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More Connected, More at RiskAddressing Cybersecurity Concerns
for Your Organization
August 15, 2019
About Me
2
• Director – BKD Cyber
• Over 25 years experience
• Technical assessments (networks,
applications, social engineering)
• Governance and compliance (FFIEC, PCI,
NIST, ISO)
• Help companies build or enhance
cybersecurity programs
• Retired Army Lieutenant Colonel
• Married, 4 children
Latest Statistics Show Less Breaches
0
200
400
600
800
1000
1200
1400
1600
1800
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
446
656
498
662
421
471614
783780
1091
1632
1244
REPORTED BREACHES BY YEAR
However, the Impact is More
2017
1,632 breaches reported
197,612,748 exposed records
2018 had over 2.25 times more records
exposed in 76% of the number of breaches
2018
1,244 breaches reported
446,515,331 exposed records
Source: https://www.idtheftcenter.org/2018-data-breaches/
5
Myths on Cyber Crime
Cyber security is
handled by our IT
department.
You’ll know right
away if your
computer is
infected or
compromised.
Only certain
industries are
vulnerable to
cyber attacks.
Small &
medium sized
organizations
aren’t targeted
by hackers.
1 2 3 4
6
The Realities……
Source: Verizon Data Breach Investigations Report
Small businessesaccount for the majority of data
breaches
Approximately 60%
Around 30% of small and medium sized businesses
suffered a cyber attack in the past 12 months
7
The Realities……
Source: Ponemon Institute 2018 Cost of Data Breach Study
Companies that
contained a breach in
less than 30 days
saved more than $1
million vs. those that
took more than 30
days to resolve
Mean
time to
identify a
breach
197 days
Mean
time to
contain
69 days
You’ll know right away if your computer is infected or
compromised.
Only certain industries are vulnerable to cyber attacks.
8
The Realities……
9
Source: Ponemon and Keeper Security
study10
The Realities……Cyber security is handled
by our IT department.
Cyber Crime is Still #1 & Growing
72.1%
9.2%
14.2%
4.3%
2016
Cyber Crime Cyber Espionage
Hacktivism Cyber Warfare
77.4%
14.5%
4.7% 3.4%
2017
Motivation Behind Attacks
81.8%
12.9%
2.8% 2.5%
2018
Source: Hackmageddon, https://www.hackmageddon.com/2018-master-table
85.5%
9.4%
3.2% 1.9%
Q1 2019
The Dark Web
What it is & what it isn’t
What is the “Dark Web”?• Less than 10% of the internet is accessible through
typical search engines
• The Deep Web is a part of the web that contains
the most sensitive information
• The Dark Web is the part of the deep web that is
intentionally hidden
• Requiring an anonymizer to access (ex. Tor)
Uses .onion link; links often shift
Tor – The Onion Router
The Black Market of the Internet!
About 4%
of Internet
Source: CISO Platform
http://www.cisoplatform.com/profiles/ blogs/surface-web-
deep-web-and-dark-web-are-they-different
Approximately
90%
The remainder
What Can I Find on the Dark Web?
Types of Sites on the Dark Web
Marketplace
Anything is for sale
• Drugs
• Stolen credit cards
• Personal identities
• Passports
• Driver’s licenses
• Health insurance
cards
• Other compromised
information
• Dates
Forums
Discussion forums that cover
information that could be
useful to a hacker
• Common vulnerabilities
• Information about
organizations
Paste Sites
Large data dumps that
are never removed
Social Media/Chat
Rooms
A place for hackers to
share information more
privately
Search Engines
Just like regular search
sites, but for the dark
web
Some Items for Sale
All images are
actual screenshots
from the dark web
Even Wire Transfers
All images are actual
screenshots from the
dark web
How Much Could I Get for Your Credit Card On the Dark Web?
About $1
Carding Forum
All images are actual screenshots from the dark web
Joker’s Stash is the
most popular “carding”
forum on the dark web.
Credit cards just $1 each!
Carding Forum
Health insurance
card sold for just
over $62
Health Insurance Card for Sale
Hackers for Hire
How Are You Targeted?
Things to look out for…
Attackers Try Easiest Way to Penetrate
• Phishing/spear phishing
• Social engineering
Job opportunities
Accounts on LinkedIn, Facebook
• Malware campaigns
• SQL injections on websites
• Public Wi-Fi
Phishing Schemes are Popular
25
Shadow IT• Shadow IT refers to IT devices, software & services outside the
ownership or control of IT organizations
• Departments will often do this to
Circumvent bottlenecks
Avoid slow processes
Rely on familiar software
Compatible with mobile devices
Work with legacy applications that are no longer supported
• It is easy to attain software as a service (SaaS) solutionsSource: Gartner IT Glossary, https://www.gartner.com/it-glossary/shadow
Risks of Shadow IT• Rutter Networking identified
Increased risk of data loss
Increased risk of data breach
Inefficiencies
Cybersecurity risks
• Since acquired outside of IT procurement channels, security is often overlooked
• Gartner predicts that by 2020, a third of all successful attacks will be against their shadow IT resources
Source: https://www.rutter-net.com/blog/4-security-risks-of-shadow-it
What Would a Hacker Take?
Knowing how a hacker would
compromise your environment
Red Team Digital Attack Simulation• An attack simulation that mimics the real activities a hacker would take in your environment
• Still provides the network penetration testing results
• Collects data & information a hacker would want
• Ability to place notional malware & threats
Breach Life Cycle• Attacks are generally carried out in four stages
• These four stages are often referred to as the “breach life cycle”
• The further the progression, the greater the risks
Infiltration: breaking in & establishing foothold
Propagation: in the network & moving around
Aggregation: collecting data & critical information
Exfiltration: taking the information outside of the organization
Infiltration
Pro
pa
ga
tionAggregation
Exfiltra
tio
n
Breach Life Cycle in Action
1 2 3 4
MINIMAL
IMPACT
MAXIMUM
IMPACT
TIME FOR DETECTION & RESPONSE
1. Infiltration
2. Propagation3. Aggregation
4. Exfiltration
How the Red Team WorksLeadership engages red team
Red team hackers break in (infiltrate)
Red team propagates & aggregates
Once detected, red team shows exfiltration data
Provides feedback to security team
Publishes the report
Red Team Benefits
• Simulated attack scenarios from real-world threats
• Demonstrates true offensive techniques to organizations
• Identify return on investment for cybersecurity solutions
• True ‘quantitative’ risk analysis
• Focuses on what’s valuable, data & assets
• Designed to improve a security team
• Still get the penetration test report plus more
MitigationSteps
A few things you can do to
reduce risk…
Know Your Inventory
• What do you want to protect?
• Who do you want to protect it from?
• How likely is it that you will need to
protect it?
• How bad are the consequences if you
fail?
• Classification of inventory
Educate Your Team
• Technology is no substitute for employee
education
• Include the board, executives & vendors
• Knowledge is power
• Do not discourage false-positive
reporting
• Document & distribute security policies
• Develop & rehearse a robust incident
response program
Patch Your Systems
• Applications
• Databases
• Operating systems – servers,
workstations, etc.
• Anti-virus/anti-malware – engines &
signatures
• Third-party applications
Limit Access
• Control use of administrative privileges
• Limit access based on need-to-know
(least privilege)
• Limit & control remote access
• Do not share credentials
• Consider multifactor authentication
• Limit the use of portable media
• Don’t forget physical security
• Encryption is key, especially when data
leaves your organization
Human Factor is Still the
Weakest Link
• Remember physical security & limiting
access when the following arrive
UPS
Coming in from corporate IT
Service people or technicians
Exterminator
Flower delivery
Incident Response
40
Respond to an Attack
• Identify most likely attacks/threats
• Build steps to RESPOND, not REACT
• Include team leaders from all aspects of the
organization in scenario testing
• Everyone (not just IT) must be able to
respond
• The “business machine” must keep running
Cybersecurity Insurance
41
Are You Actually Covered?
• Do not fill the application out alone
• Management, IT management & legal council should
be involved
• Wrong, partial or inadequate answers can void the
policy
• Perform annual reviews of the policy
• Reviews should take place after major changes in
infrastructure
• Changes in available coverage amounts should be
part of the annual review
› Determine if strong cybersecurity controls are in place
Final Thoughts
42
Before or after the breach
The Cybersecurity bill will be paid
The Next Generation• CyberPatriot is the National Youth Cyber Education
Program
• Created by the U.S. Air Force & sponsored by Northrop Grumman
• Inspires K-12 students towards careers in cybersecurity or other science, technology, engineering & mathematics (STEM)
• Preparing youth with skills critical to our future
https://www.uscyberpatriot.org/
http://www.northropgrumman.com/CorporateResponsibility/Pages/CyberPatriot.aspx
Questions?
bkd.com | @BKDLLP @RexSecurity @BKDCyber
The information contained in these slides is presented by professionals for your information only and is not to
be considered as legal advice. Applying specific information to your situation requires careful consideration of
facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
Thank you!
The information contained in these slides is presented by professionals for your information only and is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.
BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.
Telecommunications Accounting
Seminar
Financial Benchmarking in a Fiber World
Marty Fredericks, CPA
Overview
Benchmarking
Methodology
Telergee Study
BKD ClientLink
48
Benchmarks to
Watch – Then and
Now
Thoughts Moving
Forward
4
5
Benchmarking Methodology
› “Benchmarking” defined
• “A measurement of the quality of an organization’s policies, products or
services, programs, strategies, etc., & their comparison with standard
measurements, or similar measurements of its peers”
49
Benchmarking Methodology
› Objectives of benchmarking by comparing your company to
others
• To determine what & where improvements are needed
• To analyze how other organizations achieve high performance levels
• To use information obtained to improve performance of your entity
50
Benchmarking Methodology
› Benchmarking in the telecommunications industry is ever
evolving
• Networks change
• Revenue sources & $ amounts change
• Lines of operations come & go
• Borrowing of funds happens
• Mergers & acquisitions take place
51
Telergee Study
› Telergee is an alliance of seven CPA firms throughout the U.S.
that specialize in audits of independent communications
companies
› Annual benchmarking study launched in 2001 as the “definitive
source of rural telecom performance data in the U.S.”
› Historically had roughly 200 entities participating in the study
52
Telergee Study
› Four classifications of ILECs presented
• Cooperatives on average schedule
• Cooperatives on cost
• Corporations on average schedule
• Corporations on cost
› With the 2018 study (2017 data) additional section added for entities
that elected to receive model-based support (A-CAM or Alaska Plan)
53
Telergee Study
› Benchmarks developed using the median as an average
• Median more accurately reflects the ratio values than using a straight
average by eliminating the influence that very high & very low, unusual
financial statement values, can have
› Individual scorecard provided to companies that completed the
Telergee Data Collector comparing themselves to other similar
entities
54
Telergee Study
› Pros of the study
• Pretty good database of companies from around the United States
• Data Collector allowed for a lot of information to be imputed & analyzed
• “The Telergee 20”
• Snapshot of 20 key metrics
• Various subsections that were provided
• VOIP, Video, CLEC, Wireless, etc.
55
Telergee Study
› Cons of the study
• BKD providing & inputting more than half of the data
• Almost “too much” information that made it difficult
• To release the study timely
• For managers/boards to analyze what benchmarks were really important to their
company’s success
• With the migration of more & more companies to A-CAM becoming
evident, increased focus was needed on this group of ILECs
56
BKD ClientLink
› BKD’s benchmarking product
• In conjunction with iLumen software
• Free to clients
• Allows for various industries & the ability to compare one industry to another
• Simple report modifications with a lot of flexibility
• “Living and breathing” study & reports
• Very similar database to Telergee with less required manual input
• Uses medians (much like Telergee)
• Goal is to provide the most important benchmarks to our telecommunication clients without the confusion that comes with too much information
57
BKD ClientLink
› Sections of telecommunications benchmark report
• Cover page
• Allowing for multiple benchmarks columns & filters
• Flash reports
• Financial statement percentages
• Ratio analysis
• Balance sheet breakdown & trends
• Revenue, expense & income statement trends
• Ratio analysis
58
BKD ClientLink
59
BKD ClientLink
60
BKD ClientLink
61
BKD ClientLink
62
Benchmarks to Watch – Then and Now
› The key to any benchmarking study is to determine what benchmarks are the most
important to highlight with the most relevance for the entire group within the study
• Some indicators will be relevant every year, while some go in & out of importance as the
landscape of the industry being analyzed changes
• More importantly, what was once a favorable benchmark in a certain industry can now be an
unfavorable one as the industry evolves & grows
63
Benchmarks to Watch – Then and Now
› Reviewing key benchmarks from past years (Telergee, 2008 and 2013)
and comparing them to current figures (ClientLink, 2018) can tell you a lot
about an industry & what your company needs to do today to “chin up” to
the rest of the industry
64
Benchmarks to Watch – Then and Now
Gross plant investment per access line
65
$5,595
$8,351
$13,219
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
2008 2013 2018
$/Line
$/Line
Benchmarks to Watch – Then and Now
› Gross plant investment per access line
• 58% increase from 2013 to 2018
• Some large plant investments have been made over the past five years
• Greater than investments from 2008 to 2013
• Many companies have upgraded copper to fiber facilities in the past five years
66
Benchmarks to Watch – Then and Now
Operating revenue per access line
67
$1,599
$2,198
$2,941
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2008 2013 2018
$/Line
$/Line
Benchmarks to Watch – Then and Now
› Operating revenue per access line
• 34% increase from 2013 to 2018
• As access lines have declined, revenues have not
• Increased regulated revenues per access line due to conversions from cost to average schedule or switch to A-CAM
• A lot of diversification not dependent on access lines that have grown revenues
68
Benchmarks to Watch – Then and Now
Operating revenue per employee
69
$275,000 $314,000
$354,000
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
2008 2013 2018
$/Employee
$/Employee
Benchmarks to Watch – Then and Now
› Operating revenue per employee
• 13% increase from 2013 to 2018
• Increase not nearly as high as the increase of operating revenues per access line over this period (34%)
• Diversification that has grown revenues has often come with the need
for additional staff as well
70
Benchmarks to Watch – Then and Now
Operating income/margins per access line
71
$181
$243
$339
$-
$50
$100
$150
$200
$250
$300
$350
$400
2008 2013 2018
$/Line
$/Line
Benchmarks to Watch – Then and Now
› Operating income/margins per access line
• 40% increase from 2013 to 2018
• Comparable to revenue increase per access line over this period
• 11% of revenues hitting operating margins in both years
• While diversification has helped grow revenues, which is great, the non-traditional operations are not as profitable
• Important to keep this in mind as companies venture off into more & more non-regulated activities
72
Benchmarks to Watch – Then and Now
EBITDA to operating revenue
73
40%
42% 42%
39%
40%
40%
41%
41%
42%
42%
43%
2008 2013 2018
%
%
Benchmarks to Watch – Then and Now
› EBITDA to operating revenues
• Unchanged in 5 years and very little change in 10 years
• Operating cash flow as percentage of revenues has remained very
consistent
• Operating revenue growth hasn’t increased EBITDA margin
• You would have hoped this percentage would have gone up some with the increase in revenues, but as alluded to with the previous indicator with diversification, the costs of operations have risen as well
• Still a pretty solid number when compared to other industries & stability can be a good thing
74
Benchmarks to Watch – Then and Now
Net income/margins per access line
75
$185
$287
$467
$-
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2008 2013 2018
$/Line
$/Line
Benchmarks to Watch – Then and Now
› Net income/margins per access line
• 63% increase from 2013 to 2018
• Larger increase than operating revenues or operating
income/margins per access line during the same period
• Non-operating margins up almost 3x times as much in
2018 as compared to 2013
• Even with a decent amount of borrowing since 2013, interest expense hasn’t brought down non-operating income/margins
• Companies’ bottom line numbers a lot more dependent on investments & other non-operating items & less dependent on operations as compared to the past
76
Thoughts Moving Forward
› Benchmarking will continue to be important to the industry
• Know where your company stands against your peers every year
• Know the reason your numbers go up or down each year as your
company changes
• Make the operating adjustments necessary to improve the stability &
long-term viability of your company
77
78
Continuing Professional Education (CPE) Credit
79
Continuing Professional Education (CPE) Credit
› Webinars, seminars & articles
› Many are CPE-eligible
› www.bkd.com/thoughtware
• Telecommunications
BKD Thoughtware®
80
bkd.com | @bkdllp
The information contained in these slides is presented by professionals
for your information only and is not to be considered as legal advice.
Applying specific information to your situation requires careful
consideration of facts & circumstances. Consult your BKD advisor or
legal counsel before acting on any matters covered.
Thank You!
Telecommunications Accounting
Seminar
Market & Economic
Update/Investment
Considerations for Excess
Reserves
Nick Withrow, CFA, CFP®
Alex J. Hunter, CFP®
Our goals
for today
Provide a general market & economic update
Review investment
strategies &
considerations for
excess cash reserves
Review excess cash
reserve case studies
84
Economic Review
85
After 10 Years of Expansion, the U.S. Economy
is Poised for Further Growth› U.S. economic growth is slowing from 2018’s pace, but is projected to
maintain at trend levels
› While the cumulative level of GDP growth has been underwhelmingduring this expansion, its length is record setting
› The U.S. consumer is confident & supports the economy
› Global manufacturing has slowed as uncertainty surrounding trade issueshas persisted
› The Federal Reserve has communicated its intent to lower interest ratesin response to weak inflation data & softness in the international economy
› Predictions concerning the timing of the next recession abound, but keyleading indicators suggest continued growth in the near term
86
Length & Strength of Expansions
87
Source: BEA, NBER, J.P. Morgan Asset Management. *Chart assumes current expansion started in July 2009 & continued through June 2019, lasting 120 months so far. Data for length of economic expansions &
recessions obtained from the National Bureau of Economic Research (NBER). These data can be found at www.nber.org/cycles/ & reflect information through June 2019. Past performance is not a reliable indicator of
current & future results. Guide to the Markets – U.S. Data are as of June 30, 2019.
Economic Growth & the Composition of GDP
88
Source: BEA, FactSet, J.P. Morgan Asset Management. Values may not sum to 100% due to rounding. Quarter-over-quarter percent changes are at an annualized rate. Average represents the annualized growth rate
for the full period. Expansion average refers to the period starting in the third quarter of 2009. Guide to the Markets – U.S. Data are as of June 30, 2019.
U.S. Economic Heatmap
89
Source: BEA, BLS, Department of Labor, Census Bureau, St&ard & Poor’s, Institute for Supply Management, FactSet, J.P. Morgan Asset Management. S&P 500 EPS (earnings per share) & SPS (sales per share) are
expected earnings & sales per share growth over the next 12 months. Guide to the Markets – U.S. Data are as of June 30, 2019.
Unemployment & Wages
90
Source: BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of June 30, 2019.
Inflation
91
Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U & values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food & energy prices. The Personal Consumption
Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed weight basket used in CPI calculations. Guide to the Markets – U.S. Data are as of June 30, 2019.
Global Trade
92
Source: FactSet, J.P. Morgan Asset Management; (Top left) CPB Netherl&s Bureau for Economic Policy Analysis; (Bottom left) IMF, USITC, World Bank; (Right) IMF.
Guide to the Markets – U.S. Data are as of June 30, 2019.
Manufacturing Momentum
93
Source: Markit, J.P. Morgan Asset Management. Heatmap colors are based on PMI relative to the 50 level, which indicates acceleration or deceleration of the sector, for the time period shown. Heat map is based on
quarterly averages, with the exception of the two most recent figures, which are single month readings. Data for Canada, Indonesia & Mexico are back-tested & filled in from December 2007 to November 2010 for
Canada & May 2011 for Indonesia & Mexico due to lack of existing PMI figures for these countries. DM & EM represent developed markets & emerging markets, respectively. Guide to the Markets – U.S. Data are as of
June 30, 2019.
The Fed & Interest Rates
94
Source: Bloomberg, FactSet, Federal Reserve, J.P. Morgan Asset Management. Market expectations are the federal funds rates priced into the fed futures market as of the date of the June 2019 FOMC meeting & are
through December 2021. *Long-run projections are the rates of growth, unemployment & inflation to which a policymaker expects the economy to converge over the next five to six years in absence of further shocks &
under appropriate monetary policy. Guide to the Markets – U.S. Data are as of June 30, 2019.
Yield Curve
95
Source: FactSet, Federal Reserve, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of June 30, 2019.
U.S. Yield Curve Inversion & Recessions
96
Source: FactSet, Federal Reserve, J.P. Morgan Asset Management. *From January 1962 to May 1976, short-term bond is U.S. 1-year note, & from June 1976 onwards the short-term bond is the 2-year note due to lack
of data availability. Time to recession is calculated as the time between the final sustained inversion of the yield curve prior to recession & the onset of recession.
Guide to the Markets – U.S. Data are as of March 31, 2019.
Capital Markets Update
97
U.S. Stocks at New All-time Highs
› Since the Q4 2018 correction, the S&P 500 has recouped all losses & set new highs
› The recent increase in stock prices is primarily due to valuation increases, not earnings
› Valuations are near the 25 year average
› Earnings projections were revised down drastically over the past year, but are set to rebound in the coming quarters
98
Bond Returns Strong, Driven by Falling Interest Rates
› Since peaking in October 2018 around 3.2%, the 10-year treasury yield has dropped to approximately 2%
› The key reason for the drop in rates is the sharp pivot in Fed policy, in part due to slowing economic activity
› The Fed has hinted at decreasing the Fed Fund rate to help provide support for the economy
› Municipal bond returns have been driven by falling interest rates & a strong demand for tax-free income
99
Performance through June 30
100
Asset Class Index NameQ2
2019
YTD
(6/30)
One
Year
Three
Years
Five
Years
Ten
Years
Cumulative
Cycle
Returns*
US Stocks S&P 500 TR USD 4.30 18.54 10.42 14.19 10.71 14.70 434.20
US Stocks Russell 2000 TR USD 2.10 16.98 -3.31 12.30 7.06 13.45 414.17
Intl Stocks MSCI World NR USD 4.00 16.98 6.33 11.77 6.60 10.72 286.69
Intl Stocks MSCI EM NR USD 0.61 10.58 1.21 10.66 2.49 5.81 176.99
Taxable Bonds BBgBarc US Agg Bond TR USD 3.08 6.11 7.87 2.31 2.95 3.90 50.73
Tax-Free Bonds BBgBarc Municipal TR USD 2.14 5.09 6.71 2.55 3.64 4.72 62.85
Commodities Bloomberg Commodity TR USD -1.19 5.06 -6.75 -2.18 -9.15 -3.74 -20.88
Commodities LBMA Gold Price PM USD 8.77 10.16 12.68 2.18 1.39 4.19 50.53
*Cumulative cycle return date range: 3/9/09 – 6/30/2019.
Source: Morningstar Direct
Stock Market Since 1900
101
Source: FactSet, NBER, Robert Shiller, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative
purposes only. Guide to the Markets – U.S. Data are as of June 30, 2019.
S&P 500 Valuation Measures
102
Source: Compustat, FactSet, federal Reserve, Standard & Poor’s, J.P. Morgan Asset Management. Dividend yield is calculated as consensus estimates of dividends for the next 12 months, divided by most recent price,
as provided by Compustat. Forward price to earnings ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), & is
provided by FactSet Market Aggregates. Returns are cumulative & based on S&P 500 Index price movement only, & do not include the reinvestment of dividends. Past performance is not indicative of future returns. Data
are as of June 30, 2019.
Corporate Profits
103
Source: Compustat, FactSet, Standard & Poor’s, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. Earnings estimates are St&ard & Poor’s consensus analyst expectations. Past
performance is not indicative of future returns. *Net earnings revisions are calculated as the number of upward revisions minus the number of downward revisions as a percentage of total revisions. Total revisions include
upward, downward & unchanged revisions. Guide to the Markets – U.S. Data are as of June 30, 2019.
Annual Returns & Intra-Year Declines
104
Source: FactSet, St&ard & Poor’s, J.P. Morgan Asset Management. Returns are based on price index only & do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during
the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2018, over which time period the average annual return was 8.4%. Guide to the Markets – U.S. Data are as of June 30,
2019.
Gov. Control, Economy & Stock Market
105
Source: FactSet, Office of the President, J.P. Morgan Asset Management; (Top) St&ard & Poor’s; (Bottom) Bureau of Economic Analysis. Top chart shows S&P 500 price returns.
Guide to the Markets – U.S. Data are as of June 30, 2019.
Fixed Income Risk & Return
106
Source: Bloomberg, FactSet, ICE, J.P. Morgan Asset Management. Sectors shown above are represented by Bloomberg indices except for EMD – U.S. Aggregate; MBS: U.S. Aggregate Securitized - MBS; U.S. corps:
U.S. Corporates; Munis: Muni Bond 10-year; U.S. HY: Corporate High Yield; TIPS: Treasury Inflation-Protected Securities (TIPS); Floating Rate: U.S. Floating Rate; Convertibles: U.S. Convertibles Composite; EMD ($):
J.P. Morgan EMBIG Diversified Index; EMD (LCL): J.P. Morgan GBI EM Global Diversified Index; EM Corp: J.P. Morgan CEMBI Broad Diversified Index; Euro Corp.: Euro Aggregate Corporate Index; Euro HY: Pan-
European High Yield index. Convertibles yield is based on the U.S. portion of the Bloomberg Barclays Global Convertibles. Country yields are represented by the global aggregate for each country except where noted.
Yield & return information based on bellwethers for Treasury securities. Correlations are based on 15-years of monthly returns for all sectors. International fixed income sector correlations are in hedged U.S. dollar
returns except EMD local index. Yields for all indices are in hedged returns using three-month LIBOR rates between the U.S. & international LIBOR. Yields for each asset class are a 12-month average. Guide to the
Markets – U.S. Data are as of June 30, 2019.
Summary› In the short run, the U.S. economy appears set
for continued gains
› The Federal Reserve & European Central Bank have signaled their intent to ease financial conditions
› Global stock valuations appear appropriate, given the current level of interest rates
› Fixed income credit spreads offer additional yield, but little room for downside protection
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Investment Considerations for Excess Reserves
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Considerations for Investing Cash Reserves
› Liquid Cash
• Expected to earn more interest than a corporate bank account but still accessible in 1 - 3 days
• Some interest rate risk but duration typically less than 6 months
› Reserve Cash
• Cash generally not expected to be needed in next 12 months
• Will have modestly more interest rate risk with a duration around 1 year
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Considerations for Investing Cash Reserves
› Intermediate Cash
• Cash generally not expected to be needed for 3 years
• Volatility & return potential higher than Liquid & Reserve Cash bucket
› Long-Term Cash
• Cash generally not expected to be needed for 5 – 7 years
• Higher than average volatility & potential for negative returns due to higher level of risk
• Given the time horizon, equities can be included in this category
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Investment Policy Statement› What Is It?
• Agreement between Portfolio Managers & Investors
• List objectives, time frames, risk profiles, asset allocations & investments to be used
• Provide a systematic process for reviewing & rebalancing
› Why Have One?
• Provides structured ongoing guidance for investment decisions
• Document due diligence of investment decisions & maintain accountability
• Peace of mind for leadership
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Cash Reserve Examples› Concessions Operator
• $1.5 million portfolio
• 70% bonds/cash, 30% stocks via mutual funds & ETFs
• Provide direct recommendations for implementation
• Semi-annual meetings to review performance & cash needs
› Physicians Group
• $16 million portfolio
• 100% cash & short-term debt via Separate Account Manager
• Invest cash with duration to meet specific needs
• Quarterly meetings to review performance & cash needs
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Continuing Professional Education (CPE) Credit
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Continuing Professional Education (CPE) Credit
› Webinars, seminars & articles
› Many are CPE-eligible
› PDMs – Populate bullets with most relevant webinars, articles,
videos, etc.
BKD Thoughtware®
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The information contained in these slides is presented by professionals
for your information only and is not to be considered as legal advice.
Applying specific information to your situation requires careful
consideration of facts & circumstances. Consult your BKD advisor or
legal counsel before acting on any matters covered.
Thank You!
