield curve remains positively sloped,
flattens or steepens assuming the credit spreads narrow or remain stable. The Fund Managers
believe that Federal Reserve is planning to increase short-term interest rates by 25 basis points in
December meeting and another rate hike by 25 basis points is expected in late 2017 (September
meeting), leading to a steepening of the yield curve.
The current probability of a rate hike (using the WIRP screen on Bloomberg) is shown in the
Figure 15 below and the highlighted dates are when rate hikes can be expected.
Figure 15: Federal Funds Rate Increase probability
MeetingDate Probabilityof Hike Probabilityof Cut 0.25-0.5 0.5-0.75 0.75-1
12/14/2016 94.00% 0.00% 6.00% 94.00% 0.00%
02/01/2017 94.40% 0.00% 5.60% 88.50% 5.80%
03/15/2017 95.00% 0.00% 5.00% 78.80% 15.60%
05/03/2017 95.60% 0.00% 4.40% 70.60% 22.60%
06/14/2017 97.00% 0.00% 3.00% 49.60% 37.80%
07/26/2017 97.30% 0.00% 2.70% 45.30% 38.90%
09/20/2017 98.00% 0.00% 2.00% 33.40% 40.70%
11/01/2017 98.20% 0.00% 1.80% 30.10% 39.90%
12/13/2017 98.90% 0.00% 1.10% 20.00% 36.40%
Figures 16, 17, 18, 19 show the total returns for the fund and the index for a one-month horizon
(25 basis point upward shift coming in December) and one-year horizon (25 basis point upward
shift coming in late 2017). The most likely scenarios to look at for the one-month horizon is
upward shift of 25bps and the upward shift of 50bps for the one-year horizon.
Profit and loss from the following yield curve scenarios: (1) no change, (2) parallel upward shifts
of 25 and 50 basis points, (3) downward shifts of 25 and 50 basis points, (4) steepening non-
parallel shifts (Short -25 bps – Long +50bps) , and (5) flattening non-parallel shifts (Short +25
bps – Long -50bps). For the one-month horizon the fund outperforms the index in the most
likely scenarios and in the one-year scenario; the fund outperforms the index in all
scenarios.

19. 19
Figure 16: Yield Curve Scenario – One-month Horizon
XSBIF Index Performance
Scenario Horizon Value % P&L % P&L BPS
Up 50bps 1,408,618 -2.55% -2.82% 27.00
Steepener 1,424,533 -1.45% -1.65% 20.00
Up 25bps 1,429,237 -1.12% -1.32% 20.00
No change 1,449,839 0.30% 0.26% 4.00
Down 25bps 1,472,350 1.86% 1.84% 2.00
Flattener 1,478,059 2.25% 2.27% -2.00
Down 50bps 1,494,903 3.42% 3.49% -7.00
*Horizon Values begin with a principal of $1,445,430 dated November 15, 2016
Figure 17: Performance vs. Benchmark (One-month Horizon)
-10
-5
0
5
10
15
20
25
30
U P 5 0 B P S S TEEP EN ER U P 2 5 B P S N O C H AN G E D O W N 2 5 B P S F L AT T EN ER D O W N 5 0 B P S
PERFORMANCE VS. INDEX (BPS)

20. 20
Figure 18: Yield Curve Scenario – One-Year Horizon
XSBIF Index Performance
Scenario Horizon Value % P&L % P&L BPS
Up 50bps 1,467,860 1.55% 0.11% 144.00
Steepener 1,483,218 2.61% 1.14% 147.00
Up 25bps 1,486,590 2.84% 1.43% 141.00
No change 1,505,632 4.16% 2.80% 136.00
Down 25bps 1,525,311 5.52% 4.22% 130.00
Flattener 1,529,065 5.78% 4.63% 115.00
Down 50bps 1,545,346 6.91% 5.70% 121.00
*Horizon Values begin with a principal of $1,445,430 dated November 15, 2016
Figure 19: Performance vs. Benchmark (One-year Horizon)
0
20
40
60
80
100
120
140
160
U P 5 0 B P S S TEEP EN ER U P 2 5 B P S N O C H AN G E D O W N 2 5 B P S F L ATTEN ER D O W N 5 0 B P S
PERFORMANCE VS. INDEX (BPS)

21. 21
Consumer Cyclical Sector
Figure 20: Consumer Cyclical Analysis and Holdings
The Consumer Discretionary Sector is an important industry to follow as it is directly dependent
on consumer spending, which makes up roughly two-thirds of the United States GDP.
Specifically, the sector covers companies which sell non-essential goods and services, and
comprises the following industries: automotive; textiles; apparels and luxury goods; hotels,
restaurants, and leisure facilities; household durables; leisure equipment and products; media
production and services, and consumer retailing and services.
There are a variety of major factors that affect the Consumer Discretionary Sector. Some of these
factors include wages or income levels, commodity prices, monetary policy, and the job market.
We believe that the sector is positioned for strength in the near term as many of these factors
have shown more positive trends in recent months, eliminating some of the uncertainty that has
been surrounding the consumer for so long. Wage growth has recently shown a pickup, with
average hourly earnings increasing 2.8% over the past 12 months. The most important factor
about this statistic is that wage growth is outpacing the rate of inflation, therefore helping the real
purchasing power of the consumer and adding to discretionary income. Additionally, job reports
have shown steady additions to payrolls along with a declining unemployment rate, and
accommodative monetary policy helps to keep interest rates low for consumers to stimulate
borrowing and spending. We acknowledge some risks within the sector, including intense
competition among retailers, increased inflation concerns in the wake of the new President, and a
Consumer Cyclical Overview
XSBIF Benchmark
Return (%) 4.03 4.47
Sector Weight (%) 9.17 2.67
Consumer Cyclical Holdings
Name Industry 6 mo Return
(%)
S&P Bond
Rating
Coupon Maturity
Date
% Avg
Weight
Air Canada Airlines 3.33 A 3.6 03/15/2027 2.09
Costco Retail 2.01 A+ 2.25 02/15/2022 0.71
Dollar
General
Retail 0.21 BBB 3.25 04/15/2023 1.09
Ford Auto
Manufacturers
(3.46) BBB 4.75 01/15/2043 0.43
Home Depot Retail 1.44 A 3.75 02/15/2024 0.93
McDonalds Retail 1.28 BBB+ 2.75 12/09/2020 1.05
Newell
Brands
Home Furnishings 4.17 BBB- 4.2 04/01/2026 2.42
Walgreens Retail 11.66 BBB 4.65 06/01/2046 0.45

22. 22
new consumer with changing spending habits. However, despite these risks, we believe that the
strength in the underlying data supporting consumers help to defend our overweight position.
Our major holdings at the end of the period included Air Canada, Dollar General, Ford, and
Newell Brands. A strategic decision which was made within this portfolio was to increase yield
by increasing the risk profile on holdings within this sector. This strategy resulted in the sale of
Costco, Home Depot, McDonald’s, and Walgreens along with the purchases of Dollar General,
Ford, and Newell Brands.
While we are significantly overweight this sector and believe in this positioning, we did decide
to reduce our weighting during the month of October by selling some of our stake in Newell
Brands. We had achieved gains from our investment in this holding and decided to realize this
gain in order to allocate to other sectors in the portfolio. Additionally, after analysis there was
some uncertainty on whether Newell would be able to recognize the synergies desired from
recent acquisitions. Debt outstanding for the company in the near-term had increased
significantly as a result of the acquisitions and as a result, the team decided that the investment
carried too much risk given the size of our position. A thorough analysis of our position in Ford
was also performed in light of safety recall issues which add risk to the holding. However, we
decided to maintain this position despite the near-term risks as the company appears to be well-
positioned to invest for the future.
Overall, our team’s recommendation is to continue to monitor those important data points which
will signal the level of strength of the consumer. In addition to economic reports directly related
to the consumer such as the UM Index of Consumer Sentiment, it is important to monitor and
evaluate key data points related to jobs, wages, and inflation. If these data points continue to
trend in a positive direction, we believe that our overweight position in this sector will provide
strong returns for the portfolio.
Important factors that will affect Sector:
-Income/Wage Growth
-Commodity Prices
-Monetary Policy
-Job Market
Figure 21: US Consumer Sentiment

23. 23
Consumer Non-Cyclical Sector
Figure 22: Consumer Non- Cyclical Analysis and Holdings
Consumer Non-Cyclical Overview (As of 09/30/2016)
XSBIF Benchmark
Return (%) 4.74 4.07
Sector Weight (%) 7.15 6.32
The consumer non-cyclical sector is comprised of companies that specialize in agriculture,
fishing, and production of food, beverages, tobacco, personal and house-hold products. These
items are often considered necessities for consumers. They tend to have a lower correlation with
the economic cycle than companies in the consumer cyclic sector because consumers typically
will purchase these products regardless of income, sentiment or economic conditions.
The Consumer Non-Cyclical sector overall is considered a defensive sector meaning that the
companies within this sector tend to perform well when the economic outlook is poor due to the
products that companies produce in this sector are often considered needs versus luxuries.
Maintaining a slightly overweight position as compared to the benchmark in this sector is a
strength of the portfolio. Due to the defensiveness of this sector, it helps mitigate some of the
volatility that can appear and allows the team to take risks in other sectors.
This industry is a core sector in the portfolio and is overweight vs. the benchmark as of
9/30/2016. The portfolio allocation to the consumer non-cyclical section is 7.95% vs. 6.42% for
Consumer Non-Cyclical Holdings
Name Industry 6 mo
Return (%)
S&P Bond
Rating
Coupon Maturity
Date
% Avg
Weight
ABBVIE Inc. Pharmaceuticals +6.24 A- 4.450 5/14/2046 1.13
Anheuser-Busch
Inbev
Food &
Beverage
+1.68 A- 2.6500 02/01/2021 0.72
Anheuser-Busch
Inbev
Food &
Beverage
+8.18 A- 4.900 02/01/2046 0.82
Celgene Corp Biotechnology +0.16 BBB+ 2.875 08/15/2020 0.14
Gilead Sciences
Inc.
Biotechnology +2.17 A 3.500 02/01/2025 2.24
General Mills Food &
Beverage
+0.5 BBB+ 3.150 12/15/2021 0.98
Kraft Heinz Foods Food &
Beverage
+4.20 BBB- 3.950 07/15/2025 0.63
Teva
Pharmaceuticals
Pharmaceuticals -0.05 BBB 2.200 07/21/2021 0.23
Teva
Pharmaceuticals
Pharmaceuticals -0.15 BBB 3.150 10/01/2026 0.12

24. 24
the benchmark. Our major holdings include ABBVIE, Inc., Anheuser-Busch, Gilead Sciences,
Kraft Heinz Foods, and Teva Pharmaceuticals. The portfolio has outperformed the benchmark in
this area with a return of 0.63% better than the benchmark. For this period, the portfolio’s return
was 4.76% compared to the benchmark’s return of 4.14%.
During the period, the team evaluated our position in Kraft-Heinz Foods. Through the team’s
analysis it was determined to hold our position with this company. This decision was based up
Kraft-Heinz being one of the premiere food and beverage companies in the world. This bond has
an attractive yield with a spread to the treasury benchmark of 117 bps. Other competitors in this
field do not offer as much upside and have significant risk associated with them teetering on the
verge of a downgrade to “junk” bonds.
Our portfolio holds longer duration positions in the healthcare sector. All of our current positions
have strong financials and increases in revenues are projected to be in an upward trend. The
healthcare sector as a whole has a market perform outlook as there are increasing needs for
healthcare services from the aging population as well as the need of new drugs to treat chronic
illnesses such as cancer. However, there are multiple factors that would significantly affect the
sector such as government regulations on the cost limit for goods and services, fiscal policy
changes pertaining to Medicaid reimbursements, and drug approvals and the significant capital
required to develop and market drugs. In any event, based on our collective assessment of the
situation, we are positioned to benefit from any upward movement in the sector.

25. 25
Energy Sector
Figure 23: Energy Analysis and Holdings
Energy Sector Overview
XSBIF Benchmark
Return (%) 13.61 10.09
Sector Weight (%) 1.51 4.02
Sector Overview
There continued to be a lot of volatility surrounding the energy sector within the past couple
months. Crude oil hit a high on 06/08/16 at $52.51 starting to rally back from the low of $30.14
on 1/20/16. However, we are stilling experencing a market with much volaitity as indicated in
Figure 24. We maintained our position in Petroleos Mexicanos because of the backing of the
Mexican government. It also has a higher bond rating than Buckeye Parnters LP which is in the
pipeline industry. We decided to not only stay invested in the Buckeye Partners LP bond, but
also increased our holdings (bought after 9/30/2016) because pipelines are benefiting from the
excess supply of oil. We also wanted to stay diversified in our investments and increase our
exposure to the energy sector predicting that these companies would bounce back in the long-
run, as it appears they are doing.
Figure 24: Brent Crude Futures
Energy Holdings
Name Industry 6 mo
Return (%)
S&P Bond
Rating
Coupon Maturity
Date
% Avg
Weight
Buckeye
Partners LP
Pipeline 18.59 BBB- 4.15 07/01/2023 .83
Petroleos
Mexicanos
Exploration
and
Production
-2.86 BBB+ 4.50 01/23/2026 .68

26. 26
Further, Brent Crude oil has begun to rally since dropping in price to about $30 per barrel in
September 2015. The rise in price of crude oil has begun to help our holdings, indicated by the
3% outperformance of our benchmark. The original price drop was due to an excess of supply
plaguing the energy market which in turn drove down prices. However, now that there has been a
rebound, production has sped back up considerably.
Natural gas prices have rebounded significantly (Shown in Figure 25) as well, further helping
our holdings. However, this should be viewed consciously because since 2008 there has been a
slow decline in price - from $10 per million British thermal units to around $2 per million British
thermal units. Further, the U.S. recently found large deposits of natural gas which encouraged an
increase in supply that led to a decrease in natural gas prices, suggesting this recent uptick may
not be indicative of prices in the future.
Figure 25: Natural Gas Futures

27. 27
Financials Sector
Figure 26: Financials Analysis and Holdings
Financials Sector Overview
XSBIF Benchmark
Return (%) 5.38 3.51
Sector Weight (%) 12.64 12.18
Our fund was overweight in the Financial sector vs the benchmark with an allocation of 12.64%
vs the benchmark allocation of 12.18%. This proved to be a justified sentiment as our financial
portfolio outperformed the benchmark by 187 basis points. Our major holdings included
American Tower Corporation, Bank of America, Goldman Sachs Group, Well Tower INC and
Vornado Realty. We performed a credit analysis on Goldman Sachs, Vornado Realty and Omega
Healthcare during Q3. We voted as a class to maintain our positions in these holdings because
we expect economic growth and improvements in the housing market to spur growth in asset
quality and deposits going forward.
Financials Sector Holdings
Name Industry 6 mo Return
(%)
S&P Bond
Rating
Coupon Maturity
Date
% Avg
Weight
American
Tower Corp
Real Estate 3.80 BBB- 5.9000 11/01/2021 1.00
Bank of
America Corp
Diversified
Banks
5.91 BBB 4.0000 01/22/2025 1.43
Bank ofNova
Scotia
Diversified
Banks
8.32 BBB+ 4.5000 12/16/2025 0.44
Fifth Third
Bank Corp
Banks 3.49 BBB+ 2.8750 07/27/2020 0.43
Goldman
Sachs Group
INC
Financial
Services
2.88 BBB+ 5.2500 07/27/2021 2.78
Well Tower
INC
Real Estate 6.42 BBB 5.2500 01/15/2022 2.35
HCP INC Real Estate 1.35 BBB+ 2.6250 02/01/2020 0.69
Morgan
Stanley
Financial
Services
3.52 BBB- 3.9500 04/23/2027 0.71
Omega
Healthcare
Investors
Real Estate 0.66 BBB- 4.9500 04/01/2024 0.73
CHUBB
Holding
Property &
Casualty
Insurance
8.61 A 4.3500 11/03/2045 0.80
Vornado
Realty
Real Estate 3.36 BBB 5.0000 01/15/2022 1.28

28. 28
Despite a challenging operating environment there has been a significant improvement in the
financial sector with a strong majority of the mega banks surpassing bottom line expectations for
Q3 earnings due to a focus on non-interest revenue sources and cost reductions. The challenges
domestically combined with strained global economic growth have generated some caution for
investors causing many to remain on the side lines until the Federal Reserve has decided whether
raising rates would be a warranted action. A key theme for 2016 has been whether Janet Yellen
and the Federal Reserve would raise rates or not. Although the Federal Reserve has
acknowledged there is a strong case for a strengthening the fed funds rate they have cautiously
avoided doing so. There is a growing demand for a rate increase at some point this year and this
will affect the financial sector in many ways that include an increase in interest revenue as
financial companies no longer have to subsidize their investors' cash holdings due to the costs of
holding cash being greater than the return they can get through investments. This is a key
revenue generator for banks and financial institutions as they can generate better returns on their
loans and deposits. Heavy regulation has demanded that larger institutions maintain a larger
liquid position, enforce higher standards on loans and take less risk with company assets.
Corporations have been able to increase their reserves in response to regulations while 2008
financial crisis losses have been reduced. Although a low rate environment can damper revenue
expectations, mortgage demand remains strong and provides incentive for home purchases. For
these reasons we remain confident in the future of the financial sector and believe it is primed to
outperform this year and into 2017.
Important factors that will impact this sector
Interest Rates- Rates have remained low but an increase can have a positive impact on the sector
as whole as the current fed funds rate dictates potential revenue opportunities for deposits and
lending. The anticipation behind the Feds decision has caused plenty of caution for investors. As
a class, we have concluded a hike is inevitable in late 2016 because investors are not adequately
being compensated for the interest rate risk they are assuming.
International Markets- Many large financial institutions have operations abroad and their
success is dependent on how well these international markets perform. International markets can
also impact things domestically as Deutsche Bank is one example of that. Negative yields in
several countries have created a challenging environment with a high demand for positive yield
coming from foreign investors.
State of Economy- GDP growth has been slow while several indicators have improved such as
employment, consumer confidence and a recovering housing market. The presidential election
has also impacted domestic markets because of the uncertainty of the country’s future direction.

29. 29
Industrial Sector
Figure 27: Industrial Analysis and Holdings
For a six-month period, the Industrial Sector has shown a return of 3.38% compared to the
benchmark of 4.85%. The Bond Fund is currently overweight in this sector as we reflect a 5.18%
weight compared to the benchmark of 2.19%.
The Industrial Sector encompasses a wide range of products and services. Several of the sectors
that fit within this grouping include: Transportation services, printing, electrical equipment,
aerospace and defense, and data processing. Recently, the industrial sector has been
underperforming analyst expectations as the US economy has seen several influences negatively
affecting the industrial environment. Oil prices continue to fall as the U.S. dollar continues to
strengthen. China has also seen a slowdown in their manufacturing sector. China’s recent decline
in manufacturing output has worried several niche markets that thrive off of the manufacturing
efforts of the Chinese market. While analysts are predicting a 10-20% revenue affect from the
slowdown on the U.S. Economy, our current holdings should not see a major impact from the
recent events.
Industrial Sector Overview
XSBIF Benchmark
Return (%) 3.38% 4.85%
Sector Weight (%) 5.18% 2.19%
Industrial Sector Holdings
Name Industry 6 mo Return
(%)
S&P Bond
Rating
Coupon Maturity
Date
% Avg
Weight
Fedex Transportation
&
Logistics
4.05% BBB 3.20 02/01/2025 1.77
Fortive Electrical
Equipment
Manufacturing
(.11%) BBB 2.35 06/15/2021 .69
General
Electric
Electrical
Equipment
Manufacturing
1.88 AA- 3.10 01/09/2023 2.15
Roper Electrical
Equipment
Manufacturing
3.51 BBB 3.00 12/15/2020 .57

30. 30
With our current holdings in the industrial sector, three of our holdings have outperformed the
benchmark over a six-month period. During our deliberations, we were discussing trade-offs with
two of our smaller weight holdings. However, we decided to maintain our current position with
the bonds that we have in the industrial sector. Given our current position, we believe our holdings
to reflect stable to positive growth for the remainder of the bond’s duration with our fund.

31. 31
Information Technology Sector
Figure 28: Information Technology Analysis and Holdings
Information Technology Sector Overview
XSBIF Benchmark
Return (%) 3.73 4.14
Sector Weight (%) 10.42 2.18
The Information Technology Sector covers several industries. The largest one is the Software and
Services industry. Companies in this industry develop software in various fields such as the
internet, database management, data processing, etc. Some also offer consulting services and full
outsourcing for information technology departments. A second industry within this sector is the
Hardware & Equipment which includes manufacturers and distributors of communications
equipment, computers & peripherals, electronic equipment and related instruments. The final
major industry in the sector is composed of Semiconductors and their equipment manufacturers.
During the six month time period from April 1st 2016 – September 30th 2016 the fund overweighed
the Information Technology sector by 8.24%. It returned 3.73%, while the benchmark returned
4.14%. The fund underperformed the benchmark by 41 basis points. From the previous period, we
kept our positions in Apple, Electronic Arts Inc., Fidelity National Information Services Inc., HP
Enterprise Co., and Qualcomm Inc. The rest of the holdings listed above were actively traded
during the six month period. We sold our entire position in IBM on April 15, 2016. Even though
we sold it at a gain, the bond kept appreciating in value for the remainder of the period which made
us underperform against the benchmark. On May 26, 2016, we also sold 25 bonds of Intel Corp.,
Information Technology Sector Holdings
Name Industry 6 mo
Return (%)
S&P
Bond
Rating
Coupon Maturity
Date
Avg. %
Weight
Apple Communications
Equipment
7.73 AA+ 4.65 02/23/46 1.59
Dell Hardware 4.72 BBB- 4.42 06/15/21 0.79
Electronic Arts Inc. Software &
Services
3.81 BBB- 3.7 03/01/21 1.11
Fidelity National
Information Services
Inc.
Consumer
Finance
4.34 BBB- 3.625 10/15/20 1.11
HP Enterprise Co. Software &
Services
1.47 BBB 2.45 10/05/17 0.57
IBM Corp Software &
Services
1.02 A+ 3.45 02/19/26 0.37
Intel Corp Semiconductors 1.88 A+ 3.30 10/01/21 2.51
Lam Research Corp Semiconductors 2.36 BBB 3.45 06/15/23 1.20
Microsoft Corp Software &
Services
-2.46 AAA 3.70 08/08/46 0.07
Qualcomm Inc. Semiconductors 3.46 A+ 3.45 05/20/25 1.11

32. 32
lowering our position from 50 bonds to 25 bonds. During the summer months, two new holdings
were added: 25 bonds of Lam Research Corp and 6 bonds of Microsoft Corp. The Lam Research
Bonds were called on Oct. 13th at $101, fortunately we were still able to make a positive return
since we bought them at $99. Past the six month period ending in September 30th, no new trades
have been executed in the Information Technology Sector. A credit analysis was performed on
Fidelity National Information Services Inc. which proved to be a hold due to their strong revenue
growth potential. A second credit analysis was performed on HP Enterprise Co. since it’s one of
the two new successors of Hewlett-Packard, the other being HP Inc. The analysis demonstrated a
low risk of default, but increased pressures from tight profit margins and low demand for IT
outsourcing services, a trend in the industry.
In terms of credit, the sector has experienced a record issuance of high grade bonds driven by low
interest rates and high M&A activity. There were a total of 54 announced deals in the third quarter
of the year with a total dollar value of $149 billion. Two of our holdings, Dell and Hewlett Packard
Enterprise are part of this trend as these are in the process of selling some of their business
divisions. A second trend which is not typical in this industry is dividend payouts, which have
increased to 22% of free cash flows. From our holdings, Microsoft and Qualcomm allocate more
than 40% of free cash flow to dividends. This is a sign of a maturing industry where cash flows
are becoming more predictable and less risky, as it was once perceived in this industry.
Important factors that might affect this sector in the upcoming months is the steepening of the yield
curve which rises financing costs. Also, president elect Donald Trump could implement a cash
repatriation policy which will affect several technology companies that have cash abroad. Rising
costs of debt and a cash repatriation policy could dramatically slow down bond issuance in the
year 2017, affecting spreads positively. A counter argument arises from the uncertainty on
Trump’s immigration policy, which could limit the amount of H-1B work visas given to
international students. Data shows that 51% of U.S. startups worth $1 billion or more have an
immigrant founder. As a main player in the technology industry, Silicon Valley companies are
highly dependent on these visas. Mark Zuckerberg, CEO of Facebook, has been lobbying Congress
for an expansion of the H-1B quota. If Trump’s immigration policy limits H-1B visas, the sector
might experience wider spreads.
Figure 29: Option Adjusted Spread of the US Dollar Investment Grade Technology

33. 33
Mortgage Backed Securities
Figure 30: Mortgage Backed Securities Analysis and Holdings
Mortgage Backed Securites Overview
XSBIF Benchmark
Return (%) 1.86 -
Sector Weight (%) 4.55 -
Mortgage Backed Securities Holdings
WAC WAOCS WALA 6 mo Return
(%)
Coupon Maturity
Date
% Avg
Weight
FN AH2711 4.464 766 71 1.91 4.00 01/01/2041 1.31
FN AH0524 4.402 763 72 1.60 4.00 12/01/2040 1.12
FN AS6395 4.099 756 12 1.98 3.50 12/01/2045 2.12
Total 4.55
In our portfolio we hold three mortgage-backed securities. These securities are an integral
part of our portfolio and drastically increase our odds of beating the benchmark. Specifically, our
three MBS holdings have earned 1.86% total return on investment from April to the end of
September, whereas the benchmark holds none. The table above details some important features
of our MBS holdings. We first report the Weighted Average Coupon (WAC), which is simply
weighted-average gross interest rates of the pool of mortgages that underlie a mortgage-backed
security (MBS) at the time the securities were issued. We next consider the Weighted Average
Original Credit Score (WAOCS), which is simply the average of the original credit scores of all
of the mortgages in the pool. Lastly it is important to look at the Weighted Average Loan Age
(WALA) which tells us the average time left on the loans in the pool. Our risk with MBS
holdings is primarily of the prepayment variety as residents could opt to pay more on their
monthly payments and reduce their outstanding debt and accompanying interest. Our three MBS
holdings not only vary in size (largest has 763 loans in the pool, smallest only has 107) but also
in their prepayment history. The holdings’ prepayment history varies greatly month to month
with the end of September figures in each being: 19.3%, 20.9% and 25.2%. Two of the three
holdings have a 4% coupon while the other has a 3.5%, but all of them have an average credit
score near 760. Their outstanding balance varies as well with one having 26%, one with 32% and
the last one with 89% still to be paid. Lastly, the average loan balance in the pool is around
$300,000 for two, while the other is slightly higher at $343,000.
Additionally, due to the uptick in the housing market and the strong potential for an
interest rate hike coming with the December Fed meeting, we felt that even fewer homeowners
would look to refinance their mortgages. Therefore, the fund managers thought that adding an
additional MBS to the portfolio was a wise investment in order to increase our yield even more

34. 34
in what we expected to be an upcoming rising interest rate environment. Throughout the
semester we had presenters from two firms that discussed mortgage backed securities and its
advantages. Bill Hogan from American Money Management as well as Tami Hendrickson and
Dave Komberec from Federal Home Loan Bank discussed the opportunity for investment in
mortgage-backed securities. From them, we learned what a lucrative investment Mortgage
Backed Securities can be, given a sound strategy. Thus, we chose to invest in a 2.5% coupon
Fannie Mae Pool. Some features of this new MBS are: a pool size of 1,784 loans consisting of 30
year mortgages, with a Weighted Average Loan Age of two years, a Weighted Average Coupon
of 3.367, and average credit score for the loan holder is 776 with a Weighted Average Loan Size
of $342,425. We chose this MBS because we felt that the pool size and the credit scores of the
loan holders were large and high enough to protect us from any defaults. The WAC was low
enough that refinancing would not make sense, especially with the upcoming projected rate hike.
Most importantly, perhaps, was that we were encouraged by the following yield analysis below,
showing that even with aggressive prepayment numbers, an acceptable return would more than
likely still be achieved.
Figure 31: FNMA2781 CPR Rate Forecasts

35. 35
Utilities Sector
Figure 32: Utilities Analysis and Holdings
Utilites Sector Overview
XSBIF Benchmark
Return (%) 2.71 5.62
Sector Weight (%) 4.17 2.79
Overview
The Utilities sector includes companies that engage in the production and delivery of electric
power, natural gas, water, and other utility services, such as steam and cooled air
The utilities sector covers a variety of industries that generate and deliver power and water. It
includes nuclear facilities, electric and gas utilities, independent power producers, energy traders,
and generators and distributors of renewable energy.
During the six month time period from April 1st 2016- September 30th 2016 the fund was
overweight the Utilities sector by 1.38%. The return for fund was 2.71% whereas the benchmark
returned 5.62%. The fund unperformed the benchmark by 291 basis points over the six month
period. From the previous period, we kept our positions in Duke Energy and Center Point Energy
but also added one new holding during the summer: 8 bonds of Dominion Resources in August
at a price of 99.86. Past the six month period we sold our entire holding in Duke Energy for two
main reasons based on credit analysis. The spreads on Duke Energy Bonds had tightened
significantly in the six month period and this sale would bring the fund closer in line with the
sector weight as compared to the benchmark. After the Duke Energy sale the fund is underweight
utilities sector with a current sector weight of 2.37% vs. 2.82% for the benchmark.
Positive factors for the utilities sector include:
 Improvement in housing: An improving housing market could lead to higher electricity
demand in developing areas, and we're seeing signs that may be occurring as housing
starts have started to creep higher again.
 Moderating Capital Spending: Capital spending needs should ease if utilities moderate
their rate-base expansion plans due to lower replacement generation and environmental
Utilities Sector Holdings
Name Industry 6 mo
Return (%)
S&P Bond
Rating
Coupon Maturity
Date
% Avg
Weight
Duke Energy Corp Utilities 4.09 BBB+ 3.550 9/15/2021 2.24
Center Point Energy
Inc
Utilities 1.13 BBB 5.950 2/1/2017 1.81
Dominion Resources Utilities -0.26 BBB 2.00 08/15/2021 0.11

36. 36
mandates requirements. Though perhaps counterintuitive from an equity standpoint, the
potentially lower growth outlook for earnings and dividends coincides with a reduced
need for more funding that should be positive for the sector's average credit profile. This
would be particularly true for companies with high levels of coal generation and future
renewables growth plans. One of our holdings Dominion Resources is amongst
companies to have the deepest cuts in the period 2016-2018.
Negative factors for the utilities sector include:
 Lower profit margins: Utilization rates of electric and gas utilities have declined while
production has spiked. That potential oversupply could pressure margins.
 Higher Funding Costs: Most recent acquisitions in the utility sector have been funded
primarily by debt and higher funding costs could constrain such future activity. While
bond yields increased across the maturity spectrum on Nov. 9, the generally higher
duration of utility bonds made the sector more susceptible to price pressure. This will
likely remain the case if yields continue to run up. The average life of bonds in the utility
sector of 14.6 years compares with just 10.6 years for the broader market.
 High fixed costs: Capacity growth has been rising, which has been a sign of
underperformance for the sector in the past.
 Accelerating economic growth: This would likely make the defensive utilities sector
less attractive.
 Rising interest rates: This would make the yield-heavy utilities sector less competitive
with fixed income investments. Additionally, relatively high debt ratios in the sector
could be problematic.
 Utilities May Face Lack of Skilled Labor as Technology Advances: The utility
industry is one of the few for which the U.S. Bureau of Labor Statistics projects a decline
in total employment, of about 10% by 2024 vs. 2014. Though the U.S. utility sector may
not be as affected by potentially tighter immigration restrictions on skilled labor as
some other industries, it will feel the effects as it makes technological advances. The
utility industry employed almost 20,000 electrical engineers in 2015, about 4% of the
sector's work force.

37. 37
It is also important to note that this sector has a bond that is set to mature next year (Center Point
Energy Inc.).
Figure 33: Option Adjusted Spread of the US Dollar Investment Grade Utilities Sector

38. 38
Telecommunications Sector
Figure 34: Telecommunications Analysis and Holdings
Telecommunications Sector Overview
XSBIF Benchmark
Return (%) 5.55 6.95
Sector Weight (%) 7.18 1.57
The telecommunications sector comprises companies that make communication possible on a
global scale whether through telephone/internet/broadcasting. These companies create the
infrastructure that allows data to be sent anywhere in the world. The largest companies in the sector
are wireless operators, satellite companies, cable companies, and internet service providers.
We performed a credit analysis on our holdings during Fall Semester, 2016 and decided to hold
all positions. Our rationale for holding and remaining overweight in this sector in spite of
underperformance was part of a macro/portfolio wide strategic plan for outperforming the index.
After the previous Federal Reserve rate hike on Dec, 16 2015, the first increase in the federal funds
rate since June 2006, the telecommunications sector has seen a tightening of spreads/yields, as the
signs for the economy returning back to normal post 2008 have strengthened. These positive
economic signs make these holdings less risky and thus investors are given less return for their
given risk. Currently, the odds of another rate hike in December 2016 are in excess of 70%, with
the Federal Reserve initiating rate hikes when the prospects for the US economy are bright. The
telecommunications sector yields, although tightening post December 2015, have not contracted
as much as other sectors, making it an attractive sector to be overweight in, in combination with
being underweight in sectors whose holdings have seen reduced yields, thus allowing excess
overall yield vs the benchmark.
Telecommunications Sector Holdings
Name Industry 6 mo
Return
(%)
S&P
Bond
Rating
Coupon Maturity
Date
% Avg
Weight
CBS CORP Entertainment
Content
12.25 BBB 4.90 08/15/2044 1.83
Discovery
Communications
Publishing &
Broadcasting
6.21 BBB- 3.45 03/15/2025 2.05
Scripps Network
Interactive
Entertainment
Content
3.59 BBB 2.75 11/15/2019 1.78
AT&T INC Wireless
Telecommunications
Services
3.23 BBB+ *- 3.90 03/11/2024 0.37
Verizon
Communications
Wireless
Telecommunications
Services
2.49 BBB+ 6.25 04/01/2037 1.15

39. 39
The telecommunications sector is still viewed as being quite risky when compared to other
nonfinancial sectors for a number of reasons. The industry is very capital intensive, requiring
significant investment in infrastructure to remain on the cutting edge of technology, with constant
upgrades needing to be made to keep pace with consumer demand and expectations. Slow, but
positive, economic growth in combination with low interest rates post 2008 has led to the highest
level of Mergers and Acquisitions (M&A) in 2015/2016 since before the recession. The reasons
for the increased M&A are companies struggling to cut costs via merger synergies, maintain
earnings and share prices by increasing customer bases, and buy out up-and-coming competitors
before they gain a major foothold in the industry. The XSBIF portfolio telecommunications
holdings have had a lot of activity in the M&A space with big name purchases such as AOL,
Yahoo, DIRECTV, and Viacom/Time Warner potentially taking place in the near future.
Approximately 70-90% of mergers fail based on long term share price. The increased capital costs
of maintaining infrastructure, capital intensive M&A, high dividends, maturing markets and
increased competition, all add up to a risky sector that warrants excess yield for the given risk in
comparison to other sectors. However, it is the class’ view that in a moderately rising rate
environment, where economic growth is steadily improving, this sector risk is somewhat
counteracted by our current Bull Market, hence our overweight position. It should be noted that
AT&T was put on watch for a potential credit rating downgrade. AT&T’s recent purchase of
DIRECTV with cash/stock and potential acquisition of Time Warner, in combination with their
high dividend and infrastructure costs, market saturation and increased competition, raise cash
flow concerns which triggered the watch for a potential downgrade by S&P of their credit rating.
After a thorough analysis, the DIRECTV merger appears to be paying off, at least in the short
term, alleviating some of the cash flow concerns investors have.
Positive factors for the telecommunications sector include:
 Increasing wireless demand: Demand is rising as more communication and media devices
move to the wireless arena, providing the potential for revenues to rise.
 Relatively high dividends: The dividends typically paid by telecom companies have
attracted investors tired of paltry fixed income yields.
Negative factors for the telecommunications sector include:
 Falling profits: Net profit margins are declining for the telecom sector as competition
squeezes margins.
 Rising expenses: Capital expenditures in the telecom space are increasing as companies
look to improve and expand their networks. This could be a burden on profitability.
 Heavy debt loads: The telecom sector has the highest debt-to-equity ratio of any
nonfinancial sector. (Sources: Charles Schwab/Time)

40. 40
Materials Sector
Figure 35: Matertials Analysis and Holdings
Materials Overview
XSBIF Benchmark
Return (%) -.68% 7.16%
Sector Weight (%) .07% Less than .89%
Sector Description
The Materials sector accounts for companies involved with the discovery, development and
processing of raw materials. The basic materials sector includes the mining and refining of
metals, chemical producers, and forestry products.
Holdings
This industry is a minor sector in our portfolio and we are underweight vs the benchmark. Our
portfolio allocation to the materials sector is .07% which is less than .89% for the benchmark.
Our only holding is Westlake Chemical Corp. Our portfolio has underperformed the benchmark
in this area with a return of -.68% vs the benchmark return of 7.16%. During the 3Q 2016, we
made the decision to enter this sector by purchasing the Westlake bond, which has been one of
our worst performing positions.
Analysis
Our holdings are in the Chemicals sub-sector of the overall Materials sector. The chemicals
subsector of the Bloomberg Barclays U.S. Corporate Bond Index underperformed the overall
materials indexes in both the 2Q and 3Q. In 3Q, the chemicals sub-sector only returned 1.84%,
underperforming the 2.76% return for the overall basic materials industry sector by 92 bps.
During the 3Q, duration was rewarded. Longer-dated chemical bonds led the way as notes with
duration of greater than 10 years returned 3.37%. XSBIF’s overall duration in the chemicals
sub-sector was only 8.037, largely attributing to our lagging performance relative to the
benchmark in the quarter. Furthermore, we entered into this sector in the third quarter and at a
time when our lower duration in the sector was being punished the most.
Important Factors that will affect this Sector:
-M&A activity
-Commodity costs
-Excess capacity
Materials Holdings
Name Industry 6 mo Return
(%)
S&P Bond
Rating
Coupon Maturity
Date
% Avg
Weight
Westlake
Chemical Corp
Chemicals -.68% BBB 3.6 08/15/2026 .07%

41. 41
High Yield Sector
Figure 36: High Yield Analysis and Holdings
The high yield market consists of bonds that belong to companies whose credit rating falls below
that of investment grade. Due to the higher default risk of the companies associated with these
bonds, yields on high yield bonds tend to be greater than their investment grade counterparts.
Although some investors may shy away from investing in this sector, research shows that high
yield’s characteristic carry multiple benefits and can add another layer of diversification. This is
especially true in a rising interest rate environment. First, the lower duration bonds of high yield
helps insulate it from interest rate risk during a rising rate environment. Second, high yield bonds
have a low correlation to investment grade bonds which can help limit the volatility risk of a
portfolio.
High yield as a sector has performed exceptionally well since the beginning of 2016. Between
12-31-2015 and 09-30-2016, the sector measured by the BofA Merrill Lynch U.S. High Yield
Index had posted a total return of 15.23%. Credit spreads tightening throughout this period has
led to the sectors strong performance. Two main factors have been working in its favor. First,
commodity prices have stabilized, specifically within the energy and basic materials sector. This
has allowed company default rates to level off and remain below their long term average for the
sector as a whole. Second, investors have been starving for yield in a low growth environment.
Many countries, such as Switzerland and Japan, have resorted to pushing interest rates negative.
The belief is that this will help foster and develop growth within their regions. This type of
economic policy has pushed many investors out of traditionally safer assets and into riskier ones
that provide higher yields.
On 4-1-2016, the portfolio had a small allocation to high yield through the Fort Washington High
Yield Fund, LLC. The allocation at that time was approximately 2.11% of the portfolio. As of 9-
30-16, the allocation to high yield relative to the balance of the portfolio was 2.16%. Total return
for our position in high yield during this time was 3.22%. This represents about 14 basis points
of outperformance versus the fund’s benchmark . The team felt a larger allocation to high yield
was necessary and in October, an additional $16,000 in high yield was purchased. This decision
was driven by the added diversification and yield that high yield provides.
High Yield Fund Characteristics (as of 9-30-16)
Benchmark Fund
Quality: B1/B2 BA3/B1
Coupon: 6.54 5.95
Duration (OAD): 4.05 4.05
Current Yield: 6.58 6.01
Number of Issuers: 953 237

42. 42
In addition to the portfolio characteristics listed above, the fund does not have an investment
greater than 2% in any issuer. The top five largest issuers account for 6.84% of the total
portfolio. The top five sectors of the portfolio include: communications (24.5%), consumer non
cyclicals (14.2%), energy (13.8%), consumer cyclicals (12.8%), and banking/finance (10.6%).
The fund sits on the higher side of the credit rating spectrum by having investing in BBB and
above (7.2%), BB (51.7%), and B (35.5%).
Looking ahead, our partners at Fort Washington are positioning the fund to be more defensive.
This entails increasing exposure to less sensitive sectors as well as picking higher quality bonds
on the credit rating scale. This will cause the portfolio to differ from its benchmark. This
reallocation in the portfolio is being driven by the increasing default rates this year. Balance
sheets of companies are showing more leverage and subsequently lower interest coverage ratios.
Figure 37: BofA Merrill Lynch US High Yield Index Returns
Figure 38: Barclays US Corporate High Yield Average OAS

43. 43
Trades Executed During the Period
(April 1, 2016-September 30, 2016)
Figure 39: Trades Executed April 1 – Sept 30

44. 44
Current Holdings as of September 30, 2016
Figure 40: Current Holdings as of Sept 30
Cyclical Consumer Consumer, Non-Cyclical
Air Canada Anhesuer-Busch Inven Finance Inc
Newell Brands Inc Abbvie Inc.
Ford Motor Company Kraft Heinz Foods Co
Dollar General Teva Pharmaceuticals
Gilead Sciences Inc
Energy
Buckeye Parnters LP Financials
Bank of Nova Scotia
Technology Chubb Ina Holdings Inc
Apple Inc Fifth Third Bancorp
Diamond 1 Fin/Diamond 2 Goldman Sachs Group Inc
Electronic Arts Inc WellTower Inc
Fidelity National Informformation Services Vornado Realty LP
HP Enterprise Co Morgan Stanley
Intel Corp Omega Healthcare Investors
Microsoft Corp
Qualcomm Inc Industrials
LAM Research Corp Burlington North Santa Fe
Fortive corporation
Government Fedex Corp
Q 2 1/2 04/20/26 General Electric Co
T 0 3/4 08/31/18 Roper Technolgoies Inc
T 1 ¼ 02/29/20
T 1 ¼ 10/31/19 Communications
T 1 3/8 03/31/20 At&T Inc
T 1 5/8 11/30/20 CBS Corp
T 1 7/8 06/30/20 Discovery Communications
T 2 ¼ 03/31/21 Scripps Networks Interactive
T 2 ¼ 11/15/25 Verizon
T 2 3/4 02/15/19
T 2 7/8 08/15/45 Utilties
T 3 1/8 05/15/21 Centerpoint Energy Inc
T 6 ¼ 05/15/30 Dominion Resources Inc
T 9 1/8 05/15/18 Duke Energy Corp
California State Build America Bonds
Freddie Mac Mortgages
4.00 Fannie Mae
High Yield Fund 4.00 Fannie Mae
Fort Washington High Yield Fund, LLC 3.50 Fannie Mae
Basic Materials
Westlake Chemical Corp.

45. 45
Economic & Investment Climate
U.S. Economy
The U.S. economy has continued to grow at a moderate, though not robust, pace. Growth has
remained at historically temperate rates of 2% - 3%. The most recent release of U.S. GDP
showed annualized growth in the third quarter of 2.9%, which was the largest growth rate in two
years and more than double the second quarter rate of 1.4%. However, the outlook for GDP
growth in the future indicates continued slow growth in the economy. According to data released
by the FOMC, the yearly GDP growth is projected to remain in the 1.8% - 2% range over the
coming years. It should be noted that growth coming out of this recession is much lower than
growth coming out of previous recessions.
Consumers continue to be the key driver of the economy in the U.S. Although employment
growth and stronger housing trends support consumer spending, faster wage acceleration will be
the key to sustain income levels and support consumption. Only recently have wage growth data
shown signs of strength, a trend which will need to continue for sustained economic growth. On
the other hand, weak investment has been a source of slower U.S. growth, which has also been a
cause of slower productivity growth. This combination of rising wages and low productivity will
create profit pressures.
Figure 41: US GDP Growth Rate
The global economy plays an important role in the growth of the U.S. economy, and subdued
growth is anticipated globally as well. Recent events such as the Brexit vote, terrorist attacks,
and the United States presidential election are creating a great deal of uncertainty within the
global economy. Global annual GDP growth over the past five years has ranged between 2%-
3%, and the economic uncertainty creates limited upside for future growth to exceed these levels.

46. 46
Figure 42: Global GDP Growth Rate - Annual
U.S. Housing/Real Estate
2016 has been a strong year for the housing industry. Housing prices have climbed amidst a
highly competitive seller’s market. The average home value is now over $234,000 up from
$213,000 at the beginning of 2016. See the chart below to reference the median home price
changes in 2016:
Figure 43: US Existing Home Median Sales Price Historical Data
In addition, housing rates have fluctuated a bit over the year, but remain relatively low
nonetheless. Those that previously had a 4% or higher 30 year mortgage (3.5% for 15 year) have
taken advantage by re-financing before the anticipated December rate hike. Today’s rates are as
low as 2.875% for a 15 year mortgage and around 3.50% for a 30 year mortgage. Therefore,
using the average price of a home ($234,000), Americans have saved nearly $60 per month by
refinancing their 30 year mortgage or $38 per month on a 15 year mortgage.
Sept. 30, 2016 $ 234,200
Aug. 31, 2016 $ 239,900
Sunday, July 31, 2016 $ 243,300
Thursday, June 30, 2016 $ 247,600
Tuesday, May 31, 2016 $ 238,900
Saturday, April 30, 2016 $ 230,900
Thursday, March 31, 2016 $ 221,500
Feb. 29, 2016 $ 212,100
Jan. 31, 2016 $ 213,700

47. 47
Secondly, mortgage applications in the United States have varied greatly this year. It appears that
the application flow alternates bi-weekly between rises and decreases as one can see below.
Recently, we experienced the fourth consecutive month of decline in mortgage applications. One
may assume that most Americans have already re-financed their mortgages earlier in the year as
we approach an expected December rate hike. Specifically, refinance applications went down
10.9 percent and applications to purchase a home dropped 6.2 percent.
Figure 44: US MBA Mortgage Applications
Lastly, another strong factor that points to a growing housing marketing is the number of new
homes bought. Year over year, new home sale have increased 29.8% in 2016 compared to 2015.
New home sales have had their peaks and valleys this year with 2016 starting out with a slow
increase until a large peak around mid-summer in June. Low rates and an increase in jobs have
helped boost the housing market as consumers regain their confidence in the economy.
Figure 45: US New Home Sales

48. 48
U.S. Inflation Rate
Over the past 6 months, CORE PCE has continued to increase and is currently measured at 1.7%
YoY. However, this is still remains below the FED’s preferred target rate of 2.0%. Going
forward, economists appear to be optimistic that inflation will continue to rise. Expectations as of
the October survey is that inflation will reach 1.8% YoY in 2017 and 2.0% YoY in 2018.
Figure 46: US Core PCE - Historical
Figure 47: US Core PCE - Forecast

49. 49
U.S. Jobs
Unemployment
Figure 48: US Unemployment Rate
The unemployment rate in the United States remained at 5.0% for the period April 2016 –
September 2016. It briefly fell to 4.7% in May 2016. Unemployment is one of the major factors
that the Fed examines in determining whether or not to raise interest rates. In order to raise interest
rates the Fed would like to see unemployment around 5.0%. The number of unemployed persons
was minimally changed holding above the rate that many economists consider to be the structural
level in a well-functioning economy.
Labor Force Participation Rate
Figure 49: US Labor Force Participation Rate
The labor force participation rate is a measure of the population who is either employed or
actively looking for employment. For the period of April 2016 to September 2016 the labor

50. 50
force participation rate has remained relatively stable. Fluctuations have been minimal ranging
from 62.9 -62.6%. This is a good sign showing that employment in the United States over the
last six months is stable which should give the Fed confidence in a stable economy.
Average Hourly Earnings
Figure 50: US Average Hourly Wages
The average hourly earnings statistics is a measure of the average hourly payroll earnings for the
previous month. During the period of April 2016 to September 2016 average hourly earnings
increased each month to reach an all-time high in September 2006 of $21.68 per hour. This is
good news for the economy due to the fact that consumers are taking home more money which
will hopefully lead to an increase in consumer spending thereby continuing to stimulate the
economy.
Initial Jobless Claims
Figure 51: US Initial Jobless Claims

51. 51
The initial jobless claims statistic shows the number of people who are filing or going to file for
unemployment benefits. During the period of April 2106 to September 2016 the number of
individuals filing for unemployment benefits fell by approximately 10,000. Once again this is an
encouraging trend as it shows that less individuals are applying for unemployment benefits
pointing towards a stronger economy and stronger job growth in the economy.
Eurozone
The Eurozone, a monetary union of 19 of 28 European Union member states, recently lost the
United Kingdom when they elected to leave the EU in a vote of 51.9 to 48.1 percent. More
widely known by the popularized term “Brexit”, Britain’s exit from the EU had numerous effects
on the local economy and left many wondering how it would affect their own. Almost
immediately after Brexit was announced, the pound dropped drastically in value on the London
exchange. However, US President-elect, Donald Trump, has called Brexit “a great thing”. The
UK’s exit from the European Union will allow the UK to sign free trade agreements at their own
will, which could be a tremendous advantage for the US. However, the UK will likely want to
negotiate agreements with other places apart from the US. Many experts say that the Brexit will
have a very modest effect on the US, but it is still rather unclear exactly how large or small its
impact may be.
Additionally, the Eurozone has recently experienced its lowest unemployment rate, falling into
the single-digits for the first time since 2009. At more than 12% at its worst years, the
Eurozone’s rate of unemployment has slowly crept down from 10% in August, to 9.9% in
September and the trend continues. Unemployment has been one of the most difficult economic
problems for the area to recover from since its deep financial crisis in 2008-2009. Eurozone has
had a much slower recovery – just this year surpassing its pre-crisis peak in the size of its
economy – than both the US and Britain.
While these statistics give a positive outlook for unemployment in the Eurozone, it should be
noted that for people under 25, joblessness remains more than double the overall rate for the
region. This means that one in five of these jobseekers is unable to find work across the
Eurozone. Youth unemployment rates in Greece and Spain both remain at over 40%, while in
Italy at 36.4%. However, the overall unemployment rates in these countries, while still high, are
also falling.
Alongside the falling unemployment rate, inflation in the Eurozone is at its highest since April
2014. At that time, inflation was at 0.7%. Food, alcohol and tobacco sales are sited as having the
biggest impact on driving prices up most recently. Like all major economies, the main driver in
the increased inflation overall for this year is said to be the slowly-fading impact of last year’s
noteworthy decrease in oil prices. That being said, although inflation is increasing, it remains
well below the European Central Bank’s target of just below 2%. This is the level at which they

52. 52
consider an economy “healthy”. Additionally, the core inflation rate, which excludes volatile
items like food, alcohol, energy, tobacco and alcohol, continues to stay historically low at a rate
of just 0.8% annually. As a result, the European Central Bank may implement a bond-buying
stimulus program in the interest of pushing inflation closer to its target.
Oil
The exercise of forecasting oil prices has proven to be a difficult one over the past year as the
market price has continuously fluctuated throughout 2016. In January, oil prices were at $27 per
barrel, by March at $39 and in May at $44. Forecasters believe prices will stay around $47 a
barrel for the remainder of the year, as they do not anticipate Brexit will have any major
influence on the market balance.
After nearly two years of discussion, Saudi Arabia and the rest of the OPEC oil cartel recently
agreed to cut oil production. Since the original collapse of crude oil prices in 2014, all major oil-
pricing countries have been hard at work trying to determine a way to regain control and repair
their finances. The challenge was determining and agreeing upon which countries should have to
face the largest production cuts. The decision, dubbed the “Vienna Agreement”, aims to cut
production after oil prices remained low into the beginning of 2016 and OPEC realized there
wasn’t a recovery in sight. Many oil-producing countries, namely Russia, agreed to make cuts on
their own.
With the amount of oil produced drastically decreasing, low oil prices are likely to become a
thing of the past. The cut was made in an effort to drive the price-per-barrel towards $60 a barrel
within a few months. Keep in mind; oil was just $27 a barrel in January. The long-term impact
is rumored to depend on how well the cuts are implemented and followed by oil-producers. The
Vienna Agreement will hit Saudi Arabia the hardest, followed by Iraq, the United Arab Emirates
and Kuwait.

53. 53
Future Fund Manager Recommendations
During the semester, managers have kept a close eye on the interest rate environment. The last
time the Fed raised short-term interest rates was in December of 2015. The market then got off
to a terrible start at the beginning of 2016. Negative headlines from China and tensions between
Iran and Saudi Arabia led investors to dump risky assets and pile into safe haven securities.
Brexit happened leading to a lot of uncertainty abroad and job/inflation numbers were not strong
enough in the eyes of the Fed. All of this coupled together led to the Fed delaying an interest
rate hike thus far in 2016. Since the beginning of the class it was believed that the most probable
month for a rate hike was December. Now with the recent events of the election and the strong
positive reaction of the market to the election, the probability of a December rate is now around
95%. The Fed has been looking for unemployment to be around 5% and inflation around 2% to
feel comfortable raising rates. Unemployment has hit their target, but inflation is still short of
their target. If President-elect Trump holds true to his campaign promises with increased
infrastructure and defense spending this will drive up inflation which has been essentially
stagnant. This market outlook could lead to multiple rate hikes in 2017. By maintaining a
shorter duration vs. the benchmark, the portfolio will be positioned to have lower sensitivity to
interest rate swings as compared to the benchmark.
One of the significant advantages the portfolio has over the benchmark is the overweight position
in corporate credits compared to the benchmark. The portfolio is about 60% weighted in
corporate credit as compared to the benchmark which is approximately 40%. This position gives
the portfolio some cushion with respect to risk due to the higher yield that is associated with
corporate credits vs. U.S. Treasuries. This is one of the main reasons that we are able to
consistently outperform the benchmark.
The portfolio should look into taking a position in TIPS (treasury inflation protected securities).
These investments provide protection against inflation. When this security matures, the investor
is paid the adjusted principal or the original principal, whichever is greater. As mentioned
previously, if president-elect Trump keeps true to his campaign promises, it is likely that
inflation will begin to rise with the increased infrastructure and defense spending.
Future managers should continue to evaluate the credit risk in the portfolio. If future managers
are going to increase positions in riskier investments they need to understand the effects that the
trade will have on the overall credit rating of the portfolio. Currently the average credit rating of
the entire portfolio is A.

54. 54
Future managers should look into other investment options which are permissible investments
but not included in the benchmark. Many of these “alternative” investment options can be used
to further improve the performance of the portfolio against the benchmark. Over the course of
this semester we have increased our position in MBS and added to our high yield allocation.
One area that we wanted to further examine was preferred securities. We tabled the preferred
analysis and recommend that future managers pick up where we left off. We feel that in order to
ensure the portfolio performs at its best future managers need to examine and use all the tools
available to them.
For the period, the energy sector outperformed the benchmark in total return (13.61% vs. the
10.09%). With oil prices being volatile lately and the uncertainty within OPEC about future
market supply this could greatly affect this sector. Future managers need to continue to monitor
this sector due to continued market volatility.